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

                                    FORM 10-K

/X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000

                                       OR

/ /       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

          For the transition period from __________ to _______________

                          Commission File No.: 0-28312

                   FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.
         ---------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                                              <C>
                           TEXAS                                                             71-0785261
                 --------------------------                                      ----------------------------------
                (State or other jurisdiction                                              (I.R.S. Employer
              of incorporation or organization)                                        Identification Number)

                     200 WEST STEPHENSON
                     HARRISON, ARKANSAS                                                         72601
               ------------------------------                                     ---------------------------------
                          (Address)                                                          (Zip Code)
</TABLE>


       Registrant's telephone number, including area code: (870) 741-7641

           Securities registered pursuant to Section 12(b) of the Act:
                                 NOT APPLICABLE

           Securities registered pursuant to Section 12(g) of the Act

                     COMMON STOCK (PAR VALUE $.01 PER SHARE)
                     ---------------------------------------
                                (Title of Class)

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

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

As of March 22, 2001, the aggregate value of the 3,023,041 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
362,666 shares held by all directors and officers of the Registrant as a group,
was approximately $58.2 million. This figure is based on the last sales price of
$19.25 per share of the Registrant's Common Stock on March 22, 2001.

Number of shares of Common Stock outstanding as of March 22, 2001: 3,385,707

                       DOCUMENTS INCORPORATED BY REFERENCE

    List hereunder the following documents incorporated by reference and the
Part of the Form 10-K into which the document is incorporated.

(1) Portions of the Annual Report to Stockholders for the year ended December
31, 2000 are incorporated into Part II, Items 5 through 8 of this Form 10-K.

(2) Portions of the definitive proxy statement for the 2001 Annual Meeting of
Stockholders are incorporated into Part III, Items 10 through 13 of this Form
10-K.



<PAGE>

PART I.

ITEM 1.  BUSINESS

GENERAL

    FIRST FEDERAL BANCSHARES OF ARKANSAS, INC. First Federal Bancshares of
Arkansas, Inc. (the "Company") is a Texas corporation organized in January 1996
by First Federal Bank of Arkansas, FA ("First Federal" or the "Bank") for the
purpose of becoming a unitary holding company of the Bank. The only significant
assets of the Company are the capital stock of the Bank, the Company's loan to
the Employee Stock Ownership Plan ("ESOP"), and the portion of the net proceeds
retained by the Company in connection with the Bank's conversion to stock form
and the concurrent offering of the Company's common stock (the "Conversion").
The business and management of the Company consists of the business and
management of the Bank. The Company does not presently own or lease any
property, but instead uses the premises, equipment and furniture of the Bank. At
the present time, the Company does not employ any persons other than officers of
the Bank, and the Company utilizes the support staff of the Bank from time to
time. Additional employees will be hired as appropriate to the extent the
Company expands or changes its business in the future. At December 31, 2000, the
Company had $713.9 million in total assets, $540.3 million in total deposits and
$76.6 million in stockholders' equity.

    The Company's executive office is located at the home office of the Bank at
200 West Stephenson Avenue, Harrison, Arkansas 72601, and its telephone number
is (870) 741-7641.

    FIRST FEDERAL BANK OF ARKANSAS, FA. 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 collateralized
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. In addition to interest and dividend income on loans and
investments, the Bank receives other income from loan fees and various service
charges. The Bank's goal is to continue to serve its market area as an
independent community oriented financial institution dedicated primarily to
financing home ownership while providing financial services to its customers in
an efficient manner.

    The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision ("OTS"), which is the Bank's chartering authority
and primary regulator. The Bank is also regulated by the FDIC, the administrator
of the SAIF. The Bank is also subject to certain reserve requirements
established by the Board of Governors of the Federal Reserve System ("FRB") and
is a member of the Federal Home Loan Bank ("FHLB") of Dallas, which is one of
the 12 regional banks comprising the FHLB System.



                                        1

<PAGE>



    This Form 10-K and the Company's Annual Report to Stockholders contain
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 those and other
portions of this document and the Company's Annual Report to Stockholders, the
words "anticipate", "believe," "estimate," "expect," "intend," "should" and
similar expressions, or the negative thereof, as they relate to the Company or
the 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.

LENDING ACTIVITIES

    GENERAL. At December 31, 2000, the Bank's total portfolio of loans
receivable ("total loan portfolio"), amounted to $510.8 million or 71.6% of the
Company's $713.9 million of total assets at such time. The Bank has
traditionally concentrated its lending activities on conventional first mortgage
loans collateralized by single-family (one- to four-family) residential
property. Consistent with such approach, $377.3 million or 73.9% of the Bank's
total loan portfolio consisted of one- to four-family residential loans at
December 31, 2000. To a significantly lesser extent, the Bank also originates
multi-family residential loans, commercial real estate loans, construction
loans, commercial loans and consumer loans. At December 31, 2000, such loan
categories amounted to $3.7 million, $38.1 million, $24.9 million, $20.2 million
and $46.6 million, respectively, or .7%, 7.5%, 4.9%, 4.0% and 9.1% of the total
loan portfolio, respectively. The Bank currently does not offer loans which are
insured by the Federal Housing Administration ("FHA") nor partially guaranteed
by the Office of Veterans Affairs ("VA").




                                        2

<PAGE>



    LOAN COMPOSITION. The following table sets forth certain data relating to
the composition of the Bank's loan portfolio by type of loan at the dates
indicated.


<TABLE>
<CAPTION>
                                                                                        December 31,
                             -------------------------------------------------------------------------------------------------------
                                        2000                      1999                      1998                      1997
                             -----------------------   -----------------------    -----------------------   ------------------------
                                           Percentage                 Percentage                Percentage                Percentage
                                Amount      of Loans      Amount       of Loans      Amount      of Loans      Amount      of Loans
                             -----------  -----------  -----------   -----------  -----------  -----------  -----------  -----------
<S>                          <C>          <C>          <C>           <C>          <C>          <C>          <C>          <C>
                                                                                   (Dollars in Thousands)
Real estate loans:
 Single-family residential       $377,341         73.87%    $368,589        77.73%    $370,211        81.66%    $370,955      83.18%
 Multi-family residential           3,666           .72        2,812          .59        1,540          .34        1,303        .29
 Commercial real estate            38,085          7.46       26,018         5.49       23,196         5.12       18,593       4.17
 Construction                      24,937          4.88       25,797         5.44       18,226         4.02       20,753       4.66
                                 --------       -------     --------      -------     --------     --------     --------     ------
   Total real estate loans        444,029         86.93      423,216        89.25      413,173        91.14      411,604      92.30
                                 --------       -------     --------      -------     --------      -------      -------      -----

Commercial loans                   20,239          3.96       14,171         2.99        8,437         1.86        5,649       1.27
                                 --------       -------     --------      -------    ---------      -------     --------      -----

Consumer loans:
 Home equity and second
  mortgage loans                   19,797          3.87       15,009         3.17       13,308         2.94       13,023       2.92
 Automobile                        16,051          3.14       13,205         2.78       10,693         2.36        8,307       1.86
 Other                             10,703          2.10        8,577         1.81        7,712         1.70        7,372       1.65
                                 --------       -------    ---------      -------     --------     --------      -------     ------
   Total consumer loans            46,551          9.11       36,791         7.76       31,713         7.00       28,702       6.43
                                 --------       -------     --------      -------     --------     --------      -------     ------
    Total loans receivable        510,819        100.00%     474,178       100.00%     453,323       100.00%     445,955     100.00%
                                  -------        ======      -------       ======     --------      =======      -------     ======

Less:
 Undisbursed loan funds            (9,126)                   (10,437)                   (6,770)                   (7,305)
 Unearned discounts and net
  deferred loan fees               (2,697)                    (3,011)                   (3,296)                   (3,512)
 Allowance for loan losses           (691)                      (752)                     (771)                   (1,196)
                                 --------                   --------                 ---------                  --------
   Total loans receivable, net   $498,305                   $459,978                  $442,486                  $433,942
                                 ========                   ========                 =========                  ========
</TABLE>



<TABLE>
<CAPTION>
                                   December 31,
                               -----------------------
                                          1996
                               -----------------------

                                            Percentage
                                 Amount       of Loans
                               ----------   ----------
<S>                            <C>          <C>
Real estate loans:
 Single-family residential       $338,349        82.36%
 Multi-family residential           1,555          .38
 Commercial real estate            19,136         4.66
 Construction                      20,053         4.88
                                 --------       ------
   Total real estate loans        379,093        92.28
                                  -------       ------

Commercial loans                    4,348         1.06
                                 --------       ------
Consumer loans:
 Home equity and second
  mortgage loans                   12,549         3.06
 Automobile                         7,556         1.84
 Other                              7,244         1.76
                                  -------       ------
   Total consumer loans            27,349         6.66
                                  -------       ------

    Total loans receivable        410,790       100.00%
                                  -------       ======

Less:
 Undisbursed loan funds            (8,670)
 Unearned discounts and net
  deferred loan fees               (4,361)
 Allowance for loan losses         (1,251)
                                ---------
   Total loans receivable, ne    $396,508
                                =========
</TABLE>



                                        3

<PAGE>


    LOAN MATURITY AND INTEREST RATES. The following table sets forth certain
information at December 31, 2000 regarding the dollar amount of loans maturing
in the Bank's loan portfolio based on their contractual terms to maturity.
Demand loans and loans having no stated schedule of repayments and no stated
maturity are reported as due in one year or less. All other loans are included
in the period in which the final contractual repayment is due.



