<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, 1996

                                          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:  (501) 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 18, 1997, the aggregate value of the 4,722,310 shares of Common 
Stock of the Registrant issued and outstanding on such date, which excludes 
173,753 shares held by all directors and officers of the Registrant as a 
group, was approximately $89.7 million.  This figure is based on the last 
sales price of $19.00 per share of the Registrant's Common Stock on March 19, 
1997.

Number of shares of Common Stock outstanding as of March 19, 1997: 4,896,063

                       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, 1996 are incorporated into Part II, Items 5 through 8 of this 
Form 10-K.

(2)  Portions of the definitive proxy statement for the 1997 Annual Meeting 
of Stockholders are incorporated into Part III, Items 9 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, 1996, the Company had $505.7 million 
in total assets, $425.0 million in total liabilities and $80.8 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 (501) 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 nine full service branch offices, 
all of which are located in a six county area in Northcentral and Northwest 
Arkansas comprised of Benton, Marion, Washington, Carroll, Baxter and Boone 
counties.  First Federal's deposits are insured by the Savings Association 
Insurance Fund ("SAIF"), which is administered by the Federal Deposit 
Insurance Corporation ("FDIC"), to the maximum extent permitted by law.

    The Bank is a community oriented savings institution which has 
traditionally offered a wide variety of savings products to its retail 
customers while concentrating its lending activities on the origination of 
loans collateralized by one- to four-family residential dwellings.  To a 
significantly lesser extent, the Bank's activities have also included 
origination of multi-family residential loans, commercial real estate loans, 
construction loans, commercial loans and consumer loans.  In addition, the 
Bank maintains a significant portfolio of investment securities, a majority 
of which have maturities of under five years.  In addition to interest and 
dividend income on loans and investments, the Bank receives other income from 
loan fees and various service charges.  The Bank's goal is to continue to 
serve its market area as an independent community oriented financial 
institution dedicated primarily to financing home ownership while providing 
financial services to its customers in an efficient manner.

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

                                  1

<PAGE>


                                       BUSINESS

Lending Activities

    General.  At December 31, 1996, the Bank's total portfolio of loans 
receivable ("total loan portfolio"), amounted to $410.8 million or 81.2% of 
the Company's $505.7 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, $338.3 million or 
82.36% of the Bank's total loan portfolio consisted of one- to four-family 
residential loans at December 31, 1996.  To a significantly lesser extent, 
the Bank also originates multi-family residential loans, commercial real 
estate loans, construction loans, commercial loans and consumer loans.  At 
December 31, 1996, such loan categories amounted to $1.6 million, $19.1 
million, $20.1 million, $4.3 million and $27.4 million, respectively, or 
 .38%, 4.66%, 4.88%, 1.06% and 6.66% 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,
                  ---------------------------------------------------------------------------------------------------------------
                          1996                   1995                   1994                 1993                   1992 
                  --------------------   --------------------   -------------------  --------------------  ----------------------
                            Percentage             Percentage            Percentage            Percentage              Percentage
                  Amount     of Loans     Amount    of Loans     Amount   of Loans    Amount    of Loans      Amount    of Loans
                 ---------  ----------   --------  ----------   -------- ----------  --------  ----------   ---------  -----------
                                                      (Dollars in Thousands)
<S>              <C>        <C>          <C>       <C>          <C>      <C>         <C>       <C>          <C>        <C>
Real estate
 loans:
 Single-family
   residential   $338,349     82.36%     $287,872     82.54%    $237,724    82.96%    $197,833     81.11%    $179,777     80.90%
 Multi-family 
   residential      1,555       .38         1,060       .30          800     0.28        1,622      0.66        1,690      0.76
 Commercial 
   real estate     19,136      4.66        19,723      5.66       17,529     6.12       18,645      7.64       18,885      8.50
 Construction      20,053      4.88        11,603      3.33        7,468     2.61        7,098      2.91        6,023      2.71
                 --------    ------      --------    ------     --------   ------     --------    ------     --------   -------
   Total real
    estate 
    loans         379,093     92.28       320,258     91.83      263,521    91.97      225,198     92.32      206,375     92.87
                 --------    ------      --------    ------     --------   ------     --------    ------     --------   -------
Commercial 
 loans              4,348      1.06         4,014      1.15        3,192     1.11        2,052      0.84        1,946      0.88
                 --------    ------      --------    ------     --------   ------     --------    ------     --------   -------
Consumer loans:
 Home equity 
   and second 
   mortgage 
   loans           12,549      3.06        10,466       3.00       8,752     3.05        6,089      2.50        5,143      2.31
 Automobile         7,556      1.84         6,993       2.01       5,154     1.80        4,771      1.96        3,911      1.76
 Other              7,244      1.76         7,021       2.01       5,938     2.07        5,805      2.38        4,837      2.18 
                 --------    ------      --------    ------     --------   ------     --------    ------     --------   -------
   Total 
    consumer 
    loans          27,349      6.66        24,480       7.02      19,844     6.92       16,665      6.84       13,891      6.25
                 --------    ------      --------    -------     --------   ------     --------    ------     --------   ------

   Total 
    loans 
    receivable    410,790    100.00%      348,752     100.00%    286,557   100.00%     243,915    100.00%     222,212    100.00%
                 --------    ------      --------     ------     --------  ------     --------    ------     --------    -------
                             ------                   ------               ------                 ------                 -------
Less:
 Undisbursed 
  loan funds       (8,670)                 (4,298)                (3,318)              (3,798)                 (3,682) 
 Unearned 
  discounts 
  and net 
  deferred 
  loan fees        (4,361)                 (3,721)                (2,322)              (2,011)                 (1,685) 
 Allowance for 
  loan losses      (1,251)                 (1,228)                (1,134)              (1,447)                   (991) 
                 ---------                --------              --------             --------                --------  
   Total loans
    receivable,
    net          $396,508                $339,505               $279,783             $236,659                $215,854 
                 ---------                --------              --------             --------                -------- 
                 ---------                --------              --------             --------                -------- 

</TABLE>

                                  3

<PAGE>


    Loan Maturity and Interest Rates.  The following table sets forth certain 
information at December 31, 1996 regarding the dollar amount of loans 
maturing in the Bank's loan portfolio based on their contractual terms to 
maturity.  Demand loans and loans having no stated schedule of repayments and 
no stated maturity are reported as due in one year or less.  All other loans 
are included in the period in which the final contractual repayment is due.

<TABLE>
<CAPTION>

                                                           After Three    After Five    After Ten  
                                             One Year        Years           Years        Years          Beyond  
                               Within        Through        Through         Through       Through        Twenty
                              One Year      Three 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     $   453      $   573         $ 3,211        $27,303       $149,276         $157,533      $338,349
Multi-family residential          249          -               115            312            879             -            1,555
Commercial real estate          1,949        7,491           3,118          5,637            941             -           19,136
Construction                    6,277          -               -              -            4,224            9,552        20,053
Commercial loans                1,656          700             969          1,023            -               -            4,348
Consumer loans                  9,262        7,175           9,631          1,159            122             -           27,349
                              -------      -------         -------        -------       --------         --------      --------
  Total(1)                    $19,846      $15,939         $17,044        $35,434       $155,442         $167,085      $410,790
                              -------      -------         -------        -------       --------         --------      --------
                              -------      -------         -------        -------       --------         --------      --------

</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, 1996 due after one year from such date which have fixed interest 
rates or which have floating or adjustable interest rates.

