<Page>

                       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, 2001

                                       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)

           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)

       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 15, 2002, the aggregate value of the 2,779,533 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
237,826 shares held by all directors and officers of the Registrant as a group,
was approximately $66.3 million. This figure is based on the last sales price of
$23.85 per share of the Registrant's Common Stock on March 15, 2002.

Number of shares of Common Stock outstanding as of March 15, 2002: 3,017,359

                       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, 2001 are incorporated into Part II, Items 5 through 8 of this Form 10-K.

(2) Portions of the definitive proxy statement for the 2002 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, 2001, the
Company had $680.3 million in total assets, $555.9 million in total deposits and
$71.1 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 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.

     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.

                                        1
<Page>

LENDING ACTIVITIES

     GENERAL. At December 31, 2001, the Bank's total portfolio of loans
receivable ("total loan portfolio"), amounted to $487.6 million or 71.7% of the
Company's $680.3 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, $330.8 million or 67.9% of the Bank's
total loan portfolio consisted of one- to four-family residential loans at
December 31, 2001. To a lesser extent, the Bank also originates multi-family
residential loans, commercial real estate loans, construction loans, commercial
loans and consumer loans. At December 31, 2001, such loan categories amounted to
$4.4 million, $46.9 million, $24.8 million, $23.5 million and $57.2 million,
respectively, or .9%, 9.6%, 5.1%, 4.8% and 11.7% 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,
                              ----------------------------------------------------------------------------------------
                                      2001                          2000                          1999
                              -----------------------    ---------------------------    -------------------------
                                          Percentage                    Percentage                      Percentage
                                Amount     of Loans       Amount         of Loans        Amount          of Loans
                              ----------  ----------   -----------     ------------     ----------      ----------
                                                           (Dollars in Thousands)
<S>                            <C>         <C>          <C>             <C>              <C>             <C>
Real estate loans:
 Single-family residential     $ 330,844    67.85%      $ 377,341        73.87%          $ 368,589        77.73%
 Multi-family residential          4,386      .90           3,666          .72               2,812          .59
 Commercial real estate           46,896     9.62          38,085         7.46              26,018         5.49
 Construction                     24,842     5.09          24,937         4.88              25,797         5.44
                                 -------   ------         -------       ------             -------        -----
   Total real estate loans       406,968    83.46         444,029        86.93             423,216        89.25
                                 -------   ------         -------       ------             -------        -----
Commercial loans                  23,451     4.81          20,239         3.96              14,171         2.99
                                 -------   ------         -------       ------             -------        -----
Consumer loans:
 Home equity and second
  mortgage loans                  24,933     5.11          19,797         3.87              15,009         3.17
 Automobile                       20,506     4.20          16,051         3.14              13,205         2.78
 Other                            11,781     2.42          10,703         2.10               8,577         1.81
                                 -------   ------         -------       ------             -------       ------
   Total consumer loans           57,220    11.73          46,551         9.11              36,791         7.76
                                 -------   ------         -------       ------             -------       ------

   Total loans receivable        487,639   100.00%        510,819       100.00%            474,178       100.00%
                                 -------   ======         -------       ======             -------       ======
Less:
 Undisbursed loan funds          (10,144)                  (9,126)                         (10,473)
 Unearned discounts and
  net deferred loan fees          (2,078)                  (2,697)                          (3,011)

 Allowance for loan losses          (923)                    (691)                            (752)
                                --------                  -------                          -------
   Total loans receivable, net $ 474,494                $ 498,305                          459,978
                                ========                  =======                          =======

<Caption>
                                                     December 31,
                            ---------------------------------------------------------
                                         1998                         1997
                            ----------------------------- ---------------------------
                                Amount       Percentage      Amount       Percentage
                                              of Loans                     of Loans
                            ------------    -----------   ----------     ------------
                                                  (Dollars in Thousands)
<S>                            <C>            <C>          <C>             <C>
Real estate loans:
 Single-family residential     $ 370,211       81.66%      $ 370,955        83.18%
 Multi-family residential          1,540         .34           1,303          .29
 Commercial real estate           23,196        5.12          18,593         4.17
 Construction                     18,226        4.02          20,753         4.66
                                 -------      ------         -------       ------
   Total real estate loans       413,173       91.14         411,604        92.30
                                 -------      ------         -------       ------

Commercial loans                   8,437        1.86           5,649         1.27
                                 -------      ------         -------       ------

Consumer loans:
 Home equity and second
  mortgage loans                  13,308        2.94          13,023         2.92
 Automobile                       10,693        2.36           8,307         1.86
 Other                             7,712        1.70           7,372         1.65
                                 -------      ------         -------       ------
   Total consumer loans           31,713        7.00          28,702         6.43
                                 -------      ------         -------       ------
   Total loans receivable        453,323      100.00%        445,955       100.00%
                                 -------      ======         -------       ======
Less:
 Undisbursed loan funds           (6,770)                     (7,305)
 Unearned discounts and
  net deferred loan fees          (3,296)                     (3,512)

