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

                                    FORM 10-K

 X       Annual Report Pursuant to Section 13 or 15 (d) of the Securities
---                           Exchange Act of 1934

                  For the fiscal year ended: December 31, 2000
                                       or

         Transition Report Pursuant to Section 13 or 15 (d) of the Securities
---                           Exchange Act of 1934

                         Commission File Number: 1-13949

                           LOCAL FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

                  Delaware                                    65-0424192
       (State or other jurisdiction of                     (I.R.S. Employer
       incorporation or organization)                   Identification Number)

              3601 N. W. 63rd
             Oklahoma City, OK                                  73116
           (Address of Principal                              (Zip Code)
            Executive Offices)

       Registrant's telephone number, including area code: (405) 841-2100

           Securities registered pursuant to Section 12(b) of the Act:
                    Common Stock (par value $0.01 per share)
                              Senior Notes Due 2004
                                (Title of Class)

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


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X   No
                                       ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  X
           ---

There were 20,539,209 shares of the Registrant's Common Stock outstanding as of
the close of business on March 12, 2001. The aggregate market value of the
Registrant's Common Stock held by non-affiliates was approximately $236.5
million (based upon the closing price of $12.69 on March 12, 2001, as reported
on the NASDAQ National Market System).

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain information from
the Registrant's definitive proxy statement for the 2001 Annual Meeting of
Stockholders.



<PAGE>   2

                           LOCAL FINANCIAL CORPORATION
                                      INDEX


<TABLE>
<S>               <C>
Part I.
      Item 1.     Business
      Item 2.     Properties
      Item 3.     Legal Proceedings
      Item 4.     Submission of Matters to a Vote of Security Holders
      Item 4A.    Executive Officers of the Registrant

Part II.
      Item 5.     Market for Registrant's Common Equity and Related Stockholder Matters
      Item 6.     Selected Financial Data
      Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations
      Item 7A.    Quantitative and Qualitative Disclosures About Market Risk
      Item 8.     Financial Statements and Supplementary Data
      Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Part III.
      Item 10.    Directors and Executive Officers of the Registrant
      Item 11.    Executive Compensation
      Item 12.    Security Ownership of Certain Beneficial Owners and Management
      Item 13.    Certain Relationships and Related Transactions

Part IV.
      Item 14.    Exhibits, Financial Statements, Schedules and Reports on Form 8-K

                  Signatures

                  Index to Financial Statements

                  Index of Exhibits
</TABLE>



<PAGE>   3

                                     PART I

ITEM 1. BUSINESS

THE COMPANY

                  General. Local Financial Corporation ("Local Financial" or the
"Company") is the holding company for Local Oklahoma Bank, National Association,
("Local" or the "Bank"). The Company was chartered in 1992 as a Delaware
corporation. Local Financial and the Bank are headquartered in Oklahoma City,
Oklahoma. In order to accommodate its strategy for growth, the Company converted
the Bank from a savings bank to a national banking association on May 11, 1999,
and the Company was registered as a bank holding company on that same day.
References to "Local" or the "Bank" refer to Local and its subsidiaries on a
consolidated basis, as the context requires.

         At December 31, 2000, the Company had consolidated assets of $2.4
billion, substantially all of which is comprised of its 100% ownership interest
in the Bank, consolidated liabilities of $2.2 billion, including consolidated
deposits of $1.9 billion and consolidated stockholders' equity of $156.3
million.

         The Bank offers a full range of commercial banking products and related
financial services through 51 branch offices within the state of Oklahoma. Its
offices are primarily located in Oklahoma's major metropolitan areas of Oklahoma
City, Tulsa and Lawton. As of November 20, 2000, the Bank is the third largest
Oklahoma-based bank in Oklahoma based on deposits. Its deposits of $1.9 billion
at December 31, 2000, represent approximately five percent of the Oklahoma
market.* The Company and/or Local are presently regulated and examined by the
Office of the Comptroller of the Currency (the "OCC"), the Board of Governors of
the Federal Reserve System (the "FRB"), and the Federal Deposit Insurance
Corporation ("FDIC") and Local's deposit accounts are insured up to applicable
limits by the FDIC.

         The Company's executive offices are located at 3601 NW 63rd Street,
Oklahoma City, Oklahoma 73116-2087.

         New Management. In August 1997, a group led by Mr. Edward A. Townsend,
the Company's present Chairman, negotiated a purchase of the Company from the
then owners. The Company financed the redemption of the prior owners' interest
in the Company through a private placement of $197.0 million of common stock and
$80.0 million of senior notes due 2004. The private placement and redemption
were closed in September 1997. The Company subsequently registered the common
stock and senior notes for public resale, and the common stock (LFIN, NASDAQ)
and senior notes (LO.A, AMEX) began publicly trading on April 22, 1998.

         Strategy for Growth. Management believes the ongoing consolidation
among financial institutions in Oklahoma has created significant gaps in the
ability of large regional and nationwide banks to serve certain customers,
primarily the Bank's targeted customer base of small and medium sized businesses
(up to $100 million in annual sales), professionals and other individuals. The
Bank's business strategy is to provide its customers with the range of banking
products and services of a regional bank while retaining the appeal and level of
individualized service of a community bank. Management believes that as a result
of the Company's strong commitment to highly personalized, relationship-oriented
customer service, its varied products, its strategic branch locations and the
long-standing community presence of its managers, lending officers and branch
personnel, it is well positioned to attract new customers and to increase its
market share of loans and deposits.



--------

      *  Information about institutional size and market share are based on data
         from an independent statistical reporting service based on deposits at
         November 20, 2000, the most recent data used by the reporting service.



                                       1
<PAGE>   4

         In pursuit of this strategy, the Bank has shifted its activities from
those of a traditional savings and loan to those generally associated with a
commercial bank. The Bank has increased its commercial and consumer lending and
expects further increases in these areas. To attract and serve its commercial
customers, the Bank in 1998 created a new corporate lending unit. To increase
consumer lending, the Bank has increased its advertising and made internal
changes to standardize credit evaluations and reduce branch response times to
customer loan applications. The Bank also has targeted increases in non-interest
income, increases in lending activities rather than investing activities, and
increases in direct lending rather than indirect lending.

         Local Financial also intends to grow through selective acquisitions. In
October 1999, the Company acquired Guthrie Federal Savings Bank in Guthrie,
Oklahoma. Through this acquisition, the Company acquired assets of $45.0
million, liabilities of $37.7 million, including deposits of $36.7 million,
based on fair value as of the date of acquisition. In February 1998, the Company
acquired Green Country Bank, FSB, with three full-service locations in
northeastern Oklahoma. In October 1998, the Bank acquired Citizens Bank, with
six branch offices including five in Lawton, Oklahoma, which is in southwestern
Oklahoma. Through these two 1998 acquisitions, the Company acquired assets of
$281.5 million, liabilities of $270.2 million, including deposits of $238.7
million, based on fair values as of the respective acquisition dates. The
Company will continue to make selective acquisitions to increase its deposits
and branch office locations.

LENDING ACTIVITIES

         General. With the conversion of the Bank from a savings institution to
a national bank and a shift in its lending activities, it has focused
increasingly on the origination of commercial business loans within the Oklahoma
market. The Bank has pursued this market by adding experienced lending officers
with strong community ties and banking relationships, many of whom have left
regional or national banks in the growing industry consolidation and are
attracted by the Bank's relationship-oriented approach. The Bank will continue
its historical patterns of originating residential and consumer loans through
its own branch network and, in the case of commercial real estate loans, through
a network of real estate brokers, mortgage bankers and unaffiliated financial
institutions.

        The following table presents information on the Bank's consolidated loan
portfolio as of the dates indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                         DECEMBER 31,                             JUNE 30,(1)
                                 ------------------------------------------------------------    ------------
                                     2000            1999            1998            1997            1997
                                 ------------    ------------    ------------    ------------    ------------
<S>                              <C>             <C>             <C>             <C>             <C>
Commercial(2)                    $  1,425,382       1,183,368         927,682         646,539         627,295
Residential real estate               250,487         362,351         344,565         281,565         281,606
Consumer                              195,430         161,327         101,738          38,717         114,925
Held for sale                           5,922           6,801          16,188           7,133           1,433
                                 ------------    ------------    ------------    ------------    ------------

     Total loans                    1,877,221       1,713,847       1,390,173         973,954       1,025,259
Less:
     Allowance for loan losses        (28,345)        (28,297)        (27,901)        (20,484)        (11,435)
                                 ------------    ------------    ------------    ------------    ------------

       Loans receivable, net     $  1,848,876       1,685,550       1,362,272         953,470       1,013,824
                                 ============    ============    ============    ============    ============
</TABLE>

----------

(1)      The Company and the Bank changed their fiscal year ends from June 30 to
         December 31 in 1998.

(2)      Commercial loans are composed of business loans and commercial real
         estate loans (which includes loans secured by multi-family residential
         properties).

         Loan Origination and Review. The lending activities of the Bank are
subject to the written, non-discriminatory underwriting standards and loan
origination procedures established by the Bank's Board of Directors and
management. Loan originations are obtained by a variety of sources, including
direct customer solicitations, referrals from real estate brokers, mortgage
bankers, unaffiliated financial



                                       2
<PAGE>   5

institutions, existing customers, walk-in customers and advertising. In its
present marketing efforts, the Bank emphasizes its customized personal service,
competitive rates, and an efficient underwriting and approval process.

         The Bank has revised its underwriting procedures to streamline the
credit approval process. It historically utilized a loan committee review
procedure, which could take several weeks to approve a credit application. The
Bank's increasing emphasis on commercial and consumer loans and its desire to
meet customer needs require quicker response times. The Bank has implemented
procedures that rely, in the case of residential real estate and consumer loans,
on a credit scoring system and, in the case of commercial loans, on a peer or
senior officer approval process, depending on the size of the loan. The Bank has
also revised its credit review procedures to ensure the overall integrity of its
loan portfolio. Management believes its credit approval and review processes are
comparable to those used by other regional and national banks.

         Commercial Business Loans. At December 31, 2000 and 1999, the Bank's
commercial business loans amounted to $437.2 million and $376.6 million or 23.3%
and 22.0%, respectively, of the total loan portfolio. Management believes this
lending unit affords the Bank the greatest opportunity for market growth. The
portfolio increase results from the Bank's creation in 1998 of a new corporate
lending unit, focused on commercial business lending within the state of
Oklahoma. The added lending officers have many years experience in the banking
industry and most have strong community ties and banking relationships.

         Local's corporate lending activities are generally directed towards
small to medium size Oklahoma companies with annual sales up to $100 million.
Local's corporate lending division makes both secured and unsecured loans,
although the majority of such lending is done on a secured basis. The average
loan amount for new commercial business loans ranges from $1 to $3 million. Such
loans are generally secured by the receivables, inventory, equipment, and/or
general corporate assets of the borrowers. These loans are originated on both a
one year line of credit basis and on a fixed-term basis ranging from one to five
years. Commercial business loans generally have annual maturities and
prime-based interest rates.

         The Bank imposes an in-house lending limit which is below the statutory
lending limit. While the OCC statutory limit is 15% of an institution's
unimpaired capital and surplus (or with respect to the Bank, approximately $29.6
million at December 31, 2000), management of the Bank generally restricts single
loans to $15 million in size, but may have exposure to any single borrower up to
the legal lending limit.

         Commercial lending entails different and significant risks when
compared to traditional thrift residential lending. These loans typically
involve large loan balances to single borrowers and payment is typically
dependent on the successful operation of the project or the borrower's business.
These loans are also more likely to be adversely affected by unfavorable
economic conditions. The Bank attempts to minimize its risk exposure by imposing
stringent underwriting standards and continually monitoring the operation and
physical condition of the collateral.

         Commercial Real Estate Loans. Under prior management, the Bank
originated and purchased commercial real estate loans secured by properties
located throughout the United States. While new management expects to continue
the origination and purchase of commercial real estate and multi-family
residential loans throughout the United States, it plans to emphasize the
origination and purchase of loans secured by multi-family and commercial real
estate located within the state of Oklahoma and surrounding states.

         As of December 31, 2000 and 1999, commercial real estate loans (which
include multi-family residential loans) amounted to $988.2 million and $806.8
million or 52.6% and 47.1%, respectively, of the Bank's total loan portfolio.
The Bank originates loans directly and through a network of mortgage



                                       3
<PAGE>   6

bankers and correspondent banks throughout the country with whom the Bank has
relationships. All originations and purchases undergo a three-step underwriting
and evaluation process. First, an initial review of the loan is conducted by the
originator to determine conformity to guidelines and consistency with the Bank's
lending philosophy. An indication of pricing and terms may be issued in the case
of loans which have already been originated. Second, once the indication is
accepted by the borrower and a completed application submitted, a detailed
underwriting is conducted in which both the originator and the Bank's in-house
appraiser conduct an onsite inspection and analysis. Property valuations are
performed by the Bank's staff as well as by independent outside appraisers
approved by the Bank's Board of Directors. The Bank generally requires title,
hazard and, to the extent applicable, flood insurance on its security property.
Rent rates are analyzed and compared to market rents, reported occupancy is
checked against evidence onsite, environmental issues are identified and the
appropriate level of investigation is conducted and a final credit write-up is
prepared. Finally, the Bank's closing department reviews the totality of work,
including completeness of analysis and documentation, title searches, borrower
background checks, appraisal and environmental reports and other pertinent data.
Only after these three broad steps is a final approval and disbursement made.

         The Bank originates both fixed-rate and adjustable-rate commercial real
estate loans. Fixed-rate commercial real estate loans generally have terms to
maturity of between five and ten years and amortize over a period of up to 30
years. Adjustable-rate commercial real estate loans have similar terms and
interest rates which generally adjust every six months, one-year, three years
and five years in accordance with a designated index (either the London
Interbank Offer Rate, the prime rate quoted in the Wall Street Journal or U.S.
Treasury rates).

         Loan-to-value ratios on commercial real estate loans are generally
limited to a maximum of 80% for apartments and manufactured housing communities
(loans on real estate as distinguished from manufactured homes) and 75% on all
other commercial real estate properties.

         Single-Family Residential Real Estate Loans. At December 31, 2000 and
1999, the Bank's single-family residential mortgage loan portfolio amounted to
$250.5 million and $362.4 million or 13.3% and 21.1%, respectively, of the total
loan portfolio. All of the Bank's single-family residential mortgage loans are
secured by properties located in the state of Oklahoma. The majority of the
single-family residential loan portfolio consist of conforming loans (i.e., not
insured or guaranteed by a federal agency) with an average balance of below
$100,000 per loan. The single-family residential loan portfolio was originated
through a centralized residential loan origination center. The Bank intends to
sell virtually all of its new single family loan originations.

         The loan-to-value ratio, maturity and other provisions of the loans
made by the Bank generally have reflected the policy of making less than the
maximum loan permissible under applicable regulations, in accordance with market
conditions and underwriting standards established by the Bank. The Bank's
lending policies on single-family residential mortgage loans generally limit the
maximum loan-to-value ratio to 95% of the lesser of the appraised value or
purchase price of the property and generally all single-family residential loans
in excess of an 80% loan-to-value ratio require private mortgage insurance.

         The Bank offers fixed-rate and adjustable-rate single-family
residential loans with terms of 15 to 30 years. Such loans are amortized on a
monthly basis with principal and interest due each month and customarily include
"due-on-sale" clauses, which are provisions giving the Bank the right to declare
a loan immediately due and payable in the event the borrower sells or otherwise
disposes of the real property subject to the mortgage and the loan is not
repaid.

         Consumer Loans. Consumer loans totaled $195.4 million and $161.3
million or 10.4% and 9.4% of the total loan portfolio as of December 31, 2000
and 1999, respectively, and consisted of home equity loans, deposit secured
loans, guaranteed student loans, automobile loans and property improvement and
personal loans. Local originates consumer loans bearing both fixed and
prime-based interest rates, primarily with terms of up to five years, other than
second mortgage loans which may have longer terms.



                                       4
<PAGE>   7

Under the Bank's home equity underwriting guidelines, loans are restricted to
not more than $100,000, and the loan-to-value may not exceed 90% at origination
(although this is not typical of most loans). Loans are originated directly
through the branch network.

ASSET QUALITY

         Loan Delinquencies. When a borrower fails to make a required payment on
a loan, the Bank attempts to cure the deficiency by contacting the borrower and
seeking payment. Contacts are generally made following the 15th day after a
payment is due (30th day in the case of commercial loans), at which time a late
payment is assessed. In most cases, deficiencies are cured promptly. If a
delinquency extends beyond 15 days (30 days in the case of commercial loans),
the loan and payment history are reviewed and efforts are made to collect the
loan. While the Bank generally prefers to work with borrowers to resolve such
problems, when it appears no other alternatives are available, legal action is
instituted.

         Nonperforming Assets. All loans are reviewed on a regular basis and are
placed on non-accrual status when, in the opinion of management, the collection
of additional interest is deemed insufficient to warrant further accrual. As a
matter of policy, the Bank does not accrue interest on loans past due 90 days or
more except when the estimated value of the collateral and collection efforts
are deemed sufficient to ensure full recovery. Consumer loans generally are
charged off when the loan becomes over 120 days delinquent. Interest accrued and
unpaid at the time a loan is placed on non-accrual status is charged against
interest income. Subsequent payments are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan. See Item 7 hereof, "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Nonperforming Assets and Allowances for Loan Losses".

         Assets acquired through foreclosure and repossession are recorded at
estimated fair value, net of estimated selling costs at the date of foreclosure
or repossession. The values of assets acquired through foreclosure and
repossession are monitored by the Bank continually through sales and rental
activities, and by updated appraisals and other valuation methods when needed.
The allowance for losses on assets acquired through foreclosure and repossession
represents an amount which management believes will be adequate to absorb losses
from the disposition and/or revaluation of these assets. Additions or reversals
of the allowance for losses on assets acquired through foreclosure and
repossession are provided as an expense or a benefit, respectively, through
other expense in the accompanying Consolidated Statements of Operations. The
allowance for losses is charged or reduced as losses through sales or
revaluations are incurred.

         Classified Assets. The Bank adheres to internal procedures and controls
to review and classify its assets. All assets are reviewed on a periodic basis.
If warranted, all or a portion of any assets exhibiting the characteristics of
risk associated with specific classifications are assigned those
classifications. To monitor loans and to establish loss reserves, the Bank
classifies its assets into the following five categories: pass, special mention,
substandard, doubtful, and loss. Under federal regulations, each insured
institution must classify its assets on a regular basis. In connection with
examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. Substandard assets
have one or more defined weaknesses and are characterized by the distinct
possibility that the insured institution will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets, with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Special mention
assets is a category established and maintained for assets which do not
currently expose an insured institution to a sufficient degree of risk to
warrant classification as substandard, doubtful or loss. Assets classified as
substandard or doubtful require the institution to provide general allowances
for loan losses. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for loan losses in



                                       5
<PAGE>   8

the amount of 100% of the portion of the asset classified loss, or charge-off
such amount. General loss allowances established to cover possible losses
related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital up to certain amounts, while
specific valuation allowances for loan losses do not qualify as regulatory
capital. Federal examiners may disagree with an insured institution's
classifications and amounts reserved.

         Allowance for Loan Losses. The Bank has established valuation
allowances for estimated inherent losses in its loan portfolio by charging
earnings for estimated losses on loans, including the related accrued interest,
using a specific and percentage reserve method. The allowance for loan losses is
established and maintained through a periodic review and evaluation of various
elements which affect the loans' collectibility and any additional allowances
required result in provisions for loan losses.

         The Bank's allowance for loan loss is assessed on a loan-by-loan basis
for all commercial loans and on a portfolio basis for residential and consumer
loans based on delinquency status. As described above, each individual
commercial loan is assigned a risk classification by the responsible loan
manager. Depending upon their risk classification, these loans are placed on a
review cycle either annually or quarterly. All loans with risk classifications
of substandard or doubtful are reviewed quarterly and all large loans are
reviewed at least annually by officers of the loan review department. These
officers are independent of the loan origination and underwriting process.
During this review, the appropriateness of the assigned risk classification is
assessed, giving consideration to numerous factors, including a review of
individual borrowers' financial status, credit standing, available collateral
and other relevant factors. On a quarterly basis, loss factors are applied to
the basic risk classifications to determine the allowance for loan loss. The
loss factors are established by management through consideration of historical
loss experience and regulatory guidance, as well as other elements likely to
cause estimated credit losses to differ from historical losses. Although the
risk classification and loss factor process set forth above is used as a
discipline in the establishment of the minimum allowance required, it is not a
substitute for sound judgment. Prevailing and anticipated economic conditions,
portfolio trends and other relevant factors are considered in management's
assessment of the overall adequacy of the allowance. These other relevant
factors include (i) change in lending policies and procedures, including
underwriting standards and collection, charge-off and recovery practices, (ii)
changes in the nature and volume of the portfolio, (iii) changes in the
experience, ability and depth of lending management and staff, (iv) change in
the quality of the Bank's loan review system and the degree of oversight by the
institution's Board of Directors, (v) the existence and effect of any
concentration of credit and changes in the level of such concentration and (vi)
the effect of external factors such as competition on the Bank's current
portfolio.

INVESTMENT ACTIVITIES

         The Bank's securities portfolio is managed in accordance with a written
investment policy adopted by the Board of Directors and administered by the
Bank's Asset/Liability Committee. All transactions must be approved by the
Asset/Liability Committee and reported to the Board of Directors.

         The Bank is authorized to invest in obligations issued or fully
guaranteed by the U.S. Government, certain federal agency obligations, certain
time deposits, negotiable certificates of deposit issued by commercial banks and
other insured financial institutions, investment grade corporate debt securities
and other specified investments such as mortgage-backed and related securities.

         The Bank invests in mortgage-backed and related securities, including
mortgage participation certificates, which are insured or guaranteed by U.S.
Government agencies and government sponsored enterprises. Mortgage-backed
securities (which also are known as mortgage participation certificates or
pass-through certificates) represent a participation interest in a pool of
single-family or multi-family mortgages, the principal and interest payments on
which are passed from the mortgage originators, through intermediaries
(generally U.S. Government agencies and government sponsored enterprises) that
pool and repackage the participation interests in the form of securities, to
investors such as the Bank. Such U.S. Government agencies and government
sponsored enterprises, which guarantee the payment of



                                       6
<PAGE>   9

principal and interest to investors, primarily include the Federal Home Loan
Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA") and the Government National Mortgage Association ("GNMA").

         Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
characteristics of the underlying pool of mortgages, i.e., fixed-rate or
adjustable-rate, as well as prepayment risk, are passed on to the certificate
holder. The term of a mortgage-backed pass-through security thus approximates
the term of the underlying mortgages.

         The Bank's mortgage-backed and related securities include CMOs, which
include securities issued by entities which have qualified under the Internal
Revenue Code of 1986, as amended (the "Code"), as real estate mortgage
investment conduits.

SOURCES OF FUNDS

         General. Deposits are the primary source of the Bank's funds for
lending and other investment purposes. In addition to deposits, the Bank derives
funds from loan principal repayments and advances from the Federal Home Loan
Bank of Topeka ("FHLB") and securities sold under agreements to repurchase. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows as well as securities sold under agreements to repurchase are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. They may also be used on a longer-term
basis for general business purposes.

         Deposits. As of December 31, 2000, the Bank accepted deposits through
its 51 branch offices. Deposits are solicited on a regular basis directly
through the Bank's customer base and through various advertising media within
its market. The Bank offers several savings account and checking account plans
to its customers. Among savings account plans, the Bank offers basic savings,
short-term and long-term certificates of deposit, a variable rate IRA/Keogh and
regular IRAs and Keoghs. The Bank offers checking account plans that range from
a no-fee, no-interest plan to a variable-fee, bundled product plan that includes
services or products such as personalized checks, ATM cards, overdraft
protection, no annual fee Visa/MasterCard membership, safe deposit box
discounts, cash management, lock box services and assistance with travelers
checks.

         Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Bank on a periodic basis. Determination of
rates and terms are predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals and federal regulations.

         As of December 31, 2000, the aggregate amount of outstanding time
certificates of deposit in amounts greater than or equal to $100,000 was
approximately $333.6 million. The following table presents the maturity of these
time certificates of deposit at such date (dollars in thousands):

<TABLE>
<CAPTION>
                                  December 31, 2000
                                  -----------------
<S>                               <C>
3 months or less                  $         142,872
Over 3 months through 6 months               74,381
Over 6 months through 12 months              73,480
Over 12 months                               42,896
                                  -----------------
                                  $         333,629
                                  =================
</TABLE>


         Borrowings. The Bank is a member of the Federal Home Loan Bank System
and is authorized to apply for secured advances from the FHLB. The Bank uses
advances from the Federal Home Loan Bank System to meet short-term liquidity
needs and investment activities.



                                       7
<PAGE>   10

         In a 1997 private placement, the Company issued $80.0 million of senior
notes which are due in September 2004 and which bear interest at the rate of
11.0%, payable semi-annually. Unamortized debt issuance costs of approximately
$1.2 million at December 31, 2000 were capitalized and are included in other
assets as of such date. For additional information, see Note 10 of the Notes to
Consolidated Financial Statements in Item 8 hereof.

         During 2000, the Bank implemented commercial deposit cash management
services to accommodate the needs of large commercial borrowers. As part of this
program, commercial customers are offered a cash sweep account service which
consists of the sale of unpledged securities at a guaranteed rate with the
Bank's agreement to repurchase those securities the next day. These cash sweep
accounts grew from $0 to $38.2 million during 2000 and are shown on the balance
sheet as "Securities sold under agreements to repurchase".

         Segments. The Company operates as one segment. It uses primarily the
consolidated financial statements presented herein for purposes of assessing
performance and making operating decisions about the Company. Local has one
active operating subsidiary, Local Securities Corporation ("Local Securities"),
a registered broker-dealer under the Securities Exchange Act of 1934, which
provides retail investment products to customers of Local. While Local
Securities qualifies as a separate operating segment, it is not considered
material to the consolidated financial statements for the purposes of making
operating decisions and does not meet the 10% threshold for disclosure under
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure About
Segments of an Enterprise and Related Information".

COMPETITION AND THE COMPANY

         As reported by an independent statistical reporting service on November
20, 2000, Local is currently the third largest Oklahoma-based bank in Oklahoma
based on deposits. Its deposits represent approximately five percent of the
state's deposit market share. Local's operating goal is to provide a broad range
of financial services with a strong emphasis on customer service.

         Local has substantial competition in lending funds and attracting and
retaining deposits. The primary factors in competing for loans are the range and
quality of lending services offered, interest rates and loan origination fees.
In competing for commercial loans (a targeted growth segment), Local believes
that the personal relationships between lending officers and commercial
borrowers is a primary factor. Competition for the origination of real estate
loans normally comes from other commercial banks, savings and loans, mortgage
bankers, finance and insurance companies. The primary factors in competing for
deposits are the range and quality of financial services offered, the ability to
offer attractive rates and the availability of convenient locations. There is
direct competition for deposits from commercial banks, credit unions and savings
and loans. Additional significant competition for savings deposits comes from
other investment alternatives, such as money market funds, credit unions, and
corporate and government securities.

         Local expects increased competition. For a variety of reasons including
legislative developments relating to interstate branching and the ownership of
financial institutions, the consolidation within the financial services industry
will likely continue. For Local, this trend means that the number of
locally-owned financial institutions will decrease and that the Bank will
increasingly compete against larger regional and national banks. While these
larger regional and national banks will likely attract the largest Oklahoma
businesses (sales over $100 million), Local believes that these large banks are
unable to provide the relationship-oriented, customer service that Local
provides its target customer base of small and medium-sized businesses,
professionals and other individuals. Although the Bank has been able to compete
effectively in its market areas to date, it can offer no assurance that the Bank
will continue to do so in the future, especially with the rapid changes
occurring within the financial services industry.



                                       8
<PAGE>   11

REGULATION AND SUPERVISION

         The following discussion sets forth the material elements of the
regulatory framework applicable to bank holding companies and their
subsidiaries, and provides certain specific information relevant to Local
Financial. This regulatory framework primarily is intended for the protection of
depositors and the deposit insurance funds that insure deposits of banks, and
not for the protection of security holders. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to those provisions. A change in the statutes,
regulations or regulatory policies applicable to Local Financial or its
subsidiaries may have a material effect on its business.