                                                Floating or
                              Fixed-Rates     Adjustable-Rates       Total
                              -----------     ----------------     ---------
                                               (In Thousands)

Real estate loans:
  Single-family residential     $131,999        $205,897           $337,896
  Multi-family residential           843             463              1,306
  Commercial real estate          17,187             -               17,187
  Construction                     3,739          10,037             13,776
Commercial loans                   2,692             -                2,692
Consumer loans                    18,087             -               18,087
                                --------        --------           --------
    Total                       $174,547        $216,397           $390,944
                                --------        --------           --------
                                --------        --------           --------

    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 loan origination procedures established by the Bank's Board of Directors 
and management. Loan originations are obtained by a variety of sources, 
including realtors, walk-in customers, branch managers and radio, television 
and newspaper advertising.  In its marketing, the Bank emphasizes its 
community ties and an efficient underwriting and approval process.  The Bank 
believes it can provide its personalized service to its customers in a more 
efficient manner due in part to the use of in-house 

                                  4

<PAGE>

appraisal and underwriting staff.  The Bank requires hazard, title and, to 
the extent applicable, flood insurance on all security property.

    Loan applications are initially processed by branch managers or loan 
officers and all real estate loans up to $600,000 must be approved by two 
members of the Bank's Loan Committee, one of which must be a member of senior 
management.  Real estate loans in excess of $600,000 must be approved by the 
Bank's Board of Directors. 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 by the Board 
of Directors.

    Historically, the Bank has not been an active purchaser or seller of 
loans due to consistent loan demand and the Bank's desire and ability to 
originate loans for retention in its portfolio.  During 1995 and 1994, the 
Bank only purchased $3.2 million and $720,000 of loans, respectively.  No 
loans were purchased during 1996. In 1996, the Bank's loan sales were 
$73,000.  The Bank did not engage in any loan sales in 1995 or 1994.

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



                                              Year Ended December 31,
                                       -----------------------------------

                                         1996         1995          1994
                                       --------     --------      --------
                                                   (In Thousands)
Loans receivable at beginning
  of period                            $348,752     $286,557     $243,915
                                       --------     --------     --------
Loan originations:
  Real estate:
    Single-family residential           102,214       90,014       76,191
    Multi-family residential                556          135          116
    Commercial real estate                4,866        2,542        2,701
    Construction                          25,537      15,167       12,782
  Commercial loans                         3,060       2,361        2,719
  Consumer:
    Home equity and second
      mortgage loans                      10,400       8,575        7,474
    Automobile                             7,235       6,633        5,364
    Other                                  7,225       7,578        5,865
                                        --------     --------     --------
      Total loan originations            161,093     133,005      113,212
Purchases                                     --       3,235          720
                                        --------     --------     --------
      Total loan originations and
        purchases                        161,093     136,240      113,932
Repayments                               (98,540)    (73,739)     (70,810)
Loan sales                                   (73)         --           --
Other                                       (442)       (306)        (480)
                                        --------     --------     --------
Net loan activity                         62,038      62,195       42,642
                                        --------     --------     --------
Loans receivable
  at end of period                      $410,790    $348,752     $286,557
                                        --------     --------     --------
                                        --------     --------     --------

                                  5

<PAGE>

    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, 1996, the Bank's limit on loans-to-one borrower was approximately $9.3 
million.  At December 31, 1996, the Bank's largest loans or groups of 
loans-to-one borrower, including persons or entities related to the borrower, 
amounted to $4.5 million.  Such amount consists of 19 loans, primarily 
commercial real estate loans, all of which were current at December 31, 
1996.  The Bank's ten largest loans or groups of loans to one borrower, 
including persons or entities related to the borrower, amounted to $15.7 
million at December 31, 1996.  In addition, the Bank's wholly owned subsidiary 
has extended a $4.4 million loan collateralized by a hotel in Oklahoma City, 
Oklahoma.  See "-Subsidiaries."

    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, 1996, $338.3 million or 82.4% of the Bank's 
total loan portfolio consisted of one- to four-family residential real estate 
loans.  The Bank originated $102.2 million, $90.0 million and $76.2 million 
of one- to four-family residential loans in 1996, 1995 and 1994, 
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 $338.3 million of such loans at 
December 31, 1996, $205.9 million or 60.9% had adjustable-rates of interest 
and $132.4 million or 39.1% 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 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 of 30 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 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- 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 does not offer below market 
rates, and generally, the amount of any increase or decrease in the interest 
rate per one or three year period is limited to 2%, 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.  Such loans may be converted to a fixed-rate loan at the 
discretion of the Bank.  The Bank generally underwrites its one- and 
three-year adjustable-rate loans on the basis of the borrowers ability to pay 
at the rate after the first adjustment.  Adjustable-rate loans decrease the 
risks associated with changes in interest rates but involve other risks, 
primarily because as interest rates rise, the payment by the borrower rises 
to the extent permitted by the terms of the loan, thereby increasing the 
potential for default.  At the same time, the marketability of the underlying 
property may be adversely affected by higher interest rates.  

    The Bank's residential mortgage loans typically do not exceed 90% of the 
appraised value of the security property.  However, pursuant to underwriting 
guidelines adopted by the Board of Directors, the Bank can lend up to 97% of 
the appraised value of the property securing a one- to four-family 
residential loan, and requires borrowers to obtain private mortgage insurance 
on the portion of the principal amount of the loan that exceeds 90% of the 
appraised value of the security property.  At December 31, 1996, the Bank had 
$493,000 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, 1996, $1.6 
million or .4% 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, 1996, 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, 1996, $19.1 million or 4.7% of the Bank's total loan portfolio 
consisted of loans collateralized by existing commercial real estate 
properties.  The Bank does not actively market its commercial real estate 
loan products and offers such loans primarily as an accommodation to its 
present customers.  Management does not expect the Bank's portfolio of 
commercial real estate loans to significantly increase in the future.

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

    At December 31, 1996, the Bank had approximately $7.2 million of loans 
which are either for the construction of service station and convenience 
store facilities or are collateralized by such facilities.  The Bank requires 
that construction loans for such facilities meet present standards 
established by the Environmental Protection Agency.  With respect to existing 
facilities, the Bank requires an environmental study of the property.  To 
date, the Bank has not experienced any material credit or environmental 
problems with such loans.

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

    Commercial real estate lending entails significant additional risks as 
compared with single-family residential property lending.  Such loans 
typically involve large loan balances to single borrowers or groups of 
related borrowers.  The payment experience on such loans is typically 
dependent on the successful operation of the real estate project.  The 
success of such projects is sensitive to changes in supply and demand 
conditions in the market for commercial real estate as well as regional and 
economic conditions generally.  At December 31, 1996, the Bank did not have 
any nonperforming commercial real estate loans.

                                  7

<PAGE>

    Construction Loans.  The Bank also originates primarily residential 
construction loans, although the Bank has originated commercial real estate 
and multi-family residential construction loans to a limited degree.  The 
Bank's construction lending activities are limited to the Bank's primary 
market area.  At December 31, 1996, construction loans amounted to $20.1 
million or 4.9% of the Bank's total loan portfolio, of which $15.4 million 
consisted of single-family residential construction loans and $4.7 million 
consisted of commercial real estate and multi-family residential construction 
loans.  The Bank's construction loans generally have fixed interest rates for 
a term of six months to nine months.  However, the Bank is permitted to 
originate construction loans with terms of up to two years under its loan 
policy.  Commercial real estate and multi-family residential construction 
loans are made with a maximum loan to value ratio of 80%.  Construction loans 
to individuals are typically made with a loan to value ratio of up to 90% and 
non-owner occupied construction loans are limited to 80%.

