<PAGE>
                                                                      Exhibit 13








                            FIRST FEDERAL BANCSHARES
                                OF ARKANSAS, INC.


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

                                      2000
--------------------------------------------------------------------------------

                                  ANNUAL REPORT
--------------------------------------------------------------------------------




<PAGE>


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
<S>                                                                          <C>
President's Letter to Stockholders ........................................    1
Corporate Profile .........................................................    3
Selected Consolidated Financial and Other Data ............................    4
Selected Quarterly Operating Results ......................................    6
Management's Discussion and Analysis of Financial Condition
  and Results of Operations ...............................................    7
Independent Auditors' Report ..............................................   18
Consolidated Financial Statements .........................................   19
Directors and Executive Officers ..........................................   43
Banking Locations .........................................................   43
Stockholder Information ...................................................   44
</TABLE>


<PAGE>


[LOGO]   FIRST FEDERAL
         -----------------------------------------------------------------------
         BANCSHARES
         -----------------------------------------------------------------------
           OF ARKANSAS, INC.



Dear Stockholder:

Despite the disappointing performance by many NASDAQ stocks during 2000, our
stock increased to $19.00 at year end, which represents an appreciation of over
20% for the year. In addition, during 2000 our strong earnings and capital
position enabled us to increase our quarterly dividend rate by 25% to 10 cents
per share. We believe our dividend policy enhances shareholder value and creates
stockholder loyalty. In furtherance of these goals, we are pleased to report
that we have recently further increased our dividend rate to 11 cents per share.

During 2000, our stock traded at or below book value. At these levels, we
continue to believe that our stock is a good investment for us and we
repurchased 485,393 shares of our common stock during the year. We also believe
repurchases are a prudent use of our capital and since our initial public
offering in 1996, we have repurchased over 32% of our stock. Our repurchase
programs have proven to be accretive to earnings and have definitely enhanced
shareholder value.

Our earnings continue to be good, amounting to $5.6 million or $1.60 per share.
As a result, our book value increased over 10% to $21.56 at December 31, 2000.
The increase in our earnings per share and book value per share were enhanced by
our repurchases.

During the year, we opened our sixteenth office in Northwest Arkansas in Rogers.
Rogers is the largest city in Benton County and we now have 3 offices in Benton
County, which is one of the fastest growing counties in Arkansas.

The board, management and all "First Team" members remain committed to our
mission of "being the best provider of family banking services in our market
areas and maximizing our shareholders' value". Our vision of "being the premier
family bank in Arkansas" is only possible through the loyalty and support of our
customers and stockholders. We appreciate you and pledge to do our best to
continue to merit your confidence in the year 2001 and beyond.

                                                      Sincerely,

                                                      /s/ Larry J. Brandt

                                                      Larry J. Brandt
                                                      President

                                      1

<PAGE>


                                CORPORATE PROFILE

                First Federal Bancshares of Arkansas, Inc. (the "Company") was
incorporated in January 1996 under Texas law for the purpose of acquiring all of
the capital stock issued by First Federal Bank of Arkansas, FA ("First Federal"
or the "Bank") in connection with its conversion from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association (the "Conversion"). The Conversion was consummated on May 3,
1996 and, as a result, the Company became a unitary savings and loan holding
company of the Bank. The Company has no significant assets other than the shares
of the Bank's common stock acquired in the Conversion, the Company's loan to the
Employee Stock Ownership Plan ("ESOP") and the portion of the net Conversion
proceeds retained and invested by the Company. The Company has no significant
liabilities.

                The Bank is a federally chartered stock savings and loan
association which was formed in 1934. First Federal conducts business from its
main office and thirteen full service branch offices, all of which are located
in a six county area in Northcentral and Northwest Arkansas comprised of Benton,
Marion, Washington, Carroll, Baxter and Boone counties. First Federal's deposits
are insured by the Savings Association Insurance Fund ("SAIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC"), to the
maximum extent permitted by law. The Bank is a community oriented savings
institution which has traditionally offered a wide variety of savings products
to its retail customers while concentrating its lending activities on the
origination of loans secured by one- to four-family residential dwellings. To a
significantly lesser extent, the Bank's activities have also included
origination of multi-family residential loans, commercial real estate loans,
construction loans, commercial loans and consumer loans. In addition, the Bank
maintains a significant portfolio of investment securities.

                At December 31, 2000, the Company had total assets of $713.9
million, total deposits of $540.3 million and stockholders' equity of $76.6
million. The Company's and the Bank's principal executive offices are located at
200 West Stephenson, Harrison, Arkansas 72601, and their telephone number is
(870)741-7641.


                                        3

<PAGE>


                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

                The selected consolidated financial and other data of the
Company set forth below and on the following page does not purport to be
complete and should be read in conjunction with, and is qualified in its
entirety by, the more detailed information, including the Consolidated Financial
Statements and related Notes, appearing elsewhere herein.

<TABLE>
<CAPTION>
                                                         At or For the
                                                   Year Ended December 31,
                                         -------------------------------------------------
                                         2000        1999      1998        1997       1996
                                         ----        ----      ----        ----       ----
                                              (In Thousands, Except Per Share Data)

<S>                                     <C>        <C>        <C>        <C>        <C>
SELECTED FINANCIAL CONDITION DATA:
  Total assets                          $713,902   $680,719   $615,055   $549,607   $505,739
  Cash and cash equivalents               11,564      9,983     26,163      6,627      6,819
  Investment securities                  184,310    189,263    127,175     95,533     91,322
  Loans receivable, net                  498,305    459,978    442,486    433,942    396,508
  Allowance for loan losses                  691        752        771      1,196      1,251
  Deposits                               540,327    507,875    481,093    450,874    422,858
  Federal Home Loan Bank advances         93,359     83,972     48,985     11,997       --
  Stockholders' equity                    76,622     78,815     81,023     82,884     80,758

SELECTED OPERATING DATA:
  Interest income                       $ 51,982   $ 47,066   $ 43,814   $ 40,445   $ 37,192
  Interest expense                        33,243     27,799     25,774     23,748     22,449
                                        --------   --------   --------   --------   --------
  Net interest income                     18,739     19,267     18,040     16,697     14,743
  Provision for loan losses                 --           20         55       --           60
                                        --------   --------   --------   --------   --------
  Net interest income after provision
    for loan losses                       18,739     19,247     17,985     16,697     14,683
  Gain on sale of mortgage-backed
    and investment securities               --         --         --          394       --
  Noninterest income                       1,998      1,776      1,836      1,526      1,222
  Noninterest expense(1)                  12,398     11,594     10,482     10,016     10,749
                                        --------   --------   --------   --------   --------
  Income before income taxes               8,339      9,429      9,339      8,601      5,156
  Provision for income taxes               2,747      3,149      3,309      3,099      1,756
                                        --------   --------   --------   --------   --------
     Net income(1)                      $  5,592   $  6,280   $  6,030   $  5,502   $  3,400
                                        ========   ========   ========   ========   ========

EARNINGS PER SHARE:
   Basic                                $   1.60   $   1.57   $   1.35   $   1.22   $   0.72
   Diluted                                  1.60       1.57       1.33       1.21       0.72

CASH DIVIDENDS DECLARED PER SHARE       $   0.40   $   0.32   $   0.28   $   0.22       --
</TABLE>

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

(1)  The year ended December 31, 1996 includes a nonrecurring SAIF special
     assessment of approximately $2.6 million or approximately $1.7 million net
     of the income tax benefit.


                                       4

<PAGE>

<TABLE>
<CAPTION>
                                                    At or For the Year Ended December 31,
                                                ----------------------------------------------
                                                2000       1999       1998     1997       1996
                                                ----       ----       ----     ----       ----
<S>                                             <C>       <C>       <C>       <C>       <C>
SELECTED OPERATING RATIOS(1):
Return on average assets(2)                       .80%      .97%     1.04%     1.03%      .69%
Return on average equity(2)                      7.21      7.84      7.22      6.76      5.22
Average equity to average assets                11.07     12.41     14.36     15.26     13.23
Interest rate spread(3)                          2.29      2.59      2.55      2.47      2.48
Net interest margin(3)                           2.77      3.10      3.20      3.22      3.08
Net interest income after provision for
 loan losses to noninterest expense            151.14    166.02    171.58    166.70    136.60
Noninterest expense to average assets            1.77      1.80      1.80      1.88      2.18
Average interest-earning assets to
 average interest-bearing liabilities          109.77    111.21    114.20    116.21    112.96
Operating efficiency(4)                         59.79     55.15     52.74     53.80     67.33

ASSET QUALITY RATIOS(5):
Nonperforming loans to total loans(6)            0.32      0.28      0.32      1.11      0.18
Nonperforming assets to total assets(6) .        0.27      0.78      0.93      0.94      0.17
Allowance for loan losses to non-
 performing loans(6)                            41.96     55.82     52.65     24.12    173.51
Allowance for loan losses to total loans         0.14      0.16      0.17      0.27      0.30

CAPITAL RATIOS(7):
Tangible capital to adjusted total assets       10.37     11.09     11.67     11.98     12.30
Core capital to adjusted total assets           10.37     11.09     11.67     11.98     12.30
Risk-based capital to risk-weighted
 assets                                         19.69     21.52     22.44     22.52     23.24

OTHER DATA:
Dividend payout ratio(8)                        26.39     21.66     22.11     19.58      --
Full service offices at end of period              14        13        12        12        10
</TABLE>

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

(1)  Ratios for 2000, 1999, 1998 and 1997 are based on average daily balances.
     Ratios for 1996 are based on average month end balances.

(2)  The year ended December 31, 1996 includes a nonrecurring SAIF special
     assessment of approximately $2.6 million or approximately $1.7 million net
     of the income tax benefit. For the year ended December 31, 1996, return on
     average assets, without the SAIF special assessment, would have been 1.04%
     and return on average equity for the same period would have been 7.83%.

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

(4)  Noninterest expense to net interest income plus noninterest income.

(5)  Asset quality ratios are end of period ratios.

(6)  Nonperforming assets consist of nonperforming loans and real estate owned
     ("REO"). Nonperforming loans consist of non-accrual loans while REO
     consists of real estate acquired in settlement of loans.

(7)  Capital ratios are end of period ratios for First Federal Bank.

(8)  The calendar year ended December 31, 1997 was the first full year the
     Company was publicly traded. Dividend payout ratio is the total dividends
     declared divided by net income.


                                      5

<PAGE>



                      SELECTED QUARTERLY OPERATING RESULTS
                 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)



<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000           FOURTH     THIRD     SECOND      FIRST
                                      QUARTER    QUARTER    QUARTER    QUARTER
                                      -------    -------    -------    -------
<S>                                   <C>        <C>        <C>        <C>
Interest income                       $13,322    $13,218    $12,909    $12,533
Interest expense                        8,966      8,626      8,007      7,644
                                      -------    -------    -------    -------
Net interest income                     4,356      4,592      4,902      4,889
Provision for loan losses                --         --         --         --
                                      -------    -------    -------    -------
Net interest income after provision
  for loan losses                       4,356      4,592      4,902      4,889
Noninterest income                        598        564        451        385
Noninterest expense                     3,165      3,092      3,009      3,132
                                      -------    -------    -------    -------
Income before income taxes              1,789      2,064      2,344      2,142
Provision for income taxes                585        678        772        712
                                      -------    -------    -------    -------
Net income and comprehensive income   $ 1,204    $ 1,386    $ 1,572    $ 1,430
                                      =======    =======    =======    =======
Earnings per share(1):
 Basic                                $ 0.361    $ 0.407    $ 0.441    $ 0.386
 Diluted                              $ 0.361    $ 0.407    $ 0.441    $ 0.386

Selected Ratios (Annualized):
Net interest margin                      2.53%      2.67%      2.92%      2.96%
Return on average assets                 0.68       0.78       0.90       0.84
Return on average equity                 6.29       7.22       8.07       7.25
</TABLE>


<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999          FOURTH      THIRD      SECOND     FIRST
                                      QUARTER    QUARTER     QUARTER   QUARTER
                                      -------    -------     -------   -------
<S>                                   <C>        <C>        <C>        <C>
Interest income                       $12,281    $11,934    $11,527    $11,324
Interest expense                        7,400      7,063      6,689      6,647
                                      -------    -------    -------    -------
Net interest income                     4,881      4,871      4,838      4,677
Provision for loan losses                --         --         --           20
                                      -------    -------    -------    -------
Net interest income after provision
  for loan losses                       4,881      4,871      4,838      4,657
Noninterest income                        448        422        513        393
Noninterest expense                     3,017      2,805      3,042      2,730
                                      -------    -------    -------    -------
Income before income taxes              2,312      2,488      2,309      2,320
Provision for income taxes                783        837        727        802
                                      -------    -------    -------    -------
Net income and comprehensive income   $ 1,529    $ 1,651    $ 1,582    $ 1,518
                                      =======    =======    =======    =======
Earnings per share(1):
 Basic                                $ 0.398    $ 0.419    $ 0.387    $ 0.366
 Diluted                              $ 0.398    $ 0.419    $ 0.387    $ 0.366

Selected Ratios (Annualized):
Net interest margin                      3.01%      3.09%      3.17%      3.12%
Return on average assets                 0.91       1.01       1.00       0.98
Return on average equity                 7.71       8.30       7.82       7.53
</TABLE>
----------------
(1)  Basic and Diluted Shares Outstanding


<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000         FOURTH       THIRD      SECOND       FIRST
                                     QUARTER     QUARTER     QUARTER     QUARTER
                                     -------     -------     -------     -------
<S>                                 <C>         <C>         <C>         <C>
Basic weighted - average shares     3,333,317   3,407,258   3,569,403   3,712,414
Effect of dilutive securities             242         125        --          --
                                    ---------   ---------   ---------   ---------
Diluted weighted - average shares   3,333,559   3,407,383   3,569,403   3,712,414
                                    =========   =========   =========   =========


YEAR ENDED DECEMBER 31, 1999
Basic weighted - average shares     3,840,470   3,938,312   4,092,848   4,145,349
Effect of dilutive securities            --          --          --          --
                                    ---------   ---------   ---------   ---------
Diluted weighted - average shares   3,840,470   3,938,312   4,092,848   4,145,349
                                    =========   =========   =========   =========
</TABLE>


                                       6

<PAGE>



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

GENERAL

                Management's discussion and analysis of financial condition and
results of operations is intended to assist in understanding the consolidated
financial condition and results of operations of the Company. The information
contained in this section should be read in conjunction with the Consolidated
Financial Statements and the accompanying Notes to Consolidated Financial
Statements and the other sections contained in this Annual Report.