<TABLE>
<CAPTION>
                                                            After Three     After Five      After Ten
                                              One Year         Years          Years           Years         Beyond
                                Within         Through         Through      Through Ten       Through       Twenty
                               One Year      Three Years     Five Years        Years       Twenty Years      Years          Total
                             -----------    ------------    -----------    -----------    ------------    ----------     ----------
                                                                        (In Thousands)
<S>                          <C>            <C>             <C>            <C>            <C>             <C>            <C>
Real estate loans:
 Single-family residential       $   464         $ 1,335        $ 3,060         $41,199        $151,865      $179,418       $377,341
 Multi-family residential            138              --            243             614           2,409           262          3,666
 Commercial real estate              318           7,767         11,787           5,746          12,467            --         38,085
 Construction                      6,179              --            670             350           3,438        14,300         24,937
 Commercial loans                 10,818           2,004          3,117           2,867           1,433            --         20,239
 Consumer loans                   14,917          13,186         15,943           2,214             291            --         46,551
                                 -------          ------         ------         -------        --------     ---------       --------
     Total(1)                    $32,834         $24,292        $34,820         $52,990        $171,903      $193,980       $510,819
                                 =======         =======        =======         =======        ========      ========       ========
</TABLE>
----------------------
(1) Gross of undisbursed loan funds, unearned discounts and net deferred loan
fees and the allowance for loan losses.

    The following table sets forth the dollar amount of the Bank's loans at
December 31, 2000 due after one year from such date which have fixed interest
rates or which have floating or adjustable interest rates.


<TABLE>
<CAPTION>
                                                                        Floating or
                                                 Fixed-Rates          Adjustable-Rates             Total
                                            -------------------    -------------------        ---------------
                                                                       (In Thousands)
<S>                                         <C>                    <C>                        <C>
Real estate loans:
  Single-family residential                              $125,999                $250,878          $376,877
  Multi-family residential                                  2,880                     648             3,528
  Commercial real estate                                   37,767                      --            37,767
  Construction                                              4,073                  14,685            18,758
Commercial loans                                            9,421                      --             9,421
Consumer loans                                             31,634                      --            31,634
                                                         --------               ---------          --------
     Total                                               $211,774                $266,211          $477,985
                                                         ========                ========          ========
</TABLE>


    Scheduled contractual maturities of loans do not necessarily reflect the
actual term of the Bank's portfolio. The average life of mortgage loans is
substantially less than their average contractual terms because of loan
prepayments and refinancing. The average life of mortgage loans tends to
increase, however, when current mortgage loan rates substantially exceed rates
on existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans substantially exceed current mortgage loan rates.

    ORIGINATION, PURCHASE AND SALE OF LOANS. The lending activities of the Bank
are subject to the written, non- discriminatory, underwriting standards and
policies established by the Bank's Board of Directors and management. Loan
originations are obtained by a variety of sources, including realtors, walk-in
customers, solicitation by branch managers and employees, radio, television and
newspaper advertising. In its marketing, the Bank emphasizes its community ties
and an efficient underwriting and approval process. The Bank believes it can
provide its personalized service to its customers in a more efficient manner due
in part to the use of in-house appraisal and underwriting staff. The Bank
requires hazard, title and, to the extent applicable, flood insurance on all
security property.



                                        4

<PAGE>



    Loan applications are initially processed by branch managers or loan
officers and all first mortgage real estate loans up to $250,000 must be
approved by one member of the Bank's Loan Committee. Loans between $250,000 and
$500,000 must be approved by two members of the Bank's Loan Committee, one of
which must be a senior vice president or above. Real estate loans between
$500,000 and $750,000 must be approved by three members of the Bank's Loan
Committee, one of which must be a senior vice president or above. Real estate
loans in excess of $750,000 must initially be approved by three Loan Committee
members, one of which must be an executive vice president or above, and
thereafter by the Bank's Board of Directors in advance of closing. Consumer
loans are initially processed by consumer loan officers and are required to be
approved by designated officers of the Bank depending on the amount of the loan.
All loans are ratified, subsequent to the loan being closed, by the Board of
Directors.

    Historically, the Bank has not been an active purchaser of loans due to
consistent loan demand. No loans were purchased during the last three years.

    The Bank originates and generally sells all loans with fixed terms greater
than fifteen years to specific investors in the secondary mortgage loan market.
This allows the Bank to provide to its customers competitive long-term
fixed-rate loan products without assuming additional interest rate risk. These
loans are originated subject to underwriting by a third party with the purchase
price confirmed by the respective investor prior to loan closing. Due to these
loans being underwritten by a third party, the repurchase risk typically
associated with such contracts is being assumed by the underwriter. The Bank is
not involved in loan hedging or other speculative mortgage origination
activities. In 2000, 1999, and 1998, the Bank's loan sales were $8.6 million,
$15.5 million, and $20.5 million, respectively.

    Set forth below is a table showing the Bank's originations, sales and
repayments of loans during the periods indicated.


<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                       -----------------------------------------------------------------
                                               2000                    1999                   1998
                                       -------------------    -------------------    -------------------
                                                                  (In Thousands)
<S>                                    <C>                    <C>                    <C>
Loans receivable at beginning
  of period                                  $474,178                $453,323               $445,955
                                              -------                 -------                -------
Loan originations:
  Real estate:
    Single-family residential                  79,327                  97,236                114,518
    Multi-family residential                    1,017                   1,812                    590
    Commercial real estate                     14,913                   7,266                 13,776
    Construction                               30,522                  31,175                 24,033
  Commercial loans                             14,626                  10,783                  7,159
  Consumer:
    Home equity and second
      mortgage loans                           15,512                  11,861                  9,652
    Automobile                                 13,597                  11,735                 10,273
    Other                                      11,206                   8,801                  8,830
                                              -------                --------              ---------
      Total loan originations                 180,720                 180,669                188,831
Repayments                                   (134,408)               (143,388)              (156,426)
Loan sales                                     (8,590)                (15,516)               (20,494)
Other                                          (1,081)                   (910)                (4,543)
                                              -------                --------              ---------
Net loan activity                              36,641                  20,855                  7,368
                                              -------                --------              ---------
Loans receivable
  at end of period                           $510,819                $474,178               $453,323
                                             ========                ========               ========
</TABLE>




                                        5

<PAGE>



Multi-family residential, commercial real estate, construction and commercial
loans comprised 33.8%, 28.2%, and 24.1% of total loan originations,
respectively, for the years ended December 31, 2000, 1999, and 1998. Such loans
generally have a greater risk of uncollectibility. At the balance sheet date,
there were no impaired loans in these loan types.

    LOANS-TO-ONE BORROWER. A savings institution generally may not make
loans-to-one borrower and related entities in an amount which exceeds 15% of its
unimpaired capital and surplus, although loans in an amount equal to an
additional 10% of unimpaired capital and surplus may be made to a borrower if
the loans are fully secured by readily marketable securities. At December 31,
2000, the Bank's limit on loans-to-one borrower was approximately $11.2 million.
At December 31, 2000, the Bank's largest loan or groups of loans-to-one
borrower, including persons or entities related to the borrower, amounted to
$6.7 million. Such amount consists of 23 loans, primarily commercial real estate
loans, all of which were current at December 31, 2000. The Bank's ten largest
loans or groups of loans-to-one borrower, including persons or entities related
to the borrower, amounted to $36.1 million at December 31, 2000. At December 31,
2000, the Bank had $312,000 of such loans that were thirty days or less
delinquent. All of such delinquent loans were either current or paid-off within
thirty days after December 31, 2000.

    ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LOANS. The Bank has historically
concentrated its lending activities on the origination of loans collateralized
by first mortgage liens on existing one- to four-family residences. At December
31, 2000, $377.3 million or 73.9% of the Bank's total loan portfolio consisted
of one- to four-family residential real estate loans. The Bank originated $79.3
million, $97.2 million and $114.5 million of one- to four-family residential
loans in 2000, 1999, and 1998, respectively, and intends to continue to
emphasize the origination of permanent loans collateralized by first mortgage
liens on one- to four-family residential properties in the future. Of the $377.3
million of such loans at December 31, 2000, $251.1 million or 66.6% had
adjustable-rates of interest (including $175.0 million in seven-year adjustable
rates) and $126.2 million or 33.4% had fixed-rates of interest.

    The Bank currently originates both fixed-rate and adjustable-rate one- to
four-family residential mortgage loans. The Bank's fixed-rate loans for
portfolio are presently originated with maximum terms of typically 15 years and
are fully amortizing with monthly payments sufficient to repay the total amount
of the loan with interest by the end of the loan term. The Bank does offer
fixed-rate loans with terms exceeding fifteen years although such loans are
typically sold in the secondary market. The Bank's one- to four-family loans are
typically originated under terms, conditions and documentation which permit them
to be sold to U.S. Government sponsored agencies such as the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Federal National Mortgage Association
("FNMA"). However, as stated above, such loans with terms of 15 years or less
are generally originated for portfolio while substantially all of such loans
over 15 years are sold in the secondary market. The Bank's fixed-rate loans
typically include "due on sale" clauses.

    The Bank's adjustable-rate mortgage loans typically provide for an interest
rate which adjusts every one-, three-, five- or seven-years in accordance with a
designated index plus a margin. Such loans are typically based on a 25- or
30-year amortization schedule. The Bank generally does not offer below market
rates, and the amount of any increase or decrease in the interest rate per one
or three year period is generally limited to 2%, with a limit of 6% over the
life of the loan. The Bank's five-year adjustable rate loans provide that any
increase or decrease in the interest rate per period is limited to 3%, with a
limit of 6% over the life of the loan. The Bank's seven-year adjustable rate
loans provide that any increase or decrease in the interest rate per period is
limited to 5% with a limit of 5% over the life of the loan. The Bank's
adjustable-rate loans are assumable (generally without release of the initial
borrower), do not contain prepayment penalties and do not provide for negative
amortization. The Bank's adjustable-rate mortgage loans typically include "due
on sale" clauses. Such loans may be converted to a fixed-rate loan at the
discretion of the Bank. The Bank generally underwrites its one- and three-year
adjustable-rate loans on the basis of the borrowers' ability to pay at the rate
after the first adjustment. Adjustable-rate loans decrease the risks associated
with changes in interest rates but involve other risks, primarily because as
interest rates rise, the payment by the borrower rises to the extent permitted
by the terms of the loan, thereby increasing the potential for default. At the
same time, the marketability of the underlying property may be adversely
affected by higher interest rates.

