<PAGE>

                                  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, 2002

                                        or

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

                for the transition period from          to
                                               --------    --------

                         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
                   Trust Preferred Securities at $25 per share
                                (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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

                                 Yes [ ] No [X]


There were 17,802,923 shares of the Registrant's Common Stock outstanding as of
the close of business on March 5, 2003. The aggregate market value of the
Registrant's Common Stock held by non-affiliates was approximately $280.3
million (based upon the closing price of $16.31 on June 28, 2002, 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 2003 Annual Meeting of
Stockholders.


<PAGE>


                           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
      Item 14.    Controls and Procedures

Part IV.
      Item 15.    Exhibits, Financial Statements, Schedules and Reports on Form 8-K

                  Signatures

                  Certifications

                  Index to Financial Statements

                  Index of Exhibits
</Table>


                                       2
<PAGE>


                                     PART I

ITEM 1. BUSINESS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         A number of the presentations and disclosures in this Form 10-K,
including any statements preceded by, followed by or which include the words
"may," "could," "should," "will," "would," "hope," "might," "believe," "expect,"
"anticipate," "estimate," "intend," "plan," "assume" or similar expressions
constitute forward-looking statements.

         These forward-looking statements, implicitly and explicitly, include
the assumptions underlying the statements and other information with respect to
our beliefs, plans, objectives, goals, expectations, anticipations, estimates,
intentions, financial condition, results of operations, future performance and
business, including our expectations and estimates with respect to our revenues,
expenses, earnings, return on equity, return on assets, efficiency ratio, asset
quality and other financial data and capital and performance ratios.

         Although we believe that the expectations reflected in our
forward-looking statements are reasonable, these statements involve risks and
uncertainties that are subject to change based on various important factors
(some of which are beyond our control). The following factors, among others,
could cause our financial performance to differ materially from our goals,
plans, objectives, intentions, expectations and other forward-looking
statements:

         o        the strength of the United States economy in general and the
                  strength of the regional and local economies within Oklahoma;

         o        the effects of, and changes in, trade, monetary and fiscal
                  policies and laws, including interest rate policies of the
                  Board of Governors of the Federal Reserve System;

         o        inflation, interest rate, market and monetary fluctuations;

         o        our timely development of new products and services in a
                  changing environment, including the features, pricing and
                  quality of our products and services compared to the products
                  and services of our competitors;

         o        the willingness of users to substitute competitors' products
                  and services for our products and services;

         o        the impact of changes in financial services policies, laws and
                  regulations, including laws, regulations and policies
                  concerning taxes, banking, securities and insurance, and the
                  application thereof by regulatory bodies;

         o        technological changes;

         o        changes in consumer spending and savings habits; and

         o        regulatory or judicial proceedings.

         If one or more of the factors affecting our forward-looking information
and statements proves incorrect, then our actual results, performance or
achievements could differ materially from those expressed in, or implied by,
forward-looking information and statements contained in this Form 10-K.
Therefore, we caution you not to place undue reliance on our forward-looking
information and statements.


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<PAGE>

         We do not intend to update our forward-looking information and
statements, whether written or oral, to reflect change. All forward-looking
statements attributable to us are expressly qualified by these cautionary
statements.

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. References to "Local" or the "Bank" refer to Local and its
subsidiaries on a consolidated basis, as the context requires.

         At December 31, 2002, the Company had consolidated assets of $2.8
billion, substantially all of which is comprised of its 100% ownership interest
in the Bank, including consolidated deposits of $1.8 billion and consolidated
stockholders' equity of $167.9 million.

         As of September 18, 2002, the Bank is the third largest Oklahoma-based
bank ranked on total deposits. Its deposits of $1.8 billion at December 31,
2002, 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 (the
"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. The Company posts its reports filed under
the Securities Exchange Act of 1934 as amended (the "Exchange Act") on its
web-site at www.localok.com as soon as reasonably practical after filing.

BUSINESS STRATEGY

         Local'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 feels that the
Company is well positioned to attract new customers and increase its market
share. The key components of its strategy are:

         o        Focus on Commercial Lending and Community Presence of the
                  Commercial Lending Officers. Local's corporate lending unit is
                  focused on commercial lending within Oklahoma. The Bank has
                  added experienced lending officers with strong community ties
                  and banking relationships. Although Local continues to
                  originate commercial loans throughout the United States
                  through a network of mortgage bankers and correspondent banks,
                  it has increased its emphasis on the origination of commercial
                  loans within Oklahoma.

         o        Strong Commitment to Highly-Personalized,
                  Relationship-Oriented Customer Service. Management believes
                  that the consolidation among financial institutions in
                  Oklahoma has created significant opportunities for the Bank
                  due to the perceived lack of attention being paid by many
                  large regional and national banks to certain customers,
                  primarily our Bank's targeted customer base of small to
                  medium-sized businesses (up to $100 million in annual sales),
                  professionals and other individuals. Local emphasizes
                  personalized client relationships and provides its customers
                  with customized financial services that address their
                  particular needs. In addition, the Company has streamlined its
                  credit approval process which management believes permits it
                  to process loan requests more efficiently than many of its
                  larger competitors.

         o        Expanded Product Offering. The Company provides its customers
                  with a full range of consumer and commercial products and
                  services. The consumer services include checking and savings
                  accounts, certificates of deposit, IRAs, various loans, safe
                  deposit boxes,


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<PAGE>

                  professional financial planning and online banking. Also
                  offered are commercial services including online commercial
                  banking, commercial checking, commercial lending, cash
                  management and investment services and real estate loans. The
                  Company continues to explore the addition of financial
                  services that it does not currently offer in an effort to
                  diversify and increase its fee income, strengthen its customer
                  relationships and broaden its product lines. The Company
                  operates Local Securities Corporation, a registered
                  broker-dealer that offers retail investment products to its
                  customers through the branch offices.

         o        Strategic Branch Locations. The Bank currently has 52 branch
                  offices located primarily in the major metropolitan areas of
                  Oklahoma City, Tulsa and Lawton, which are more densely
                  populated and have a higher number of businesses as compared
                  to other areas in Oklahoma. The Bank is working to expand the
                  market presence of its existing offices in these metropolitan
                  areas while continuing to explore other markets within
                  Oklahoma that present opportunities for growth.

         o        Selective Acquisitions. Since 1998, the Company has expanded
                  its franchise through strategic acquisitions designed to
                  increase its deposits and branch office locations. In February
                  1998, the Company acquired Green Country Bank, which had three
                  branch offices in northeastern Oklahoma. In October 1998, the
                  Company acquired Citizens Bank, with five offices in Lawton
                  and one in Norman, Oklahoma. These two acquisitions
                  contributed $281.5 million in assets and $238.7 million in
                  deposits as of the respective acquisition dates. In October
                  1999, Local Financial acquired Guthrie Federal Savings Bank
                  with one office north of Oklahoma City. Through this
                  acquisition, the Company acquired $45.0 million in assets and
                  $36.7 million in deposits. In November 2002, the Bank acquired
                  U.S. National Bank of Midwest City, Oklahoma with assets of
                  $37.0 million and deposits of $33.1 million. This acquisition
                  substantially broadened Local's presence in the Midwest City
                  market where it now services approximately $103.9 million of
                  deposits. The Company intends to continue to evaluate
                  financial information about companies, which may lead to the
                  acquisition of such companies. However, Local Financial
                  currently has no agreements or understandings to acquire all
                  or part of any other company.

RISKS RELATING TO THE COMPANY'S BUSINESS STRATEGY

         o        The Company's level of credit risk is increasing due to the
                  expansion of its commercial and consumer lending, the lack of
                  seasoning of these loan portfolios and the concentration on
                  middle market customers with heightened vulnerability to
                  economic conditions. The commercial loan portfolio has
                  expanded significantly since the formation of a new corporate
                  lending unit in 1998. At December 31, 1997, commercial loans
                  totaled $646.5 million or 66.4% of the loan portfolio. At
                  December 31, 2002, this portfolio has increased to $1.7
                  billion or 80.2% of the loan portfolio. The level of credit
                  risk has increased as a result of this shift in the loan
                  portfolio mix. Commercial real estate loans generally are
                  considered riskier than single-family residential loans
                  because they have larger balances to a single borrower or
                  group of related borrowers. Commercial business loans involve
                  risks because the borrower's ability to repay the loan
                  typically depends primarily on the successful operation of the
                  business or the property securing the loan. Most of the
                  commercial business loans are made to middle market customers
                  who may have a heightened vulnerability to economic
                  conditions. Moreover, all of these loans have been made by the
                  Company in the last several years and the borrowers may not
                  have experienced a complete business or economic cycle.
                  Consumer loans are dependent on the borrower's continuing
                  financial stability, and are more likely to be adversely
                  affected by job loss, divorce, illness and personal
                  bankruptcy.

         o        Changes in interest rates could adversely impact the Company's
                  financial condition and results of operations. The Company's
                  ability to make a profit, like that of most financial


                                       5
<PAGE>

                  institutions, substantially depends upon its net interest
                  income, which is the difference between the interest income
                  earned on its interest-earning assets, such as loans and
                  investment securities, and the interest expense paid on its
                  interest-bearing liabilities, such as deposits and borrowings.
                  Certain assets and liabilities, however, may react in
                  different degrees to changes in market interest rates.
                  Further, interest rates on some types of assets and
                  liabilities may fluctuate prior to changes in broader market
                  interest rates, while rates on other types of assets may lag
                  behind. Additionally, some of the assets, such as
                  adjustable-rate mortgages, have features, including payment
                  and rate caps, which restrict changes in their interest rates.

                  Factors such as inflation, recession, unemployment, money
                  supply, international disorders, instability in domestic and
                  foreign financial markets, and other factors beyond the
                  Company's control may affect interest rates. Changes in market
                  interest rates will also affect the level of voluntary
                  prepayments on its loans and on its mortgage-backed
                  securities, resulting in the receipt of proceeds that the
                  Company may have to reinvest at a lower rate than the loan or
                  mortgage-backed security being prepaid. Although the Company
                  pursues an asset-liability management strategy designed to
                  control its risk from changes in market interest rates,
                  changes in interest rates can still have a material adverse
                  effect on its profitability.

         o        The Company's allowance for loan losses may not be sufficient
                  to cover actual loan losses that may be experienced. Loan
                  customers may not repay their loans according to the terms of
                  their loans, and the collateral securing the payment of these
                  loans may be insufficient to assure repayment. The Company may
                  experience significant credit losses, which could have a
                  material adverse effect on its operating results. The Company
                  makes various assumptions and judgments about the
                  collectibility of its loan portfolio, including the
                  creditworthiness of its borrowers and the value of the real
                  estate and other assets serving as collateral for the
                  repayment of many of its loans. In determining the size of the
                  allowance for loan losses, the Company relies on experience
                  and evaluation of the economic conditions. If assumptions
                  prove to be incorrect, the current allowance for loan losses
                  may not be sufficient to cover losses inherent in the loan
                  portfolio and adjustments may be necessary to allow for
                  different economic conditions or adverse developments in the
                  loan portfolio.

         o        A significant amount of the Company's loans are concentrated
                  in Oklahoma, and adverse conditions in Oklahoma could
                  negatively impact its operations. Because of the current
                  concentration of the Company's loan origination activities in
                  Oklahoma, in the event of adverse economic, political or
                  business developments or natural hazards that may affect
                  Oklahoma and the ability of property owners and businesses in
                  Oklahoma to make payments of principal and interest on the
                  underlying loans, the Company could likely experience higher
                  rates of loss and delinquency on its loans than if the loans
                  were made more geographically diversified, which could have an
                  adverse effect on the Company's results of operations or
                  financial condition.

         o        The Company depends on key personnel. The growth and
                  transition to a commercial bank have depended in large part on
                  the efforts of the executive officers and team of experienced
                  lending officers. Lending officers have primary contact with
                  the customers and maintain strong community ties and personal
                  banking relationships with the customer base, one of the key
                  aspects of the Company's business strategy and in increasing
                  its market presence. The unexpected loss of services of one or
                  more of these key employees could have a material adverse
                  effect on the Company's operations.

         o        The Company may not be able to continue to implement aspects
                  of its growth strategy. The Company's growth strategy
                  contemplates the future expansion of its business and
                  operations, possibly through the addition of new product lines
                  and the acquisition or establishment of


                                       6
<PAGE>

                  new offices. Implementing these aspects of the growth strategy
                  depends in part on its ability to successfully identify
                  acquisition opportunities that will complement the Company's
                  commercial banking approach and to successfully integrate
                  their operations with the Company's. If the Company is unable
                  to effectively implement its growth strategy, its business may
                  be adversely affected.

         o        The Company's loan origination business requires it to
                  maintain access to stable funding sources. The Company intends
                  to continue to grow internally by increasing loan
                  originations, particularly commercial loans within Oklahoma.
                  In order to successfully increase its loan originations, the
                  Company will need access to sufficient funds in order to fund
                  expected loan growth. The Company currently funds
                  substantially all of the loans it originates through deposits,
                  Federal Home Loan Bank advances and, to a lesser extent,
                  internally generated funds and other borrowings. As of
                  December 31, 2002, the Company had $264.5 million of
                  additional borrowing capacity with the Federal Home Loan Bank
                  ("FHLB") of Topeka. The Bank competes for deposits primarily
                  on the basis of rates and, as a consequence, the Bank could
                  experience difficulties in attracting deposits to fund its
                  operations if it does not continue to offer deposit rates at
                  levels that are competitive with other financial institutions.
                  To the extent it is unable to maintain its currently available
                  funding sources or access new funding sources on favorable
                  terms, it may have to reduce or curtail its loan origination
                  activities. Any such event would have a material adverse
                  effect on the Company's results of operations and financial
                  condition.

         o        Competition with other financial institutions could adversely
                  affect the Company's profitability. The Company faces
                  substantial competition in originating loans and in attracting
                  deposits. This competition in originating loans comes
                  principally from other banks, savings institutions, mortgage
                  banking companies, consumer finance companies, insurance
                  companies and other institutional lenders and purchasers of
                  loans. In attracting deposits, the Bank competes with insured
                  depository institutions such as savings institutions, credit
                  unions and other banks, as well as institutions offering
                  uninsured investment alternatives including money market
                  funds. These competitors may offer higher interest rates than
                  the Company does, which could result in either attracting
                  fewer deposits or in being required to increase its rates in
                  order to attract deposits. Increased deposit competition could
                  increase the Company's cost of funds and adversely affect its
                  ability to generate the funds necessary for its lending
                  operations, thereby adversely affecting the results of
                  operations. A number of institutions with which the Company
                  competes have significantly greater assets, capital and other
                  resources and many of such institutions have made investments
                  in technology, which are difficult for the Company to match.
                  In addition, many competitors are not subject to the same
                  extensive federal regulation that governs the Company's
                  business. As a result, many competitors have advantages over
                  the Company in conducting certain businesses and providing
                  certain services.

                  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

                                       7
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                  continue to do so in the future, especially with the rapid
                  changes occurring within the financial services industry.

         o        Changes in statutes and regulations could adversely affect the
                  Company. The Company is subject to extensive federal and state
                  legislation, regulation, examination and supervision. Proposed
                  and future legislation and regulations may have a material
                  adverse effect on the Company's business and operations. The
                  Company's success depends on its continued ability to maintain
                  compliance with these regulations. Some of these regulations
                  may increase costs and thus place other financial institutions
                  in stronger, more favorable competitive positions. The Company
                  cannot predict what restrictions may be imposed upon it with
                  future legislation.

LENDING ACTIVITIES

         General. In 1999, the Bank converted from a federal savings bank to a
national bank and shifted its lending activities to focus increasingly on the
origination of commercial loans within the Oklahoma market. The Bank has pursued
this market by adding experienced lending officers with strong community ties
and banking relationships. 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,
                                   -----------------------------------------------------------------------------------------
                                       2002               2001               2000               1999               1998
                                   -------------      -------------      -------------      -------------      -------------
<S>                                <C>                <C>                <C>                <C>                <C>
Commercial(1)                      $   1,695,293      $   1,593,432      $   1,425,382      $   1,183,368      $     927,682
Residential real estate                  212,862            215,408            250,487            362,351            344,565
Consumer                                 196,945            184,663            195,430            161,327            101,738
Held for sale                              8,576              6,263              5,922              6,801             16,188
                                   -------------      -------------      -------------      -------------      -------------
     Total loans                       2,113,676          1,999,766          1,877,221          1,713,847          1,390,173
Less:
     Allowance for loan losses           (29,532)           (27,621)           (28,345)           (28,297)           (27,901)
                                   -------------      -------------      -------------      -------------      -------------
       Loans receivable, net       $   2,084,144      $   1,972,145      $   1,848,876      $   1,685,550      $   1,362,272
                                   =============      =============      =============      =============      =============
</Table>

----------

(1)      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 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's underwriting procedures are designed to streamline the
credit approval process. The Bank's increasing emphasis on commercial and
consumer loans and its desire to meet customer needs require quicker response
times than those traditionally used in a commercial bank environment. The Bank
relies, 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's credit review
procedures are designed to ensure the overall integrity of its loan




                                       8
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portfolio. Management believes its credit approval and review processes are
comparable to those used by other regional and national banks.

         Commercial Loans. At December 31, 2002 and 2001, the Bank's commercial
loans amounted to $1.7 billion and $1.6 billion or 80.2% and 79.7%,
respectively, of the total loan portfolio. Management believes commercial
lending affords the Bank the greatest opportunity for market growth. The Bank's
current commercial loan portfolio consists of fixed-rate and adjustable-rate
loans secured by commercial real estate, inventory, receivables, equipment
and/or general corporate assets of the borrowers. Local's commercial business
lending activities are generally directed toward small to medium size Oklahoma
companies with annual sales up to $100 million. Commercial business loans
generally have annual maturities and prime-based interest rates. On a selective
basis, the Bank originates and purchases commercial real estate loans secured by
properties located throughout the United States. 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.

         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 $37.6 million at December 31, 2002), 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.

         Single-Family Residential Real Estate Loans. At December 31, 2002 and
2001, the Bank's single-family residential mortgage loan portfolio amounted to
$212.9 million and $215.4 million or 10.1% and 10.8%, respectively, of the total
loan portfolio. Most 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 consists 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. Currently, the
Company retains most of its 15-year loan originations and closes most 30-year
loan originations through third party mortgage companies.

         Consumer Loans. Consumer loans totaled $205.5 million and $190.9
million or 9.7% and 9.5% of the total loan portfolio as of December 31, 2002 and
2001, respectively, and consisted of home equity loans, deposit secured loans,
automobile loans, property improvement loans, overdrafts, and personal loans.
Total consumer loans included $8.6 million and $6.3 million, respectively, in
guaranteed student loans held for sale. 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. 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



                                       9
<PAGE>

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 Company records the gain or loss on sale and net income and expense from
assets acquired through foreclosure and repossessions in other noninterest
expense in the accompanying consolidated statements of operations.

         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 six categories: pass, watch, 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. Watch assets have
all the characteristics of acceptable credit, but warrant more than the normal
level of supervision. 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. 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 uncollectble and of
such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for loan losses in the
amount of 100% of the portion of the asset classified loss, or charge-off such
amount. 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 adequacy of 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 special mention, 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




                                       10
<PAGE>

based on a number of quantitative and qualitative factors including levels and
trends of past due and nonaccrual loans; past levels and trends on asset
classifications; change in volume and mix of loans; and collateral values.
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. For more information, see Item 7 hereof, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Nonperforming Assets and Allowance for Loan Losses".

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
collateralized 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 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
collateralized mortgage obligations, or 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, advances from the FHLB of Topeka 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


                                       11
<PAGE>

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, 2002, the Bank accepted deposits through
its 52 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, 2002, the aggregate amount of outstanding time
certificates of deposit in amounts greater than or equal to $100,000 was
approximately $251.1 million. The following table presents the maturity of these
time certificates of deposit at such date (dollars in thousands):

<Table>
<Caption>
                                            December 31, 2002
                                            -----------------
<S>                                         <C>
 3 months or less                            $        89,131
 Over 3 months through 6 months                       36,919
 Over 6 months through 12 months                      49,576
 Over 12 months                                       75,493
                                             ---------------
                                             $       251,119
                                             ===============

</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 of Topeka. The
Bank uses advances from the FHLB System to meet short-term liquidity needs and
investment activities.

         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. During 2002, 2001 and 2000, the Company purchased
and retired $250,000, $19.6 million and $34.1 million of Senior Notes resulting
in a $7,000, $1.6 million and $922,000 loss, net of tax, respectively. At
December 31, 2002, there were $21.3 million of Senior Notes outstanding.
Unamortized deferred issuance costs were approximately $289,000 at December 31,
2002 and are included in other assets as of such date. For additional
information, see Note 9 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 totaled $59.7 million and $38.7 million at December 31, 2002 and 2001,
respectively, and are shown on the consolidated statements of financial
condition as "Securities sold under agreements to repurchase".

         Capital Issuances. During the fourth quarter of 2001, Local Financial
Capital Trust I (the "Trust") (a Delaware business trust and wholly-owned
finance subsidiary of Local Financial) issued cumulative trust preferred
securities in a public offering for gross proceeds of $40.3 million. The
securities bear interest at a rate of 9.00% and mature in 2031. The proceeds
from the sale of the trust preferred securities and the

                                       12
<PAGE>

issuance of $1.2 million in common securities to Local Financial were used by
the Trust to purchase approximately $41.5 million of 9% junior subordinated
debentures of Local Financial which have the same payment terms as the trust
preferred securities. Local Financial will pay interest on the debentures to the
Trust, which will in turn pay dividends on the trust preferred securities and
the common securities.

         In July and October 2002, the Company formed Local Financial Capital
Trusts II and III (the "Trusts") to facilitate each trust issuing adjustable
rate cumulative trust preferred securities in private placements for aggregate
proceeds of approximately $20.0 million. These securities bear interest rates of
3.625% and 3.45% over six and three month LIBOR, respectively, and both mature
in 2032. The proceeds from the sale of the trust preferred securities and the
issuance of $310,000 each in common securities to Local Financial were used by
the Trusts to purchase approximately $20.6 million of adjustable rate junior
subordinated debentures of Local Financial, which bear interest and have the
same payment terms as the trust preferred securities. As above, Local Financial
will pay interest on the debentures to the Trusts, which will in turn pay
dividends on the trust preferred securities and the common securities.