 Allowance for loan losses          (771)                     (1,196)
                                 -------                     -------
   Total loans receivable, net $ 442,486                   $ 433,942
                                 =======                     =======
</Table>

                                        3
<Page>

     LOAN MATURITY AND INTEREST RATES. The following table sets forth certain
information at December 31, 2001 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>
                                      One Year    After Three      After Five      After Ten
                                      Through        Years            Years           Years           Beyond
                             Within     Three      Through          Through         Through           Twenty
                            One Year    Years     Five Years       Ten Years       Twenty Years        Years         Total
                            --------  --------   -------------    ------------    --------------     ---------      -------
                                                                    (In Thousands)
<S>                        <C>         <C>          <C>               <C>              <C>            <C>          <C>
Real estate loans:
 Single-family residential $   434     $  1,131     $   3,504         $ 36,566         $137,635       $ 151,574    $ 330,844

 Multi-family residential      118           --           521            1,286            2,202             259        4,386

 Commercial real estate      1,442        5,828        20,848            7,904           10,714             160       46,896
 Construction               10,457           --            --              400            3,690          10,295       24,842
Commercial loans            11,566        3,831         4,279            2,675            1,100              --       23,451
Consumer loans              15,648       14,233        22,913            3,671              755                       57,220
                            ------       ------        ------           ------          -------         -------      -------
  Total(1)                 $39,665     $ 25,023     $  52,065         $ 52,502         $156,096       $ 162,288    $ 487,639
                            ======       ======        ======           ======          =======         =======      =======
</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, 2001 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-Rate          Adjustable-Rates           Total
                                       ---------------     --------------------    --------------
                                                             (In Thousands)
<S>                                      <C>                     <C>                  <C>
Real estate loans:
  Single-family residential              $111,975                $218,435             $330,410
  Multi-family residential                  3,646                     622                4,268
  Commercial real estate                   45,294                     160               45,454
  Construction                              4,373                  10,012               14,385
Commercial loans                           11,885                      --               11,885
Consumer loans                             41,572                      --               41,572
                                          -------                 -------              -------
     Total                               $218,745                $229,229             $447,974
                                          =======                 =======              =======
</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 realtor referrals,
walk-in customers to the Bank's branch locations, solicitation by loan officers,
radio, television and newspaper advertising, and to a lesser extent, through the
Bank's Internet website. The Bank continually emphasizes its community ties and
its practice of quick and efficient underwriting and loan approval processes.
The Bank believes it provides exceptional personalized service to its customers,
in part through the use of automated underwriting software (Loan Prospector).
The Bank requires hazard insurance, title insurance, and to the extent
applicable, flood insurance on all secured real property.

                                        4
<Page>

Applications for loans to be held in the Bank's portfolio or loans to be sold on
the secondary market are initially received by branch managers or loan officers.
All first mortgage real estate loans up to $150,000 must be approved by one
member of the Bank's Loan Committee. Loans between $150,000 and $250,000 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 $250,000 and $500,000
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 between $500,000 and
$1,000,000 must initially be approved by three Loan Committee members, one of
which must be an executive vice president or above. Loans in excess of
$1,000,000 must be approved 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.

     To minimize interest rate risk, loans with fixed-rate terms greater than
fifteen years are typically sold to specific investors in the secondary
mortgage market. This allows the Bank to provide to its customers competitive
long-term fixed-rate mortgage products which are very popular financing
products for home buyers in today's market, while not exposing the Bank to
undue interest rate risk. These loans are originated subject to Fannie Mae
and/or Freddie Mac underwriting guidelines and are typically underwritten and
validated by a third party prior to loan closing. The Secondary Market
Department of the Bank typically locks and confirms the purchase price of the
loan on the day of application which protects the Bank from market price
movements and insures that the Bank has a fair and reasonable profit on the
sale of the respective loan. Due to the loans being underwritten by a third
party, the repurchase risk associated with these loans is mostly assumed by
the underwriter. The Bank believes it has minimal risk of repurchase of these
loans based upon the contracts with the specific investors. This risk
typically involves potential early prepayments of the mortgage or an early
default of a loan. In 2001, 2000, and 1999 the Bank was not subject to any
loan repurchases. In 2001, 2000 and 1999 the Bank's loan sales amounted to
$60.5 million, $8.6 million, and $15.5 million, respectively. The Bank is not
involved in loan hedging or other speculative mortgage origination activities.