                The Company's results of operations depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
The Company's results of operations also are affected by the provision for loan
losses, the level of its noninterest income and expenses, and income tax
expense.

ASSET AND LIABILITY MANAGEMENT

                The ability to maximize net interest income is largely dependent
upon the achievement of a positive interest rate spread that can be sustained
during fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap", provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would have the
opposite effect. As of December 31, 2000, the Bank estimates that the ratio of
its one-year gap to total assets was a negative 31.4% and its ratio of
interest-earning assets to interest-bearing liabilities maturing or repricing
within one year was 42.3%.

                The Bank focuses its lending activities on the origination of
one-, three-, five- and seven-year adjustable-rate residential mortgage loans.
Although adjustable-rate loans involve certain risks, including increased
payments and the potential for default in an increasing interest rate
environment, such loans decrease the risks associated with changes in interest
rates. As a result of the Bank's efforts, as of December 31, 2000, $251.1
million or 66.6% of the Bank's portfolio of one- to four-family residential
mortgage loans consisted of ARMs, including $175.0 million in seven-year ARMs.

                The Company's investment securities portfolio amounted to $184.3
million or 25.8% of the Company's total assets at December 31, 2000. Of such
amount, $1.1 million or .6% is contractually due within one year and $1.6
million or .9% is contractually due after one year to five years. However,
actual maturities can be shorter than contractual maturities due to the ability
of borrowers to call or prepay such obligations without call or prepayment
penalties. As of December 31, 2000, there was approximately $182.6 million of
investment securities at an average interest rate of 6.88% with call options
held by the issuer, of which approximately $174.3 million, at an average
interest rate of 6.90%, are callable within one year. In the prevailing interest
rate environment it is likely that a substantial amount of the higher yielding
securities will be called.

                Deposits are the Bank's primary funding source and the Bank
prices its deposit accounts based upon competitive factors and the availability
of prudent lending and investment opportunities. The Bank seeks to lengthen the
maturities of its deposits by soliciting longer term certificates of deposit
when market conditions have created


                                        7

<PAGE>


opportunities to attract such deposits. However, the Bank does not solicit
high-rate jumbo certificates of deposit and does not pursue an aggressive growth
strategy which would force the Bank to focus exclusively on competitors' rates
rather than deposit affordability. At December 31, 2000 the Bank had $433.0
million in certificates of deposit of which $300.6 million mature in one year or
less. In 2000, the Bank utilized FHLB of Dallas advances as an additional
funding source. At December 31, 2000, the Bank had $93.4 million of FHLB
advances of which $47.5 million is due in one year or less.

NET PORTFOLIO VALUE

                The value of the Bank's loan and investment portfolio will
change as interest rates change. Rising interest rates will generally decrease
the Bank's net portfolio value ("NPV"), while falling interest rates will
generally increase the value of that portfolio. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities, and
off-balance sheet contracts. The following tables set forth, quantitatively, as
of December 31, 2000 and 1999, the OTS estimate of the projected changes in NPV
in the event of a 100, 200 and 300 basis point instantaneous and permanent
increase and decrease in market interest rates:


<TABLE>
<CAPTION>
                                                                 2000
              -----------------------------------------------------------------------------------------------------------------
                                                                       Estimated NPV as
                                                                        a Percentage of
               Change in Interest                                        Present Value           Amount            Percent
              Rates (basis points)          Estimated NPV                 of Assets             of Change         of Change
              --------------------          -------------                 ---------             ---------         ---------
              <S>                           <C>                      <C>                        <C>                  <C>
                                                                    (Dollars in Thousands)

                        +300                  $ 22,393                      3.43%               $(55,311)             (71)%
                        +200                    40,778                      6.03                 (36,926)             (48)
                        +100                    59,813                      8.56                 (17,891)             (23)
                        --                      77,704                     10.79                    --               --
                        -100                    84,830                     11.59                   7,126                9
                        -200                    87,925                     11.89                  10,221               13
                        -300                    92,686                     12.38                  14,982               19
</TABLE>


<TABLE>
<CAPTION>
                                                                 1999
              -----------------------------------------------------------------------------------------------------------------
                                                                       Estimated NPV as
                                                                        a Percentage of
               Change in Interest                                        Present Value           Amount            Percent
              Rates (basis points)          Estimated NPV                 of Assets             of Change         of Change
              --------------------          -------------                 ---------             ---------         ---------
              <S>                           <C>                      <C>                        <C>                  <C>
                                                                    (Dollars in Thousands)

                      +300                     $19,113                        3.12%             $(53,007)             (73)%
                      +200                      37,086                        5.85               (35,034)             (49)
                      +100                      55,264                        8.43               (16,856)             (23)
                        --                      72,120                       10.67                    --               --
                      -100                      84,291                       12.18                12,171               17
                      -200                      89,568                       12.76                17,448               24
                      -300                      91,263                       12.89                19,143               27
</TABLE>

                Computations of prospective effects of hypothetical interest
rate changes are calculated by the OTS from data provided by the Bank and are
based on numerous assumptions, including relative levels of market interest
rates, loan repayments and deposit runoffs, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.

                                        8

<PAGE>



                Management cannot predict future interest rates or their effect
on the Bank's NPV. Certain shortcomings are inherent in the method of analysis
presented in the computation of NPV. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in differing degrees to changes in market interest rates. Additionally, certain
assets, such as adjustable-rate loans have features that restrict changes in
interest rates during the initial term and over the remaining life of the asset.
In addition, the proportion of adjustable-rate loans in the Bank's portfolio
could decrease in future periods due to refinancing activity if market rates
decrease. Further, in the event of a change in interest rates, prepayment and
early withdrawal levels could deviate significantly from those assumed in the
table. Finally, the ability of many borrowers to service their adjustable-rate
debt may decrease in the event of an interest rate increase.

CHANGES IN FINANCIAL CONDITION

                GENERAL. At December 31, 2000, the Company's total assets
amounted to $713.9 million as compared to $680.7 million at December 31, 1999.
The $33.2 million or 4.9% increase was primarily due to an increase of $38.3
million or 8.3% in loans receivable, net. Such increase was partially offset by
a decrease of $5.0 million or 2.6% in investment securities held to maturity and
a $3.7 million decrease from $3.9 million to $261,000 in real estate acquired in
settlement of loans, net.

                During 2000, investment securities totaling $4.5 million were
purchased and $9.5 million matured or were called resulting in a net decrease of
$5.0 million or 2.6% in investment securities at December 31, 2000 compared to
December 31, 1999. The loans receivable increase resulted from the continued
origination of loans during the year ended December 31, 2000. Originations for
the year ended December 31, 2000 consisted of $79.3 million in one- to four-
family residential loans, $1.0 in multi-family residential, $29.5 million in
commercial loans, $30.5 million in construction loans and $40.3 million in
consumer installment loans, of which $13.6 million consisted of automobile loans
and $15.5 million consisted of home equity loans. At December 31, 2000, the Bank
had outstanding loan commitments of $2.3 million, unused lines of credit of $7.6
million, and the undisbursed portion of construction loans of $9.1 million.
Liabilities increased $36.2 million or 6.0% to $637.3 million at December 31,
2000 compared to $601.1 million at December 31, 1999. The increase in
liabilities was primarily due to an increase of $32.4 million or 6.4% in
deposits, and a $9.4 million or 11.2% increase in advances from the FHLB of
Dallas. The increases in deposits and advances from the FHLB of Dallas were used
primarily to fund the net loan increase. Stockholders' equity amounted to $76.6
million or 10.73% of total assets at December 31, 2000 compared to $78.8 million
or 11.58% of total assets at December 31, 1999.

                Nonperforming assets, consisting of nonperforming loans and
repossessed assets, amounted to $1.9 million or .27% of total assets at December
31, 2000, compared to $5.3 million, or .78% of total assets at December 31,
1999. Included in non-performing assets at December 31, 1999 is a commercial
real estate property that had a carrying value at such time of $3.5 million. The
Bank sold such property in the second quarter of 2000.

                LOANS RECEIVABLE. Net loans receivable increased by $38.3
million, or 8.3%, to $498.3 million at December 31, 2000 from $460.0 million at
December 31, 1999. Loan originations for 2000 totaled $180.7 million. The net
loans receivable increase was composed of increases in single-family residential
loans of $8.8 million or 2.4%, commercial loans of $18.1 million or 45.1%,
multi-family residential loans of $854,000 or 30.4%, consumer loans of $9.8
million or 26.5%, and construction loans, net of undisbursed funds, of $451,000
or 2.9%.

                Unearned loan fee income at December 31, 2000 amounted to $2.7
million, down from $3.0 million at December 31, 1999. These unearned fees are
recognized as an adjustment to yield over the contractual lives of the related
loans. Undisbursed amounts of loans in process related to construction loans at
December 31, 2000 were $9.1 million, compared to $10.4 million at December 31,
1999.



                                        9

<PAGE>



                ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses was
$691,000 at December 31, 2000, compared to $752,000 at December 31, 1999. The
composition of the allowance remained relatively unchanged. There were no
changes in concentrations, terms, methods or assumptions that occurred or
significantly affected the allowance during the year ended December 31, 2000.
Management compared the loan portfolio's loss experience ratios from year to
year and adjusted the ratios to reflect current loss experience. Management also
considered whether there were any other matters that might affect the adequacy
of the allowance and identified no such matters.

                INVESTMENT SECURITIES. Investment securities, all of which were
classified as held to maturity, amounted to $184.3 million as of December 31,
2000 compared to $189.3 million as of December 31, 1999. In 2000, approximately
$4.2 million of government agency obligations and $355,000 of municipal bonds
were purchased. Securities which matured or were called during 2000 amounted to
$9.5 million, which resulted in a decrease of $5.0 million or 2.6% in investment
securities at December 31, 2000 compared to December 31, 1999.

                DEPOSITS. Deposits at December 31, 2000 amounted to $540.3
million, an increase of $32.4 million or 6.4% from the December 31, 1999 balance
of $507.9 million. The Bank does not advertise for deposits outside of its
primary market area, Northcentral and Northwest Arkansas, or utilize the
services of deposit brokers. In 1997, the Bank began offering special promotion
certificate of deposits which continued throughout 2000.

                BORROWED FUNDS. Borrowed funds, which consist entirely of FHLB
of Dallas advances, increased by $9.4 million or 11.2% to $93.4 million at
December 31, 2000 from $84.0 million at December 31, 1999. These borrowings were
used to fund loan growth.

                STOCKHOLDERS' EQUITY. Stockholders' equity decreased $2.2
million to $76.6 million at December 31, 2000 from $78.8 million at December 31,
1999. The decrease in stockholders' equity was primarily due to the purchase of
treasury stock totaling $7.7 million. In addition, during the twelve months
ended December 31, 2000 cash dividends aggregating $1.5 million were paid. Such
decreases in stockholders' equity were partially offset by net income in the
amount of $5.6 million for the year ended December 31, 2000.


                                       10

<PAGE>


AVERAGE BALANCE SHEETS

                The following table sets forth certain information relating to
the Company's average balance sheets and reflects the average yield on assets
and average cost of liabilities for the periods indicated and the yields earned
and rates paid at December 31, 2000. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented and outstanding balances at December 31,
2000. Average balances are based on daily balances during the period.