         All outstanding trust preferred issues are included in the Company's
consolidated statement of financial condition under the caption "Mandatorily
Redeemable Trust Preferred Securities". See Note 10 to the Notes to Consolidated
Financial Statements included in Item 8 herein. All interest on the debentures
is tax deductible. Total unamortized deferred issuance costs of approximately
$2.3 million were capitalized and are included in other assets as of December
31, 2002.

         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. Neither Trust I,
II or III qualifies as an operating segment under SFAS No. 131 and have no
independent operations and no functions other than the issuance of securities
and the related purchase of the debentures from the Company and to distribute
payments thereon to the holders of its securities. Local has one active
operating subsidiary, Local Securities Corporation ("Local Securities"), a
registered broker-dealer under the Exchange Act, 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".

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 legislation adopted in 1999, certain
bank holding companies can elect to become financial holding companies and
engage in broader financial activities. See "The Gramm-Leach-Bliley Act" 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, and also limit


                                       13
<PAGE>

various other transactions between Local Financial and its non-bank
subsidiaries, on the one hand, and Local, on the other. The FRB has also
recently issued Regulation W which codifies prior regulations under Sections 23A
and 23B and provides interpretive guidance with respect to affiliate
transactions. See "Regulation W" below.

         Local, as a bank, is subject to extensive supervision, examination and
regulation by Federal bank regulatory authorities. Local Financial and its
subsidiaries 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 FRB policy, a bank holding company is
expected to act as a source of financial and managerial strength to each of its
subsidiary banks and to commit resources to their support. This support may be
required at times when the bank holding company may not have the resources to
provide it. Similarly, under the cross-guarantee provisions of the Federal
Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution
liable for any loss suffered or anticipated by the FDIC in connection with (1)
the "default" of a commonly controlled FDIC-insured depository institution; or
(2) any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution "in danger of default."

         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 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, 2002, Local
Financial met both requirements, with Tier 1 and Total Capital equal to 9.64%
and 11.45%, respectively, of its total risk-weighted assets.

         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, 2002, Local Financial's leverage ratio was 7.01%, 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.

                                       14
<PAGE>

         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, 2002.

         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
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, 2002, 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 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 the beginning of the calendar year 2003, approximately $52.6 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. The annual insurance premiums on bank deposits insured
by the BIF currently 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:

                                       15
<PAGE>

         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" 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. In November 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. Local Financial has not elected to be a financial
holding company.

         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



                                       16
<PAGE>

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 affect Local
Financial's operations and the operations of all financial institutions. One of
the 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 require more disclosure to
consumers, and in some circumstances will require consent by the consumer before
information is allowed to be provided to a third party.

         USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001
(the "Patriot Act") was enacted in response to the terrorist attacks in New
York, Pennsylvania and Washington, D.C., which occurred on September 11, 2001.
The Patriot Act is intended to strengthen U.S. law enforcement's and the
intelligence communities' abilities to work cohesively to combat terrorism on a
variety of fronts. The potential impact of the Patriot Act on financial
institutions of all kinds is significant and wide ranging. The Patriot Act
contains sweeping anti-money laundering and financial transparency laws and
imposes various regulations, including standards for verifying client
identification at account opening, and rules to promote cooperation among
financial institutions, regulators and law enforcement entities in identifying
parties that may be involved in terrorism or money laundering.

         Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed
into law the Sarbanes-Oxley Act of 2002 (the "SOA"). The stated goals of the SOA
are to increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws.

         The SOA is the most far-reaching U.S. securities legislation enacted in
some time. The SOA generally applies to all companies, both U.S. and non-U.S.,
that file or are required to file periodic reports with the SEC under the
Exchange Act. Given the extensive SEC role in implementing rules relating to
many of the SOA's new requirements, the final scope of these requirements
remains to be determined.

         The SOA includes very specific additional disclosure requirements and
new corporate governance rules, requires the SEC and securities exchanges to
adopt extensive additional disclosure, corporate governance and other related
rules and mandates further studies of certain issues by the SEC and the
Comptroller General. The SOA represents significant federal involvement in
matters traditionally left to state regulatory systems, such as the regulation
of the accounting profession, and to state corporate law, such as the
relationship between a board of directors and management and between a board of
directors and its committees.

         The SOA addresses, among other matters: audit committees; certification
of financial statements by the chief executive office and the chief financial
officer; the forfeiture of bonuses and profits made by directors and senior
officers in the twelve month period covered by restated financial statements; a
prohibition on insider trading during pension plan back out periods; disclosure
of off-balance sheet transactions; a prohibition on personal loans to directors
and officers (excluding Federally insured financial institutions); expedited
filing requirements for stock transaction reports by officers and directors;
disclosure of a code of ethics and filing a Form 8-K for a change or waiver of
such code; "real time" filing of periodic reports; the formation of a public
accounting oversight board; auditor independence; and various increased criminal
penalties for violations of securities laws.

         The SOA contains provisions that became effective upon enactment on
July 30, 2002 and provisions that will become effective from within 30 days to
one year from enactment. The SEC has been


                                       17
<PAGE>

delegated the task of enacting rules to implement various of the provisions with
respect to, among other matters, disclosure in periodic filings pursuant to the
Exchange Act.

         Regulation W. Transactions between a bank and its "affiliates" are
governed by Sections 23A and 23B of the Federal Reserve Act. The FRB has also
recently issued Regulation W, which codifies prior regulations under Sections
23A and 23B of the Federal Reserve Act and provides interpretative guidance with
respect to affiliate transactions. Affiliates of a bank include, among other
entities, the Bank's holding company and companies that are under common control
with the Bank. The Company is considered to be an affiliate of the Bank. In
general, subject to certain specified exemptions, a bank or its subsidiaries are
limited in their ability to engage in "covered transactions" with affiliates:

         o        to an amount equal to 10% of the bank's capital and surplus,
                  in the case of covered transactions with any one affiliate;
                  and

         o        to an amount equal to 20% of the bank's capital and surplus,
                  in the case of covered transactions with all affiliates.

         In addition, a bank and its subsidiaries may engage in covered
transactions and other specified transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
bank or its subsidiary, as those prevailing at the time for comparable
transactions with nonaffiliated companies. A "covered transaction" includes:

         o        a loan or extension of credit to an affiliate;

         o        a purchase of, or an investment in, securities issued by an
                  affiliate;

         o        a purchase of assets from an affiliate, with some exceptions;

         o        the acceptance of securities issued by an affiliate as
                  collateral for a loan or extension of credit to any party; and

         o        the issuance of a guarantee, acceptance or letter of credit on
                  behalf of an affiliate.

         In addition, under Regulation W:

         o        a bank and its subsidiaries may not purchase a low-quality
                  asset from an affiliate;

         o        covered transactions and other specified transactions between
                  a bank or its subsidiaries and an affiliate must be on terms
                  and conditions that are consistent with safe and sound banking
                  practices; and

         o        with some exceptions, each loan or extension of credit by a
                  bank to an affiliate must be secured by collateral with a
                  market value ranging from 100% to 130%, depending on the type
                  of collateral, of the amount of the loan or extension of
                  credit.

         Regulation W generally excludes all non-bank and non-savings
association subsidiaries of banks from treatment as affiliates, except to the
extent that the FRB decides to treat these subsidiaries as affiliates.

         Under the present exemption from compliance with the quantitative
limits and collateral requirements of Regulation W and Section 23A, a bank can
purchase loans, or other extensions of credit, from an affiliate without being
subject to the 10% and 20% limitation for "covered transactions" as long as:

         o        the extension of credit is originated by the affiliate;

         o        the bank makes an independent evaluation of the
                  creditworthiness of the borrower before the affiliate makes or
                  commits to make the extension of credit;

                                       18
<PAGE>


         o        the bank commits to purchase the extension of credit before
                  the affiliate makes or commits to make the extension of
                  credit;

         o        the bank does not make a blanket advance commitment to
                  purchase extensions of credit from the affiliate; and

         o        the dollar amount of the extension of credit, when aggregated
                  with the dollar amount of all other extensions of credit
                  purchased from the affiliate during the preceding 12 calendar
                  months by the bank and its FDIC-insured depository institution
                  affiliates, does not represent more than 50% of the dollar
                  amount of extensions of credit originated by the affiliate
                  during the preceding 12 calendar months.

         Concurrently with the adoption of Regulation W, the FRB has proposed a
regulation which would limit the amount of loans that could be purchased by a
bank from an affiliate under this exemption to not more than 100% of the bank's
capital and surplus. Comments on the proposed rule were due by January 13, 2003.

         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.

PERSONNEL

         As of December 31, 2002, the Company (on a consolidated basis) had 781
full-time employees and 107 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.




                                       19
<PAGE>

ITEM 2.  PROPERTIES

OFFICES AND OTHER MATERIAL PROPERTIES

         The following table provides information on the Company's consolidated
branch network as of December 31, 2002:

<Table>
<S>                            <C>                              <C>                          <C>
OKLAHOMA CITY METRO:           Penn South Office                Ardmore Office               Lawton Downtown
Office                         8700 South Pennsylvania          313 West Broadway            1 S.W. 11th Street
                               Oklahoma City, OK 73159          Ardmore, OK 73401            Lawton, OK 73501
Bethany Office                 Owned                            Owned                        Leased
7723 N.W. 23rd Street
Bethany, OK 73008              Portland Office                  Broken Arrow Office          Lawton Mall Office
Owned                          1924 North Portland Avenue       3359 South Elm Place         #10 Central Mall
                               Oklahoma City, OK 73107          Broken Arrow, OK 74012       Lawton, OK 73501
Corporate Headquarters         Owned                            Leased                       Leased
3601 N.W. 63rd Street
Oklahoma City, OK 73116        Quail Creek Office               Chandler Office              Lawton Financial
Owned                          12241 North May Avenue           1804 East First Street       6425 N.W. Cache Road
                               Oklahoma City, OK 73120          Chandler, OK 74834           Lawton, OK 73505
                               Owned                            Owned                        Owned
Crown Heights Office
4716 North Western Avenue      Springbrook Office               Chickasha Office             Lawton Lee Blvd.
Oklahoma City, OK 73118        6233 N.W. Expressway             628 Grand Avenue             1420 S.W. Lee Blvd.
Owned                          Oklahoma City, OK 73132          Chickasha, OK 73018          Lawton, OK 73501
                               Owned                            Owned                        Owned

Edmond Office                  Yukon Office                     Claremore Office             Lawton Cache Road
301 South Bryant #A100         1203 Cornwell                    1050 N. Lynn Riggs Blvd.     2601 N.W. Cache Road
Edmond, OK 73034               Yukon, OK 73099                  Claremore, OK 74017          Lawton, OK 73505
Leased                         Leased                           Owned                        Leased

                               TULSA:                           Clinton Office               Lindsay Office
Santa Fe Office                                                 1002 West Frisco             420 South Main
421 South Santa Fe             Downtown Office                  Clinton, OK 73601            Lindsay, OK 73052
Edmond, OK 73003               111 West 5th Street              Owned                        Owned
Owned                          Tulsa, OK 74103
                               Leased                           Commerce Office              Miami Office
May Avenue Office                                               101 N. Mickey Mantle Blvd.   123 East Central
5701 North May Avenue          Harvard Office                   Commerce, OK 74339           Miami, OK 74354
Oklahoma City, OK 73112        3332 East 51st Street #100       Owned                        Owned
Owned                          Tulsa, OK 74135
                               Leased                           Duncan Downtown Office       Monkey Island Office
Midwest City Air Depot Office                                   1006 West Main Street        56371 E. Hwy 125,
414 North Air Depot                                             Duncan, OK 73533             Afton, OK 74331
Midwest City, OK 73110         Hudson Office                    Owned                        Leased
Owned                          5801 East 41st Street #300
                               Tulsa, OK 74135                  Duncan North Office          Muskogee Office
Suite 1                        Leased                           2210 North Highway 81        2401 East Chandler
Midwest City Douglas Office                                     Duncan, OK 73533             Muskogee, OK 74403
2200 South Douglas Blvd.       Lewis Office                     Owned                        Leased
Midwest City, OK 73130         2250 East 73rd Street #120
Owned                          Tulsa, OK 74136                  Elk City Office              Owasso Office
                               Owned                            200 East Broadway Avenue     201 East 2nd Street
Moore Office                                                    Elk City, OK 73644           Owasso, OK 74055
513 N.E. 12th Street           Memorial Office(1)               Owned                        Owned
Moore, OK 73160                8202 East 71st Street
Owned                          Tulsa, OK 74133                  Grove Office                 Pauls Valley Office
                               Leased                           100 East Third               700 West Grant
Norman Office                                                   Grove, OK 74344              Pauls Valley, OK
2403 West Main Street          Yale Office(1)                                                Owned
Norman, OK 73069-6499          1951 South Yale                  Owned
Leased                         Tulsa, OK 74112                  Guthrie Office               Purcell Office
                               Leased                           120 North Division Street    430 West Lincoln
Park Avenue Office                                              Guthrie, OK 73044            Purcell, OK 73080
73075                          OTHER LOCATIONS:                 Owned                        Owned
100 West Park Avenue
Oklahoma City, OK 73102
Leased

</Table>

                                       20
<PAGE>

<Table>
<S>                            <C>                              <C>                          <C>
Sand Springs Office            Sapulpa Office                   Springs Village Office       Shawnee Office
800 East Charles Page Blvd.    911 East Taft                    3973 South Highway 97        2512 North Harrison
Sand Springs, OK 74063         Sapulpa, OK 74066                Sand Springs, OK 74063       Shawnee, OK 74804
Leased                         Owned                            Leased                       Owned

Sulphur Office                 Weatherford Office
2009 West Broadway             109 East Franklin
Sulphur, OK 73086              Weatherford, OK 73096
Owned                          Owned
</Table>

----------

(1)      The Bank owns the building and leases the land for this facility.

ITEM 3.  LEGAL PROCEEDINGS

         The Company has been involved in litigation with the U.S. Government.
The litigation related to an assistance agreement entered into by the Company
with the FDIC in connection with an acquisition of a federal savings bank in
1988. Prior to the purchase of the Company in 1997 from its two prior owners, a
reserve account in the amount of approximately $7.7 million had been established
relating to amounts that might be owed under the assistance agreement.
Additionally, as part of the purchase of the Company in 1997, $10 million of the
purchase price was deposited by the Company into an escrow account, of which
$9.9 million remained on deposit. Any amounts the Company might ultimately owe
to the FDIC had to be paid first from these two accounts. If the amounts in
these two accounts were not sufficient to satisfy the Company's obligations to
the FDIC, the prior owners had contractually agreed to pay the difference.

         After protracted negotiations between the Company, the prior owners and
the FDIC, on December 30, 2002, the liability owed to the FDIC under the
litigation was settled for approximately $24.7 million net of the set off of
certain uncollected assistance, and the 1988 assistance agreement with the FDIC
was completely terminated. As part of this settlement, all monies held in the
above-mentioned reserve account and escrow account were paid to the FDIC. The
remaining portions of the total amount paid to the FDIC under the terms of the
settlement were (i) a cash payment by the Company in the sum of $2.2 million
which was equal to the unrecorded tax benefit received by the Company for the
income tax deduction that became available for it to apply on its 2002 federal
income tax liability as the Company is able to deduct the interest portion of
the total payment being made to the FDIC; and (ii) the prior owners' cash
payment of the entire remaining balance required to be paid to the FDIC in the
settlement amounting to approximately $4.9 million. As a result of the
foregoing, any potential liability of the Company to the FDIC has now been fully
and completely resolved without any adverse financial effect on the Company.

         Pursuant to the terms of the Settlement and Termination Agreement with
the FDIC, the Company reserved its claim regarding the elimination of certain
tax benefits which would otherwise have been available to the Company had it not
been for the enactment of Section 13224 of the Omnibus Budget Reconciliation Act
of 1993 ("OBRA"). A Resolution and Modification Agreement was entered into
between the prior owners and the Company under which the prior owners agreed to
pay all attorney fees and all third-party costs and expenses as they are
incurred by the Company in prosecution of the claim to a conclusion. Under the
terms of this agreement the prior owners are entitled to be paid substantially
all of any award or settlement payment received by the Company pursuant to such
claim net of taxes, if any. The Company does not anticipate incurring any
liability, loss, damage or material expense with regard to its continuing
prosecution of the OBRA claim.

         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.

                                       21
<PAGE>

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             60          1997     Chief Executive Officer
Jan A. Norton                  56          1997     President
Robert L. Vanden               55          1990     Executive Vice President of the Bank
Richard L. Park                71          1997     Executive Vice President and
                                                      Chief Financial Officer
Christopher C. Turner          44          1983     Executive Vice President of the Bank
James N. Young                 54          1998     Executive Vice President,
                                                      President Tulsa Region of the Bank
Harold A. Bowers               59          1998     Executive Vice President,
                                                      Chief Credit Officer of the Bank
William C. Lee                 63          1998     Executive Vice President
                                                      Operations Division of the Bank
Kenneth K. McIlhaney           59          2000     Executive Vice President of the Bank
K. Randy Roper                 43          1998     Executive Vice President,
                                                      President Oklahoma City Region
                                                      of the Bank
</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 and began
serving as Executive Vice President of the Bank in 1997. From January 1997 until
September 1997, Mr. Vanden served as President and Chief Executive Officer of
the Bank. From February 1990 through December 1996, Mr. Vanden served as
Executive Vice President of Local Federal Bank, FSB, (the predecessor of Local)
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. In June 2000, he assumed the duties of a member of the Board
of Directors for Central Oklahoma Habitat for Humanity, a non-profit
organization. He still holds this position today.

         Richard L. Park. Mr. Park began serving as Executive Vice President and
Chief Financial Officer of the Company and the Bank in September 1997. Mr. Park
served as Chief Financial Officer of Green Country Bank from October 1996 until
it was acquired by the Company. From January 1991

                                       22
<PAGE>

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. He joined the Company
in November 1980.

         James N. Young. Mr. Young has served as President of the Tulsa region
since February 1998. 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 (now Bank of America) was
President, Oklahoma City, and Senior Commercial Lending Manager for the state of
Oklahoma. Mr. Young joined the Bank in February 1998. 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.

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

         William C. Lee. Mr. Lee joined the Bank in May 1998. Mr. Lee serves as
Executive Vice President and is the Bank's principal Operations Officer. Prior
to joining the Bank, Mr. Lee 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.

         Kenneth K. McIlhaney. Mr. McIlhaney joined the Bank in 2000 and serves
as Executive Vice President in charge of Community Banking. 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 the Bank. 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.

         K. Randy Roper. Mr. Roper began serving the Bank in December 1998 as
President of the 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 (now Bank of America) as President,
Oklahoma City.

                                       23
<PAGE>

                                     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,
                   -----------------------------------------------------------
                              2002                            2001
                   ---------------------------     ---------------------------
                      High             Low            High             Low
                   -----------     -----------     -----------     -----------
<S>                <C>             <C>             <C>             <C>
First quarter      $     16.01     $     13.36     $     13.63     $     12.25
Second quarter           17.50           14.20           14.65           12.12
Third quarter            17.40           13.12           15.60           12.00
Fourth quarter           15.02           13.24           14.12           12.06
</Table>

         The Company's Common Stock began trading on April 22, 1998 and, as of
July 15, 1999, began trading on the Nasdaq National Market System under the
symbol "LFIN". On December 31, 2002, there were approximately 31 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. At the beginning of the calendar year 2003,
approximately $52.6 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." In connection with the issuance of
the Company's Senior Notes, the Company entered into an Indenture, dated
September 8, 1997, the terms of which could limit the Company's ability to pay
dividends on its Common Stock under certain circumstances.




                                       24
<PAGE>


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 in Item 8 of this Annual Report.