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

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

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

    The Bank has attempted to minimize the foregoing risks by, among other 
things, limiting the extent of its construction lending generally and by 
limiting its construction lending to primarily residential properties.  In 
addition, the Bank has adopted underwriting guidelines which impose stringent 
loan to value, debt service and other requirements for loans which are 
believed to involve higher elements of credit risk, by limiting the 
geographic area in which the Bank will do business and by working with 
builders with whom it has established relationships.  At December 31, 1996, 
the Bank did not have any nonperforming construction loans.  See "- Asset 
Quality."

                                  8

<PAGE>

    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, 1996, such loans amounted to $4.3 million 
or 1.1% of the total loan portfolio.  At December 31, 1996, the Bank did not 
have any nonperforming commercial loans.  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 ten 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 $27.3 million or 6.7% of the total loan portfolio 
at December 31, 1996, of which $12.5 million, $7.6 million and $7.2 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.  Consumer loans are subject to Arkansas usury law 
which limits the interest rate that may be charged to 5% over the Federal 
Reserve discount rate, which was 5.00% at December 31, 1996.  A change in the 
usury rate does not affect loans already in portfolio.

    The Bank's home equity and second mortgage loans are typically fixed-rate 
loans with terms of up to 15 years.  Although the Bank does not require that 
it hold the first mortgage on the secured property, the Bank does hold the 
first mortgage on a significant majority of its home equity and second 
mortgage loans.  The Bank limits the mortgages on the secured property to 85% 
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, 1996, the Bank had $228,000 of non-performing consumer loans.

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.

                                  9

<PAGE>


    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.

    Delinquent Loans.  The following table sets forth information concerning 
delinquent loans at December 31, 1996, 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.  At December 31, 1996, the Bank 
did not have any delinquent multi-family residential loans or construction 
loans.

<TABLE>
<CAPTION>

                           Single-family           Commercial
                            Residential            Real Estate          Commercial            Consumer
                        --------------------   -------------------  --------------------  ------------------
                                  Percentage            Percentage            Percentage          Percentage
                                   of Total              of Total              of Total            of Total          
                        Amount      Loans      Amount      Loans     Amount     Loans     Amount     Loans
                        -------   ----------   ------   ----------   ------   ----------  ------  ----------
                                                         (Dollars in Thousands)

<S>                     <C>       <C>          <C>      <C>          <C>      <C>         <C>     <C>   
Loans 
delinquent:

30-59 days              $1,607       .39%      $690        .17%       $ -        -  %      264       .06%

60-89 days                 432       .11         -          -          37        .01       197       .05

90 days and over           493       .12         -          -           -        -         228       .06
                        ------                 ----                   ---                 ----
Total                   $2,532                 $690                   $37                 $689  
                        ------                 ----                   ---                 ----
                        ------                 ----                   ---                 ----

</TABLE>

                                 10

<PAGE>

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


                                                   December 31,
                                   -------------------------------------------
                                   1996     1995     1994      1993      1992
                                   ----     -----    ----     ------    ------
                                              (Dollars in Thousands)

Nonperforming loans:
  Single-family residential        $493     $223     $159     $  146    $  188
  Multi-family residential           --       --       --         --        --
  Commercial real estate             --       --       --      1,215        99
  Construction loans                 --       --       78         --        --
  Commercial loans                   --       --       --         --        --
  Consumer loans                    228      127       33         97       102
                                   ----     ----     ----     ------    ------
     Total nonperforming loans      721      350      270      1,458       389
                                   ----     ----     ----     ------    ------
Real estate owned                   154      234      250        491     1,171
                                   ----     ----     ----     ------    ------
     Total nonperforming assets    $875     $584     $520     $1,949    $1,560
                                   ----     ----     ----     ------    ------
                                   ----     ----     ----     ------    ------
Total nonperforming loans as 
  a percentage of total loans
  receivable                       0.18%    0.10%    0.09%      0.60%     0.18%
                                   ----     ----     ----     ------    ------
                                   ----     ----     ----     ------    ------
Total nonperforming assets as
  a percentage of total assets     0.17%    0.13%    0.12%      0.48%     0.40%
                                   ----     ----     ----     ------    ------
                                   ----     ----     ----     ------    ------

    Interest income that would have been recorded under the original terms of 
the Bank's non-accruing loans for the year ended December 31, 1996 amounted 
to $65,000, and the interest recognized during this period amounted to 
$33,000.

    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, 1996, the Bank had $983,000 of 
classified assets, $796,000 of which were classified as substandard, $40,000 
of which were classified as doubtful, and $147,000 of which were classified 
as loss.  In addition, at such date, the Bank had $58,000 of assets 
designated as special mention.

    Allowance for Loan Losses.  It is management's policy to maintain an 
allowance for estimated losses based on the perceived risk of loss in the 
loan portfolio and the adequacy of the allowance.  Management's periodic 
evaluation of the adequacy of the allowance is based on the Bank's past loan 
loss experience, known and inherent risks in the portfolio, adverse 
situations that may affect the borrower's ability to repay, the estimated 
value of any underlying collateral and current economic conditions.  The 
allowance is increased by 

                                 11

<PAGE>

provisions for loan losses which are charged against income.  When consumer 
loans become 120 days or more past due, the Bank reserves for the full amount 
of the loan.

    Although management uses the best information available to make 
determinations with respect to the provisions for loan losses, additional 
provisions for loan losses may be required to be established in the future 
should economic or other conditions change substantially.  In addition, the 
OTS and the FDIC, as an integral part of their examination process, 
periodically review the Bank's allowance for possible loan losses.  Such 
agencies may require the Bank to recognize additions to such allowance based 
on their judgments about information available to them at the time of their 
examination.

    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,
                                     ------------------------------------------------------------
                                       1996         1995         1994         1993         1992
                                     --------     --------     --------     --------     --------
                                                     (Dollars in Thousands)

<S>                                  <C>          <C>          <C>          <C>          <C> 
Total loans outstanding at
 end of period                       $410,790     $348,752     $286,557     $243,915     $222,212
                                     --------     --------     --------     --------     --------
                                     --------     --------     --------     --------     --------
Average loans outstanding            $369,185     $306,175     $257,261     $228,460     $201,467
                                     --------     --------     --------     --------     --------
                                     --------     --------     --------     --------     --------
Allowance at beginning of period     $  1,228     $  1,134     $  1,447     $    991     $    676
                                     --------     --------     --------     --------     --------
Charge-offs:
  Single-family residential                --           (2)         (24)          --          (14)
  Multi-family residential                 --           --           --           --           --
  Commercial real estate                   --           (8)        (335)          (9)         (34)
  Commercial loans                         --           --           --          (17)         (15)
  Consumer loans                          (40)         (30)          (9)         (36)         (20)
                                     --------     --------     --------     --------     --------
    Total charge-offs                     (40)         (40)        (368)         (62)         (83)
                                     --------     --------     --------     --------     --------
Recoveries:
  Single-family residential                --           --           --           --            4
  Multi-family residential                 --           --           --           --           --
  Commercial real estate                    1           --           --           --           --
  Commercial loans                         --           --           --           --           --
  Consumer loans                            2            1            1            7            1
                                     --------     --------     --------     --------     --------
    Total recoveries                        3            1            1            7            5
                                     --------     --------     --------     --------     --------
Net charge-offs                           (37)         (39)        (367)         (55)         (78)
                                     --------     --------     --------     --------     --------
Total provisions for losses                60          133           54          511          393
                                     --------     --------     --------     --------     --------
Allowance at end of period           $  1,251     $  1,228     $  1,134     $  1,447     $    991
                                     --------     --------     --------     --------     --------
                                     --------     --------     --------     --------     --------
Allowance for loan losses as a
  percentage of total loans
  outstanding at end of period           0.30%        0.35%        0.40%        0.59%        0.45%
                                         ----         ----         ----         ----         ----
                                         ----         ----         ----         ----         ----
Net loans charged-off as a
  percentage of average loans
  outstanding                            0.01%        0.01%        0.14%        0.02%        0.04%
                                         ----         ----         ----         ----         ----
                                         ----         ----         ----         ----         ----