         General. As a bank holding company, Local Financial is subject to
regulation under the Bank Holding Company Act of 1956, as amended, and to
inspection, examination and supervision by the FRB. Under the Bank Holding
Company Act, bank holding companies generally may not acquire ownership or
control of any company, including a bank, without the prior approval of the FRB.
In addition, bank holding companies generally may engage, directly or
indirectly, only in banking and those other activities as are determined by the
FRB to be closely related to banking. Under newly adopted legislation, certain
bank holding companies can elect to become financial holding companies and
engage in broader financial activities. See "Recent Legislation" below.

         Various governmental requirements, including Sections 23A and 23B of
the Federal Reserve Act, as amended, limit borrowings by Local Financial and its
non-bank subsidiaries from Local (its affiliate insured depository institution),
and also limit various other transactions between Local Financial and its
non-bank subsidiaries, on the one hand, and Local, on the other. Section 23A of
the Federal Reserve Act also generally requires that an insured depository
institution's loans to its non-bank affiliates be secured, and Section 23B of
the Federal Reserve Act generally requires that an insured depository
institution's transactions with its non-bank affiliates be on arm's-length
terms.

         Local, as a bank, is subject to extensive supervision, examination and
regulation by Federal bank regulatory authorities. Local Financial and its
subsidiary are also affected by the fiscal and monetary policies of the Federal
government and the FRB, and by various other governmental requirements and
regulations.

         Liability for Local. Under current FRB policy, a bank holding company
is expected to act as a source of financial and managerial strength to a
subsidiary bank and to maintain resources adequate to support the subsidiary
bank. This support may be required at times when the bank holding company may
not have the resources to provide it. In addition, Section 55 of the National
Bank Act permits the OCC to order the pro rata assessment of stockholders of a
national bank whose capital has become impaired. If a stockholder fails, within
three months, to pay that assessment, the board of directors has a duty to sell
the stockholder's stock to cover the deficiency. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a Federal
bank regulatory agency to maintain the capital of a subsidiary bank would be
assumed by the bankruptcy trustee and entitled to priority of payment.

         Any depository institution insured by the FDIC can be held liable for
any loss incurred, or reasonably expected to be incurred, by the FDIC in
connection with:

         o        the default of a commonly controlled FDIC-insured depository
                  institution; or

         o        any assistance provided by the FDIC to a commonly controlled
                  FDIC-insured depository institution in danger of default.

         "Default" generally is defined as the appointment of a conservator or
receiver and "In Danger of Default" generally is defined as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance. Also, if a default occurred with respect to a bank,
any capital loans to the bank from its parent holding company would be
subordinate in right of payment to payment of the bank's depositors and certain
of its other obligations.



                                       9
<PAGE>   12

         Capital Requirements. Local Financial is subject to risk-based capital
requirements and guidelines imposed by the FRB, which are substantially similar
to the capital requirements and guidelines imposed by the OCC and the FDIC on
Local. For this purpose, a depository institution's or holding company's assets
and certain specified off-balance sheet commitments are assigned to four risk
categories, each weighted differently based on the level of credit risk that is
ascribed to those assets or commitments. In addition, risk-weighted assets are
adjusted for low-level recourse and market-risk equivalent assets. A depository
institution's or holding company's capital, in turn, is divided into three
tiers:

         o        core, or "Tier 1", capital, which consists primarily of
                  stockholders' equity less certain identifiable intangible
                  assets and certain other assets;

         o        supplementary, or "Tier 2", capital, which includes, among
                  other items, certain other debt and equity investments that do
                  not qualify as Tier 1 capital; and

         o        market risk, or "Tier 3", capital, which includes qualifying
                  unsecured subordinated debt.

         Like other bank holding companies, Local Financial currently is
required to maintain Tier 1 and "Total Capital" (the sum of Tier 1, Tier 2 and
Tier 3 capital) equal to at least 4% and 8% of its total risk-weighted assets
(including certain off-balance-sheet items, such as unused lending commitments
and standby letters of credit), respectively. At December 31, 2000, Local
Financial met both requirements, with Tier 1 and Total Capital equal to 7.74%
and 9.00%, respectively, of its total risk-weighted assets.

         The FRB, the FDIC and the OCC have adopted rules to incorporate market
and interest rate risk components into their risk-based capital standards.
Amendments to the risk-based capital requirements, incorporating market risk,
became effective January 1, 1998. Under the new market-risk requirements,
capital will be allocated to support the amount of market risk related to a
financial institution's ongoing trading activities.

         The FRB also requires bank holding companies to maintain a minimum
"Leverage Ratio", defined as Tier 1 capital to average adjusted total assets, of
3%, if the bank holding company has the highest regulatory rating and meets
certain other requirements, or of 3% plus an additional cushion of at least 1%
to 2%, if the bank holding company does not meet these requirements. At December
31, 2000, Local Financial's leverage ratio was 5.61%, which exceeded the minimum
leverage ratio to which it was subject.

         The FRB may set capital requirements higher than the minimums noted
above for holding companies whose circumstances warrant it. For example, bank
holding companies experiencing or anticipating significant growth may be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the FRB has indicated that it will consider a "Tangible Tier 1
Capital Leverage Ratio", which would deduct all intangibles and other indicia of
capital strength in evaluating proposals for expansion or new activities.

         The Bank is subject to similar risk-based and leverage capital
requirements adopted by the OCC. Local was in compliance with the applicable
minimum capital requirements as of December 31, 2000.

         Failure to meet capital requirements could subject Local to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, which are described
immediately below.

         FDICIA. The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), among other things, identifies five capital categories for
insured depository institutions - well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized
- and requires Federal bank regulatory agencies to implement systems for "prompt
corrective action" for insured depository institutions that do not meet minimum
capital requirements based on these categories. FDICIA imposes progressively
more restrictive constraints on operations, management and capital



                                       10
<PAGE>   13

distributions, depending on the category in which an institution is classified.
Unless a bank is well-capitalized, it is subject to restrictions on its ability
to offer brokered deposits and on certain other aspects of its operations. An
undercapitalized bank must develop a capital restoration plan and its parent
bank holding company must guarantee the bank's compliance with the plan up to
the lesser of 5% of a bank's assets at the time it became undercapitalized and
the amount needed to comply with the plan.

         As of December 31, 2000, Local was well-capitalized, based on the
prompt corrective action ratios and guidelines described above. It should be
noted, however, that a bank's capital category is determined solely for the
purpose of applying the OCC's, or the FDIC's, prompt corrective action
regulations and that the capital category may not constitute an accurate
representation of the bank's overall financial condition or prospects.

         Dividend Restrictions. Federal and state statutory provisions limit the
amount of dividends that Local can pay to Local Financial without regulatory
approval. Dividend payments by national banks are limited to the lesser of:

         o        the level of undivided profits; and

         o        absent regulatory approval, an amount not in excess of net
                  income for the current year combined with retained net income
                  for the preceding two years.

         At December 31, 2000, approximately $13.0 million of the total
stockholders' equity of Local was available for payment of dividends to Local
Financial without regulatory approval.

         In addition, Federal bank regulatory authorities have authority to
prohibit Local from engaging in an unsafe or unsound practice in conducting
business. The payment of dividends, depending upon Local's financial condition
at the time of the proposed dividend payment, could be deemed to constitute an
unsafe or unsound practice. Local's ability to pay dividends in the future is
currently, and could be further, influenced by bank regulatory policies and
capital guidelines.

         Deposit Insurance Assessments. The deposits of Local are insured up to
regulatory limits by the FDIC, and, accordingly, are subject to deposit
insurance assessments to maintain the Bank Insurance Fund (the "BIF"), which is
administered by the FDIC. The FDIC has adopted regulations establishing a
permanent risk-related deposit insurance assessment system. Under this system,
the FDIC places each insured bank in one of nine risk categories based on (1)
the bank's capitalization and (2) supervisory evaluations provided to the FDIC
by the institution's primary Federal regulator. Each insured bank's insurance
assessment rate is then determined by the risk category in which it is
classified by the FDIC. Effective January 1, 1997, the annual insurance premiums
on bank deposits insured by the BIF vary between $0.00 per $100 of deposits for
banks classified in the highest capital and supervisory evaluation categories to
$0.27 per $100 of deposits for banks classified in the lowest capital and
supervisory evaluation categories.

         Interstate Banking and Branching. Under the Riegle-Neal Interstate
Banking and Branching Efficiency Act ("Interstate Act"), subject to certain
concentration limits and other requirements:

         o        bank holding companies, such as Local Financial, are permitted
                  to acquire banks and bank holding companies located in any
                  state;

         o        any bank that is a subsidiary of a bank holding company is
                  permitted to receive deposits, renew time deposits, close
                  loans, service loans and receive loan payments as an agent for
                  any other bank subsidiary of that bank holding company; and

         o        banks are permitted to acquire branch offices outside their
                  home states by merging with out-of-state banks, purchasing
                  branches in other states and establishing de novo branch
                  offices in other states. The ability of banks to acquire
                  branch offices through purchase or opening of other branches
                  is contingent, however, on the host state having adopted
                  legislation "opting in"



                                       11
<PAGE>   14

                  to those provisions of the Interstate Act. In addition, the
                  ability of a bank to merge with a bank located in another
                  state is contingent on the host state not having adopted
                  legislation "opting out" of that provision of the Interstate
                  Act.

         Control Acquisitions. The Change in Bank Control Act prohibits a person
or group of persons from acquiring "control" of a bank holding company, unless
the FRB has been notified and has not objected to the transaction. Under a
rebuttable presumption established by the FRB, the acquisition of 10% or more of
a class of voting stock of a bank holding company with a class of securities
registered under Section 12 of the Exchange Act, such as Local Financial, would,
under the circumstances set forth in the presumption, constitute acquisition of
control of the bank holding company.

         In addition, a company is required to obtain the approval of the FRB
under the Bank Holding Company Act before acquiring 25% (5% in the case of an
acquiror that is a bank holding company) or more of any class of outstanding
common stock of a bank holding company, or otherwise obtaining control or a
"controlling influence" over that bank holding company.

         The Gramm-Leach-Bliley Act. On November 12, 1999, the
Gramm-Leach-Bliley Financial Modernization Act of 1999 (the "GLBA") was signed
into law, which allows bank holding companies to engage in a wider range of
nonbanking activities, including greater authority to engage in securities and
insurance activities. Under the GLBA, a bank holding company that elects to
become a financial holding company may engage in any activity that the FRB, in
consultation with the Secretary of the Treasury, determines by regulation or
order is (1) financial in nature, (2) incidental to any such financial activity,
or (3) complementary to any such financial activity and does not pose a
substantial risk to the safety or soundness of depository institutions or the
financial system generally. The GLBA makes significant changes in U.S. banking
law, principally by repealing the restrictive provisions of the 1933
Glass-Steagall Act. The GLBA specifies certain activities that are deemed to be
financial in nature, including lending, exchanging, transferring, investing for
others, or safeguarding money or securities; underwriting and selling insurance;
providing financial, investment, or economic advisory services; underwriting,
dealing in or making a market in, securities; and any activity currently
permitted for bank holding companies by the FRB under section 4(c)(8) of the
Bank Holding Company Act. The GLBA does not authorize banks or their affiliates
to engage in commercial activities that are not financial in nature. A bank
holding company may elect to be treated as a financial holding company only if
all depository institution subsidiaries of the holding company are
well-capitalized, well-managed and have at least a satisfactory rating under the
Community Reinvestment Act.

         National banks are also authorized by the GLBA to engage, through
"financial subsidiaries", in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the FRB, determines is financial in nature or
incidental to any such financial activity, except (1) insurance underwriting,
(2) real estate development or real estate investment activities (unless
otherwise permitted by law), (3) insurance company portfolio investments and (4)
merchant banking. The authority of a national bank to invest in a financial
subsidiary is subject to a number of conditions, including, among other things,
requirements that the bank must be well-managed and well-capitalized (after
deducting from the bank's capital outstanding investments in financial
subsidiaries). The GLBA provides that state banks may invest in financial
subsidiaries (assuming they have the requisite investment authority under
applicable state law) subject to the same conditions that apply to national bank
investments in financial subsidiaries.

         The GLBA also contains a number of other provisions that will affect
Local Financial's operations and the operations of all financial institutions.
One of the new provisions relates to the financial privacy of consumers,
authorizing federal banking regulators to adopt rules that will limit the
ability of banks and other financial entities to disclose non-public information
about consumers to non-affiliated entities. These limitations will likely
require more disclosure to consumers, and in some



                                       12
<PAGE>   15

circumstances will require consent by the consumer before information is allowed
to be provided to a third party.

         The FRB and the OCC are expected to adopt additional regulations for
implementation of the GLBA. At this time, Local Financial is unable to predict
the impact the GLBA may have upon its or Local's financial condition or results
of operations.

         Future Legislation. Changes in U.S. or state laws and regulations
relating to banks and other financial institutions can affect the operating
environment of bank holding companies and their subsidiaries in substantial and
unpredictable ways. Local Financial cannot accurately predict whether
legislation will ultimately be enacted, and, if enacted, the ultimate effect
that it, or implementing regulations, would have upon Local Financial's
financial condition or results of operations.

TAXATION--FEDERAL

         General. The Company and the Bank are subject to federal income
taxation under the Code in the same general manner as other corporations with
some exceptions discussed below. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to the Bank. The
Company's and its subsidiary's consolidated federal income tax returns have been
audited or closed without audit by the Internal Revenue Service ("IRS") through
tax year 1993.

         Method of Accounting. For federal income tax purposes, the Company and
the Bank currently report income and expenses on the accrual method of
accounting and use a tax year ending December 31 for filing consolidated federal
income tax returns.

         Bad Debt Reserves. Prior to the Small Business Protection Act of 1996
(the "1996 Act"), the Bank was permitted to establish a reserve for bad debts
and to make annual additions to the reserve. These additions could, within
specified formula limits, be deducted in arriving at the Bank's taxable income.
As a result of the 1996 Act, the Bank must use the specific chargeoff method in
computing its bad debt deduction beginning with its 1996 Federal tax return. In
addition, the 1996 Act requires the recapture (over a six year period) of the
excess of tax bad debt reserves at June 30, 1996 over those established as of
June 30, 1988. The amount of the Bank's reserves subject to recapture as of
December 31, 2000 amounted to approximately $5.3 million.

         Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to July 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional tests.
Federal legislation eliminated these thrift related recapture rules. However,
under current law, pre-1988 reserves remain subject to recapture should the Bank
make certain non-dividend distributions or cease to maintain a bank charter.

         At December 31, 2000, the Bank's total federal pre-1988 reserves was
approximately $15.9 million. This reserve reflects the cumulative effects of
federal tax deductions by the Bank for which no Federal income tax provision has
been made.

         Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a
rate of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. At December
31, 2000, the Company and the Bank had no alternative minimum tax credits
available for carryover.

         Corporate Dividends-Received Deduction. The Company may exclude from
its income 100% of dividends received the Bank, as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
80% in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated tax return, and corporations which own
less than 20% of



                                       13
<PAGE>   16

the stock of a corporation distributing a dividend may deduct only 70% of
dividends received or accrued on their behalf.

TAXATION--STATE AND LOCAL

         Oklahoma State Taxation. The Company and the Bank are subject to an
annual Oklahoma corporate income tax of 6% of their federal taxable income as
computed under the Code, subject to certain prescribed adjustments. In addition
to the Oklahoma corporate income tax, the Company and the Bank are subject to an
annual Oklahoma franchise tax, which is imposed at a rate of 0.125% on the
capital used, invested or employed in Oklahoma, with a maximum franchise tax
equal to $20,000 per annum. At December 31, 2000, the Company had approximately
$113.0 million of net operating loss carryforwards available for Oklahoma state
income tax purposes. The state net operating loss carryforwards expire in
varying amounts between 2006 and 2013.

         Delaware State Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempt from Delaware corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
state of Delaware. The Delaware franchise tax is based on the Company's
authorized capital stock or on its assumed par and no-par capital, whichever
yields a lower result. Under the authorized capital method, each share is taxed
at a graduated rate based on the number of authorized shares with a maximum
aggregate tax of $150,000 per year. Under the assumed par value capital method,
Delaware taxes each $1,000,000 of assumed par-capital at the rate of $200.

PERSONNEL

         As of December 31, 2000, the Company (on a consolidated basis) has 757
full-time employees and 105 part-time employees. The employees are not
represented by a collective bargaining agreement and the Company believes that
it has good relations with its employees.

FORWARD LOOKING STATEMENTS

         Certain statements contained in this Annual Report on Form 10-K which
are not statements of historical fact constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act (the "Act"),
including, without limitation, the statements specifically identified as
forward-looking statements within this document. In addition, certain statements
in future filings by the Company with the SEC, in press releases, and in oral
and written statements made by or with the approval of the Company which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Act. Examples of forward-looking statements include, but are not
limited to: (i) projections of revenues, income or loss, earnings or loss per
share, the payment or nonpayment of dividends, capital structure and other
financial items, (ii) statements of plans and objectives of the Company or its
management or Board of Directors, including those relating to products or
services, (iii) statements of future economic performance and (iv) statements of
assumptions underlying such statements. Words such as "believes," "anticipates,"
"expects," "intends," "targeted" and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements.

         In particular, this Annual Report on Form 10-K contains forward-looking
statements which include but are not limited to: management's efforts to direct
the Company's operations and implement new initiatives; the adequacy of the
allowance for credit losses; interest rate risk management; and the effect of
legal proceedings on the Company's consolidated financial position, liquidity or
results of operations.

Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (i) the strength of the U.S.



                                       14
<PAGE>   17

economy in general and the strength of the local economies in which operations
are conducted; (ii) the effects of and changes in trade, monetary and fiscal
policies and laws, including interest rate policies of the FRB; (iii) inflation,
interest rate, market and monetary fluctuations; (iv) the timely development of
and acceptance of new products and services and perceived overall value of these
products and services by users; (v) the effects of competition from other
commercial banks, thrifts, mortgage banking firms, consumer finance companies,
credit unions, securities brokerage firms, insurance companies, money market and
other mutual funds and other financial institutions operating in the Company's
market area and elsewhere, including institutions operating locally, regionally,
nationally and internationally, together with such competitors offering banking
products and services by mail, telephone, computer and the Internet; (vi)
changes in consumer spending, borrowing and savings habits; (vii) technological
changes; (viii) acquisitions and integration of acquired businesses; (ix) the
ability to increase market share and control expenses; (x) the effect of changes
in laws and regulations (including laws and regulations concerning taxes,
banking, securities and insurance) with which the Company and its subsidiaries
must comply; (xi) the effect of changes in accounting policies and practices, as
may be adopted by the regulatory agencies as well as the Financial Accounting
Standards Board; (xii) changes in the Company's organization, compensation and
benefit plans; (xiii) the costs and effects of litigation and of unexpected or
adverse outcomes in such litigation; and (xiv) the success of the Company at
managing the risks involved in the foregoing.

         Such forward-looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.



                                       15
<PAGE>   18

ITEM 2. PROPERTIES

OFFICES AND OTHER MATERIAL PROPERTIES

         The following table provides information on the Company's consolidated
branch network as of December 31, 2000 (dollars in thousands):

<TABLE>
<CAPTION>
BRANCH OFFICE INFORMATION                                                                         Net Book Value of
                                                                                                     Property and
                                                                                                      Leasehold
                                  Ownership                          Size       Deposits as of     Improvements at
                                    Status       Lease Terms     (Square Feet)    12/31/2000      December 31, 2000
                                 ------------- ----------------- -------------- ---------------- ---------------------
<S>                              <C>           <C>               <C>            <C>              <C>
OKLAHOMA CITY METRO:

Bethany Office                      Owned             --             2,650        $    42,883       $       37
7723 N.W. 23rd Street
Bethany, OK 73008

Corporate Headquarters              Owned             --            70,000            298,032            4,864
3601 N.W. 63rd
Oklahoma City, OK 73116

Crown Heights Office                Owned             --             1,800             20,935               95
4716 North Western
Oklahoma City, OK 73118

Downtown Office                     Leased        $1,358/mo.         1,164             13,676                2
100 West Park Avenue                               5 Years
Oklahoma City, OK 73102                        Expires 01/31/04

Edmond Office                       Leased        $1,530/mo.         2,100             31,563               67
301 South Bryant                                   10 Years
Edmond, OK 73034                               Expires 01/31/08

Santa Fe Office                     Owned             --             3,600              7,306              790
412 S. Santa Fe
Edmond, OK 73003

May Avenue Office                   Owned             --            14,090             67,559              249
5701 North May Avenue
Oklahoma City, OK 73112

Midwest City Office                 Owned             --             5,500             85,818              217
414 North Air Depot
Midwest City, OK 73110

Moore Office                        Owned             --             1,500             20,891                9
513 Northeast 12th Street
Moore, OK 73160

Norman Office                       Leased        $4,000/mo          6,000             60,568              598
2403 West Main Street                              Note (1)
Norman, OK 73069-6499                              10 Years
                                               Expires 03/31/05

Penn South Office                   Owned             --             2,650             47,704               25
8700 South Pennsylvania
Oklahoma City, OK 73159

Portland Office                     Owned             --             1,800             40,975               46
1924 North Portland
Oklahoma City, OK 73107

Quail Creek Office                  Owned             --             3,250             36,832              420
12241 North May Avenue
Oklahoma City, OK 73120
</TABLE>



                                       16
<PAGE>   19

<TABLE>
<CAPTION>
BRANCH OFFICE INFORMATION                                                                         Net Book Value of
                                                                                                     Property and
                                                                                                      Leasehold
                                  Ownership                          Size       Deposits as of     Improvements at
                                    Status       Lease Terms     (Square Feet)    12/31/2000      December 31, 2000
                                 ------------- ----------------- -------------- ---------------- ---------------------
<S>                              <C>           <C>               <C>            <C>              <C>
Springbrook Office                  Owned             --             5,200        $    43,540       $      234
6233 N.W. Expressway
Oklahoma City, OK 73132

Yukon Office                        Leased        $1,625/mo.         1,500             20,764                7
1203 Cornwell                                      3 Years
Yukon, OK 73099                                Expires 10/01/02

TULSA:

Downtown Office                     Leased        $2,418/mo          3,400             13,471                7
111 West 5th Street                                Note (2)
Tulsa, OK 74103                                    5 Years
                                               Expires 01/31/04

Harvard Office                      Leased        $3,825/mo          2,500             38,957               48
3332 East 51st Street                              Note (3)
Tulsa, OK 74135                                    20 Years
                                               Expires 07/31/20

Hudson Office                       Leased        $5,500/mo.         3,000             20,492               10
5801 East 41st Street                              Note (4)
Tulsa, OK 74135                                    5 Years
                                               Expires 06/30/04

Lewis Office                        Owned             --            14,000             36,460            3,989
2250 East 73rd Street
Tulsa, OK 74136

Memorial Office                     Leased        $3,825/mo.         3,000             25,289               50
8202 East 71st Street                              Note (5)
Tulsa, OK 74133                                    20 Years
                                               Expires 07/31/20

Yale Office                         Leased        $1,300/mo.         2,400             53,241                0
2118 South Yale                                    Monthly
Tulsa, OK 74114

OTHER LOCATIONS:

Ardmore Office                      Owned             --             7,000             41,195               76
313 W. Broadway
Ardmore, OK 73401

Broken Arrow Office                 Leased        $3,456/mo.         3,308             24,385                3
3359 South Elm Place                               Note (6)
Broken Arrow, OK 74012                             10 Years
                                               Expires 01/31/10

Chandler Office                     Owned             --             1,600             17,239               57
1804 East First Street
Chandler, OK 74834

Chickasha Office                    Owned             --             3,143             39,740               45
628 Grand Avenue
Chickasha, OK 73018

Claremore Office                    Owned             --            15,100             47,354              517
1050 Lynn Riggs Blvd.
Claremore, OK 74017

Clinton Office                      Owned             --             2,000             32,573               74
1002 West Frisco
Clinton, OK 73601
</TABLE>



                                       17
<PAGE>   20

<TABLE>
<CAPTION>
BRANCH OFFICE INFORMATION                                                                         Net Book Value of
                                                                                                     Property and
                                                                                                      Leasehold
                                  Ownership                          Size       Deposits as of     Improvements at
                                    Status       Lease Terms     (Square Feet)    12/31/2000      December 31, 2000
                                 ------------- ----------------- -------------- ---------------- ---------------------
<S>                              <C>           <C>               <C>            <C>              <C>
Commerce Office                     Owned             --             4,608        $    21,788       $      592
101 N. Mickey Mantle Blvd.
Commerce, OK 74339

Duncan Downtown Office              Owned             --             2,500             41,868              100
1006 West Main Street
Duncan, OK 73533

Duncan North Office                 Owned             --             3,000             24,677               63
2210 North Highway 81
Duncan, OK 73533

Elk City Office                     Owned             --            10,300             52,539              139
200 Broadway
Elk City, OK 73644

Grove Office                        Owned             --             8,300             28,979              937
100 East Third
Grove, OK 74344

Guthrie Office                      Owned             --             6,000             33,321              679
120 N. Division Street
Guthrie, OK 73044

Lawton Downtown Office              Leased        $5,156/mo.         5,200             81,746                0
1 S. W. 11th Street                                10 Years
Lawton, OK 73501                               Expires 03/31/03

Lawton Mall Office                  Leased        $3,315/mo.         3,400             13,409               80
#10 Central Mall                                   10 Years
Lawton, OK 73501                               Expires 06/30/04

Lawton Financial Centre             Owned             --            25,900             33,055            2,215
6425 NW Cache Road
Lawton, OK 73505

Lawton Lee Blvd.                    Owned             --            12,000             71,749              863
1420 West Lee Blvd.
Lawton, OK 73501

Lawton Cache Road Office            Leased        $2,500/mo.         3,000             12,706               54
2601 Cache Road                                    25 Years
Lawton, OK 73505                               Expires 05/31/04

Lindsay Office                      Owned             --             1,200             19,166                0
420 South Main
Lindsay, OK 73052

Miami Office                        Owned             --             7,410             33,034              793
123 East Central
Miami, OK 74354

Monkey Island Office                Leased        $2,400/mo.         3,600              2,869               76
56371 E. Hwy 125                                   5 Years
Monkey Island, OK 74331                        Expires: 06/01/04

Muskogee Office                     Leased        $3,200/mo.         5,000             28,208               17
2401 East Chandler                                 5 Years
Muskogee, OK 74403                             Expires 07/31/03

Owasso Office                       Owned             --             1,100             16,267               28
201 East 2nd Street
Owasso, OK 74055
</TABLE>



                                       18
<PAGE>   21

<TABLE>
<CAPTION>
BRANCH OFFICE INFORMATION                                                                         Net Book Value of
                                                                                                     Property and
                                                                                                      Leasehold
                                  Ownership                          Size       Deposits as of     Improvements at
                                    Status       Lease Terms     (Square Feet)    12/31/2000      December 31, 2000
                                 ------------- ----------------- -------------- ---------------- ---------------------
<S>                              <C>           <C>               <C>            <C>              <C>
Pauls Valley Office                 Owned             --             2,300        $    22,459       $       69
700 West Grant
Pauls Valley, OK 73075

Purcell Office                      Owned             --             3,000             18,463              637
422 West Main
Purcell, OK 73080

Sand Springs Office                 Leased        $2,167/mo.         3,127             39,565               19
800 East Charles Page Blvd.                        15 Years
Sand Springs, OK 74063                         Expires 05/31/05

Springs Village                     Leased        $1,369/mo.         1,642             14,790                1
3973 South Highway 97                              5 Years
Sand Springs, OK 74063                         Expires 05/31/04

Shawnee Office                      Owned             --             2,650             32,346               42
2512 North Harrison
Shawnee, OK 74801

Sulphur Office                      Owned             --             3,000             18,326               73
2009 West Broadway
Sulphur, OK 73086

Sapulpa Office                      Owned             --             2,255             24,884              298
911 East Taft
Sapulpa, OK 74066

Weatherford Office                  Owned             --             3,000             16,137               89
109 East Franklin
Weatherford, OK 73096
</TABLE>

----------

(1)      Monthly rent derived as follows: $4,000 (to 03/31/00) and $4,200
         (04/01/00 to 03/31/05).