<Table>
<Caption>
                                                                          December 31,
                                           --------------------------------------------------------------------------------
                                               2002             2001            2000              1999             1998
                                           ------------     ------------     ------------     ------------     ------------
<S>                                        <C>              <C>              <C>              <C>              <C>
STATEMENT OF FINANCIAL CONDITION AND
   OTHER DATA:
Total assets                               $  2,839,858     $  2,820,051     $  2,377,011     $  2,381,607     $  2,128,979
Cash and due from banks                          51,166           50,791           39,571           48,122           27,180
Loans receivable, net                         2,084,144        1,972,145        1,848,876        1,685,550        1,362,272
Securities available for sale                   163,473          193,736          354,048          529,230          570,964
Securities held to maturity                     364,832          430,956               --               --               --
Nonperforming assets(1)                          12,960            9,627           10,903            7,536            4,270
Deposits                                      1,829,439        1,809,362        1,931,793        1,848,340        1,668,074
Securities sold under agreements to
   repurchase                                    59,696           38,694           38,214               --               --
Senior Notes                                     21,295           21,545           41,160           75,250           80,000
FHLB advances                                   684,193          728,205          190,028          302,035          220,033
Mandatorily redeemable trust preferred
   securities                                    60,250           40,250               --               --               --
Stockholders' equity                            167,880          163,536          156,271          128,294          118,806
Number of full service customer                      52               51               51               51               50
facilities
Approximate number of full-time
   equivalent employees                             835              818              810              777              694
</Table>


<Table>
<Caption>
                                                                 For the Years Ended December 31,
                                        ------------------------------------------------------------------------------------
                                            2002              2001              2000              1999              1998
                                        ------------      ------------      ------------      ------------      ------------

<S>                                     <C>               <C>               <C>               <C>               <C>
OPERATIONS DATA:
Interest income                         $    175,493      $    193,138      $    190,202      $    168,298      $    147,204
Interest expense                              82,862           104,644           111,852            94,787            92,438
                                        ------------      ------------      ------------      ------------      ------------
Net interest income                           92,631            88,494            78,350            73,511            54,766
Provision for loan losses                     (6,600)           (5,400)           (2,700)           (2,000)           (1,450)
                                        ------------      ------------      ------------      ------------      ------------
Net interest income after provision
for loan losses                               86,031            83,094            75,650            71,511            53,316
Noninterest income                            28,489            23,723            20,773            20,840            16,585
Noninterest expense                           70,531            66,851            58,776            57,871            41,210
                                        ------------      ------------      ------------      ------------      ------------
Income before provision for
   income taxes                               43,989            39,966            37,647            34,480            28,691
Provision for income taxes                    14,974            13,489            13,833            12,488            10,254
                                        ------------      ------------      ------------      ------------      ------------
Net income                              $     29,015      $     26,477      $     23,814      $     21,992      $     18,437
                                        ============      ============      ============      ============      ============
Earnings per share:
   Net income:
       Basic (2)                        $       1.53      $       1.30      $       1.16      $       1.07      $       0.90
                                        ============      ============      ============      ============      ============
       Diluted (2)                      $       1.48      $       1.26      $       1.16      $       1.07      $       0.89
                                        ============      ============      ============      ============      ============
</Table>



                                       25
<PAGE>


<Table>
<Caption>
                                                           At or For the Years Ended December 31,
                                                -----------------------------------------------------------------
                                                2002           2001           2000           1999           1998
                                                -----          -----          -----          -----          -----

<S>                                             <C>            <C>            <C>            <C>            <C>
PERFORMANCE RATIOS(3):
   Return on assets                              1.04%          1.01%          1.00%          0.99%          0.93%
   Return on common equity                      17.05          15.65          17.18          17.65          17.73
   Dividend payout ratio(4)                        --             --             --             --             --
   Net interest spread(5)                        3.18           3.11           2.95           3.02           2.57
   Net interest margin(6)                        3.48           3.53           3.44           3.46           2.91
   Noninterest expense to average
     assets(7)                                   2.52           2.54           2.48           2.61           2.08
   Efficiency ratio(8)                          58.62          58.70          58.33          60.35          56.81
CAPITAL RATIOS OF THE COMPANY (9):
   Leverage capital                              7.01           6.63           5.61           4.71            N/A
   Core capital                                  9.64           9.24           7.74           6.81            N/A
   Total capital                                11.45          10.49           9.00           8.07            N/A
CAPITAL RATIOS OF THE BANK (10):
   Leverage or tangible                          8.07           7.28           7.30           7.93           7.61
   Core                                         11.11          10.16          10.08          11.48           7.63
   Total or risk-based                          12.37          11.41          11.34          12.74          13.08
ASSET QUALITY RATIOS:
   Nonperforming assets to total assets
     at end of period(1)                         0.46           0.34           0.46           0.32           0.20
   Nonperforming loans to total loans
     at end of period(1)                         0.53           0.39           0.53           0.40           0.26
   Allowance for loan losses to total
     loans at end of period                      1.40           1.38           1.51           1.65           2.00
   Allowance for loan losses to
     nonperforming loans at
     end of period(1)                           2.62x          3.58x          2.83x          4.15x          7.80x
</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.

(2)      Net income per share and dividends per share are based upon the
         weighted average number of shares outstanding during the period. For
         the years ended December 31, 2002, 2001, 2000, 1999 and 1998, the
         weighted average number of shares for basic net income per share are
         18,912,354, 20,368,028, 20,537,209, 20,537,209 and 20,431,698,
         respectively. Basic and diluted shares are the same for each year
         except 2002, 2001 and 1998 wherein diluted shares are 19,616,663,
         20,966,531 and 20,607,119, respectively. See also Note 1(p) of the
         Notes to Consolidated Financial Statements in Item 8 hereof.

(3)      With the exception of end of period ratios, all ratios are based on
         average monthly balances during the periods presented.

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

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

(6)      Net interest margin represents net interest income divided by average
         interest-earning assets.

(7)      Noninterest expense excludes the amortization of intangibles.

(8)      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).

(9)      Prior to the Company becoming a bank holding company during the year
         ended December 31, 1999, the Company was not subject to capital
         requirements as a savings and loan holding company.

(10)     The Bank became subject to OCC regulations in May 1999. Data presented
         as of December 31, 2001, 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.


                                       26
<PAGE>


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.

GENERAL

         Local Financial's primary asset is the capital stock of the Bank. In
pursuit of management's growth strategy, the Bank focuses on increasing its
commercial and consumer lending. The Bank also targets increases in noninterest
income and increases in direct consumer lending. During the fourth quarter of
2001, the Company took steps to strengthen its regulatory capital position
through the issuance of $40.3 million of trust preferred securities. Likewise,
in two separate issuances during 2002, the Company issued a total of $20.0
million additional trust preferred securities. The trust preferred securities
will be used as Tier I Capital to the extent allowable by regulatory guidelines.

         During 2002, the Company, acting under a board-authorized repurchase
program, repurchased 1.7 million shares or approximately 10% of its outstanding
shares of common stock. In October 2002, the Company authorized an additional
stock repurchase program under which the Company would be authorized to
repurchase in the open market from time to time an additional 2.0 million
shares. Through December 31, 2002, 1.1 million shares have been repurchased
under that program. The purchase of any or all of such shares authorized for
repurchase will be dependent on management's assessment of market conditions and
may be commenced or suspended at any time without prior notice. The shares
repurchased by the Company under the stock repurchase program are held as
treasury shares.

         In November 2002, the Bank completed an acquisition of U.S. National
Bank, a privately held national banking association located in Midwest City,
Oklahoma. As of the date of purchase, U.S. National Bank had loans, deposits and
liabilities of approximately $25.4 million, $33.1 million and $1.1 million,
respectively. The acquisition substantially broadened the Bank's presence in the
Midwest City market, where it now services approximately $103.9 million of
deposits.

         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, 2001 TO DECEMBER 31, 2002

         Cash and Cash Equivalents. Cash and cash equivalents (consisting of
cash, cash due from banks and interest-bearing deposits with other banks)
amounted to $58.4 million and $60.5 million at December 31, 2002 and December
31, 2001, 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 its 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. Securities are identified as either held for maturity or
available for sale, based on various factors including asset/liability
management strategies, liquidity and profitability objectives, and regulatory
requirements. Held to maturity securities are carried at cost, adjusted for
amortization of premiums or accretion of discounts. Amortization or accretion of
mortgage-backed securities is periodically adjusted for estimated prepayments.
Available for sale securities are those that may be sold prior to maturity based
upon asset/liability management decisions. Securities identified as available
for sale are carried at fair value.

                                       27
<PAGE>

Unrealized gains or losses on available for sale securities, less applicable
deferred taxes, are recorded as accumulated other comprehensive income in
stockholders' equity.

         During 2002, Local Financial's securities portfolio decreased by $96.4
million. In December 2001, the Company reclassified $431.0 million or 69.0% of
its total securities portfolio as held to maturity, including some of its
single-family loans, which were securitized during 2000. The Company had a net
unrealized gain, net of tax, of $1.4 million in its available for sale
securities portfolio at December 31, 2002 compared to a net unrealized gain, net
of tax, of $4.1 million at December 31, 2001.

         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,
                              -------------------------------------------------------------------------------------------------
                                          2002                               2001                             2000
                              -----------------------------     -----------------------------     ------------------------------
                                Carrying          Market          Carrying          Market          Carrying         Market
                                  Value           Value             Value            Value           Value            Value
                              ------------     ------------     ------------     ------------     ------------     ------------
<S>                           <C>              <C>              <C>              <C>              <C>              <C>
Available for sale:

  Collateralized mortgage
     obligations              $    163,473     $    163,473     $    193,736     $    193,736     $    224,254     $    224,254
  Mortgage pass-through
     securities                         --               --               --               --           95,676           95,676
  U.S. Government and
     agency securities                  --               --               --               --           33,663           33,663
  Municipal securities                  --               --               --               --              455              455
                              ------------     ------------     ------------     ------------     ------------     ------------
                              $    163,473     $    163,473     $    193,736     $    193,736     $    354,048     $    354,048
Held to maturity:

  Collateralized mortgage
     obligations              $    288,585     $    294,712     $    355,637     $    355,769     $         --     $         --
  Mortgage pass-through
     securities                     51,101           54,196           75,140           77,030               --               --
  U.S. Government and
     agency securities              25,046           25,680               --               --               --               --
  Municipal securities                 100              100              179              179               --               --
                              ------------     ------------     ------------     ------------     ------------     ------------
                                   364,832          374,688          430,956          432,978               --               --
                              ------------     ------------     ------------     ------------     ------------     ------------

                              $    528,305     $    538,161     $    624,692     $    626,714     $    354,048     $    354,048
                              ============     ============     ============     ============     ============     ============
</Table>

         Loans Receivable. Net loans receivable amounted to $2.1 billion and
$2.0 billion at December 31, 2002 and 2001, respectively. Net loans receivable
increased by $112.0 million or 5.7% during the year ended December 31, 2002. In
keeping with its strategy, the Bank grew its commercial lending portfolio but at
a slower rate than prior years. The total commercial lending portfolio grew from
$1.6 billion at December 31, 2001 to $1.7 billion at December 31, 2002.
Management intends to continue its controlled growth in lending with the primary
focus being on commercial lending activities that enable the Bank to provide
other banking services to the customers. 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.




                                       28
<PAGE>


         Contractual Principal Repayments and Interest Rates. The following
table sets forth scheduled contractual amortization of the Company's total loan
portfolio at December 31, 2002, 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
                            ----------------------------------------------
                                              After One
                             In One Year     Year Through      After Five
                               or Less        Five Years          Years
                            ------------     ------------     ------------

<S>                         <C>              <C>              <C>
Residential real estate     $     36,362     $     61,201     $    115,299

Commercial                       421,125          795,936          478,232

Consumer                          51,994           91,135           62,392
                            ------------     ------------     ------------

        Total(1)            $    509,481     $    948,272     $    655,923
                            ============     ============     ============
</Table>

----------

(1)      Of the $1.6 billion of loan principal repayments contractually due
         after December 31, 2003, $1.0 billion have fixed rates of interest and
         $561.0 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 refinancing 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, 2002 continued at a relatively
low rate, totaling $13.0 million or .46% of total assets, as compared to $9.6
million or .34% at December 31, 2001. Although the Bank is currently
experiencing lower nonperforming asset rates than most of its peers, it
anticipates these rates to increase as the slower national economy may have an
impact on the Bank's middle-market commercial borrowers who typically have less
ability to withstand economic downturns.

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

<Table>
<Caption>
                                                                                December 31,
                                               -------------------------------------------------------------------------------
                                                  2002             2001             2000             1999             1998
                                               -----------      -----------      -----------      -----------      -----------

<S>                                            <C>              <C>              <C>              <C>              <C>
Non-accruing loans                             $    10,803      $     7,687      $     9,297      $     5,730      $     2,203

Accruing loans greater than 90 days                    464               30              725            1,083            1,374
  delinquent

Foreclosed assets                                    1,693            1,910              881              723              693
                                               -----------      -----------      -----------      -----------      -----------

Total nonperforming assets                     $    12,960      $     9,627      $    10,903      $     7,536      $     4,270
                                               ===========      ===========      ===========      ===========      ===========

Total nonperforming assets as a percentage
  of total assets                                     0.46%            0.34%            0.46%            0.32%            0.20%
                                               ===========      ===========      ===========      ===========      ===========
</Table>


                                       29
<PAGE>

         As of December 31, 2002, the Company's allowance for loan loss totaled
$29.5 million or 1.4% of total loans. During the year ended December 31, 2002,
the Company's net charge-offs totaled $5.7 million as compared with $6.1 million
for the year ended December 31, 2001.

         The Company'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. Specific and general valuation
allowances are increased by provisions charged to expense and decreased by
charge-offs of loans, net of recoveries. Specific allowances are provided for
impaired loans for which the expected loss is measurable. General valuation
allowances are provided based on a formula, which incorporates the factors
discussed above. The Bank periodically reviews the assumptions and formula by
which additions are made to the specific and general valuation allowances for
losses in an effort to refine such allowances in light of the current status of
the factors described above. Management realizes that an institution's past loss
history should be considered in evaluating the inherent loss potential of the
loan portfolio. Consequently, management has deemed it prudent to develop and
implement a migration analysis for the determination of inherent loss potential
for both its homogeneous and nonhomogeneous loan portfolio. Homogeneous loan
categories consist of one-to-four family residential mortgages and consumer
loans. Homogeneous loans are analyzed on a group or pool basis for evaluation of
credit quality and impairment under SFAS No. 5. Nonhomogeneous loan categories
consist of commercial loans. These assets are reviewed individually for the
purpose of evaluating credit quality and impairment under SFAS No. 114. The
migration loss percentage factors used for each risk class or grade for both
homogeneous and nonhomogeneous loan categories are based on the results of a
migration analysis. In addition to historical loss experience, the Company also
considers other factors likely to cause estimated credit losses to differ from
historical loss experience. See "Business--Asset Quality--Allowance for Loan
Losses" in Item 1 hereof and Note 1(e) of the Notes to Consolidated Financial
Statements in Item 8 hereof.

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

<Table>
<Caption>
                                                                       Years Ended December 31,
                                           -----------------------------------------------------------------------------------
                                              2002              2001              2000              1999               1998
                                           -----------       -----------       -----------       -----------       -----------
<S>                                        <C>               <C>               <C>               <C>               <C>
Balance at beginning of period             $    27,621       $    28,345       $    28,297       $    27,901       $    20,484
   Loans charged off:
     Residential real estate                      (635)             (805)             (164)             (314)              (31)
     Commercial                                 (4,121)           (3,606)           (1,725)           (2,397)             (545)
     Consumer                                   (1,428)           (2,178)           (1,818)           (1,142)             (928)
   Recoveries                                      492               465             1,055             1,909               187
                                           -----------       -----------       -----------       -----------       -----------
       Net loans charged off                    (5,692)           (6,124)           (2,652)           (1,944)           (1,317)
Allowances acquired                              1,003                --                --               340             7,284
Provision for loan losses                        6,600             5,400             2,700             2,000             1,450
                                           -----------       -----------       -----------       -----------       -----------
Balance at end of period                   $    29,532       $    27,621       $    28,345       $    28,297       $    27,901
                                           ===========       ===========       ===========       ===========       ===========
Allowance for loan losses to total
   nonperforming loans at end of period           2.62x             3.58x             2.83x             4.15x             7.80x
                                           ===========       ===========       ===========       ===========       ===========
Allowance for loan losses to total
   loans at end of period                         1.40%             1.38%             1.51%             1.65%             2.00%
                                           ===========       ===========       ===========       ===========       ===========
</Table>


                                       30
<PAGE>


         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,
                         -----------------------------------------------------------------------------------------------------
                                     2002                               2001                               2000
                         -----------------------------      -----------------------------      -----------------------------
                                          Percent to                         Percent to                         Percent to
                                             Total                              Total                              Total
                            Amount         Allowance           Amount         Allowance           Amount         Allowance
                         ------------     ------------      ------------     ------------      ------------     ------------

<S>                      <C>              <C>               <C>              <C>               <C>              <C>
Residential real estate  $      2,414             8.17%     $      2,313             8.37%     $      2,777             9.80%

Commercial                     24,508            82.99            22,021            79.73            21,125            74.53

Consumer                        2,610             8.84             3,287            11.90             4,443            15.67
                         ------------     ------------      ------------     ------------      ------------     ------------

     Total               $     29,532           100.00%     $     27,621           100.00%     $     28,345           100.00%
                         ============     ============      ============     ============      ============     ============

<Caption>


                                                       December 31,
                             ----------------------------------------------------------------
                                         1999                               1998
                             -----------------------------      -----------------------------
                                               Percent to                         Percent to
                                                  Total                              Total
                                Amount          Allowance           Amount         Allowance
                             ------------     ------------      ------------     ------------
<S>                          <C>              <C>               <C>              <C>
Residential real estate      $      3,332            11.78%     $      3,311            11.87%


Commercial                         18,963            67.01            18,798            67.37

Consumer                            6,002            21.21             5,792            20.76
                             ------------     ------------      ------------     ------------

     Total                   $     28,297           100.00%     $     27,901           100.00%
                             ============     ============      ============     ============
</Table>


                                       31
<PAGE>



         Deposits. At December 31, 2002, deposits totaled $1.83 billion, as
compared to $1.81 billion at December 31, 2001, an increase of 1.1%. During
2002, the Company's demand and savings portfolios grew $132.2 million or 18.7%,
which was offset by a decline in time deposits of $112.1 million or 10.2% during
2002. Attributing to the overall growth during this period was the acquisition
of U.S. National Bank of Midwest City as well as the ongoing success of the
Company's new consumer focused marketing strategy.



                                       32
<PAGE>




         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,
                                 --------------------------------------------------------------------------------------------------
                                             2002                               2001                              2000
                                 -------------------------------   -------------------------------   ------------------------------
                                                         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     $  170,390    $    --      -%     $  155,598    $    --     --%     $  140,004    $    --      -%
Passbook accounts                    76,803      1,317    1.71         66,715      1,754    2.63         69,635      1,994    2.86
NOW and money market accounts       524,500      9,021    1.72        452,971     12,778    2.82        359,831     13,203    3.67
Term certificates                 1,092,278     39,818    3.65      1,145,288     61,094    5.33      1,309,327     73,220    5.59
                                 ----------    -------             ----------    -------             ----------    -------

     Total deposits              $1,863,971    $50,156    2.69%    $1,820,572    $75,626    4.15%    $1,878,797    $88,417    4.71%
                                 ==========    =======    ====     ==========    =======    ====     ==========    =======    ====

</Table>



                                       33
<PAGE>


         Borrowings. Other than deposits, the Company utilizes advances from the
FHLB of Topeka, and to a lesser extent, securities sold under agreements to
repurchase to fund its operations. During 2002, the Company's average balance of
advances outstanding at the FHLB of Topeka were $624.2 million compared with
$521.6 million in 2001, as the Company further utilized FHLB borrowings to fund
investment securities.

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

<Table>
<Caption>
                                                                  At or For the Years
                                                                   Ended December 31,
                                                    ------------------------------------------------
                                                        2002              2001              2000
                                                    ------------      ------------      ------------
<S>                                                 <C>               <C>               <C>
FHLB OF TOPEKA ADVANCES:
   Average balance outstanding                      $    624,170      $    521,628      $    262,885
   Maximum amount outstanding at any
     month-end during the year                           710,025           753,036           326,217
   Balance outstanding at end of year                    684,193           728,205           190,028
   Average interest rate during the year                    4.10%             4.23%             6.11%
   Average interest rate at end of year                     3.82%             3.75%             6.44%

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
   Average balance outstanding                      $     43,425      $     42,987      $     18,352
   Maximum amount outstanding at any
     month-end during the year                            64,701            53,622            38,214
   Balance outstanding at end of year                     59,696            38,694            38,214
   Average interest rate during the year                    1.22%             3.39%             5.85%
   Average interest rate at end of year                     0.94%             1.29%             5.92%
</Table>

         In September 1997, 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. During 2002, 2001 and 2000, the Company purchased and
retired $250,000, $19.6 million and $34.1 million of Senior Notes, resulting in
a $7,000, $1.6 million and $922,000 loss, net of tax, respectively. At December
31, 2002, there were $21.3 million Senior Notes outstanding. Issuance costs were
deferred and capitalized and the unamortized balance of $289,000 is reflected in
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. For additional information, see "Business--Sources of
Funds--Borrowings" in Item 1 hereof and Note 9 of the Notes to Consolidated
Financial Statements in Item 8 hereof.

         Stockholders' Equity. Stockholders' equity increased from $163.5
million at December 31, 2001 to $167.9 million at December 31, 2002. The
increase in stockholders' equity came primarily as a result of earnings during
the period, offset by an increase in treasury shares. The Company increased its
shares of treasury stock during 2002 as part of a stock repurchase program in
which the Company repurchased 1.7 million shares of its common stock at a cost
of $24.8 million. See "-Changes in Financial Condition -General". The net
increase in additional paid-in capital during 2002 of $2.8 million included the
exercise of 128,333 warrants, which were part of the original 591,000 warrants
issued in conjunction with the Company's 1997 private placement, offset by the
repurchase of 125,000 of those warrants by the Company at fair market value
during 2002. Additionally, during 2002, 196,365 options to purchase the
Company's stock were exercised, resulting in a $1.9 million increase in
additional paid-in capital. These options had been previously issued to officers
of the Bank under the Company's 1998 Stock Option Plan. Accumulated other
comprehensive income declined $2.7 million during fiscal 2002. At December 31,
2002, the Company and the Bank exceeded all regulatory requirements for capital
adequacy. See "--Liquidity and Capital Resources".


                                       34
<PAGE>


RESULTS OF OPERATIONS

         General. The Company's results of operations depend substantially on
its net interest income, which is the difference between interest 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, FHLB of Topeka advances, Senior Notes and mandatorily
redeemable trust preferred securities. 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 and the increase in the cash surrender value of the
bank-owned life insurance; the level of its noninterest expense, such as
compensation and employee benefits, equipment and data processing expense,
occupancy expense, advertising expense and professional fees; 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.

         Net Income. The Company reported net income of $29.0 million, $26.5
million and $23.8 million during the years ended December 31, 2002, 2001 and
2000, respectively. Included in these results are the effect of the Company's
purchase and retirement during 2002, 2001 and 2000 of $250,000, $19.6 million
and $34.1 million of Senior Notes, resulting in a $7,000, $1.6 million and
$922,000 loss, net of tax, respectively. Net income increased by $2.5 million or
9.6% during the year ended December 31, 2002, as compared to the year ended
December 31, 2001, primarily due to a decline in interest expense paid on
deposit accounts as well as increased deposit-related income. Net income
increased by $2.7 million or 11.2% during the year ended December 31, 2001, as
compared to the year ended December 31, 2000, primarily due to the increase in
the net interest income which came as a result of income earned on the Company's
available for sale securities portfolio as well as declining interest expense on
interest-bearing liabilities.