     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,
                                          ----------------------------------------------------------
                                                2001                 2000                1999
                                          -----------------    -----------------    ----------------
                                                                (In Thousands)
<S>                                          <C>                  <C>                   <C>
Loans receivable at beginning
  of period                                  $510,819             $474,178              $453,323
                                              -------              -------               -------
Loan originations:
  Real estate:
    Single-family residential                 129,181               79,327                97,236
    Multi-family residential                    2,643                1,017                 1,812
    Commercial real estate                     16,713               14,913                 7,266
    Construction                               28,876               30,522                31,175
  Commercial loans                             14,943               14,626                10,783
  Consumer:
    Home equity and second
      mortgage loans                           22,884               15,512                11,861
    Automobile                                 18,392               13,597                11,735
    Other                                      11,307               11,206                 8,801
                                              -------              -------               -------
      Total loan originations                 244,939              180,720               180,669
Repayments                                   (207,059)            (134,408)             (143,388)
Loan sales                                    (60,452)              (8,590)              (15,516)
Other                                            (608)              (1,081)                 (910)
                                              -------              -------               -------
Net loan activity                             (23,180)              36,641                20,855
                                              -------              -------               -------
Loans receivable
  at end of period                           $487,639             $510,819              $474,178
                                              =======              =======               =======
</Table>

                                        5
<Page>

     Multi-family residential, commercial real estate, construction and
commercial loans comprised 25.8%, 33.8%, and 28.2% of total loan originations,
respectively, for the years ended December 31, 2001, 2000, and 1999. Such loans
generally have a greater risk of uncollectibility. At December 31, 2001, there
was $135,000 of 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,
2001, the Bank's limit on loans-to-one borrower was approximately $10.1 million.
At December 31, 2001, the Bank's largest loan or groups of loans-to-one
borrower, including persons or entities related to the borrower, amounted to
$7.0 million. Such amount consists of twenty-four loans, primarily commercial
real estate loans, all of which were current at December 31, 2001. The Bank's
ten largest loans or groups of loans-to-one borrower, including persons or
entities related to the borrower, amounted to $38.5 million at December 31,
2001. At December 31, 2001, there were no loans to such borrowers that were
delinquent.

    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, 2001, $330.8 million or 67.9% of the Bank's total loan portfolio consisted
of one- to four-family residential real estate loans. The Bank originated $129.2
million, $79.3 million and $97.2 million of one- to four-family residential
loans in 2001, 2000, and 1999, 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 $330.8
million of such loans at December 31, 2001, $218.6 million or 66.1% had
adjustable-rates of interest (including $138.3 million of seven-year adjustable
rate loans) and $112.2 million or 33.9% 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 80% of the
appraised value of the secured property. However, pursuant to the underwriting
guidelines adopted by the Board of Directors, the Bank may lend up to 97% of the
appraised value of the property, securing a one- to-four residential loan with
private mortgage insurance to protect the portion of the loan that exceeds 80%
of the appraised value. The Bank may, on occasion, extend a loan up to 90% of
the appraised value of the secured property without private mortgage insurance
coverage. However, these exceptions are minimal and are only approved on loans
with exceptional credit scores, sizeable asset reserves, or other compensating
factors. At December 31, 2001, the Bank had $2.0 million of nonperforming,
single-family residential loans. See "Asset Quality".

                                        6
<Page>

     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, 2001, $4.4 million or .9%
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, 2001, 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, 2001, $46.9 million or 9.6% of the Bank's total loan portfolio consisted of
loans collateralized by existing commercial real estate properties.

     The majority of the Bank's real estate loans are collateralized by office
buildings, convenience stores, service stations, mini-storage facilities,
hotels, churches, and small shopping malls and strip centers. The majority of
these loans are collateralized by properties located in the Bank's market areas.
These loans have increased in the last few years and are underwritten
specifically in correlation with the type of property being collateralized. Cash
flows and vacancy rates are primary considerations when underwriting loans
collateralized by office buildings, convenience stores, mini-storage facilities,
hotels, etc. Loans with borrowers that are corporations, limited liability
companies, trusts, or other legal entities are also personally guaranteed by the
principals of the respective entity.

     At December 31, 2001, the Bank had approximately $11.0 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. To date, the Bank has not experienced any
material credit or environmental problems with such loans.

     The Bank's policy requires real estate appraisals of all properties
securing commercial real estate loans by licensed real estate appraisers
pursuant to state licensing requirements. The Bank considers the quality and
location of the real estate, the credit of the borrower, the cash flow of the
project, and the quality of management involved with the property. The Bank's
commercial real-estate-loans are typically originated with amortizations not to
exceed 20 years, and typically have balloon periods of three, five, or
seven-year terms. The Bank does offer a limited number of fixed-rate commercial
loans with terms not to exceed 15 year periods. As part of the criteria for
underwriting multi-family and commercial real estate loans, the Bank generally
prepares a cash flow analysis that includes a vacancy rate estimation, expenses
for taxes, insurance, maintenance, and repair reserves, and debt coverage
ratios.