    The Bank's residential mortgage loans typically do not exceed 90% of the
appraised value of the security property. However, pursuant to underwriting
guidelines adopted by the Board of Directors, the Bank can lend up to 97% of the
appraised value of the property securing a one- to four-family residential loan,
and requires borrowers to obtain private mortgage insurance on loans where the
principal amount of the loan exceeds 90% of the appraised value of the security

                                        6

<PAGE>

property unless waived based on credit score or other compensating factors. At
December 31, 2000, the Bank had $1.4 million of nonperforming single-family
residential loans. See "- Asset Quality."

    MULTI-FAMILY RESIDENTIAL REAL ESTATE LOANS. Although the Bank does not
emphasize multi-family residential loans and has not been active in this area,
the Bank offers mortgage loans for the acquisition and refinancing of existing
multi-family residential properties. At December 31, 2000, $3.7 million or .7%
of the Bank's total loan portfolio consisted of loans collateralized by existing
multi-family residential real estate properties.

    Multi-family loans are generally made on terms up to ten years with fixed
rates although the Bank will originate such loans with call provisions up to
five years. Loan to value ratios on the Bank's multi-family real estate loans
are currently limited to 80%. It is also the Bank's general policy to obtain
corporate or personal guarantees, as applicable, on its multi- family
residential real estate loans from the principals of the borrower.

    Multi-family real estate lending entails significant additional risks as
compared with one- to four-family residential property lending. Such loans
typically involve large loan balances to single borrowers or groups of related
borrowers. The payment experience on such loans is typically dependent on the
successful operation of the real estate project. The success of such projects is
sensitive to changes in supply and demand conditions in the market for
multi-family real estate as well as economic conditions generally. At December
31, 2000, the Bank did not have any nonperforming multi-family real estate
loans. See "- Asset Quality."

    COMMERCIAL REAL ESTATE LOANS. The Bank originates mortgage loans for the
acquisition and refinancing of commercial real estate properties. At December
31, 2000, $38.1 million or 7.5% of the Bank's total loan portfolio consisted of
loans collateralized by existing commercial real estate properties.

    The majority of the Bank's commercial real estate loans are collateralized
by office buildings, convenience stores, service stations, mini-storage
facilities, hotels, churches and small shopping malls. The majority of the
Bank's commercial real estate loans are collateralized by property located in
the Bank's market area.

    At December 31, 2000, the Bank had approximately $10.3 million of loans
which are either for the construction of service station and convenience store
facilities or are collateralized by such facilities. The Bank requires that
construction loans for such facilities meet present standards established by the
Environmental Protection Agency. With respect to existing facilities, the Bank
requires an environmental study of the property. To date, the Bank has not
experienced any material credit or environmental problems with such loans.

    The Bank's policy requires appraisals of all properties securing commercial
real estate loans. The Bank considers the quality and location of the real
estate, the credit of the borrower, cash flow of the project and the quality of
management involved with the property. The Bank's commercial real estate loans
are originated with fixed interest rates generally based on a fifteen year
amortization schedule and loan to value ratios on such loans are generally
limited to 80%. As part of the criteria for underwriting multi-family and
commercial real estate loans, the Bank generally imposes a debt coverage ratio
(the ratio of net cash from operations before payment of debt service to debt
service) of not less than 1.2. It is also the Bank's policy to typically obtain
corporate or personal guarantees, as applicable, on its commercial real estate
loans from the principals of the borrower.

    Commercial real estate lending entails significant additional risks as
compared with single-family residential property lending. Such loans typically
involve large loan balances to single borrowers or groups of related borrowers.
The payment experience on such loans is typically dependent on the successful
operation of the real estate project. The success of such projects is sensitive
to changes in supply and demand conditions in the market for commercial real
estate as well as regional and economic conditions generally. At December 31,
2000, the Bank had $48,000 of nonperforming commercial real estate loans.
See "-Asset Quality."


                                        7

<PAGE>

    CONSTRUCTION LOANS. The Bank also originates primarily residential
construction loans, although the Bank has originated commercial real estate and
multi-family residential construction loans. The Bank's construction lending
activities are limited to the Bank's primary market area. At December 31, 2000,
construction loans amounted to $24.9 million or 4.9% of the Bank's total loan
portfolio, of which $22.8 million consisted of single-family residential
construction loans and $2.1 million consisted of commercial real estate and
multi-family residential construction loans. The Bank's construction loans
generally have fixed interest rates for a term of six months to nine months.
However, the Bank is permitted to originate construction loans with terms of up
to two years under its loan policy. Commercial real estate and multi-family
residential construction loans are made with a maximum loan to value ratio of
80%. Construction loans to individuals are typically made with a loan to value
ratio of up to 90% and non-owner occupied construction loans are limited to 80%.

    With limited exceptions, the Bank's construction loans are made to
individual homeowners and a limited number of local real estate builders and
developers for the purpose of constructing one- to four-family residential
homes. Construction loans to individuals are typically made in connection with
the granting of the permanent financing on the property. Such loans convert to a
fully amortizing adjustable or fixed-rate loan at the end of the construction
term. The Bank typically requires that permanent financing with the Bank or some
other lender be in place prior to closing any construction loan to an
individual. Interest on construction/permanent loans is due upon completion of
the construction phase of the loan. At such time, the loan automatically
converts to a permanent loan at the interest rate established at the initial
closing of the construction/permanent loan.

    Upon application, credit review and analysis of personal and, if applicable,
corporate financial statements, the Bank makes construction loans to local
builders for the purpose of construction of speculative (or unsold) residential
properties and for the construction of pre-sold single-family homes. Prior to
making a commitment to fund a construction loan, the Bank requires an appraisal
of the property by the Bank's appraisal staff. The Bank's appraisal staff also
reviews and inspects each project at the commencement of construction and
typically before each disbursement of funds during the term of the construction
loan. Loan proceeds are disbursed after inspections of the project based on a
percentage of completion or presentation of substantiated costs incurred.
Interest on construction loans is due upon maturity.

    Construction lending is generally considered to involve a higher level of
risk as compared to one- to four-family residential lending, due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on developers and builders. Moreover, a
construction loan can involve additional risks because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost (including interest) of the project. The nature of these
loans is such that they are generally more difficult to evaluate and monitor. In
addition, speculative construction loans to a builder are not pre-sold and thus
pose a greater potential risk to the Bank than construction loans to individuals
on their personal residences.

    The Bank has attempted to minimize the foregoing risks by, among other
things, limiting the extent of its construction lending generally and by
limiting its construction lending to primarily residential properties. In
addition, the Bank has adopted underwriting guidelines which impose stringent
loan to value, debt service and other requirements for loans which are believed
to involve higher elements of credit risk, by limiting the geographic area in
which the Bank will do business and by working with builders with whom it has
established relationships. At December 31, 2000, the Bank did not have any
nonperforming construction loans. See "- Asset Quality."

    COMMERCIAL LOANS. To a limited extent, the Bank offers commercial loans
which primarily consist of equipment and inventory loans which are typically
cross-collateralized by commercial real estate. The Bank does not actively
market such loans and offers such loans primarily as an accommodation to its
present customers. At December 31, 2000, such loans amounted to $20.2 million or
4.0% of the total loan portfolio. At December 31, 2000, the Bank had one
nonperforming commercial loan totaling $20,000. See "- Asset Quality."

    The Bank's commercial loans are originated with fixed interest rates with
call provisions between one and five years. Such loans are typically based on a
fifteen year amortization schedule.

                                        8

<PAGE>


    CONSUMER LOANS. The Bank offers consumer loans in order to provide a full
range of financial services to its customers. The consumer loans offered by the
Bank include primarily home equity and second mortgage loans, automobile loans,
deposit account secured loans and unsecured loans. Consumer loans amounted to
$46.6 million or 9.1% of the total loan portfolio at December 31, 2000, of which
$19.8 million, $16.1 million and $10.7 million consisted of home equity and
second mortgage loans, automobile loans and other consumer loans, respectively.
The Bank intends to continue its emphasis on consumer loans in furtherance of
its role as a community oriented financial institution.

    The Bank's home equity and second mortgage loans are typically fixed-rate
loans with terms of up to 15 years. Although the Bank does not require that it
hold the first mortgage on the secured property, the Bank does hold the first
mortgage on a significant majority of its home equity and second mortgage loans.
The Bank limits the mortgages on the secured property to 90% of the value of the
secured property.

    The Bank's automobile loans are typically originated for the purchase of new
and used cars and trucks. Such loans are generally originated with a maximum
term of five years.

    Other consumer loans consist primarily of deposit account loans and
unsecured loans. Loans secured by deposit accounts are originated for up to 90%
of the account balance, with a hold placed on the account restricting the
withdrawal of the account balance.

    Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. At December 31, 2000, the Bank had $140,000 of
nonperforming consumer loans. See "-Asset Quality."