(2)      Monthly rent derived as follows: $2,418 (from 01/01/99 to 06/30/00);
         $2,556 (from 07/01/00 to 12/31/02) and $2,695 (from 01/01/03 to
         01/31/04).

(3)      Monthly rent derived as follows: $3,825 (to 07/31/05), $4,335 (08/01/05
         to 07/31/10), $4,845 (08/01/10 to 07/31/15) and $5,355 (08/01/15 to
         07/31/20).

(4)      Monthly rent derived as follows: $5,500 (to 06/30/02); $6,000 (07/01/02
         to 06/30/04).

(5)      Monthly rent derived as follows: $3,825 (to 07/31/05), $4,335 (08/01/05
         to 07/31/10), $4,845 (08/01/10 to 07/31/15) and $5,355 (08/01/15 to
         07/31/20).

(6)      Monthly rent derived as follows: $3,456 (to 01/31/04), $3,897 (02/01/04
         to 01/31/07) and $4,090 (02/01/07 to 01/31/10).

ITEM 3. LEGAL PROCEEDINGS

         The Company has one outstanding significant legal proceeding. The
pending case is between the Bank and the FDIC and concerns certain claims and
liabilities arising out of an assistance agreement (the "Assistance Agreement")
which was entered into by the Bank in conjunction with its acquisition of a
predecessor institution during 1989 (the "FDIC Case").

         FDIC CASE. In the FDIC Case, the Bank filed a lawsuit in 1996 against
the United States in which it asserted that the United States had breached the
terms of the Assistance Agreement and other related agreements by, among other
things, changing certain federal income tax laws that had provided financial
assistance and incentives to the Bank in connection with the Assistance
Agreement (and possibly certain related agreements). In the lawsuit, the Bank
seeks to recover for the loss of these tax benefits and for certain other claims
(the "FDIC Claim").



                                       19
<PAGE>   22

         Under the Assistance Agreement, the FDIC is entitled to receive
payments from the Bank for certain portions of tax benefits attributable to the
acquired net operating loss carry forwards and other tax benefits which were
realized by the Bank from certain items for which assistance was provided to the
Bank under the Assistance Agreement. The FDIC has filed a counterclaim against
the Bank in the FDIC Case (the "FDIC Counterclaim") claiming that the Bank owes
the FDIC a substantial amount of money with regard to the tax benefits realized
by the Bank for which it has not paid the FDIC pursuant to the terms of the
Assistance Agreement (the "Tax Benefits Payment"). Management, after
consultation with legal counsel and based on available proceedings to date, has
determined that the Bank will have significant liability to the FDIC with
respect to the FDIC Counterclaim.

         The Company, on a consolidated basis, established an accounting reserve
for any potential amount that may eventually be paid to the FDIC in relation to
the FDIC Counterclaim. Originally, pursuant to the terms and conditions of that
certain Redemption Agreement, which was made and entered into by and between the
Company and the persons who then owned all of the stock of the Company (the
"Selling Stockholders") in August 1997 (the "Redemption Agreement") in order to
evidence the terms and conditions pursuant to which the Company redeemed all of
the stock owned by the Selling Stockholders, the Company was required to
maintain this accounting reserve at $13.0 million. Effective May 1999, the
Company and the Selling Stockholders entered into that certain Settlement
Agreement ("Settlement Agreement") in order to completely settle and resolve
certain disputes and certain pending litigation which had developed between them
with regard to the performance of the Redemption Agreement. As an integral part
of that settlement, the Selling Stockholders agreed that the Company could
reduce this accounting reserve to the sum of $8.0 million (the "FDIC Reserve"),
which is included in the Other Liabilities in the Consolidated Statements of
Financial Condition as of December 31, 2000.

         Management believes that as of December 31, 2000 the FDIC's estimate of
this liability was approximately $23.0 million. Pursuant to the Redemption
Agreement, as reaffirmed and amplified in the Settlement Agreement, the Selling
Stockholders have agreed to indemnify the Bank with respect to the Tax Benefits
Payment under the Assistance Agreement by agreeing to be individually liable for
and to fully pay any and all amounts for which the Bank is ultimately found to
be liable to the FDIC on the FDIC Counterclaim for the Tax Benefits Payment
which are in excess of the FDIC Reserve. In this regard under the Redemption
Agreement, the Company deposited $10.0 million of the redemption price to be
paid to the Selling Stockholders for the redemption of their stock into an
escrow account to be available for such payment by the Selling Stockholders of
the FDIC Counterclaim (the "Escrow"), if necessary. All attorney fees and costs
of handling the FDIC Case which are incurred by the Company's counsel in the
FDIC Case are also to be paid out of the Escrow.

         The Selling Stockholders are entitled on the FDIC claim any net
recovery under the terms of the Settlement Agreement. The Selling Stockholders
also confirmed their individual liability for and obligation to fully pay under
the terms of the Redemption Agreement any amounts which the Company is
ultimately required to pay to the FDIC on the FDIC Counterclaim to the extent
such amount exceeds the FDIC Reserve and the Escrow. Since the Selling
Stockholders could have liability on the FDIC Counterclaim for the Tax Benefits
Payment, the Redemption Agreement, as affirmed by the Settlement Agreement,
requires that all actions taken by the Company with regard to the litigation of
the FDIC Case be consented to by the Selling Stockholders and that any
settlement of the FDIC Case and/or of the FDIC Counterclaim be mutually agreed
to by the Company and the Selling Stockholders. However, the Settlement
Agreement also authorizes the Selling Stockholders to unilaterally settle the
FDIC Case and the FDIC Counterclaim provided they pay the Company, in cash, the
full amount of any sum which would be owing to the FDIC on the FDIC Counterclaim
in excess of the FDIC Reserve and the Escrow before the Company would become
bound by any such settlement. Pursuant to the Settlement Agreement, a
comprehensive settlement offer was communicated by the Company's counsel to the
FDIC in early September 1999. In the last few months, the FDIC rejected that
settlement proposal. As a result, there are no current ongoing settlement
discussions of the FDIC Case being conducted with the FDIC.



                                       20
<PAGE>   23

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

         No matter was submitted during the fourth quarter of the fiscal year
covered by this annual Report to a vote of the Company's security holders.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth the name and age of each executive
officer, his principal position with the Company, and the year he became an
officer.

<TABLE>
<CAPTION>
                                                        Officer
                         Name                Age         Since                    Position
                         ----                ---        -------                   --------
<S>                                          <C>        <C>        <C>
               Edward A. Townsend             59          1997     Chief Executive Officer
               Jan A. Norton                  54          1997     President
               Robert L. Vanden               54          1990     Executive Vice President of the Bank
               Richard L. Park                69          1997     Executive Vice President,
                                                                     Chief Financial Officer
               Christopher C. Turner          43          1983     Executive Vice President of the Bank
               James N. Young                 52          1998     Executive Vice President,
                                                                     President Tulsa Region, Manager of
                                                                     Commercial Lending of the Bank
               Harold A. Bowers               57          1998     Executive Vice President,
                                                                     Chief Credit Officer of the Bank
               William C. Lee                 61          1998     Executive Vice President
                                                                     Operations Division of the Bank
               Kenneth K. McIlhaney           58          2000     Executive Vice President of the Bank
               K. Randy Roper                 41          1998     Executive Vice President,
                                                                     President Oklahoma City Region
</TABLE>

         Biographical information regarding Messrs. Edward A. Townsend and Jan
A. Norton are incorporated herein by reference to the Company's proxy statement
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A, not later than 120 days after the end of the fiscal year covered by this
report. Biographical information regarding Messrs. Robert L. Vanden, Richard L.
Park, Christopher C. Turner, James N. Young, Harold A. Bowers, William C. Lee,
Kenneth K. McIlhaney and K. Randy Roper are set forth below.

         The executive officers serve until their successors are elected and
qualified. No executive officer is related to any director or other executive
officer of the Company by blood, marriage or adoption. There are no arrangements
or understandings between any director of the Company and any other person
pursuant to which such person was elected an executive officer.

         Robert L. Vanden. Mr. Vanden was elected as a director of the Bank
immediately following consummation of the Private Placement. In addition, Mr.
Vanden began serving as Executive Vice President of the Bank upon consummation
of the Private Placement. In June 2000, he assumed the duties as director of
Central Oklahoma Habitat for Humanity, a non-profit organization. From January
1997 until September 1997, Mr. Vanden served as President and Chief Executive
Officer of the Bank. Since February 1990 through December 1996, Mr. Vanden
served as Executive Vice President of the Bank in charge of wholesale commercial
lending. Prior to joining the Bank in February 1990, Mr. Vanden served as
Executive Vice President of the Richard Gill Company and Gill Savings.

         Richard L. Park. Mr. Park began serving as Executive Vice President and
Chief Financial Officer of the Company and the Bank in charge of finance in
September 1997. Mr. Park served as Chief Financial Officer of Green Country Bank
from October 1996 until it was acquired by the Company.



                                       21
<PAGE>   24

From January 1991 through May 1996, Mr. Park was Chief Financial Officer of
Western Farm Credit Bank in Sacramento, California, the Eleventh District Bank
in the Federal Farm Credit System. Mr. Park is a Certified Public Accountant.

         Christopher C. Turner. Mr. Turner has served as Executive Vice
President of the Bank in charge of residential and consumer lending, branch
administration and marketing since October 1996. Prior to October 1996, Mr.
Turner held various positions in the bank including Internal Audit Director,
Marketing Director and Director of Branch Administration. Mr. Turner joined
Local in November 1980.

         James N. Young. Mr. Young serves as President, Tulsa Region and Manager
of Commercial Lending for the Tulsa and Oklahoma City markets. From 1973 to
1994, Mr. Young served in various commercial lending capacities with Bank of
Oklahoma in both Tulsa and Oklahoma City, his last assignment being President,
Oklahoma City. From 1994 to January 1998, he served as Senior Commercial Lending
Manager for BankIV and its successors, Boatmen's Bank and NationsBank in
Oklahoma City. His last position with NationsBank was President, Oklahoma City,
and Senior Commercial Lending Manager for the state of Oklahoma. Mr. Young
joined Local in February 1998.

         Harold A. Bowers. Mr. Bowers serves as Executive Vice President and
Chief Credit Officer. After serving four years as an officer in the United
States Air Force, Mr. Bowers started his banking career with Liberty National
Bank, Oklahoma City, Oklahoma. From 1970 to 1980 he served in various credit
capacities ultimately serving six years as Manager of Loan Administration. In
1980-81 he managed the Credit Department for Bank of Oklahoma, Tulsa, Oklahoma.
From 1981 to 1998, Mr. Bowers served with NationsBank and its predecessor banks
with both senior credit and commercial lending management responsibilities. Mr.
Bowers joined Local in May 1998.

         William C. Lee. Mr. Lee serves as Executive Vice President and is the
Bank's principal Operations Officer. Prior to joining the Bank, he was Executive
Vice President and Chief Financial Officer of the Annuity Board of the Southern
Baptist Convention, a pension and insurance management company, joining that
institution in July 1991. Mr. Lee is a Certified Public Accountant. Mr. Lee
joined Local in May 1998.

         Kenneth K. McIlhaney. Mr. McIlhaney serves as Executive Vice President
in charge of Community Banking. Mr. McIlhaney began his banking career in 1972,
serving as Executive Vice President of United Oklahoma Bank and later serving as
President of First Bank and Trust Company of Duncan, and City National Bank and
Trust Company of Oklahoma City, Oklahoma. Mr. McIlhaney served in various
executive officer positions at Union Bank and Trust Company of Oklahoma City,
Oklahoma, from 1979 to 2000, including serving as President and Chief Executive
Officer for ten years immediately prior to joining Local in February 2000.

         K. Randy Roper. Mr. Roper serves as President of Commercial Lending,
Oklahoma City Region. From 1982 to 1998, Mr. Roper served in various capacities
for First National Bank of Oklahoma City and its successors, First Interstate
Bank of Oklahoma, N.A., Boatmen's First National Bank of Oklahoma and
NationsBank specializing in energy and commercial finance. Mr. Roper completed
his tenure at NationsBank as President, Oklahoma City. Mr. Roper joined Local in
December 1998.



                                       22
<PAGE>   25

                                     PART II

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

         The following table sets forth the range of high and low closing prices
for the period indicated:

<TABLE>
<CAPTION>
                                                            Years ended December 31,
                            -----------------------------------------------------------------------------------------
                                        2000                          1999                          1998
                            ----------------------------- ----------------------------- -----------------------------
                                High            Low           High            Low           High           Low
                            -------------- -------------- -------------- -------------- -------------- --------------
<S>                         <C>            <C>            <C>            <C>            <C>            <C>
          First quarter       $   10.63           7.50          10.13           8.50             --            --
          Second quarter      $    9.63           7.44          10.19           9.25          13.75         12.63
          Third quarter       $   11.19           8.06          10.88           8.88          13.06          8.50
          Fourth quarter      $   13.13          10.13          10.38           8.13           9.56          6.94
</TABLE>

         The Company's Common Stock began trading on April 22, 1998. It trades
on the Nasdaq National Market System under the symbol "LFIN". On March 12, 2001,
there were approximately 23 holders of record of the Company's Common Stock.

         The Company has not paid and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company's principal
source of funds to pay cash dividends on its Common Stock would be cash
dividends from the Bank. There are certain statutory limitations on the payment
of dividends by national banks. As of December 31, 2000, approximately $13.0
million was available for payment of dividends by the Bank to the Company under
these restrictions without regulatory approval. See "Item 1. Business -
Regulation and Supervision".

ITEM 6. SELECTED FINANCIAL DATA

                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

         The selected consolidated financial data of the Company set forth below
should be read in conjunction with, and is qualified in its entirety by, the
Consolidated Financial Statements of the Company, including the related Notes,
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                         December 31,                      June 30,
                                      -------------------------------------------------   ----------
                                         2000         1999         1998         1997         1997
                                      ----------   ----------   ----------   ----------   ----------
<S>                                   <C>          <C>          <C>          <C>          <C>
BALANCE SHEET AND OTHER DATA:
Total assets                          $2,377,011    2,381,607    2,128,979    1,881,365    2,625,181
Cash and due from banks                   39,571       48,122       27,180       34,152       15,904
Loans receivable, net                  1,848,876    1,685,550    1,362,272      953,470    1,013,824
Securities available for sale            354,048      529,230      570,964      518,107      985,565
Securities and other investments
   held to maturity                           --           --           --           --      408,207
Nonperforming assets(1)                   10,903        7,536        4,270          921       12,570
Deposits                               1,931,793    1,848,340    1,668,074    1,602,533    1,644,356
Securities sold under agreements to
   repurchase                             38,214           --           --           --      310,801
Promissory note payable                       --           --           --           --        7,010
Senior notes payable                      41,160       75,250       80,000       80,000           --
FHLB advances                            190,028      302,035      220,033       80,136      531,161
Total liabilities                      2,220,740    2,253,313    2,010,173    1,798,740    2,522,552
Stockholders' equity                     156,271      128,294      118,806       82,625      102,629
Number of full service customer
   facilities                                 51           51           50           41           41
Approximate number of full-time
   equivalent employees                      810          777          694          525          546
</TABLE>



                                       23
<PAGE>   26

<TABLE>
<CAPTION>
                                                                                     Six Months
                                                Years ended December 31,         Ended December 31,        Years ended June 30,
                                             ------------------------------   ------------------------   ------------------------
                                               2000       1999       1998         1997          1996         1997          1996
                                             --------   --------   --------   ----------      --------   ----------      --------
                                                                                            (unaudited)
<S>                                          <C>        <C>        <C>        <C>             <C>        <C>             <C>
OPERATIONS DATA:
Interest and dividend income                 $190,202    168,298    147,204       85,204       119,100      222,664       236,156
Interest expense                              111,852     94,787     92,438       59,823        92,562      169,761       187,488
                                             --------   --------   --------   ----------      --------   ----------      --------
Net interest and dividend
   income                                      78,350     73,511     54,766       25,381        26,538       52,903        48,668
Provision for loan losses                      (2,700)    (2,000)    (1,450)     (25,578)(2)    (9,734)     (28,428)(2)    (5,117)
                                             --------   --------   --------   ----------      --------   ----------      --------
Net interest income (loss) after
   provision for loan losses                   75,650     71,511     53,316         (197)       16,804       24,475        43,551
Noninterest income (loss)                      17,933     18,542     14,782     (107,149)(3)     2,185      (17,124)(3)    10,316
Noninterest expense                            54,516     55,177     39,407       22,685        29,372       49,256        35,427
                                             --------   --------   --------   ----------      --------   ----------      --------
Income (loss) before provision
   (benefit) for income taxes
   and extraordinary item                      39,067     34,876     28,691     (130,031)      (10,383)     (41,905)       18,440
Provision (benefit) for
   income taxes                                14,331     12,627     10,254      (44,075)       (3,573)     (11,860)        4,872
                                             --------   --------   --------   ----------      --------   ----------      --------
Income (loss) before
   extraordinary item                          24,736     22,249     18,437      (85,956)       (6,810)     (30,045)       13,568
Extraordinary item, net of tax                   (922)      (257)        --           --            --           --            --
                                             --------   --------   --------   ----------      --------   ----------      --------
Net income (loss)                            $ 23,814     21,992     18,437      (85,956)       (6,810)     (30,045)       13,568
                                             ========   ========   ========   ==========      ========   ==========      ========
Earnings (loss) per share:
   Income (loss) before extraordinary item:
       Basic(4)                              $   1.20       1.08       0.90        (4.76)        (0.44)       (1.95)         0.88
                                             ========   ========   ========   ==========      ========   ==========      ========
       Diluted(4)                            $   1.20       1.08       0.89        (4.76)        (0.44)       (1.95)         0.88
                                             ========   ========   ========   ==========      ========   ==========      ========
   Net income (loss):
       Basic(4)                              $   1.16       1.07       0.90        (4.76)        (0.44)       (1.95)         0.88
                                             ========   ========   ========   ==========      ========   ==========      ========
       Diluted(4)                            $   1.16       1.07       0.89        (4.76)        (0.44)       (1.95)         0.88
                                             ========   ========   ========   ==========      ========   ==========      ========
</TABLE>

<TABLE>
<CAPTION>
                                         At or For the Years       At or For the Six Months  At or For the Years
                                          ended December 31,          ended December 31,       ended June 30,
                                    -----------------------------  ------------------------  -------------------
                                      2000       1999      1998      1997            1996      1997       1996
                                    --------   --------  --------  --------        --------  --------   --------
                                                                                  (unaudited)
<S>                                 <C>        <C>       <C>       <C>             <C>       <C>        <C>
PERFORMANCE RATIOS(5):
   Return on assets                     1.00%      0.99      0.93     (3.84)          (0.21)    (0.98)      0.41
   Return on common equity             17.18      17.65     17.73   (101.45)          (6.35)   (28.77)     10.00
   Dividend payout ratio(6)               --         --        --        --              --        --         --
   Net interest spread(7)               2.95       3.02      2.57      2.13            1.45      1.57       1.36
   Net interest margin(8)               3.44       3.46      2.91      2.34            1.62      1.78       1.52
   Noninterest expense to
     average assets(9)                  2.30       2.41      1.90      0.99            0.87      1.56       1.04
   Efficiency ratio(10)(11)            55.60      58.76     54.61       N/A           56.14     56.14      57.07
CAPITAL RATIOS OF THE COMPANY(12):
   Leverage capital                     5.61       4.71       N/A       N/A             N/A       N/A        N/A
   Core capital                         7.74       6.81       N/A       N/A             N/A       N/A        N/A
   Total capital                        9.00       8.07       N/A       N/A             N/A       N/A        N/A
CAPITAL RATIOS OF THE BANK(12):
   Leverage or tangible                 7.30       7.93      7.61      6.89            4.99      5.17       4.94
   Core                                10.08      11.48      7.63      6.98            5.07      5.25       5.04
   Total or risk-based                 11.34      12.74     13.08     14.14           12.59     12.34      12.71
ASSET QUALITY RATIOS:
   Nonperforming assets to total
     assets at end of period(1)         0.46       0.32      0.20      0.05            0.93      0.48       0.49
   Nonperforming loans to total
     loans at end of period(1)          0.53       0.40      0.26      0.06            0.82      0.38       0.51
   Allowance for loan losses to
     total loans at end of period       1.51       1.65      2.00      2.09            0.50      1.10       0.31
   Allowance for loan losses to
     nonperforming loans at
     end of period(1)                  2.83x       4.15      7.80     32.72            0.56      2.91       0.60
</TABLE>

----------

(1)      Nonperforming loans consist of nonaccrual loans and loans delinquent 90
         days or more but still accruing interest, and nonperforming assets
         consist of nonperforming loans, real estate acquired through
         foreclosure or deed-in-lieu thereof and repossessions, net of
         writedowns and reserves.



                                       24
<PAGE>   27

(2)      Primarily reflects provisions established by management to cover
         realized and inherent losses with respect to the Company's portfolio of
         indirect automobile receivables which were sold as of December 31,
         1997.

(3)      Primarily reflects losses incurred by the Company relating to the
         liquidation or disposition of certain hedging contracts and the
         disposition of investment securities and adjustments to reflect market
         values.

(4)      Net income per share and dividends per share are based upon the
         weighted average number of shares outstanding during the period. As a
         result of the private placement and the redemption transactions
         described under "Business--The Company--New Management", the weighted
         average number of shares used in the computation of income (loss) per
         share and dividends per share is 15,400,000 for each of the years in
         the two-year period ended June 30, 1997 (based on an equivalent number
         of shares for the 60 shares outstanding prior to the recapitalization).
         For the years ended December 31, 2000, 1999 and 1998, the weighted
         average number of shares are 20,537,209, 20,537,209 and 20,431,698,
         respectively. See also Note 1 of the Notes to Consolidated Financial
         Statements in Item 8 hereof.

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

(6)      The dividend payout ratio represents dividends declared per share
         divided by net income per share. The Company does not presently pay
         dividends.

(7)      Net interest spread represents the difference between the weighted
         average yield on interest-earning assets and the weighted average cost
         of interest-bearing liabilities.

(8)      Net interest margin represents net interest income as a percent of
         average interest-earning assets.

(9)      Noninterest expense excludes the amortization of intangibles.

(10)     Represents noninterest expense (exclusive of amortization of
         intangibles) divided by the aggregate of net interest income before
         provision for loan losses and noninterest income (exclusive of gains
         and losses on sales of assets).

(11)     For the year ended June 30, 1997 and the six months ended December 31,
         1996, the efficiency ratio does not reflect the $10.3 million one-time
         special assessment (before applicable tax benefits) to recapitalize the
         SAIF which was accrued during the quarter ended September 30, 1996. See
         "Business--Regulation and Supervision" in Item 1 hereof.

(12)     The Bank became subject to Office of the Comptroller of the Currency
         ("OCC") regulatory authority in May 1999. Data presented as of December
         31, 2000 and 1999 is based on OCC regulatory requirements while data as
         of prior periods is based on Office of Thrift Supervision ("OTS")
         regulatory requirements. In calculating leverage capital, the OCC uses
         total average assets while the OTS uses tangible assets. In calculating
         core capital, the OCC uses risk-weighted assets while the OTS uses
         adjusted tangible assets. See "Business--Regulation and Supervision" in
         Item 1 hereof for information with respect to the Bank's regulatory
         capital requirements.

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

         The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto, included
in Item 8 hereof.

CHANGES IN FINANCIAL CONDITION

GENERAL

         Local Financial's primary asset is the capital stock of the Bank. In
August 1997, a group led by Mr. Edward A. Townsend, the Company's present
Chairman, undertook to redeem all of the stock of the Selling Stockholders. The
Company financed the redemption through a private placement of $197.0 million of
common stock and $80.0 million of senior notes due 2004. The private placement
and redemption were closed in September 1997. The Company subsequently
registered the common stock and senior notes for public resale, and the common
stock LFIN, NASDAQ, and senior notes LO.A, AMEX, began publicly trading on April
22, 1998.

         In pursuit of new management's growth strategy, the Bank has shifted
its activities from those of a traditional savings and loan to those generally
associated with a commercial bank. On May 11, 1999, the Bank converted from a
savings bank to a national banking association. The Bank has increased its
commercial and consumer lending and expects further increases in those areas.
The Bank also has targeted increases in non-interest income, increases in
lending activities rather than investing activities, and increases in direct
lending rather than indirect lending. During 2000, the Bank consolidated and
converted its varied processing systems to achieve state-of-the-art operating
efficiencies and position itself to provide better commercial customer services.



                                       25
<PAGE>   28

         The Bank's business strategy is to provide its customers with a range
of banking products and services of a regional bank while retaining the appeal
and level of individualized service of a community bank. Management believes
that as a result of the Company's strong commitment to highly personalized
relationship-oriented customer service, its varied products, its strategic
branch locations and the long-standing community presence of its managers,
lending officers and branch personnel, it is well positioned to attract new
customers and to increase its market share of loans and deposits.

CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1999 TO DECEMBER 31, 2000

         Cash and Cash Equivalents. Cash and cash equivalents (consisting of
cash, cash due from banks and interest-bearing deposits with other banks)
amounted to $44.0 million and $55.8 million at December 31, 2000 and December
31, 1999, respectively. The Company manages its cash and cash equivalents based
upon the Company's operating, investing and financing activities. See
"--Liquidity and Capital Resources".

         Securities. The Company views the securities available for sale as a
source of asset liquidity. Liquidity is derived from this source by receipt of
interest and principal payments and prepayments; by the ability to sell these
securities at market prices; and by utilizing unpledged securities as collateral
for borrowings. Management intends to emphasize lending activities as opposed to
investing activities in order to enhance the weighted average yield on its
interest-earning assets and thus, its results of operations. Future changes in
the securities accounts will be determined by, among other things, liquidity
guidelines established by the Company and applicable regulatory rules; pledging
requirements to retain public funds; and by the rate at which the Company can
grow its loan portfolio through originations.

         The following table sets forth information regarding the carrying and
market value of the Company's securities at the dates indicated (dollars in
thousands):

<TABLE>
<CAPTION>
                                                  December 31,
                           ----------------------------------------------------------
                                  2000                1999                1998
                           ------------------  ------------------  ------------------
                           Carrying   Market   Carrying   Market   Carrying   Market
                             Value     Value     Value     Value     Value     Value
                           --------  --------  --------  --------  --------  --------
<S>                        <C>       <C>       <C>       <C>       <C>       <C>
Available for sale:

  U.S. Government and
     agency securities     $ 33,663    33,663    21,533    21,533    39,092    39,092
  Municipal securities          455       455       540       540       965       965
  Collateralized mortgage
     obligations            224,254   224,254   494,747   494,747   522,128   522,128
  Mortgage-backed
     securities              95,676    95,676    12,410    12,410     8,779     8,779
                           --------  --------  --------  --------  --------  --------

                           $354,048   354,048   529,230   529,230   570,964   570,964
                           ========  ========  ========  ========  ========  ========
</TABLE>


         Loans Receivable. Net loans receivable amounted to $1.9 billion and
$1.7 billion at December 31, 2000 and 1999, respectively. Net loans receivable
increased by $163.3 million or 9.7% during the year ended December 31, 2000.
During 2000, the Bank continued to focus its commercial lending efforts towards
growth of its Oklahoma-based commercial portfolio, hiring experienced commercial
lending officers and supporting staff. The Bank's total commercial lending
portfolio experienced growth in 2000 of $242.0 million or 20.5%. Residential
real estate loans decreased from $362.4 million to $250.5 million, a decrease of
$111.9 million or 30.9%, primarily due to loan securitizations with Fannie Mae.
In addition, consumer loans grew from $161.3 million to $195.4 million, an
increase of $34.1 million or 21.1%. Most of this increase was attributable to
the Bank heavily promoting its consumer loan products in the media and better



                                       26
<PAGE>   29

utilizing its existing branch locations to originate consumer loans. The Bank
also continues to originate and sell a variety of mortgage and consumer loan
products. Approximately $9.7 million of loans held for sale were sold during
2000. Management intends to continue its emphasis on lending activities, and
consequently, expects its loan portfolio to grow over the next several years.
For additional information, see "Business--Lending Activities" in Item 1 hereof
and Note 4 of the Notes to Consolidated Financial Statements in Item 8 hereof.