<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                         December 31,  --------------------------------------------------------------------------
                                           2000                    2000                                     1999
                                        ------------   ----------------------------------      ----------------------------------
                                                                                  Average                                 Average
                                          Yield/       Average                     Yield/      Average                    Yield/
                                           Cost        Balance         Interest     Cost       Balance       Interest      Cost
                                           ----        -------         --------     ----       -------       --------      ----
                                                                      (Dollars in Thousands)
<S>                                       <C>          <C>             <C>         <C>        <C>            <C>           <C>
Interest-earning assets:
  Loans receivable(1)                      8.08%       $481,112        $38,403      7.98%      $447,631       $35,537      7.94%
  Investment securities(2)                 6.88         194,454         13,479      6.93        164,790        11,052      6.71
  Other interest-earning assets            6.40           1,641            100      6.07         10,089           477      4.72
                                                       --------       --------                 --------      --------
     Total interest-earning assets         7.75         677,207         51,982      7.68        622,510        47,066      7.56

Noninterest-earning assets                               23,175                                  23,099
                                                       --------                                --------
     Total assets                                      $700,382                                $645,609
                                                        =======                                 =======
Interest-bearing liabilities:
  Deposits                                 5.52        $528,921         27,659      5.23       $501,820        24,566      4.90
  Other borrowings                         6.60          87,999          5,584      6.35         57,949         3,233      5.58
                                                        -------         ------                  -------       -------
    Total interest-bearing liabilities     5.68         616,920         33,243      5.39        559,769        27,799      4.97
Noninterest-bearing liabilities                           5,923                                   5,740
                                                       --------                                --------
     Total liabilities                                  622,843                                 565,509
Stockholders' equity                                     77,539                                  80,100
                                                       --------                                --------
     Total liabilities and
      stockholders' equity                             $700,382                                $645,609
                                                        =======                                 =======
                                                                       -------                                -------
Net interest income                                                   $ 18,739                               $ 19,267
                                                                       =======                                =======
Net earning assets                                    $  60,287                               $  62,741
                                                       ========                                ========
Interest rate spread                       2.07%                                    2.29%                                  2.59%
                                           ====                                     ====                                   ====
Net interest margin                                                                 2.77%                                  3.10%
                                                                                    ====                                   ====
Ratio of interest-earning assets to
 interest-bearing liabilities                                                     109.77%                                111.21%
                                                                                  ======                                 ======
</TABLE>



<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                      ---------------------------------------
                                                                       1998
                                                      ---------------------------------------
                                                                                      Average
                                                      Average                          Yield/
                                                      Balance         Interest          Cost
                                                      -------         --------          ----
                                                                (Dollars in Thousands)
<S>                                                   <C>               <C>              <C>
Interest-earning assets:
  Loans receivable(1)                                 $441,702          $35,762          8.10%
  Investment securities(2)                             116,590            7,808          6.70
  Other interest-earning assets                          4,777              244          5.09
                                                     ---------         --------
     Total interest-earning assets                     563,069           43,814          7.78
                                                                        -------
Noninterest-earning assets                              18,502
                                                     ---------
     Total assets                                     $581,571
                                                       =======
Interest-bearing liabilities:
  Deposits                                            $462,596           24,004          5.19
  Other borrowings                                      30,452            1,770          5.81
                                                      --------         --------
    Total interest-bearing liabilities                 493,048           25,774          5.23
Noninterest-bearing liabilities                          5,019
                                                      --------
     Total liabilities                                 498,067
Stockholders' equity                                    83,504
                                                      --------
     Total liabilities and
      stockholders' equity                            $581,571
                                                       =======
                                                                         ------
Net interest income                                                    $ 18,040
                                                                         ======
Net earning assets                                    $ 70,021
                                                       =======
Interest rate spread                                                                    2.55%
                                                                                        =====
Net interest margin                                                                     3.20%
                                                                                        =====
Ratio of interest-earning assets to
 interest-bearing liabilities                                                         114.20%
                                                                                      =======
</TABLE>


                                       11

--------------------
(1) Includes non-accrual loans.
(2) Includes FHLB of Dallas stock.


<PAGE>


RATE/VOLUME ANALYSIS

                The table below sets forth certain information regarding changes
in interest income and interest expense of the Company for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (changes in average volume multiplied by prior rate); (ii) changes in
rate (change in rate multiplied by prior average volume); (iii) changes in
rate-volume (changes in rate multiplied by the change in average volume); and
(iv) the net change.


<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                     -----------------------------------------------------------------------------------------------

                                                   2000 vs. 1999                                            1999 vs. 1998
                                     -------------------------------------------------   -------------------------------------------
                                          Increase (Decrease)                                Increase (Decrease)
                                                Due to                                             Due to
                                     ---------------------------------                   ----------------------------
                                                                             Total                                        Total
                                                               Rate/        Increase                            Rate/    Increase
                                      Volume       Rate        Volume      (Decrease)    Volume       Rate     Volume    (Decrease)
                                      ------       ----        ------      ----------    ------       ----     ------    ----------
                                                                            (In Thousands)
<S>                                  <C>         <C>         <C>           <C>          <C>         <C>       <C>        <C>
Interest income:
  Loans receivable                   $ 2,658     $   194      $    14      $ 2,866      $   480     $  (696)  $    (9)   $  (225)
  Investment securities                1,989         371           67        2,427        3,228          12         4      3,244
  Other interest-earning assets         (399)        135         (113)        (377)         271         (18)      (20)       233
                                     -------     -------      -------      -------      -------     -------   -------    -------
      Total interest-earning
        assets                         4,248         700          (32)       4,916        3,979        (702)      (25)     3,252
                                     -------     -------      -------      -------      -------     -------   -------    -------

Interest expense:
  Deposits                             1,327       1,676           90        3,093        2,035      (1,358)     (115)       562
  Other borrowings                     1,676         444          231        2,351        1,598         (71)      (64)     1,463
                                     -------     -------      -------      -------      -------     -------   -------    -------
      Total interest-bearing
        liabilities                    3,003       2,120          321        5,444        3,633      (1,429)     (179)     2,025
                                     -------     -------      -------      -------      -------     -------   -------    -------
Net change in net interest income    $ 1,245     $(1,420)     $  (353)     $  (528)     $   346     $   727   $   154    $ 1,227
                                     =======     =======      =======      =======      =======     =======   =======    =======
</TABLE>



COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND
1999.

                GENERAL. The Company reported net income of $5.6 million for the
year ended December 31, 2000 compared to $6.3 million for the same period in
1999. The decrease of $688,000 or 11.0% in net income in 2000 compared to 1999
was due to an decrease in net interest income and an increase in noninterest
expenses which were partially offset by an decrease in income taxes and an
increase in noninterest income.

                NET INTEREST INCOME. Net interest income is determined by the
Company's interest rate 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. The Company's net interest income amounted to
$18.7 million in 2000, a decrease of $528,000 or 2.7% compared to $19.3 million
for 1999. The Company's interest rate spread declined to 2.29% for 2000 from
2.59% for 1999. The Company's net interest margin declined to 2.77% for 2000
compared to 3.10% for 1999.

                INTEREST INCOME. Interest income amounted to $52.0 million for
the year ended December 31, 2000 compared to $47.1 million for the same period
in 1999. The increase of $4.9 million or 10.4% was primarily due to an increase
in the average balance of loans receivable and investment securities. The
average balance of loans receivable increased as a result of continued loan
demand and portfolio growth. Such increase in interest income was partially
offset by a decline in the average balance of other interest-earning assets,
primarily overnight interest bearing cash accounts.

                INTEREST EXPENSE. Interest expense increased $5.4 million or
19.6% to $33.2 million for the year ended December 31, 2000 compared to $27.8
million for the same period in 1999. Such increase was primarily due to an
increase in the average balance of deposits, an increase in the average balance
of FHLB of Dallas advances, as well as increases in the average yield paid on
both deposit accounts and FHLB of Dallas advances.

                                       12

<PAGE>



                PROVISION FOR LOAN LOSSES. No provisions for loan losses were
made in 2000. Provisions for loan losses amounted to $20,000 for 1999.
Provisions for loan losses include charges to reduce the recorded balance of
loans to their estimated fair value. Such provision and the adequacy of the
allowance for loan losses is evaluated quarterly by management of the Bank based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral and current economic
conditions.

                NONINTEREST INCOME. Noninterest income amounted to $2.0 million
for the year ended December 31, 2000 compared to $1.8 million for the same
period in 1999. The increase of $222,000 or 12.5% was due primarily to an
increase of $149,000 from $48,000 to $197,000 in gross revenue from full service
brokerage operations, an increase of $116,000 or 11.9% from $971,000 to $1.1
million in deposit fee income, and an increase of $52,000 or 25.5% from $204,000
to $256,000 in electronic banking transaction fees. Such increases were
partially offset by a $100,000 decline in gain on the sale of mortgage loans in
the secondary mortgage market from $189,000 to $89,000 for the years ended
December 31, 1999 and 2000, respectively.

                NONINTEREST EXPENSE. Noninterest expenses increased $804,000 or
6.9% to $12.4 million compared to $11.6 million for the year ended December 31,
2000 and December 31, 1999, respectively. Such increase in noninterest expenses
during 2000 compared to 1999 was primarily due to increases in salaries and
employee benefits, net occupancy expense, and advertising expense. Salaries and
employee benefits amounted to $7.9 million compared to $7.1 million resulting in
an increase of $815,000 or 11.5% for the years ended December 31, 2000 and 1999,
respectively. Such increase in salaries and employee benefits was primarily due
to an increase in personnel as well as normal salary and merit increases. Net
occupancy expense for the year ended December 31, 2000 was $1.1 million compared
to $933,000 for the same period in 1999. Such increase in net occupancy expense
was due to increased costs related to branch expansions. Advertising expense
increased $56,000 or 22.0% from $255,000 to $311,000 between 1999 and 2000,
respectively. The increase in advertising expense was primarily due to growth
and increased advertising rates. The increase in noninterest expense for the
comparable periods was partially offset by a decrease in provision for real
estate losses and a decline in FDIC insurance premiums. Provision for loss on
real estate owned amounted to $14,000 compared to $312,000 for the twelve month
periods ended December 31, 2000 and 1999, respectively. The provision in 1999
was due to a write-down of a commercial real estate property. Such property was
disposed of in June 2000. FDIC insurance premiums decreased by $179,000 from
$285,000 to $106,000 as a result of a decline in the deposit assessment rate.

                INCOME TAXES. Income taxes amounted to $2.7 million and $3.1
million for the years ended December 31, 2000 and December 31, 1999,
respectively, resulting in effective tax rates of 32.9% and 33.4%, respectively.


COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998.

                GENERAL. The Company reported net income of $6.3 million for the
year ended December 31, 1999 compared to $6.0 million for the same period in
1998. The increase of $250,000 or 4.1% in net income in 1999 compared to 1998
was due to an increase in net interest income and a decrease in income taxes
which were partially offset by an increase in noninterest expenses and a
reduction in noninterest income.

                NET INTEREST INCOME. The Company's net interest income amounted
to $19.3 million in 1999, an increase of $1.2 million or 6.8% compared to $18.0
million for 1998. The Company's interest rate spread increased to 2.59% for 1999
from 2.55% for 1998. The Company's net interest margin declined to 3.10% for
1999 compared to 3.20% for 1998.

                INTEREST INCOME. Interest income amounted to $47.1 million for
the year ended December 31, 1999 compared to $43.8 million for the same period
in 1998. The increase of $3.3 million or 7.4% was primarily due to an increase
in the average balance of loans receivable and investment securities. The
average balance of loans receivable increased as a result of continued loan
demand and portfolio growth. The average balance of investment securities
increased due

                                       13

<PAGE>

to additional purchases of longer-term investment securities. Such increase
in interest income was partially offset by a decline in the average yield
earned on loans receivable due primarily to the origination or modification
of loans at market interest rates which were lower than the average yield of
the Bank's loan portfolio.

                INTEREST EXPENSE. Interest expense increased $2.0 million or
7.9% to $27.8 million for the year ended December 31, 1999 compared to $25.8
million for the same period in 1998. Such increase was primarily due to an
increase in the average balance of deposits as well as an increase in the
average balance of FHLB of Dallas advances. Such increases were offset by a
decrease in the average yield paid on both deposit accounts and FHLB of Dallas
advances.

                PROVISION FOR LOAN LOSSES. Provisions for loan losses amounted
to $20,000 for 1999 as compared to $55,000 for 1998. Provisions for loan losses
include charges to reduce the recorded balance of mortgage loans to their
estimated fair value. Such provision and the adequacy of the allowance for loan
losses is evaluated quarterly by management of the Bank based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral and current economic conditions. The decrease in
the provision for loan losses in 1999 compared to 1998 was due to management's
evaluation of the adequacy of the allowance for loan losses.

                NONINTEREST INCOME. Noninterest income amounted to $1.8 million
for the year ended December 31, 1999 compared to $1.8 million for the same
period in 1998. The decrease of $60,000 or 3.3% was due primarily to the
recognition of a $98,000 net loss from operations of real estate owned for the
year ended December 31, 1999 compared to net income of $12,000 for the same
period in 1998. Such decrease was also due to a decline in gain on the sale of
mortgage loans in the secondary mortgage market from $270,000 to $189,000 or
30.0% for the years ended December 31, 1998 and 1999, respectively. The decrease
in noninterest income for the year ended December 31, 1999 compared to the year
ended December 31, 1998 was partially offset by an increase of $75,000 from
$896,000 to $971,000 in deposit fee income.

                NONINTEREST EXPENSE. Noninterest expenses increased $1.1 million
or 10.6% to $11.6 million compared to $10.5 million for the year ended December
31, 1999 and December 31, 1998, respectively. Such increase in noninterest
expenses during 1999 compared to 1998 was primarily due to increases in salaries
and employee benefits, provision for loss on real estate owned, net occupancy
expense and data processing expense. Salaries and employee benefits amounted to
$7.1 million compared to $6.5 million resulting in an increase of $555,000 or
8.5% for the years ended December 31, 1999 and 1998, respectively. Such increase
in salaries and employee benefits was primarily due to an increase in personnel
as well as normal salary and merit increases. Provision for loss on real estate
owned amounted to $312,000 compared to $15,000 for the years ended December 31,
1999 and 1998, respectively. Such increase was a result of a write-down on a
foreclosed commercial real estate property. Net occupancy expense for the year
ended December 31, 1999 was $933,000 compared to $874,000 for the same period in
1998. Such increase in net occupancy expense was due to increased costs related
to branch expansions. Data processing expense increased $79,000 or 9.8% from
$804,000 to $883,000 between 1999 and 1998, respectively. The increase in data
processing expense was primarily due to expanded services such as online
banking, normal contractual increases and fees related to volume usage.

                INCOME TAXES. Income taxes amounted to $3.1 million and $3.3
million for the years ended December 31, 1999 and December 31, 1998,
respectively, resulting in effective tax rates of 33.4% and 35.4%, respectively.