ASSET QUALITY

    When a borrower fails to make a required payment on a loan, the Bank
attempts to cure the deficiency by contacting the borrower and seeking the
payment. Depending upon the type of loan, late notices are sent and/or personal
contacts are made. In most cases, deficiencies are cured promptly. While the
Bank generally prefers to work with borrowers to resolve such problems, when a
mortgage loan becomes 90 days delinquent, the Bank generally institutes
foreclosure or other proceedings, as necessary, to minimize any potential loss.

    Loans are placed on non-accrual status when, in the judgment of management,
the probability of collection of interest is deemed to be insufficient to
warrant further accrual. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is deducted from interest income. The Bank does not
accrue interest on loans past due 90 days or more. Loans may be reinstated to
accrual status when payments are made to bring the loan under 90 days past due
and, in the opinion of management, collection of the remaining balance can be
reasonably expected.

    Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at fair value at the date of foreclosure. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell. Revenue
and expenses from operations are included in the current period income.
Additions to the valuation allowance are included in the provision for real
estate losses.


                                        9

<PAGE>



    DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at December 31, 2000, in dollar amounts and as a percentage of
the Bank's total loan portfolio. The amounts presented represent the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due.


<TABLE>
<CAPTION>
                    Single-family                                   Commercial
                      Residential            Construction           Real Estate         Commercial           Consumer
                  ----------------------  --------------------   -----------------  ------------------  ------------------
                              Percentage            Percentage          Percentage          Percentage          Percentage
                               of Total              of Total            of Total            of Total             of Total
                   Amount        Loans    Amount       Loans     Amount    Loans    Amount     Loans    Amount     Loans
                  -------     ----------  ------    ----------   ------  ---------  ------  ----------  ------  ----------
                                                          (Dollars in Thousands)
<S>               <C>         <C>         <C>       <C>          <C>     <C>        <C>     <C>         <C>     <C>
Loans
delinquent:
30-59 days         $2,546         .50%     $  28        .01%      $891        .17%    $166        .03%    $414        .08%
60-89 days            706         .14         66        .01         --         --      167        .03      203        .04
90 days and
over                1,438         .28         --         --         48        .01       20        .01      140        .03
                    -----                  -----                   ---                 ---                 ---
Total              $4,690                   $ 94                  $939                $353                $757
                    =====                  =====                   ===                 ===                 ===
</TABLE>


    Interest income that would have been recorded under the original terms of
the Bank's non-accruing loans for the year ended December 31, 2000 amounted to
$127,000, and the interest recognized during this period amounted to $65,000.

    The following table sets forth the amounts and categories of the Bank's
nonperforming assets at the dates indicated.


<TABLE>
<CAPTION>
                                                                       December 31,
                                                -------------------------------------------------------------
                                                2000           1999          1998       1997          1996
                                                ----           ----          ----       ----          ----
                                                                  (Dollars in Thousands)
<S>                                            <C>            <C>           <C>        <C>           <C>
Nonperforming loans:
  Single-family residential                    $1,438         $1,203        $1,275     $ 1,001        $ 493
  Multi-family residential                         --             --            --         109           --
  Commercial real estate                           48             --            --       3,365(1)        --
  Commercial loans                                 20             23            30          48           --
  Consumer loans                                  140            121           159         434          228
                                               ------        -------         -----      ------         ----
     Total nonperforming loans                  1,646          1,347         1,464       4,957          721
                                                -----         ------         -----       -----         ----
Real estate owned                                 261          3,940(1)      4,270(1)      195          154
                                               ------          -----         -----      ------          ---
     Total nonperforming assets                $1,907         $5,287        $5,734      $5,152         $875
                                                =====          =====         =====       =====          ===
Total nonperforming loans as a
  percentage of total loans
  receivable                                    0.32%          0.28%          0.32%      1.11%        0.18%
                                                ====           ====           ====        ====         ====
Total nonperforming assets as a
  percentage of total assets                    0.27%          0.78%          0.93%      0.94%        0.17%
                                                ====           ====          =====       ====          ====
</TABLE>

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

(1) The Bank reclassified a previously reported non-accrual commercial real
estate loan secured by a 202 room hotel in Oklahoma to real estate owned in
1998. Real estate owned primarily consists of the Bank's 75% ownership of this
property. As a result of such 75% ownership interest, the Bank is required to
include the 25% minority interest ownership in the real estate owned amount
shown above. Such property was disposed of in the second quarter of 2000.


                                       10

<PAGE>



    CLASSIFIED ASSETS. Federal regulations require that each insured savings
association classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. At December 31,
2000, the Bank had $1.9 million of classified assets, $1.8 million of which were
classified as substandard and $60,000 of which were classified as loss. In
addition, at such date, the Bank had $163,000 of assets designated as special
mention.

    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 relative to losses. 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) secured 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 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 that 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.


                                       11

<PAGE>



    Estimates of the probability of loan losses involve an exercise of
judgement. 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.

    The following table summarizes changes in the allowance for loan losses and
other selected statistics for the periods presented.


<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                   -----------------------------------------------------------------
                                      2000         1999          1998           1997          1996
                                      ----         ----          ----           ----          ----
                                                        (Dollars in Thousands)
<S>                                <C>           <C>           <C>           <C>           <C>
Total loans outstanding at
 end of period                     $ 510,819     $ 474,178     $ 453,323     $ 445,955     $ 410,790
                                   =========     =========     =========     =========     =========
Average loans outstanding          $ 481,112     $ 447,631     $ 441,702     $ 415,075     $ 369,185
                                   =========     =========     =========     =========     =========
Allowance at beginning of period   $     752     $     771     $   1,196     $   1,251     $   1,228
                                   ---------     ---------     ---------     ---------     ---------
Charge-offs:
  Single-family residential              (28)           (9)          (17)         --            --
  Commercial real estate                --            --            (369)         --            --
  Commercial loans                       (20)         --            --            --            --
  Consumer loans                         (40)          (57)         (103)          (67)          (40)
                                   ---------     ---------     ---------     ---------     ---------
    Total charge-offs                    (88)          (66)         (489)          (67)          (40)
                                   ---------     ---------     ---------     ---------     ---------
Recoveries:
  Commercial real estate                --            --            --            --               1
  Consumer loans                          27            27             9            12             2
                                   ---------     ---------     ---------     ---------     ---------
    Total recoveries                      27            27             9            12             3
                                   ---------     ---------     ---------     ---------     ---------
Net charge-offs                          (61)          (39)         (480)          (55)          (37)
                                   ---------     ---------     ---------     ---------     ---------
Total provisions for losses             --              20            55          --              60
                                   ---------     ---------     ---------     ---------     ---------
Allowance at end of period         $     691     $     752     $     771     $   1,196     $   1,251
                                   =========     =========     =========     =========     =========
Allowance for loan losses as a
  percentage of total loans
  outstanding at end of period          0.14%         0.16%         0.17%         0.27%         0.30%
                                   =========     =========     =========     =========     =========
Net loans charged-off as a
  percentage of average loans
  outstanding                           0.01%         0.01%         0.11%         0.01%         0.01%
                                   =========     =========     =========     =========     =========
</TABLE>


                                       12

<PAGE>



    The following table presents the allocation of the Bank's allowance for loan
losses by the type of loan at each of the dates indicated. The significant
portion of the allowance which is unallocated is due to historically low levels
of nonperforming single-family residential loans, multi-family residential
loans, commercial real estate loans, construction loans, commercial loans and
consumer loans, which would otherwise require a larger allocation of the
allowance, balanced with management's desire to provide for an adequate
allowance in light of the size of the Bank's loan portfolio.



<TABLE>
<CAPTION>
                                                                   December 31,
                            --------------------------------------------------------------------------------------------------------
                                     2000                1999           1998                    1997                      1996
                            -------------------  -------------------  --------------------  --------------------  ------------------
                                     Percent of           Percent of            Percent of            Percent of         Percent of
                                    Total Loans           Total Loans          Total Loans           Total Loans         Total Loans
                            Amount  by Category  Amount   by Category  Amount  by Category  Amount   by Category  Amount by Category
                            ------  -----------  ------   ----------- -------- -----------  -------  -----------  ------ ----------
                                                                                 (Dollars in Thousands)
<S>                         <C>     <C>          <C>      <C>         <C>       <C>         <C>      <C>          <C>    <C>
Single-family residential    $   57    73.87%     $   50    77.73%     $   46     81.66%      $   49      83.18%   $   11    82.36%
Multi-family residential       --        .72          --      .59          --       .34           --        .29        --      .38
Commercial real estate          190     7.46         149     5.49         147      5.12          125       4.17       117     4.66
Construction loans             --       4.88          --     5.44          --      4.02           --       4.66        --     4.88
Commercial loans                101     3.96          31     2.99          60      1.86           13       1.27        19     1.06
Consumer loans                  158     9.11         144     7.76         135      7.00          221       6.43       270     6.66
Unallocated                     185     --           378       --         383      --            788         --       834       --
                             ------   ------      ------    ------     ------    ------       ------     ------    ------   ------
    Total                    $  691   100.00%     $  752    100.00%    $  771    100.00%      $1,196     100.00%   $1,251   100.00%
                             ======   ======      ======    ======     ======    ======       ======     ======    ======   ======
</TABLE>


                                       13

<PAGE>


INVESTMENT ACTIVITIES

    INVESTMENT SECURITIES. The investment policy of the Bank, as established by
the Board of Directors, is designed primarily to provide and maintain liquidity
and to generate a favorable return on investments. The Bank's investment policy
is currently implemented by the Bank's President within the parameters set by
the investment committee and the Board of Directors. The Bank is authorized to
invest in obligations issued or fully guaranteed by the U.S. Government, certain
federal agency obligations, certain time deposits, negotiable certificates of
deposit issued by commercial banks and other insured financial institutions,
investment grade corporate debt securities and other specified investments.