         Contractual Principal Repayments and Interest Rates. The following
table sets forth scheduled contractual amortization of the Company's total loan
portfolio at December 31, 2000, as well as the dollar amount of such loans which
are scheduled to mature after one year which have fixed or adjustable interest
rates. Demand loans, loans having no schedule of repayments and no stated
maturity and overdraft loans are reported as due in one year or less (dollars in
thousands):

<TABLE>
<CAPTION>
                                                      Principal Repayments Contractually due
                           Total at                        In Years ended December 31,
                         December 31, ----------------------------------------------------------------------
                            2000(1)      2001        2002        2003        2004        2005     Thereafter
                         ------------ ----------  ----------  ----------  ----------  ----------  ----------
<S>                      <C>          <C>         <C>         <C>         <C>         <C>         <C>
Residential real estate   $  250,487      37,420      14,404      14,757      13,799      14,620     155,487

Commercial                 1,425,382     329,799     139,240     185,344     120,288     149,124     501,587

Consumer                     201,352      53,414      30,890      27,151      21,602      17,471      50,824
                          ----------  ----------  ----------  ----------  ----------  ----------  ----------


Total (1)                 $1,877,221     420,633     184,534     227,252     155,689     181,215     707,898
                          ==========  ==========  ==========  ==========  ==========  ==========  ==========
</TABLE>

----------

(1)      Of the $1.5 billion of loan principal repayments contractually due
         after December 31, 2001, $675.6 million have fixed rates of interest
         and $781.0 million have adjustable rates of interest. All are presented
         net of undistributed loan proceeds.

         Scheduled contractual principal repayments do not reflect the actual
maturities of loans. The average maturity of loans is substantially less than
their contractual terms because of prepayments and, in the case of conventional
mortgage loans, due-on-sale clauses, which generally give the Bank the right to
declare a loan immediately due and payable in the event, among other things,
that the borrower sells the real property subject to the mortgage and the loan
is not repaid. The average life of mortgage loans tends to increase when current
mortgage loan rates are substantially higher than rates on existing mortgage
loans and, conversely, decrease when rates on existing mortgages are
substantially lower than current mortgage loan rates (due to refinancings of
adjustable-rate and fixed-rate loans at lower rates).

         Nonperforming Assets and Allowance for Loan Losses. Nonperforming
assets (consisting of non-accruing loans, accruing loans greater than 90 days
delinquent and foreclosed assets) at December 31, 2000, amounted to $10.9
million or 0.46% of total assets, as compared to $7.5 million or 0.32% at
December 31, 1999. The increase in nonperforming assets from December 31, 1999
to December 31, 2000 resulted primarily from the classification of loans which
had been originated by acquired banks.



                                       27
<PAGE>   30

         The following table presents information on the Company's nonperforming
assets at the dates indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                           December 31,              June 30,
                                            ---------------------------------------  --------
                                              2000       1999      1998      1997      1997
                                            --------   --------  --------  --------  --------
<S>                                         <C>        <C>       <C>       <C>       <C>
Non-accruing loans                          $  9,297      5,730     2,203       626     3,508

Accruing loans greater than 90 days
   delinquent:                                   725      1,083     1,374        --       415

Foreclosed assets                                881        723       693       295     8,647
                                            --------   --------  --------  --------  --------

Total nonperforming assets                  $ 10,903      7,536     4,270       921    12,570
                                            ========   ========  ========  ========  ========

Total nonperforming assets as a percentage
   of total assets                              0.46%      0.32      0.20      0.05      0.48
                                            ========   ========  ========  ========  ========
</TABLE>


         As of December 31, 2000, the Bank's allowance for loan loss totaled
$28.3 million or 1.51% of total loans. During the fiscal year ended December 31,
2000, the Bank's allowance for loan loss remained relatively unchanged declining
0.17% or $48,000 while the Bank's net charge-offs and nonaccruals rose 36.4% or
$708,000 and 62.3% or $3.6 million, respectively, as compared to the same period
in the prior year. The Company's allowance for loan loss rose $396,000 or 1.4%
during the year ended December 31, 1999, primarily as a result of the allowance
acquired in the acquisition of Guthrie Federal Savings Bank for $340,000.

         Local Oklahoma Bank's process for determining the adequacy of the
Allowance is based on a comprehensive analysis of the institution's loan
portfolio that considers all significant factors that affect the collectibility.
The allowance is maintained at a level that is adequate to absorb all estimated
inherent losses in the portfolio as of this date. In addition to historical loss
experience, the Company also considers other factors likely to cause estimated
credit losses to differ from historical loss experience.



                                       28
<PAGE>   31

         The following table provides information on the Company's allowance for
loan losses as of the dates indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                                             Six Months ended
                                              Years ended December 31,          December 31,      Years ended June 30,
                                          -------------------------------   -------------------   --------------------
                                            2000        1999       1998       1997       1996       1997       1996
                                          --------    --------   --------   --------   --------   --------   ---------
                                                                                     (unaudited)
<S>                                       <C>         <C>        <C>        <C>        <C>        <C>        <C>
Balance at beginning of period            $ 28,297      27,901     20,484     11,435      3,228      3,228      4,593
   Loans charged off:
     Residential real estate                  (164)       (314)       (31)        (5)        --         (3)      (143)
     Commercial                             (1,725)     (2,397)      (545)       (14)        --         --     (1,368)
     Consumer                               (1,818)     (1,142)      (928)   (16,535)    (8,083)   (20,290)    (5,026)
   Recoveries                                1,055       1,909        187         25        596         72         55
                                          --------    --------   --------   --------   --------   --------   --------
       Net loans charged off                (2,652)     (1,944)    (1,317)   (16,529)    (7,487)   (20,221)    (6,482)
Allowances acquired                             --         340      7,284         --         --         --         --
Provision for loan losses                    2,700       2,000      1,450     25,578      9,734     28,428      5,117
                                          --------    --------   --------   --------   --------   --------   --------
Balance at end of period                  $ 28,345      28,297     27,901     20,484      5,475     11,435      3,228
                                          ========    ========   ========   ========   ========   ========   ========
Allowance for loan losses to total
   nonperforming loans at end of period      2.83x        4.15       7.80      32.72       0.56       2.91       0.60
                                          ========    ========   ========   ========   ========   ========   ========
Allowance for loan losses to total loans
   at end of period                           1.51%       1.65       2.00       2.09       0.50       1.10       0.31
                                          ========    ========   ========   ========   ========   ========   ========
</TABLE>



                                       29
<PAGE>   32

         The Bank utilizes a consistent systematic process for allocation of
reserve dollars within its total loan portfolio. The reserve rates vary based on
the perceived risks inherent within the various loan types. Reserve rates are
established based on historical portfolio performance as well as specific credit
performance.

         The following table sets forth information concerning the allocation of
the Company's allowance for loan losses by loan category at the dates indicated
(dollars in thousands):

<TABLE>
<CAPTION>
                                                               December 31,                                          June 30,
                        -------------------------------------------------------------------------------------   -------------------
                               2000                  1999                  1998                  1997                  1997
                        -------------------   -------------------   -------------------   -------------------   -------------------
                                 Percent to            Percent to            Percent to            Percent to            Percent to
                                   Total                 Total                 Total                 Total                 Total
                        Amount    Allowance    Amount   Allowance    Amount   Allowance    Amount   Allowance    Amount   Allowance
                        -------  ----------   -------  ----------   -------  ----------   -------  ----------   -------  ----------
<S>                     <C>      <C>          <C>      <C>          <C>      <C>          <C>      <C>          <C>      <C>
Residential real
  estate                $ 2,777        9.80%  $ 3,332       11.78%  $ 3,311       11.87%  $   412        2.01%  $   427        3.73%

Commercial               21,125       74.53    18,963       67.01    18,798       67.37    10,459       51.06     2,836       24.80

Consumer                  4,443       15.67     6,002       21.21     5,792       20.76     6,203       30.28     8,172       71.47

General unallocated          --          --        --          --        --          --     3,410       16.65        --          --
                        -------  ----------   -------  ----------   -------  ----------   -------  ----------   -------  ----------

     Total              $28,345      100.00%  $28,297      100.00%  $27,901      100.00%  $20,484      100.00%  $11,435      100.00%
                        =======  ==========   =======  ==========   =======  ==========   =======  ==========   =======  ==========
</TABLE>



                                       30
<PAGE>   33

         Other Assets. Other assets rose by $26.9 million from December 31, 1999
to December 31, 2000, primarily due to the $25.0 million purchase of bank owned
life insurance.

         Deposits. At December 31, 2000, deposits totaled $1.93 billion, as
compared to $1.85 billion at December 31, 1999. One of the Company's strategies
is to promote retail deposit growth as a cost-efficient funding source as well
as a source of fee income and cross-selling opportunities. In connection with
the acquisition of Guthrie Federal Savings Bank, the Company acquired the branch
office and assumed $36.7 million of deposits (as of October 15, 1999). The
Company expects to continue to focus on improving its retail deposit franchise.
For additional information, see "Business--Sources of Funds--Deposits" in Item 1
hereof and Note 7 of the Notes to Consolidated Financial Statements in Item 8
hereof.



                                       31
<PAGE>   34

         The following table presents the average balance of each deposit type
and the average rate paid on each deposit type of the Company for the periods
indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                               ---------------------------------------------------------------------------------------------------
                                             2000                              1999                              1998
                               -------------------------------   -------------------------------   -------------------------------
                                                       Average                           Average                           Average
                                 Average                Rate       Average                Rate       Average                Rate
                                 Balance    Interest    Paid       Balance    Interest    Paid       Balance    Interest    Paid
                               ----------  ----------  -------   ----------  ----------  -------   ----------  ----------  -------
<S>                            <C>         <C>         <C>         <C>       <C>         <C>       <C>         <C>         <C>
Noninterest-bearing deposits   $  140,004  $       --       --%  $  122,729  $       --      --%   $   72,215  $       --      --%
Passbook accounts                  69,635       1,994     2.86       75,849       2,219     2.93       73,068       2,110     2.89
NOW and money market accounts     359,831      13,203     3.67      282,386       7,941     2.81      225,740       4,892     2.17
Term certificates               1,309,327      73,220     5.59    1,204,661      60,416     5.02    1,253,482      67,741     5.40
                               ----------  ---------             ----------  ----------            ----------  ----------

     Total deposits            $1,878,797  $   88,417     4.71%  $1,685,625  $   70,576     4.19%  $1,624,505  $   74,743     4.60%
                               ==========  ==========  =======   ==========  ==========  =======   ==========  ==========  =======
</TABLE>



                                       32
<PAGE>   35

         Borrowings. Other than deposits, the Company utilizes advances from the
FHLB to fund its operations. During 2000, the Company relied on deposits to an
increasing extent to fund operations and, as a result, reduced FHLB borrowings
by $112.0 million from December 31, 1999 to December 31, 2000.

         The following table sets forth certain information regarding the
short-term borrowings of the Company at or for the dates indicated (dollars in
thousands):

<TABLE>
<CAPTION>
                                                             At or For the Years
                                                             ended December 31,
                                                      -------------------------------
                                                        2000        1999       1998
                                                      --------    --------   --------
<S>                                                   <C>         <C>        <C>
FHLB OF TOPEKA ADVANCES:
   Average balance outstanding                        $262,885     292,758    132,659
   Maximum amount outstanding at any
     month-end during the period                       326,217     497,178    220,033
   Balance outstanding at end of period                190,028     302,035    220,033
   Average interest rate during the period                6.11%       5.09       5.69
   Average interest rate at end of period                 6.44%       5.78       4.77

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
   Average balance outstanding                        $ 18,352          --         --
   Maximum amount outstanding at any
     month-end during the period                        38,214          --         --
   Balance outstanding at end of period                 38,214          --         --
   Average interest rate during the period                5.85%         --         --
   Average interest rate at end of period                 5.92%         --         --
</TABLE>


         Pursuant to the private placement, the Company issued $80.0 million of
senior notes which are due in September 2004 and which bear interest at the rate
of 11.0%, payable semi-annually. Debt issuance costs were capitalized and the
unamortized balance of $1.2 million is reflected as other assets in the
Consolidated Statement of Financial Condition. The Company funds the semiannual
interest payments through dividends paid to the Company from the Bank. During
2000 and 1999, the Company purchased and retired $34.1 million and $4.8 million
of senior notes, resulting in a $922,000 and $257,000 extraordinary loss, net of
tax, respectively. For additional information, see "Business--Sources of
Funds--Borrowings" in Item 1 hereof and Note 10 of the Notes to Consolidated
Financial Statements in Item 8 hereof.

         Stockholders' Equity. Stockholders' equity increased from $128.3
million at December 31, 1999 to $156.3 million at December 31, 2000. The
increase in stockholders' equity came primarily as a result of net income during
the period. Accumulated other comprehensive income increased $4.2 million during
fiscal 2000, as the Company marked its available-for-sale security portfolio to
market, net of taxes, in accordance with accounting principles generally
accepted in the United States of America. At December 31, 2000, the ratio of the
Company's stockholders' equity to total assets amounted to 6.6% and the Bank
exceeded its minimum regulatory capital requirements. See "--Liquidity and
Capital Resources".

RESULTS OF OPERATIONS

         General. The Company's results of operations depend substantially on
its net interest and dividend income, which is the difference between interest
and dividend income on interest-earning assets, consisting primarily of loans
receivable, mortgage-backed and investment securities and various other
short-term investments, and interest expense on interest-bearing liabilities,
consisting primarily of deposits and borrowings. On an ongoing basis, the
Company's results of operations will be affected by the level of its noninterest
income including deposit related income; loan fees and service charges; net
gains (losses) on sales of assets; the level of its noninterest expense, such as
compensation and employee benefits, deposit insurance premiums, provisions for
losses on foreclosed assets, equipment and data processing expense and occupancy
expense; its provisions for losses on loans resulting from the Company's
assessment of the adequacy of its allowance for losses on loans; and provisions
for income taxes.



                                       33
<PAGE>   36

         Net Income. The Company reported net income of $23.8 million, $22.0
million and $18.4 million during the years ended December 31, 2000, 1999 and
1998, respectively. Net income increased by $1.8 million or 8.3% during the year
ended December 31, 2000, as compared to the year ended December 31, 1999,
primarily due to the increase in the net interest and dividend income as a
result of the Company's growth in the loan portfolio. The extraordinary item of
$922,000 and $257,000, net of tax, charged to income during the years ended
December 31, 2000 and 1999, respectively, occurred as a result of the Company's
purchase and retirement of $34.1 million and $4.8 million of senior notes.

         Net Interest and Dividend Income. Net interest and dividend income is
determined by the Company's net interest spread (i.e., the difference between
the yields earned on its interest-earning assets and the rates paid on its
interest-bearing liabilities) and the relative amounts of interest-earning
assets and interest-bearing liabilities.

         Net interest and dividend income rose in all comparative periods
presented as the Company continued to increase its net interest earnings assets
(interest-earning assets less interest-bearing liabilities). The Company's net
interest margin and interest spread increased between the December 31, 1998 and
December 31, 1999 comparative periods as the cost of interest bearing
liabilities declined. However, during the year ended December 31, 2000, the
Company's interest rate spread and margin declined due to market driven interest
rate pressures. Despite interest rate pressures in 2000, growth in the Company's
loan receivables resulted in a continued rise in net interest income.



                                       34
<PAGE>   37

AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

    The following table sets forth, for the periods indicated, information
    regarding (i) the total dollar amount of interest income of the Company from
    interest-earning assets and the resultant average yields, (ii) the total
    dollar amount of interest expense on interest-bearing liabilities and the
    resultant average rates, (iii) net interest income, (iv) interest rate
    spread, and (v) net interest margin. Information is based on average daily
    balances during the indicated periods (dollars in thousands):

<TABLE>
<CAPTION>
                                                                      Years ended December 31,
                                          -------------------------------------------------------------------------------
                                                           2000                                      1999
                                          --------------------------------------    -------------------------------------
                                            Average                    Average        Average                   Average
                                            Balance      Interest     Yield/Cost      Balance      Interest    Yield/Cost
                                          ----------    ----------    ----------    ----------    ----------   ----------
<S>                                       <C>           <C>           <C>           <C>           <C>          <C>
Interest-earning assets:
  Loans receivable(1)                     $1,817,414    $  157,648          8.67%   $1,577,869    $  130,869         8.29%
  Securities(2)                              418,280        29,811          7.13       501,781        34,141         6.80
  Securities purchased under
   agreements to resell                           --            --            --            --            --           --
  Other earning assets(3)                     40,794         2,743          6.72        46,423         3,288         7.08
                                          ----------    ----------                  ----------    ----------
   Total interest-earning assets           2,276,488       190,202          8.35%    2,126,073       168,298         7.92%
                                                        ----------    ==========                  ----------   ==========
Noninterest-earning assets                    96,288                                    93,673
                                          ----------                                ----------
   Total assets                           $2,372,776                                $2,219,746
                                          ==========                                ==========
Interest-bearing liabilities:
  Deposits:
   Transaction accounts(4)                $  429,466    $   15,197          3.54%   $  358,235    $   10,160         2.84%
   Term certificates of deposit            1,309,327        73,220          5.59     1,204,661        60,416         5.02
                                          ----------    ----------                  ----------    ----------
    Total deposits                         1,738,793        88,417          5.08     1,562,896        70,576         4.52
  Borrowings:
   FHLB advances                             262,885        16,329          6.11       292,758        14,901         5.09
   Securities sold under agreements
    to repurchase and other                   18,352         1,073          5.85            --            --           --
   Senior notes                               50,113         6,033         11.81        78,442         9,310        11.81
                                          ----------    ----------                  ----------    ----------
    Total interest-bearing liabilities     2,070,143       111,852          5.40%    1,934,096        94,787         4.90%
                                                        ----------    ==========                  ----------    ==========
Noninterest-bearing liabilities              164,045                                   161,059
                                          ----------                                ----------
    Total liabilities                      2,234,188                                 2,095,155
Stockholders' equity                         138,588                                   124,591
                                          ----------                                ----------
    Total liabilities and stockholders'
     equity                               $2,372,776                                $2,219,746
                                          ==========                                ==========
Net interest-earning assets               $  206,345                                $  191,977
                                          ==========                                ==========
Net interest income/interest rate
  spread                                                $   78,350          2.95%                 $   73,511         3.02%
                                                        ==========    ==========                  ==========    ==========
Net interest margin                                                         3.44%                                    3.46%
                                                                      ==========                                ==========
Ratio of average interest-earning
  assets to average interest-bearing
  liabilities                                                             109.97%                                   109.93%
                                                                      ==========                                ==========

<CAPTION>
                                                Years ended December 31,
                                          ------------------------------------
                                                          1998
                                          ------------------------------------
                                            Average                  Average
                                            Balance     Interest    Yield/Cost
                                          ----------   ----------   ----------
<S>                                       <C>          <C>          <C>
Interest-earning assets:
  Loans receivable(1)                     $1,162,514   $   96,851         8.33%
  Securities(2)                              577,526       41,862         7.25
  Securities purchased under
   agreements to resell                       70,368        3,947         5.61
  Other earning assets(3)                     73,004        4,544         6.22
                                          ----------   ----------
   Total interest-earning assets           1,883,412      147,204         7.81%
                                                       ----------   ==========
Noninterest-earning assets                    93,316
                                          ----------
   Total assets                           $1,976,728
                                          ==========
Interest-bearing liabilities:
  Deposits:
   Transaction accounts(4)                $  298,808   $    7,002         2.34%
   Term certificates of deposit            1,253,482       67,741         5.40
                                          ----------   ----------
    Total deposits                         1,552,290       74,743         4.82
  Borrowings:
   FHLB advances                             132,659        7,547         5.69
   Securities sold under agreements
    to repurchase and other                       64          678           --
   Senior notes                               80,000        9,470        11.81
                                          ----------   ----------
    Total interest-bearing liabilities     1,765,013       92,438         5.24%
                                                       ----------   ==========
Noninterest-bearing liabilities              107,718
                                          ----------
    Total liabilities                      1,872,731
Stockholders' equity                         103,997
                                          ----------
    Total liabilities and stockholders'
     equity                               $1,976,728
                                          ==========
Net interest-earning assets               $  118,399
                                          ==========
Net interest income/interest rate
  spread                                               $   54,766         2.57%
                                                       ==========   ==========
Net interest margin                                                       2.91%
                                                                    ==========
Ratio of average interest-earning
  assets to average interest-bearing
  liabilities                                                           106.71%
                                                                    ==========
</TABLE>



----------

(1)      The average balance of loans receivable includes nonperforming loans,
         interest on which is recognized on a cash basis, and excludes the
         allowance for loan losses which is included in noninterest-earning
         assets.

(2)      Includes all securities including the market valuation accounts.

(3)      Includes cash and due from banks, interest bearing deposits and FHLB
         and FRB stock.

(4)      Includes passbook, NOW, and money market accounts.



                                       35
<PAGE>   38

RATE/VOLUME ANALYSIS

    The following table sets forth the effects of changing rates and volumes on
    net interest income of the Company. Information is provided with respect to
    (i) effects on interest income attributable to changes in volume (changes in
    volume multiplied by prior rate); (ii) effects on interest income
    attributable to changes in rate (changes in rate multiplied by prior
    volume); and (iii) changes in rate/volume (change in rate multiplied by
    change in volume) (dollars in thousands):

<TABLE>
<CAPTION>
                                 Year ended December 31, 2000 compared to 1999  Year ended December 31, 1999 compared to 1998
                                 ---------------------------------------------  ---------------------------------------------
                                   Increase (Decrease) due to                     Increase (Decrease) due to
                                 -------------------------------                -------------------------------
                                                                    Total Net                                      Total Net
                                                                    Increase                                       Increase
                                   Rate     Volume   Rate/Volume   (Decrease)     Rate     Volume   Rate/Volume   (Decrease)
                                 -------   -------   -----------   ----------   -------   -------   -----------   ----------
<S>                              <C>       <C>       <C>           <C>          <C>       <C>       <C>           <C>
Interest-earning assets:
   Loans receivable              $ 6,000    19,868           911       26,779      (432)   34,604          (154)      34,018
   Securities                      1,621    (5,681)         (270)      (4,330)   (2,567)   (5,490)          336       (7,721)
   Securities purchased under
     agreements to resell             --        --            --           --    (3,947)   (3,947)        3,947       (3,947)
   Other earning assets             (166)     (399)           20         (545)      627    (1,655)         (228)      (1,256)
                                 -------   -------   -----------   ----------   -------   -------   -----------   ----------
         Total net change in
           income on
           interest-earning
           assets                  7,455    13,788           661       21,904    (6,319)   23,512         3,901       21,094
                                 -------   -------   -----------   ----------   -------   -------   -----------   ----------

Interest-bearing liabilities:
   Deposits:
     Transaction accounts          2,517     2,020           500        5,037     1,473     1,392           293        3,158
     Term certificates of
       deposit                     6,951     5,249           604       12,804    (4,877)   (2,638)          190       (7,325)
                                 -------   -------   -----------   ----------   -------   -------   -----------   ----------
       Total deposits              9,468     7,269         1,104       17,841    (3,404)   (1,246)          483       (4,167)
   Borrowings:
     FHLB advances                 3,283    (1,520)         (335)       1,428      (795)    9,108          (959)       7,354
     Securities sold under
       agreements to repurchase       --        --         1,073        1,073        --        --            --           --
     Promissory note payable          --        --            --           --        --        --          (678)        (678)
     Senior notes                     (4)   (3,347)           74       (3,277)        5      (184)           19         (160)
                                 -------   -------   -----------   ----------   -------   -------   -----------   ----------
         Total net change in
           expense on
           interest-bearing
           liabilities            12,747     2,402         1,916       17,065    (4,194)    7,678        (1,135)       2,349
                                 -------   -------   -----------   ----------   -------   -------   -----------   ----------
Change in net interest income    $(5,292)   11,386        (1,255)       4,839    (2,125)   15,834         5,036       18,745
                                 =======   =======   ===========   ==========   =======   =======   ===========   ==========

<CAPTION>
                                 Year ended December 31, 1998 compared to 1997
                                 ---------------------------------------------
                                   Increase (Decrease) due to
                                 -------------------------------
                                                                    Total Net
                                                                    Increase
                                   Rate     Volume   Rate/Volume   (Decrease)
                                 -------   -------   -----------   ----------
<S>                              <C>       <C>       <C>           <C>
Interest-earning assets:
   Loans receivable              (17,988)   12,706        (2,191)      (7,473)
   Securities                     15,139   (43,271)       (8,360)     (36,492)
   Securities purchased under
     agreements to resell            (46)    1,875           (41)       1,788
   Other earning assets               97       504            12          613
                                 -------   -------   -----------   ----------
         Total net change in
           income on
           interest-earning
           assets                 (2,798)  (28,186)      (10,580)     (41,564)
                                 -------   -------   -----------   ----------

Interest-bearing liabilities:
   Deposits:
     Transaction accounts         (1,053)      883          (128)        (298)
     Term certificates of
       deposit                    (3,564)   (4,135)          196       (7,503)
                                 -------   -------   -----------   ----------
       Total deposits             (4,617)   (3,252)           68       (7,801)
   Borrowings:
     FHLB advances                (7,836)  (29,656)        5,944      (31,548)
     Securities sold under
       agreements to repurchase  (11,848)  (11,843)       12,521      (11,170)
     Promissory note payable        (583)     (583)          583         (583)
     Senior notes                     (2)    6,500            20        6,518
                                 -------   -------   -----------   ----------
         Total net change in
           expense on
           interest-bearing
           liabilities           (24,886)  (38,834)       19,136      (44,584)
                                 -------   -------   -----------   ----------
Change in net interest income     22,088    10,648       (29,716)       3,020
                                 =======   =======   ===========   ==========
</TABLE>



                                       36
<PAGE>   39

         Interest Income. Total interest and dividend income increased by $21.9
million or 13.0% during the year ended December 31, 2000 as compared to the year
ended December 31, 1999. Total interest and dividend income increased by $21.1
million or 14.3% during the year ended December 31, 1999 as compared to the year
ended December 31, 1998. During the years ended 2000 and 1999, the Company's
average balance of loans receivable increased while rate changes were steady or
increasing. Correspondingly, during these periods, interest income on loans
receivable increased $26.8 million or 20.5% during the year ended December 31,
2000 and $34.0 million or 35.1% during the year ended December 31, 1999 as
compared to the prior periods. During the year ended 1998, a decline in the
weighted average yield of the Company's loan portfolio offset average balance
increases which resulted in a total net decrease in interest income on loans
receivable of $7.5 million.

         Interest income on securities and other interest-earning assets (which
includes mortgage-backed and related securities, including CMOs, U.S. Government
and agency securities, FHLB stock and FRB stock) declined by $4.9 million or
13.0%, $12.9 million or 25.7% and $34.1 million or 40.4% during the years ended
December 31, 2000, 1999 and 1998, respectively, as compared to the same periods
in the prior years. The decline in interest income on such investments during
the years ended December 31, 2000, 1999 and 1998 was primarily due to the
decreases in the average balance of such investments of $89.1 million, $172.7
million and $671.3 million during each respective comparative period.

         Interest Expense. Interest expense on deposits is the largest component
of the Company's interest-bearing liabilities and rose $17.8 million or 25.3%
during the year ended December 31, 2000. The increased expense was associated
with the corresponding $83.5 million increase in total deposits as well as the
56 basis point increase in the costs of those deposits during the year ended
December 31, 2000. Interest expense on deposits declined from $74.7 million at
December 31, 1998 to $70.6 million at December 31, 1999. The interest expense
decline was due largely to a decline in the average cost of those deposits which
fell from 4.82% to 4.52% during the period ended December 31, 1999. Average
balance declines of interest-bearing deposits for the year ended December 31,
1998, coupled with declines in the cost of those funds, led to the decline in
interest expense noted for that period.