         Net Interest Income. Net interest 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 income rose in all comparative periods presented. The
overall decline in the national economy drove interest rates to historical lows.
During 2002, the Company's interest-bearing liabilities repriced faster than its
interest-earning assets. Accordingly, the Company's net interest spread
increased from 3.11% in 2001 to 3.18% in 2002. In all periods presented, the
Company has continued to increase its net interest-earning assets
(interest-earning assets less interest-bearing liabilities). Average
interest-earning assets increased by $158.1 million or 6.3% during 2002 with
loans being the highest yielding asset. Average interest-bearing liabilities
increased $148.1 million or 6.5% during 2002. The Company's net interest margin,
which is the ratio of net interest income to average earning assets, decreased
from 3.53% for 2001 to 3.48% for 2002 reflecting the slower rate of growth in
net interest income during 2002.

         Interest Income. Total interest income decreased by $17.6 million or
9.1% during the year ended December 31, 2002 as compared to the year ended
December 31, 2001, primarily as a result of the decline in the average yield on
interest-earning assets, which fell from 7.70% to 6.59% or 111 basis points
during the comparative period. Interest income on loans fell $14.1 million or
9.3% during the year ended December 31, 2002. This decline was primarily due to
the decline in the average yield, which dropped from 7.94% to 6.86% during that
same period. The Company continues to increase its average balance of loans
outstanding particularly focusing on growth in the commercial portfolio.
However, current economic conditions have slowed new loan origination growth and
early pay-offs and refinancings caused further yield declines within the
portfolio as new loans are added at current lower rates.

         Total interest income increased marginally by $2.9 million or 1.5%
during the year ended December 31, 2001 as compared to the year ended December
31, 2000 as an increase in interest income received on the securities portfolio
offset a decline in interest income received on loans. During the year ended
2001, loan growth slowed and rates fell causing overall yield declines in the
loan portfolio. Interest income on loans receivable declined $5.7 million or
3.6% during the year ended December 31, 2001.




                                       35
<PAGE>

During this same period, the Company's average available for sale securities
portfolio increased $104.1 million or 24.9%. While the average yield on the
securities portfolio fell from 7.13% to 7.07%, the rate decline did not offset
the volume increases, and accordingly, interest income on securities rose $7.1
million or 24.0% during the comparative periods.

         Interest Expense. Interest expense on deposits, which is the largest
component of the Company's interest-bearing liabilities, declined $25.5 million
or 33.7% during the year ended December 31, 2002. The decreased expense was
primarily rate driven as the average cost of deposits fell from 4.54% to 2.96%
during the period, offsetting increases in the average balance of those
deposits, which rose $28.6 million or 1.7%.

         Similarly, during the year ended December 31, 2001, interest expense on
deposits declined $12.8 million or 14.5% when compared to the year ended
December 31, 2000. However, this decline was a result of both rate and volume
declines in the deposit base. The average cost of deposits during the year ended
December 31, 2001, was 4.54% as compared with 5.08% for the same period in the
prior year. This rate decline coupled with a decline in the average balance of
total deposits of $73.8 million or 4.2% during the comparative period led to the
overall decline in interest expense.

         Interest expense on FHLB advances increased $3.6 million or 16.2%
during the year ended December 31, 2002 primarily due to an increase in the
average outstanding balance of those borrowings, which rose from $521.6 million
during 2001 to $624.2 million during 2002. This increase in volume offsets a
decline in the average cost of those borrowings from 4.23% to 4.10%,
respectively. During the year ended December 31, 2001 volume increases again
drove an increase in interest expense as compared to the prior year as the
average balance of borrowings for 2001 increased $258.7 million. During this
same period the average cost of those borrowings declined 188 basis points.

         Interest expense on securities sold under agreements to repurchase
decreased 67.6% during the year ended December 31, 2002 to $532,000 from $1.6
million in the year ended December 31, 2001. This decline was primarily rate
driven as the average yield on those borrowings fell from 3.52% for the year
ended December 31, 2001 to 1.22% for the year ended December 31, 2002.

         During the periods presented, interest expense on Senior Notes
consisted of interest accrued with respect to the notes issued in connection
with the 1997 purchase and recapitalization of the Company. During the past four
years, the Company has successfully purchased and retired $58.7 million of the
original $80.0 million 11% Senior Notes resulting in the continued decrease in
interest expense.

         During the fourth quarter of 2001, the Company issued $40.3 million in
trust preferred securities bearing an interest rate of 9.00%. Likewise in July
and October 2002, the Company issued an additional $20.0 million in floating
rate trust preferred securities, bringing the total outstanding balance of
mandatorily redeemable trust preferred securities at December 31, 2002 to $60.3
million. These securities bear interest rates of 3.625% and 3.45% over six and
three month LIBOR, respectively. On December 31, 2001, the Company began
quarterly interest payments on its 9.00% trust preferred securities. During
2003, the Company will begin semiannual and quarterly interest payments on the
trust preferred securities issued in July and October 2002. See "Business
-Sources of Funds--Capital Issuances" in Item 1 hereof and Note 10 of the Notes
to Consolidated Financial Statements in Item 8 hereof.




                                       36
<PAGE>



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,
                                       ------------------------------------------------------------------------------------------
                                                          2002                                             2001
                                       ------------    ------------     ----------      ------------    ------------    ----------
                                         Average                         Average          Average                         Average
                                         Balance         Interest       Yield/Cost        Balance        Interest       Yield/Cost
                                       ------------    ------------     ----------      ------------    ------------    ----------
<S>                                    <C>             <C>              <C>             <C>             <C>             <C>
ASSETS
  Loans receivable(1)                  $  2,011,278    $    137,875           6.86%     $  1,914,373    $    151,950          7.94%
  Securities(2)                             576,199          35,200           6.11           522,406          36,952          7.07
  Other earning assets(3)                    77,356           2,418           3.13            70,004           4,236          6.05
                                       ------------    ------------                     ------------    ------------
    Total interest-earning assets         2,664,833         175,493           6.59%        2,506,783         193,138          7.70%
                                                       ------------     ==========                      ------------    ==========
  Noninterest-earning assets                130,674                                          120,098
                                       ------------                                     ------------
    Total assets                       $  2,795,507                                     $  2,626,881
                                       ============                                     ============
LIABILITIES AND STOCKHOLDERS' EQUITY
  Deposits:
   Transaction accounts(4)             $    601,303          10,338           1.72%     $    519,686          14,532          2.80%
   Term certificates of deposit           1,092,278          39,818           3.65         1,145,288          61,094          5.33
                                       ------------    ------------                     ------------    ------------
    Total deposits                        1,693,581          50,156           2.96         1,664,974          75,626          4.54
  FHLB advances                             624,170          25,613           4.10           521,628          22,045          4.23
   Securities sold under
    agreements to repurchase                 43,456             532           1.22            46,600           1,640          3.52
  Senior Notes                               21,506           2,541          11.81            36,353           4,298         11.81
  Mandatorily redeemable trust
   preferred securities                      46,250           4,020           8.69            11,358           1,035          9.11
                                       ------------    ------------                     ------------    ------------
    Total interest-bearing                2,428,963          82,862           3.41%        2,280,913         104,644          4.59%
                                                       ------------     ==========                      ------------    ==========
  Noninterest-bearing liabilities           196,338                                          176,754

  Stockholders' equity                      170,206                                          169,214
                                       ------------                                     ------------
    Total liabilities and
     stockholders' equity              $  2,795,507                                     $  2,626,881
                                       ============                                     ============
Net interest-earning assets            $    235,870                                     $    225,870
                                       ============                                     ============
Net interest income/interest
  rate spread                                          $     92,631           3.18%                     $     88,494          3.11%
                                                       ============     ==========                      ============    ==========
Net interest margin                                                           3.48%                                           3.53%
                                                                        ==========                                      ==========
Ratio of average interest-
  earning to average
  interest-bearing                                                          109.71%                                         109.90%
                                                                        ==========                                      ==========
<Caption>
                                               Years Ended December 31,
                                      -------------------------------------------
                                                          2000
                                       ------------    ------------    ----------
                                        Average                          Average
                                        Balance         Interest       Yield/Cost
                                       ------------    ------------    ----------
<S>                                    <C>             <C>                   <C>
ASSETS                                 $  1,817,414    $    157,648          8.67%
  Loans receivable(1)                       418,280          29,811          7.13
  Securities(2)                              40,794           2,743          6.72
  Other earning assets(3)              ------------    ------------
     Total interest-earning assets        2,276,488         190,202          8.35%
                                                                        ==========
  Noninterest-earning assets                 96,288
                                       ------------
    Total assets                       $  2,372,776
                                       ============
LIABILITIES AND STOCKHOLDERS' EQUIT
  Deposits:
   Transaction accounts(4)             $    429,466          15,197          3.54%
   Term certificates of deposit           1,309,327          73,220          5.59
                                       ------------    ------------
    Total deposits                        1,738,793          88,417          5.08
  FHLB advances                             262,885          16,329          6.11
  Securities sold under agreements
   to repurchase                             18,352           1,073          5.85
  Senior Notes                               50,113           6,033         11.81
  Mandatorily redeemable trust
   preferred securities                          --              --            --
                                       ------------    ------------
    Total interest-bearing                2,070,143         111,852          5.40%
                                                       ------------    ==========
  Noninterest-bearing liabilities           164,045
  Stockholders' equity                      138,588
                                       ------------
    Total liabilities and
     stockholders' equity              $  2,372,776
                                       ============
  Net interest-earning assets          $    206,345
                                       ============
  Net interest income/interest
   rate spread                                         $     78,350          2.95%
                                                       ============    ==========
  Net interest margin                                                        3.44%
                                                                       ==========
  Ratio of average interest-
   earning to average
   interest-bearing                                                        109.97%
                                                                       ==========
</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 interest bearing deposits, FHLB of Topeka stock and Federal
         Reserve Bank stock.

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



                                       37
<PAGE>

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, 2002 compared to 2001    Year Ended December 31, 2001 compared to 2000
                                    ---------------------------------------------    ---------------------------------------------
                                      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:
   Loans receivable                 $(20,718)   $  7,692    $ (1,049)   $(14,075)    $(13,394)   $  8,411    $   (715)    $ (5,698)
   Securities                         (5,038)      3,805        (519)     (1,752)        (224)      7,421         (56)       7,141
   Other earning assets               (2,048)        445        (215)     (1,818)        (275)      1,964        (196)       1,493
                                    --------    --------    --------    --------     --------    --------    --------     --------
       Total net change in income
         on interest-earning         (27,804)     11,942      (1,783)    (17,645)     (13,893)     17,796        (967)       2,936
                                    --------    --------    --------    --------     --------    --------    --------     --------

Interest-bearing:
   Deposits:
     Transaction accounts             (5,597)      2,282        (879)     (4,194)      (3,188)      3,193        (670)        (665)
     Term certificates of deposit    (19,344)     (2,827)        895     (21,276)      (3,376)     (9,173)        423      (12,126)
                                    --------    --------    --------    --------     --------    --------    --------     --------
       Total deposits                (24,941)       (545)         16     (25,470)      (6,564)     (5,980)       (247)     (12,791)

   FHLB advances                        (640)      4,334        (126)      3,568       (5,219)     16,072      (5,137)       5,716
   Securities sold under agreements
     to repurchase                    (1,070)       (110)         72      (1,108)        (427)      1,652        (658)         567
   Senior Notes                            1      (1,754)         (4)     (1,757)        (265)     (1,730)        260       (1,735)
   Mandatorily redeemable trust
     preferred securities                (48)      3,179        (146)      2,985            -           -       1,035        1,035
                                    --------    --------    --------    --------     --------    --------    --------     --------
       Total net change in expense
         on interest-bearing         (26,698)      5,104        (188)    (21,782)     (12,475)     10,014      (4,747)      (7,208)
                                    --------    --------    --------    --------     --------    --------    --------     --------
Change in net interest income       $ (1,106)   $  6,838    $ (1,595)   $  4,137     $ (1,418)   $  7,782    $  3,780     $ 10,144
                                    ========    ========    ========-   ========     ========    ========    ========     ========
<Caption>

                                         Year Ended December 31, 2000 compared to 1999
                                         ----------------------------------------------
                                           Increase (Decrease) due to
                                         ----------------------------------
                                                                              Total Net
                                                                              Increase
                                           Rate       Volume     Rate/Volume (Decrease)
                                         --------    --------    ----------- ----------
<S>                                      <C>         <C>         <C>         <C>
Interest-earning:
   Loans receivable                      $  6,000    $ 19,868     $    911    $ 26,779
   Securities                               1,621      (5,681)        (270)     (4,330)
   Other earning assets                      (166)       (399)          20        (545)
                                         --------    --------     --------    --------
       Total net change in income on
         interest-earning                   7,455      13,788          661      21,904
                                         --------    --------     --------    --------
Interest-bearing:
   Deposits:
     Transaction accounts                   2,517       2,020          500       5,037
     Term certificates of deposit           6,951       5,249          604      12,804
                                         --------    --------     --------    --------
       Total deposits                       9,468       7,269        1,104      17,841

   FHLB advances                            3,283      (1,520)        (335)      1,428
   Securities sold under agreements
     to repurchase                             --          --        1,073       1,073
   Senior Notes                                (4)     (3,347)          74      (3,277)
   Mandatorily redeemable trust
     preferred securities                      --          --           --          --
                                         --------    --------     --------    --------
       Total net change in expense on
         interest-bearing                  12,747       2,402        1,916      17,065
                                         --------    --------     --------    --------
Change in net interest income            $ (5,292)   $ 11,386     $ (1,255)   $  4,839
                                         ========    ========     ========    ========
</Table>


                                       38
<PAGE>


         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 $6.6 million,
$5.4 million and $2.7 million during the years ended December 31, 2002, 2001 and
2000, respectively. During such respective periods, loan charge-offs (net of
recoveries) amounted to $5.7 million, $6.1 million and $2.7 million.

         Noninterest Income. Total noninterest income amounted to $28.5 million,
$23.7 million and $20.8 million during the years ended December 31, 2002, 2001
and 2000, 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, commission revenue and other miscellaneous income. The $4.8 million
or 20.1% increase in noninterest income in 2002 was due to increases in
deposit-related service charges as the Company has placed increased emphasis on
developing new sources of noninterest revenue. The $3.0 million or 14.2%
increase in noninterest income in 2001 was due primarily to increases in
deposit-related service charges as well as increases in the cash surrender value
of bank-owned life insurance resulting from the additional $10 million purchased
during the year.

         Noninterest Expense. Total noninterest expense increased $3.7 million
or 5.5% during the year ended December 31, 2002. This increase was primarily
attributable to increases in compensation and employee benefits expense, which
includes the cost of fully accruing the tax-offsetting bonus feature of stock
options issued to selected officers which was partly offset by the elimination
of $1.3 million in goodwill that would have been amortized in 2002 under prior
accounting rules. During the year ended 2001, total noninterest expense
increased $8.1 million or 13.7%. The increase was attributable to increases in
compensation and employee benefits expense as the Company added personnel to
support its growth strategy as well as a $2.5 million pre-tax loss incurred on
the repurchase of $19.6 million of the Company's Senior Notes.

         Provision for Income Taxes. During the years ended December 31, 2002,
2001 and 2000, the Company recognized $15.0 million, $13.5 million and $13.8
million, respectively, of provisions for income taxes. At December 31, 2002, the
Company had approximately $51.0 million of net operating loss carryforwards
available for state income tax purposes. The state net operating loss
carryforwards expire in varying amounts between 2011 and 2014. At December 31,
2002, 2001 and 2000, 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 Company's current strategy, 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.


                                       39
<PAGE>


See 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, 2002, the Company had $264.5 million
in available borrowing capacity with the FHLB.

         At December 31, 2002, the Company had outstanding loan commitments
(including unused lines of credit) for home equity, commercial real estate and
commercial business loans of approximately $342.8 million and an additional $9.5
million in performance standby letters of credit. Certificates of deposit, which
are scheduled to mature within one year, totaled $708.4 million at December 31,
2002, and borrowings, which are scheduled to mature within the same period
totaled $133.9 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, 2002 and 2001, the Company made
interest payments on the Senior Notes funded through dividends from the Bank.
During the years ended December 31, 2002, 2001 and 2000, the Company purchased
and retired $250,000, $19.6 million and $34.1 million, respectively, of the
Senior Notes which had been issued in connection with the Company's
recapitalization in 1997. This move will reduce future interest costs associated
with those notes. The Senior Notes have an annual interest debt service
requirement of $2.3 million. During the year ending December 31, 2003, the
Company intends to fund the interest payments scheduled to be made on March 1,
2003 and September 1, 2003 through dividends from the Bank.

         On December 31, 2001, Trust I began quarterly interest payments on its
9.00% trust preferred securities, which had been issued earlier in the year.
These trust preferred securities have an annual interest debt service of $3.6
million. During 2003, the Company will begin semiannual and quarterly interest
payments on the trust preferred securities issued by the newly formed Trusts II
and III, respectively. These securities bear interest rates of 3.625% and 3.45%
over six and three month LIBOR, respectively. The Company intends to fund all
trust preferred security payments through dividends from


                                       40
<PAGE>

the Bank. See "Business - Sources of Funds - Capital Issuances" in Item 1 hereof
and Note 10 of the Notes to Consolidated Financial Statements in Item 8 hereof.

         Capital Resources. During the fourth quarter of 2001, the Trust issued
trust preferred securities for an aggregate price of approximately $40.3
million. In two separate issuances during 2002, the Company issued a total of
$20.0 million additional trust preferred securities. See "--Liquidity and
Capital Resources - Liquidity". The trust preferred securities will be used as
Tier I Capital to the extent allowable by regulatory guidelines.

         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, 2002 (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%     $ 111,752       7.01%     $ 195,752        3.01%     $  84,000
      Core capital               4.00         81,199       9.64        195,752        5.64        114,553
      Total capital              8.00        162,398      11.45        232,492        3.45         70,094

   The Bank:
      Leverage                   4.00%     $ 111,651       8.07%     $ 225,288        4.07%     $ 113,637
      Core capital               4.00         81,093      11.11        225,288        7.11        144,195
      Total capital              8.00        162,185      12.37        250,683        4.37         88,498
</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.




                                       41
<PAGE>


CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

         The following tables present quantifiable, long-term contractual cash
obligations and commercial commitments of the Company as of December 31, 2002.
See Notes 7, 8, 9 and 10 of the Notes to the Consolidated Financial Statements
in item 8 hereof and "--Liquidity and Capital Resources" (dollars in thousands):

<Table>
<Caption>
                                                                                Payments Due By Period
                                                   --------------------------------------------------------------------------------
                                                                                                       More than
                                                                     Less than         One to           Three to           Over
         Contractual Cash Obligations                 Total           One Year       Three Years       Five Years       Five Years
-----------------------------------------------    ------------     ------------     ------------     ------------     ------------
<S>                                                <C>              <C>              <C>              <C>              <C>
FHLB advances                                      $    684,193     $     74,171     $     10,000     $    100,000     $    500,022
Securities sold under agreements to repurchase           59,696           59,696               --               --               --
Senior Notes                                             21,295               --           21,295               --               --
Mandatorily redeemable trust preferred securities        60,250               --               --               --           60,250
Operating leases                                          6,911              911            1,180              640            4,180
Unconditional purchase obligations:
   Data processing hardware obligation                      932              932               --               --               --
   Data processing maintenance obligation                 1,060              265              530              265               --
                                                   ------------     ------------     ------------     ------------     ------------
     Total contractual cash obligations            $    834,337     $    135,975     $     33,005     $    100,905     $    564,452
                                                   ============     ============     ============     ============     ============
</Table>

         In order to support strategic objectives, during 2001 management
initiated a project to return its mainframe operations to an internally
supported function. The Company's mainframe processing had been operated in a
data center operated by a third-party servicer. During the first quarter of
2002, the Company brought its mainframe processing in-house and the remaining
maintenance contractual obligation is reflected above. During the fourth quarter
of 2002, management determined the need for larger capacity hardware to be used
in support of its new mainframe processing system. The contractual purchase
obligation is also reflected above. The Company does not anticipate these
actions will have a material impact on its consolidated financial condition.

<Table>
<Caption>
                                                                    Amount of Commitment Expiration Per Period
                                                   -------------------------------------------------------------------------------
                                                                                                More than
                                  Unfunded            Less than             One to               Three to               Over
       Commitments               Commitments          One Year            Three Years           Five Years            Five Years
-------------------------     ----------------     ----------------     ----------------     ----------------     ----------------

<S>                           <C>                  <C>                  <C>                  <C>                  <C>
Lines of credit               $        250,780     $         65,083     $        120,973     $         55,937     $          8,787
Standby letters of credit                9,488                7,607                1,881                   --                   --
Other commitments                       91,984                6,418               15,591                6,050               63,925
                              ----------------     ----------------     ----------------     ----------------     ----------------
     Total commitments        $        352,252     $         79,108     $        138,445     $         61,987     $         72,712
                              ================     ================     ================     ================     ================
</Table>

CRITICAL ACCOUNTING POLICIES

         The Company considers its Allowance for Loan Losses policy as a policy
critical to the sound operations of the Bank. The Company provides for loan
losses each period by an amount resulting from both (a) an estimate by
management of loan losses that occurred during the period and (b) the ongoing
adjustment of prior estimates of losses occurring in prior periods. The
provision for loan losses increases the allowance for loan losses, which is
netted against loans on the consolidated statements of financial condition. As
losses are confirmed, the loan is written down, reducing the allowance for loan
losses. See "Business--Asset Quality" contained in Item 1 herein and Note 1(e)
of the Notes to Consolidated Financial Statements in Item 8 hereof for further
information regarding the Company's provision and allowance for loan losses
policy.