    Investment securities that management has the positive intent and ability to
hold to maturity are classified as held to maturity and are reported at
amortized cost. Investment securities classified as available for sale are
reported at fair value, with unrealized gains and losses excluded from earnings,
net of taxes, and reported as a separate component of equity. At December 31,
2000, the Bank held no investment securities classified as available for sale.
At December 31, 2000, approximately $14 million of the Bank's investment
securities were pledged as collateral for certain deposits in excess of
$100,000. At December 31, 2000, investments in the debt and/or equity securities
of any one issuer, other than those issued by U.S. Government agencies, did not
exceed more than 10% of the Company's stockholders' equity.

    The following table sets forth the amount of investment securities which
contractually mature during each of the periods indicated and the weighted
average yields for each range of maturities at December 31, 2000. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay the obligation without prepayment penalties.


<TABLE>
<CAPTION>
                                  Less Than             One to Five          Five to Ten            After Ten
                                   One Year                Years                Years                 Years              Total
                                ----------------      ----------------    ----------------      ----------------   ----------------
                                Amount     Yield      Amount     Yield     Amount     Yield      Amount     Yield   Amount    Yield
                                ------     -----      ------     -----     ------     -----      ------     -----   ------    -----
                                                                        (Dollars in Thousands)
<S>                             <C>        <C>        <C>        <C>      <C>         <C>     <C>           <C>     <C>       <C>
Bonds and other debt
 securities held to maturity:
 U.S. Government and
  agency obligations             $1,105     6.11%     $1,609      6.31%   $15,099      6.94%   $166,497      6.89%  $184,310  6.89%
                                  =====                =====               ======               =======              =======
</TABLE>


    As of December 31, 2000, there were approximately $183 million of
investments with issuer call options, of which approximately $174 million are
callable within one year.

    The following table sets forth the carrying value of the Company's
investment securities classified as held to maturity. The Company held no
investment securities as available for sale at the dates indicated.


<TABLE>
<CAPTION>
                                                                   December 31,
                                                  ------------------------------------------
                                                  2000               1999               1998
                                                  ----               ----               ----
<S>                                             <C>                <C>                 <C>
                                                            (In Thousands)
Investment securities held
  to maturity:
  U.S. Government and agency
    obligations                                  $184,310           $189,263           $127,175
                                                 ========           ========           ========
</TABLE>

    As a member of the FHLB of Dallas, the Bank is required to maintain an
investment in FHLB stock. At December 31, 2000, the Bank's investment in FHLB
stock amounted to $5.1 million. No ready market exists for such stock and it has
no quoted market value.


                                       14

<PAGE>



SOURCES OF FUNDS

    GENERAL. Deposits are the primary source of the Bank's funds for lending and
other investment purposes. In addition to deposits, the Bank derives funds from
loan principal repayments and prepayments and interest payments, maturities of
investment securities and advances from the FHLB of Dallas. Loan repayments are
a relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. They may also be used on a longer term
basis for general business purposes.

    DEPOSITS. The Bank's deposit products include a broad selection of deposit
instruments, including negotiable order of withdrawal ("NOW") accounts, demand
deposit accounts ("DDA"), money market accounts, regular savings accounts and
term certificate accounts. Deposit account terms vary, with the principal
differences being the minimum balance required, the time period the funds must
remain on deposit, early withdrawal penalties and the interest rate.

    The Bank considers its primary market area to be Northcentral and Northwest
Arkansas. The Bank utilizes traditional marketing methods to attract new
customers and savings deposits. The Bank does not advertise for deposits outside
of its primary market area or utilize the services of deposit brokers, and
management believes that an insignificant number of deposit accounts were held
by non-residents of Arkansas at December 31, 2000.

    The Bank has been competitive in the types of accounts and in interest rates
it has offered on its deposit products but does not necessarily seek to match
the highest rates paid by competing institutions. Although market demand
generally dictates which deposit maturities and rates will be accepted by the
public, the Bank intends to continue to promote longer term deposits to the
extent possible and consistent with its asset and liability management goals.

    The following table shows the distribution of, and certain other information
relating to, the Bank's deposits by type of deposit, as of the dates indicated.


<TABLE>
<CAPTION>
                                                                                December 31,
                                                      ----------------------------------------------------------------------
                                                              2000                    1999                       1998
                                                      -------------------        -----------------        ------------------
                                                      Amount           %         Amount         %         Amount         %
                                                      ------         ----        ------       ----        ------        ----
                                                                           (Dollars in Thousands)
<S>                                                   <C>             <C>       <C>            <C>       <C>           <C>
Certificate accounts:
      3.00% - 3.99%                                  $    379           .1%    $  1,107          .2%    $    453         .1%
      4.00% - 5.99%                                   155,948         28.8      291,342        57.4      278,335       57.9
      6.00% - 7.99%                                   270,733         50.1      107,065        21.1       91,156       18.9
      8.00% and over                                    5,961          1.1        5,800         1.1        8,821        1.8
                                                      -------        -----      -------       -----      -------       ----
  Total certificate accounts                          433,021         80.1      405,314        79.8      378,765       78.7
                                                      -------         ----      -------        ----      -------       ----

Transaction accounts:
  Passbook and statement savings                       24,300          4.5       26,031         5.1       25,916        5.4
  Money market accounts                                16,980          3.2       15,735         3.1       16,164        3.4
  NOW accounts/DDA                                     66,026         12.2       60,795        12.0       60,248       12.5
                                                      -------        -----     --------       -----     --------
     Total transaction accounts                       107,306         19.9      102,561        20.2      102,328       21.3
                                                      -------        -----      -------      ------      -------      -----
     Total deposits                                  $540,327        100.0%    $507,875       100.0%    $481,093      100.0%
                                                      =======        =====      =======       =====      =======      =====
</TABLE>


                                       15

<PAGE>



    The following table presents the average balance of each type of deposit and
the average rate paid on each type of deposit and/or total deposits for the
periods indicated.



<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                       ---------------------------------------------------------------------------------
                                               2000                           1999                         1998
                                       ----------------------       ------------------------       ---------------------
                                                      Average                        Average                     Average
                                        Average        Rate          Average           Rate        Average        Rate
                                        Balance        Paid          Balance           Paid        Balance        Paid
                                        -------       -------        -------         -------       -------       -------
                                                                   (Dollars in Thousands)
<S>                                     <C>           <C>            <C>             <C>           <C>           <C>
Passbook and statement savings
  accounts                              $ 25,760          2.72%       $ 27,098          2.72%      $ 26,128         2.72%
Money market accounts and
  NOW accounts                            66,767          2.53          64,043          2.32         58,226         2.33
Demand deposit accounts                   14,449            --          14,063            --         11,758           --
Certificates of deposit                  421,945          5.99         396,616          5.63        366,484         5.99
                                         -------                       -------                      -------
    Total deposits                      $528,921          5.23%       $501,820          4.90%      $462,596         5.19%
                                         =======                       =======                      =======
</TABLE>


    The following table presents, by various interest rate categories, the
amount of certificates of deposit at December 31, 2000 and 1999 and the amounts
at December 31, 2000 which mature during the periods indicated.


<TABLE>
<CAPTION>
                                                                                 Balance at December 31, 2000
                                              December 31,               Maturing in the 12 Months Ending December 31,
                                        ----------------------------   ----------------------------------------------------
                                             2000            1999          2001           2002         2003      Thereafter
                                        ------------    ------------   -----------    -----------   ---------   -----------
                                                                         (In Thousands)
<S>                                     <C>             <C>           <C>             <C>           <C>          <C>
Certificates of Deposit
3.00% - 3.99%                             $     379        $  1,107     $     379        $    --    $     --    $     --
4.00% - 5.99%                               155,948         291,342       126,488         19,922       4,888        4,650
6.00% - 7.99%                               270,733         107,065       173,779         68,398      12,726       15,830
8.00% and over                                5,961           5,800            --             --       5,653          308
                                           --------        --------      --------        -------     -------      -------
  Total certificate accounts               $433,021        $405,314      $300,646        $88,320     $23,267      $20,788
                                           ========        ========      ========        =======     =======      =======
</TABLE>


    The following table sets forth the savings flows of the Bank during the
periods indicated.



<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                   ----------------------------------------------
                                                        2000            1999             1998
                                                   -----------    --------------    -------------
                                                                    (In Thousands)
<S>                                                <C>            <C>               <C>
Increase before interest credited                    $11,064         $  7,926          $11,895
Interest credited                                     21,388           18,856           18,324
                                                      ------           ------           ------
  Net increase in deposits                           $32,452          $26,782          $30,219
                                                      ======           ======           ======
</TABLE>


    The following table sets forth maturities of the Bank's certificates of
deposit of $100,000 or more at December 31, 2000 by time remaining to maturity.


<TABLE>
<CAPTION>
                                                                Amount
                                                                ------
<S>                                                         <C>
Period Ending:                                              (In Thousands)
March 31, 2001                                                $24,562
June 30, 2001                                                  24,112
September 30, 2001                                              9,688
December 31, 2001                                               6,133
After December 31, 2001                                        25,323
                                                               ------
  Total certificates of deposit with
    balances of $100,000 or more                              $89,818
                                                               ======
</TABLE>



                                       16


<PAGE>

    BORROWED FUNDS. The Bank utilizes FHLB advances in its normal operating and
investing activities. The Bank pledges as collateral for FHLB advances its FHLB
stock and has entered into blanket collateral agreements with the FHLB. The Bank
agrees to maintain sufficient collateral to secure borrowings in an aggregate
amount of the lessor of 75% of the unpaid principal balance of the borrower's
first mortgage collateral and 45% of the home equity and commercial loans or 35%
of the borrower's assets.