</TABLE>

                                 12

<PAGE>

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

<TABLE>
<CAPTION>

                                                                        December 31,
                   ------------------------------------------------------------------------------------------------------------
                           1996                   1995                  1994                 1993                  1992  
                   ---------------------  --------------------  --------------------  -------------------  --------------------
                             Percent of            Percent of           Percent of            Percent of            Percent of
                             Total Loans           Total Loans          Total Loans           Total Loans           Total Loans
                    Amount  by Category   Amount   by Category  Amount  by Category   Amount  by Category  Amount   by Category
                   -------  ------------  ------   -----------  ------  -----------   ------  -----------  ------   -----------
                                                            (Dollars in Thousands)

<S>                <C>      <C>           <C>      <C>          <C>     <C>           <C>     <C>          <C>      <C>    
Single-family
 residential       $   11      82.36%     $   11      82.54%    $   16    82.96%      $   37     81.11%     $ 47        80.90%
Multi-family
 residential           --        .38          --        .30         --     0.28           --      0.66        --         0.76
Commercial
 real estate          117       4.66         124       5.66        117     6.12          439      7.64       121         8.50
Construction
 loans                 --       4.88          --       3.33         --     2.61           --      2.91        --         2.71
Commercial
 loans                 19       1.06          27       1.15         21     1.11           14      0.84        11         0.88
Consumer loans        270       6.66         241       7.02        143     6.92          123      6.84        85         6.25
Unallocated           834         --         825         --        837       --          834        --        727          --
                   ------    -------      ------     ------     ------   ------       ------     ------      ----      ------
     Total         $1,251     100.00%     $1,228     100.00%    $1,134   100.00%      $1,447     100.00%     $991      100.00%
                   ------    -------      ------     ------     ------   ------       ------     ------      ----      ------
                   ------    -------      ------     ------     ------   ------       ------     ------      ----      ------
</TABLE>
                                 13

<PAGE>

Investment Activities

    Mortgage-Backed Securities.  Mortgage-backed securities (which also are 
known as mortgage participation certificates or pass-through certificates) 
typically represent a participation interest in a pool of single-family or 
multi-family mortgages, the principal and interest payments on which are 
passed from the mortgage originators, through intermediaries (generally U.S. 
Government agencies and government sponsored enterprises) that pool and 
repackage the participation interests in the form of securities, to investors 
such as the Bank.  Such U.S. Government agencies and government sponsored 
enterprises, which guarantee the payment of principal and interest to 
investors, primarily include the FHLMC, the FNMA and the Government National 
Mortgage Association ("GNMA").

    The FHLMC is a public corporation chartered by the U.S. Government and 
guarantees the timely payment of interest and the ultimate return of 
principal within one year.  The FHLMC mortgage-backed securities are not 
backed by the full faith and credit of the United States, but because the 
FHLMC is a U.S. Government sponsored enterprise, these securities are 
considered high quality investments with minimal credit risks.  The GNMA is a 
government agency within the Department of Housing and Urban Development 
which is intended to help finance government assisted housing programs.  The 
GNMA guarantees the timely payment of principal and interest, and GNMA 
securities are backed by the full faith and credit of the U.S. Government.  
The FNMA guarantees the timely payment of principal and interest, and FNMA 
securities are indirect obligations of the U.S. Government.

    Mortgage-backed securities typically are issued with stated principal 
amounts, and the securities are backed by pools of mortgages that have loans 
with interest rates that are within a range and have varying maturities.  The 
underlying pool of mortgages, i.e., fixed rate or adjustable rate, as well as 
the prepayment risk, are passed on to the certificate holder.  Accordingly, 
the life of a mortgage-backed pass-through security approximates the life of 
the underlying mortgages.  It has been the Bank's practice to invest only in 
fixed-rate mortgage-backed securities. Mortgage-backed 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.  
Mortgage-backed 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.

    The following table sets forth certain information relating to the 
composition of the Bank's mortgage-backed securities at the dates indicated.  
The Bank adopted SFAS No. 115 effective January 1, 1994.  As a result, the 
Company categorizes mortgage-backed securities on its consolidated balance 
sheet as investment securities.

                                            December 31,
                                 ----------------------------------
                                  1996         1995           1994
                                 -------      -------       -------
                                           (In Thousands)

Mortgage-backed securities
  held to maturity:
  GNMA                             $ --        $ --         $11,112
  FHLMC                             227         323             410
                                   ----        ----         -------

   Total mortgage-backed
     securities                    $227        $323         $11,522
                                   ----        ----         -------
                                   ----        ----         -------

                                 14

<PAGE>

    Mortgage-backed securities are generally backed by insurance or 
guarantees, are more liquid than individual mortgage loans and may be used to 
collateralize borrowings or other obligations of the Bank.  At December 31, 
1996, no mortgage-backed securities were pledged to secure obligations of the 
Bank.

    Of the $227,000 of mortgage-backed securities at December 31, 1996, 
$52,000 was scheduled to mature between five and ten years and the remaining 
$175,000 was scheduled to mature after ten years.  The $52,000 of 
mortgage-backed securities had a weighted average yield of 8.23% and the 
$175,000 of such securities had a weighted average yield of 9.00%.  At such 
date, all of the Bank's mortgage-backed securities were fixed-rate and are 
disclosed above in the periods in which they are scheduled to mature.  The 
actual maturity of a mortgage-backed security may be less than its stated 
maturity due to prepayments of the underlying mortgages.  Prepayments that 
are faster than anticipated will shorten the life of the security and 
adversely affect its yield to maturity.  The yield is based upon the interest 
income and the amortization of any premium or discount related to the 
mortgage-backed security.  In accordance with generally accepted accounting 
principles, premiums and discounts are amortized over the estimated lives of 
the securities, which decrease and increase interest income, respectively.  
The prepayment assumptions used to determine the amortization period for 
premiums and discounts can significantly affect the yield of the 
mortgage-backed security, and these assumptions are reviewed periodically to 
reflect actual prepayments.  Although prepayments of underlying mortgages 
depend on many factors, including the type of mortgages, the coupon rate, the 
age of mortgages, the geographical location of the underlying real estate 
collateralizing the mortgages and general levels of market interest rates, 
the difference between the interest rates on the underlying mortgages and the 
prevailing mortgage interest rates generally is the most significant 
determinant of the rate of prepayments.  During periods of falling mortgage 
interest rates, if the coupon rate of the underlying mortgages exceeds the 
prevailing market interest rates offered for mortgage loans, refinancing 
generally increases and accelerates the prepayment of the underlying 
mortgages and the related security.  Under such circumstances, the Bank may 
be subject to reinvestment risk because to the extent that the Bank's 
mortgage-backed securities amortize or prepay faster than anticipated, the 
Bank may not be able to reinvest the proceeds of such repayments and 
prepayments at a comparable interest rate.