         Interest expense on FHLB advances increased $1.4 million or 9.6% and
$7.4 million or 97.4% during the years ended December 31, 2000 and 1999,
respectively. The increase in interest expense on FHLB advances for the year
ended December 31, 2000 when compared to the same period in the prior year is
due to a 102 basis point increase in the cost of those funds. The increase in
interest expense on FHLB advances for the year ended December 31, 1999 when
compared to the same period in the prior year is due to the 120.7% increase in
the average balance of those borrowings when compared to the same period in the
prior year. Interest expense on FHLB advances declined $31.5 million or 80.7%
during the year ended December 31, 1998 due to the 75.9% decline in the average
balance of those borrowings, when compared to the same period in the prior year.
This decline in the average balance was due to the strategic balance sheet
restructuring undertaken by new management after the Private Placement and the
Redemption in September 1997. During this period, the Company began to reduce
its securities holdings through periodic bulk sale transactions and utilized
those proceeds to pay off its reverse repurchase agreements and pay down FHLB
advances.

         Interest expense on securities sold under agreements to repurchase
totaled $1.1 million during the year ended December 31, 2000 as the Company
began offering its commercial customers cash sweep account services. There was
no interest expense for securities sold under agreements to repurchase for the
year ended December 31, 1999. Interest expense on reverse repurchase agreements
declined $11.2 million or 94.3% during the year ended December 31, 1998 as
compared to the prior period.

         During the periods presented, interest expense on notes payable
consisted of interest accrued with respect to the senior notes. On September 8,
1997, in connection with the closing of the Private Placement and the
Redemption, the Company issued $80.0 million of the senior notes (which are due
in September 2004 and bear interest at the rate of 11.0% payable semi-annually).
Interest expense and



                                       37
<PAGE>   40

amortization of issuance costs on the senior notes (which began to accrue on
September 8, 1997) amounted to $6.0 million, $9.3 million and $9.5 million
during the years ended December 31, 2000, 1999 and 1998, respectively.

         Provision for Loan Losses. The provision for loan losses is charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on (i) an estimate by management of loan losses
that occurred during the current period and (ii) an ongoing adjustment of prior
estimates of losses occurring in prior periods. To serve as a basis for making
this provision each quarter, the Company maintains an extensive credit risk
monitoring process that considers several factors, including among other things,
current economic conditions affecting the Company's customers, the payment
performance of individual large loans and pools of homogeneous small loans,
portfolio seasoning, changes in collateral values, and detailed reviews of
specific large loan relationships. For large loans deemed to be impaired due to
an expectation that all contractual payments will probably not be received,
impairment is measured by comparing the Company's recorded investment in the
loan to the present value of expected cash flows discounted at the loan's
effective interest rate, the fair value of the collateral or the loan's
observable market price. While management endeavors to use the best information
available in making its evaluations, future adjustments to the allowance for
loan losses may be necessary if economic conditions change substantially from
the assumptions used in making the evaluations. In addition, regulatory
examiners may require the Bank to recognize additions to its allowance based
upon their judgments about information available to them at the time of their
examination.

         The Company established provisions for loan losses of $2.7 million,
$2.0 million and $1.5 million during the years ended December 31, 2000, 1999 and
1998, respectively. During such respective periods, loan charge-offs (net of
recoveries) amounted to $2.7 million, $1.9 million and $1.3 million.

         Noninterest Income. Total noninterest income amounted to $17.9 million,
$18.5 million and $14.8 million during the years ended December 31, 2000, 1999
and 1998, respectively. The components of noninterest income consist of
deposit-related income, loan fees and loan service charges, net gains on sale of
assets, the increase in the cash surrender value of the bank owned life
insurance and other miscellaneous income. Total noninterest income decreased by
$609,000 or 3.3% during the year ended December 31, 2000 as compared to the year
ended December 31, 1999. This decrease is primarily attributable to the
elimination of the origination of residential loans from its portfolio by the
Bank as a continuing shift in its course of business as a commercial bank. Total
noninterest income increased by $3.8 million or 25.4% during the year ended
December 31, 1999, as compared to the year ended December 31, 1998, due to
increased loan fees and service charges as well as increased deposit related
services charges. Net gains on sale of assets recognized during the years ended
December 31, 2000, 1999 and 1998 of $646,000, $1.2 million and $932,000,
respectively, came as a result of the Company's sale of mortgage-related
securities, mortgages and consumer loans. See "Qualitative and Quantitative
Disclosure about Market Risk--Asset and Liability Management" in Item 7A hereof.

         Noninterest Expense. Total noninterest expense decreased $661,000 or
1.2% during the year ended December 31, 2000 as compared to the same period in
the prior year primarily due to reductions in advertising and professional fees
and, to a lesser extent, a reduction in occupancy costs as the Bank determined
it was cost effective to purchase previously leased space as the opportunity
became available. Total noninterest expense increased $15.8 million or 40.0%
during the year ended December 31, 1999 as compared to $3.2 million or 7.4% for
the year ended December 31, 1998. The increase in noninterest expense for the
year ended December 31, 1999 as compared to the year ended December 31, 1998
resulted from additional compensation, benefits and other noninterest expenses
associated with the formation of the new corporate lending unit. Additional
increases in noninterest expense in 1999 were due to additional data processing
expenses incurred as a result of the Company's Year 2000 readiness efforts,
additional costs incurred in connection with the acquisition and operation of
BankSouth as well as start-up costs associated with the new Operations Center
which became fully functional during the year ended December 31, 1999.



                                       38
<PAGE>   41

         Provision for Income Taxes. During the years ended December 31, 2000,
1999 and 1998, the Company recognized $14.3 million, $12.6 million and $10.3
million, respectively, of provisions for income taxes. At December 31, 2000, the
Company had approximately $113.0 million of net operating loss carryforwards
available for state income tax purposes. The state net operating loss
carryforwards expire in varying amounts between 2006 and 2013. At December 31,
2000, 1999 and 1998, a valuation allowance for all available state net operating
loss carryforwards was established as it was determined to be more likely than
not that the benefit of the deferred tax asset would not be realized.
Historically, the Company has generated income for federal income tax purposes.
Based on the current strategy of new management, no valuation allowance for
other deferred tax assets has been established as the Company believes it is
more likely than not that sufficient income for federal income tax purposes will
be realized. See "Business--Taxation--Federal" in Item 1 hereof and Note 12 of
the Notes to Consolidated Financial Statements in Item 8 hereof.

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity. Liquidity refers to the Company's ability to generate
sufficient cash to meet the funding needs of current loan demand, savings
deposit withdrawals, principal and interest payments with respect to outstanding
borrowings and to pay operating expenses. It is management's policy to maintain
greater liquidity than required in order to be in a position to fund loan
originations, to meet withdrawals from deposit accounts, to make principal and
interest payments with respect to outstanding borrowings and to make investments
that take advantage of interest rate spreads. The Company monitors its liquidity
in accordance with guidelines established by the Company and applicable
regulatory requirements. The Company's need for liquidity is affected by loan
demand, net changes in deposit levels and the scheduled maturities of its
borrowings. The Company can minimize the cash required during the times of heavy
loan demand by modifying its credit policies or reducing its marketing effort.
Liquidity demand caused by net reductions in deposits are usually caused by
factors over which the Company has limited control. The Company derives its
liquidity from both its assets and liabilities. Liquidity is derived from assets
by receipt of interest and principal payments and prepayments, by the ability to
sell assets at market prices and by utilizing unpledged assets as collateral for
borrowings. Liquidity is derived from liabilities by maintaining a variety of
funding sources, including deposits, advances from the FHLB, securities sold
under agreements to repurchase and other short and long-term borrowings.

         The Company's liquidity management is both a daily and long-term
function of funds management. Liquid assets are generally invested in short-term
investments such as overnight money funds and short-term government agency
securities. If the Company requires funds beyond its ability to generate them
internally, various forms of both short and long-term borrowings provide an
additional source of funds. At December 31, 2000, the Company had unutilized
borrowing capacity with the FHLB with a credit limit subject to the maximum
amount of credit available under the Federal Home Loan Bank System Credit
Policy.

         At December 31, 2000, the Company had outstanding loan commitments
(including unused lines of credit) for commercial real estate and commercial
business loans of $232.8 million. Certificates of deposit which are scheduled to
mature within one year totaled $1.029 billion at December 31, 2000, and
borrowings that are scheduled to mature within the same period totaled $190.0
million. The Company anticipates that it will have sufficient funds available to
meet its current loan commitments and that, based upon past experience and
current pricing policies, it can adjust the rates of certificates of deposit to
retain a substantial portion of its maturing certificates and also, to the
extent deemed necessary, refinance any maturing borrowings.

         During the years ended December 31, 2000 and 1999, the Company made
interest payments on the senior notes funded through dividends from the Bank.
During the years ended December 31, 2000 and 1999, the Company purchased and
retired $34.09 million and $4.75 million, respectively, of the senior notes
which had been issued in connection with the Company's recapitalization in 1997.
This



                                       39
<PAGE>   42

move will reduce future interest costs associated with those notes. The senior
notes have an annual debt service requirement of $4.5 million. During the year
ending December 31, 2001, the Company intends to fund the interest payments
scheduled to be made on March 1, 2001 and September 1, 2001 through dividends
from the Bank.

         Capital Resources. Federally insured institutions such as the Company
and the Bank are required to maintain minimum levels of regulatory capital. See
"Business--Regulation and Supervision--Capital Requirements" in Item 1 hereof.
The following table reflects the Company's and the Bank's actual levels of
regulatory capital and applicable regulatory capital requirements at December
31, 2000 (dollars in thousands):

<TABLE>
<CAPTION>
                           Minimum Required            Actual                 Excess
                         --------------------   --------------------   --------------------
                          Percent     Amount     Percent     Amount     Percent     Amount
                         --------    --------   --------    --------   --------    --------
<S>                      <C>         <C>        <C>         <C>        <C>         <C>
The Company:
   Leverage                  4.00%   $ 96,198       5.61%   $134,804       1.61%   $ 38,606
   Core capital              4.00      69,657       7.74     134,804       3.74      65,147
   Total capital             8.00     139,314       9.00     156,653       1.00      17,339

The Bank:
   Leverage                  4.00%   $ 96,147       7.30%   $175,459       3.30%   $ 79,312
   Core capital              4.00      69,604      10.08     175,459       6.08     105,855
   Total capital             8.00     139,209      11.34     197,292       3.34      58,083
</TABLE>

INFLATION AND CHANGING PRICES

         The Consolidated Financial Statements and related data presented in
Item 8 hereof have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require the
measurement of financial position and operating results in terms of historical
dollars (except with respect to available for sale securities which are carried
at market value), without considering changes in the relative purchasing power
of money over time due to inflation. Unlike most industrial companies,
substantially all of the assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a more significant impact on the
Company's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services.

RECENT ACCOUNTING PRONOUNCEMENTS

         Set forth below are recent accounting pronouncements which may have a
future effect on the Company's operations. These pronouncements should be read
in conjunction with the significant accounting policies which the Company has
adopted that are set forth in the Company's Notes to Consolidated Financial
Statements in Item 8 hereof.

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.



                                       40
<PAGE>   43

         SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after December 15, 2000 with earlier application not permitted.
Management has determined that this Statement did not have an impact on the
consolidated financial position or the results of operations of the Company upon
implementation on January 1, 2001.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET AND LIABILITY MANAGEMENT

         Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. It is the objective of the
Company to attempt to control risks associated with interest rate movements. In
general, management's strategy is to match asset and liability balances within
maturity categories to limit the Company's exposure to earnings variations and
variations in the value of assets and liabilities as interest rates change over
time. The Company's asset and liability management strategy is formulated and
monitored by the Asset/Liability Management Committee, which is comprised of the
Chief Executive Officer, the President, the Chief Financial Officer, the
Director of Retail Operations and the Investment Manager of the Company, in
accordance with policies approved by the Board of Directors of the Company. The
Asset/Liability Management Committee meets monthly or as needed to review, among
other things, the sensitivity of the Company's assets and liabilities to
interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, including those attributable to hedging
transactions, purchase and sale activity, and maturities and prepayments of
loans, investments and borrowings. The Asset/Liability Management Committee also
approves and establishes pricing and funding decisions with respect to overall
asset and liability composition and reports to the full Board of Directors.

         One of the primary goals of the Company's Asset/Liability Management
Committee is to effectively increase the duration of the Company's liabilities
and/or effectively contract the duration of the Company's assets so that the
respective durations are matched as closely as possible. This duration
adjustment can be accomplished either internally by restructuring the Company's
balance sheet, or externally by adjusting the duration of the Company's assets
and/or liabilities through the use of hedging contracts, such as interest rate
swaps, caps and floors. Although the Company has in the past hedged its interest
rate exposure externally through the use of various hedging contracts, the
Company's current strategy is to hedge internally through the use of core
transaction deposit accounts which are not as rate sensitive as other deposit
instruments and FHLB advances, together with an emphasis on investing in
shorter-term or adjustable rate assets which are more responsive to changes in
interest rates, such as adjustable rate U.S. Government agency mortgage-backed
securities, short-term U.S. Government agency securities and commercial and
consumer loans. The foregoing strategies are more fully described below.

         A commonly used method for evaluating interest rate risk includes an
analysis of the interest rate sensitivity "gap", which is defined as the
difference between interest-earning assets and interest-bearing liabilities
maturing or repricing within a given time period. A gap is considered positive
when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. Normally, during a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income, while a positive gap
would tend to affect net interest income adversely. Due to differences between
institutions' balance sheets, these variances may affect institutions
differently. Because different types of assets and liabilities with the same or
similar maturities may react differently to changes in overall market rates or
conditions, changes in interest rates may affect net interest income positively
or negatively even if an institution were perfectly matched in each maturity
category.



                                       41
<PAGE>   44

         The following table summarizes the anticipated maturities or repricing
of the Company's interest-earning assets and interest-bearing liabilities as of
December 31, 2000, based on the information and assumptions set forth in the
notes below (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                             More Than
                                                               Three to      More Than      Three Years
                                              Within Three      Twelve      One Year to       to Five      Over Five
                                                 Months         Months      Three Years        Years         Years       Total
                                              ------------     ---------    ------------    ------------   ---------   ---------
<S>                                           <C>              <C>          <C>             <C>            <C>         <C>
Interest-earning assets(1):
   Loans receivable(2)                        $    731,640       296,114         430,422         276,995     132,754   1,867,925
   Securities(3)                                    52,041        44,435         109,063          88,539      52,926     347,004
   Other interest-earning assets(4)                 59,605         3,783              --              --          --      63,388
                                              ------------     ---------    ------------    ------------   ---------   ---------
       Total                                  $    843,286       344,332         539,485         365,534     185,680   2,278,317
                                              ============     =========    ============    ============   =========   =========

Interest-bearing liabilities:
   Deposits(5):
     Money market and NOW
       accounts                               $    221,256        40,263          73,503          44,136      68,657     447,815
     Passbook accounts                               3,465        10,394          19,230          11,691      18,127      62,907
     Certificates of deposit                       466,072       562,854         202,798          29,558         852   1,262,134
   Borrowings:
     FHLB advances(6)                              190,000            --              --              --          28     190,028
     Securities sold under agreements
       to repurchase                                38,214            --              --              --          --      38,214
     Senior notes                                       --            --              --          41,160          --      41,160
                                              ------------     ---------    ------------    ------------   ---------   ---------
       Total                                  $    919,007       613,511         295,531         126,545      87,664   2,042,258
                                              ============     =========    ============    ============   =========   =========

Excess (deficiency) of interest-earning
   assets over interest-bearing liabilities   $    (75,721)     (269,179)        243,954         238,989      98,016     236,059
                                              ============     =========    ============    ============   =========   =========
Cumulative excess (deficiency) of
   interest-earning assets over
   interest-bearing liabilities               $    (75,721)     (344,900)       (100,946)        138,043     236,059     236,059
                                              ============     =========    ============    ============   =========   =========
Cumulative excess (deficiency) of
   interest-earning assets over
   interest-bearing liabilities as
   a percent of total assets                         (3.19)%      (14.51)          (4.25)           5.81        9.93        9.93
                                              ============     =========    ============    ============   =========   =========
</TABLE>

----------

(1)      Adjustable-rate loans and securities are included in the period in
         which interest rates are next scheduled to adjust rather than in the
         period in which they mature and fixed-rate loans and securities are
         included in the periods in which they are scheduled to be repaid, based
         on scheduled amortization, in each case as adjusted to take into
         account estimated prepayments based on, among other things, historical
         performance.

(2)      Balances have been reduced for nonaccrual loans.

(3)      Does not include unrealized gain on securities classified as available
         for sale.

(4)      Comprised of cash and due from banks, deposits with other banks and
         FHLB and FRB stock.

(5)      Adjusted to take into account assumed annual decay rates which were
         applied against money market, NOW and passbook accounts.

(6)      Maturity based on call date rather than actual maturity date.

         Although interest rate sensitivity gap is a useful measurement and
contributes toward effective asset and liability management, it is difficult to
predict the effect of changing interest rates based solely on that measure. As a
result, the Asset/Liability Management Committee also regularly reviews interest
rate risk by forecasting the impact of alternative interest rate environments on
net interest income and economic value of equity ("EVE"), which is defined as
the net present value of an institution's existing assets, liabilities and
off-balance sheet instruments, and evaluating such impacts against the maximum
potential changes in net interest income and EVE that is authorized by the Board
of Directors of the Company.



                                       42
<PAGE>   45

         The following tables set forth for the indicated dates the estimated
dollar and percentage change in the Company's net interest income over a four
quarter period and EVE based on the indicated changes in interest rates.

<TABLE>
<CAPTION>
                                              December 31, 2000                     December 31, 1999
                                             Net Interest Income                   Net Interest Income
                                            (next four quarters)                  (next four quarters)
               --------------------- ------------------------------------  ------------------------------------
                                         Estimated                             Estimated
                 Change (in Basis         Change                                Change
               Points) in Interest       from Base           % Change          from Base           % Change
                     Rates(1)             (000's)           from Base           (000's)           from Base
               --------------------- -----------------  -----------------  ------------------ -----------------
<S>                                  <C>                <C>                <C>                <C>
                       +200                   591                 1              (2,334)               (3)

                       +100                   330                --                (766)               (1)

                          0                81,960(2)             --              76,842(2)             --


                       -100                 2,394                 3               2,771                 4

                       -200                (1,041)               (1)             12,505                16
</TABLE>


<TABLE>
<CAPTION>
                                              December 31, 2000                     December 31, 1999
                                                     EVE                                   EVE
               --------------------- ------------------------------------  ------------------------------------
                                         Estimated                             Estimated
                 Change (in Basis         Change                                Change
               Points) in Interest       from Base           % Change          from Base           % Change
                     Rates(1)             (000's)           from Base           (000's)           from Base
               --------------------- -----------------  -----------------  ------------------ -----------------
<S>                                  <C>                <C>                <C>                <C>
                       +200               (33,635)              (16)           (44,864)               (25)

                       +100               (14,166)               (7)           (21,150)               (12)

                          0               215,360                --            179,137                 --

                       -100                 3,735                 2             17,164                 10

                       -200                    38                --             16,143                  9
</TABLE>

----------

(1)      Assumes an instantaneous uniform change in interest rates at all
         maturities.

(2)      The base net interest income is an estimate made by utilizing yields
         and rates on assets and liabilities in the existing balance sheet as of
         the dates shown adjusted for assumptions based on, among other things,
         future loan and deposit changes and estimated loan prepayment speeds.

         The increase from December 31, 1999 to December 31, 2000 in net
interest income in the base case is mainly due to a reduction in the senior
notes balance outstanding and the addition of lower cost fixed rate borrowings.
The drop in sensitivity from December 31, 1999 in the down 200 basis points
shock is primarily due to a drop in discount accretion in the down shocks due to
a lower balance of discounted mortgage securities. December 31, 1999 net
interest income shocks have been revised to reflect current methodology used in
the calculation of duration on savings and demand deposits.



                                       43
<PAGE>   46

         The increase from December 31, 1999 to December 31, 2000 in EVE in the
base case is mainly due to net income for 2000 and the drop in market rates from
December 31, 1999. The drop in sensitivity of EVE from December 31, 1999 within
the shocks is largely due to a shift of assets from securities to loans and a
shorter duration on the loan portfolio due to increasing prepayment speeds.

         The model reflects only the effects of assumptions made by management
while running the different interest rate shocks. The only variables between the
different rate shocks are the interest rates and the prepayment speeds.

         The prepayment assumptions used in the model are based on historical
and market estimates. Standard present value calculation methodology is used to
discount the estimated future cash flows of assets and liabilities at
appropriate discount rates. The market value for COFI-indexed CMOs is obtained
through a Bloomberg calculator.

         Management of the Company believes that the assumptions used by it to
evaluate the vulnerability of the Company's operations to changes in interest
rates are reasonable; however, the interest rate sensitivity of the Company's
assets and liabilities and the estimated effects of changes in interest rates on
the Company's net interest income and EVE could vary substantially if different
assumptions were used or actual experience differs from the historical
experience on which they are based.

         The preceding discussion about the Company's risk management activities
includes "forward-looking statements" that involve risks and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         See Consolidated Financial Statements at F-1.

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

         There were no changes in and/or disagreements with accountants on
accounting and financial disclosure during the years ended December 31, 2000 and
1999.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required in response to this Item is incorporated
herein by reference from the Company's proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.

ITEM 11. EXECUTIVE COMPENSATION

         The information required in response to this Item is incorporated
herein by reference from the Company's proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required in response to this Item is incorporated
herein by reference from the Company's proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.



                                       44
<PAGE>   47

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required in response to this Item is incorporated
herein by reference from the Company's proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year covered by this report.

                                     PART IV

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

(a)(1) Financial Statements. The following financial statements for the Years
Ended December 31, 2000, 1999 and 1998 are filed as part of this report:


         Independent Auditors' Report

         Consolidated Statements of Financial Condition as of December 31, 2000
         and 1999.

         Consolidated Statements of Operations for the Years Ended December 31,
         2000, 1999 and 1998.

         Consolidated Statements of Stockholders' Equity for the Years Ended
         December 31, 2000, 1999 and 1998.

         Consolidated Statements of Cash Flows for the Years Ended December 31,
         2000, 1999 and 1998.

         Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules.

         No financial statement schedules are included because they are not
         required, not applicable, or the required information is contained
         elsewhere.

(a)(3) Management Contracts or Compensatory Plan Arrangements

         See exhibits marked with a double asterisk in Item 14(c) below.

(b) Reports on Form 8-K

         On April 27, 2000, Local Financial Corporation issued a press release
         announcing its first quarter earnings.

         On July 25, 2000, Local Financial Corporation issued a press release
         announcing its second quarter earnings.

         On October 24, 2000, Local Financial Corporation issued a press release
         announcing its third quarter earnings.

         On February 5, 2001, Local Financial Corporation issued a press release
         announcing its earnings for 2000.



                                       45
<PAGE>   48

(c) List of Exhibits.

Exhibit
Number            Description of Exhibit

3.1               Certificate of Incorporation of Local Financial Corporation
                  ("Local Financial")(1)

3.2               Certificate of Amendment of Local Financial(1)

3.3               Bylaws of Local Financial(1)

4.3               Indenture between Local Financial and The Bank of New York
                  ("BONY"), as Trustee, dated September 8, 1997(1)

4.4               Form of Common Stock certificate of Local Financial(1)

4.5               Form of Senior Note (included in Exhibit 4.3)(1)

10.10             Local Financial Stock Option Agreement between Local Financial
                  and Edward A. Townsend, dated September 8, 1997(1)*

10.11             Local Financial Corporation 1998 Stock Option Plan, as amended
                  July 26, 2000*

10.12             Form of Severance Agreement, dated January 1, 1999(2)*

10.13             Amended and Restated Employment Agreement between Local
                  Financial and Edward A. Townsend, effective October 1, 2000*

10.14             Amended and Restated Employment Agreement between Local
                  Financial and Jan A. Norton, effective October 1, 2000*

10.15             1998 Non-qualified Stock Option Agreement between Local
                  Financial and Edward A. Townsend dated September 23, 1998(2)

10.16             1998 Non-qualified Stock Option Agreement between Local
                  Financial and Jan A. Norton dated September 23, 1998(2)

10.17             Change of Control, Non-Competition/Non-Solicitation Agreement
                  between Local Financial Corporation and Local Oklahoma Bank,
                  N.A., and Edward A. Townsend dated January 30, 2001.*

10.18             Change of Control, Non-Competition/Non-Solicitation Agreement
                  between Local Financial Corporation and Local Oklahoma Bank,
                  N.A., and Jan A. Norton dated January 30, 2001.*

21.0              Subsidiaries of the Registrant(3)

----------

(1)      These exhibits were filed with the Company's Registration Statement
         Form S-1, Registration No. 333-43727 (effective April 21, 1998) and are
         incorporated by reference herein.

(2)      These exhibits were filed with the Company's Annual Report on Form 10-K
         for the year ended December 31, 1998 and are incorporated by reference
         herein.

(3)      This exhibit was filed with the Company's Post-Effective Amendment No.
         1 to its Registration Statement on form S-1, Registration No. 333-43727
         (effective April 21, 1999) and is incorporated by reference herein.

*Exhibits identified with an asterisk are management contracts or are
compensatory plans or arrangements.



                                       46
<PAGE>   49

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       LOCAL FINANCIAL CORPORATION

Date March 14, 2001                    By: /s/ Edward A. Townsend
                                          --------------------------------------
                                          Chairman and Chief Executive Officer

Date March 14, 2001                    By: /s/ Richard L. Park
                                          --------------------------------------
                                          Executive Vice President and
                                          Chief Financial Officer

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

Date March 14, 2001                    By: /s/ Robert A. Kotecki*
                                          --------------------------------------
                                          Robert A. Kotecki, Director

Date March 14, 2001                    By: /s/ Joseph A. Leone*
                                          --------------------------------------
                                          Joseph A. Leone, Director

Date March 14, 2001                    By: /s/ George Nigh*
                                          --------------------------------------
                                          George Nigh, Director

Date March 14, 2001                    By: /s/ Jan A. Norton
                                          --------------------------------------
                                          Jan A. Norton, Director

Date March 14, 2001                    By: /s/ Edward A. Townsend
                                          --------------------------------------
                                          Edward A. Townsend, Director

Date March 14, 2001                    By: /s/ Kenneth W. Townsend*
                                          --------------------------------------
                                          Kenneth W. Townsend, Director

Date March 14, 2001                    By: /s/ J. David Rosenberg*
                                          --------------------------------------
                                          J. David Rosenberg, Director

Date March 14, 2001                    By: /s/ Andrew M. Coats*
                                          --------------------------------------
                                          Andrew M. Coats, Director

----------

* By: /s/ Richard L. Park
     ---------------------------------
     Richard L. Park, Attorney in fact



                                       47
<PAGE>   50

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<S>                                                                                                  <C>
           Independent Auditors' Report..............................................................F-1

           Audited Consolidated Financial Statements:

           Consolidated Statements of Financial Condition
              as of December 31, 2000 and 1999.......................................................F-2

           Consolidated Statements of Operations
              for the Years Ended December 31, 2000, 1999 and 1998...................................F-3

           Consolidated Statements of Stockholders' Equity
              for the Years Ended December 31, 2000, 1999 and 1998...................................F-4

           Consolidated Statements of Cash Flows
              for the Years Ended December 31, 2000, 1999 and 1998...................................F-5

           Notes to Consolidated Financial Statements
              for December 31, 2000, 1999 and 1998...................................................F-8
</TABLE>



                                       48
<PAGE>   51

                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Local Financial Corporation:



We have audited the accompanying consolidated statements of financial condition
of Local Financial Corporation and subsidiary (the Company) as of December 31,
2000 and 1999, and related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Local Financial
Corporation and subsidiary as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.