    Advances at December 31, 2000, have maturity dates and weighted average
rates as follows:


<TABLE>
<CAPTION>
                             Weighted
    Year Ending               Average
    December 31                 Rate           Amount
-----------------            --------          ------
<S>                          <C>              <C>
        2001                    6.68%         $47,500
        2002                    6.55           32,959
        2003                    6.41            6,000
        2004                    6.07            1,000
        2005                    6.54            4,900
      THEREAFTER                6.44            1,000
                                              -------
       TOTAL                    6.60%         $93,359
                                              =======
</TABLE>

    The following table sets forth information with respect to the Company's
FHLB advances at and during the periods indicated.



<TABLE>
<CAPTION>
                                           At or For the Year Ended December 31,
                                       ---------------------------------------------
                                         2000              1999                 1998
                                         ----              ----                 ----
                                                  (Dollars in Thousands)
<S>                                    <C>                 <C>                  <C>
Maximum balance                        $97,963            $83,972             $50,687
Average balance                         87,999             57,949              30,452
                                       -------            -------             -------
Year end balance                        93,359             83,972              48,985
                                       -------            -------             -------
Weighted average
Interest rate:
  At end of year                          6.60%              5.76%               5.57%
  During the year                         6.35               5.58                5.81
</TABLE>


EMPLOYEES

    The Bank had 195 full-time employees and 32 part-time employees at December
31, 2000. None of these employees is represented by a collective bargaining
agent, and the Bank believes that it enjoys good relations with its personnel.


                                       17

<PAGE>



SUBSIDIARIES

    The Bank is permitted to invest up to 2% of its assets in the capital stock
of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. The Bank's only
subsidiary, First Harrison Service Corporation (the "Service Corporation"), was
formed in 1971. At December 31, 2000, the Service Corporation was inactive.
However, the Service Corporation held a 75% ownership in a partnership that
owned and operated a hotel in Oklahoma for the first six months of the year.
Such property was acquired during the first quarter of 1998, in settlement of a
loan. The property was sold in the second quarter of 2000. The Service
Corporation recorded a net loss of approximately $111,000 during 2000.

COMPETITION

    The Bank faces strong competition both in attracting deposits and making
real estate loans. Its most direct competition for deposits has historically
come from other savings associations, credit unions and commercial banks,
including many large financial institutions which have greater financial and
marketing resources available to them. In addition, during times of high
interest rates, the Bank has faced additional significant competition for
investors' funds from short-term money market securities, mutual funds and other
corporate and government securities. The ability of the Bank to attract and
retain savings deposits depends on its ability to generally provide a rate of
return, liquidity and risk comparable to that offered by competing investment
opportunities.

    The Bank experiences strong competition for real estate loans principally
from savings associations, commercial banks and mortgage companies. The Bank
competes for loans principally through the interest rates and loan fees it
charges and the efficiency and quality of services it provides borrowers.
Competition has increased as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions.


                                       18

<PAGE>



                                   REGULATION


    SET FORTH BELOW IS A BRIEF DESCRIPTION OF THOSE LAWS AND REGULATIONS WHICH,
TOGETHER WITH THE DESCRIPTIONS OF LAWS AND REGULATIONS CONTAINED ELSEWHERE
HEREIN, ARE DEEMED MATERIAL TO AN INVESTOR'S UNDERSTANDING OF THE EXTENT TO
WHICH THE COMPANY AND THE BANK ARE REGULATED. THE DESCRIPTION OF THE LAWS AND
REGULATIONS HEREUNDER, AS WELL AS DESCRIPTIONS OF LAWS AND REGULATIONS CONTAINED
ELSEWHERE HEREIN, DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO APPLICABLE LAWS AND REGULATIONS.

THE COMPANY

    GENERAL. The Company, as a savings and loan holding company within the
meaning of the Home Owners Loan Act ("HOLA"), has registered with the OTS and is
subject to OTS regulations, examinations, supervision and reporting
requirements. As a subsidiary of a savings and loan holding company, the Bank is
subject to certain restrictions in its dealings with the Company and affiliates
thereof.

    HOLDING COMPANY ACQUISITIONS. Federal law generally prohibits a savings and
loan holding company, without prior OTS approval, from acquiring the ownership
or control of any other savings institution or savings and loan holding company,
or all, or substantially all, of the assets or more than 5% of the voting shares
thereof. These provisions also prohibit, among other things, any director or
officer of a savings and loan holding company, or any individual who owns or
controls more than 25% of the voting shares of such holding company, from
acquiring control of any savings institution not a subsidiary of such savings
and loan holding company, unless the acquisition is approved by the OTS.

    HOLDING COMPANY ACTIVITIES. The Company operates as a unitary savings and
loan holding company. As a result of recently enacted legislation, the
activities of a new unitary savings and loan holding company like the Company
and its non-savings institution subsidiaries are restricted to activities
traditionally permitted to multiple savings and loan holding companies and to
financial holding companies under newly added provisions of the Bank Holding
Company Act. Multiple savings and loan holding companies may:

    o    furnish or perform management services for a savings association
         subsidiary of a savings and loan holding company;

    o    hold, manage or liquidate assets owned or acquired from a savings
         association subsidiary of a savings and loan holding company;

    o    hold or manage properties used or occupied by a savings association
         subsidiary of a savings and loan holding company;

    o    engage in activities determined by the Federal Reserve to be closely
         related to banking and a proper incident thereto; and

    o    engage in services and activities previously determined by the Federal
         Home Loan Bank Board by regulation to be permissible for a multiple
         savings and loan holding company as of March 5, 1987.

    The activities financial holding companies may engage in include:

    o    lending, exchanging, transferring or investing for others, or
         safeguarding money or securities;

    o    insuring, guaranteeing or indemnifying others, issuing annuities, and
         acting as principal, agent or broker for purposes of the foregoing;

    o    providing financial, investment or economic advisory services,
         including advising an investment company;



                                       19

<PAGE>


    o   issuing or selling interests in pooled assets that a bank could hold
        directly;

    o   underwriting, dealing in or making a market in securities; and

    o   merchant banking activities.

    If the OTS determines that there is reasonable cause to believe that the
continuation by a savings and loan holding company of an activity constitutes a
serious risk to the financial safety, soundness or stability of its subsidiary
savings institution, the OTS may impose such restrictions as deemed necessary to
address such risk. These restrictions include limiting the following:

    o   the payment of dividends by the savings institution;

    o   transactions between the savings institution and its affiliates; and

    o   any activities of the savings institution that might create a serious
        risk that the liabilities of the holding company and its affiliates may
        be imposed on the savings institution.

    Every savings institution subsidiary of a savings and loan holding company
is required to give the OTS at least 30 days' advance notice of any proposed
dividends to be made on its guarantee, permanent or other non-withdrawable
stock, or else such dividend will be invalid.

    RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between a savings
institution and its "affiliates" are subject to quantitative and qualitative
restrictions under Sections 23A and 23B of the Federal Reserve Act and OTS
regulations. Affiliates of a savings institution generally include, among other
entities, the savings institution's holding company and companies that are
controlled by or under common control with the savings institution.

    In general, a savings institution or its subsidiaries may engage in certain
"covered transactions" with affiliates up to certain limits. In addition, a
savings institution and its subsidiaries may engage in covered transactions and
certain other transactions only on terms and under circumstances that are
substantially the same, or at least as favorable to the savings institution or
its subsidiary, as those prevailing at the time for comparable transactions with
nonaffiliated companies. A "covered transaction" is defined to include a loan or
extension of credit to an affiliate; a purchase of investment securities issued
by an affiliate; a purchase of assets from an affiliate, with certain
exceptions; the acceptance of securities issued by an affiliate as collateral
for a loan or extension of credit to any party; or the issuance of a guarantee,
acceptance or letter of credit on behalf of an affiliate. In addition, a savings
institution may not:

    o   make a loan or extension of credit to an affiliate unless the affiliate
        is engaged only in activities permissible for bank holding companies;

    o   purchase or invest in securities of an affiliate other than shares of a
        subsidiary;

    o   purchase a low-quality asset from an affiliate; or

    o   engage in covered transactions and certain other transactions between a
        savings institution or its subsidiaries and an affiliate except on terms
        and conditions that are consistent with safe and sound banking
        practices.

With certain exceptions, each loan or extension of credit by a savings
institution to an affiliate must be secured by collateral with a market value
ranging from 100% to 130% (depending on the type of collateral) of the amount of
the loan or extension of credit.


                                       20

<PAGE>


THE BANK

    GENERAL. The OTS has extensive authority over the operations of federally
chartered savings institutions. As part of this authority, savings institutions
are required to file periodic reports with the OTS and are subject to periodic
examinations by the OTS and the FDIC. The last regulatory examination of the
Bank by the OTS was completed in April, 2000. The Bank was not required to make
any material changes to its operations as a result of such examination. The
investment and lending authority of savings institutions are prescribed by
federal laws and regulations, and such institutions are prohibited from engaging
in any activities not permitted by such laws and regulations. Those laws and
regulations generally are applicable to all federally chartered savings
institutions and may also apply to state-chartered savings institutions. Such
regulation and supervision is primarily intended for the protection of
depositors.

    The OTS' enforcement authority over all savings institutions and their
holding companies includes, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with the OTS.

    INSURANCE OF ACCOUNTS. The deposits of the Bank are insured to the maximum
extent permitted by the SAIF, which is administered by the FDIC, and are backed
by the full faith and credit of the U.S. Government. As insurer, the FDIC is
authorized to conduct examinations of, and to require reporting by, FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings institutions, after giving the OTS an opportunity to take such
action.