    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 without incurring 
undue interest rate risk, credit risk, and investment portfolio asset 
concentrations.  The Bank's investment policy is currently implemented by the 
Bank's President within the parameters set by 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, 1996, approximately $13 million of the Bank's investment 
securities were pledged to secure obligations of the Bank.  At December 31, 
1996, 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.

    At December 31, 1996, the Bank's investment securities included 
structured notes of $14.0 million, of which $5.0 million were FHLB step-up 
and multi-step notes and $9.0 million were adjustable-rate FHLB notes.  The 
interest rate on the step-up and multi-step FHLB notes is scheduled to 
increase to a pre-determined rate on pre-determined dates, and the notes are 
callable at par on a pre-determined date and every six months subsequent to 
such date which coincide with interest payment dates. If the step-up or 
multi-step interest rate exceeds the then current market rate for notes with 
similar terms to the next adjustment date or maturity date, the note would 
generally be called and the Bank would have to re-invest the proceeds in the 
lower interest rate environment.  If the step-up or multi-step interest rate 
is less than the then current market rate, the note would 

                                 15

<PAGE>

generally not be called and the Bank would continue to hold the note with a 
below market interest rate.  The step-up or multi-step FHLB notes do not have 
caps or floors and have remaining maturities from less than one year up to 
six years.  At December 31, 1996, $7.0 million of the adjustable-rate FHLB 
notes adjust monthly based on the five-year and ten-year constant maturity 
treasury ("CMT") index minus 170 to 210 basis points with no caps or floors 
and $2.0 million of the adjustable-rate notes adjust semi-annually based on a 
multiple of the ten-year CMT index plus 160 basis points with a floor of 
4.50% and a cap of 24.0%.  The adjustable-rate FHLB notes are non-callable 
with remaining maturity dates up to four years.  The CMT index could result 
in the interest rate on these notes being less than market rates of interest.

    The following table sets forth the amount of investment securities which 
mature during each of the periods indicated and the weighted average yields 
for each range of maturities at December 31, 1996.

<TABLE>
<CAPTION>

                                    Less Than         One to Five        Five to Ten         After Ten   
                                     One Year            Years              Years              Years               Total
                                 ---------------   ----------------   ----------------   -----------------   ----------------
                                  Amount   Yield    Amount    Yield    Amount    Yield     Amount    Yield    Amount    Yield
                                 --------  -----   --------   -----   --------   -----    --------   -----   --------   -----
                                                                         (Dollars in Thousands)
<S>                              <C>       <C>     <C>        <C>     <C>        <C>      <C>        <C>     <C>        <C> 
Bonds and other debt
 securities held to maturity:

 U.S. Government and
  agency obligations             $17,017   5.45%   $44,775    5.88%   $25,963    7.08%    $3,000    7.45%    $90,755    6.19%

Equity securities available
  for sale:
FHLMC preferred stock(1)            340                 --                 --                 --                 340
                                -------            -------            -------             ------             -------
Total investment securities     $17,357            $44,775            $25,963             $3,000             $91,095
                                -------            -------            -------             ------             -------
                                -------            -------            -------             ------             -------
</TABLE>

_________________

(1) FHLMC preferred stock has no stated maturity and is assumed to mature in 
    less than one year.

    The following table sets forth the carrying value of the Company's 
investment securities classified as held to maturity and available for sale 
at the dates indicated.

                                            December 31,
                                   --------------------------------
                                     1996        1995        1994
                                   --------    --------    --------
                                             (In Thousands)

Investment securities held
  to maturity:
  U.S. Government and agency
    obligations                     $90,755     $95,731     $118,849

Equity securities available
  for sale:
  FHLMC preferred stock(1)              340         258         156
                                    -------     -------     --------
Total investment securities         $91,095     $95,989     $119,005 
                                    -------     -------     --------
                                    -------     -------     --------

_________________

(1) Reflects carrying value at fair market value.  At December 31, 1996, the 
    Company's FHLMC preferred stock had $202,000 of unrealized gains, net of 
    taxes, which were included in stockholders' equity at such date.

                                 16

<PAGE>

    As a member of the FHLB of Dallas, the Bank is required to maintain an 
investment in FHLB stock.  At December 31, 1996, the Bank's investment in 
FHLB stock amounted to $3.0 million.  No ready market exists for such stock 
and it has no quoted market value.

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 
and maturities of investment securities.  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.  The Bank has not generally 
utilized borrowings as a source of funds.

    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 
periods 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, 1996.

    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,
                                 ------------------------------------------------------------
                                        1996                 1995                  1994 
                                 ------------------     ----------------     ----------------
                                  Amount        %       Amount        %      Amount       %
                                 --------     -----    --------     -----   --------    -----
                                                (Dollars in Thousands)

<S>                              <C>          <C>      <C>          <C>     <C>         <C> 
Certificate accounts: 
      3.00% - 3.99%              $    607        .2%    $     --       --%   $ 15,298    3.9%
      4.00% - 5.99%               205,912      48.7      157,718     37.8     189,188    47.9
      6.00% - 7.99%                90,568      21.4      127,456     30.6      50,292    12.6

      8.00% and over               36,408       8.6       42,323     10.1      42,812    10.8
                                 --------     -----     --------    -----    --------   -----
  Total certificate accounts      333,495      78.9      327,497     78.5     297,590    75.2
                                 --------     -----     --------    -----    --------   -----

Transaction accounts:

 Passbook and statement savings    26,451       6.2       27,480      6.6      31,516     8.0
  Money market accounts            17,214       4.1       19,920      4.8      25,202     6.4
  NOW accounts/DDA                 45,698      10.8       42,332     10.1      41,175    10.4
                                 --------     -----     --------    -----    --------   -----
     Total transaction accounts    89,363      21.1       89,732     21.5      97,893    24.8 
                                 --------     -----     --------    -----    --------   -----
     Total deposits              $422,858     100.0%     $417,229   100.0%   $395,483   100.0%
                                 --------     -----     --------    -----    --------   -----
                                 --------     -----     --------    -----    --------   -----

</TABLE>

                                 17

<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,

                                      -------------------------------------------------------------
                                            1996                1995                    1994  
                                      ------------------  -------------------    ------------------
                                                 Average              Average               Average
                                      Average     Rate     Average      Rate      Average       Rate
                                      Balance     Paid     Balance     Paid(1)    Balance      Paid(1)
                                      --------   -------   --------   --------    --------    --------
                                                          (Dollars in Thousands)

<S>                                   <C>        <C>       <C>        <C>         <C>         <C>  
Passbook and statement savings
  accounts                            $ 27,149    2.72%    $ 29,145               $ 33,849

Money market accounts and
  NOW accounts                          54,748    2.42       55,269                 61,281
Demand deposit accounts                  9,244      --        7,590                  5,739
Certificates of deposit                328,921    6.19      312,926                286,887
                                      --------    ----     --------               --------
    Total deposits                    $420,062    5.33%    $404,930    5.32%      $387,756      4.56%
                                      --------    ----     --------    ----       --------      ----
                                      --------    ----     --------    ----       --------      ----
</TABLE>

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

(1) The average rate paid for each type of deposit was not available in 1995 
    and 1994.

    The following table presents, by various interest rate categories, the 
amount of certificates of deposit at December 31, 1996 and 1995 and the 
amounts at December 31, 1996 which mature during the periods indicated.