LIQUIDITY AND CAPITAL RESOURCES

                The Bank's liquidity, represented by cash and cash equivalents
and eligible investment securities, is a product of its operating, investing and
financing activities. The Bank's primary sources of funds are deposits,
collections on outstanding loans, maturities and calls of investment securities
and other short-term investments and funds provided from operations. While
scheduled loan amortization and maturing investment securities and short-term
investments


                                       14

<PAGE>



are relatively predictable sources of funds, deposit flows and loan prepayments
are greatly influenced by general interest rates, economic conditions and
competition. The Bank manages the pricing of its deposits to maintain a steady
deposit balance. In addition, the Bank invests excess funds in overnight
deposits and other short-term interest-earning assets which provide liquidity to
meet lending requirements. The Bank has generally been able to generate enough
cash through the retail deposit market, its traditional funding source, to
offset the cash utilized in investing activities. As an additional source of
funds, the Bank has borrowed from the FHLB of Dallas. At December 31, 2000, the
Bank had outstanding advances from the FHLB of Dallas of $93.4 million. Such
advances were used in the Bank's normal operating and investing activities.

                All savings institutions are required to maintain an average
daily balance of liquid assets equal to a certain percentage of the sum of its
average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. The liquidity requirement may vary from time to
time (between 4% and 10%) depending upon economic conditions and savings flows
of all savings institutions. At the present time, the required minimum liquid
asset ratio is 4%. At December 31, 2000, the Bank's liquidity ratio was 30.7%.

                Liquidity management is both a daily and long-term function of
business management. Excess liquidity is generally invested in short-term
investments such as overnight deposits. On a longer-term basis, the Bank
maintains a strategy of investing in various lending products. The Bank uses its
sources of funds primarily to meet its ongoing commitments, to pay maturing
savings certificates and savings withdrawals, to repay maturing FHLB of Dallas
advances, and to fund loan commitments. At December 31, 2000, the total approved
mortgage loan origination commitments outstanding, excluding the undisbursed
portion of construction loans, amounted to $2.3 million. At the same date, the
undisbursed portion of construction loans approximated $9.1 million. The Bank's
unused lines of credit at December 31, 2000 were approximately $7.6 million.
Certificates of deposit scheduled to mature in one year or less at December 31,
2000 totaled $300.6 million. Management believes that a significant portion of
maturing deposits will remain with the Bank. FHLB of Dallas advances scheduled
to mature within one year at December 31, 2000 totaled $47.5 million. Investment
securities scheduled to mature in one year or less at December 31, 2000 totaled
$1.1 million. However, actual maturities can be shorter than contractual
maturities due to the ability of borrowers to call or prepay such obligations
without call or prepayment penalties. As of December 31, 2000, there was
approximately $174.0 million of investment securities with call options held by
the issuer exercisable within one year.

                As of December 31, 2000, the Bank's regulatory capital was well
in excess of all applicable regulatory requirements. At December 31, 2000, the
Bank's tangible, core and risk-based capital ratios amounted to 10.37%, 10.37%
and 19.69%, respectively, compared to regulatory requirements of 1.50%, 4.0% and
8.0%, respectively.

IMPACT OF INFLATION AND CHANGING PRICES

                The financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in relative
purchasing power over time due to inflation.

                Unlike most industrial companies, virtually all of the Bank's
assets and liabilities are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institution's
performance than does the effect of inflation.

FORWARD-LOOKING STATEMENTS

                The Company's Annual Report to Stockholders contains certain
forward-looking statements and information relating to the Company that are
based on the beliefs of management as well as assumptions made by and
information currently available to management. In addition, in this document,
the words "anticipate", "believe," "estimate," "expect," "intend," "should" and
similar expressions, or the negative thereof, as they relate to the Company or
the


                                       15

<PAGE>



Company's management, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
looking events and are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. The Company does not intend to update these forward-looking
statements.



                                       16

<PAGE>














                      This page left blank intentionally.

















<PAGE>


INDEPENDENT AUDITORS' REPORT


The Board of Directors of
First Federal Bancshares of Arkansas, Inc.:

We have audited the accompanying consolidated statements of financial condition
of First Federal Bancshares of Arkansas, Inc. and its subsidiary (the "Company")
as of December 31, 2000 and 1999, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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, such consolidated financial statements present fairly, in all
material respects, the financial position of First Federal Bancshares of
Arkansas, Inc. and its subsidiary at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Little Rock, Arkansas
February 16, 2001

                                       18

<PAGE>

<TABLE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA)
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                        2000           1999
<S>                                                                                  <C>            <C>
ASSETS

Cash and cash equivalents:
  Cash and collection items                                                          $  11,445      $   8,953
  Interest-bearing deposits with banks                                                     119          1,030
                                                                                     ---------      ---------
            Total cash and cash equivalents                                             11,564          9,983

Investment securities -
  Held to maturity, at amortized cost (fair value at December 31, 2000
    and 1999, of $180,103 and $177,170, respectively)                                  184,310        189,263
Federal Home Loan Bank stock, at cost                                                    5,098          4,258
Loans receivable, net of allowance at December 31, 2000 and 1999,
  of $691 and $752, respectively                                                       498,305        459,978
Accrued interest receivable                                                              6,910          5,977
Real estate acquired in settlement of loans, net                                           261          3,940
Office properties and equipment, net                                                     7,170          6,809
Prepaid expenses and other assets                                                          284            511
                                                                                     ---------      ---------
TOTAL                                                                                $ 713,902      $ 680,719
                                                                                     =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Deposits:
    Interest-bearing                                                                 $ 524,712      $ 494,501
    Noninterest-bearing                                                                 15,615         13,374
                                                                                     ---------      ---------
            Total deposits                                                             540,327        507,875
  Federal Home Loan Bank advances                                                       93,359         83,972
  Advance payments by borrowers for
     taxes and insurance                                                                 1,006          1,089
  Other liabilities                                                                      2,588          8,146
                                                                                     ---------      ---------
            Total liabilities                                                          637,280        601,082
                                                                                     ---------      ---------
MINORITY INTEREST                                                                          --             822
                                                                                     ---------      ---------

STOCKHOLDERS' EQUITY:
  Preferred stock, no par value, 5,000,000 shares authorized, none issued
  Common stock, $.01 par value, 20,000,000 shares authorized, 5,153,751
    shares issued, 3,553,981 and 4,039,374 shares outstanding at                            52             52
    December 31, 2000 and 1999, respectively
  Additional paid-in capital                                                            51,045         50,793
  Employee stock benefit plans                                                          (2,680)        (3,867)
  Retained earnings - substantially restricted                                          56,713         52,598
                                                                                     ---------      ---------
                                                                                       105,130         99,576
  Treasury stock, at cost, 1,599,770 and 1,114,377 shares at
    December 31, 2000 and 1999, respectively                                           (28,508)       (20,761)
                                                                                     ---------      ---------
            Total stockholders' equity                                                  76,622         78,815
                                                                                     ---------      ---------
TOTAL                                                                                $ 713,902      $ 680,719
                                                                                     =========      =========
</TABLE>

See notes to consolidated financial statements.


                                       19

<PAGE>


<TABLE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
--------------------------------------------------------------------------------
<CAPTION>
                                            2000        1999         1998
<S>                                        <C>         <C>         <C>
INTEREST INCOME:
  Loans receivable                         $38,403     $35,537     $35,762
  Investment securities                     13,479      11,052       7,808
  Other                                        100         477         244
                                           -------     -------     -------
            Total interest income           51,982      47,066      43,814

INTEREST EXPENSE:
  Deposits                                  27,659      24,566      24,004
  Federal Home Loan Bank advances            5,584       3,233       1,770
                                           -------     -------     -------
            Total interest expense          33,243      27,799      25,774
                                           -------     -------     -------
NET INTEREST INCOME                         18,739      19,267      18,040

PROVISION FOR LOAN LOSSES                     --            20          55
                                           -------     -------     -------
NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                           18,739      19,247      17,985
NONINTEREST INCOME:
  Deposit fee income                         1,087         971         896
  Other                                        911         805         940
                                           -------     -------     -------
            Total noninterest income         1,998       1,776       1,836
                                           -------     -------     -------

NONINTEREST EXPENSES:
  Salaries and employee benefits             7,895       7,080       6,525
  Net occupancy expense                      1,087         933         874
  Federal insurance premiums                   106         285         276
  Provision for real estate losses              14         312          15
  Data processing                              921         883         804
  Postage and supplies                         479         446         393
  Other                                      1,896       1,655       1,595
                                           -------     -------     -------
            Total noninterest expenses      12,398      11,594      10,482
                                           -------     -------     -------
INCOME BEFORE INCOME TAXES                   8,339       9,429       9,339

INCOME TAX PROVISION                         2,747       3,149       3,309
                                           -------     -------     -------
NET INCOME                                 $ 5,592     $ 6,280     $ 6,030
                                           -------     -------     -------
                                           -------     -------     -------
EARNINGS PER SHARE:
  Basic                                    $  1.60     $  1.57     $  1.35
                                           -------     -------     -------
                                           -------     -------     -------
  Diluted                                  $  1.60     $  1.57     $  1.33
                                           -------     -------     -------
                                           -------     -------     -------
</TABLE>

See notes to consolidated financial statements.

                                       20


<PAGE>


<TABLE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                    ISSUED
                                                 COMMON STOCK          ADDITIONAL     EMPLOYEE
                                             -----------------------    PAID-IN        STOCK        RETAINED
                                             SHARES          AMOUNT     CAPITAL    BENEFIT PLANS    EARNINGS
<S>                                         <C>          <C>           <C>         <C>             <C>
BALANCE, JANUARY 1, 1998                    5,153,751         $  52    $   50,237    $   (6,207)   $   42,982

  Net income                                                                                            6,030
  Release of ESOP shares                                                      564           416
  Common stock acquired for employee
    stock benefit plan                                                       (434)

  Stock compensation expense                                                                754
  Tax effect of stock compensation plans                                      120
  Purchase of treasury stock, at cost
  Dividends paid                                                                                       (1,334)
                                            ---------            --        ------        ------        ------
BALANCE, DECEMBER 31, 1998                  5,153,751            52        50,487        (5,037)       47,678
  Net income                                                                                            6,280
  Release of ESOP shares                                                      316           416
  Stock compensation expense                                                                754
  Tax effect of stock compensation plans                                      (10)
  Purchase of treasury stock, at cost
  Dividends paid                                                                                       (1,360)
                                            ---------            --        ------        ------        ------
BALANCE, DECEMBER 31, 1999                  5,153,751            52        50,793        (3,867)       52,598
  Net income                                                                                            5,592
  Release of ESOP shares                                                      259           416
  Stock compensation expense                                                                771
  Tax effect of stock compensation plans                                       (7)
  Purchase of treasury stock, at cost
  Dividends paid                                                                                       (1,477)
                                            ---------            --        ------        ------        ------
BALANCE, DECEMBER 31, 2000                  5,153,751         $  52    $   51,045    $   (2,680)   $   56,713
                                            ---------            --        ------        ------        ------
                                            ---------            --        ------        ------        ------
</TABLE>


<TABLE>
<CAPTION>

                                                 TREASURY STOCK             TOTAL
                                               --------------------      STOCKHOLDERS'
                                               SHARES        AMOUNT         EQUITY
<S>                                            <C>         <C>           <C>
BALANCE, JANUARY 1, 1998                        257,688    $   (4,180)   $   82,884

  Net income                                                                  6,030
  Release of ESOP shares                                                        980
  Common stock acquired for employee
    stock benefit plan                                                         (434)
  Stock compensation expense                                                    754
  Tax effect of stock compensation plans                                        120
  Purchase of treasury stock, at cost           383,303        (7,977)       (7,977)
  Dividends paid                                                             (1,334)
                                                -------       --------       -------
BALANCE, DECEMBER 31, 1998                      640,991       (12,157)       81,023
  Net income                                                                  6,280
  Release of ESOP shares                                                        732
  Stock compensation expense                                                    754
  Tax effect of stock compensation plans                                        (10)
  Purchase of treasury stock, at cost           473,386        (8,604)       (8,604)
  Dividends paid                                                             (1,360)
                                              ---------        --------      -------
BALANCE, DECEMBER 31, 1999                    1,114,377       (20,761)       78,815
  Net income                                                                  5,592
  Release of ESOP shares                                                        675
  Stock compensation expense                                                    771
  Tax effect of stock compensation plans                                         (7)
  Purchase of treasury stock, at cost           485,393        (7,747)       (7,747)
  Dividends paid                                                             (1,477)
                                               ---------      --------      -------
BALANCE, DECEMBER 31, 2000                    1,599,770      $(28,508)     $ 76,622
                                               ---------      --------      -------
                                               ---------      --------      -------
</TABLE>

See notes to consolidated financial statements.