RECENT ACCOUNTING PRONOUNCEMENTS

         The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
as of January 1, 2002 and no longer amortizes goodwill. As of the date of
adoption, the Company had unamortized


                                       42
<PAGE>

goodwill in the amount of approximately $15.5 million, which was subject to the
transition provisions of Statement No. 142. The Company determined there was no
transitional impairment loss at January 1, 2002. There was no amortization
expense for the year ended December 31, 2002, whereas this expense amounted to
$1.3 million for the years ended December 31, 2001 and 2000, respectively. The
Company's net income for the years ended December 31, 2001 and 2000, excluding
the effects of goodwill amortization, would have been $27.8 million and $25.2
million, respectively, compared to $29.0 million for the year ended December 31,
2002. Excluding the effects of goodwill amortization, the earnings per share for
the years ended December 31, 2001 and 2000 would have been $1.37 basic and $1.32
diluted and $1.22 basic and $1.22 diluted, respectively, as compared to $1.53
basic and $1.48 diluted for the year ended December 31, 2002.

         In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121 and
portions of APB Opinion No. 30. This statement addresses the recognition of an
impairment loss for long-lived assets to be held and used or disposed of by sale
or otherwise. This statement is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. The adoption of this statement as of January 1, 2002 had no effect
on the Company's consolidated financial position or results of operations.

         In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 updates, clarifies and simplifies existing accounting
pronouncements. As it relates to the Company, the statement eliminates the
extraordinary loss classification on early debt extinguishments. The Company has
elected to early adopt this statement as of December 31, 2002. The $2.5 million
and $1.4 million loss associated with the early extinguishment of debt in 2001
and 2000, respectively, has been reclassified from extraordinary loss to other
noninterest expense in the consolidated statements of operations. The result of
the adoption of this statement did not modify or adjust net income for any
period and does not impact the Company's compliance with its various debt
covenants.

         In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which nullifies EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This statement requires that a liability be recognized for
costs associated with an exit or disposal activity only when the liability is
incurred. This statement is effective for exit or disposal activities that are
initiated after December 31, 2002. The adoption of this statement as of December
31, 2002 had no effect on the Company's consolidated financial position or
results of operations.

         In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions. This statement requires affected institutions to
reclassify their goodwill governed by SFAS Statement No. 72, Accounting for
Certain Acquisitions of Banking and Thrift Institutions, as SFAS No. 142
goodwill as of the date that SFAS No. 142 is adopted. As of December 31, 2002,
the Company had no goodwill governed by SFAS No. 72. This statement also
requires that long-term customer relationship intangible assets be reviewed for
impairment in accordance with SFAS No. 144. The adoption of this statement as of
December 31, 2002 had no effect on the Company's consolidated financial position
or results of operations.

         In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS
Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. Certain of the disclosure modifications are
required for


                                       43
<PAGE>

fiscal years ending after December 15, 2002 and are included in the notes to
these consolidated financial statements. The adoption of this statement as of
December 31, 2002 had no effect on the Company's consolidated financial position
or results of operations.

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 Portfolio 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 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
statement of financial condition, 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. 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 U.S. Government agency
mortgage-backed securities with variable maturities, 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' statements of financial condition, 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.




                                       44
<PAGE>



         The following table summarizes the anticipated maturities or repricing
of the Company's interest-earning assets and interest-bearing liabilities as of
December 31, 2002, 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)              $   894,662      $  299,330      $  403,886      $  323,361      $  181,634       $ 2,102,873
   Securities:
     Available for sale (3)               31,986          31,160          35,236          53,752           9,247           161,381
     Held to maturity                     75,636         144,298          86,019          43,618          15,261           364,832
   Other interest-earning assets (4)      96,553              --              --              --              --            96,553
                                     -----------      ----------      ----------      ----------      ----------       -----------
       Total                         $ 1,098,837      $  474,788      $  525,141      $  420,731      $  206,142       $ 2,725,639
                                     ===========      ==========      ==========      ==========      ==========       ===========

Interest-bearing liabilities:
   Deposits (5):
     Money market and NOW accounts   $   246,171      $   30,129      $   63,546      $   47,462      $  181,697       $   569,005
     Passbook accounts                     3,411          10,232          20,925          14,610          33,805            82,983
     Certificates of deposit             277,011         432,292         194,213          83,164           3,300           989,980
   FHLB advances                          84,171              --              --         100,000         500,022           684,193
   Securities sold under agreements
      to repurchase                       59,696              --              --              --              --            59,696
   Senior Notes                               --              --          21,295              --              --            21,295
   Mandatorily redeemable trust
     preferred securities (6)             20,000              --              --              --          40,250            60,250
                                     -----------      ----------      ----------      ----------      ----------       -----------
       Total                         $   690,460      $  472,653      $  299,979      $  245,236      $  759,074       $ 2,467,402
                                     ===========      ==========      ==========      ==========      ==========       ===========

Excess (deficiency) of
interest-earning assets over
   interest-bearing liabilities      $   408,377      $    2,135      $  225,162      $  175,495      $ (552,932)      $   258,237
                                     ===========      ==========      ==========      ==========      ==========       ===========
Cumulative excess of
   interest-earning assets over
   interest-bearing liabilities      $   408,377      $  410,512      $  635,674      $  811,169      $  258,237       $   258,237
                                     ===========      ==========      ==========      ==========      ==========       ===========
Cumulative excess of
   interest-earning assets over
   interest-bearing liabilities
   as a percent of total assets            14.38%          14.46%          22.38%          28.56%           9.09%             9.09%
                                     ===========      ==========      ==========      ==========      ==========       ===========
</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, FHLB
         stock and Federal Reserve Bank stock.

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

(6)      Additionally, adjustable rate trust preferred securities are included
         in the period in which interest rates are next scheduled to adjust
         rather than in the period in which they mature, while fixed rate trust
         preferred securities are included in the period in which they are
         scheduled to mature.

         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


                                       45
<PAGE>

potential changes in net interest income and EVE that is authorized by the Board
of Directors of the Company.

         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
assuming an instantaneous uniform change in interest rates at all maturities.

<Table>
<Caption>
                                             December 31, 2002            December 31, 2001
                                            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               8,315             10            5,853           7

                       +100               4,485              5            6,201           7

                        0                85,501(1)          --           89,608(1)       --

                       -100              (3,819)            (4)          (1,915)         (2)

                       -200             (13,004)           (15)          (6,343)         (7)
</Table>

<Table>
<Caption>
                                            December 31, 2002           December 31, 2001
                                                   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                17,745           8          (38,731)         (17)

                       +100                18,403           8          (15,096)          (7)

                        0                 218,480          --          228,509           --

                       -100               (44,486)        (20)          (9,447)          (4)

                       -200              (101,178)        (46)         (55,229)         (24)
</Table>

----------

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

         The decrease in net interest income ("NII") for the next four quarters
when projected as of December 31, 2001 as compared to the projections as of
December 31, 2002 in the base case is mainly due to a drop in overall market
interest rates that decreases net interest margin and to a decrease in
forecasted interest earning assets. The increased sensitivity in the NII as
projected in the down shocks is largely due to the drop in market rates to
levels that prevent certain deposit and borrowing rates to decline the full
basis points assumed in the shock thereby squeezing net interest income.


                                       46
<PAGE>

         The decrease in EVE from December 31, 2001 to December 31, 2002 in the
base case is primarily due to an increase in the market value of the convertible
fixed rate FHLB advances caused by the drop in market rates and the repurchase
of Local Financial stock. The increased sensitivity in the EVE shocks is
principally caused by three factors: (i) the increased duration of deposits at
December 31, 2002 due to the low rate environment, (ii) the duration extension
of the convertible fixed rate FHLB advances that occurs as market rates drop and
(iii) the decline in duration of mortgage-backed securities due to increased
prepayments caused by lower residential market rates.

         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, prepayment speeds and the rate of
replacement for prepaying securities. 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.

         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, 2002 and
2001.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information with respect to directors 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. The information with respect to executive officers of the Company can
be found in Part I, Item 4A.

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.



                                       47
<PAGE>

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.

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.

ITEM 14. CONTROLS AND PROCEDURES

         Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
the Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief
Executive Officer along with the Company's Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic SEC
filings. There have been no significant changes in the Company's internal
controls or in other factors, which could significantly affect these controls
subsequent to the date the Company carried out its evaluation.

         Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that the Company files under the Exchange Act is accumulated and communicated to
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)   Financial Statements. The following financial statements for the Years
Ended December 31, 2002, 2001 and 2000 are filed as part of this report:

         Independent Auditors' Report

         Consolidated Statements of Financial Condition as of December 31, 2002
         and 2001.

         Consolidated Statements of Operations for the Years Ended December 31,
         2002, 2001 and 2000.

         Consolidated Statements of Stockholders' Equity for the Years Ended
         December 31, 2002, 2001 and 2000.

                                       48
<PAGE>

         Consolidated Statements of Cash Flows for the Years Ended December 31,
         2002, 2001 and 2000.

         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 an asterisk in Item 15(c) below.

(b)      Reports on Form 8-K

         On November 14, 2002, the Company issued the Regulation FD Disclosure
         Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002.

         On October 24, 2002, the Company issued a press release announcing the
         issuance of an additional stock repurchase program.

(c)      List of Exhibits.

<Table>
<Caption>
Exhibit
Number            Description of Exhibit
-------           ----------------------
<S>               <C>
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)

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

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

4.3               Form of Senior Note (included in Exhibit 4.2)(1)

4.4               Indenture between Local Financial and BONY, as Trustee, dated
                  September 20, 2001(4)

4.5               Form of Debenture (included in Exhibit 4.6)

4.6               Junior Subordinated Indenture between Local Financial and BONY
                  dated July 30, 2002

4.7               Form of Floating Rate Junior Subordinate Note due 2032
                  (included in Exhibit 4.6)

4.8               Indenture of Local Financial with Wilmington Trust Company, as
                  Trustee, dated October 29, 2002

4.9               Form of Floating Rate Junior Subordinate Debt Security due
                  2032 (included in Exhibit 4.8)

10.1              Local Financial Stock Option Plan(1)*

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

10.3              Local Financial Corporation 1998 Stock Option Plan, as amended
                  July 26, 2000(3)*

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

10.5              Amended and Restated Employment Agreement between Local
                  Financial and Edward A. Townsend, effective October 1,
                  2000(3)*

10.6              Amended and Restated Employment Agreement between Local
                  Financial and Jan A. Norton, effective October 1, 2000(3)*

10.7              1998 Non-qualified Stock Option Agreement between Local
                  Financial and Edward A. Townsend dated September 23, 1998(2)*

10.8              1998 Non-qualified Stock Option Agreement between Local
                  Financial and Jan A. Norton dated September 23, 1998(2)*
</Table>

                                       49
<PAGE>

<Table>
<S>               <C>
10.9              Change of Control, Non-Competition/Non-Solicitation Agreement
                  between Local Financial and Local Oklahoma Bank, N.A., and
                  Edward A. Townsend dated January 30, 2001(3)*

10.10             Change of Control, Non-Competition/Non-Solicitation Agreement
                  between Local Financial and Local Oklahoma Bank, N.A., and Jan
                  A. Norton dated January 30, 2001(3)*

10.11             Amended and Restated Declaration between Local Financial, BONY
                  and BONY (Delaware), as Trustees, and the Administrative
                  Trustees of the Local Financial Capital Trust I, dated
                  September 20, 2001(4)

10.12             Preferred Securities Guarantee Agreement between Local
                  Financial and BONY, as Guarantee Trustee, dated as of
                  September 20, 2001, regarding trust preferred securities(4)

10.13             Amended and Restated Trust Agreement of Local Financial
                  Capital Trust II by and among Local Financial, BONY and BONY
                  (Delaware), as Trustees, and the Administrative Trustees named
                  therein, dated July 30, 2002

10.14             Guarantee Agreement between Local Financial and BONY, as
                  Guarantee Trustee, dated July 30, 2002, regarding Local
                  Financial Capital Trust II capital securities

10.15             Amended and Restated Declaration of Trust of Local Financial
                  Capital Trust III by and among Local Financial, Wilmington
                  Trust Company as Delaware and Institutional Trustee, and the
                  Administrators named therein, dated as of October 29, 2002

10.16             Guarantee Agreement dated as of October 29, 2002, executed by
                  Local Financial and Wilmington Trust Company, as Guarantee
                  Trustee, regarding Local Financial Capital Trust III capital
                  securities

21.0              See Company's business description herein

23.0              Consent of KPMG LLP
</Table>

----------

(1)      These exhibits were filed with the Company's Registration Statement
         Form S-1, Registration No. 333-43727 dated January 5, 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)      These exhibits were filed with the Company's Annual Report on Form 10-K
         for the year ended December 31, 2000 and are incorporated by reference
         herein.

(4)      These exhibits were filed with the Company's Registration Statement on
         Form S-3, Registration No. 333-68372, dated August 24, 2001, and are
         incorporated by reference herein.

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


                                       50
<PAGE>



                                   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 19, 2003         By:   /s/Edward A. Townsend
                                      ----------------------------------------
                                      Chairman and Chief Executive Officer

Date     March 19, 2003         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 19, 2003         By:   /s/Robert A. Kotecki*
                                      ----------------------------------------
                                      Robert A. Kotecki, Director

Date     March 19, 2003         By:   /s/Joseph A. Leone*
                                      ----------------------------------------
                                      Joseph A. Leone, Director

Date     March 19, 2003         By:   /s/George Nigh*
                                      ----------------------------------------
                                      George Nigh, Director

Date     March 19, 2003         By:   /s/Jan A. Norton
                                      ----------------------------------------
                                      Jan A. Norton, Director

Date     March 19, 2003         By:   /s/Edward A. Townsend
                                      ----------------------------------------
                                      Edward A. Townsend, Director

Date     March 19, 2003         By:   /s/William D. Breedlove*
                                      ----------------------------------------
                                      William D. Breedlove, Director

Date     March 19, 2003         By:   /s/J. David Rosenberg*
                                      ----------------------------------------
                                      J. David Rosenberg, Director

Date     March 19, 2003         By:   /s/Andrew M. Coats*
                                      ----------------------------------------
                                      Andrew M. Coats, Director

----------

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



                                       51
<PAGE>


                                  CERTIFICATION


I, Edward A. Townsend, certify that:


1.       I have reviewed this annual report on Form 10-K of Local Financial
         Corporation;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         (a)      Designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         (b)      Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         (c)      Presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date.

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of the registrant's board of directors (or other
         persons performing the equivalent functions):

         (a)      All significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in the registrant's internal
                  controls; and

         (b)      Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls.

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



                                       52
<PAGE>


Dated this 19th day of March 2003.


                                             /s/ Edward A. Townsend
                                             -----------------------
                                             Edward A. Townsend
                                             Chief Executive Officer



                                       53
<PAGE>


                                  CERTIFICATION


I, Richard L. Park, certify that:


1.       I have reviewed this annual report on Form 10-K of Local Financial
         Corporation;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         (a)      Designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         (b)      Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         (c)      Presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date.

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of the registrant's board of directors (or other
         persons performing the equivalent functions):

         (a)      All significant deficiencies in the design or operation of
                  internal controls which could adversely affect the registant's
                  ability to record, process, summarize and report financial
                  data and have identified for the registrant's auditors any
                  material weaknesses in the registrant's internal controls; and

         (b)      Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls.

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.


                                       54
<PAGE>


Dated this 19th day of March 2003.

                                                   /s/ Richard L. Park
                                                   -----------------------
                                                   Richard L. Park
                                                   Chief Financial Officer



                                       55
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   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, 2002 and 2001..................................   F-2

Consolidated Statements of Operations
   for the Years Ended December 31, 2002, 2001 and 2000..............   F-3

Consolidated Statements of Stockholders' Equity
   for the Years Ended December 31, 2002, 2001 and 2000..............   F-4

Consolidated Statements of Cash Flows
   for the Years Ended December 31, 2002, 2001 and 2000..............   F-5

Notes to Consolidated Financial Statements
   for December 31, 2002, 2001 and 2000..............................   F-7
</Table>


                                       56
<PAGE>


                          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 subsidiaries (the Company) as of December 31,
2002 and 2001, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2002. 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 subsidiaries as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.


As discussed in Note 1(r) to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets, effective January 1, 2002 and early adopted SFAS No.
145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13 and Technical Corrections, effective December 31, 2002.


                                                KPMG LLP

Oklahoma City, Oklahoma
January 31, 2003


                                      F-1
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition

                           December 31, 2002 and 2001
                    (dollars in thousands, except share data)

<Table>
<Caption>
                                     ASSETS                                                2002            2001
                                                                                      -----------     -----------
<S>                                                                                   <C>             <C>
Cash and due from banks                                                               $    51,166     $    50,791
Interest bearing deposits with other banks                                                  7,200           9,700
Securities:
   Available for sale                                                                     163,473         193,736
   Held to maturity                                                                       364,832         430,956
                                                                                      -----------     -----------
       Total securities                                                                   528,305         624,692
Loans receivable, net of allowance for loan losses of
   $29,532 at December 31, 2002 and $27,621 at December 31, 2001                        2,084,144       1,972,145
Federal Home Loan Bank of Topeka and Federal Reserve Bank stock, at cost                   38,187          42,213
Premises and equipment, net                                                                42,415          38,751
Assets acquired through foreclosure and repossession, net                                   1,693           1,910
Intangible assets, net                                                                     19,695          15,548
Current and deferred taxes, net                                                             9,428           7,408
Other assets                                                                               57,625          56,893
                                                                                      -----------     -----------

       Total assets                                                                   $ 2,839,858     $ 2,820,051
                                                                                      ===========     ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
   Demand                                                                             $   756,476     $   636,315
   Savings                                                                                 82,983          70,932
   Time                                                                                   989,980       1,102,115
                                                                                      -----------     -----------

       Total deposits                                                                   1,829,439       1,809,362

Advances from the Federal Home Loan Bank of Topeka                                        684,193         728,205
Securities sold under agreements to repurchase                                             59,696          38,694
Senior Notes                                                                               21,295          21,545
Other liabilities                                                                          17,105          18,459

Mandatorily redeemable trust preferred securities                                          60,250          40,250

Commitments and contingencies

Stockholders' equity:
   Common stock, $0.01 par value, 25,000,000 shares authorized; 20,863,967 shares
     issued and 17,785,323 shares outstanding at December 31, 2002 and 20,539,269
     shares issued and 19,199,925 shares outstanding at December 31, 2001                     209             205
   Preferred stock, $0.01 par value, 5,000,000 shares authorized; none outstanding             --              --
   Additional paid-in capital                                                             208,599         205,773
   Retained earnings                                                                      151,495         122,480
   Treasury stock, 3,078,644 shares at December 31, 2002 and 1,339,344 shares at
     December 31, 2001, at cost                                                          (193,783)       (169,031)
   Accumulated other comprehensive income, net of tax                                       1,360           4,109
                                                                                      -----------     -----------

       Total stockholders' equity                                                         167,880         163,536
                                                                                      -----------     -----------

       Total liabilities and stockholders' equity                                     $ 2,839,858     $ 2,820,051
                                                                                      ===========     ===========
</Table>


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

                                      F-2
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations

              For the Years Ended December 31, 2002, 2001 and 2000
                    (dollars in thousands, except share data)

<Table>
<Caption>
                                                                             YEARS ENDED DECEMBER 31,
                                                                      -------------------------------------
                                                                         2002         2001           2000
                                                                      ---------     ---------     ---------
<S>                                                                   <C>           <C>           <C>
Interest income:
   Loans                                                              $ 137,875     $ 151,950     $ 157,648
   Securities available for sale                                          9,992        36,952        29,811
   Securities held to maturity                                           25,208            --            --
   Federal Home Loan Bank of Topeka and Federal Reserve Bank stock        1,767         1,989         1,523
   Other investments                                                        651         2,247         1,220
                                                                      ---------     ---------     ---------
       Total interest income                                            175,493       193,138       190,202

Interest expense:
   Deposit accounts                                                      50,156        75,626        88,417
   Advances from the Federal Home Loan Bank of Topeka                    25,613        22,045        16,329
   Securities sold under agreements to repurchase                           532         1,640         1,073
   Senior Notes                                                           2,541         4,298         6,033
   Trust preferred securities                                             4,020         1,035            --
                                                                      ---------     ---------     ---------
       Total interest expense                                            82,862       104,644       111,852

Net interest income                                                      92,631        88,494        78,350
   Provision for loan losses                                             (6,600)       (5,400)       (2,700)
                                                                      ---------     ---------     ---------
       Net interest income after provision for loan losses               86,031        83,094        75,650

Noninterest income:
   Deposit related income                                                19,110        15,015        13,304
   Loan fees and loan service charges                                     2,031         2,083         1,811
   Net gains on sale of assets                                              823           628           646
   Other                                                                  6,525         5,997         5,012
                                                                      ---------     ---------     ---------
       Total noninterest income                                          28,489        23,723        20,773
                                                                      ---------     ---------     ---------

Noninterest expense:
   Compensation and employee benefits                                    42,957        36,703        34,264
   Equipment and data processing                                          6,201         6,561         6,452
   Occupancy                                                              4,703         3,978         3,645
   Advertising                                                              685           539           633
   Professional fees                                                      1,200         1,486         1,061
   Other                                                                 14,785        17,584        12,721
                                                                      ---------     ---------     ---------
       Total noninterest expense                                         70,531        66,851        58,776
                                                                      ---------     ---------     ---------

Income before provision for income taxes                                 43,989        39,966        37,647
Provision for income taxes                                               14,974        13,489        13,833
                                                                      ---------     ---------     ---------
       Net income                                                     $  29,015     $  26,477     $  23,814
                                                                      =========     =========     =========

Earnings per share:
   Net income:
     Basic                                                            $    1.53     $    1.30     $    1.16
                                                                      =========     =========     =========
     Diluted                                                          $    1.48     $    1.26     $    1.16
                                                                      =========     =========     =========
</Table>

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

                                      F-3
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

              For the Years Ended December 31, 2002, 2001 and 2000
                             (dollars in thousands)
<Table>
<Caption>
                                                                                                     ACCUMULATED
                                                               ADDITIONAL                              OTHER            TOTAL
                                                     COMMON     PAID-IN      RETAINED    TREASURY   COMPREHENSIVE   STOCKHOLDERS'
                                                     STOCK      CAPITAL      EARNINGS      STOCK       INCOME          EQUITY
                                                    -------    ---------     --------    ---------     -------        ---------
<S>                                                 <C>        <C>           <C>         <C>           <C>            <C>
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
   Comprehensive income:
     Net income                                          --           --       26,477           --          --           26,477
     Net change in unrealized gains
       on securities available for
       sale, net of reclassification
       adjustment                                        --           --           --           --        (470)            (470)
                                                                                                                      ---------
     Comprehensive income                                                                                                26,007
                                                                                                                      ---------