    Currently, FDIC deposit insurance rates generally range from zero basis
points to 27 basis points, depending on the assessment risk classification
assigned to the depository institution. From 1998 through 1999, SAIF members
paid 6.4 basis points, while Bank Insurance Fund ("BIF") member institutions
paid approximately 1.3 basis points. In 2000, SAIF and BIF members both paid
approximately 2.07 basis points.

    The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.

    REGULATORY CAPITAL REQUIREMENTS. Federally insured savings institutions are
required to maintain minimum levels of regulatory capital. The OTS has
established capital standards applicable to all savings institutions. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The OTS also is authorized to impose capital
requirements in excess of these standards on individual institutions on a
case-by-case basis.

    Current OTS capital standards require savings institutions to satisfy three
different capital requirements. Under these standards, savings institutions must
maintain "tangible" capital equal to at least 1.5% of adjusted total assets,
"core" capital equal to at least 3.0% of adjusted total assets and "total"
capital (a combination of core and "supplementary" capital) equal to at least
8.0% of "risk-weighted" assets. For purposes of the regulation, core capital
generally consists of common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Tangible capital is given the same definition as core capital but
does not include qualifying supervisory goodwill and is reduced by the amount of
all the savings institution's intangible assets, with only a limited exception
for purchased mortgage servicing rights. The Bank had no goodwill or other
intangible assets at December 31, 2000. Both core and tangible capital are
further reduced by an amount equal


                                       21

<PAGE>



to a savings institution's debt and equity investments in subsidiaries engaged
in activities not permissible to national banks (other than subsidiaries engaged
in activities undertaken as agent for customers or in mortgage banking
activities and subsidiary depository institutions or their holding companies).
These adjustments do not materially affect the Bank's regulatory capital. At
December 31, 2000, the Bank exceeded its tangible, core and risk-based capital
requirements.

    In determining compliance with the risk-based capital requirement, a savings
institution is allowed to include both core capital and supplementary capital in
its total capital, provided that the amount of supplementary capital included
does not exceed the savings institution's core capital. Supplementary capital
generally consists of hybrid capital instruments; perpetual preferred stock
which is not eligible to be included as core capital; subordinated debt and
intermediate-term preferred stock; and general allowances for loan losses up to
a maximum of 1.25% of risk-weighted assets. In determining the required amount
of risk-based capital, total assets, including certain off-balance sheet items,
are multiplied by a risk weight based on the risks inherent in the type of
assets. The risk weights assigned by the OTS for principal categories of assets
are (i) 0% for cash and securities issued by the U.S. Government or
unconditionally backed by the full faith and credit of the U.S. Government; (ii)
20% for securities (other than equity securities) issued by U.S.
Government-sponsored agencies and mortgage-backed securities issued by, or fully
guaranteed as to principal and interest by, the FNMA or the FHLMC, except for
those classes with residual characteristics or stripped mortgage- related
securities; (iii) 50% for prudently underwritten permanent one- to four-family
first lien mortgage loans not more than 90 days delinquent and having a
loan-to-value ratio of not more than 80% at origination unless insured to such
ratio by an insurer approved by the FNMA or the FHLMC, qualifying residential
bridge loans made directly for the construction of one- to four-family
residences and qualifying multi-family residential loans; and (iv) 100% for all
other loans and investments, including consumer loans, commercial loans, and
one- to four-family residential real estate loans more than 90 days delinquent,
and for repossessed assets.

    LIQUIDITY REQUIREMENTS. 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%.

    QUALIFIED THRIFT LENDER TEST. All savings institutions are required to meet
a QTL test to avoid certain restrictions on their operations. A savings
institution that does not meet the QTL test must either convert to a bank
charter or comply with the following restrictions on its operations: (i) the
institution may not engage in any new activity or make any new investment,
directly or indirectly, unless such activity or investment is permissible for a
national bank; (ii) the branching powers of the institution shall be restricted
to those of a national bank; (iii) the institution shall not be eligible to
obtain any advances from its FHLB; and (iv) payment of dividends by the
institution shall be subject to the rules regarding payment of dividends by a
national bank. Upon the expiration of three years from the date the savings
institution ceases to be a QTL, it must cease any activity and not retain any
investment not permissible for a national bank and immediately repay any
outstanding FHLB advances (subject to safety and soundness considerations).

    Currently, the QTL test requires that 65% of an institution's "portfolio
assets" (as defined) consist of certain housing and consumer-related assets on a
monthly average basis in nine out of every 12 months. Assets that qualify
without limit for inclusion as part of the 65% requirement are loans made to
purchase, refinance, construct, improve or repair domestic residential housing
and manufactured housing; home equity loans; mortgage-backed securities (where
the mortgages are secured by domestic residential housing or manufactured
housing); stock issued by the FHLB of Dallas; and direct or indirect obligations
of the FDIC. In addition, the following assets, among others, may be included in
meeting the test subject to an overall limit of 20% of the savings institution's
portfolio assets: 50% of residential mortgage loans originated and sold within
90 days of origination; 100% of consumer and educational loans (limited to 10%
of total portfolio assets); and stock issued by the FHLMC or the FNMA. Portfolio
assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct its
business, and (iii) liquid assets up to 20% of the institution's total assets.
At December 31, 2000, the qualified thrift investments of the Bank were
approximately 80.0% of its portfolio assets.



                                       22

<PAGE>


    FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of Dallas,
which is one of 12 regional FHLBs that administers the home financing credit
function of savings institutions. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the Board of Directors of the FHLB. At December 31, 2000, the
Bank had $93.4 million of outstanding FHLB advances.

    As a member, the Bank is required to purchase and maintain stock in the FHLB
of Dallas in an amount equal to at least 1% of its aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year. At December 31, 2000, the Bank had $5.1 million in FHLB stock,
which was in compliance with this requirement. No ready market exists for such
stock and it has no quoted market value.

    The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid in the past and could
continue to do so in the future. These contributions also could have an adverse
effect on the value of FHLB stock in the future.

    FEDERAL RESERVE SYSTEM. The FRB requires all depository institutions to
maintain reserves against their transaction accounts and non-personal time
deposits. As of December 31, 2000, no reserves were required to be maintained on
the first $5.5 million of transaction accounts, reserves of 3% were required to
be maintained against the next $42.8 million of net transaction accounts (with
such dollar amounts subject to adjustment by the FRB), and a reserve of 10%
(which is subject to adjustment by the FRB to a level between 8% and 14%)
against all remaining net transaction accounts. Because required reserves must
be maintained in the form of vault cash or a noninterest-bearing account at a
Federal Reserve Bank, the effect of this reserve requirement is to reduce an
institution's earning assets.

                                    TAXATION
FEDERAL TAXATION

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

    YEAR. The Bank files a federal income tax return on the basis of a fiscal
year ending on December 31. The Company filed a consolidated federal income tax
return with both the Bank and the Service Corporation.

    BAD DEBT RESERVES. Prior to the enactment of the Small Business Jobs
Protection Act (the "Act"), which was signed into law on August 21, 1996,
certain thrift institutions, such as the Bank, were allowed deductions for bad
debts under methods more favorable than those granted to other taxpayers.
Qualified thrift institutions could compute deductions for bad debts using
either the specific charge off method of Section 166 of the Code or the reserve
method of Section 593 of the Code.

    Under Section 593, a thrift institution annually could elect to deduct bad
debts under either (i) the "percentage of taxable income" method applicable only
to thrift institutions, or (ii) the "experience" method that also was available
to small banks. Under the "percentage of taxable income" method, a thrift
institution generally was allowed a deduction for an addition to its bad debt
reserve equal to 8% of its taxable income (determined without regard to this
deduction and with additional adjustments). Under the experience method, a
thrift institution was generally allowed a deduction for an addition to its bad
debt reserve equal to the greater of (i) and amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax


                                       23

<PAGE>


years 1995 and 1994, the Bank used the percentage of taxable income method
because such method provided a higher bad debt deduction than the experience
method.

    Section 1616(a) of the Act repealed the Section 593 reserve method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method. The percentage of taxable income method of
accounting for bad debts is no longer available for any financial institution.

    A thrift institution required to change its method of computing reserves for
bad debts will treat such change as a change in the method of accounting,
initiated by the taxpayer and having been made with the consent of the Secretary
of the Treasury. Section 481(a) of the Code requires certain amounts to be
recaptured with respect to such change. Generally, the amounts to be recaptured
will be determined solely with respect to the "applicable excess reserves" of
the taxpayer. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first taxable
year beginning after 1995, subject to the residential loan requirement described
below. In the case of a thrift institution that is treated as a large bank, the
amount of the institution's applicable excess reserves generally is the excess
of (i) the balances of its reserve for losses on qualifying real property loans
(generally loans secured by improved real estate) and its reserve for losses on
nonqualifying loans (all other types of loans) as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the balances of such
reserves as of the close of its last taxable year beginning before January 1,
1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that
is treated as a small bank, the amount of the institution's applicable excess
reserves generally is the excess of (i) the balances of its reserve for losses
on qualifying real property loans and its reserve for losses on nonqualifying
loans as of the close of its last taxable year beginning before January 1, 1996,
over (ii) the greater of the balance of (a) its pre- 1988 reserves or, (b) what
the thrift's reserves would have been at the close of its last year beginning
before January 1, 1996, had the thrift always used the experience method.

    For taxable years that begin after December 31, 1995, and before January 1,
1998, if a thrift meets the residential loan requirement for a tax year, the
recapture of the applicable excess reserves otherwise required to be taken into
account as a Code Section 481(a) adjustment for the year will be suspended. A
thrift meets the residential loan requirement if, for the tax year, the
principal amount of residential loans made by the thrift during the year is not
less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996.