     Commercial real estate lending entails additional risks with the loan
portfolio, as compared to the Bank's single-family residential property loans.
Such loans generally involve larger 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. Changes in interest rates are typically considered in the
underwriting process of commercial real estate loans. At December 31, 2001, the
Bank had $269,000 of non-performing commercial real estate loans. See "Asset
Quality".

     CONSTRUCTION LOANS. The Bank originates residential, multi-family, and
commercial real estate construction loans. However, the Bank's primary emphasis
has been residential construction lending. The Bank's construction lending
activities are typically limited to the Bank's primary market areas. At December
31, 2001, construction loans amounted to $24.8 million or 5.1% of the Bank's
total loan portfolio, of which, $22.2 million consisted of one-to four-family
residential construction loans, and $2.6 million consisted of commercial real
estate and multi-family residential construction loans.

                                        7
<Page>

The Bank's construction loans generally have fixed interest rates and are
typically issued for a term of six-to nine-months. However, the Bank is
permitted to originate construction loans with terms up to two years under its
loan policy. This practice is typically limited to larger projects that cannot
be completed in the Bank's six-to nine-month period. Construction loans are
typically made with a maximum loan-to-value ratio of 85%.

     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.

     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. These loans are subject to credit
review, analysis of personal and, if applicable, corporate financial statements,
and an appraisal of the property to be constructed. The Bank also reviews and
inspects the project prior to the disbursement of funds (draws) during the
construction term. Loan proceeds are disbursed after a satisfactory inspection
of the project has been made based upon a percentage of completion or
presentation of substantiated costs incurred. Interest on these construction
loans is due upon maturity. The Bank will extend a construction loan upon the
payment of the interest accrued if the property has not been sold by the
maturity date. The Bank has not experienced any material credit or delinquency
problems in this regard.

     Construction lending is generally considered to involve a higher level of
risk as compared to one- to four-family residential loans. This is due, in part,
to the concentration of principal in a limited number of loans and borrowers,
and the effects of general economic conditions on developers and builders. For
this reason, the Bank analyzes each borrower involved in speculative lending and
limits the principal amount of dollars that the Bank concentrates at any one
time, with any one borrower. The nature of these loans is such that they are
generally more difficult to monitor and evaluate. In addition, speculative
construction loans to a builder that are not pre-sold possess a greater
potential risk to the Bank than construction loans to individuals on their
personal residences or on houses that are pre-sold prior to the inception of the
loan.

     The Bank has attempted to minimize the risks as outlined above by limiting
the extent of its construction loans generally to residential type properties.
In addition, the Bank has adopted underwriting guidelines that impose stricter
loan-to-value ratios, debt service, and other requirements to protect the Bank
for lending areas that involve higher credit risks. Additionally, these loans
are priced such that they provide a higher yield to the loan portfolio than do
the Bank's single-family residential portfolio loans. At December 31, 2001, the
Bank had $350,000 of 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, 2001, such loans amounted to $23.5 million or
4.8% of the total loan portfolio. At December 31, 2001, the Bank had one
nonperforming commercial loan totaling $54,000. 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.

     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
$57.2 million or 11.7% of the total loan portfolio at December 31, 2001, of
which $24.9 million, $20.5 million and $11.8 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.

                                        8
<Page>

     The Bank's home equity and second mortgage loans are typically fixed-rate
loans with terms of up to fifteen 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 generally 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, 2001, the Bank had $409,000 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, 2001, 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       $2,186     .45%        $  --       --%       $  --        --%       $117       .02%       $  256       .05%

60-89 days          604     .12            72      .01           31       .01          56       .01           407       .08

90 days and
over              2,024     .41           350      .07          269       .06          54       .01           409       .08
                  -----                   ---                   ---                   ---                   -----
Total            $4,814                 $ 422                 $ 300                  $227                  $1,072
                  =====                   ===                   ===                   ===                   =====
</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, 2001 amounted to
$249,000, and the interest recognized during this period amounted to $101,000.