<TABLE>
<CAPTION>


                                                                    Balance at December 31, 1996
                                    December 31,                  Maturing in the 12 Months Ending
                                --------------------      ------------------------------------------------
                                   1996        1995          1997        1998        1999       Thereafter
                                ---------    --------     ---------    --------    --------     ----------
                                                                (In Thousands)

<S>                             <C>          <C>          <C>          <C>         <C>          <C>
Certificates of Deposit
3.00% - 3.99%                    $    607     $    --      $    607     $    --     $   --      $   -- 
4.00% - 5.99%                     205,912      157,718      169,367      30,068       4,915       1,562
6.00% - 7.99%                      90,568      127,456       10,991       7,833      18,501      53,243
8.00% and over                     36,408       42,323       16,441      11,542       3,260       5,165
                                 --------     --------     --------     -------     -------     -------
  Total certificate accounts     $333,495     $327,497     $197,406     $49,443     $26,676     $59,970
                                 --------     --------     --------     -------     -------     -------
                                 --------     --------     --------     -------     -------     -------

</TABLE>

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

                                                Year Ended December 31,
                                         ------------------------------------
                                            1996         1995         1994
                                         ---------     --------     ---------
                                                     (In Thousands)

Increase (decrease) before 
  interest credited                      $(10,731)     $ 6,118      $ 7,815
Interest credited                          16,360        5,628       12,760
                                         --------      -------      -------
  Net increase in deposits               $  5,629      $21,746      $20,575
                                         --------      -------      -------
                                         --------      -------      -------

    The decrease in deposits before interest credited in 1996 was primarily 
due to the use of such funds to purchase shares of the Company's common stock 
in the Conversion.

    The following table sets forth maturities of the Bank's certificates of 
deposit of $100,000 or more at December 31, 1996 by time remaining to 
maturity.


                                             Amounts
                                           -------------
                                           (In Thousands)


Period Ending:
March 31, 1997                                $17,471
June 30, 1997                                  16,445
December 31, 1997                               3,842
After December 31, 1997                        16,997
                                              -------
  Total certificates of deposit with
    balances of $100,000 or more              $54,755
                                              -------
                                              -------

                                  18

<PAGE>

Employees

    The Bank had 131 full-time employees and 10 part-time employees at 
December 31, 1996.  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, 1996, the Service Corporation's only 
significant asset was a $4.4 million loan collateralized by a hotel in 
Oklahoma City, Oklahoma.  Such loan was current at December 31, 1996.  The 
Service Corporation generated net income of approximately $280,000 during 
1996.

Competition

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

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

                                 19

<PAGE>

                                     REGULATION

    Set forth below is a brief description of those laws and regulations 
which, together with the descriptions of laws and regulations contained 
elsewhere herein, are deemed material to an investor's understanding of the 
extent to which the Company and the Bank are regulated.  The description of 
the laws and regulations hereunder, as well as descriptions of laws and 
regulations contained elsewhere herein, does not purport to be complete and 
is qualified in its entirety by reference to applicable laws and regulations.

The Company

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

    Activities Restrictions.  There are generally no restrictions on the 
activities of a savings and loan holding company which holds only one 
subsidiary savings institution.  However, if the Director of 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 Director may impose such restrictions as deemed necessary to 
address such risk, including limiting (i) payment of dividends by the savings 
institution; (ii) transactions between the savings institution and its 
affiliates; and (iii) 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.  Notwithstanding the 
above rules as to permissible business activities of unitary savings and loan 
holding companies, if the savings institution subsidiary of such a holding 
company fails to meet the qualified thrift lender ("QTL") test, as discussed 
under "- The Bank - Qualified Thrift Lender Test," then such unitary holding 
company also shall become subject to the activities restrictions applicable 
to multiple savings and loan holding companies and, unless the savings 
institution requalifies as a QTL within one year thereafter, shall register 
as, and become subject to the restrictions applicable to, a bank holding 
company.  See "- The Bank - Qualified Thrift Lender Test."

    If the Company were to acquire control of another savings institution, 
other than through merger or other business combination with the Bank, the 
Company would thereupon become a multiple savings and loan holding company.  
Except where such acquisition is pursuant to the authority to approve 
emergency thrift acquisitions and where each subsidiary savings institution 
meets the QTL test, as set forth below, the activities of the Company and any 
of its subsidiaries (other than the Bank or other subsidiary savings 
institutions) would thereafter be subject to further restrictions. Among 
other things, no multiple savings and loan holding company or subsidiary 
thereof which is not a savings institution shall commence or continue for a 
limited period of time after becoming a multiple savings and loan holding 
company or subsidiary thereof any business activity, upon prior notice to, 
and no objection by the OTS, other than: (i) furnishing or performing 
management services for a subsidiary savings institution; (ii) conducting an 
insurance agency or escrow business; (iii) holding, managing, or liquidating 
assets owned by or acquired from a subsidiary savings institution; (iv) 
holding or managing properties used or occupied by a subsidiary savings 
institution; (v) acting as trustee under deeds of trust; (vi) those 
activities authorized by regulation as of March 5, 1987 to be engaged in by 
multiple savings and loan holding companies; or (vii) unless the Director of 
the OTS by regulation prohibits or limits such activities for savings and 
loan holding companies, those activities authorized by the Federal Reserve 
Board ("FRB") as permissible for bank holding companies.  Those activities 
described in (vii) above also must be approved by the Director of the OTS 
prior to being engaged in by a multiple savings and loan holding company.

    Limitations on Transactions with Affiliates.  Transactions between 
savings institutions and any affiliate are governed by Sections 23A and 23B 
of the Federal Reserve Act.  An affiliate of a savings institution is any 
company or entity which controls, is controlled by or is under common control 
with the savings institution. In 

                                 20

<PAGE>

a holding company context, the parent holding company of a savings 
institution (such as the Company) and any companies which are controlled by 
such parent holding company are affiliates of the savings institution.  
Generally, Sections 23A and 23B (i) limit the extent to which the savings 
institution or its subsidiaries may engage in "covered transactions" with any 
one affiliate to an amount equal to 10% of such institution's capital stock 
and surplus, and contain an aggregate limit on all such transactions with all 
affiliates to an amount equal to 20% of such capital stock and surplus and 
(ii) require that all such transactions be on terms substantially the same, 
or at least as favorable, to the institution or subsidiary as those provided 
to a non-affiliate.  The term "covered transaction" includes the making of 
loans, purchase of assets, issuance of a guarantee and other similar 
transactions.  In addition to the restrictions imposed by Sections 23A and 
23B, no savings institution may (i) loan or otherwise extend credit to an 
affiliate, except for any affiliate which engages only in activities which 
are permissible for bank holding companies, or (ii) purchase or invest in any 
stocks, bonds, debentures, notes or similar obligations of any affiliate, 
except for affiliates which are subsidiaries of the savings institution.

    In addition, Sections 22(h) and (g) of the Federal Reserve Act places 
restrictions on loans to executive officers, directors and principal 
stockholders. Under Section 22(h), loans to a director, an executive officer 
and to a greater than 10% stockholder of a savings institution, and certain 
affiliated interests of either, may not exceed, together with all other 
outstanding loans to such person and affiliated interests, the savings 
institution's loans to one borrower limit (generally equal to 15% of the 
institution's unimpaired capital and surplus). Section 22(h) permits loans to 
directors, executive officers and principal stockholders made pursuant to a 
benefit or compensation program that is widely available to employees of a 
subject savings association provided that no preference is given to any 
officer, director or principal shareholder or related interest thereto over 
any other employee.  In addition, the aggregate amount of extensions of 
credit by a savings institution to all insiders cannot exceed the 
institution's unimpaired capital and surplus.  Furthermore, Section 22(g) 
places additional restrictions on loans to executive officers.  At December 
31, 1996, the Bank was in compliance with the above restrictions.