                                       21

<PAGE>

<TABLE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPERATING ACTIVITIES:                                              2000           1999           1998
<S>                                                            <C>            <C>            <C>
  Net income                                                   $   5,592      $   6,280      $   6,030
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Provision for loan losses                                       --               20             55
    Provision for real estate losses                                  14            312             15
    Deferred tax provision (benefit)                                 251           (192)           227
    Federal Home Loan Bank stock dividends                          (367)          (220)          (222)
    Loss on disposition of fixed assets                             --               (6)          --
    (Gain) loss on sale of repossessed assets, net                    (4)            (6)            47
    Originations of loans held for sale                           (8,847)       (14,931)       (21,178)
    Proceeds from sales of loans                                   8,603         15,574         20,709
    Gain on sale of mortgage loans originated to sell                (89)          (189)          (270)
    Depreciation                                                     670            554            508
    Depreciation on real estate owned                                 32            129            115
    Accretion of deferred loan fees, net                            (444)          (735)          (855)
    Release of ESOP shares                                           675            732            980
    Stock compensation expense                                       771            754            754
    Changes in operating assets and liabilities:
      Accrued interest receivable                                   (933)        (1,222)          (621)
      Prepaid expenses and other assets                              224           (299)           116
      Other liabilities                                              113            305            272
                                                               ---------      ---------      ---------
            Net cash provided by operating activities              6,261          6,860          6,682
                                                               ---------      ---------      ---------
INVESTING ACTIVITIES:
  Purchases of investment securities - held to maturity          (11,020)       (86,405)      (111,196)
  Proceeds from maturities of investment securities -
    held to maturity                                               9,500         30,182         79,467
  Loan originations, net of repayments                           (36,789)       (17,608)       (10,510)
  Proceeds from sales of repossessed assets                        2,923            235            253
  Purchases of office properties and equipment                    (1,029)        (1,332)        (1,345)
                                                               ---------      ---------      ---------
            Net cash used by investing activities                (36,415)       (74,928)       (43,331)
                                                               ---------      ---------      ---------

FINANCING ACTIVITIES:
  Net increase in deposits                                        32,452         26,782         30,219
  Advances from Federal Home Loan Bank                           155,075         87,350        118,550
  Repayment of advances from Federal Home Loan Bank             (145,688)       (52,363)       (81,562)
  Net increase (decrease) in advance payments by borrowers
    for taxes and insurance                                          (83)            83            106
  Purchase of treasury stock                                      (7,747)        (8,604)        (7,977)
  Common stock acquired for employee stock benefit plan             --             --           (1,817)
  Dividends paid                                                  (1,477)        (1,360)        (1,334)
  Distributions related to minority interest                        (797)          --             --
                                                               ---------      ---------      ---------
            Net cash provided by financing activities             31,735         51,888         56,185
                                                               ---------      ---------      ---------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                 1,581        (16,180)        19,536

CASH AND CASH EQUIVALENTS:
  Beginning of year                                                9,983         26,163          6,627
                                                               ---------      ---------      ---------
  End of year                                                  $  11,564      $   9,983      $  26,163
                                                               ---------      ---------      ---------
                                                               ---------      ---------      ---------
</TABLE>
                                                                     (Continued)

                                       22

<PAGE>


<TABLE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                          2000         1999       1998
<S>                                                                    <C>          <C>          <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - Cash paid for:
    Interest                                                           $ 32,816     $ 27,565     $25,635
                                                                       ========     ========     =======
    Income taxes                                                       $  2,475     $  3,434     $ 3,125
                                                                       ========     ========     =======

SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING ACTIVITIES:
  Real estate acquired in settlement of loans                          $    380     $    649     $ 3,888
                                                                       ========     ========     =======
  Loans to facilitate sales of real estate owned                       $  1,170     $    325     $   341
                                                                       ========     ========     =======
  Investment securities traded, recorded in investments,
    not yet settled in cash                                            $  --        $  6,000     $  --
                                                                       ========     ========     =======
</TABLE>
                                                                     (Concluded)

See notes to consolidated financial statements.


                                       23



<PAGE>


FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION - First Federal
      Bancshares of Arkansas, Inc. (the "Company") is a unitary holding company
      which owns all of the stock of First Federal Bank of Arkansas, FA (the
      "Bank"). The Bank provides a broad line of financial products to
      individuals and small to medium-sized businesses. The consolidated
      financial statements also include the accounts of the Bank's wholly-owned
      subsidiary, First Harrison Service Corporation ("FHSC"), whose activities
      were limited to owning a 75% interest in a partnership that owned a hotel
      which had been repossessed by the Bank and a participating lender. The
      remaining 25% ownership was reflected in the consolidated statements of
      financial condition at December 31, 1999, as minority interest. The
      property was sold in the second quarter of 2000 and the partnership has
      been dissolved. At December 31, 2000, the Bank has an $850,000 loan to the
      entity that purchased the hotel. All material intercompany transactions
      have been eliminated in consolidation.

      USE OF ESTIMATES - The preparation of financial statements in conformity
      with accounting principles generally accepted in the United States of
      America requires management to make estimates and assumptions that affect
      the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements
      and the reported amounts of revenues and expenses during the reporting
      period. Actual results could differ from those estimates and such
      differences could be significant. A material estimate that is particularly
      susceptible to significant change in the near term relates to the
      determination of the allowance for loan losses.

      LIQUIDITY REQUIREMENT - Regulations require the Bank to maintain an amount
      equal to 4% of deposits (net of loans on deposits) plus short-term
      borrowings in cash and U.S. Government and other approved securities.

      CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
      cash equivalents includes cash on hand and amounts due from depository
      institutions, which includes interest-bearing amounts available upon
      demand.

      INVESTMENT SECURITIES - The Company classifies investment securities into
      one of two categories: held to maturity or available for sale. The Company
      does not engage in trading activities. Debt securities that the Company
      has the positive intent and ability to hold to maturity are classified as
      held to maturity and recorded at cost, adjusted for the amortization of
      premiums and the accretion of discounts.

      Investment securities that the Company intends to hold for indefinite
      periods of time are classified as available for sale and are recorded at
      fair value. Unrealized holding gains and losses are excluded from earnings
      and reported net of tax in other comprehensive income. Investment
      securities in the available for sale portfolio may be used as part of the
      Company's asset and liability management practices and may be sold in
      response to changes in interest rate risk, prepayment risk, or other
      economic factors.


                                       24

<PAGE>


      Premiums are amortized into interest income using the interest method to
      the earlier of maturity or call date. Discounts are accreted into interest
      income using the interest method over the period to maturity. The specific
      identification method of accounting is used to compute gains or losses on
      the sales of investment securities.

      If the fair value of an investment security declines for reasons other
      than temporary market conditions, the carrying value of such a security is
      written down to fair value by a charge to operations.

      LOANS RECEIVABLE - Loans receivable that management has the intent and
      ability to hold for the foreseeable future or until maturity or pay-off
      are stated at unpaid principal balances adjusted for any charge-offs, the
      allowance for loan losses, and any deferred loan fees or costs. Deferred
      loan fees or costs and discounts on first mortgage loans are amortized or
      accreted to income using the level-yield method over the remaining period
      to contractual maturity.

      Mortgage loans originated and committed for sale in the secondary market
      are carried at the lower of cost or estimated market value in the
      aggregate. At December 31, 2000 and 1999, the balances of such loans are
      not material, and are carried at cost due to the short period of time
      between funding and sale, generally one to two weeks.

      The accrual of interest on impaired loans is discontinued when, in
      management's opinion, the borrower may be unable to meet payments as they
      become due or when the loan becomes 90 days past due, whichever occurs
      first. When interest accrual is discontinued, all unpaid accrued interest
      is reversed against interest income. Interest income is subsequently
      recognized only to the extent cash payments in excess of principal due are
      received, until such time that in management's opinion, the borrower will
      be able to meet payments as they become due.

      ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is a valuation
      allowance to provide for incurred but not yet realized losses. The Bank
      reviews its non-homogeneous loans for impairment on a quarterly basis.
      Impairment is determined by assessing the probability that the borrower
      will not be able to fulfill the contractual terms of the agreement. If a
      loan is determined to be impaired, the amount of the impairment is
      measured based on the present value of expected future cash flows
      discounted at the loan's effective interest rate or by use of the
      observable market price of the loan or fair value of collateral if the
      loan is collateral dependent. Throughout the year, management estimates
      the level of probable losses to determine whether the allowance for loan
      losses is appropriate considering the estimated losses existing in the
      portfolio. Based on these estimates, an amount is charged to the provision
      for loan losses and credited to the allowance for loan losses in order to
      adjust the allowance to a level determined by management to be
      appropriate. The allowance for loan losses is increased by charges to
      income (provisions) and decreased by charge-offs, net of recoveries.

      Management's periodic evaluation of the appropriateness of the allowance
      is based on the Company's past loan loss experience, known and inherent
      risks in the portfolio, adverse situations that may affect the borrower's
      ability to repay, the estimated value of any underlying collateral and
      current economic conditions.

      Homogeneous loans are those that are considered to have common
      characteristics that provide for evaluation on an aggregate or pool basis.
      The Bank considers the characteristics of (1) one- to- four family
      residential first mortgage loans; (2) unsecured consumer loans; and (3)
      collateralized consumer loans to permit consideration of the
      appropriateness of the allowance for losses of each group of loans on a
      pool basis. The primary methodology used to determine the appropriateness
      of the allowance for losses includes segregating certain specific, poorly
      performing loans based on their performance characteristics from the pools
      of loans as to type, grading these loans, and then applying a loss factor
      to


                                       25

<PAGE>


      the remaining pool balance based on several factors including past loss
      experience, inherent risks, economic conditions in the primary market
      areas, and other factors which usually are beyond the control of the Bank.

      Non-homogeneous loans are those loans that can be included in a particular
      loan type, such as commercial loans, construction loans, multi-family, and
      commercial first mortgage loans, but which differ in other characteristics
      to the extent that valuation on a pool basis is not valid. Those
      segregated specific loans are evaluated using the present value of future
      cash flows, usually determined by estimating the fair value of the loan's
      collateral reduced by any cost of selling and discounted at the loan's
      effective interest rate if the estimated time to receipt of monies is more
      than three months or by use of the observable market price of the loan or
      fair value of collateral if the loan is collateral dependent. After
      segregating specific, poorly performing loans, the remaining loans are
      evaluated based on payment experience, known difficulties in the
      borrower's business or geographic area, loss experience, inherent risks,
      and other factors usually beyond the control of the Bank. A factor, based
      on experience, is applied to these loans to estimate the probable loss.

      Estimates of the probability of loan losses involve judgment. While it is
      possible that in the near term the Bank may sustain losses which are
      substantial in relation to the allowance for loan losses, it is the
      judgment of management that the allowance for loan losses reflected in the
      consolidated statements of financial condition is appropriate considering
      the estimated probable losses in the portfolio.

      REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS - Real estate acquired in
      settlement of loans is initially recorded at estimated fair value less
      estimated costs to sell and is subsequently carried at the lower of
      carrying amount or fair value less estimated disposal costs. Valuations
      are periodically performed by management, and the assets are carried at
      the lower of carrying amount or fair value less costs to sell. Costs
      relating to the development and improvement of the property are
      capitalized, whereas those relating to holding the property are expensed.

      OFFICE PROPERTIES AND EQUIPMENT - Office properties and equipment are
      stated at cost less accumulated depreciation and amortization. The Company
      computes depreciation of office properties and equipment using the
      straight-line method over the estimated useful lives of the individual
      assets which range from 3 to 30 years.

      LOAN ORIGINATION FEES - Loan origination fees and certain direct loan
      origination costs are deferred and the net fee or cost is recognized as an
      adjustment to interest income using the level-yield method over the
      contractual life of the loans. When a loan is fully repaid or sold, the
      amount of unamortized fee or cost is recorded in interest income.

      INCOME TAXES - The Company recognizes deferred tax liabilities and assets
      for the expected future tax consequences of temporary differences between
      the carrying amounts and the tax bases of assets and liabilities.

      INTEREST RATE RISK - The Bank's asset base is exposed to risk including
      the risk resulting from changes in interest rates and changes in the
      timing of cash flows. The Bank monitors the effect of such risks by
      considering the mismatch of the maturities of its assets and liabilities
      in the current interest rate environment and the sensitivity of assets and
      liabilities to changes in interest rates. The Bank's management has
      considered the effect of significant increases and decreases in interest
      rates and believes such changes, if they occurred, would be manageable and
      would not affect the ability of the Bank to hold its assets as planned.
      However, the Bank is exposed to significant market risk in the event of
      significant and prolonged interest rate changes.


                                       26

<PAGE>


      EMPLOYEE STOCK OWNERSHIP PLAN - Compensation expense for the Employee
      Stock Ownership Plan ("ESOP") is determined based on the average fair
      value of shares committed to be released during the period and is
      recognized as the shares are committed to be released. For the purpose of
      earnings per share, ESOP shares are included in weighted-average common
      shares outstanding as the shares are committed to be released.

      STOCK COMPENSATION PLANS - Statement of Financial Accounting Standards No.
      123, ACCOUNTING FOR STOCK-BASED COMPENSATION, provides that entities may
      adopt a fair value based method of accounting for employee stock
      compensation plans, whereby compensation cost is measured at the grant
      date based on the value of the award and is recognized over the service
      period, which is usually the vesting period. However, it also provides
      that an entity may measure compensation cost for those plans using the
      intrinsic value based method of accounting prescribed by Accounting
      Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
      whereby compensation cost is the excess, if any, of the quoted market
      price of the stock at the grant date (or other measurement date) over the
      amount an employee must pay to acquire the stock. Stock options issued
      under the Company's stock option plan have no intrinsic value at the grant
      date, and under Opinion No. 25, no compensation cost is recognized for
      them. The Company has elected to use the accounting methodology in Opinion
      No. 25 and to provide pro forma disclosures of net income and earnings per
      share and other disclosures, as if the fair value based method of
      accounting had been applied. The pro forma disclosures include the effects
      of all awards granted on or after January 1, 1995. (See Note 12.)

      EARNINGS PER COMMON SHARE - Basic earnings per share represents income
      available to common stockholders divided by the weighted-average number of
      common shares outstanding during the period. Diluted earnings per share
      reflects additional common shares that would have been outstanding if
      dilutive potential common shares had been issued, as well as any
      adjustment to income that would result from the assumed issuance.
      Potential common shares that may be issued by the Company relate solely to
      outstanding stock options, and are determined using the treasury stock
      method.

      NEW ACCOUNTING STANDARDS - Statement of Financial Accounting Standards
      ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
      ACTIVITIES, is effective for all fiscal years beginning after June 15,
      2000. SFAS 133, as amended, establishes accounting and reporting standards
      for derivative instruments, including certain derivative instruments
      embedded in other contracts and for hedging activities. Under SFAS 133,
      certain contracts that were not formerly considered derivatives may now
      meet the definition of a derivative. The Company will adopt SFAS 133
      effective January 1, 2001. Management has evaluated the effect, if any, of
      such adoption and does not expect the adoption of SFAS 133 to have a
      significant impact on the financial position, results of operations, or
      cash flows of the Company.