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

<Table>
<Caption>
                                                                     December 31,
                                       -------------------------------------------------------------------------
                                          2001           2000            1999           1998            1997
                                       -----------    -----------     -----------    -----------     -----------
                                                                (Dollars in Thousands)
  <S>                                    <C>             <C>            <C>            <C>             <C>
  Nonperforming loans:
    Single-family residential            $2,024          $1,438         $1,203         $1,275          $ 1,001
    Multi-family residential                 --              --             --             --              109
    Construction loans                      350              --             --             --               --
    Commercial real estate                  269              48             --             --            3,365(1)
    Commercial loans                         54              20             23             30               48
    Consumer loans                          409             140            121            159              434
                                          -----           -----          -----          -----            -----
       Total nonperforming loans          3,106           1,646          1,347          1,464            4,957
                                          -----           -----          -----          -----            -----
  Real estate owned                         455             261          3,940(1)       4,270(1)           195
                                          -----           -----          -----          -----            -----
       Total nonperforming assets        $3,561          $1,907         $5,287         $5,734           $5,152
                                          =====           =====          =====          =====            =====
  Total nonperforming loans as a
    percentage of total loans
    receivable                            0.64%           0.32%          0.28%          0.32%            1.11%
                                          ====            ====           ====           ====             ====

   Total nonperforming assets as a
     percentage of total assets           0.53%           0.27%          0.78%          0.93%            0.94%
                                          ====            ====           ====           ====             ====
</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,
2001, the Bank had $3.6 million of classified assets, $3.4 million of which were
classified as substandard and $184,000 of which were classified as loss. In
addition, at such date, the Bank had $1.3 million 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 judgment. While it is
possible that in the near term the Bank may sustain losses which are substantial
in relation to the allowance for loan losses, it is the judgment of management
that the allowance for loan losses reflected in the consolidated statements of
financial condition is appropriate considering the estimated probable losses in
the portfolio.

     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,
                                       -------------------------------------------------------------------------------------

                                           2001               2000             1999             1998              1997
                                       --------------     -------------    -------------    --------------    --------------
                                                                      (Dollars in Thousands)
<S>                                      <C>                <C>              <C>              <C>               <C>
Total loans outstanding at
 end of period                           $487,639           $510,819         $ 474,178        $ 453,323         $445,955
                                          =======            =======          ========          =======          =======
Average loans outstanding                $488,942           $481,112         $ 447,631        $ 441,702         $415,075
                                          =======            =======          ========          =======          =======
Allowance at beginning of period         $    691           $    752         $     771        $   1,196         $  1,251
                                          -------            -------          --------          -------          -------
Charge-offs:
  Single-family residential                   (75)               (28)               (9)             (17)              --
  Commercial real estate                       --                 --                --             (369)              --
  Commercial loans                            (41)               (20)               --               --               --
  Consumer loans                             (121)               (40)              (57)            (103)             (67)
                                          -------            -------          --------          -------          -------
    Total charge-offs                        (237)               (88)              (66)            (489)             (67)
                                          -------            -------          --------          -------          --------
Recoveries:
  Consumer loans                               17                 27                27                9               12
                                          -------            -------          --------          -------          -------
    Total recoveries                           17                 27                27                9               12
                                          -------            -------          --------          -------          -------
Net charge-offs                              (220)               (61)              (39)            (480)             (55)
                                          -------            -------          --------          -------          -------
Total provisions for losses                   452                 --                20               55               --
                                          -------            -------          --------          -------          -------
Allowance at end of period               $    923           $    691         $     752        $     771         $  1,196
                                          =======            =======          ========          =======          ========

Allowance for loan losses as a
  percentage of total loans
  outstanding at end of period               0.19%              0.14%             0.16%            0.17%            0.27%
                                             ====               ====              ====             ====             ====
Net loans charged-off as a
  percentage of average loans
  outstanding                                0.05%              0.01%             0.01%            0.11%            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.

<Table>
<Caption>
                                                                    December 31,
                          ------------------------------------------------------------------------------------------
                                     2001                           2000                           1999
                          ---------------------------    ---------------------------    ---------------------------
                                          Percentage                     Percentage                    Percentage
                                           of Total                       of Total                      of Total
                                             Loans                         Loans                         Loans
                            Amount        by Category      Amount       by Category      Amount       by Category
                           -------     --------------    ----------    -------------    ----------    -------------
                                                               (Dollars in Thousands)
<S>                         <C>             <C>            <C>            <C>            <C>             <C>
Single-family               $  66            67.85%        $  57           73.87%        $   50           77.73%
residential
Multi-family residential        1              .90            --             .72             --             .59
Commercial real estate        240             9.62           190            7.46            149            5.49
Construction loans             25             5.09            --            4.88             --            5.44
Commercial loans              133             4.81           101            3.96             31            2.99
Consumer loans                327            11.73           158            9.11            144            7.76
Unallocated                   131             --             185            --              378              --
                              ---           ------           ---          ------            ---          ------
        Total               $ 923           100.00%        $ 691          100.00%        $  752          100.00%
                              ===           ======           ===          ======            ===          ======