    A residential loan is a loan as described in Section 7701(a)(19)(C)(v)
(generally a loan secured by residential or church property and certain mobile
homes), but only to the extent that the loan is made to the owner of the
property.

    The balance of the pre-1988 reserves is subject to the provisions of Section
593(e), as modified by the Act, which requires recapture in the case of certain
excessive distributions to shareholders. The pre-1988 reserves may not be
utilized for payment of cash dividends or other distributions to a shareholder
(including distributions in dissolution or liquidation) or for any other purpose
(except to absorb bad debt losses). Distribution of a cash dividend by a thrift
institution to a shareholder is treated as made: first, out of the institution's
post-1951 accumulated earnings and profits; second, out of the pre-1988
reserves; and third, out of such other accounts as may be proper. To the extent
a distribution by the Bank to the Company is deemed paid out of its pre-1988
reserves under these rules, the pre-1988 reserves would be reduced and the
Bank's gross income for tax purposes would be increased by the amount which,
when reduced by the income tax, if any, attributable to the inclusion of such
amount in its gross income, equals the amount deemed paid out of the pre-1988
reserves. As of December 31, 2000, the Bank's pre-1988 reserves for tax purposes
totaled approximately $4.2 million.

    MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of 20%.
The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. The Code provides that an item of tax preference is the excess of the
bad debt deduction allowable for a taxable year pursuant to the percentage of
taxable income method over the amount allowable under the experience method.
Other items of tax preference that


                                       24

<PAGE>



constitute AMTI include (a) tax-exempt interest on newly issued (generally,
issued on or after August 8, 1986) private activity bonds other than certain
qualified bonds and (b) 75% of the excess (if any) of (i) adjusted current
earnings as defined in the Code, over (ii) AMTI (determined without regard to
this preference and prior to reduction by net operating losses).

    NET OPERATING LOSS CARRYOVERS. A financial institution may, for federal
income tax purposes, carry back net operating losses ("NOLs") to the preceding
two taxable years and forward to the succeeding 20 taxable years. This provision
applies to losses incurred in taxable years beginning after 1997. At December
31, 2000, the Bank had no NOL carryforwards for federal income tax purposes.

    CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Corporate net
capital gains are taxed at a maximum rate of 35%. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf. However, a corporation may deduct 100% of dividends from a member
of the same affiliated group of corporations.

    OTHER MATTERS. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect the Bank.

    The Bank's federal income tax returns for the tax years ended December 31,
1997 forward are open under the statute of limitations and are subject to review
by the IRS.

STATE TAXATION

    The Bank will continue to be subject to Arkansas corporation income tax
which is a progressive rate up to a maximum of 6.5% of all taxable earnings.

    The Company is incorporated under Texas law and, accordingly, is subject to
Texas franchise tax in an amount equal to 4.5% of net income allocated to Texas
pursuant to apportionments of gross receipts based upon where the Company
conducts business.




                                       25

<PAGE>



ITEM 2.  PROPERTIES.

    At December 31, 2000, the Bank conducted its business from its executive
office in Harrison, Arkansas, and thirteen full service offices, all of which
are located in Northcentral and Northwest Arkansas.

    The following table sets forth the net book value (including leasehold
improvements and equipment) and certain other information with respect to the
offices and other properties of the Bank at December 31, 2000.


<TABLE>
<CAPTION>
                                               Leased/                 Net Book Value
         Description/Address                    Owned                   of Property             Amount of Deposits
----------------------------------    ----------------------     ------------------------   -----------------------
<S>                                   <C>                        <C>                        <C>
                                                                                   (In Thousands)
200 West Stephenson                             Owned                          $1,775(1)                $146,721
Harrison, AR 72601

128 West Stephenson                             Owned                             210                           (2)
Harrison, AR  72601

Corner Central & Willow                         Owned                             230                           (2)
Harrison, AR  72601

Ozark Mall - Hwy. 62-65 North                 Leased(3)                            26                     23,543
Harrison, AR  72601

324 Hwy. 62-65 Bypass                           Owned                             274                     48,437
Harrison, AR  72601

210 South Main                                  Owned                             262                     31,862
Berryville, AR  72616

668 Highway 62 East                             Owned                             598                    163,088
Mountain Home, AR  72653

1337 Highway 62 SW                              Owned                             978                     12,922
Mountain Home, AR 72653

301 Highway 62 West                             Owned                             135                     22,510
Yellville, AR  72687

307 North Walton Blvd.                          Owned                             294                     28,748
Bentonville, AR  72712

3460 North College                              Owned                             434                     32,144
Fayetteville, AR  72703

1303 West Hudson                                Owned                             219                      4,403
Rogers, AR  72756

201 East Henri De Tonti Blvd.                   Owned                             237                      8,167
Tontitown, AR  72764

2025 North Crossover Road                       Owned                             783                      7,456
Fayetteville, AR 72703

249 West Main Street                          Leased(4)                           137                      7,304
Farmington, AR 72730

2030 West Elm                                   Owned                             578                      3,022
Rogers, AR 72756
</TABLE>
---------------------
(1)   Includes property acquisition for expansion in north Harrison.
(2)   Such offices do not open deposit accounts.
(3)   Such property is subject to a month-to-month lease.
(4)   Such property is subject to a five year lease expiring November 1, 2002.


                                       26

<PAGE>


ITEM 3. LEGAL PROCEEDINGS.

     Neither the Company nor the Bank is involved in any pending legal
proceedings other than nonmaterial legal proceedings occurring in the ordinary
course of business.

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

     None.

PART II.

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

     The information required herein, to the extent applicable, is incorporated
by reference from page 44 of the Company's 2000 Annual Report to Stockholders
("2000 Annual Report").

ITEM 6. SELECTED FINANCIAL DATA.

     The information required herein is incorporated by reference from pages 4
and 5 of the 2000 Annual Report.

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

     The information required herein is incorporated by reference from pages 7
to 16 of the 2000 Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     The information required herein is incorporated by reference from pages 7
to 9 of the 2000 Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The information required herein is incorporated by reference from page 6
and pages 18 to 42 of the 2000 Annual Report.

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

     Not Applicable.


PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required herein is incorporated by reference from pages 3
to 5 of the definitive proxy statement of the Company for the Annual Meeting of
Stockholders to be held on April 26, 2001 ("Definitive Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION.

     The information required herein is incorporated by reference from pages 9
to 13 of the Definitive Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required herein is incorporated by reference from pages 6
to 8 of the Definitive Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required herein is incorporated by reference from page 12
of the Definitive Proxy Statement.


                                       27

<PAGE>


PART IV.

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

     (a)  DOCUMENTS FILED AS PART OF THIS REPORT

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

                  Independent Auditors' Report
                  Consolidated Statements of Financial Condition at December 31,
                   2000 and 1999
                  Consolidated Statements of Income for the years ended
                   December 31, 2000, 1999 and 1998
                  Consolidated Statements of Changes in Stockholders' Equity for
                    the years ended December 31, 2000, 1999 and 1998.
                  Consolidated Statements of Cash Flows for the years ended
                    December 31, 2000, 1999 and 1998.
                  Notes to Consolidated Financial Statements.

     (2) All schedules for which provision is made in the applicable accounting
regulation of the SEC are omitted because of the absence of conditions under
which they are required or because the required information is included in the
financial statements and related notes thereto.

     (3) The following exhibits are filed as part of this Form 10-K and this
list includes the Exhibit Index.




                                       28

<PAGE>



                                  EXHIBIT INDEX

<TABLE>
<S>     <C>
2.1*    Plan of Conversion
3.1*    Articles of Incorporation of First Federal Bancshares of Arkansas, Inc.
3.2*    Bylaws of First Federal Bancshares of Arkansas, Inc.
4.0**   Stock Certificate of First Federal Bancshares of Arkansas, Inc.
10.5*   Employment Agreement between the Company, the Bank and Frank L. Coffman, Jr.
10.6*   Employment Agreement between the Company, the Bank and Larry J. Brandt
10.7*   Employment Agreement between the Company, the Bank and Carolyn M. Thomason
13.0    2000 Annual Report to Stockholders
22.0    Subsidiaries of the Registrant - Reference is made to
          "Item 1 Business - Subsidiaries" for the required information
</TABLE>


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

(*) Incorporated herein by reference from the Company's Registration Statement
on Form S-1 (File No. 333-612) filed with the SEC.

(**) Incorporated herein by reference from the Company's Registration Statement
on Form 8-A filed with the SEC.




                                       29

<PAGE>


                                   SIGNATURES


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



                                FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.



                                 By:   /s/ LARRY J. BRANDT
                                       -----------------------------------------
                                       Larry J. Brandt
                                       President and Chief Operating Officer

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



<TABLE>
<CAPTION>
<S>                                                                                    <C>
/s/ FRANK L. COFFMAN, JR.                                                              March 30, 2001
------------------------------------------
Frank L. Coffman, Jr.
Chairman of the Board and Chief
  Executive Officer


/s/ LARRY J. BRANDT                                                                    March 30, 2001
------------------------------------------
Larry J. Brandt
President and Chief
 Operating Officer


/s/ JOHN P. HAMMERSCHMIDT                                                              March 30, 2001
------------------------------------------
John P. Hammerschmidt
Director

/s/ JAMES D. HEUER                                                                     March 30, 2001
------------------------------------------
James D. Heuer
Director

/s/ KENNETH C. SAVELLS                                                                 March 30, 2001
------------------------------------------
Kenneth C. Savells
Director


/s/ TOMMY W. RICHARDSON                                                                March 30, 2001
------------------------------------------
Tommy W. Richardson
Executive Vice President and Chief
 Financial Officer
</TABLE>



                                       30