      RECLASSIFICATIONS - Certain amounts in the 1999 and 1998 consolidated
      financial statements have been reclassified to conform to the
      classifications adopted for reporting in 2000.


                                       27

<PAGE>


2.    INVESTMENT SECURITIES

      Investment securities consisted of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                                           2000
                                             -----------------------------------------------------------------
                                                                GROSS              GROSS
                                               AMORTIZED       UNREALIZED        UNREALIZED         FAIR
HELD TO MATURITY                                 COST           GAINS              LOSSES           VALUE
<S>                                          <C>              <C>               <C>            <C>
U.S. Government and
  Agency obligations                           $ 184,310         $ 124             $ 4,331        $ 180,103
                                             =============    ==========        ===========       =========
</TABLE>


<TABLE>
<CAPTION>
                                                                           1999
                                             -----------------------------------------------------------------
                                                                GROSS              GROSS
                                               AMORTIZED       UNREALIZED        UNREALIZED        FAIR
HELD TO MATURITY                                 COST           GAINS              LOSSES          VALUE
<S>                                          <C>              <C>               <C>             <C>
U.S. Government and
  Agency obligations                           $ 189,263          $ 19          $ 12,112        $ 177,170
                                             =============    ==========        ============    ===========
</TABLE>


      The Company has pledged investment securities held to maturity with
      carrying values of approximately $14 million and $13 million at December
      31, 2000 and 1999, respectively, as collateral for certain deposits in
      excess of $100,000.

      The scheduled maturities of debt securities at December 31, 2000, by
      contractual maturity are shown below (in thousands). Expected maturities
      may differ from contractual maturities because borrowers may have the
      right to call or prepay obligations with or without call or prepayment
      penalties.

<TABLE>
<CAPTION>
                                                                                 2000
                                                                         ---------------------
                                                                         AMORTIZED      FAIR
                                                                           COST         VALUE
<S>                                                                      <C>          <C>
Due in one year or less                                                  $  1,105     $  1,107
Due from one year to five years                                             1,609        1,606
Due from five years to ten years                                           15,099       14,986
Due after ten years                                                       166,497      162,404
                                                                         --------     --------
            Total                                                        $184,310     $180,103
                                                                         ========     ========
</TABLE>


      As of December 31, 2000 and 1999, there were approximately $183 million
      and $184 million, respectively, of investments with call options held by
      the issuer, of which approximately $174 million and $169 million,
      respectively, were callable within one year.


                                       28


<PAGE>


3.    LOANS RECEIVABLE

      Loans receivable consisted of the following at December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                  2000            1999
<S>                                                            <C>            <C>
First mortgage loans:
  One- to- four family residences                              $ 377,341      $ 368,589
  Other properties                                                41,751         28,830
  Construction                                                    24,937         25,797
  Less:
    Unearned discounts                                              (191)          (233)
    Undisbursed loan funds                                        (9,126)       (10,437)
    Deferred loan fees, net                                       (2,747)        (2,972)
                                                               ---------      ---------
            Total first mortgage loans                           431,965        409,574
                                                               ---------      ---------

Consumer and other loans:
  Commercial loans                                                20,239         14,171
  Automobile                                                      16,051         13,205
  Consumer loans                                                   5,893          4,285
  Home equity and second mortgage                                 19,797         15,009
  Savings loans                                                    2,042          1,887
  Other                                                            2,768          2,405
  Deferred loan costs                                                241            194
                                                               ---------      ---------
            Total consumer and other loans                        67,031         51,156
                                                               ---------      ---------
Allowance for loan losses                                           (691)          (752)
                                                               ---------      ---------
            Loans receivable, net                              $ 498,305      $ 459,978
                                                               =========      =========
</TABLE>


      The Bank originates and maintains loans receivable which are substantially
      concentrated in its lending territory (primarily Northwest and
      Northcentral Arkansas). The majority of the Bank's loans are residential
      mortgage loans and construction loans for residential property. The Bank's
      policy calls for collateral or other forms of repayment assurance to be
      received from the borrower at the time of loan origination. Such
      collateral or other form of repayment assurance is subject to changes in
      economic value due to various factors beyond the control of the Bank.

      In the normal course of business, the Bank has made loans to its
      directors, officers, and their related business interests. In the opinion
      of management, related party loans are made on substantially the same
      terms, including interest rates and collateral, as those prevailing at the
      time for comparable transactions with unrelated persons and do not involve
      more than the normal risk of collectibility. The aggregate dollar amount
      of loans outstanding to directors, officers, and their related business
      interests was approximately $4.9 million and $3.0 million at December 31,
      2000 and 1999, respectively. During the year ended December 31, 2000,
      total principal additions were approximately $2,300,000 and total
      principal payments were approximately $400,000.

      Loans identified by management as impaired at December 31, 2000 and 1999,
      were not significant. The Bank is not committed to lend additional funds
      to debtors whose loans have been modified.


                                       29

<PAGE>


4.    LOAN SERVICING

      Mortgage loans serviced for others are not included in the accompanying
      consolidated statements of financial condition. The unpaid principal
      balances of these loans at December 31, 2000 and 1999, were $523 thousand
      and $653 thousand, respectively. Servicing loans for others generally
      consists of collecting mortgage payments, maintaining escrow accounts,
      disbursing payments to investors, and foreclosure processing. Loan
      servicing income is recorded on the accrual basis and includes servicing
      fees from investors and certain charges collected from borrowers, such as
      late payment fees.

5.    ACCRUED INTEREST RECEIVABLE

      Accrued interest receivable consisted of the following at December 31 (in
      thousands):

<TABLE>
<CAPTION>
                                                                                            2000         1999
<S>                                                                                        <C>          <C>
Loans                                                                                      $3,292       $2,626
Investment securities                                                                       3,618        3,351
                                                                                           ------       ------
            Total                                                                          $6,910       $5,977
                                                                                           ======       ======
</TABLE>


6.    ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES

      A summary of the activity in the allowances for loan and real estate
      losses is as follows for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                      2000                   1999                    1998
                             -----------------------    -------------------    ---------------------
<S>                          <C>         <C>            <C>     <C>            <C>       <C>
                               LOANS     REAL ESTATE    LOANS   REAL ESTATE    LOANS     REAL ESTATE
Balance, beginning of year   $   752    $  --         $   771    $  --       $ 1,196     $  --

  Provisions for estimated
    losses                      --           14            20        312          55         15
  Recoveries                      27       --              28       --             9        --
  Losses charged off
                                 (88)       (14)          (67)      (312)       (489)       (15)
                             -------    --------      -------    --------    -------     --------
Balance, end of year         $   691    $  --         $   752    $  --       $   771     $  --
                             =======    ========      =======    ========    =======     ========
</TABLE>


7.    FEDERAL HOME LOAN BANK STOCK

      The Bank is a member of the Federal Home Loan Bank System. As a member of
      this system, it is required to maintain an investment in capital stock of
      the Federal Home Loan Bank ("FHLB") in an amount equal to 1% of its
      outstanding home loans. No ready market exists for such stock and it has
      no quoted market value. The carrying value of the stock is its cost.


                                       30

<PAGE>


8.    OFFICE PROPERTIES AND EQUIPMENT

      Office properties and equipment consisted of the following at December 31
      (in thousands):

<TABLE>
<CAPTION>
                                                                                    2000            1999
<S>                                                                               <C>
Land                                                                             $  2,508        $  2,397
Buildings and improvements                                                          4,330           3,932
Furniture and equipment                                                             4,686           4,379
Automobiles                                                                           574             532
                                                                                   ------          ------
            Total                                                                  12,098          11,240
Accumulated depreciation                                                           (4,928)         (4,431)
                                                                                   ------          ------
            Office properties and equipment, net                                 $  7,170        $  6,809
                                                                                   ------          ------
                                                                                   ------          ------
</TABLE>


9.    DEPOSITS

      Deposits are summarized as follows at December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                                       2000            1999
<S>                                                                                 <C>             <C>
Demand and NOW accounts, including noninterest-bearing
  deposits of $15,615 and $13,374 in 2000 and 1999, respectively                    $ 66,026        $ 60,795
Money market                                                                          16,980          15,735
Regular savings                                                                       24,300          26,031
Certificates of deposit                                                              433,021         405,314
                                                                                     -------         -------
            Total                                                                   $540,327        $507,875
                                                                                    ========        ========
</TABLE>


        The aggregate amount of time deposits in denominations of $100 thousand
        or more was approximately $90 million and $81 million at December 31,
        2000 and 1999, respectively.

        At December 31, 2000, scheduled maturities of certificates of deposit
        are as follows (in thousands):

<TABLE>
<S>                                                                                                   <C>
  Years ending December 31:
    2001                                                                                              $300,646
    2002                                                                                                88,320
    2003                                                                                                23,267
    2004                                                                                                 7,389
    2005 and thereafter                                                                                 13,399
                                                                                                      --------
              Total                                                                                   $433,021
                                                                                                      ========
</TABLE>

                                       31


<PAGE>


        Interest expense on deposits consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                   YEARS ENDED
                                                                                  DECEMBER 31,
                                                                      -------------------------------------
                                                                        2000          1999           1998
<S>                                                                   <C>             <C>            <C>
  NOW and money market                                                $ 1,688       $ 1,488        $ 1,358
  Regular savings and certificate accounts                             26,094        23,182         22,745
  Early withdrawal penalties                                             (123)         (104)           (99)
                                                                      --------     --------       --------
              Total                                                    $27,659      $24,566        $24,004
                                                                      ========     ========       ========
</TABLE>



      Eligible deposits of the Bank are insured up to $100 thousand by the
      Savings Association Insurance Fund ("SAIF") of the Federal Deposit
      Insurance Corporation ("FDIC").

      Legislation, passed by the U.S. House of Representatives and the Senate,
      was signed into law by the President on September 30, 1996, to
      recapitalize the SAIF. The legislation also mandated that the deposit
      insurance premiums charged to SAIF-insured institutions (such as the Bank)
      decline to approximately 6.50 basis points effective January 1, 1997.
      Effective July 1, 1998, the deposit insurance premium declined to 6.10
      basis points, effective July 1, 1999, the deposit insurance premium
      declined to 5.80 basis points, and effective July 1, 2000, the deposit
      insurance premium declined to 2.06 basis points.

10.   FEDERAL HOME LOAN BANK ADVANCES

      The Bank pledges as collateral for FHLB advances their FHLB stock and has
      entered into blanket collateral agreements with the FHLB whereby the Bank
      agrees to maintain, free of other encumbrances, qualifying single family
      first mortgage loans with unpaid principal balances, when discounted at
      75% of such balances, of at least 100% of total outstanding advances.
      Advances at December 31, 2000 and 1999, consisted of the following (in
      thousands):

<TABLE>
<CAPTION>
                                                     2000                            1999
                                                -----------------------------   -----------------------------
                                                   WEIGHTED                           WEIGHTED
                                                   AVERAGE                            AVERAGE
                                                     RATE           AMOUNT              RATE         AMOUNT
<S>                                                <C>              <C>               <C>            <C>
Amounts maturing in years ending December 31:
  2000                                                                                  5.79 %       $68,000
  2001                                                  6.68 %       $47,500            4.85 %         7,000
  2002                                                  6.55 %        32,959            6.60 %         3,972
  2003                                                  6.41 %         6,000            5.56 %         1,000
  2004                                                  6.07 %         1,000            6.07 %         1,000
  2005                                                  6.54 %         4,900            5.77 %         2,000
  Thereafter                                            6.44 %         1,000            6.44 %         1,000
                                                                     -------                         -------
            Total                                       6.60 %       $93,359            5.76 %       $83,972
                                                                     =======                         =======
</TABLE>


                                       32


<PAGE>


11.   INCOME TAXES

      The provisions (benefits) for income taxes are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                        YEARS ENDED
                                                                                         DECEMBER 31,
                                                                       ----------------------------------------
                                                                             2000         1999          1998
<S>                                                                          <C>          <C>           <C>
Income tax provision (benefit):
  Current                                                                   $2,496        $3,341       $3,082
  Deferred                                                                     251          (192)         227
                                                                            ------        ------       ------
            Total                                                           $2,747        $3,149       $3,309
                                                                            ======        ======       ======
</TABLE>


      The reasons for the differences between the statutory federal income tax
      rates and the effective tax rates are summarized as follows (in
      thousands):

<TABLE>
<CAPTION>
                                                                     YEARS ENDED
                                                                    DECEMBER 31,
                                       ------------------------------------------------------------------------
                                                   2000                     1999                   1998
<S>                                    <C>               <C>          <C>        <C>         <C>         <C>
Taxes at statutory rate                      $2,835      34.0 %       $3,206     34.0 %      $3,175      34.0 %
Increase (decrease)
  resulting from:
    State income tax, net                                                                        48       0.5 %
    Other, net                                  (88)     (1.1)%          (57)    (0.6)%          86       0.9 %
                                           --------     ------       -------    ------       ------     ------
              Total                          $2,747      32.9 %       $3,149     33.4 %      $3,309      35.4 %
                                           --------     ------       -------    ------       ------     ------
                                           --------     ------       -------    ------       ------     ------
</TABLE>


      The Company's net deferred tax liability account was comprised of the
      following at December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                                         2000         1999
<S>                                                                                    <C>         <C>
Deferred tax assets:
  Stock based compensation                                                             $  334       $ 328
  Real estate acquired in settlement of loans                                              26         219
  Allowance for loan losses                                                                55
  Other                                                                                    88           2
                                                                                       ------       -----
            Total deferred tax assets                                                     503         549
                                                                                       ------       -----
Deferred tax liabilities:
  Office properties                                                                      (262)       (205)
  Federal Home Loan Bank stock                                                           (902)       (754)
                                                                                       ------       -----
            Total deferred tax liabilities                                             (1,164)       (959)
                                                                                       ------       -----
            Net deferred tax liability                                                 $ (661)      $(410)
                                                                                       ======       =====
</TABLE>

                                       33


<PAGE>


      Specifically exempted from deferred tax recognition requirements are bad
      debt reserves for tax purposes of U.S. savings and loans in the
      institution's base year, as defined. Base year reserves totaled
      approximately $4.2 million. Consequently, a deferred tax liability of
      approximately $1.6 million related to such reserves was not provided for
      in the consolidated statements of financial condition at December 31, 2000
      and 1999. Payment of dividends to shareholders out of retained earnings
      deemed to have been made out of earnings previously set aside as bad debt
      reserves may create taxable income to the Bank. No provision has been made
      for income tax on such a distribution as the Bank does not anticipate
      making such distributions.