<Caption>
                                                   December 31,
                            ----------------------------------------------------------
                                       1998                           1997
                            ---------------------------    ---------------------------
                                             Percentage                     Percentage
                                              of Total                       of Total
                                                Loans                          Loans
                               Amount       by Category       Amount        by Category
                            ----------    -------------    ----------     ------------
                                       (Dollars in Thousands)
<S>                              <C>         <C>              <C>            <C>
Single-family residential        $ 46         81.66%          $   49          83.18%
Multi-family residential           --           .34               --            .29
Commercial real estate            147          5.12              125           4.17
Construction loans                 --          4.02               --           4.66
Commercial loans                   60          1.86               13           1.27
Consumer loans                    135          7.00              221           6.43
Unallocated                       383            --              788             --
                                  ---        ------            -----         ------
        Total                    $771        100.00%          $1,196         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/Chief Executive Officer 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,
2001, the Bank held no investment securities classified as available for sale.
At December 31, 2001, approximately $16.3 million of the Bank's investment
securities were pledged as collateral for certain deposits in excess of
$100,000. At December 31, 2001, 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, 2001. Weighted
average yields for municipal obligations have not been adjusted to a
tax-equivalent basis. 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
                       ------- ------- --------- -------- ---------- -------- --------- ------- ---------- -----------
                                                               (In Thousands)
<S>                     <C>        <C>    <C>      <C>    <C>         <C>     <C>        <C>   <C>         <C>
Bonds and other debt
  securities held to
  maturity:

 Municipal securities   $  --      --%    $ 100    4.45%  $    100    4.60%   $ 5,314    5.07% $  5,514    5.07%

 U.S. Government and
   agency obligations      --      --       499    5.25     18,998    5.79     75,867    6.67  $ 95,364    6.48
                         ----               ---             ------             ------           -------
 Total                  $  --      --%    $ 599    5.13%  $ 19,098    5.78%   $81,181    6.56% $100,878    6.41%
                         ====               ===             ======             ======           =======

</Table>

     As of December 31, 2001, there were approximately $100 million of
investments with issuer call options, of which approximately $82 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,
                                               ------------------------------------------------
                                                   2001              2000              1999
                                               --------------    ------------     -------------
                                                                (In Thousands)
           <S>                                 <C>                <C>             <C>
           Investment securities held to
             maturity:
             Municipal securities              $    5,514         $    3,460      $     3,104
             U.S. Government and agency
               obligations                         95,364            180,850          186,159
                                                  -------            -------          -------
           Total                               $  100,878         $  184,310      $   189,263
                                                  =======            =======          =======
</Table>

     As a member of the FHLB of Dallas, the Bank is required to maintain an
investment in FHLB stock. At December 31, 2001, the Bank's investment in FHLB
stock amounted to $4.9 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, 2001.

     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,
                                   ---------------------------------------------------------------------------------
                                            2001                       2000                         1999
                                   -----------------------    -----------------------    ---------------------------
                                    Amount          %          Amount          %            Amount            %
                                   ----------   ----------    ----------    ---------    -------------    ----------
                                                                (Dollars in Thousands)
<S>                                 <C>           <C>         <C>             <C>            <C>            <C>
Certificate accounts:
    Less than 3.00%                 $ 46,651        8.4%      $      --          --%         $     --          --%
    3.00% - 3.99%                     36,284        6.5             379          .1             1,107          .2
    4.00% - 5.99%                    212,212       38.2         155,948        28.8           291,342        57.4
    6.00% - 7.99%                    116,809       21.0         270,733        50.1           107,065        21.1
    8.00% and over                     6,225        1.1           5,961         1.1             5,800         1.1
                                     -------      -----         -------       -----           -------        ----
  Total certificate accounts         418,181       75.2         433,021        80.1           405,314        79.8
                                     -------      -----         -------       -----           -------        ----
Transaction accounts:
  Passbook and statement savings      26,784        4.8          24,300         4.5            26,031         5.1
  Money market accounts               35,119        6.3          16,980         3.2            15,735         3.1
  NOW accounts/DDA                    75,849       13.7          66,026        12.2            60,795        12.0
                                     -------      -----         -------       -----           -------       -----
     Total transaction accounts      137,752       24.8         107,306        19.9           102,561        20.2
                                     -------      -----         -------       -----           -------       -----
     Total deposits                 $555,933      100.0%      $ 540,327       100.0%         $507,875       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,
                                   ---------------------------------------------------------------------------------
                                            2001                       2000                         1999
                                   -----------------------    -----------------------    ---------------------------
                                                 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                          $ 25,669       2.41%       $ 25,760        2.72%         $ 27,098        2.72%
Money market accounts and
  NOW accounts                        74,861       2.57          66,767        2.53            64,043        2.32
Demand deposit accounts               16,312         --         14,449           --            14,063          --
Certificates of deposit              427,077       5.84         421,945        5.99           396,616        5.63
                                     -------                    -------                       -------
    Total deposits                  $543,919       5.06%       $528,921        5.23%         $501,820        4.90%
                                     =======                    =======                       =======
</Table>

     The following table presents, by various interest rate categories, the
amount of certificates of deposit at December 31, 2001 and 2000 and the amounts
at December 31, 2001 which mature during the periods indicated.