                                                           KPMG LLP
Oklahoma City, Oklahoma
February 2, 2001



                                      F-1
<PAGE>   52

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                 Consolidated Statements of Financial Condition

                           December 31, 2000 and 1999
                    (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                          2000            1999
                                                                                      ------------    ------------
<S>                                                                                   <C>             <C>
                                     ASSETS

Cash and due from banks                                                               $     39,571          48,122
Interest bearing deposits with other banks                                                   4,400           7,700
Securities available for sale                                                              354,048         529,230
Loans receivable, net of allowance for loan losses of $28,345 at December 31, 2000
    and $28,297 at December 31, 1999                                                     1,848,876       1,685,550
Federal Home Loan Bank of Topeka and Federal Reserve Bank stock, at cost                    19,417          24,820
Premises and equipment, net                                                                 37,865          31,805
Assets acquired through foreclosure and repossession, net                                      881             723
Intangible assets, net                                                                      16,888          18,227
Current and deferred taxes, net                                                              6,976          14,217
Other assets                                                                                48,089          21,213
                                                                                      ------------    ------------

        Total assets                                                                  $  2,377,011       2,381,607
                                                                                      ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
    Deposits:
      Demand                                                                          $    606,752         458,824
      Savings                                                                               62,907          73,546
      Time                                                                               1,262,134       1,315,970
                                                                                      ------------    ------------

        Total deposits                                                                   1,931,793       1,848,340

    Advances from the Federal Home Loan Bank of Topeka                                     190,028         302,035
    Securities sold under agreements to repurchase                                          38,214              --
    Senior notes                                                                            41,160          75,250
    Other liabilities                                                                       19,545          27,688
                                                                                      ------------    ------------

        Total liabilities                                                                2,220,740       2,253,313

Commitments and contingencies

Stockholders' equity:
    Common stock, $0.01 par value, 25,000,000 shares authorized; 20,537,269 shares
      issued and 20,537,209 shares outstanding at December 31, 2000 and 1999                   205             205
    Preferred stock, $0.01 par value, 5,000,000 shares authorized; none outstanding             --              --
    Additional paid-in capital                                                             206,758         206,758
    Retained earnings                                                                       96,003          72,189
    Treasury stock, 60 shares, at cost                                                    (151,274)       (151,274)
    Accumulated other comprehensive income                                                   4,579             416
                                                                                      ------------    ------------

        Total stockholders' equity                                                         156,271         128,294
                                                                                      ------------    ------------

        Total liabilities and stockholders' equity                                    $  2,377,011       2,381,607
                                                                                      ============    ============
</TABLE>


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



                                      F-2
<PAGE>   53

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                      Consolidated Statements of Operations

              For the Years Ended December 31, 2000, 1999 and 1998
                    (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                                  --------------------------------------
                                                                     2000          1999          1998
                                                                  ----------    ----------    ----------
<S>                                                               <C>           <C>           <C>
Interest and dividend income:
    Loans                                                         $  157,648       130,869        96,851
    Securities available for sale                                     29,811        34,141        41,862
    Federal Home Loan Bank of Topeka and
      Federal Reserve Bank stock                                       1,523         2,215         3,474
    Other investments                                                  1,220         1,073         5,017
                                                                  ----------    ----------    ----------
             Total interest and dividend income                      190,202       168,298       147,204
Interest expense:
    Deposit accounts                                                  88,417        70,576        74,743
    Advances from the Federal Home Loan Bank of Topeka                16,329        14,901         7,547
    Securities sold under agreements to repurchase                     1,073            --           678
    Notes payable                                                      6,033         9,310         9,470
                                                                  ----------    ----------    ----------
             Total interest expense                                  111,852        94,787        92,438
Net interest and dividend income                                      78,350        73,511        54,766
    Provision for loan losses                                         (2,700)       (2,000)       (1,450)
                                                                  ----------    ----------    ----------
      Net interest and dividend income after provision
        for loan losses                                               75,650        71,511        53,316
Noninterest income:
    Deposit related income                                            13,304        13,606        10,389
    Loan fees and loan service charges                                 1,811         2,679         1,737
    Net gains on sale of assets                                          646         1,201           932
    Other                                                              2,172         1,056         1,724
                                                                  ----------    ----------    ----------
             Total noninterest income                                 17,933        18,542        14,782
                                                                  ----------    ----------    ----------
Noninterest expense:
    Compensation and employee benefits                                31,883        28,193        19,287
    Deposit insurance premiums                                           373           898         1,323
    Equipment and data processing                                      6,452         5,942         4,276
    Occupancy                                                          3,645         4,033         3,029
    Advertising                                                          633         1,498         2,080
    Professional fees                                                  1,061         2,587         2,142
    Other                                                             10,469        12,026         7,270
                                                                  ----------    ----------    ----------
             Total noninterest expense                                54,516        55,177        39,407
                                                                  ----------    ----------    ----------
Income before provision for income taxes and extraordinary item       39,067        34,876        28,691
    Provision for income taxes                                        14,331        12,627        10,254
                                                                  ----------    ----------    ----------
             Income before extraordinary item                         24,736        22,249        18,437
Extraordinary item--purchase and retirement of senior notes,
    net of tax                                                          (922)         (257)           --
                                                                  ----------    ----------    ----------
             Net income                                           $   23,814        21,992        18,437
                                                                  ==========    ==========    ==========
Earnings per share:
    Income before extraordinary item:
      Basic                                                       $     1.20          1.08          0.90
                                                                  ==========    ==========    ==========
      Diluted                                                     $     1.20          1.08          0.89
                                                                  ==========    ==========    ==========
    Net income:
      Basic                                                       $     1.16          1.07          0.90
                                                                  ==========    ==========    ==========
      Diluted                                                     $     1.16          1.07          0.89
                                                                  ==========    ==========    ==========
</TABLE>

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



                                      F-3
<PAGE>   54

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                 Consolidated Statements of Stockholders' Equity

              For the Years Ended December 31, 2000, 1999 and 1998
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                     ACCUMULATED
                                                                ADDITIONAL                              OTHER            TOTAL
                                                       COMMON    PAID-IN     RETAINED   TREASURY    COMPREHENSIVE    STOCKHOLDERS'
                                                       STOCK     CAPITAL     EARNINGS    STOCK      INCOME (LOSS)       EQUITY
                                                       ------   ----------   --------   --------    -------------    -------------
<S>                                                    <C>      <C>          <C>        <C>         <C>              <C>
Balance, December 31, 1997                             $  197      197,766     31,760   (149,436)           2,338           82,625
    Comprehensive income:
      Net income                                           --           --     18,437         --               --           18,437
      Net change in unrealized gains on securities
        available for sale, net of reclassification
        adjustment                                         --           --         --         --            8,744            8,744
                                                                                                                     -------------
      Comprehensive income                                                                                                  27,181
    Issuance of common stock                                8        8,992         --         --               --            9,000
                                                       ------   ----------   --------   --------    -------------    -------------

Balance, December 31, 1998                                205      206,758     50,197   (149,436)          11,082          118,806
    Comprehensive income:
      Net income                                           --           --     21,992         --               --           21,992
      Net change in unrealized gains on securities
        available for sale, net of reclassification
        adjustment                                         --           --         --         --          (10,666)         (10,666)
                                                                                                                     -------------
      Comprehensive income                                                                                                  11,326
    Settlement of the Redemption Agreement (note 13)       --           --         --     (1,838)              --           (1,838)
                                                       ------   ----------   --------   --------    -------------    -------------

Balance, December 31, 1999                                205      206,758     72,189   (151,274)             416          128,294
    Comprehensive income:
      Net income                                           --           --     23,814         --               --           23,814
      Net change in unrealized gains on securities
        available for sale, net of reclassification
        adjustment                                         --           --         --         --            4,163            4,163
                                                                                                                     -------------
      Comprehensive income                                                                                                  27,977
                                                       ------   ----------   --------   --------    -------------    -------------

Balance, December 31, 2000                             $  205      206,758     96,003   (151,274)           4,579          156,271
                                                       ======   ==========   ========   ========    =============    =============
</TABLE>


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



                                      F-4
<PAGE>   55

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

              For the Years Ended December 31, 2000, 1999 and 1998
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                                       --------------------------------------
                                                                          2000          1999          1998
                                                                       ----------    ----------    ----------
<S>                                                                    <C>           <C>           <C>
Cash provided (absorbed) by operating activities:
   Net income                                                          $   23,814        21,992        18,437
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Provisions for loan losses                                           2,700         2,000         1,450
       Deferred income tax expense                                          5,579         7,941        11,259
       Accretion of discounts on loans acquired                            (2,159)       (1,220)       (2,836)
       Accretion of discount on securities available for sale, net           (693)       (3,188)       (5,390)
       Depreciation and amortization                                        3,942         3,261         3,448
       Net change in loans held for sale                                      879         9,387        (9,055)
       Net gains on sale of assets                                           (646)       (1,201)         (932)
       Stock dividends received from Federal Home Loan Bank                    --        (2,070)       (3,474)
       Change in other assets                                                (959)       10,308        20,862
       Change in other liabilities                                         (8,772)       (9,009)       (1,140)
                                                                       ----------    ----------    ----------

         Net cash provided by operating activities                         23,685        38,201        32,629
                                                                       ----------    ----------    ----------

Cash provided (absorbed) by investing activities:
   Proceeds from sales of securities available for sale                   283,910       160,174        47,764
   Proceeds from principal collections on securities
     available for sale                                                    58,570       246,140       233,323
   Purchase of securities available for sale                              (73,178)     (367,496)     (272,937)
   Purchases of securities under agreements to resell                          --            --    (1,139,462)
   Proceeds from maturity of securities purchased under
     agreements to resell                                                      --            --     1,317,462
   Purchases of Federal Home Loan Bank and
     Federal Reserve Bank stock                                            (6,632)       (4,659)           --
   Proceeds from the sale of Federal Home Loan Bank and
     Federal Reserve Bank stock                                            12,035        24,602         8,797
   Purchase of bank owned life insurance                                  (25,000)           --            --
   Proceeds from the sales of loans                                            --            --        29,592
   Change in loans receivable, net                                       (252,767)     (308,612)     (184,306)
   Proceeds from disposal of assets acquired through
     foreclosure and repossession                                           1,647         1,757           738
   Purchases of premises and equipment                                     (9,762)       (9,933)       (4,923)
   Proceeds from sales of premises and equipment                               71         1,313           130
   Cash paid in acquisition of Guthrie Savings, Inc., net of
     cash and cash equivalents received                                        --          (840)           --
</TABLE>



                                       F-5                           (Continued)
<PAGE>   56

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

              For the Years Ended December 31, 2000, 1999 and 1998
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                                     YEARS ENDED DECEMBER 31,
                                                                         --------------------------------------------
                                                                             2000            1999            1998
                                                                         ------------    ------------    ------------
<S>                                                                      <C>             <C>             <C>
   Cash acquired in acquisition of Green Country Banking Corporation     $         --              --           2,512
   Cash paid in acquisition of BankSouth Corporation, net of
     cash and cash equivalents received                                            --              --         (12,966)
                                                                         ------------    ------------    ------------

       Net cash provided (absorbed) by investing activities                   (11,106)       (257,554)         25,724
                                                                         ------------    ------------    ------------

Cash provided (absorbed) by financing activities:
   Change in transaction accounts                                             137,289          62,793          39,163
   Change in time deposits                                                    (53,836)         80,250        (212,923)
   Change in securities sold under agreements to repurchase                    38,214              --              --
   Proceeds from advances from the Federal Home Loan Bank                   5,980,763         655,237         918,905
   Repayments of advances from the Federal Home Loan Bank                  (6,092,770)       (573,235)       (799,608)
   Purchase of senior notes                                                   (34,090)         (4,750)             --
   Payment of liability assumed from Green Country Banking Corporation             --              --          (3,162)
                                                                         ------------    ------------    ------------

       Net cash provided (absorbed) by financing activities                   (24,430)        220,295         (57,625)
                                                                         ------------    ------------    ------------

Net change in cash and cash equivalents                                       (11,851)            942             728

Cash and cash equivalents at beginning of year                                 55,822          54,880          54,152
                                                                         ------------    ------------    ------------

Cash and cash equivalents at end of year                                 $     43,971          55,822          54,880
                                                                         ============    ============    ============

Supplemental disclosures of cash flow information:
   Cash paid (received) during the year for:
     Interest                                                            $    113,209          94,003          90,636
                                                                         ============    ============    ============

     Income taxes                                                        $      9,088          (8,890)        (12,042)
                                                                         ============    ============    ============
</TABLE>



                                      F-6
<PAGE>   57

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

              For the Years Ended December 31, 2000, 1999 and 1998
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31,
                                                                       ------------------------------------
                                                                          2000         1999         1998
                                                                       ----------   ----------   ----------
<S>                                                                    <C>          <C>          <C>
Supplemental schedule of noncash investing and financing activities:
     Transfers of loans to assets acquired through
       foreclosure and repossession                                    $    1,805        1,787          797
                                                                       ==========   ==========   ==========

     Transfer of loans securitized to securities available for
       sale and servicing rights                                       $   87,587           --           --
                                                                       ==========   ==========   ==========

     Stock issued in acquisition of Green Country Banking
       Corporation (See note 2)                                        $       --           --        9,000
                                                                       ==========   ==========   ==========
</TABLE>


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



                                      F-7
<PAGE>   58

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(1)      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Local Financial Corporation (Local Financial) is a bank holding company
         which owns 100% of the outstanding common stock of Local Oklahoma Bank,
         N.A. (Local). On March 31, 1999, Local Financial completed its merger
         of Local America Bank of Tulsa (LAB) into LAB's parent company, Local
         Federal Bank, with the merged entity operating under the name Local
         Oklahoma Bank. The merger was accounted for at historical cost as a
         combination of entities under common control similar to a pooling of
         interests. During 1999, Local filed an application with the Office of
         the Comptroller to convert to a national banking association.
         Concurrent with Local's charter conversion, Local Financial filed an
         application with the Federal Reserve Board to become registered as a
         bank holding company. Both applications were subsequently approved and
         Local converted to a national banking association on May 11, 1999. The
         accounting and reporting practices of Local Financial and its
         subsidiary reflect industry practices and are in accordance with
         accounting principles generally accepted in the United States of
         America. The more significant policies are described below.

         (a)      PRINCIPLES OF CONSOLIDATION

                  The accompanying consolidated financial statements include the
                  accounts of Local Financial and its wholly owned subsidiary,
                  Local, as well as Local's subsidiaries, Local Acceptance
                  Company (Local Acceptance), Star Financial Services
                  Corporation (Star Financial), Local Mortgage Corporation
                  (Local Mortgage), Local Securities Corporation (Local
                  Securities), and Star Properties, Incorporated (Star
                  Properties). Local is an insured depository institution which
                  obtains deposit funds primarily through retail branches
                  throughout the State of Oklahoma and lends those funds
                  throughout the United States. Local Acceptance, Star
                  Financial, Local Mortgage and Star Properties are currently
                  inactive. Local Securities is a registered broker-dealer under
                  the Securities Exchange Act of 1934 and provides retail
                  investment products to customers of Local. Local Financial and
                  its subsidiary, Local, are collectively referred to as the
                  Company. All significant intercompany accounts and
                  transactions have been eliminated in the accompanying
                  consolidated financial statements.

                  In preparing the consolidated financial statements, management
                  is required to make estimates and assumptions. Those estimates
                  and assumptions relate principally to the determination of the
                  allowance for loan losses, income taxes, the valuation of
                  assets acquired through foreclosure and repossession and the
                  fair value of financial instruments. Actual results could
                  differ from those estimates. The accounting policies for these
                  items and other significant accounting policies are presented
                  below.

         (b)      STATEMENTS OF CASH FLOWS

                  For the purpose of the consolidated statements of cash flows,
                  the Company defines cash and cash equivalents as cash and due
                  from banks and interest bearing deposits with other banks.



                                       F-8                           (Continued)
<PAGE>   59

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         (c)      SECURITIES

                  The Company's securities consist primarily of mortgage-backed
                  certificates and U. S. Government and agencies securities.
                  Mortgage-backed certificates consist of mortgage-backed
                  pass-through certificates (MBS) and mortgage-derivative
                  securities (MDS) such as collateralized mortgage obligations
                  and real estate mortgage investment conduits. Local does not
                  own any principal only, interest only or residual tranches of
                  mortgage-backed certificates. The Company classifies its
                  securities as held to maturity, available for sale and held
                  for trading. Trading securities are bought and held
                  principally for the purpose of selling them in the near term.
                  Held to maturity securities are those securities for which the
                  Company has the ability and intent to hold until maturity. No
                  investment securities within the portfolio are considered
                  trading or held to maturity at December 31, 2000 and 1999. The
                  Company has classified all of its securities as available for
                  sale. At the time of purchase, the Company classifies
                  securities as available for sale when such securities may be
                  sold at a future date or if there are foreseeable
                  circumstances under which the Company would sell such
                  securities prior to maturity.

                  Securities classified as available for sale are recorded at
                  their estimated market value. Changes in the estimated market
                  value of securities available for sale are included in
                  stockholders' equity, net of deferred taxes, as accumulated
                  other comprehensive income. Unrealized losses on available for
                  sale securities, which are judged to be other than temporary,
                  are charged to earnings in the consolidated statements of
                  operations. Gains and losses on available for sale securities
                  are computed on a specific identification basis. Premiums and
                  discounts are amortized or accreted in the consolidated
                  statements of operations to approximate a level yield over the
                  life of the related security.

                  Investment in Federal Reserve Bank (FRB) and Federal Home Loan
                  Bank of Topeka (FHLB) stock are required investments and are
                  carried at cost.

         (d)      LOANS RECEIVABLE

                  Loans receivable are recorded at the contractual amounts owed
                  by borrowers, less deferred fees, unearned interest, the
                  allowance for loan losses, nondisbursed funds, and discounts
                  on loans acquired or originated. Interest on loans is credited
                  to income as earned, to the extent deemed collectible.
                  Discounts on loans and unearned interest on consumer loans are
                  accreted into interest income to approximate a level yield
                  over the contractual lives of the loans, adjusted for actual
                  prepayments.

                  Loans are placed on nonaccrual status when they become 90 days
                  past due. Previously accrued but uncollected interest on loans
                  placed on nonaccrual status is reversed unless determined to
                  be fully collectible. Payments received on nonaccrual loans
                  are generally applied to principal as they are received. Upon
                  full collection of the principal balance or determination that
                  future collection of principal is probable, interest income is
                  recognized as received.

         (e)      PROVISION AND ALLOWANCE FOR LOAN LOSSES

                  Each period the provision for loan losses in the consolidated
                  statements of operations results from the combination of a) an
                  estimate by management of loan losses that



                                       F-9                           (Continued)
<PAGE>   60

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


                  occurred during the current period and b) the ongoing
                  adjustment of prior estimates of losses occurring in prior
                  periods.

                  To serve as a basis for making this provision each quarter,
                  the Company maintains an extensive credit risk monitoring
                  process that considers several factors including: current
                  economic conditions affecting the Company's customers, the
                  payment performance of individual large loans and pools of
                  homogeneous small loans, portfolio seasoning, changes in
                  collateral values, and detailed reviews of specific large loan
                  relationships. For large loans deemed to be impaired due to an
                  expectation that all contractual payments will probably not be
                  received, impairment is measured by comparing the Company's
                  recorded investment in the loan to the present value of
                  expected cash flows discounted at the loan's effective
                  interest rate, the fair value of the collateral or the loan's
                  observable market price.

                  The provision for loan losses increases the allowance for loan
                  losses, a valuation account which is netted against loans on
                  the consolidated statements of financial condition. As the
                  specific customer and amount of a loan loss is confirmed by
                  gathering additional information, taking collateral in full or
                  partial settlement of the loan, bankruptcy of the borrower,
                  etc., the loan is written down, reducing the allowance for
                  loan losses. If, subsequent to a writedown, the Company is
                  able to collect additional amounts from the customer or obtain
                  control of collateral worth more than previously estimated, a
                  recovery is recorded, thus increasing the allowance for loan
                  losses.

         (f)      LOAN ORIGINATION FEES, LOAN COMMITMENT FEES AND RELATED COSTS

                  The Company defers loan origination fees, loan commitment fees
                  and the incremental direct costs (principally compensation and
                  benefits relating to successful underwriting efforts) relative
                  to loans originated. These deferred fees and costs are
                  amortized into interest income to approximate a level yield
                  over the life of the related loans, adjusted for actual
                  prepayments.

                  Other loan fees such as loan servicing fees and late payment
                  fees are included as a component of noninterest income in the
                  accompanying consolidated statements of operations.

         (g)      LOANS HELD FOR SALE AND GAINS AND LOSSES FROM THE SALE OF
                  LOANS

                  Loans originated and intended for sale are carried at the
                  lower of cost or estimated market value in the aggregate. Net
                  unrealized losses are recognized through a valuation allowance
                  by charges to income. There were no loans other than student
                  loans held for sale at December 31, 2000 and 1999.

                  Gains and losses resulting from the sale of loans are
                  determined by the specific identification method and reflect
                  the extent that sales proceeds exceed or are less than the
                  carrying value of the loans sold. In some cases, the Company
                  sells loans and continues to service such loans for the
                  investor. In these cases, the Company recognizes either a
                  servicing asset, at its allocated previous carrying amount
                  based on relative fair value, or a servicing liability at fair
                  value. Any servicing assets recognized as part of the sale are
                  amortized as a deduction from servicing income in proportion
                  to and over the period of



                                      F-10                           (Continued)
<PAGE>   61

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


                  estimated net servicing income. To the extent sales of loans
                  involve the sale of part of a loan or a pool of loans, the
                  cost basis is allocated based upon the relative fair value of
                  the portion sold and the portion retained. Impairment of
                  servicing assets is assessed based on the fair value of those
                  assets. Fair values are estimated using discounted cash flows
                  based on a current market interest rate. At December 31, 2000
                  and 1999, the carrying value of servicing assets was not
                  impaired.

                  Periodically, the Company will securitize residential real
                  estate loans held for investment with the Federal National
                  Mortgage Association (FNMA) and retain all of the interest in
                  the FNMA security. No gain or loss is recognized as the
                  securitization does not qualify as a sale. The Company's
                  current carrying value is allocated between securities
                  available for sale and a servicing asset based on the relative
                  fair values.

         (h)      LOAN SERVICING

                  Loans serviced by the Company for others are primarily the
                  result of the Company selling loans while retaining the
                  servicing of those loans. These loans are not included with
                  loans receivable or any other asset in the accompanying
                  consolidated statements of financial condition. Fees earned
                  for servicing loans owned by investors are reported as income
                  when the related loan payments are collected. Loan servicing
                  costs are charged to expense as incurred. Loans serviced for
                  others totaled approximately $192,556,000 and $102,736,000, at
                  December 31, 2000 and 1999, respectively. Net servicing fees
                  earned totaled approximately $566,000, $423,000 and $466,000
                  for the years ended December 31, 2000, 1999 and 1998,
                  respectively, and are included as a component of loan fees and
                  loan service charges in the accompanying consolidated
                  statements of operations.

                  At December 31, 2000 and 1999, unamortized servicing assets
                  were approximately $1,966,000 and $1,383,000, respectively,
                  and are included in other assets. Amortization of these assets
                  totaling approximately $285,000, $706,000 and $1,024,000 was
                  charged against loan servicing income for the years ended
                  December 31, 2000, 1999 and 1998, respectively.

         (i)      PREMISES AND EQUIPMENT

                  Buildings, building improvements, furniture, fixtures and
                  equipment are stated at cost, less accumulated depreciation
                  and amortization. Depreciation and amortization is computed
                  using the straight-line method over the estimated useful lives
                  of the related assets. Estimated lives range from 25 to 30
                  years for buildings and building improvements and 3 to 10
                  years for furniture, fixtures and equipment.

                  Maintenance and repairs are charged to expense as incurred and
                  building improvements are capitalized. The costs and
                  accumulated depreciation relating to premises and equipment
                  retired or otherwise disposed of are eliminated from the
                  accounts and any resulting gains or losses are credited or
                  charged to income.



                                      F-11                           (Continued)
<PAGE>   62

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         (j)      ASSETS ACQUIRED THROUGH FORECLOSURE AND REPOSSESSION

                  Assets acquired through foreclosure and repossession are
                  recorded at estimated fair value, net of estimated selling
                  costs at the date of foreclosure or repossession. The values
                  of assets acquired through foreclosure and repossession are
                  monitored by the Company continually through sales and rental
                  activities and by updated appraisals and other valuation
                  methods when needed. The allowance for losses on assets
                  acquired through foreclosure and repossession is an amount
                  which management believes will be adequate to absorb losses
                  from the disposition and/or revaluation of these assets.
                  Additions or reversals of the allowance for losses on assets
                  acquired through foreclosure and repossession are provided as
                  an expense or a benefit, respectively, through other expense
                  in the accompanying consolidated statements of operations. The
                  allowance for losses is charged or reduced as losses through
                  sales or revaluations are incurred.

         (k)      DEBT ISSUANCE COSTS

                  The Company capitalizes all costs related to the issuance of
                  debt. Unamortized debt issuance costs at December 31, 2000 and
                  1999, of approximately $1,230,000 and $2,855,000,
                  respectively, are included in other assets in the consolidated
                  statements of financial condition. Debt issuance costs are
                  amortized over the life of the senior notes as a yield
                  adjustment to notes payable interest expense in the
                  consolidated statements of operations.

         (l)      INTANGIBLE ASSETS

                  Intangible assets consist of goodwill and core deposit
                  premiums. Goodwill represents the excess cost over fair value
                  of net assets acquired and is being amortized on a
                  straight-line basis over a 15-year period. The Company
                  evaluates the recoverability of these intangible assets by
                  assessing whether the amortization of the asset balances over
                  their remaining lives can be recovered through projected cash
                  flows. The amount of impairment, if any, is measured based on
                  projected discounted cash flows. No impairment was recognized
                  at December 31, 2000, 1999 and 1998.

                  Amortization expense totaled approximately $1,339,000,
                  $1,654,000 and $1,934,000 for the years ended December 31,
                  2000, 1999 and 1998, respectively. Accumulated amortization of
                  goodwill and core deposit premiums at December 31, 2000, 1999
                  and 1998, totaled approximately $3,148,000, $4,527,000 and
                  $11,473,000, respectively.

         (m)      INCOME TAXES

                  Deferred tax assets and liabilities are reflected at currently
                  enacted income tax rates applicable to the period in which the
                  deferred tax assets or liabilities are expected to be realized
                  or settled. As changes in tax laws or rates are enacted,
                  deferred tax assets and liabilities are adjusted through the
                  provision for income taxes.



                                      F-12                           (Continued)
<PAGE>   63

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         (n)      EARNINGS PER SHARE

                  Basic net income per share is based upon the weighted average
                  number of shares outstanding during the period. Stock options
                  and warrants to purchase common stock are considered in
                  diluted income per share calculations, if dilutive, and are
                  computed using the treasury stock method. For each of the
                  years ended December 31, 2000 and 1999, the weighted average
                  number of shares are 20,537,209. Stock options and warrants to
                  purchase common stock discussed in Note 15 were outstanding
                  during the years ended December 31, 2000 and 1999, but were
                  not included in the computation of diluted income per share
                  because the average share price was below the exercise price
                  during the years ended December 31, 2000 and 1999.

                  The following table reconciles the net income and weighted
                  average shares outstanding used in the calculation of basic
                  and diluted net income per share for the year ended December
                  31, 1998.

<TABLE>
<CAPTION>
                                                  WEIGHTED
                                                  AVERAGE
                                                   SHARES       PER SHARE
                                  NET INCOME    OUTSTANDING       AMOUNT
                                 ------------   ------------   ------------
<S>                              <C>            <C>            <C>
Basic net income per share       $ 18,437,000     20,431,698   $       0.90
                                                               ============
Effect of dilutive securities:
     Warrants                              --         52,599
     Options                               --        122,822
                                 ------------   ------------

Diluted net income per share     $ 18,437,000     20,607,119   $       0.89
                                 ============   ============   ============
</TABLE>

         (o)      SEGMENTS

                  The Company operates as one segment. The operating information
                  used by the Company's chief operating decision maker for
                  purposes of assessing performance and making operating
                  decisions about the Company is the consolidated financial
                  statements presented herein. Local has one active operating
                  subsidiary, Local Securities, which qualifies as a separate
                  operating segment, however, it is not considered material to
                  the consolidated financial statements for the purposes of
                  making operating decisions and does not meet the 10% threshold
                  for disclosure under Statement of Financial Accounting
                  Standards No. 131 "Disclosure About Segments of an Enterprise
                  and Related Information".