    Restrictions on Acquisitions.  Except under limited circumstances, 
savings and loan holding companies are prohibited from acquiring, without 
prior approval of the Director of the OTS, (i) control of any other savings 
institution or savings and loan holding company or substantially all the 
assets thereof or (ii) more than 5% of the voting shares of a savings 
institution or holding company thereof which is not a subsidiary.  Except 
with the prior approval of the Director of the OTS, no director or officer of 
a savings and loan holding company or person owning or controlling by proxy 
or otherwise more than 25% of such company's stock, may acquire control of 
any savings institution, other than a subsidiary savings institution, or of 
any other savings and loan holding company.

    The Director of the OTS may only approve acquisitions resulting in the 
formation of a multiple savings and loan holding company which controls 
savings institutions in more than one state if (i) the multiple savings and 
loan holding company involved controls a savings institution which operated a 
home or branch office located in the state of the institution to be acquired 
as of March 5, 1987; (ii) the acquiror is authorized to acquire control of 
the savings institution pursuant to the emergency acquisition provisions of 
the Federal Deposit Insurance Act ("FDIA"); or (iii) the statutes of the 
state in which the institution to be acquired is located specifically permit 
institutions to be acquired by the state-chartered institutions or savings 
and loan holding companies located in the state where the acquiring entity is 
located (or by a holding company that controls such state-chartered savings 
institutions).

    Under the Bank Holding Company Act of 1956, the FRB is authorized to 
approve an application by a bank holding company to acquire control of a 
savings institution. In addition, a bank holding company that controls a 
savings institution may merge or consolidate the assets and liabilities of 
the savings institution with, or transfer assets and liabilities to, any 
subsidiary bank which is a member of the BIF with the approval of the 
appropriate federal banking agency and the FRB.  As a result of these 
provisions, there have been a number of acquisitions of savings institutions 
by bank holding companies in recent years.

                                 21

<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 November 1996. 
 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.

    The deposits of the Bank are currently insured by the SAIF.  Both the 
SAIF and the BIF, the federal deposit insurance fund that covers commercial 
bank deposits, are required by law to attain and thereafter maintain a 
reserve ratio of 1.25% of insured deposits.  The BIF had achieved a fully 
funded status in contrast to the SAIF and, therefore, the FDIC substantially 
reduced the average deposit insurance premium paid by commercial banks to a 
level approximately 75% below the average premium paid by savings 
institutions.

    The underfunded status of the SAIF had resulted in the introduction of 
federal legislation intended to, among other things, recapitalize the SAIF 
and address the resulting premium disparity.  On September 30, 1996, the 
Omnibus Appropriations Act was signed into law.  The legislation authorized a 
one-time charge on SAIF insured deposits at a rate of $.657 per $100.00 of 
March 31, 1995 deposits.  As a result, the Bank's assessment amounted to $2.6 
million ($1.7 million net of tax).  Additional provisions of the Act include 
new BIF and SAIF premiums and the merger of BIF and SAIF.  The new BIF and 
SAIF premiums will include a premium of repayment of the Financing 
Corporation ("FICO") bonds plus and regular insurance assessment, currently 
nothing for the lowest risk category institutions.  Until full pro-rate FICO 
sharing is in effect, the FICO premiums for BIF and SAIF will be 1.3 and 
approximately 6.5 basis points, respectively, beginning January 1, 1997.  
Full pro-rata FICO sharing is to begin no later than January 1, 2000.  BIF 
and SAIF are to be merged on January 1, 1999, provided the bank and savings 
association charters are merged by that date. While the one-time special 
assessment had a significant impact on 1996 earnings, the resulting lower 
annual premiums will benefit future earnings.

    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 

                                 22

<PAGE>

the FDIC.  Management is aware of no existing circumstances which would 
result in termination of the Bank's deposit insurance.

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

    Current OTS capital standards require savings institutions to satisfy 
three different capital requirements.  Under these standards, savings 
institutions must maintain "tangible" capital equal to at least 1.5% of 
adjusted total assets, "core" capital equal to at least 3.0% of adjusted 
total assets and "total" capital (a combination of core and "supplementary" 
capital) equal to at least 8.0% of "risk-weighted" assets.  For purposes of 
the regulation, core capital generally consists of common stockholders' 
equity (including retained earnings), noncumulative perpetual preferred stock 
and related surplus, minority interests in the equity accounts of fully 
consolidated subsidiaries, certain nonwithdrawable accounts and pledged 
deposits and "qualifying supervisory goodwill."  Tangible capital is given 
the same definition as core capital but does not include qualifying 
supervisory goodwill and is reduced by the amount of all the savings 
institution's intangible assets, with only a limited exception for purchased 
mortgage servicing rights.  The Bank had no goodwill or other intangible 
assets at December 31, 1996.  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, 1996, the 
Bank exceeded its tangible, core and risk-based capital requirements.

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

    Liquidity Requirements.  All savings institutions are required to 
maintain an average daily balance of liquid assets equal to a certain 
percentage of the sum of its average daily balance of net withdrawable 
deposit accounts and borrowings payable in one year or less.  The liquidity 
requirement may vary from time to time (between 4% and 10%) depending upon 
economic conditions and savings flows of all savings institutions.   At the 
present time, the required minimum liquid asset ratio is 5%. At December 31, 
1996, the Bank's liquidity ratio was 12.3%.

                                 23

<PAGE>

    Capital Distributions.  OTS regulations govern capital distributions by 
savings institutions, which include cash dividends, stock redemptions or 
repurchases, cash-out mergers, interest payments on certain convertible debt 
and other transactions charged to the capital account of a savings 
institution to make capital distributions.  Generally, the regulation creates 
a safe harbor for specified levels of capital distributions from institutions 
meeting at least their minimum capital requirements, so long as such 
institutions notify the OTS and receive no objection to the distribution from 
the OTS.  Savings institutions and distributions that do not qualify for the 
safe harbor are required to obtain prior OTS approval before making any 
capital distributions.

    Generally, a savings institution that before and after the proposed 
distribution meets or exceeds its fully phased-in capital requirements (Tier 
1 institutions) may make capital distributions during any calendar year equal 
to the higher of (i) 100% of net income for the calendar year-to-date plus 
50% of its "surplus capital ratio" at the beginning of the calendar year or 
(ii) 75% of net income over the most recent four-quarter period.  The 
"surplus capital ratio" is defined to mean the percentage by which the 
institution's ratio of total capital to assets exceeds the ratio of its fully 
phased-in capital requirement to assets.  "Fully phased-in capital 
requirement" is defined to mean an institution's capital requirement under 
the statutory and regulatory standards applicable on December 31, 1994, as 
modified to reflect any applicable individual minimum capital requirement 
imposed upon the institution. Failure to meet fully phased-in or minimum 
capital requirements will result in further restrictions on capital 
distributions, including possible prohibition without explicit OTS approval.

    Tier 2 institutions, which are institutions that before and after the 
proposed distribution meet or exceed their minimum capital requirements, may 
make capital distributions up to a specified percentage of their net income 
during the most recent four quarter period, depending on how close the 
institution is to meeting its fully phased-in capital requirements.  Tier 3 
institutions, which are institutions that do not meet current minimum capital 
requirements, or which have been otherwise notified by the OTS that it will 
be treated as a Tier 3 institution because they are in need of more than 
normal supervision, cannot make any capital distribution without obtaining 
OTS approval prior to making such distributions.