<Table>
<Caption>
                                                                     Balance at December 31, 2001
                                   December 31,             Maturing in the 12 Months Ending December 31,
                            ---------------------------  -----------------------------------------------------
                               2001           2000          2002         2003          2004       Thereafter
                            ------------   ------------  -----------  -----------  -------------  ------------
                                                            (In Thousands)
 <S>                          <C>          <C>           <C>            <C>        <C>             <C>
 Certificate accounts:
     Less than 3.00%          $ 46,651     $      --     $ 45,212       $ 1,439    $      --       $     --
     3.00% - 3.99%              36,284           379       33,639         2,025          595             25
     4.00% - 5.99%             212,212       155,948      151,111        35,457        5,752         19,892
     6.00% - 7.99%             116,809       270,733       83,006        12,964        5,136         15,703
     8.00% and over              6,225         5,961           --         5,891           --            334
                               -------       -------      -------        ------       ------         ------
   Total certificate
     accounts                 $418,181     $ 433,021     $312,968       $57,776    $  11,483       $ 35,954
                               =======       =======      =======        ======       ======         ======
</Table>

    The following table sets forth the savings flows of the Bank during the
periods indicated.
<Table>
<Caption>
                                                     Year Ended December 31,
                                           -------------------------------------------------
                                                2001            2000               1999
                                           -------------    -------------    ---------------
                                                         (In Thousands)
<S>                                          <C>              <C>              <C>
    Increase (decrease) before interest
      credited                               $(6,597)         $11,064          $  7,926
    Interest credited                         22,203           21,388            18,856
                                              ------           ------            ------
      Net increase in deposits               $15,606          $32,452          $ 26,782
                                              ======           ======            ======
</Table>

    The following table sets forth maturities of the Bank's certificates of
deposit of $100,000 or more at December 31, 2001 by time remaining to maturity.

<Table>
<Caption>
                                                                          Amount
                                                                     ----------------
                         Period Ending:                               (In Thousands)
                         <S>                                             <C>
                         March 31, 2002                                  $33,478
                         June 30, 2002                                    24,946
                         September 30, 2002                               10,893
                         December 31, 2002                                 6,816
                         After December 31, 2002                          21,419
                                                                          ------
                           Total certificates of deposit with
                             balances of $100,000 or more                $97,552
                                                                          ======
</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 lesser 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, 2001, have maturity dates and weighted average
rates as follows:

<Table>
<Caption>
                                                      Weighted
                           Year Ending                Average
                           December 31                  Rate                 Amount
                     ------------------------    -------------------     ---------------
                           <S>                             <C>              <C>
                              2002                         6.40%             34,944

                              2003                         6.41               6,000

                              2004                         6.07               1,000

                              2005                         6.54               4,900

                           Thereafter                      6.44               1,000
                                                                             -------
                              Total                        6.41%            $47,844
                                                                             =======
</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,
                                        -----------------------------------------------------------
                                            2001                 2000                  1999
                                        --------------    -------------------    ------------------
                                                          (Dollars in Thousands)
         <S>                                <C>                <C>                    <C>

         Maximum balance                    $93,359            $97,963                $83,972

         Average balance                     66,409             87,999                 57,949

         Year end balance                    47,844             93,359                 83,972

         Weighted average interest rate:

           At end of year                      6.41%              6.60%                  5.76%

           During the year                     6.57%              6.35                   5.58
</Table>

EMPLOYEES

     The Bank had 202 full-time employees and 35 part-time employees at December
31, 2001. None of these employees is represented by a collective bargaining
agent, and the Bank believes that it enjoys good relations with its personnel.

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, 2001, the Service Corporation was inactive.

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

                                       17
<Page>

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.

                                   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:

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

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

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

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

          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:

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

                                       18
<Page>

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

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

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

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

          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:

          the payment of dividends by the savings institution;

          transactions between the savings institution and its affiliates; and

          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:

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

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

          purchase a low-quality asset from an affiliate; or

          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.

                                       19
<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 August, 2001. 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. SAIF and BIF members both paid
approximately 1.90 basis points and 2.07 basis points in 2001 and 2000,
respectively.

     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 4.0% 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, 2001. Both core and tangible capital are
further reduced by an amount equal 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, 2001, the Bank exceeded
its tangible, core and risk-based capital requirements.

                                       20
<Page>

     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.

     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, 2001, the qualified thrift investments of the Bank were
approximately 78.9% of its portfolio assets.