   Purchase of treasury stock                            --           --           --      (17,757)         --          (17,757)
   Issuance of common stock -
       warrants exercised                                --           19           --           --          --               19
   Purchase of stock warrants                            --       (1,004)          --           --          --           (1,004)
                                                    -------    ---------     --------    ---------     -------        ---------

Balance, December 31, 2001                              205      205,773      122,480     (169,031)      4,109          163,536
   Comprehensive income:
     Net income                                          --           --       29,015           --          --           29,015
     Net change in unrealized gains
       on securities available for sale,
       net of reclassification adjustment                --           --           --           --      (2,749)          (2,749)
                                                                                                                      ---------
     Comprehensive income                                                                                                26,266
                                                                                                                      ---------
   Purchase of treasury stock                            --           --           --      (24,752)         --          (24,752)
   Issuance of common stock - warrants exercised          2        1,281           --           --          --            1,283
   Issuance of common stock - options exercised           2        1,962           --           --          --            1,964
   Purchase of stock warrants                            --         (721)          --           --          --             (721)
   Tax benefits from employee stock options              --          304           --           --          --              304
                                                    -------    ---------     --------    ---------     -------        ---------
Balance, December 31, 2002                          $   209    $ 208,599     $151,495    $(193,783)    $ 1,360        $ 167,880
                                                    =======    =========     ========    =========     =======        =========
</Table>

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


                                      F-4
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

              For the Years Ended December 31, 2002, 2001 and 2000
                             (dollars in thousands)


<Table>
<Caption>
                                                                            YEARS ENDED DECEMBER 31,
                                                                    -------------------------------------
                                                                       2002         2001           2000
                                                                    ---------     ---------     ---------
<S>                                                                 <C>           <C>           <C>
Cash provided (absorbed) by operating activities:
   Net income                                                       $  29,015     $  26,477     $  23,814
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Provisions for loan losses                                       6,600         5,400         2,700
       Deferred income tax expense (benefit)                           (2,498)        1,829         5,579
       Accretion of discounts and amortization of deferred fees
         on loans acquired and securities, net                         (2,208)       (4,619)       (3,882)
       Depreciation and amortization                                    4,391         5,315         4,972
       Net change in loans held for sale                               (2,313)         (341)          879
       Net gains on sale of assets                                       (823)         (628)         (646)
       Change in other assets                                           2,276         1,138          (959)
       Change in other liabilities                                     (2,451)       (1,086)       (8,772)
                                                                    ---------     ---------     ---------

            Net cash provided by operating activities                  31,989        33,485        23,685
                                                                    ---------     ---------     ---------

Cash provided (absorbed) by investing activities:
   Proceeds from sales of securities available for sale                54,239        19,813       283,910
   Proceeds from principal collections on securities                  339,809       264,017        58,570
   Purchase of securities                                            (299,690)     (551,999)      (73,178)
   Purchases of Federal Home Loan Bank and
     Federal Reserve Bank stock                                        (3,988)      (22,796)       (6,632)
   Proceeds from the sale of Federal Home Loan Bank stock               8,279            --        12,035
   Purchase of bank owned life insurance                                   --       (10,000)      (25,000)
   Change in loans receivable, net                                    (91,158)     (129,219)     (252,767)
   Proceeds from disposal of assets acquired through
     foreclosure and repossession                                       2,448         1,910         1,647
   Purchases of premises and equipment                                 (6,417)       (4,869)       (9,762)
   Proceeds from sales of premises and equipment                           63             8            71
   Cash paid in acquisition of Citizens Financial Corporation,
     net of cash and cash equivalents received                          1,257            --            --
                                                                    ---------     ---------     ---------

            Net cash provided (absorbed) by investing activities        4,842      (433,135)      (11,106)
                                                                    ---------     ---------     ---------
</Table>

                                                                     (Continued)

                                      F-5
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

              For the Years Ended December 31, 2002, 2001 and 2000
                             (dollars in thousands)


<Table>
<Caption>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                        -------------------------------------------
                                                                           2002             2001           2000
                                                                        -----------     -----------     -----------
<S>                                                                     <C>             <C>             <C>
Cash provided (absorbed) by financing activities:
   Change in transaction accounts                                       $   106,826     $    37,588     $   137,289
   Change in time deposits                                                 (119,876)       (160,019)        (53,836)
   Change in securities sold under agreements to repurchase                  21,002             480          38,214
   Proceeds from advances from the Federal Home Loan Bank                 1,169,260       2,637,818       5,980,763
   Repayments of advances from the Federal Home Loan Bank                (1,213,272)     (2,099,641)     (6,092,770)
   Proceeds from the issuance of common stock                                 3,247              19              --
   Proceeds from the issuance of trust preferred securities                  20,000          40,250              --
   Payments of trust preferred securities issuance costs                       (420)         (1,949)             --
   Purchase of Senior Notes                                                    (250)        (19,615)        (34,090)
   Purchase of treasury stock                                               (24,752)        (17,757)             --
   Purchase of stock warrants                                                  (721)         (1,004)             --
                                                                        -----------     -----------     -----------

            Net cash provided (absorbed) by financing activities            (38,956)        416,170         (24,430)
                                                                        -----------     -----------     -----------

Net change in cash and cash equivalents                                      (2,125)         16,520         (11,851)

Cash and cash equivalents at beginning of year                               60,491          43,971          55,822
                                                                        -----------     -----------     -----------

Cash and cash equivalents at end of year                                $    58,366     $    60,491     $    43,971
                                                                        ===========     ===========     ===========

Supplemental disclosures of cash flow information:
   Cash paid during the year for:
     Interest                                                           $    81,665     $   104,300     $   113,209
                                                                        ===========     ===========     ===========

     Income taxes                                                       $    12,500     $    13,083     $     9,088
                                                                        ===========     ===========     ===========

Supplemental schedule of noncash investing and financing activities:
   Transfer of loans to assets acquired through foreclosure and
     repossession                                                       $     1,702     $     2,996     $     1,805
                                                                        ===========     ===========     ===========

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

   Transfer of investments from available for sale
     to held to maturity                                                $        --     $   430,956     $        --
                                                                        ===========     ===========     ===========
</Table>

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


                                                                     (Continued)
                                      F-6
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

(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 or the Bank). In September 2001, Local
         Financial formed Local Financial Capital Trust I (the Trust) as a
         wholly- owned subsidiary. The Trust was formed to facilitate the
         issuance of 1,610,000 shares of 9.00% cumulative trust preferred
         securities at $25 per share. In July and October 2002, Local Financial
         formed Local Financial Capital Trusts II and III (the Trusts),
         respectively, to facilitate each trust issuing 10,000 shares of
         adjustable rate cumulative trust preferred securities at $1,000 per
         share. The accounting and reporting practices of Local Financial and
         its subsidiaries 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.


         In November 2002, Local purchased 100% of the capital stock of Citizens
         Financial Corporation (Citizens) that owned U.S. National Bank, N.A.
         Citizens was subsequently dissolved and U.S. National Bank, N.A. was
         merged into the Bank. The accompanying consolidated financial
         statements for the year ended December 31, 2002, reflect the results
         only from its acquisition date of November 2002.


         (a)      PRINCIPLES OF CONSOLIDATION

                  The accompanying consolidated financial statements include the
                  accounts of Local Financial and its wholly owned subsidiaries,
                  which are the three trusts and Local, as well as Local's only
                  active subsidiary, Local Securities Corporation (Local
                  Securities). 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 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 subsidiaries, the three trusts and
                  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, 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.


                                                                     (Continued)
                                      F-7
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

         (c)      SECURITIES

                  The Company's investment portfolio consists primarily of
                  mortgage-backed securities. Mortgage-backed securities are
                  made up of mortgage-backed pass-through certificates and
                  mortgage-derivative securities such as collateralized mortgage
                  obligations and real estate mortgage investment conduits.
                  Local does not own any principal only, interest only or
                  residual tranches mortgage-backed securities. The Company
                  classifies its securities as held to maturity, available for
                  sale or 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. Securities are classified 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. At December 31, 2002 and
                  2001, the Company had classified all its investment securities
                  as either held to maturity or available for sale. No
                  investment securities within the portfolio were held for
                  trading purposes at December 31, 2002 and 2001.

                  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. Securities held to maturity are recorded at
                  amortized cost, adjusted for the amortization or accretion of
                  premiums or discounts. 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.

                  Investments 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 and costs, 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 generally 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.


                                                                     (Continued)
                                      F-8
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         (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 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, including interest,
                  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, 2002 and 2001.

                                                                     (Continued)
                                      F-9
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

                  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 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.

                  Periodically, the Company may 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 held to
                  maturity 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 $113,473,000 and $150,343,000 at
                  December 31, 2002 and 2001, respectively. Net servicing fees
                  earned totaled approximately $81,000, $550,000 and $566,000
                  for the years ended December 31, 2002, 2001 and 2000,
                  respectively, and are included as a component of loan fees and
                  loan service charges in the accompanying consolidated
                  statements of operations.

                  At December 31, 2002 and 2001, unamortized servicing assets
                  were approximately $918,000 and $1,567,000, respectively, and
                  are included in other assets. Amortization of these assets
                  totaling approximately $649,000, $400,000 and $285,000 was
                  charged against loan servicing income for the years ended
                  December 31, 2002, 2001 and 2000, respectively. The Company
                  anticipates amortization expense on the remaining servicing
                  assets will average approximately $301,000 per year over the
                  next three years. 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, 2002 and 2001, the
                  carrying value of servicing assets was not impaired.

         (i)      BANK OWNED LIFE INSURANCE

                  The Company has purchased life insurance on its key managers.
                  The balance was approximately $39,604,000 and $37,254,000 at
                  December 31, 2002 and 2001, respectively, and is included in
                  other assets in the consolidated statements of financial
                  condition. The


                                                                     (Continued)
                                      F-10
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

                  increase in the cash surrender value is included in other
                  noninterest income in the consolidated statements of
                  operations and amounted to approximately $2,350,000,
                  $2,000,000 and $261,000 for the years ended December 31, 2002,
                  2001 and 2000, respectively.

         (j)      COMMISSIONS

                  Commission revenues on annuities and life insurance are
                  recorded when the policies are written and are therefore
                  earned. Securities transactions and related commission revenue
                  and expenses are recorded on a trade date basis. Commission
                  revenue of $4,325,000, $3,731,000 and $4,028,000 for the years
                  ended December 31, 2002, 2001 and 2000, respectively, was
                  included in other noninterest income in the consolidated
                  statements of operations.

         (k)      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.

         (l)      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 Company records the gain or loss on
                  sale and net income and expense from assets acquired through
                  foreclosure and repossessions in other noninterest expense.

         (m)      DEFERRED ISSUANCE COSTS

                  The Company capitalizes all costs related to the issuance of
                  Senior Notes and trust preferred securities. The unamortized
                  issuance costs on the Senior Notes at December 31, 2002 and
                  2001 of approximately $289,000 and $468,000, respectively, and
                  the trust preferred securities at December 31, 2002 and 2001
                  of approximately $2,281,000 and $1,931,000, respectively, are
                  included in other assets in the consolidated statements of
                  financial condition. Deferred issuance costs are amortized
                  over the life of

                                                                     (Continued)
                                      F-11
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


                  the Senior Notes and trust preferred securities as a yield
                  adjustment to interest expense on Senior Notes and trust
                  preferred securities in the consolidated statements of
                  operations.

         (n)      INTANGIBLE ASSETS

                  Intangible assets consist of goodwill and core deposit
                  intangible assets. Goodwill was approximately $18,640,000 and
                  $15,548,000 at December 31, 2002 and 2001, respectively.
                  Goodwill represents the excess cost over fair value of net
                  assets acquired and for periods prior to December 31, 2001 was
                  being amortized on a straight-line basis over a 15-year
                  period. For periods through December 31, 2001, the Company
                  evaluated the recoverability of goodwill by assessing whether
                  the amortization of the asset balances over their remaining
                  lives could be recovered through projected cash flows. The
                  amount of impairment, if any, was measured based on projected
                  discounted cash flows. No impairment was recognized at
                  December 31, 2001.

                  For periods beginning on January 1, 2002, the Company adopted
                  the provisions of Statement of Financial Accounting Standards
                  (SFAS) No. 142, Goodwill and Other Intangible Assets. As a
                  result, for periods beginning after December 31, 2001,
                  goodwill and intangible assets with indefinite useful lives no
                  longer will be amortized, but instead will be tested for
                  impairment at least annually. To accomplish this, the Company
                  must identify its reporting units and determine the carrying
                  value of each reporting unit by assigning the assets and
                  liabilities, including the existing goodwill and intangible
                  assets, to those reporting units. The Company will then
                  determine the fair value of each reporting unit and compare it
                  to the reporting unit's carrying amount. To the extent a
                  reporting unit's carrying amount exceeds its fair value, an
                  indication exists that the reporting unit's goodwill may be
                  impaired and the Company must perform the second step of the
                  impairment test. In the second step, the Company must compare
                  the implied fair value of the reporting unit's goodwill,
                  determined by allocating the reporting unit's fair valued to
                  all of its assets (recognized and unrecognized) and
                  liabilities in a manner similar to a purchase price allocation
                  in accordance with SFAS No. 141, Business Combinations, to its
                  carrying amount. If the carrying amount of reporting unit
                  goodwill exceeds the implied fair value of the goodwill, an
                  impairment loss is recognized in an amount equal to that
                  excess. The results of this analysis (determined using the
                  market value of price to earnings and price to book value of
                  recent sales of financial institutions) did not require the
                  Company to recognize an impairment loss.

                  In connection with the acquisition of Citizens (see Note 2),
                  the Company recorded a core deposit intangible asset which was
                  approximately $1,055,000 at December 31, 2002. The Company
                  evaluates the recoverability of core deposit intangible assets
                  by assessing whether the amortization of the asset balances
                  over their remaining lives can be recovered through
                  undiscounted cash flows. The amount of impairment, if any, is
                  measured as the difference between the carrying amount and
                  fair value of the asset. The core deposit intangible asset was
                  determined to have a useful life of approximately 12 years and
                  will be amortized based upon the estimated percentage decline
                  of the future income generated by the acquired deposits. Core
                  deposit intangible asset amortization expense for the year
                  ended December 31, 2002 was approximately $15,000. The

                                                                     (Continued)
                                      F-12
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

                  Company expects amortization expense to range from
                  approximately $278,000 to $86,000 over the next five years.

         (o)      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.

         (p)      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.

                  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 years ended December
                  31, 2002 and 2001.

<Table>
<Caption>
                                                                      2002
                                                    -----------------------------------------
                                                                     WEIGHTED
                                                                     AVERAGE
                                                                      SHARES       PER SHARE
                                                    NET INCOME      OUTSTANDING     AMOUNT
                                                    -----------     ----------    -----------
<S>                                                 <C>             <C>           <C>
                  Basic net income per share        $29,015,000     18,912,354    $      1.53
                                                                                  ===========
                  Effect of dilutive securities:
                       Options                               --        704,309
                                                    -----------    -----------
                  Diluted net income per share      $29,015,000     19,616,663    $      1.48
                                                    ===========    ===========    ===========
</Table>

<Table>
<Caption>
                                                                      2001
                                                    -----------------------------------------
                                                                     WEIGHTED
                                                                     AVERAGE
                                                                      SHARES       PER SHARE
                                                    NET INCOME      OUTSTANDING     AMOUNT
                                                    -----------     ----------    -----------
<S>                                                 <C>             <C>           <C>
                  Basic net income per share        $26,477,000     20,368,028    $      1.30
                                                                                  ===========
                  Effect of dilutive securities:
                       Warrants                              --         64,841
                       Options                               --        533,662
                                                   -----------    -----------

                  Diluted net income per share      $26,477,000     20,966,531    $      1.26
                                                    ===========    ===========    ===========
</Table>


                                                                     (Continued)
                                      F-13
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

                  For the year ended December 31, 2000, the weighted average
                  number of shares is 20,537,209. Stock options and warrants to
                  purchase common stock discussed in Note 1(s) were outstanding
                  during the year ended December 31, 2000, but were not included
                  in the computation of diluted income per share because the
                  average share price was below the exercise price during the
                  year ended December 31, 2000.

         (q)      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. The Company has one active
                  operating subsidiary, namely, Local Oklahoma Bank, National
                  Association, a national banking association. The Bank, in
                  turn, has one active operating subsidiary, Local Securities
                  Corporation, which is a registered broker-dealer under the
                  Securities Exchange Act of 1934 and provides retail investment
                  products to customers of the Bank. 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 SFAS No. 131,
                  Disclosure About Segments of an Enterprise and Related
                  Information.

                  In September 2001, the Company formed Local Financial Capital
                  Trust I. Then, in July 2002 and October 2002, the Company
                  formed Local Financial Capital Trust II and Local Financial
                  Capital Trust III, respectively. All are wholly-owned finance
                  subsidiaries. They do not qualify as operating segments under
                  SFAS No. 131 and have no independent operations and no other
                  function other than the issuance of their securities and the
                  related purchase of the junior subordinated debentures from
                  Local Financial and to distribute payments referred thereon to
                  the holders of their securities.

         (r)      NEW ACCOUNTING PRONOUNCEMENTS

                  The Company adopted SFAS No. 142, Goodwill and Other
                  Intangible Assets, as of January 1, 2002 and no longer
                  amortizes goodwill. As of the date of adoption, the Company
                  had unamortized goodwill in the amount of approximately
                  $15,548,000, which was subject to the transition provisions of
                  Statement No. 142. The Company determined there was no
                  transitional impairment loss at January 1, 2002. There was no
                  amortization expense for the year ended December 31, 2002,
                  whereas this expense amounted to $1,340,000 and $1,339,000 for
                  the years ended December 31, 2001 and 2000, respectively. The
                  Company's net income for the years ended December 31, 2001 and
                  2000, excluding the effects of goodwill amortization, would
                  have been $27,817,000 and $25,153,000, respectively, compared
                  to $29,015,000 for the year ended December 31, 2002. Excluding
                  the effects of goodwill amortization, the earnings per share
                  for the years ended December 31, 2001 and 2000 would have been
                  $1.37 basic and $1.32 diluted and $1.22 basic and $1.22
                  diluted, respectively, as compared to $1.53 basic and $1.48
                  diluted for the year ended December 31, 2002.


                                                                     (Continued)
                                      F-14
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


                  In August 2001, the FASB issued SFAS No. 144, Accounting for
                  the Impairment or Disposal of Long-Lived Assets, which
                  supersedes SFAS No. 121 and portions of APB Opinion No. 30.
                  This statement addresses the recognition of an impairment loss
                  for long-lived assets to be held and used or disposed of by
                  sale or otherwise. This statement is effective for financial
                  statements issued for fiscal years beginning after December
                  15, 2001 and interim periods within those fiscal years. The
                  adoption of this statement as of January 1, 2002 had no effect
                  on the Company's consolidated financial position or results of
                  operations.

                  In April 2002, the FASB issued SFAS No. 145, Rescission of
                  FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
                  No. 13, and Technical Corrections. SFAS No. 145 updates,
                  clarifies and simplifies existing accounting pronouncements.
                  As it relates to the Company, the statement eliminates the
                  extraordinary loss classification on early debt
                  extinguishments. The Company has elected to early adopt this
                  statement as of December 31, 2002. The $2,508,000 and
                  $1,420,000 loss associated with the early extinguishment of
                  debt in 2001 and 2000, respectively, has been reclassified
                  from extraordinary loss to other noninterest expense in the
                  consolidated statements of operations. The result of the
                  adoption of this statement did not modify or adjust net income
                  for any period and does not impact the Company's compliance
                  with its various debt covenants.

                  In July 2002, the FASB issued SFAS No. 146, Accounting for
                  Costs Associated with Exit or Disposal Activities, which
                  nullifies EITF Issue No. 94-3, "Liability Recognition for
                  Certain Employee Termination Benefits and Other Costs to Exit
                  an Activity (including Certain Costs Incurred in a
                  Restructuring)." This statement requires that a liability be
                  recognized for costs associated with an exit or disposal
                  activity only when the liability is incurred. This statement
                  is effective for exit or disposal activities that are
                  initiated after December 31, 2002. The adoption of this
                  statement as of December 31, 2002 had no effect on the
                  Company's consolidated financial position or results of
                  operations.

                  In October 2002, the FASB issued SFAS No. 147, Acquisitions of
                  Certain Financial Institutions. This statement requires
                  affected institutions to reclassify their goodwill governed by
                  SFAS Statement No. 72, Accounting for Certain Acquisitions of
                  Banking and Thrift Institutions, as SFAS No. 142 goodwill as
                  of the date that SFAS No. 142 is adopted. As of December 31,
                  2002, the Company had no goodwill governed by SFAS No. 72.
                  This statement also requires that long-term customer
                  relationship intangible assets be reviewed for impairment in
                  accordance with SFAS No. 144. The adoption of this statement
                  as of December 31, 2002 had no effect on the Company's
                  consolidated financial position or results of operations.

                  In December 2002, the FASB issued SFAS No. 148, Accounting for
                  Stock-Based Compensation - Transition and Disclosure. This
                  statement amends SFAS Statement No. 123, Accounting for
                  Stock-Based Compensation, to provide alternative methods of
                  transition for a voluntary change to the fair value based
                  method of accounting for stock-based employee compensation. In
                  addition, this statement amends the disclosure


                                                                     (Continued)
                                      F-15
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

                  requirements of SFAS No. 123 to require prominent disclosures
                  in both annual and interim financial statements about the
                  method of accounting for stock-based employee compensation and
                  the effect of the method used on reported results. Certain
                  disclosure modifications are required for fiscal years ending
                  after December 15, 2002 and are included in the notes to these
                  consolidated financial statements. The adoption of this
                  statement as of December 31, 2002 had no effect on the
                  Company's consolidated financial position or results of
                  operations.