12.   BENEFIT PLANS

      STOCK OPTION PLAN - The Stock Option Plan ("SOP") provides for a committee
      of the Company's Board of Directors to award incentive stock options,
      non-qualified or compensatory stock options and stock appreciation rights
      representing up to 515,375 shares of Company stock. One-fifth of the
      options granted vested immediately upon grant, with the balance vesting in
      equal amounts on the four subsequent anniversary dates of the grant.
      Options granted vest immediately in the event of retirement, disability,
      or death. Stock options granted expire in ten years.

      Under the SOP, options have been granted to directors and key employees to
      purchase common stock of the Company. The exercise price in each case
      equals the fair market value of the Company's stock at the date of grant.
      Options granted in 1997 have exercise prices ranging from $19.25 to
      $20.38, and a weighted average remaining contract life of 6.4 years at
      December 31, 2000. Options granted in 1998 have exercise prices ranging
      from $23.25 to $24.00, and a weighted average remaining contract life of
      7.1 years at December 31, 2000. Options granted in 1999 have exercise
      prices ranging from $17.06 to $18.63 and a weighted average remaining
      contract life of 8.3 years at December 31, 2000. Options granted in 2000
      have exercise prices ranging from $14.75 to $18.25 and a weighted average
      remaining contract life of 9.7 years at December 31, 2000.

      A summary of the status of the Company's SOP as of December 31, 2000,
      1999, and 1998, and changes during the years ending on those dates are
      presented below:

<TABLE>
<CAPTION>
                                                                                                   WEIGHTED
                                                                                                    AVERAGE
                                                                                                   EXERCISE
                                                                                     SHARES          PRICE
<S>                                                                                  <C>           <C>
Outstanding at January 1, 1998                                                       494,473       $ 19.27
Granted                                                                               13,000         23.31
Forfeited                                                                             (3,600)        20.00
                                                                                     -------
Outstanding at December 31, 1998                                                     503,873         19.37
Granted                                                                                5,000         18.23
Forfeited                                                                            (11,508)        19.67
                                                                                     -------
Outstanding at December 31, 1999                                                     497,365         19.35
Granted                                                                                5,000         17.55
Forfeited                                                                             (1,800)        18.98
                                                                                     -------
Outstanding at December 31, 2000                                                     500,565       $ 19.34
                                                                                     =======       =======
Options exercisable at December 31, 2000                                             398,501       $ 19.33
                                                                                     =======       =======
</TABLE>


      The Company applies the provisions of APB Opinion No. 25 in accounting for
      its stock option plan, as allowed under SFAS No. 123, ACCOUNTING FOR
      STOCK-BASED COMPENSATION ("SFAS 123"). Accordingly, no compensation cost
      has been recognized for options granted to employees. Had compensation
      cost


                                       34

<PAGE>


      for these plans been determined based on the fair value at the grant dates
      for awards under those plans consistent with the methods of SFAS 123, the
      Company's pro forma net income and pro forma earnings per share would have
      been as follows:

<TABLE>
<CAPTION>
                                      2000                          1999                          1998
                         ---------------------------   ---------------------------   ---------------------------
                          AS REPORTED     PRO FORMA       AS REPORTED   PRO FORMA       AS REPORTED   PRO FORMA
<S>                       <C>             <C>             <C>           <C>             <C>           <C>
Net income (in
  thousands)                   $5,592        $5,072          $6,280        $5,763          $6,030        $5,505
Earnings per share:
  Basic                        $ 1.60        $ 1.45          $ 1.57        $ 1.44          $ 1.35        $ 1.23
  Diluted                      $ 1.60        $ 1.45          $ 1.57        $ 1.44          $ 1.33        $ 1.21
</TABLE>


      In determining the above pro forma disclosure, the fair value of options
      granted during 1998 was estimated on the date of grant using the Binomial
      option-pricing model with the following weighted average assumptions:
      expected volatility - 20.28% to 21.09%, expected life of options - 7.0
      years, risk-free interest rate - 5.59%, and expected dividend rate - 1.04%
      to 1.17%. The weighted average fair value of options granted during the
      fiscal year ended December 31, 1998, was $9.02 per share.

      The fair value of options granted during 1999 was estimated on the date of
      grant using the Binomial option-pricing model with the following
      assumptions: expected volatility - 27% to 29%, expected life of options -
      7.0 years, risk-free interest rate - 4.81% to 6.54% and expected dividend
      rate - 1.70% to 1.88%. The weighted average fair value of options granted
      during the fiscal year ended December 31, 1999, was $7.27 per share.

      The fair value of options granted during 2000 was estimated on the date of
      grant using the Binomial option-pricing model with the following
      assumptions: expected volatility - 25%, expected life of options - 7.0
      years, risk-free interest rate - 6.04% to 6.20% and expected dividend rate
      - 2.19% to 2.71%. The weighted average fair value of options granted
      during the fiscal year ended December 31, 2000, was $6.36 per share.

      MANAGEMENT RECOGNITION AND RETENTION PLAN - The Management Recognition and
      Retention Plan ("MRR Plan") provides for a committee of the Company's
      Board of Directors to award restricted stock to key officers as well as
      non-employee directors. The MRR Plan authorizes the Company to grant up to
      206,150 shares of the Company stock, of which 195,844 shares have been
      granted through December 31, 2000. Compensation expense will be recognized
      based on the fair market value of the shares on the grant date of $19.25
      over the vesting period which ends in May 2001. Shares granted will be
      deemed vested in the event of disability or death. All shares granted
      under the plan have been purchased in the open market at a total cost of
      $4.4 million. Approximately $771,000, $754,000, and $754,000 in
      compensation expense was recognized during the years ended December 31,
      2000, 1999, and 1998, respectively.

      EMPLOYEE STOCK OWNERSHIP PLAN - The Company established an Employee Stock
      Ownership Plan on May 3, 1996. During 1996, the ESOP borrowed $4.1 million
      from the Company to purchase shares of Company stock. The loan is
      collateralized by the shares that were purchased with the proceeds of the
      loan. As the loan is repaid, ESOP shares will be allocated to participants
      of the ESOP and are available for release to the participants subject to
      the vesting provisions of the ESOP.

      Forfeitures of nonvested benefits will be reallocated among remaining
      participating employees in the same proportion as contributions. During
      each of the years ended December 31, 2000, 1999, and 1998,


                                       35

<PAGE>


      41,604 shares were released by the ESOP to participant accounts. At
      December 31, 2000, there were 183,773 shares allocated to participant
      accounts and 218,420 unallocated shares. The fair value of the unallocated
      shares amounted to approximately $4.1 million at December 31, 2000.

      During the years ended December 31, 2000, 1999, and 1998, ESOP expense was
      approximately $571,000, $636,000, and $884,000, respectively.

      OTHER POSTRETIREMENT BENEFITS - The Bank is a participant in a
      multi-employer retirement plan and therefore separate information is not
      available. The plan is noncontributory and covers substantially all
      employees. The plan provides a retirement benefit and a death benefit.
      Retirement benefits are payable in monthly installments for life and must
      begin not later than the first day of the month coincident with or next
      month following the seventieth birthday or the participant may elect a
      lump-sum distribution. Death benefits are paid in a lump-sum distribution,
      the amount of which depends on years of service. There was no net pension
      cost for the years ended December 31, 2000, 1999, and 1998.

13.   EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31, 2000
                                                               ------------------------------------------------
                                                                    INCOME            SHARES        PER SHARE
                                                                  (NUMERATOR)      (DENOMINATOR)     AMOUNT
<S>                                                               <C>              <C>              <C>
Basic EPS -
  Income available to common stockholders                          $5,591,607         3,504,859       $1.60
Effect of dilutive securities -
  Stock options                                                                              79
                                                                   ----------         ---------
Diluted EPS -
  Income available to common stockholders
    and assumed conversions                                        $5,591,607         3,504,938        1.60
                                                                   ==========         =========
</TABLE>


<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31, 1999
                                                               ------------------------------------------------
                                                                    INCOME            SHARES        PER SHARE
                                                                  (NUMERATOR)      (DENOMINATOR)     AMOUNT
<S>                                                               <C>              <C>              <C>
Basic EPS -
  Income available to common stockholders                          $6,279,557         4,003,229       $1.57
Effect of dilutive securities -
  Stock options
                                                                   ----------         ---------
Diluted EPS -
  Income available to common stockholders
    and assumed conversions                                        $6,279,557         4,003,229       $1.57
                                                                   ==========         =========
</TABLE>

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31, 1998
                                                               ------------------------------------------------
                                                                    INCOME            SHARES        PER SHARE
                                                                  (NUMERATOR)      (DENOMINATOR)     AMOUNT
<S>                                                            <C>                 <C>              <C>
Basic EPS -
  Income available to common stockholders                         $6,029,505          4,459,685       $1.35
Effect of dilutive securities -
  Stock options                                                                          89,506
                                                                   ----------         ---------
Diluted EPS -
  Income available to common stockholders
    and assumed conversions                                         $6,029,505         4,549,191       $1.33
                                                                   ==========         =========
</TABLE>


                                       36


<PAGE>


14.   FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

      The Bank is a party to financial instruments with off-balance sheet risk
      in the normal course of business to meet the financing needs of its
      customers. These financial instruments include commitments to extend
      credit and standby letters of credit. Those instruments involve, to
      varying degrees, elements of credit risk in excess of the amount
      recognized in the consolidated statements of financial condition. The Bank
      does not use financial instruments with off-balance sheet risk as part of
      its asset/liability management program or for trading purposes. The Bank's
      exposure to credit loss in the event of nonperformance by the other party
      to the financial instrument for commitments to extend credit and standby
      letters of credit is represented by the contractual amounts of those
      instruments. The Bank uses the same credit policies in making commitments
      and conditional obligations as it does for on-balance sheet instruments.

      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. The Bank evaluates each customer's creditworthiness on a
      case-by-case basis. The amount of collateral obtained, if deemed necessary
      by the Bank upon extension of credit, is based on management's credit
      evaluation of the counterparty. Such collateral consists primarily of
      residential properties. Standby letters of credit are conditional
      commitments issued by the Bank to guarantee the performance of a customer
      to a third party. The credit risk involved in issuing letters of credit is
      essentially the same as that involved in extending loan facilities to
      customers.

      The Bank had the following outstanding commitments at December 31, 2000
      (in thousands):

<TABLE>
<S>                                                                                <C>
Undisbursed construction loans                                                   $ 9,126
Commitments to originate mortgage loans                                            2,288
Letters of credit                                                                    467
Unused lines of credit                                                             7,559
                                                                                 -------
            Total                                                                $19,440
                                                                                 =======
</TABLE>


      The funding period for construction loans is generally less than nine
      months and commitments to originate mortgage loans are generally
      outstanding for 60 days or less. At December 31, 2000, interest rates on
      commitments ranged from 6.625% to 10%.

15.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The estimated fair value amounts have been determined by the Company using
      available market information and appropriate valuation methodologies.
      However, considerable judgment is required to interpret market data to
      develop the estimates of fair value. Accordingly, the estimates presented
      herein are not necessarily indicative of the amounts the Company could
      realize in a current market exchange. The use of different market
      assumptions and/or estimation methodologies may have a material effect on




                                       37

<PAGE>


      the estimated fair value amounts. The estimated fair values of financial
      instruments are as follows (in thousands):


<TABLE>
<CAPTION>
                                                                DECEMBER 31, 2000           DECEMBER 31, 1999
                                                             ----------------------       ----------------------
                                                                          ESTIMATED                    ESTIMATED
                                                             CARRYING        FAIR         CARRYING       FAIR
                                                               VALUE        VALUE          VALUE         VALUE
<S>                                                          <C>          <C>            <C>           <C>
ASSETS:
  Cash and cash equivalents                                  $ 11,564     $ 11,564       $  9,983      $  9,983
  Investment securities -
    Held to maturity                                          184,310      180,103        189,263       177,170
  Federal Home Loan Bank stock                                  5,098        5,098          4,258         4,258
  Loans receivable, net                                       498,305      495,163        459,978       459,355
  Accrued interest receivable                                   6,910        6,910          5,977         5,977

LIABILITIES:
  Deposits:
    Demand, NOW, money
      market and regular savings                              107,306      107,306        102,561       102,561
    Certificates of deposit                                   433,021      436,012        405,314       408,888
  Federal Home Loan Bank advances                              93,359       93,913         83,972        83,562
  Accrued interest payable                                      1,325        1,325            898           898
  Advance payments by borrowers
    for taxes and insurance                                     1,006        1,006          1,089         1,089
  Commitments                                                     -            -              -             -
</TABLE>


      For cash and cash equivalents, Federal Home Loan Bank stock and accrued
      interest receivable, the carrying value is a reasonable estimate of fair
      value, primarily because of the short-term nature of the instruments or,
      as to Federal Home Loan Bank stock, the ability to sell the stock back to
      the Federal Home Loan Bank at cost. The fair value of investment
      securities is based on quoted market prices, dealer quotes and prices
      obtained from independent pricing services. The fair value of variable
      rate loans is based on repricing dates. Fixed rate loans were valued using
      discounted cash flows. The discount rates used to determine the present
      value of these loans were based on interest rates currently being charged
      by the Bank on comparable loans as to credit risk and term.