     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, 2001, the
Bank had $47.8 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, 2001, the Bank had $4.9 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.

                                       21
<Page>

     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, 2001, no reserves were required to be maintained on
the first $5.7 million of transaction accounts, reserves of 3% were required to
be maintained against the next $41.3 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 the 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) an 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 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 period of six taxable years, beginning with the first
taxable year 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 balance 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 balance of its reserve for losses on
qualifying real property loans and its reserve for losses on nonqualifying

                                       22
<Page>

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. As of December 31, 2001, the
Bank's applicable excess reserves remaining to be recaptured are $441,032.

     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, 2001, 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 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, 2001, 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 a
"20-percent-owned corporation", i.e., a corporation having at least twenty
percent (but generally less than 80 percent) of its stock owned by the recipient
corporation 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,
1998 forward are open under the statute of limitations and are subject to review
by the IRS.

                                       23
<Page>

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.

                                       24
<Page>

     ITEM 2.  PROPERTIES.

     At December 31, 2001, 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, 2001.

<Table>
<Caption>
                                                     Leased/                 Net Book Value
             Description/Address                      Owned                   of Property              Amount of Deposits
-----------------------------------------    ----------------------     -----------------------    ---------------------------
                                                                                         (In Thousands)
  <S>                                                <C>                            <C>                      <C>
  200 West Stephenson                                Owned                          $1,761(1)                $159,397
  Harrison, AR 72601

  128 West Stephenson                                Owned                             184                           (2)
  Harrison, AR  72601

  Corner Central & Willow                            Owned                             221                           (2)
  Harrison, AR  72601

  Ozark Mall - Hwy. 62-65 North                      Leased(3)                          19                     25,003
  Harrison, AR  72601

  324 Hwy. 62-65 Bypass                              Owned                             256                     49,921
  Harrison, AR  72601

  210 South Main                                     Owned                             235                     30,378
  Berryville, AR  72616

  668 Highway 62 East                                Owned                             580                    151,565
  Mountain Home, AR  72653

  1337 Highway 62 SW                                 Owned                             935                     12,478
  Mountain Home, AR 72653

  301 Highway 62 West                                Owned                             136                     20,708
  Yellville, AR  72687

  307 North Walton Blvd.                             Owned                             273                     29,348
  Bentonville, AR  72712

  3460 North College                                 Owned                             484                     39,016
  Fayetteville, AR  72703

  1303 West Hudson                                   Owned                             209                      3,589
  Rogers, AR  72756

  201 East Henri De Tonti Blvd.                      Owned                             220                      8,508
  Tontitown, AR  72764

  2025 North Crossover Road                          Owned                             743                      8,574
  Fayetteville, AR 72703

  249 West Main Street                               Leased(4)                         191                      8,836
  Farmington, AR 72730

  2030 West Elm                                      Owned                             559                      8,612
  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.

                                       25
<Page>

    (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 2001 Annual Report to Stockholders
("2001 Annual Report").

ITEM 6.  SELECTED FINANCIAL DATA.

     The information required herein is incorporated by reference from pages 4
and 5 of the 2001 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 2001 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 2001 Annual Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The information required herein is incorporated by reference from page 6
and pages 17 to 42 of the 2001 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 25, 2002 ("Definitive Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION.

     The information required herein is incorporated by reference from pages 8
to 12 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
and 7 of the Definitive Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required herein is incorporated by reference from page 11of
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,
               2001 and 2000
               Consolidated Statements of Income for the years ended
                December 31, 2001, 2000, and 1999
               Consolidated Statements of Changes in Stockholders' Equity for
                the years ended December 31, 2001, 2000, and 1999.
               Consolidated Statements of Cash Flows for the years ended
                December 31, 2001, 2000, and 1999.
               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.
10.6*     Employment Agreement between the Company, the Bank and Larry J. Brandt
13.0      2001 Annual Report to Stockholders
21.0      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 Executive 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.


   /s/ Larry J. Brandt                                             April 1, 2002
   -------------------
   Larry J. Brandt
   President and Chief
   Executive Officer


   /s/ John P. Hammerschmidt
   -------------------------
   John P. Hammerschmidt                                           April 1, 2002
   Chairman


   /s/ James D. Heuer                                              April 1, 2002
   -----------------
   James D. Heuer
   Director

   /s/ Kenneth C. Savells                                          April 1, 2002
   ----------------------
   Kenneth C. Savells
   Director

   /s/ Jeffrey L. Brandt                                           April 1, 2002
   -------------------
   Jeffrey L. Brandt
   Director

   /s/ Tommy Richardson
   -------------------
   Tommy Richardson                                                April 1, 2002
   Executive Vice President and Chief
   Operations Officer/Principal
   Accounting Officer/Secretary

                                       30