         (p)      NEW ACCOUNTING PRONOUNCEMENTS

                  In June 1998, the Financial Accounting Standards Board (FASB)
                  issued Statement of Financial Accounting Standards (SFAS) No.
                  133, "Accounting for Derivative Instruments and Hedging
                  Activities." This statement establishes accounting and
                  reporting standards for derivative instruments and hedging
                  activities. It requires that a company recognize all
                  derivatives as either assets or liabilities in the statement
                  of



                                      F-13                           (Continued)
<PAGE>   64

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


                  financial condition and measure those instruments at fair
                  value. This statement is required to be adopted by the Company
                  in 2001 as set forth in SFAS 137, "Accounting for Derivative
                  Instruments and Hedging Activities - Deferral of the Effective
                  Date of FASB Statement No. 133". Management has determined
                  this statement did not have an impact on the consolidated
                  financial position or the results of operations of the Company
                  upon implementation on January 1, 2001.

(2)      ACQUISITIONS

         On October 15, 1999, Local acquired Guthrie Savings, Inc. (Guthrie) and
         its subsidiary, Guthrie Federal Savings Bank, F.S.B. for approximately
         $9,340,000 in cash. This acquisition was accounted for under the
         purchase method of accounting in which the purchase price was allocated
         to the net assets acquired based upon their fair market values at the
         date of acquisition.

         The excess of the Guthrie purchase price of approximately $9,340,000
         over the net assets acquired of approximately $7,302,000 was allocated
         to goodwill. The resulting goodwill of approximately $2,038,000 is
         being amortized on a straight-line basis over 15 years.

         On February 16, 1998, Green Country Banking Corporation (Green Country)
         and its subsidiary, Green Country Bank, F.S.B., were acquired and
         merged into the Company. The acquisition was accounted for as a
         purchase in which the purchase price was allocated to the net assets
         acquired based upon their fair market values at the date of
         acquisition. Concurrent with the acquisition, the Company issued
         837,209 shares of its common stock for approximately $9,000,000 to the
         three existing shareholders of Green Country; two of the Green Country
         shareholders are officers and directors of the Company.

         On October 9, 1998, the Company acquired BankSouth Corporation
         (BankSouth) for approximately $20,334,000 in cash, which included the
         redemption of its preferred stock. This acquisition was accounted for
         under the purchase method of accounting in which the purchase price was
         allocated to the net assets acquired based upon their fair market
         values at the date of acquisition.

         The excess of the Green Country and BankSouth purchase price of
         approximately $29,334,000 over the net assets acquired of approximately
         $11,336,000 was allocated to goodwill. The resulting goodwill of
         approximately $17,998,000 is being amortized on a straight-line basis
         over 15 years.

         The following unaudited pro forma information presents the combined
         results of operations as if the acquisitions of Guthrie, Green Country,
         and BankSouth had occurred as of January 1, 1998, after giving effect
         to amortization of goodwill. The pro forma financial information does
         not necessarily reflect the results of operations that would have
         occurred had the companies been combined during such periods.



                                      F-14                           (Continued)
<PAGE>   65

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                        YEARS ENDED DECEMBER 31,
                                       ---------------------------
                                           1999           1998
                                       ------------   ------------
<S>                                    <C>            <C>
Net interest and dividend income       $ 74,829,000     63,180,000
Income before extraordinary item         22,506,000     19,587,000
Net income                               22,249,000     19,587,000

Earnings per share:
    Income before extraordinary item
       Basic                                   1.10           0.96
       Diluted                                 1.10           0.95

    Net income
       Basic                                   1.08           0.96
       Diluted                                 1.08           0.95
</TABLE>


(3)      SECURITIES

         A comparative summary of securities available for sale is as follows
(dollars in thousands):

<TABLE>
<CAPTION>
                                                          GROSS        GROSS      ESTIMATED
                                           AMORTIZED    UNREALIZED   UNREALIZED     MARKET
                                              COST        GAINS        LOSSES        VALUE
                                           ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>
December 31, 2000:
     U.S. Government and agency
       securities                          $   33,494          212           43       33,663
     Municipal securities                         452            3           --          455
     Collateralized mortgage obligations      218,243        6,257          246      224,254
     Mortgage-backed securities                94,815          920           59       95,676
                                           ----------   ----------   ----------   ----------

                                           $  347,004        7,392          348      354,048
                                           ==========   ==========   ==========   ==========
December 31, 1999:
     U.S. Government and agency
       securities                          $   21,900            4          371       21,533
     Municipal securities                         535            5           --          540
     Collateralized mortgage obligations      493,767       10,479        9,499      494,747
     Mortgage-backed securities                12,389           64           43       12,410
                                           ----------   ----------   ----------   ----------

                                           $  528,591       10,552        9,913      529,230
                                           ==========   ==========   ==========   ==========
</TABLE>



                                      F-15                           (Continued)
<PAGE>   66

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         Maturities of investment securities classified as available for sale at
         December 31, 2000, are shown below (dollars in thousands). Expected
         maturities will differ from contractual maturities because borrowers
         may have the right to call or prepay obligations with or without call
         or prepayment penalties.

<TABLE>
<CAPTION>
                                        AMORTIZED      ESTIMATED
                                          COST       MARKET VALUE
                                      ------------   ------------
<S>                                   <C>            <C>
Due in one year or less               $      6,163          6,134
Due from one to five years                  27,783         27,984
                                      ------------   ------------
                                            33,946         34,118

Mortgage-backed securities                  94,815         95,676
Collateralized mortgage obligations        218,243        224,254
                                      ------------   ------------

                                      $    347,004        354,048
                                      ============   ============
</TABLE>


         At December 31, 2000 and 1999, securities available for sale included
         floating rate securities with an amortized cost of approximately
         $42,086,000 and $156,433,000, respectively, and fixed-rate securities
         of approximately $304,918,000 and $372,158,000, respectively. The
         floating-rate securities' weighted average rate was 6.87% and 5.82% at
         December 31, 2000 and 1999, respectively. The fixed rate securities'
         weighted average rate was 6.95% and 6.64% at December 31, 2000 and
         1999, respectively. The overall weighted average rate of securities was
         6.94% and 6.38% at December 31, 2000 and 1999, respectively.

         At December 31, 2000 and 1999, securities with a total par amount of
         $104,120,000 and $67,719,000, respectively, were pledged to secure
         various deposits and borrowings. Accrued interest receivable on
         securities of approximately $2,558,000 and $3,108,000 was included in
         other assets at December 31, 2000 and 1999, respectively.

         Proceeds from sales of securities available for sale for the years
         ended December 31, 2000, 1999 and 1998 were approximately $283,910,000,
         $160,174,000 and $47,764,000, respectively. Gross gains of
         approximately $3,852,000, $809,000 and $2,189,000 were realized for the
         years ended December 31, 2000, 1999 and 1998, respectively. Gross
         losses of $3,549,000, $685,000 and $5,000 were realized for the years
         ended December 31, 2000, 1999 and 1998, respectively, and are included
         in net gains on sale of assets in the accompanying consolidated
         statements of operations.



                                      F-16                           (Continued)
<PAGE>   67

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(4)      LOANS RECEIVABLE

         Loans receivable are summarized below at amortized cost (dollars in
         thousands):

<TABLE>
<CAPTION>
                                         DECEMBER 31,
                                 ----------------------------
                                     2000            1999
                                 ------------    ------------
<S>                              <C>             <C>
Residential real estate loans    $    250,487         362,351
Commercial                          1,425,382       1,183,368
Held for sale                           5,922           6,801
Consumer loans                        195,430         161,327
                                 ------------    ------------

       Totals loans                 1,877,221       1,713,847
Less:
     Allowance for loan losses        (28,345)        (28,297)
                                 ------------    ------------

       Loans receivable, net     $  1,848,876       1,685,550
                                 ============    ============
</TABLE>


         Accrued interest receivable on loans of approximately $12,500,000 and
         $13,360,000 was included in other assets at December 31, 2000 and 1999,
         respectively.

         An analysis of the allowance for loan losses is as follows (dollars in
         thousands):

<TABLE>
<CAPTION>
                                     YEARS ENDED DECEMBER 31,
                                 --------------------------------
                                   2000        1999        1998
                                 --------    --------    --------
<S>                              <C>         <C>         <C>
Balance at beginning of year     $ 28,297      27,901      20,484
     Allowance acquired                --         340       7,284
     Loans charged off             (3,707)     (3,853)     (1,504)
     Recoveries                     1,055       1,909         187
                                 --------    --------    --------

         Net loans charged off     (2,652)     (1,944)     (1,317)

     Provision for loan losses      2,700       2,000       1,450
                                 --------    --------    --------

Balance at end of year           $ 28,345      28,297      27,901
                                 ========    ========    ========
</TABLE>


         Other than Oklahoma, the Company has granted commercial real estate
         loans to customers principally in California, New York, Texas and
         Oregon. The remainder of the Company's portfolio is significantly
         concentrated in Oklahoma. Although the Company has a diversified loan
         portfolio, a substantial portion of the debtors' ability to honor their
         loan contracts is dependent upon the overall economy as well as the
         economy of the respective states.

         In connection with the BankSouth acquisition in 1998 (see note 2), the
         Company acquired a portfolio of indirect automobile loans of
         approximately $20,000,000. Management believes that



                                      F-17                           (Continued)
<PAGE>   68

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         this portfolio, while containing more risk than direct automobile
         loans, represents less risk than the program previously conducted prior
         to the change in ownership (see note 13). In management's opinion,
         adequate allowances have been established to properly reflect the
         losses inherent in these loans at December 31, 2000 and 1999.

         At December 31, 2000, 1999 and 1998, the Company classified
         approximately $3,207,000, $2,222,000 and $1,176,000, respectively, of
         loans as impaired, as defined by SFAS No. 114, "Accounting by Creditors
         for Impairment of a Loan." At December 31, 2000, 1999 and 1998, these
         loans had an impairment allowance of approximately $904,000, $857,000
         and $394,000, respectively, which was measured using the collateral
         value method. The average recorded investment in impaired loans for the
         years ended December 31, 2000, 1999 and 1998 was approximately
         $1,524,000, $957,000 and $1,179,000, respectively. Interest payments
         received on impaired loans are recorded as interest income, unless
         collection of the remaining recorded investment is doubtful, at which
         time the loan is placed on nonaccrual status and payments received are
         recorded as reductions of principal. The Company recognized interest
         income on impaired loans of approximately $609,000, $115,000 and
         $48,000 for the years ended December 31, 2000, 1999 and 1998,
         respectively.

         At December 31, 2000 and 1999, loans to directors, officers and
         employees of the Company aggregated approximately $7,628,000 and
         $7,276,000, respectively. In management's opinion, such transactions
         were made on substantially the same terms as those prevailing at the
         time for comparable transactions with other persons and did not involve
         more than normal risk.

(5)      PREMISES AND EQUIPMENT

         Premises and equipment consisted of the following (dollars in
         thousands):

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                 --------------------
                                                   2000        1999
                                                 --------    --------
<S>                                              <C>         <C>
Land                                             $  5,732       4,882
Buildings and building improvements                28,970      24,171
Furniture, fixtures and equipment                  24,433      20,537
                                                 --------    --------
                                                   59,135      49,590
Less accumulated depreciation and amortization    (21,270)    (17,785)
                                                 --------    --------

                                                 $ 37,865      31,805
                                                 ========    ========
</TABLE>


         Depreciation and amortization expense relating to premises and
         equipment for the years ended December 31, 2000, 1999 and 1998 was
         approximately $3,633,000, $2,305,000 and $1,730,000, respectively.

(6)      ASSETS ACQUIRED THROUGH FORECLOSURE AND REPOSSESSION

         Assets acquired through foreclosure and repossession amounted to
         $881,000 and $723,000 at December 31, 2000 and 1999, net of allowances,
         respectively. The allowance for assets acquired through foreclosure and
         repossession at December 31, 2000, 1999 and 1998 was approximately



                                      F-18                           (Continued)
<PAGE>   69

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         $49,000, $114,000 and $139,000, respectively. For the years ended
         December 31, 2000, 1999 and 1998, income (expense) from assets acquired
         through foreclosure and repossession totaled approximately $52,000,
         $(36,000) and $(127,000), respectively. The Company records the net
         expense and income from assets acquired through foreclosure and
         repossessions in other noninterest expense.

(7)      DEPOSIT ACCOUNTS

         Accrued interest on deposit accounts of approximately $4,637,000 and
         $4,019,000 was included in other liabilities in the accompanying
         consolidated statements of financial condition at December 31, 2000 and
         1999, respectively.

         The aggregate amount of certificates of deposit with a denomination
         greater than $100,000 was approximately $219,000,000 and $207,000,000
         at December 31, 2000 and 1999, respectively.

         Contractual maturities of time deposits at December 31, 2000, are
         summarized as follows (dollars in thousands):


<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,                 AMOUNT
                                        ----------
<S>                                     <C>
2001                                    $1,028,070
2002                                       163,590
2003                                        40,065
2004                                        13,855
2005 and thereafter                         16,554
                                        ----------
                                        $1,262,134
                                        ==========
</TABLE>


(8)      SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

         Securities sold under agreements to repurchase at December 31, 2000 are
         summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                       2000
                                                     --------
<S>                                                  <C>
Average outstanding balance                          $ 18,352
Weighted average interest rate during the year           5.85%
Maximum month-end balance                            $ 38,214
Outstanding balance at end of year                     38,214
Weighted average interest rate at end of year            5.92%
Mortgage-backed securities securing the agreements
  at period-end:
    Carrying value                                   $ 41,616
    Estimated market value                             42,053
Accrued interest payable at the end of the year            --
</TABLE>



                                      F-19                           (Continued)
<PAGE>   70

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         Periodically, the Company provides securities sold under agreements to
         repurchase to customers as a part of the commercial banking operations.
         The securities underlying the agreements were under the Company's
         control at December 31, 2000.

         There are no securities sold under agreements to repurchase at December
         31, 1999.

(9)      ADVANCES FROM THE FEDERAL HOME LOAN BANK OF TOPEKA

         Advances from the FHLB are summarized as follows (dollars in
         thousands):

<TABLE>
<CAPTION>
                                       DECEMBER 31,
                -----------------------------------------------------------
                            2000                          1999
                ---------------------------    ----------------------------
                                 WEIGHTED                        WEIGHTED
                                  AVERAGE                         AVERAGE
                                CONTRACTUAL                     CONTRACTUAL
                  BALANCE          RATE          BALANCE           RATE
                ------------   ------------    ------------    ------------
<S>             <C>            <C>             <C>             <C>
Variable rate   $         --             --%   $    237,005            5.86%
Fixed rate           190,028            6.44         65,030            5.50
                ------------                   ------------

                $    190,028            6.44%  $    302,035            5.78%
                ============    ============   ============    ============
</TABLE>


         At December 31, 2000, the Company had additional borrowing capacity
         with a credit limit subject to the maximum amount of credit available
         under the FHLB credit policy. The line of credit expires on October 19,
         2001, and bears interest at a floating rate.

         Additionally, the Company has letters of credit with the FHLB of
         approximately $136,720,000 at December 31, 2000. The letters of credit
         have one year terms and were pledged to secure certain deposits.

         Although no specific assets were pledged at December 31, 2000, the FHLB
         requires the Company to hold eligible assets with a lending value, as
         defined, at least equal to FHLB advances and the letters of credit,
         which can include such items as first and second mortgage loans,
         investment securities and commercial real estate loans, which are not
         already pledged or encumbered. At December 31, 1999, the Company had
         approximately $18,107,000 in investment securities pledged against FHLB
         advances.



                                      F-20                           (Continued)
<PAGE>   71

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         Scheduled principal repayments of advances from the FHLB at December
         31, 2000, were as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                  WEIGHTED
                                                  AVERAGE
                                                CONTRACTUAL
YEARS ENDING DECEMBER 31,           AMOUNT          RATE
                                 -----------    -----------
<S>                              <C>            <C>
2001                             $   190,000           6.44%
2002                                      --             --
2003                                      --             --
2004                                      --             --
2005 and thereafter                       28             --
                                 -----------    -----------

                                 $   190,028           6.44%
                                 ===========    ===========
</TABLE>

(10)     SENIOR NOTES

         Senior Notes of $41,160,000 and $75,250,000 at 11% and issued to
         various investors were outstanding at December 31, 2000 and 1999,
         respectively. During 2000 and 1999, the Company purchased and retired
         $34,090,000 and $4,750,000, respectively, of Senior Notes. The purchase
         and retirement of the Senior Notes resulted in a $922,000 and $257,000
         extraordinary loss, net of tax benefit of $498,000 and $138,000, for
         the years ended December 31, 2000 and 1999, respectively. The
         extraordinary loss had a $(0.04) and $(0.01) per share impact on basic
         and diluted earnings per share for the years ended December 31, 2000
         and 1999, respectively. Senior notes are due September 8, 2004 and pay
         interest semiannually. Senior notes are general unsecured obligations
         of Local Financial and will rank senior to such other indebtedness as
         the Company may incur that is not expressly subordinated to the senior
         notes. The indenture generally restricts the incurrence of additional
         indebtedness by the Company, except for certain junior indebtedness.

(11)     COMPREHENSIVE INCOME

         Comprehensive income consists of net income and net unrealized gains
         (losses) on securities available for sale, net of reclassification
         adjustment, and is presented in the consolidated statements of
         stockholders' equity. Reclassification adjustment consists of realized
         gains and loss on securities available-for-sale included in the
         consolidated statement of operations.



                                      F-21                           (Continued)
<PAGE>   72

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         The changes in the components of other comprehensive income (loss) are
         reported net of income taxes for the periods indicated as follows
         (dollars in thousands):


<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31, 2000
                                                -----------------------------
                                                PRE-TAX      TAX        NET
                                                AMOUNT     EFFECT     AMOUNT
                                                -------    -------    -------
<S>                                             <C>        <C>        <C>
Unrealized gain on securities:
   Unrealized holding gain arising during the
     period                                     $ 6,708     (2,348)     4,360
   Less reclassification adjustment for gains
     included in net income                        (303)       106       (197)
                                                -------    -------    -------

Other comprehensive income                      $ 6,405     (2,242)     4,163
                                                =======    =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31, 1999
                                                -------------------------------
                                                 PRE-TAX      TAX        NET
                                                 AMOUNT      EFFECT     AMOUNT
                                                --------    --------   --------
<S>                                             <C>         <C>        <C>
Unrealized loss on securities:
   Unrealized holding loss arising during the
     period                                     $(16,285)      5,700    (10,585)
   Less reclassification adjustment for gains
     included in net income                         (124)         43        (81)
                                                --------    --------   --------

Other comprehensive loss                        $(16,409)      5,743    (10,666)
                                                ========    ========   ========
</TABLE>


<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31, 1998
                                                --------------------------------
                                                 PRE-TAX      TAX         NET
                                                 AMOUNT      EFFECT      AMOUNT
                                                --------    --------    --------
<S>                                             <C>         <C>         <C>
Unrealized gain on securities:
   Unrealized holding gain arising during the
     period                                     $ 15,636      (5,472)     10,164
   Less reclassification adjustment for gains
     included in net income                       (2,184)        764      (1,420)
                                                --------    --------    --------

Other comprehensive income                      $ 13,452      (4,708)      8,744
                                                ========    ========    ========
</TABLE>



                                      F-22                           (Continued)
<PAGE>   73

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(12)     INCOME TAXES

         The provision for income taxes has been allocated as follows, including
         the tax effect of the changes in unrealized gains (losses) on available
         for sale securities (dollars in thousands):


<TABLE>
<CAPTION>
                                   YEARS ENDED DECEMBER 31,
                                --------------------------------
                                  2000        1999        1998
                                --------    --------    --------
<S>                             <C>         <C>         <C>
Income from operations before
   extraordinary item           $ 14,331      12,627      10,254
Extraordinary item                  (498)       (138)         --
Stockholders' equity               2,242      (5,743)      4,708
                                --------    --------    --------

                                $ 16,075       6,746      14,962
                                ========    ========    ========
</TABLE>


         Components of the provision for income taxes from operations are as
         follows (dollars in thousands):

<TABLE>
<CAPTION>
                                          YEARS ENDED DECEMBER 31,
                                       ------------------------------
                                         2000       1999       1998
                                       --------   --------   --------
<S>                                    <C>        <C>        <C>
Current income tax expense (benefit)   $  8,752      4,686     (1,005)
Deferred income tax expense               5,579      7,941     11,259
                                       --------   --------   --------

                                       $ 14,331     12,627     10,254
                                       ========   ========   ========
</TABLE>


         The effective income tax rates differ from the statutory federal income
         tax rate of 35%. A reconciliation of the provision for income taxes
         based on the statutory rates with the effective rates is as follows
         (dollars in thousands):

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                --------------------------------
                                                  2000        1999        1998
                                                --------    --------    --------
<S>                                             <C>         <C>         <C>
Income tax at statutory rate (35%)              $ 13,673      12,207      10,042
   Effect of state income tax, net of federal      1,523       1,215         549
   Change in valuation allowance                  (1,093)     (1,370)       (384)
   Other, net                                        228         575          47
                                                --------    --------    --------

   Provision for income taxes                   $ 14,331      12,627      10,254
                                                ========    ========    ========
</TABLE>



                                      F-23                           (Continued)
<PAGE>   74

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


Current income tax receivable of approximately $74,000 and current income tax
payable of approximately $(506,000) are included in current and deferred taxes,
net in the consolidated statements of financial condition at December 31, 2000
and 1999, respectively. Deferred income tax assets and liabilities are included
in current and deferred taxes, net in the consolidated statements of financial
condition and consisted of the following (dollars in thousands):

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                      --------------------
                                                        2000        1999
                                                      --------    --------
<S>                                                   <C>         <C>
Deferred income tax assets:
   Realized losses on available for sale securities   $  1,840       6,458
   AMT tax credits                                          --       3,051
   State net operating loss carryforwards                4,572       5,665
   Allowance for loan losses                             8,940       7,691
   Other                                                 2,350       3,781
                                                      --------    --------

                                                        17,702      26,646
                                                      --------    --------

Deferred income tax liabilities:
   Stock dividends receivable                             (756)     (2,031)
   Depreciation and amortization                        (1,793)     (1,698)
   Deferred loan fees                                   (1,134)     (1,314)
   Unrealized gains on available for sale
     securities                                         (2,465)       (223)
   Other                                                   (80)       (992)
                                                      --------    --------

                                                        (6,228)     (6,258)
                                                      --------    --------

   Net deferred tax asset                               11,474      20,388
Valuation allowance on state NOL's                       4,572       5,665
                                                      --------    --------

   Deferred tax asset, net                            $  6,902      14,723
                                                      ========    ========
</TABLE>


         At December 31, 2000, the Company had approximately $113,000,000 of
         operating loss carryforwards available for state income tax purposes.
         The state net operating losses expire in varying amounts between 2006
         and 2013.

         During 1997, the Company established a valuation allowance for the
         portion of the available state net operating loss carryforwards for
         which it was determined to be more likely than not that the benefit of
         the deferred tax asset would not be realized. Based on the current
         strategy of new management and current taxable income for the years
         ended December 31, 2000 and 1999, no valuation allowance for other
         deferred tax assets has been established as the Company believes it is
         more likely than not that sufficient income for federal income tax
         purposes will be realized.

         As a result of the Small Business Job Protection Act, the Company was
         required to change its method of accounting for bad debts from the
         reserve method to the direct charge-off method for



                                      F-24                           (Continued)
<PAGE>   75

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         income tax purposes during 1997. The Company is required to recapture
         the excess of the qualifying and nonqualifying tax loan loss reserves
         over the base year tax loan loss reserves over a six-year period,
         beginning in its tax year ended June 30, 1999. At December 31, 2000,
         the recapture amount is estimated to be $5,340,000 and the qualifying
         and nonqualifying base year tax reserves totaled approximately
         $10,647,000 and $1,421,000, respectively.

         In accordance with SFAS No. 109, "Accounting for Income Taxes," a
         deferred tax liability has not been recognized for the tax bad debt
         reserve and supplemental reserves of the Company that arose in tax
         years that began prior to December 31, 1987. At December 31, 2000, the
         portion of the tax bad debt reserve and supplemental reserves
         attributable to pre-1988 tax years was approximately $15,921,000. The
         amount of unrecognized deferred tax liability at December 31, 2000, was
         approximately $5,572,000. This deferred tax liability could be
         recognized if certain distributions are made with respect to the stock
         of Local, or the bad debt reserve is used for any purpose other than
         absorbing bad debt losses.

(13)     COMMITMENTS AND CONTINGENCIES

         On September 8, 1997, the Company completed a securities offering and
         Senior Notes were issued to individual investors for the purpose of
         redeeming all of the previously issued and outstanding shares of the
         Company's common stock. The redemption amount is subject to adjustment
         under terms set forth in the Redemption Agreement, as defined.

         On August 26, 1999, the Company entered into a settlement of the
         Redemption Agreement. As a consequence of the settlement of the
         Redemption Agreement, the Company's stockholders' equity was reduced by
         approximately $1,800,000 by an increase to the cost of treasury stock
         in the consolidated statements of financial condition in recognition of
         the agreed adjustments to the claims, liabilities and disputes which
         had arisen. Supplemental cash flow information of noncash activities as
         a consequence of the settlement were a transfer from other assets to
         other liabilities and treasury stock of approximately $5,712,000 and
         $1,838,000, respectively.

         In conjunction with the acquisition of LAB during fiscal 1989, the
         Company and LAB entered into an Assistance Agreement with the Federal
         Savings and Loan Insurance Corporation (the FSLIC). Under the terms of
         the Assistance Agreement, the FSLIC Resolution Fund (the FUND), which
         is managed by the Federal Deposit Insurance Corporation (the FDIC), is
         entitled to receive 100% of the tax benefits attributable to acquired
         net operating loss carryforwards and deductions resulting from certain
         items, other than covered asset losses, for which the FUND has agreed
         to provide assistance to the extent such tax benefits are realized by
         the consolidated group. LAB is entitled to share in realized tax
         benefits of a portion of the FUND assistance on a 50-50 basis.

         Under the LAB Assistance Agreement, a dispute exists between LAB and
         the FDIC regarding tax benefits which have been received. Management,
         after consultation with legal counsel and based on available facts and
         proceedings to date, has determined that it is probable that LAB has
         some liability to the FDIC with regard to the tax benefits. The
         Company's original estimate of this liability was approximately
         $13,000,000 at December 31, 1998. The FDIC's estimate of this liability
         is approximately $23,000,000. Management of the Company is of the
         opinion that the FDIC's estimate does not give credit to the Company
         for certain tax benefits originally contracted for in the Assistance
         Agreement, but later eliminated as a result of the Revenue
         Reconciliation Act of 1993. Management intends to vigorously defend its
         estimate of the liability.



                                      F-25                           (Continued)
<PAGE>   76

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         Pursuant to the terms of the Redemption Agreement and settlement of the
         Redemption Agreement discussed above, the Selling Shareholders
         consented to the Company reducing the FDIC liability on the Company's
         books to the sum of $7,700,000, which is included in other liabilities
         in the accompanying statements of financial condition at December 31,
         2000 and 1999, while confirming their liability for and obligation to
         fully pay any amount which the Company is ultimately required to pay
         the FDIC to the extent such amount exceeds the $7,700,000 liability. In
         this regard, the Company deposited $10,000,000 of the redemption price
         to be paid to the Selling Shareholders for the redemption of their
         stock into an escrow account to be available for such payment, if
         necessary. The settlement agreement also authorizes the Selling
         Stockholders to unilaterally settle the FDIC obligation provided they
         pay the Company, in cash, the full amount of the sum which would be
         owing to the FDIC in excess of the $7,700,000 liability. In addition,
         the Selling Shareholders have agreed to be solely and exclusively
         responsible for all reasonable litigation costs and expenses which are
         incurred by the Company in connection with the prosecution, defense and
         settlement with the FDIC.

         In the ordinary course of business, the Company is subject to other
         legal actions and complaints. Management, after consultation with legal
         counsel, and based on available facts and proceedings to date, believes
         the ultimate liability, if any, arising from such legal actions or
         complaints, will not have a material adverse effect on the Company's
         consolidated financial position or future results of operations.