         (s)      STOCK COMPENSATION

                  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.

                  Stock option activity during the years indicated was as
                  follows:

<Table>
<Caption>
                                                   NUMBER OF    WEIGHTED-AVERAGE
                                                    SHARES      EXERCISE PRICE
                                                  ----------    ---------------
<S>                                               <C>           <C>
                  Balance at December 31, 1999     1,672,005     $    10.00
                        Granted                      429,000          10.00
                        Forfeited                    (16,000)         10.00
                                                  ----------     ----------

                  Balance at December 31, 2000     2,085,005          10.00
                        Granted                       15,000          10.00
                                                  ----------     ----------

                  Balance at December 31, 2001     2,100,005          10.00
                        Granted                       35,000          14.42
                        Exercised/Repurchased       (211,365)         10.00
                        Forfeited                    (22,000)         10.00
                                                  ----------     ----------

                  Balance at December 31, 2002     1,901,640     $    10.08
                                                  ==========     ==========
</Table>

                  Awards under the Company's stock option plan vest over periods
                  ranging from three to five years. The stock options expire ten
                  years from the effective dates of the respective option
                  agreements. At December 31, 2002, the range of exercise prices
                  and weighted-average remaining contractual life of outstanding
                  options was $10.00 to $17.37 and 6.34 years, respectively. At
                  December 31, 2002, 1,532,578 options were exercisable compared
                  to 1,562,275 at December 31, 2001 and 1,328,674 at December
                  31, 2000 with a weighted-average exercise price of $10.00
                  each.

                  The per share weighted-average fair value of stock options
                  granted for the years ended December 31, 2002, 2001 and 2000
                  was $4.69, $5.67 and $2.28, respectively, on the date of grant
                  using the Black-Scholes option-pricing model with the
                  following assumptions: risk-free interest rate of 2.73%, 4.30%
                  and 4.97%, respectively, volatility


                                                                     (Continued)
                                      F-16
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


                  rate of 31.52%, 37.06% and 9.13%, respectively, expected life
                  of 5 years for each period, and no expected dividend yield.

                  The Company applies the intrinsic-value based method of
                  accounting prescribed by APB Opinion No. 25 and related
                  interpretations in accounting for its stock option plan. Under
                  this method, compensation expense is recorded on the date of
                  grant only if the current market price of the underlying stock
                  exceeds the exercise price. 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, 2002, 2001 and 2000
                  would have been decreased to the pro forma amounts below.

<Table>
<Caption>
                                                                       YEARS ENDED DECEMBER 31,
                                                           -----------------------------------------------
                                                                2002             2001             2000
                                                           -------------    -------------    -------------
                                                               (dollars in thousands, except share data)
<S>                                                        <C>              <C>              <C>
                  Net income as reported                   $      29,015    $      26,477    $      23,814
                  Deduct: Total stock-based employee
                     compensation expense determined
                     under fair value based method for
                     awards, net of related tax effects             (446)            (472)            (880)
                                                           -------------    -------------    -------------

                  Pro forma net income                     $      28,569    $      26,005    $      22,934
                                                           =============    =============    =============

                  Earnings per share:
                     Basic - as reported                   $        1.53    $        1.30    $        1.16
                                                           =============    =============    =============
                     Basic - pro forma                     $        1.51    $        1.28    $        1.12
                                                           =============    =============    =============

                     Diluted - as reported                 $        1.48    $        1.26    $        1.16
                                                           =============    =============    =============
                     Diluted - pro forma                   $        1.46    $        1.24    $        1.12
                                                           =============    =============    =============
</Table>

                  Additionally, two employees are entitled to a cash offset
                  bonus for their stock options. Bonus compensation of
                  $5,121,000 was recorded in compensation and employee benefits
                  in the consolidated statements of operations for the year
                  ended December 31, 2002.

         (t)      RECLASSIFICATIONS

                  Certain reclassifications were made to the 2001 and 2000
                  consolidated financial statements to conform to the 2002
                  presentation.


(2)      ACQUISITION

         On November 5, 2002, Local acquired 100% of the outstanding common
         shares of Citizens and its subsidiary, U.S. National Bank, N.A for
         cash. Citizens was subsequently dissolved and U.S. National Bank, N.A.
         was merged into the Bank. The results of operations of Citizens are
         included in the consolidated financial statements since that date. The
         fair value of assets and


                                                                     (Continued)
                                      F-17
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

         liabilities acquired at the date of acquisition primarily related to
         approximately $25,420,000 loans receivable, $33,127,000 deposits and
         $1,097,000 in other liabilities.

         Intangible assets acquired of approximately $4,162,000 were allocated
         between goodwill of $3,092,000 and core deposit intangible asset of
         $1,070,000 in accordance with the provisions of SFAS 142. The core
         deposit intangible asset was determined to have a useful life of
         approximately 12 years and will be amortized based upon the estimated
         percentage decline of the future income generated by the acquired
         deposits.

(3)      SECURITIES

         Actual maturities of collateralized mortgage obligations and mortgage
         pass-through securities will differ from contractual maturities because
         borrowers may have the right to call or prepay obligations with or
         without call or prepayment penalties. U.S. Government and municipal
         securities generally mature within five years.

         (a)      SECURITIES AVAILABLE FOR SALE

                  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, 2002:
                     Collateralized mortgage
                        obligations             $  161,381    $    2,092    $       --    $  163,473
                                                ==========    ==========    ==========    ==========

                  December 31, 2001:
                     Collateralized mortgage
                        obligations             $  187,415    $    6,321    $       --    $  193,736
                                                ==========    ==========    ==========    ==========
</Table>

                  The weighted average coupon rate was 5.34% and 6.66% at
                  December 31, 2002 and 2001, respectively.

                  No available for sale securities were pledged at December 31,
                  2002. At December 31, 2001, such securities with a total
                  estimated market value of $156,473,000 were pledged to secure
                  various deposits and borrowings. Accrued interest receivable
                  on securities available for sale of approximately $718,000 and
                  $1,048,000 were included in other assets at December 31, 2002
                  and 2001, respectively.

                  Proceeds from sales of securities available for sale for the
                  years ended December 31, 2002, 2001 and 2000 were
                  approximately $54,239,000, $19,813,000 and $283,910,000,
                  respectively. Gross gains of approximately $867,000, $151,000
                  and $3,852,000 were


                                                                     (Continued)
                                      F-18
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

                  realized for the years ended December 31, 2002, 2001 and 2000,
                  respectively. Gross losses of $3,549,000 were realized for the
                  year ended December 31, 2000. These gains and losses are
                  included in net gains on sale of assets in the accompanying
                  consolidated statements of operations.

          (b)     SECURITIES HELD TO MATURITY


                  A summary of securities held to maturity 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, 2002:
                    Collateralized mortgage
                       obligations                  $  288,585    $    6,178    $       51    $  294,712
                    Mortgage pass-through
                       securities                       51,101         3,098             3        54,196
                    U.S. Government and agencies        25,046           634            --        25,680
                    Municipal securities                   100            --            --           100
                                                    ----------    ----------    ----------    ----------

                                                    $  364,832    $    9,910    $       54    $  374,688
                                                    ==========    ==========    ==========    ==========

                  December 31, 2001:
                    Collateralized mortgage
                       obligations                  $  355,637    $    2,611    $    2,479    $  355,769
                    Mortgage pass-through
                       securities                       75,140         1,894             4        77,030
                    Municipal securities                   179            --            --           179
                                                    ----------    ----------    ----------    ----------

                                                    $  430,956    $    4,505    $    2,483    $  432,978
                                                    ==========    ==========    ==========    ==========
</Table>

                  The weighted average coupon rate was 5.96% and 6.39% at
                  December 31, 2002 and 2001, respectively.

                  At December 31, 2002 and 2001, securities held to maturity
                  with a total amortized cost of $253,894,000 and $109,308,000,
                  respectively, were pledged to secure various deposits and
                  borrowings. Accrued interest receivable on securities held to
                  maturity of approximately $1,882,000 and $2,292,000 was
                  included in other assets at December 31, 2002 and 2001,
                  respectively.

                  Effective December 31, 2001, the Company reclassified a
                  portion of its investment securities portfolio from available
                  for sale to held to maturity. The investment securities were
                  transferred at amortized cost and the difference between
                  amortized cost and estimated market value was considered to be
                  immaterial to the consolidated financial


                                                                     (Continued)
                                      F-19
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

                  statements. The amortized cost of securities at the date of
                  transfer was approximately $430,956,000 with a weighted
                  average rate of 6.39%.

(4)      LOANS RECEIVABLE

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

<Table>
<Caption>
                                                              DECEMBER 31,
                                                     ---------------------------
                                                         2002           2001
                                                     -----------     -----------
<S>                                                  <C>             <C>
                   Residential real estate           $   212,862     $   215,408
                   Commercial                          1,695,293       1,593,432
                   Held for sale                           8,576           6,263
                   Consumer                              196,945         184,663
                                                     -----------     -----------

                          Total loans                  2,113,676       1,999,766
                   Less:
                        Allowance for loan losses        (29,532)        (27,621)
                                                     -----------     -----------

                          Loans receivable, net      $ 2,084,144     $ 1,972,145
                                                     ===========     ===========
</Table>

         Accrued interest receivable on loans of approximately $8,629,000 and
         $9,061,000 was included in other assets at December 31, 2002 and 2001,
         respectively.


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


<Table>
<Caption>
                                                  YEARS ENDED DECEMBER 31,
                                            ----------------------------------
                                              2002         2001         2000
                                            --------     --------     --------
<S>                                         <C>          <C>          <C>
          Balance at beginning of year      $ 27,621     $ 28,345     $ 28,297
               Allowance acquired              1,003           --           --
               Loans charged off              (6,184)      (6,589)      (3,707)
               Recoveries                        492          465        1,055
                                            --------     --------     --------

                 Net loans charged off        (5,692)      (6,124)      (2,652)

               Provision for loan losses       6,600        5,400        2,700
                                            --------     --------     --------

          Balance at end of year            $ 29,532     $ 27,621     $ 28,345
                                            ========     ========     ========
</Table>

         Other than Oklahoma, the Company has granted commercial real estate
         loans to customers principally in California, Texas, New York, Arizona,
         Florida 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.


                                                                     (Continued)
                                      F-20
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         At December 31, 2002, 2001 and 2000, the Company classified
         approximately $6,168,000, $2,817,000 and $3,207,000, respectively, of
         loans as impaired, as defined by SFAS No. 114, Accounting by Creditors
         for Impairment of a Loan. At December 31, 2002, 2001 and 2000, these
         loans had an impairment allowance of approximately $1,026,000, $706,000
         and $904,000, respectively, which was measured using the collateral
         value method. The average recorded investment in impaired loans for the
         years ended December 31, 2002, 2001 and 2000 was approximately
         $7,080,000, $3,476,000 and $1,524,000, 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 $291,000, $10,000 and
         $609,000 for the years ended December 31, 2002, 2001 and 2000,
         respectively.

         At December 31, 2002 and 2001, loans to directors, officers and
         employees of the Company aggregated approximately $6,951,000 and
         $6,557,000, 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,
                                                           ---------------------
                                                              2002         2001
                                                           --------     --------
<S>                                                        <C>          <C>
         Land                                              $  5,852     $  5,727
         Buildings and building improvements                 32,890       31,060
         Furniture, fixtures and equipment                   32,195       26,380
                                                           --------     --------
                                                             70,937       63,167
         Less accumulated depreciation and amortization     (28,522)     (24,416)
                                                           --------     --------

                                                           $ 42,415     $ 38,751
                                                           ========     ========
</Table>

         Depreciation and amortization expense relating to premises and
         equipment for the years ended December 31, 2002, 2001 and 2000 was
         approximately $4,376,000, $3,975,000 and $3,633,000, respectively.

(6)      DEPOSIT ACCOUNTS

         Accrued interest on deposit accounts of approximately $3,966,000 and
         $3,363,000 was included in other liabilities in the accompanying
         consolidated statements of financial condition at December 31, 2002 and
         2001, respectively.

         The aggregate amount of certificates of deposit with a denomination
         greater than $100,000 was approximately $195,000,000 and $204,000,000
         at December 31, 2002 and 2001, respectively.


                                                                     (Continued)
                                      F-21
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         Contractual maturities of time deposits at December 31, 2002, are
         summarized as follows (dollars in thousands):

<Table>
<Caption>
                   YEARS ENDING DECEMBER 31,          AMOUNT
                                                     --------
<S>                                                  <C>
                             2003                    $708,403
                             2004                     134,284
                             2005                      60,829
                             2006                      14,466
                      2007 and thereafter              71,998
                                                     --------
                                                     $989,980
</Table>

(7)      SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

         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, 2002 and 2001 and are summarized as follows
         (dollars in thousands):

<Table>
<Caption>
                                                                  2002        2001
                                                                -------     -------
<S>                                                             <C>         <C>
          Average outstanding balance                           $43,425     $42,987
          Weighted average interest rate during the year           1.22%       3.39%
          Maximum month-end balance                             $64,701     $53,622
          Outstanding balance at end of year                     59,696      38,694
          Weighted average interest rate at end of year            0.94%       1.29%
          Mortgage-backed securities securing the agreements
                   at period-end:
                            Carrying value                      $66,931     $53,885
                            Estimated market value               68,501      54,978
          Accrued interest payable at the end of the year            --          --
</Table>


                                                                     (Continued)
                                      F-22
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


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

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

<Table>
<Caption>
                                                  DECEMBER 31,
                          ---------------------------------------------------------
                                     2002                         2001
                          --------------------------    ---------------------------
                                          WEIGHTED                       WEIGHTED
                                           AVERAGE                        AVERAGE
                                         CONTRACTUAL                    CONTRACTUAL
                            BALANCE         RATE          BALANCE          RATE
                          ----------     ----------     ----------      ----------
<S>                       <C>            <C>            <C>             <C>
         Fixed rate       $  674,193           3.85%    $  728,205           3.75%
         Variable rate        10,000           1.81             --             --
                          ----------                    ----------
                          $  684,193           3.82%    $  728,205           3.75%
                          ==========     ==========     ==========     ==========
</Table>

         Additionally, the Company had outstanding letters of credit with the
         FHLB of approximately $93,855,000 and $77,045,000 at December 31, 2002
         and 2001, respectively. The letters of credit have one-year terms or
         less and were pledged to secure certain deposits.

         The FHLB requires the Company to hold eligible assets with a lending
         value, as defined, at least equal to FHLB advances and letters of
         credit issued. Eligible assets can include such items as first and
         second mortgage loans, multifamily mortgage loans, commercial and
         construction real estate loans, small business loans and investment
         securities, which are not already pledged or otherwise encumbered. At
         December 31, 2002, the Company had approximately $803,171,000 in
         eligible assets pledged against FHLB advances.

         At December 31, 2002, the Company had additional borrowing capacity of
         approximately $264,497,000 under the FHLB credit policy.

         Scheduled principal repayments of advances from the FHLB at December
         31, 2002 were as follows (dollars in thousands):

<Table>
<Caption>
                                                                 WEIGHTED
                                                                  AVERAGE
                                                                CONTRACTUAL
            YEARS ENDING DECEMBER 31,               AMOUNT        RATE
                                                  ----------    -----------
<S>                                               <C>              <C>
                      2003                        $   74,171       1.47%
                      2004                                --         --
                      2005                            10,000       1.81
                      2006                           100,000       3.35
               2007 and thereafter                   500,022       4.30
                                                  ----------
                                                  $  684,193       3.82%
                                                  ==========    =======
</Table>


                                                                     (Continued)
                                      F-23
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

(9)      SENIOR NOTES

         Senior Notes of $21,295,000, $21,545,000 and $41,160,000 at 11% issued
         to various investors were outstanding at December 31, 2002, 2001 and
         2000, respectively. During 2002, 2001 and 2000, the Company purchased
         and retired $250,000, $19,615,000 and $34,090,000, respectively, of
         Senior Notes. The purchase and retirement of the Senior Notes resulted
         in a $7,000, $1,630,000 and $922,000 loss, net of tax benefit of
         $4,000, $878,000 and $498,000 for the years ended December 31, 2002,
         2001 and 2000, 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.

(10)     MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES

         On September 20, 2001, and October 3, 2001, Local Financial Capital
         Trust I, a Delaware business trust and wholly-owned finance subsidiary
         of Local Financial, issued 1,400,000 and 210,000 shares, respectively,
         of its 9.00% trust preferred securities at $25 per share for an
         aggregate price of approximately $40,250,000, all of which was
         outstanding at December 31, 2001. The trust preferred securities will
         mature on September 30, 2031. The proceeds from the sale of the trust
         preferred securities and the issuance of $1,245,000 in common
         securities to Local Financial were used by the Trust to purchase
         approximately $41,495,000 of 9% junior subordinated debentures of Local
         Financial which have the same payment terms as the trust preferred
         securities. Distributions on the trust preferred securities and on the
         common securities issued to Local Financial are payable quarterly
         beginning December 31, 2001.

         On July 30 and October 22, 2002, the Company formed Local Financial
         Capital Trusts II and III (the Trusts), respectively, to facilitate
         each trust issuing 10,000 shares of adjustable rate cumulative trust
         preferred securities at $1,000 per share for an aggregate price of
         approximately $10,000,000. These securities bear interest rates of
         3.625% and 3.45% over the six and three month LIBOR, respectively, and
         both mature in 2032. The proceeds from the sale of the trust preferred
         securities and the issuance of $310,000 each in common securities of
         each trust to Local Financial were used by the Trusts to purchase
         $20,620,000 of adjustable rate junior subordinated debentures of Local
         Financial which bears interest and have the same payment terms as the
         trust preferred securities. As above, the debentures will pay interest
         to the Trusts, which will in turn pay dividends on the trust preferred
         securities and the common stock.

         Except under certain circumstances, the common securities issued to the
         Company by the three trusts possess sole voting rights with respect to
         matters involving those entities. Under certain circumstances, the
         Company may, from time to time, defer the debentures' interest
         payments, which would result in a deferral of distribution payments on
         the related trust preferred securities and, with certain exceptions,
         prevent the Company from declaring or paying cash distributions on the
         Company's common stock and any other future debt ranking equally with
         or junior to the debentures.


                                                                     (Continued)
                                      F-24
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         Subject to any applicable regulatory approvals, the trust preferred
         securities and the common securities issued by the three trusts to the
         Company are redeemable in whole or in part on or after certain dates,
         or at any time in whole, but not in part, from the date of issuance
         upon the occurrence of certain events. The trust preferred securities
         are included in Tier 1 capital, to the extent permitted, for regulatory
         capital adequacy determination purposes. The obligations of the Company
         with respect to the issuance of the trust preferred securities
         constitute a full and unconditional guarantee by the Company of the
         three trusts' obligation with respect to the trust preferred securities
         subject to certain limitations.


                                                                     (Continued)
                                      F-25
<PAGE>


                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


(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 losses on securities available for sale included in the
         consolidated statements of operations.


         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, 2002
                                                           ---------------------------------
                                                            PRE-TAX        TAX        NET
                                                            AMOUNT        EFFECT     AMOUNT
                                                           --------     --------    --------
<S>                                                        <C>          <C>         <C>
          Unrealized loss on securities:
             Unrealized holding loss arising during the
               period                                      $ (3,362)    $  1,177    $ (2,185)
             Less reclassification adjustment for gains
               included in net income                          (867)         303        (564)
                                                           --------     --------    --------

          Other comprehensive loss                         $ (4,229)    $  1,480    $ (2,749)
                                                           ========     ========    ========
</Table>

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31, 2001
                                                           ---------------------------------
                                                            PRE-TAX        TAX        NET
                                                            AMOUNT        EFFECT     AMOUNT
                                                           --------     --------    --------
<S>                                                        <C>          <C>         <C>
          Unrealized loss on securities:
             Unrealized holding loss arising during the
               period                                      $   (572)    $    200    $   (372)
             Less reclassification adjustment for gains
               included in net income                          (151)          53         (98)
                                                           --------     --------    --------

          Other comprehensive loss                         $   (723)    $    253    $   (470)
                                                           ========     ========    ========
</Table>

<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 net
               gains included in net income                    (303)         106         (197)
                                                           --------     --------     --------

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


                                                                     (Continued)
                                      F-26
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

(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,
                                                   ---------------------------------
                                                     2002         2001        2000
                                                   --------     --------    --------
<S>                                                <C>          <C>         <C>
          Income from operations                   $ 14,974     $ 13,489     $ 13,833
          Stockholders' equity                       (1,480)        (253)       2,242
                                                   --------     --------     --------

                                                   $ 13,494     $ 13,236     $ 16,075
                                                   ========     ========     ========
</Table>

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

<Table>
<Caption>
                                                       YEARS ENDED DECEMBER 31,
                                                   ---------------------------------
                                                     2002         2001        2000
                                                   --------     --------    --------
<S>                                                <C>          <C>         <C>
          Current income tax expense               $ 17,472     $ 11,660    $  8,254
          Deferred income tax (benefit) expense      (2,498)       1,829       5,579
                                                   --------     --------    --------

                                                   $ 14,974     $ 13,489    $ 13,833
                                                   ========     ========    ========
</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,
                                                   ---------------------------------
                                                     2002         2001        2000
                                                   --------     --------    --------
<S>                                                <C>          <C>          <C>
          Income tax at statutory
              rate (35%)                           $ 15,396     $ 13,988    $ 13,176
             Effect of state income tax,
              net of federal                          1,212        1,220       1,093
             Change in valuation allowance           (1,212)      (1,220)     (1,093)
             Other, net                                (422)        (499)        657
                                                   --------     --------    --------

             Provision for income taxes            $ 14,974     $ 13,489    $ 13,833
                                                   ========     ========    ========
</Table>


                                                                     (Continued)
                                      F-27
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         Current income tax receivables of approximately $60,000 and $2,044,000
         are included in the caption current and deferred taxes, net in the
         consolidated statements of financial condition at December 31, 2002 and
         2001, 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,
                                                                 ---------------------
                                                                    2002         2001
                                                                 --------     --------
<S>                                                              <C>          <C>
         Deferred income tax assets:
            Realized losses on available for sale securities     $     --     $    645
            State net operating loss carryforwards                  2,140        3,352
            Allowance for loan losses                               9,946        8,463
            Accrued compensation                                    2,608          740
            Other                                                   1,548        1,463
                                                                 --------     --------

                                                                   16,242       14,663
                                                                 --------     --------

         Deferred income tax liabilities:
            Stock dividends receivable (FHLB)                        (596)        (756)
            Depreciation and amortization                          (2,231)      (2,282)
            Deferred loan fees                                       (551)        (663)
            Unrealized gains on available for sale securities        (732)      (2,212)
            Other                                                    (624)         (34)
                                                                 --------     --------

                                                                   (4,734)      (5,947)
                                                                 --------     --------

            Net deferred tax asset                                 11,508        8,716
         Valuation allowance on state net operating losses          2,140        3,352
                                                                 --------     --------

            Deferred tax asset, net                              $  9,368     $  5,364
                                                                 ========     ========
</Table>

         At December 31, 2002, the Company had approximately $51,000,000 of
         operating loss carryforwards available for state income tax purposes.
         The state net operating losses expire in varying amounts between 2011
         and 2014.