      The fair value of demand deposit accounts, NOW accounts, savings accounts
      and money market deposits is the amount payable on demand at the reporting
      date. The fair value of fixed-maturity certificates of deposit and Federal
      Home Loan Bank advances is estimated using the rates currently offered for
      deposits and advances of similar remaining maturities at the reporting
      date. For advance payments by borrowers for taxes and insurance and
      accrued interest payable the carrying value is a reasonable estimate of
      fair value, primarily because of the short-term nature of the instruments.
      Commitments are generally made at prevailing interest rates at the time of
      funding and, therefore, there is no difference between the contract amount
      and fair value.

      The fair value estimates presented herein are based on pertinent
      information available to management as of December 31, 2000 and 1999.
      Although management is not aware of any factors that would significantly
      affect the estimated fair value amounts, such amounts have not been
      comprehensively revalued for purposes of these financial statements since
      the reporting date and, therefore, current estimates of fair value may
      differ significantly from the amounts presented herein.

                                       38

<PAGE>


16.   COMMITMENTS AND CONTINGENCIES

      In the ordinary course of business, the Company has various outstanding
      commitments and contingent liabilities that are not reflected in the
      accompanying consolidated financial statements (see Note 14). In addition,
      the Company is a defendant in certain claims and legal actions arising in
      the ordinary course of business. In the opinion of management, after
      consultation with legal counsel, the ultimate disposition of these matters
      is not expected to have a material adverse effect on the consolidated
      financial statements of the Company.

17.   RETAINED EARNINGS - SUBSTANTIALLY RESTRICTED

      Upon conversion, the Company established a special liquidation account for
      the benefit of eligible account holders and the supplemental eligible
      account holders in an amount equal to the net worth of the Bank as of the
      date of its latest statement of financial condition contained in the final
      offering circular used in connection with the conversion. The liquidation
      account will be maintained for the benefit of eligible account holders and
      supplemental eligible account holders who continue to maintain their
      accounts in the Bank after conversion. In the event of a complete
      liquidation (and only in such event), each eligible and supplemental
      eligible account holder will be entitled to receive a liquidation
      distribution from the liquidation account in an amount proportionate to
      the current adjusted qualifying balances for accounts then held.

      The Company may not declare or pay cash dividends on its shares of common
      stock if the effect thereof would cause the Company's stockholders' equity
      to be reduced below applicable regulatory capital maintenance requirements
      for insured institutions or below the special liquidation account referred
      to above.

18.   REGULATORY MATTERS

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

      Quantitative measures established by regulation to ensure capital adequacy
      require the Bank to maintain minimum amounts and ratios (set forth in the
      table below) of tangible capital (as defined in the regulations) to
      tangible assets (as defined) and core capital (as defined) to adjusted
      tangible assets (as defined), and of total risk-based capital (as defined)
      to risk-weighted assets (as defined). Management believes, as of December
      31, 2000, that the Bank meets all capital adequacy requirements to which
      it is subject.

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


                                       39

<PAGE>


      The Bank's actual capital amounts (in thousands) and ratios are also
presented in the table:

<TABLE>
<CAPTION>
                                                                                            TO BE CATEGORIZED
                                                                                                 AS WELL
                                                                                            CAPITALIZED UNDER
                                                                          FOR CAPITAL       PROMPT CORRECTIVE
                                                       ACTUAL          ADEQUACY PURPOSES    ACTION PROVISIONS
                                                ------------------------------------------ ---------------------
                                                  AMOUNT      RATIO     AMOUNT     RATIO     AMOUNT     RATIO
<S>                                             <C>           <C>       <C>        <C>       <C>        <C>
As of December 31, 2000:

  Tangible Capital to Tangible Assets             $  74,035   10.37%    $  10,705  1.50%        N/A       N/A

  Core Capital to Adjusted Tangible Assets           74,035   10.37%       28,554  4.00%     $ 35,693    5.00%

  Total Capital to Risk-Weighted Assets              74,666   19.69%       30,342  8.00%       37,927   10.00%

  Tier I Capital to Risk-Weighted Assets             74,035   19.52%       N/A       N/A       22,756    6.00%

As of December 31, 1999:

  Tangible Capital to Tangible Assets             $   75,406  11.09%     $ 10,197  1.50%        N/A       N/A

  Core Capital to Adjusted Tangible Assets            75,406  11.09%       20,395  3.00%     $ 33,991    5.00%

  Total Capital to Risk-Weighted Assets               76,017  21.52%       28,263  8.00%       35,329   10.00%

  Tier I Capital to Risk-Weighted Assets              75,406  21.34%       N/A       N/A       21,198    6.00%
</TABLE>


19.   PARENT COMPANY ONLY FINANCIAL INFORMATION

      The following condensed statements of financial condition, as of December
      31, 2000 and 1999, and condensed statements of income and of cash flows
      for the years ended December 31, 2000 and 1999, for First Federal
      Bancshares of Arkansas, Inc. should be read in conjunction with the
      consolidated financial statements and the notes herein.

<TABLE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
  (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS)
DECEMBER 31, 2000 AND 1999
------------------------------------------------------------------------------------------
<CAPTION>
ASSETS                                                                2000           1999
<S>                                                                   <C>            <C>
Cash and cash equivalents (deposits in Bank)                        $  159         $  118
Loan to Bank subsidiary                                              1,818          2,604
Accrued interest receivable                                             11              4
Investment in Bank                                                  74,035         75,406
Other assets                                                           808            888
                                                                    ------         ------
TOTAL ASSETS                                                       $76,831        $79,020
                                                                   =======        =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities                              $  209         $  205
Stockholders' equity                                                76,622         78,815
                                                                    ------         ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $76,831        $79,020
                                                                   =======        =======
</TABLE>

                                       40

<PAGE>

<TABLE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
  (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF INCOME (IN THOUSANDS)
YEARS ENDED DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------
<CAPTION>
                                                               2000         1999
<S>                                                            <C>          <C>
INCOME:
  Dividends from the Bank                                   $ 7,000       $2,500
  Interest income - loan to the Bank                            124          213
                                                               ----          ---
            Total income                                      7,124        2,713

EXPENSES:
  Management fees                                                66           66
  Other operating expenses                                      125          117
                                                               ----          ---
            Total expenses                                      191          183
                                                               ----          ---

INCOME BEFORE INCOME TAX PROVISION (BENEFIT)
  AND EQUITY IN UNDISTRIBUTED EARNINGS (LOSS)
  OF BANK SUBSIDIARY                                          6,933        2,530
INCOME TAX PROVISION (BENEFIT)                                  (23)          12
                                                               ----          ---
INCOME BEFORE EQUITY IN UNDISTRIBUTED
  EARNINGS (LOSS) OF BANK SUBSIDIARY                          6,956        2,518

EQUITY OF UNDISTRIBUTED EARNINGS (LOSS) OF
  BANK SUBSIDIARY                                            (1,364)       3,762
                                                               ----          ---
NET INCOME                                                  $ 5,592       $6,280
                                                            ========      ======
</TABLE>

                                       41


<PAGE>


<TABLE>
FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
  (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, 2000 AND 1999
-----------------------------------------------------------------------------------------------
<CAPTION>
                                                                           2000          1999
<S>                                                                      <C>           <C>
OPERATING ACTIVITIES:
  Net income                                                             $ 5,592       $ 6,280
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Equity in undistributed net (income) loss of Bank                      1,364        (3,762)
    Release of ESOP shares                                                   675           732
    Stock compensation expense                                               771           754
    Changes in operating assets and liabilities:
      Accrued interest receivable                                            (7)           31
      Other assets                                                           80             5
      Accrued expenses and other liabilities                                  4           (12)
                                                                          -----         -----
            Net cash provided by operating activities                     8,479         4,028
                                                                          -----         -----
INVESTING ACTIVITIES -
  Repayments of loans by Bank                                               786         5,969
                                                                          -----         -----
            Net cash provided by investing activities                       786         5,969
                                                                          -----         -----
FINANCING ACTIVITIES:
  Purchase of treasury stock                                            (7,747)       (8,604)
  Dividends paid                                                        (1,477)       (1,360)
                                                                          -----         -----
            Net cash used in financing activities                       (9,224)       (9,964)
                                                                          -----         -----
NET INCREASE IN CASH AND CASH EQUIVALENTS                                   41            33

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                      118            85
                                                                          -----         -----
End of period                                                           $  159        $  118
                                                                          -----         -----
                                                                          -----         -----
</TABLE>


                                   * * * * * *

                                       42


<PAGE>

                   FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
                       FIRST FEDERAL BANK OF ARKANSAS, FA
--------------------------------------------------------------------------------

<TABLE>
<S>                                                    <C>
DIRECTORS                                              EXECUTIVE OFFICERS

FRANK L. COFFMAN, JR.                                  FRANK L. COFFMAN, JR.
Chairman of the Board and                              Chairman of the Board and
Chief Executive Officer                                Chief Executive Officer

LARRY J. BRANDT                                        LARRY J. BRANDT
President and Chief Operating                          President and Chief Operating
Officer                                                Officer

JOHN P. HAMMERSCHMIDT                                  CAROLYN M. THOMASON
U. S. Congressman, Retired                             Executive Vice President and Secretary

JAMES D. HEUER                                         TOMMY W. RICHARDSON
Farming and Investments                                Executive Vice President and Chief Financial Officer

KENNETH C. SAVELLS                                     SHERRI R. BILLINGS
Registered representative with                         Senior Vice President and Treasurer
AXA Advisors, LLC
</TABLE>


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


                                                            MAIN OFFICE

                                                       200 West Stephenson
                                                     Harrison, Arkansas 72601



                                                            BRANCH OFFICES

<TABLE>
<S>                                                <C>                                         <C>
                128 West Stephenson                Ozark Mall - Highway 62-65 North                   301 Highway 62 West
             Harrison, Arkansas 72601                   Harrison, Arkansas 72601                  Yellville, Arkansas 72687

              Corner Central & Willow                   324 Highway 62-65 Bypass                   307 North Walton Blvd.
             Harrison, Arkansas 72601                   Harrison, Arkansas 72601                 Bentonville, Arkansas 72712

                  210 South Main                            1303 West Hudson                         3460 North College
            Berryville, Arkansas 72616                  Rogers, Arkansas 72756                 Fayetteville, Arkansas 72703

                668 Highway 62 East                          2030 West Elm                       2025 North Crossover Road
          Mountain Home, Arkansas 72653                 Rogers, Arkansas 72756                    Fayetteville, AR 72703

                  1337 Hwy 62 SW                          249 West Main Street                 201 East Henri De Tonti Blvd.
           Mountain Home, Arkansas 72653                  Farmington, AR 72730                   Tontitown, Arkansas 72764
</TABLE>


                                       43

<PAGE>



                             STOCKHOLDER INFORMATION
--------------------------------------------------------------------------------

                First Federal Bancshares of Arkansas, Inc. is a unitary savings
and loan holding company conducting business through its wholly-owned
subsidiary, First Federal Bank of Arkansas, FA. The Bank is a
federally-chartered, SAIF- insured savings institution operating through its
main office and thirteen full service branch offices. The Company's and the
Bank's principal executive office is located at 200 West Stephenson, Harrison,
Arkansas 72601.

                            TRANSFER AGENT/REGISTRAR

                         Registrar and Transfer Company
                                10 Commerce Drive
                           Cranford, New Jersey 07016
                              Phone: (800) 368-5948

--------------------------------------------------------------------------------
                              STOCKHOLDER REQUESTS

Request for annual reports, quarterly reports and related stockholder literature
should be directed to Investor Relations, First Federal Bancshares of Arkansas,
Inc., P. O. Box 550, Harrison, Arkansas 72602.

Stockholders needing assistance with stock records, transfers or lost
certificates, should contact the Company's transfer agent, Registrar and
Transfer Company, at the telephone number listed above.

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

COMMON STOCK INFORMATION

                Shares of the Company's common stock are traded under the symbol
"FFBH" on the Nasdaq National Market System. At March 19, 2001, the Company had
3,385,707 shares of common stock outstanding and had approximately 1,036
stockholders of record. Such holdings do not reflect the number of beneficial
owners of common stock.

                The following table sets forth the reported high and low sale
prices of a share of the Company's common stock as reported by Nasdaq for the
periods indicated.


<TABLE>
<CAPTION>
================================================================================
      QUARTER              YEAR ENDED                    YEAR ENDED
      ENDED            DECEMBER 31, 2000             DECEMBER 31, 1999
================================================================================
                     HIGH       LOW     DIVIDEND     HIGH       LOW     DIVIDEND
                    ------------------------------------------------------------
<S>                 <C>        <C>      <C>         <C>        <C>        <C>
MARCH 31            $15.86     $12.77     $0.10     $19.00     $15.75     $0.08

JUNE 30             $15.82     $13.39     $0.10     $18.75     $15.75     $0.08

SEPTEMBER 30        $18.90     $14.59     $0.10     $18.88     $16.13     $0.08

DECEMBER 31         $19.00     $16.16     $0.10     $17.81     $15.25     $0.08
================================================================================
</TABLE>

                                       44