         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. The Company
         evaluates each customer's creditworthiness on a case-by-case basis. The
         amount of collateral obtained, if it is deemed necessary by the Company
         upon extension of credit, is based on management's credit evaluation of
         the counterparty. Collateral held varies but may include accounts
         receivable, inventory, property, plant and equipment, and
         income-producing commercial properties. At December 31, 2000 and 1999,
         the Company had approximately $232,813,000 and $218,272,000,
         respectively, of outstanding loan commitments consisting of commercial
         real estate and commercial business loans approved but nonfunded.

         During 1995, the Company securitized and sold approximately $62,147,000
         of fixed rate multi-family commercial loans with recourse. The maximum
         contractual recourse obligation of the Company is 10% of the total
         unpaid principal balance of the mortgages on the settlement date. At
         December 31, 2000, and 1999, the unpaid principal balance of loans sold
         totaled approximately $6,047,000 and $14,144,000, respectively. The
         Company has pledged a FHLB letter of credit in the amount of $2,600,000
         under the recourse provision of the securitization transaction.
         Management does not expect any material losses to be incurred as a
         result of the recourse provision.

         Standby letters of credit and financial guarantees written are
         conditional commitments issued by the Company to guarantee the
         performance of a customer to a third party. Those guarantees are
         primarily issued to support public and private borrowing arrangements,
         including commercial paper, bond financing and similar transactions.
         The Company holds marketable securities as collateral supporting those
         commitments for which collateral is deemed necessary.



                                      F-26                           (Continued)
<PAGE>   77

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         The Company leases certain real estate and equipment under operating
         leases. For the years ended December 31, 2000, 1999 and 1998, lease
         expense totaled approximately $891,000, $1,094,000 and $594,000,
         respectively. Future obligations under operating leases at December 31,
         2000, are summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>
                            YEARS ENDING DECEMBER 31,                         AMOUNT
                                                                           -------------
<S>                                                                        <C>
                                     2001                                  $         974
                                     2002                                            983
                                     2003                                            817
                                     2004                                            548
                                     2005 and thereafter                           4,492
                                                                           -------------

                                                                           $       7,814
                                                                           =============
</TABLE>

(14)     REGULATORY MATTERS

         Local Financial and Local are subject to various regulatory capital
         requirements administered by the federal banking agencies. Failure to
         meet minimum capital requirements can initiate certain mandatory--and
         possible additional discretionary--actions by regulators that, if
         undertaken, could have a direct material effect on Local Financial's
         and Local's consolidated financial statements. Under capital adequacy
         guidelines and the regulatory framework for prompt corrective action,
         Local Financial and Local must meet specific capital guidelines that
         involve quantitative measures of Local Financial's and Local's assets,
         liabilities, and certain off-balance-sheet items as calculated under
         regulatory accounting practices. Local Financial's and Local'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 Local Financial and Local to maintain minimum amounts
         and ratios (set forth in the following table) of total and Tier I
         capital (as defined in the regulations) to risk-weighted assets (as
         defined), and of Tier I capital (as defined) to average assets (as
         defined). Management believes, as of December 31, 2000, that Local
         Financial and Local meet all capital adequacy requirements to which
         they are subject.

         As of December 31, 2000 and 1999, the most recent notification from the
         OCC categorized Local as well capitalized under the regulatory
         framework for prompt corrective action. To be categorized as well
         capitalized Local must maintain minimum total risk-based, Tier I
         risk-based, and Tier I leverage ratios as set forth in the table. There
         are no conditions or events since those notifications that management
         believes have changed Local's category.



                                      F-27                           (Continued)
<PAGE>   78

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                           TO BE WELL CAPITALIZED
                                                                     MINIMUM FOR CAPITAL   FOR PROMPT CORRECTIVE
                                                     ACTUAL           ADEQUACY PURPOSES      ACTION PROVISIONS
                                              -------------------    -------------------   ----------------------
                                               AMOUNT     RATIO       AMOUNT     RATIO       AMOUNT      RATIO
                                              --------   --------    --------   --------   ---------   ----------
                                                                    (dollars in thousands)
<S>                                           <C>        <C>         <C>        <C>        <C>         <C>
LOCAL FINANCIAL
As of December 31, 2000:
   Total capital (to risk weighted assets)    $156,653       9.00%   $139,314       8.00%   $174,143      10.00%
   Tier I capital (to risk weighted assets)    134,804       7.74      69,657       4.00     104,486       6.00
   Tier I capital (to average assets)          134,804       5.61      96,198       4.00     120,248       5.00

LOCAL
As of December 31, 2000:
   Total capital (to risk weighted assets)    $197,292      11.34%   $139,209       8.00%   $174,011      10.00%
   Tier I capital (to risk weighted assets)    175,459      10.08      69,604       4.00     104,406       6.00
   Tier I capital (to average assets)          175,459       7.30      96,147       4.00     120,183       5.00

LOCAL FINANCIAL
As of December 31, 1999:
   Total capital (to risk weighted assets)    $128,199       8.07%   $127,163       8.00%   $158,954      10.00%
   Tier I capital (to risk weighted assets)    108,231       6.81      63,581       4.00      95,372       6.00
   Tier I capital (to average assets)          108,231       4.71      91,998       4.00     114,998       5.00

LOCAL
As of December 31, 1999:
   Total capital (to risk weighted assets)    $201,977      12.74%   $126,850       8.00%   $158,563      10.00%
   Tier I capital (to risk weighted assets)    182,057      11.48      63,425       4.00      95,138       6.00
   Tier I capital (to average assets)          182,057       7.93      91,884       4.00     114,856       5.00
</TABLE>


         Management intends to continue compliance with all regulatory capital
         requirements.

         Federal regulations allow Local Financial and Local to pay dividends
         during a calendar year up to the amount that would reduce their surplus
         capital ratio, as defined, to one-half of their surplus capital ratio
         at the beginning of the calendar year, adjusted to reflect their net
         income to date during the calendar year. At the beginning of calendar
         year 2001, under applicable regulations without prior consent of the
         OCC, the total capital available for the payment of dividends by Local
         to Local Financial was approximately $13 million.

(15)     STOCK COMPENSATION

         Effective with the securities offering and redemption in September
         1997, the board of directors adopted a stock option plan. The stock
         option plan has 2,100,370 shares of common stock authorized and
         provides for the granting of stock options intended to comply with the
         applicable requirements of the Internal Revenue Code. On September 8,
         1997, non-qualified stock options for 1,116,005 shares of common stock
         were granted to executive officers of the Company at an



                                      F-28                           (Continued)
<PAGE>   79

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         exercise price of $10 per share. On December 31, 1997, incentive stock
         options for 158,000 shares of common stock were granted to officers and
         compensatory stock options for 60,000 shares of common stock were
         granted to directors of the Company at an exercise price of $11.75 per
         share. During the year ended December 31, 1998, all previously issued
         options were rescinded and canceled in exchange for an equal number of
         options at an exercise price of $10 per share. An additional 429,000,
         278,000 and 63,000 shares were issued at $10 per share during 2000,
         1999 and 1998, respectively. During the years ended December 31, 2000
         and 1999, 16,000 and 3,000 shares, respectively, were forfeited. Stock
         options to buy 1,141,005 and 944,000 shares of common stock shall be
         exercisable in three and five equal annual installments, respectively,
         commencing with the end of the first twelve month period following the
         date the stock options were granted. The stock options expire ten years
         from the effective dates of the respective option agreements.

         The per share weighted-average fair value of stock options granted for
         the years ended December 31, 2000, 1999 and 1998 was $2.28, $4.07 and
         $2.01, respectively, on the date of grant using the Black-Scholes
         option-pricing model with the following assumptions: risk-free interest
         rate of 4.97%, 6.34% and 4.54%, respectively, volatility rate of 9.13%,
         32.96% and 0%, respectively, expected life of 5 years for each period,
         and no expected dividend yield.

         The Company applies APB Opinion No. 25 and related interpretations in
         accounting for its stock option plan. Accordingly, no compensation cost
         has been recognized for its stock option rights. Had the Company
         determined compensation cost based on the fair value at the grant date
         for its stock options under SFAS No. 123, "Accounting for Stock Based
         Compensation," the Company's net income for the years ended December
         31, 2000, 1999 and 1998 would have been decreased to the pro forma
         amounts below.

<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                               -------------------------------------------------
                                                                    2000             1999            1998
                                                               ---------------- --------------- ----------------
<S>                                             <C>            <C>              <C>             <C>
          Net income (in thousands)             as reported      $     23,814           21,992          18,437
                                                pro forma              22,934           21,296          17,787

          Basic net income per share            as reported              1.16             1.07            0.90
          Diluted net income per share          as reported              1.16             1.07            0.89

          Basic net income per share            pro forma                1.12             1.04            0.87
          Diluted net income per share          pro forma                1.12             1.04            0.86
</TABLE>


         Stock options of 2,085,005 were outstanding at December 31, 2000, with
         an exercise price of $10 and contractual life of outstanding options of
         8.2 years. Stock options of 1,672,005 and 1,397,005, with an exercise
         price of $10 and contractual life of outstanding options of 8.8 and 10
         years, were outstanding at December 31, 1999 and 1998, respectively. At
         December 31, 2000, 1,328,674 options were exercisable compared to
         849,270 at December 31, 1999 and 418,335 at December 31, 1998.



                                      F-29                           (Continued)
<PAGE>   80

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         In connection with the securities offering discussed in Note 13,
         warrants to buy 591,000 shares of common stock of the Company were
         issued to the placement agent. The warrants will be exercisable for a
         five year period commencing upon the date of consummation, September 8,
         1997, at an exercise price of $10 per share.

(16)     EMPLOYEE BENEFITS

         On November 1, 1999, the Company established a nonleveraged employee
         stock ownership plan (the ESOP Plan) that covers substantially all of
         its full-time employees. Contributions to the ESOP Plan are
         discretionary as determined by the Board of Directors of the Company.
         Contributions shall be allocated and credited to those participants who
         accrue credited service for such plan year and who are employed on the
         last day of the plan year. Contributions will be allocated to
         participants in the ratio in which each participant's compensation
         bears to the total compensation of all participants. In December 1999,
         the Board of Directors of the Company declared a contribution to the
         ESOP Plan of approximately $2,700,000 which has been accrued and is
         included in compensation and employee benefits in the accompanying
         consolidated statements of operations. In 2000, the Board of Directors
         of the Company declared a contribution to the ESOP Plan of
         approximately $3,819,000 and is included in compensation and employee
         benefits in the accompanying consolidated statements of operations. The
         ESOP Plan held no common stock of the Company as of December 31, 2000
         and 1999.

         The Company has a retirement plan (the Plan), which is a
         noncontributory defined benefit pension plan, covering substantially
         all of its full-time employees. The benefits are based on years of
         service and the employees' compensation during the last five years of
         employment. The Company's policy, generally, is to fund pension costs
         unless the Plan is overfunded and no contribution is required.
         Contributions are intended to provide not only for benefits attributed
         to service to date but also for those expected to be earned in the
         future. No contributions were made during the years ended December 31,
         1999 and 1998 as the Plan was overfunded.

         In September 1999, the Company adopted a plan to freeze the accrual of
         benefits under the Plan, effective October 31, 1999, and terminate the
         plan. Termination of the Plan was completed in 2000. Upon termination,
         the assets held by the Plan's trustee were distributed to Plan
         participants or beneficiaries in the order provided by the Employee
         Retirement Income Security Act of 1974 with the excess distributed to
         the Company. As a result of the Plan amendment and termination of the
         Plan, a curtailment gain of approximately $2,734,000 was recognized for
         the year ended December 31, 1999 and a settlement gain of approximately
         $3,634,000, net of excise taxes of $1,642,000, was recognized for the
         year ended December 31, 2000 and is included in compensation and
         employee benefits in the accompanying consolidated statements of
         operations.



                                      F-30                           (Continued)
<PAGE>   81

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         The following table sets forth the Plan's funded status and amounts
         recognized in the Company's consolidated statements of financial
         condition and operations for the periods indicated (dollars in
         thousands):

<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                                 ------------------------
                                                    2000          1999
                                                 ----------    ----------
<S>                                              <C>           <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period          $ 11,087      12,141
Service cost                                             --         713
Interest cost                                           335         647
Recognized net gain from past experience
   different from that assumed                        4,759         277
Plan amendment                                           --         459
Curtailment gain                                         --      (2,734)
Settlement gain                                      (5,276)         --
Benefits paid                                       (10,905)       (416)
                                                   --------    --------

Benefit obligation at end of period                      --      11,087
                                                   --------    --------

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period     20,950      19,944
Actual return on plan assets                            903       1,422
Benefits paid                                       (10,905)       (416)
Assets reverted back to the Company                 (10,948)
                                                   --------    --------

Fair value of plan assets at end of plan period          --      20,950
                                                   --------    --------

Funded status                                            --       9,863
Unrecognized net gain from past experience
   different from that assumed                           --      (5,012)
Unrecognized transition asset being recognized
   over 15 years                                         --         (56)
                                                   --------    --------

Prepaid benefit cost                               $     --       4,795
                                                   ========    ========
</TABLE>


<TABLE>
<CAPTION>
                                                 YEARS ENDED DECEMBER 31,
                                             --------------------------------
                                               2000        1999        1998
                                             --------    --------    --------
<S>                                          <C>         <C>         <C>
COMPONENTS OF NET PERIODIC PENSION BENEFIT
Service cost                                 $     --         713         646
Interest cost                                     335         647         718
Expected return on plan assets                 (1,156)     (1,580)     (1,999)
Net amortization and deferral                     (56)       (765)       (265)
Curtailment gain                                   --      (2,734)         --
Settlement gain                                (5,276)         --          --
Plan amendment                                     --         459          --
                                             --------    --------    --------

Net periodic pension benefit                 $ (6,153)     (3,260)       (900)
                                             ========    ========    ========
</TABLE>



                                      F-31                           (Continued)
<PAGE>   82

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         A weighted average discount rate of 7.5% and a rate of increase in
         future compensation levels of 5.5% was used in determining the
         actuarial present value of the projected benefit obligation for 1999.
         The expected long-term rate of return on assets was 8.0% for 2000 and
         1999.

         The Company does not provide postretirement benefits other than
         pensions.

         As a result of the acquisition of Green Country (see note 2), the
         Company adopted the Green Country Bank 401(k) plan with amendments
         effective February 16, 1998. Eligible employees of the Company may
         elect to defer a portion of their salary and contribute to the 401(k)
         plan to fund retirement benefits. The Company currently does not
         participate with matched or fixed contributions.

(17)     FAIR VALUE OF FINANCIAL INSTRUMENTS

         SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
         requires that the Company disclose estimated fair values for its
         financial instruments. Fair value estimates, methods and assumptions
         set forth below for the Company's financial instruments, are made
         solely to comply with the requirements of SFAS No. 107.

         Fair values are based on estimates or calculations at the transaction
         level using present value techniques in instances where quoted market
         prices are not available. Because broadly traded markets do not exist
         for most of the Company's financial instruments, the fair value
         calculations attempt to incorporate the effect of current market
         conditions at a specific time. Fair valuations are management's
         estimates of the values, and they are often calculated based on current
         pricing policy, the economic and competitive environment, the
         characteristics of the financial instruments, expected losses and other
         such factors. These calculations are subjective in nature, involve
         uncertainties and matters of significant judgment and do not include
         tax ramifications; therefore, the results cannot be determined with
         precision, substantiated by comparison to independent markets and may
         not be realized in an actual sale or immediate settlement of the
         instruments. The Company has not included certain material items in its
         disclosure, such as the value of the long-term relationships with the
         Company's depositors, since this intangible is not a financial
         instrument. There may be inherent weaknesses in any calculation
         technique, and changes in the underlying assumptions used, including
         discount rates and estimates of future cash flows, could significantly
         affect the results. For all of these reasons, the aggregation of the
         fair value calculations presented herein do not represent, and should
         not be construed to represent, the underlying value of the Company



                                      F-32                           (Continued)
<PAGE>   83

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


         The following table presents a summary of the Company's financial
         instruments, as defined by SFAS No. 107 (dollars in thousands):

<TABLE>
<CAPTION>
                                                   DECEMBER 31, 2000         DECEMBER 31, 1999
                                                -----------------------   -----------------------
                                                 CARRYING    ESTIMATED     CARRYING    ESTIMATED
                                                  VALUE      FAIR VALUE     VALUE      FAIR VALUE
                                                ----------   ----------   ----------   ----------
<S>                                             <C>          <C>          <C>          <C>
          Financial Assets
             Cash and cash equivalents          $   43,971       43,971       55,822       55,822
             Securities available for sale         354,048      354,048      529,230      529,230
             Loans receivable, net               1,848,876    1,847,248    1,685,550    1,675,267
             FHLB stock and FRB stock               19,417       19,417       24,820       24,820

          Financial Liabilities
             Deposits                            1,931,793    1,933,127    1,848,340    1,849,452
             Advances from the FHLB                190,028      189,914      302,035      301,129
             Securities sold under agreements
               to repurchase                        38,214       38,214           --           --
             Senior notes                           41,160       39,930       75,250       79,765
</TABLE>


         The following are descriptions of the methods used to determine the
         estimated fair values:

         (a)      CASH AND CASH EQUIVALENTS

                  The carrying amount is a reasonable estimate of fair value
                  because of the relatively short period of time between the
                  origination of the instrument and its expected realization.

         (b)      SECURITIES

                  The fair value of investment securities, except certain
                  municipal securities, is estimated based on bid prices
                  published by financial news services or price quotations
                  received from securities dealers. The fair value of certain
                  municipal securities is not readily available through market
                  sources other than dealer quotations, so fair value estimates
                  are based on quoted market prices of similar instruments,
                  adjusted for differences between the quoted instruments and
                  the instruments being valued. The estimated fair value of FHLB
                  and FRB stock approximates the carrying value as of December
                  31, 2000 and 1999.

         (c)      LOANS

                  The fair valuation calculation process differentiates loans
                  based on their financial characteristics, such as product
                  classification, loan category, pricing features and remaining
                  maturity. Prepayment estimates are evaluated by product and
                  loan rate. In establishing the credit risk component of the
                  fair value calculations for loans, the Company considered
                  several approaches, including the use of variable discount
                  rates based on relative credit quality, forecasting cash
                  flows, net of projected losses and secondary market pricing
                  for certain third party loan sale transactions. After
                  evaluating



                                      F-33                           (Continued)
<PAGE>   84

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


                  such information, the Company concluded that the allowance for
                  loan losses represented a reasonable estimate of the credit
                  risk component of the fair value of loans at December 31, 2000
                  and 1999.

                  The fair value of commercial real estate loans, other real
                  estate mortgage loans, real estate construction loans, and
                  commercial business loans is calculated by discounting
                  contractual cash flows adjusted for prepayment estimates using
                  discount rates that reflect the Company's current pricing for
                  loans with similar characteristics and remaining maturity.

                  For real estate single family first and junior lien mortgages,
                  fair value is calculated by discounting contractual cash
                  flows, adjusted for prepayment estimates, using discount rates
                  based on the Company's current pricing for loans of similar
                  size, type, remaining maturity and repricing characteristics.

                  For other consumer loans, the fair value is calculated by
                  discounting the contractual cash flows, adjusted for
                  prepayment estimates, using discount rates based on the
                  Company's current pricing for loans of similar size, type, and
                  remaining maturity.

         (d)      DEPOSIT LIABILITIES

                  SFAS No. 107 states that the fair value of deposits with no
                  stated maturity, such as noninterest-bearing demand deposits,
                  interest-bearing checking and savings deposits and market rate
                  savings, is equal to the amount payable on demand at the
                  measurement date. Although SFAS No. 107's requirements for
                  these categories are not consistent with the market practice
                  of using prevailing interest rates to value these amounts, the
                  amount included for these deposits in the previous table is
                  their carrying value at December 31, 2000 and 1999. The fair
                  value of certificates of deposit and other time deposits is
                  calculated based on the discounted value of contractual cash
                  flows. The discount rate is estimated using the rates
                  currently offered for similar duration deposits.

         (e)      ADVANCES FROM THE FEDERAL HOME LOAN BANK OF TOPEKA, SECURITIES
                  SOLD UNDER AGREEMENTS TO REPURCHASE AND SENIOR NOTES

                  The estimated fair value of FHLB advances is based on the
                  discounted value of contractual cash flows. The discount rate
                  is estimated using the current market rate for similar
                  duration borrowings. Commitments are related primarily to
                  variable rate loans originated at current market rates. The
                  estimate of fair value of these commitments is considered to
                  be immaterial. The carrying amount is a reasonable estimate of
                  fair value for securities sold under agreements to repurchase
                  due to their short-term nature. The estimated fair value of
                  senior notes is based on current quoted market prices.

         (f)      LIMITATIONS

                  The information presented in this note is based on market
                  quotes and fair value calculations as of December 31, 2000 and
                  1999. These amounts have not been updated since these dates;
                  therefore, the valuations may have changed since that point in
                  time.



                                      F-34                           (Continued)
<PAGE>   85

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(18)     SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

         Following is a summary of the unaudited interim results of operations
         for the years ended December 31, 2000 and 1999 (dollars in thousands,
         except per share data):

<TABLE>
<CAPTION>
                                             FIRST       SECOND     THIRD      FOURTH       FULL
                   2000                     QUARTER     QUARTER    QUARTER    QUARTER       YEAR
-----------------------------------------   --------    --------   --------   --------    --------
<S>                                         <C>         <C>        <C>        <C>         <C>
Interest and dividend income                $ 45,800      45,526     47,887     50,989     190,202
Net interest and dividend income            $ 19,038      19,012     19,472     20,828      78,350
Provision for loan losses                   $    500         500        500      1,200       2,700
Income before provision for income taxes
   and extraordinary items                  $  9,361       9,425      9,657     10,624      39,067
Extraordinary item--purchase and
   retirement of senior notes, net of tax   $   (871)         --         --        (51)       (922)
Net income                                  $  5,109       6,020      6,161      6,524      23,814

Earnings per share:
   Income before extraordinary item
     Basic                                  $   0.29        0.29       0.30       0.32        1.20
     Diluted                                $   0.29        0.29       0.30       0.32        1.20
   Net income
     Basic                                  $   0.25        0.29       0.30       0.32        1.16
     Diluted                                $   0.25        0.29       0.30       0.31        1.16
</TABLE>


<TABLE>
<CAPTION>
                                             FIRST      SECOND     THIRD       FOURTH       FULL
                   1999                     QUARTER    QUARTER    QUARTER     QUARTER       YEAR
-----------------------------------------   --------   --------   --------    --------    --------
<S>                                         <C>        <C>        <C>         <C>         <C>
Interest and dividend income                $ 39,200     40,467     43,608      45,023     168,298
Net interest and dividend income            $ 17,029     18,149     19,082      19,251      73,511
Provision for loan losses                   $    500        500        500         500       2,000
Income before provision for income taxes
   and extraordinary items                  $  8,069      8,694      8,988       9,125      34,876
Extraordinary item--purchase and
   retirement of senior notes, net of tax   $     --         --       (182)        (75)       (257)
Net income                                  $  5,139      5,547      5,555       5,751      21,992

Earnings per share:
   Income before extraordinary item
     Basic                                  $   0.25       0.27       0.28        0.28        1.08
     Diluted                                $   0.25       0.27       0.28        0.28        1.08
   Net income
     Basic                                  $   0.25       0.27       0.27        0.28        1.07
     Diluted                                $   0.25       0.27       0.27        0.28        1.07
</TABLE>



                                      F-35                           (Continued)
<PAGE>   86

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(19)     PARENT COMPANY FINANCIAL INFORMATION

         Condensed financial information for Local Financial Corporation is as
         follows (dollars in thousands):

                        STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                  ----------------------
                                                     2000         1999
                                                  ---------    ---------
<S>                                               <C>          <C>
Assets:
   Cash and due from banks                        $     269        1,825
   Investment in subsidiary                         196,926      200,700
   Other assets                                       1,769        3,859
                                                  ---------    ---------

     Total assets                                 $ 198,964      206,384
                                                  =========    =========

Liabilities and stockholders' equity:
   Senior notes                                   $  41,160       75,250
   Other liabilities                                  1,533        2,840
                                                  ---------    ---------

     Total liabilities                               42,693       78,090
                                                  ---------    ---------

   Common stock                                         205          205
   Additional paid-in capital                       206,758      206,758
   Retained earnings                                 96,003       72,189
   Treasury stock                                  (151,274)    (151,274)
   Accumulated other comprehensive income             4,579          416
                                                  ---------    ---------

     Total stockholders' equity                     156,271      128,294
                                                  ---------    ---------

     Total liabilities and stockholders' equity   $ 198,964      206,384
                                                  =========    =========
</TABLE>



                                      F-36                           (Continued)
<PAGE>   87

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                           --------------------------------
                                             2000        1999        1998
                                           --------    --------    --------
<S>                                        <C>         <C>         <C>
Income:
   Dividend income from subsidiary         $ 36,825       7,900       2,000
   Equity in undistributed earnings
     (excess distribution) of subsidiary     (7,937)     20,936      23,067
   Other                                         --         171         192
                                           --------    --------    --------

       Total income                          28,888      29,007      25,259

Expense:
   Interest expense                           6,033       9,310       9,470
   Compensation and employee benefits            70         115          --
   Other                                        342         879         922
                                           --------    --------    --------

       Total expense                          6,445      10,304      10,392

Income before benefit for income taxes
   and extraordinary item                    22,443      18,703      14,867
Benefit for income taxes                     (2,293)     (3,546)     (3,570)
                                           --------    --------    --------

       Income before extraordinary item      24,736      22,249      18,437
Extraordinary item, net of tax                 (922)       (257)         --
                                           --------    --------    --------

       Net income                          $ 23,814      21,992      18,437
                                           ========    ========    ========
</TABLE>



                                      F-37                           (Continued)
<PAGE>   88

                   LOCAL FINANCIAL CORPORATION AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                         --------------------------------
                                                           2000        1999        1998
                                                         --------    --------    --------
<S>                                                      <C>         <C>         <C>
Cash provided (absorbed) by operating activities
   Net income                                            $ 23,814      21,992      18,437
   Adjustments to reconcile net income to net
     cash provided (absorbed) by operating activities:
       Equity in (undistributed earnings) excess
         distribution of subsidiary                         7,937     (20,936)    (23,067)
       Change in other liabilities                         (1,307)       (580)        228
       Change in other assets                               2,090       4,320      (2,682)
                                                         --------    --------    --------

Net cash provided (absorbed) by operating activities       32,534       4,796      (7,084)

Cash provided (absorbed) by investing activities:
   Investment in subsidiary                                    --        (240)     (2,087)
   Cash acquired in acquisition of Green Country               --          --       2,512
                                                         --------    --------    --------

Net cash provided (absorbed) by investing activities           --        (240)        425

Cash provided (absorbed) by financing activities:
   Purchase of senior notes                               (34,090)     (4,750)         --
   Payment of liability assumed from Green Country             --          --      (3,162)
                                                         --------    --------    --------

Net cash absorbed by financing activities                 (34,090)     (4,750)     (3,162)

Net change in cash and cash equivalents                    (1,556)       (194)     (9,821)
Cash and cash equivalents at beginning of year              1,825       2,019      11,840
                                                         --------    --------    --------

Cash and cash equivalents at end of year                 $    269       1,825       2,019
                                                         ========    ========    ========
</TABLE>



                                      F-38                           (Continued)
<PAGE>   89

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER            DESCRIPTION
-------           -----------
<S>               <C>
10.11             Local Financial Corporation 1998 Stock Option Plan, as amended
                  July 26, 2000

10.13             Amended and Restated Employment Agreement between Local
                  Financial and Edward A. Townsend, effective October 1, 2000

10.14             Amended and Restated Employment Agreement between Local
                  Financial and Jan A. Norton, effective October 1, 2000

10.17             Change of Control, Non-Competition/Non-Solicitation Agreement
                  between Local Financial Corporation and Local Oklahoma Bank,
                  N.A., and Edward A. Townsend dated January 30, 2001.

10.18             Change of Control, Non-Competition/Non-Solicitation Agreement
                  between Local Financial Corporation and Local Oklahoma Bank,
                  N.A., and Jan A. Norton dated January 30, 2001.
</TABLE>