         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 strategy of
         current management and taxable income for the years ended December 31,
         2002, 2001 and 2000, 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 income tax purposes
         during 1997. The Company is required to recapture the excess of the


                                                                     (Continued)
                                      F-28
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         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, 2002, the recapture amount is
         estimated to be $1,654,000 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, 2002, 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, 2002 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

         The Company has been involved in litigation with the U.S. Government.
         The litigation related to an assistance agreement entered into by the
         Company with the FDIC in connection with an acquisition of a federal
         savings bank in 1988. Prior to the purchase of the Company in 1997 from
         its two prior owners, a reserve account in the amount of approximately
         $7,673,000 had been established relating to amounts that might be owed
         under the assistance agreement. Additionally, as part of the purchase
         of the Company in 1997, $10,000,000 of the purchase price was deposited
         by the Company into an escrow account, of which $9,943,000 remained on
         deposit. Any amounts the Company might ultimately owe to the FDIC had
         to be paid first from these two accounts. If the amounts in these two
         accounts were not sufficient to satisfy the Company's obligations to
         the FDIC, the prior owners had contractually agreed to pay the
         difference.

         After protracted negotiations between the Company, the prior owners and
         the FDIC, on December 30, 2002, the liability owed to the FDIC under
         the litigation was settled for approximately $24,660,000 net of the set
         off of certain uncollected assistance, and the 1988 assistance
         agreement with the FDIC was completely terminated. As part of this
         settlement, all monies held in the above-mentioned reserve account and
         escrow account were paid to the FDIC. The remaining portions of the
         total amount paid to the FDIC under the terms of the settlement were
         (i) a cash payment by the Company in the sum of $2,177,000 which was
         equal to the unrecorded tax benefit received by the Company for the
         income tax deduction that became available for it to apply on its 2002
         federal income tax liability as the Company is able to deduct the
         interest portion of the total payment being made to the FDIC; and (ii)
         the prior owners' cash payment of the entire remaining balance required
         to be paid to the FDIC in the settlement amounting to approximately
         $4,867,000. As a result of the foregoing, any potential liability of
         the Company to the FDIC has now been fully and completely resolved
         without any adverse financial effect on the Company.

         Pursuant to the terms of the Settlement and Termination Agreement with
         the FDIC, the Company reserved its claim regarding the elimination of
         certain tax benefits which would otherwise have been available to the
         Company had it not been for the enactment of Section 13224 of the
         Omnibus Budget Reconciliation Act of 1993 (OBRA). A Resolution and
         Modification


                                                                     (Continued)
                                      F-29
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

         Agreement was entered into between the prior owners and the Company
         under which the prior owners agreed to pay all attorney fees and all
         third-party costs and expenses as they are incurred by the Company in
         prosecution of the claim to a conclusion. Under the terms of this
         agreement the prior owners are entitled to be paid substantially all of
         any award or settlement payment received by the Company pursuant to
         such claim net of taxes, if any. The Company does not anticipate
         incurring any liability, loss, damage or material expense with regard
         to its continuing prosecution of the OBRA claim.

         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, 2002 and 2001,
         the Company had approximately $342,764,000 and $292,542,000,
         respectively, of outstanding loan commitments (including unused lines
         of credit) for home equity, commercial real estate and commercial
         business loans approved but nonfunded.

         Standby letters of credit and financial guarantees written of
         approximately $9,488,000 and $7,228,000 at December 31, 2002 and 2001,
         respectively, 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.


                                                                     (Continued)
                                      F-30
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         The Company leases certain real estate and equipment under operating
         leases. For the years ended December 31, 2002, 2001 and 2000, lease
         expense totaled approximately $1,120,000, $1,068,000 and $891,000,
         respectively. Future obligations under operating leases at December 31,
         2002 are summarized as follows (dollars in thousands):

<Table>
<Caption>
                 YEARS ENDING DECEMBER 31,                 AMOUNT
                                                         ----------
<S>                                                      <C>
                        2003                             $  911,321
                        2004                                653,675
                        2005                                526,790
                        2006                                373,820
                        2007 and thereafter               4,445,675
                                                         ----------
                                                         $6,911,281
                                                         ==========
</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, 2002, that Local
         Financial and Local met all capital adequacy requirements to which they
         are subject.

         As of December 31, 2002 and 2001, the most recent notification from the
         OCC and Federal Reserve categorized Local and Local Financial as well
         capitalized under the regulatory framework for prompt corrective
         action. To be categorized as well capitalized Local and Local Financial
         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 and Local Financial's category.


                                                                     (Continued)
                                      F-31
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


<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, 2002:
            Total capital (to risk weighted assets)     $232,492       11.45%    $162,398      8.00%    $202,998       10.00%
            Tier I capital (to risk weighted assets)     195,752        9.64       81,199      4.00      121,799        6.00
            Tier I capital (to average assets)           195,752        7.01      111,752      4.00      139,691        5.00

         LOCAL As of December 31, 2002:
            Total capital (to risk weighted assets)     $250,683       12.37%    $162,185      8.00%    $202,732       10.00%
            Tier I capital (to risk weighted assets)     225,288       11.11       81,093      4.00      121,639        6.00
            Tier I capital (to average assets)           225,288        8.07      111,651      4.00      139,564        5.00

         LOCAL FINANCIAL
         As of December 31, 2001:
            Total capital (to risk weighted assets)     $209,038       10.49%    $159,359      8.00%    $199,199       10.00%
            Tier I capital (to risk weighted assets)     184,105        9.24       79,680      4.00      119,519        6.00
            Tier I capital (to average assets)           184,105        6.63      111,053      4.00      138,816        5.00

         LOCAL As of December 31, 2001:
            Total capital (to risk weighted assets)     $226,794       11.41%    $159,006      8.00%    $198,757       10.00%
            Tier I capital (to risk weighted assets)     201,915       10.16       79,503      4.00      119,254        6.00
            Tier I capital (to average assets)           201,915        7.28      110,990      4.00      138,737        5.00
</Table>

         Management intends to continue compliance with all regulatory capital
         requirements.

         Federal regulations allow Local to pay dividends during a calendar year
         up to the amount that would reduce its surplus capital ratio, as
         defined, to one-half of its surplus capital ratio at the beginning of
         the calendar year, adjusted to reflect its net income to date during
         the calendar year. At the beginning of calendar year 2003, 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 $52,647,000.

(15)     STOCKHOLDERS' EQUITY

         In connection with a private placement of securities in September 1997,
         warrants to buy 591,000 shares of common stock of the Company were
         issued to the placement agent. During 2001, 2,000 warrants were
         exercised for proceeds of $19,000. In addition, during 2001 the Company
         purchased 335,667 warrants at a cost of approximately $1,000,000.
         During 2002, 128,333 warrants were exercised for proceeds of $1,283,000
         and 125,000 warrants were purchased at a cost of approximately
         $615,000. As of December 31, 2002, no warrants remain outstanding.


                                                                     (Continued)
                                      F-32
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         During 2002, the Company purchased 150,000 shares of the Company's
         common stock from an officer of the Company at the market price
         amounting to $2,309,000.

(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 2000, the Board
         of Directors of the Company declared and paid a cash contribution of
         $3,819,000,which is included in compensation and employee benefits in
         the accompanying consolidated statements of operations. Common stock of
         the Company credited to Plan participants amounting to approximately
         263,000 and 229,000 shares were being held by the ESOP Plan at December
         31, 2002 and 2001, respectively.

         The Company had a retirement plan (the Plan), which was a
         noncontributory defined benefit pension plan, covering substantially
         all of its full-time employees. The benefits were based on years of
         service and the employees' compensation during the last five years of
         employment. 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 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.


                                                                     (Continued)
                                      F-33
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

         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 year ended December 31, 2000 (dollars
         in thousands):

<Table>
<Caption>
                                                               2000
                                                             --------
<S>                                                          <C>
         CHANGE IN BENEFIT OBLIGATION
         Benefit obligation at beginning of period           $ 11,087
         Interest cost                                            335
         Recognized net gain from past experience
            different from that assumed                         4,759
         Settlement gain                                       (5,276)
         Benefits paid                                        (10,905)
                                                             --------

         Benefit obligation at end of period                       --
                                                             --------

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

         Fair value of plan assets at end of plan period           --
                                                             --------

         Funded status                                             --
         Unrecognized net gain from past experience
            different from that assumed                            --
         Unrecognized transition asset being recognized
            over 15 years                                          --
                                                             --------

         Prepaid benefit cost                                $     --
                                                             ========


         COMPONENTS OF NET PERIODIC PENSION BENEFIT
         Interest cost                                            335
         Expected return on plan assets                        (1,156)
         Net amortization and deferral                            (56)
         Settlement gain                                       (5,276)
                                                             --------

         Net periodic pension benefit                        $ (6,153)
                                                             ========

</Table>

         The Company has a qualified, contributory 401(k) plan. 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.
         Effective October 1, 2001, the 401(k) plan was amended to allow Company
         matching contributions of 100% of a participant's elective 401(k)
         deferral not to exceed 2% of a participant's eligible compensation. The
         cost of this benefit for the years ended December 31, 2002 and 2001 was
         approximately $500,000 and $125,000, respectively.


                                                                     (Continued)
                                      F-34
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


(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.


                                                                     (Continued)
                                      F-35
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000

         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, 2002                  DECEMBER 31, 2001
                                               ------------------------------      -----------------------------
                                                 CARRYING          ESTIMATED         CARRYING         ESTIMATED
                                                   VALUE          FAIR VALUE          VALUE          FAIR VALUE
                                               ------------      ------------      ------------     ------------
          Financial Assets
<S>                                            <C>               <C>               <C>              <C>
             Cash and cash equivalents         $     58,366      $     58,366      $     60,491     $     60,491
             Securities available for sale          163,473           163,473           193,736          193,736
             Securities held to maturity            364,832           374,688           430,956          432,978
             Loans receivable, net                2,084,144         2,138,602         1,972,145        2,011,547
             FHLB stock and FRB stock                38,187            38,187            42,213           42,213

          Financial Liabilities
             Deposits                             1,829,439         1,843,827         1,809,362        1,820,931
             Advances from the FHLB                 684,193           735,451           728,205          749,115
             Securities sold under
               agreements to repurchase              59,696            59,696            38,694           38,694
             Senior Notes                            21,295            23,153            21,545           23,509
             Mandatorily redeemable trust
               preferred securities                  60,250            61,216            40,250           40,475
</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, 2002 and 2001.

         (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

                                                                     (Continued)
                                      F-36
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


                  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 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, 2002 and
                  2001.

                  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, 2002 and 2001. 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)      ALL OTHER LIABILITIES

                  The estimated fair value of FHLB advances is provided by the
                  FHLB of Topeka. For securities sold under agreements to
                  repurchase, the carrying amount is a reasonable estimate of
                  fair value due to the short maturity. The estimated fair value
                  of Senior Notes and the mandatorily redeemable trust preferred
                  securities is based on current quoted market prices.
                  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.


                                                                     (Continued)
                                      F-37
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


         (f)      LIMITATIONS

                  The information presented in this note is based on market
                  quotes and fair value calculations as of December 31, 2002 and
                  2001. These amounts have not been updated since these dates;
                  therefore, the valuations may have changed since that point in
                  time.

(18)     SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

         Following is a summary of the unaudited interim results of operations
         for the years ended December 31, 2002 and 2001 (dollars in thousands,
         except per share data):

<Table>
<Caption>
                                                      FIRST       SECOND      THIRD       FOURTH       FULL
                       2002                          QUARTER     QUARTER     QUARTER     QUARTER       YEAR
         ----------------------------------------    --------    --------    --------    --------    --------
         <S>                                         <C>         <C>         <C>         <C>        <C>
         Interest income                             $ 45,016      44,147      44,542      41,788     175,493
                                                     --------    --------    --------    --------    --------
         Net interest income                         $ 23,197      22,894      23,831      22,709      92,631
         Provision for loan losses                   $  1,800       1,800       1,500       1,500       6,600
         Income before provision for income taxes    $ 10,585      11,171      11,478      10,755      43,989

         Net income                                  $  7,079       7,465       7,370       7,101      29,015

         Earnings per share:
            Net income
              Basic                                  $   0.37        0.39        0.39        0.39        1.53
              Diluted                                $   0.36        0.37        0.37        0.38        1.48
</Table>


<Table>
<Caption>
                                                      FIRST       SECOND      THIRD       FOURTH       FULL
                       2001                          QUARTER     QUARTER     QUARTER     QUARTER       YEAR
         ----------------------------------------    --------    --------    --------    --------    --------
         <S>                                         <C>         <C>         <C>         <C>        <C>
         Interest income                             $ 48,891      47,949      47,892      48,406     193,138
         Net interest income                         $ 20,645      21,311      22,392      24,146      88,494
         Provision for loan losses                   $    750       1,150       1,775       1,725       5,400
         Income before provision for income taxes    $ 10,042      10,522      10,833       8,569      39,966
         Net income                                  $  6,772       7,051       7,194       5,460      26,447

         Earnings per share:
            Net income
              Basic                                  $   0.33        0.34        0.35        0.27        1.30
              Diluted                                $   0.32        0.33        0.34        0.27        1.26
</Table>


                                                                     (Continued)
                                      F-38
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


(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,
                                                            -----------------------
                                                               2002        2001
                                                            ---------     ---------
         Assets:
<S>                                                         <C>           <C>
            Cash and due from banks                         $     778     $     236
            Investment in subsidiaries                        250,500       224,772
            Other assets                                        1,155         2,432
                                                            ---------     ---------

              Total assets                                  $ 252,433     $ 227,440
                                                            =========     =========

         Liabilities and stockholders' equity:
            Senior Notes                                    $  21,295     $  21,545
            Other liabilities                                  63,258        42,359
                                                            ---------     ---------

              Total liabilities                                84,553        63,904
                                                            ---------     ---------

            Common stock                                          209           205
            Additional paid-in capital                        208,599       205,773
            Retained earnings                                 151,495       122,480
            Treasury stock                                   (193,783)     (169,031)
            Accumulated other comprehensive
              income, net                                       1,360         4,109
                                                            ---------     ---------

              Total stockholders' equity                      167,880       163,536
                                                            ---------     ---------

              Total liabilities and stockholders' equity    $ 252,433     $ 227,440
                                                            =========     =========
</Table>


                                                                     (Continued)
                                      F-39
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


                            STATEMENTS OF OPERATIONS
<Table>
<Caption>
                                                    YEARS ENDED DECEMBER 31,
                                              ----------------------------------
                                                2002         2001         2000
                                              --------     --------     --------
<S>                                           <C>          <C>          <C>
Income:
   Dividend income from subsidiaries          $  6,422     $  6,431     $ 36,825
   Equity in undistributed earnings
     (excess distribution) of subsidiaries      27,163       25,122       (7,937)
                                              --------     --------     --------

       Total income                             33,585       31,553       28,888

Expense:
   Interest expense                              6,614        5,346        6,033
   Directors' fees                                  90          104           70
   Other                                           446        2,984        1,762
                                              --------     --------     --------

       Total expense                             7,150        8,434        7,865

Income before benefit for income taxes          26,435       23,119       21,023
   Benefit for income taxes                     (2,580)      (3,358)      (2,791)
                                              --------     --------     --------

       Net income                             $ 29,015     $ 26,477     $ 23,814
                                              ========     ========     ========
</Table>


                                                                     (Continued)
                                      F-40
<PAGE>

                  LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2002, 2001 and 2000


                            STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                               YEARS ENDED DECEMBER 31,
                                                          -----------------------------------
                                                            2002         2001         2000
                                                          --------     --------     --------
<S>                                                       <C>          <C>          <C>
Cash provided (absorbed) by operating activities
   Net income                                             $ 29,015     $ 26,477     $ 23,814
   Adjustments to reconcile net income to net
     cash provided (absorbed) by operating activities:
       Equity in (undistributed earnings) excess
         distribution of subsidiaries                      (27,163)     (25,122)       7,937
       Change in other liabilities                             279         (669)      (1,307)
       Change in other assets                                1,581         (663)       2,090
                                                          --------     --------     --------

Net cash provided by operating activities                    3,712           23       32,534

Cash absorbed by investing activities:
   Investment in subsidiaries                               (1,314)      (3,194)          --
                                                          --------     --------     --------

Net cash absorbed by investing activities                   (1,314)      (3,194)          --

Cash provided (absorbed) by financing activities:
   Proceeds from issuance of common stock                    3,247           19           --
   Purchase of treasury stock                              (24,752)     (17,757)          --
   Purchase of Senior Notes                                   (250)     (19,615)     (34,090)
   Proceeds from issuance of junior subordinated
     debentures                                             20,620       41,495           --
   Purchase of stock warrants                                 (721)      (1,004)          --
                                                          --------     --------     --------

Net cash provided (absorbed) by financing activities        (1,856)       3,138      (34,090)

Net change in cash and cash equivalents                        542          (33)      (1,556)
Cash and cash equivalents at beginning of year                 236          269        1,825
                                                          --------     --------     --------

Cash and cash equivalents at end of year                  $    778     $    236     $    269
                                                          ========     ========     ========
</Table>


                                                                     (Continued)
                                      F-41
<PAGE>


                                 EXHIBIT INDEX

<Table>
<Caption>
Exhibit
Number            Description of Exhibit
-------           ----------------------
<S>               <C>
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)

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

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

4.3               Form of Senior Note (included in Exhibit 4.2)(1)

4.4               Indenture between Local Financial and BONY, as Trustee, dated
                  September 20, 2001(4)

4.5               Form of Debenture (included in Exhibit 4.6)

4.6               Junior Subordinated Indenture between Local Financial and BONY
                  dated July 30, 2002

4.7               Form of Floating Rate Junior Subordinate Note due 2032
                  (included in Exhibit 4.6)

4.8               Indenture of Local Financial with Wilmington Trust Company, as
                  Trustee, dated October 29, 2002

4.9               Form of Floating Rate Junior Subordinate Debt Security due
                  2032 (included in Exhibit 4.8)

10.1              Local Financial Stock Option Plan(1)*

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

10.3              Local Financial Corporation 1998 Stock Option Plan, as amended
                  July 26, 2000(3)*

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

10.5              Amended and Restated Employment Agreement between Local
                  Financial and Edward A. Townsend, effective October 1,
                  2000(3)*

10.6              Amended and Restated Employment Agreement between Local
                  Financial and Jan A. Norton, effective October 1, 2000(3)*

10.7              1998 Non-qualified Stock Option Agreement between Local
                  Financial and Edward A. Townsend dated September 23, 1998(2)*

10.8              1998 Non-qualified Stock Option Agreement between Local
                  Financial and Jan A. Norton dated September 23, 1998(2)*
</Table>

<PAGE>

<Table>
<S>               <C>
10.9              Change of Control, Non-Competition/Non-Solicitation Agreement
                  between Local Financial and Local Oklahoma Bank, N.A., and
                  Edward A. Townsend dated January 30, 2001(3)*

10.10             Change of Control, Non-Competition/Non-Solicitation Agreement
                  between Local Financial and Local Oklahoma Bank, N.A., and Jan
                  A. Norton dated January 30, 2001(3)*

10.11             Amended and Restated Declaration between Local Financial, BONY
                  and BONY (Delaware), as Trustees, and the Administrative
                  Trustees of the Local Financial Capital Trust I, dated
                  September 20, 2001(4)

10.12             Preferred Securities Guarantee Agreement between Local
                  Financial and BONY, as Guarantee Trustee, dated as of
                  September 20, 2001, regarding trust preferred securities(4)

10.13             Amended and Restated Trust Agreement of Local Financial
                  Capital Trust II by and among Local Financial, BONY and BONY
                  (Delaware), as Trustees, and the Administrative Trustees named
                  therein, dated July 30, 2002

10.14             Guarantee Agreement between Local Financial and BONY, as
                  Guarantee Trustee, dated July 30, 2002, regarding Local
                  Financial Capital Trust II capital securities

10.15             Amended and Restated Declaration of Trust of Local Financial
                  Capital Trust III by and among Local Financial, Wilmington
                  Trust Company as Delaware and Institutional Trustee, and the
                  Administrators named therein, dated as of October 29, 2002

10.16             Guarantee Agreement dated as of October 29, 2002, executed by
                  Local Financial and Wilmington Trust Company, as Guarantee
                  Trustee, regarding Local Financial Capital Trust III capital
                  securities

21.0              See Company's business description herein

23.0              Consent of KPMG LLP
</Table>

----------

(1)      These exhibits were filed with the Company's Registration Statement
         Form S-1, Registration No. 333-43727 dated January 5, 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)      These exhibits were filed with the Company's Annual Report on Form 10-K
         for the year ended December 31, 2000 and are incorporated by reference
         herein.

(4)      These exhibits were filed with the Company's Registration Statement on
         Form S-3, Registration No. 333-68372, dated August 24, 2001, and are
         incorporated by reference herein.

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