    In order to make distributions under these safe harbors, Tier 1 and Tier 
2 institutions must submit 30 days written notice to the OTS prior to making 
the distribution.  The OTS may object to the distribution during that 30-day 
period based on safety and soundness concerns.  At December 31, 1996, the 
Bank was a Tier 1 institution for purposes of this regulation. 

    Branching by Federal Savings Institutions.  OTS policy permits interstate 
branching to the full extent permitted by statute (which is essentially 
unlimited). Generally, federal law prohibits federal savings institutions 
from establishing, retaining or operating a branch outside the state in which 
the federal institution has its home office unless the institution meets the 
IRS' domestic building and loan test (generally, 60% of a thrift's assets 
must be housing-related) ("IRS Test").  The IRS Test requirement does not 
apply if, among other things, the law of the state where the branch would be 
located would permit the branch to be established if the federal savings 
institution were chartered by the state in which its home office is located.  
Furthermore, the OTS will evaluate a branching applicant's record of 
compliance with the Community Reinvestment Act of 1977 ("CRA").  An 
unsatisfactory CRA record may be the basis for denial of a branching 
application.

    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 

                                 24

<PAGE>

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, 1996, the qualified thrift investments of the Bank 
were approximately 86.7% 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, 1996, the Bank had no 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, 1996, the Bank had $3.0 million 
in FHLB stock, which was in compliance with this requirement.  No ready 
market exists for such stock and it has no quoted market value.

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

    Federal Reserve System.  The FRB requires all depository institutions to 
maintain reserves against their transaction accounts and non-personal time 
deposits. As of December 31, 1996, no reserves were required to be maintained 
on the first $4.3 million of transaction accounts, reserves of 3% were 
required to be maintained against the next $52.0 million of net transaction 
accounts (with such dollar amounts subject to adjustment by the FRB), and a 
reserve of 10% (which is subject to adjustment by the FRB to a level between 
8% and 14%) against all remaining net transaction accounts.  Because required 
reserves must be maintained in the form of vault cash or a 
noninterest-bearing account at a Federal Reserve Bank, the effect of this 
reserve requirement is to reduce an institution's earning assets.

                                       TAXATION
Federal Taxation

    General.  The Company and Bank are subject to the generally applicable 
corporate tax provisions of the Internal Revenue Code of 1986, as amended 
("Code"), and Bank is subject to certain additional provisions of the Code 
which apply to thrift and other types of financial institutions.  The 
following discussion of federal taxation is intended only to summarize 
certain pertinent federal income tax matters material to the taxation of the 

                                 25

<PAGE>

Company and the Bank and is not a comprehensive discussion of the tax rules 
applicable to the Company and Bank.

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

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

    Under Section 593, a thrift institution annually could elect to deduct 
bad debts under either (i) the "percentage of taxable income" method 
applicable only to thrift institutions, or (ii) the "experience" method that 
also was available to small banks. Under the "percentage of taxable income" 
method, a thrift institution generally was allowed a deduction for an 
addition to its bad debt reserve equal to 8% of its taxable income 
(determined without regard to this deduction and with additional 
adjustments).  Under the experience method, a thrift institution was 
generally allowed a deduction for an addition to its bad debt reserve equal 
to the greater of (i) and amount based on its actual average experience for 
losses in the current and five preceding taxable years, or (ii) an amount 
necessary to restore the reserve to its balance as of the close of the base 
year.  A thrift institution could elect annually to compute its allowable 
addition to bad debt reserves for qualifying loans either under the 
experience method or the percentage of taxable income method.  For tax years 
1995 and 1994, the Bank used the percentage of taxable income method because 
such method provided a higher bad debt deduction than the experience method.

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

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

    For taxable years that begin after December 31, 1995, and before January 
1, 1998, if a thrift meets the residential loan requirement for a tax year, 
the recapture of the applicable excess reserves otherwise required to be 
taken into account as a Code Section 481(a) adjustment for the year will be 
suspended.  A thrift meets the 

                                 26

<PAGE>

residential loan requirement if, for the tax year, the principal amount of 
residential loans made by the thrift during the year is not less than its 
base amount.  The "base amount" generally is the average of the principal 
amounts of the residential loans made by the thrift during the six most 
recent tax years beginning before January 1, 1996.

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

    The balance of the pre-1988 reserves is subject to the provisions of 
Section 593(e), as modified by the Act, which requires recapture in the case 
of certain excessive distributions to shareholders.  The pre-1988 reserves 
may not be utilized for payment of cash dividends or other distributions to a 
shareholder (including distributions in dissolution or liquidation) or for 
any other purpose (except to absorb bad debt losses).  Distribution of a cash 
dividend by a thrift institution to a shareholder is treated as made:  first, 
out of the institution's post-1951 accumulated earnings and profits; second, 
out of the pre-1988 reserves; and third, out of such other accounts as may be 
proper.  To the extent a distribution by the Bank to the Company is deemed 
paid out of its pre-1988 reserves under these rules, the pre-1988 reserves 
would be reduced and the Bank's gross income for tax purposes would be 
increased by the amount which, when reduced by the income tax, if any, 
attributable to the inclusion of such amount in its gross income, equals the 
amount deemed paid out of the pre-1988 reserves.  As of December 31, 1996, 
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 
three taxable years and forward to the succeeding 15 taxable years.  This 
provision applies to losses incurred in taxable years beginning after 
1986.  At December 31, 1996, the Bank had no NOL carryforwards for federal 
income tax purposes.

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

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

    The Bank's federal income tax returns for the tax years ended December 
31, 1993 forward are open under the statute of limitations and are subject to 
review by the IRS.

                                 27

<PAGE>

State Taxation

    The Bank will continue to be subject to Arkansas corporation income tax 
which is 6.5% of all taxable earnings when income exceeds $100,000.

    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.

                                 28

<PAGE>

Item 2.  Properties.

    At December 31, 1996, the Bank conducted its business from its executive 
office in Harrison, Arkansas, and nine 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, 1996.



                                 Leased    Net Book Value
Description/Address              /Owned     of Property     Amount of Deposits
----------------------------     ------    --------------   ------------------




(In Thousands)

200 West Stephenson               Owned         $403              $134,068
Harrison, AR  72601


128 West Stephenson               Owned          157                    (1)
Harrison, AR  72601


Corner Central & Willow           Owned          282                    (1)
Harrison, AR  72601

Ozark Mall - Hwy. 62-65 North     Leased(2)       37                27,653
Harrison, AR  72601

324 Hwy. 62-65 Bypass             Owned          316                33,410
Harrison, AR  72601

210 South Main                    Owned          304                26,209
Berryville, AR 72616

666 Highway 62 East               Owned          673               141,507
Mountain Home, AR 72653

301 Highway 62 West               Owned          131                17,602
Yellville, AR 72687

307 North Walton Blvd.            Owned          285                21,146
Bentonville, AR 72712

3460 North College                Owned          466                20,252
Fayetteville, AR 72703

1303 West Hudson                  Owned          246                   174
Rogers, AR  72756

201 East Henri De Tonti Blvd.     Owned          265                   837
Tontitown, AR 72762

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

(1) Such offices do not open deposit accounts. 
(2) Such property is subject to a month-to-month lease. 

                                 29

<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 40 of the Company's 1996 Annual Report to 
Stockholders ("1996 Annual Report").

Item 6.  Selected Financial Data.

    The information required herein is incorporated by reference from pages 3 
and 4 of the 1996 Annual Report.

Item 7.  Management's Discussion and Analysis of Financial Condition and 
Results of of Operations.

    The information required herein is incorporated by reference from pages 6 
to 16 of the 1996 Annual Report.

Item 8.  Financial Statements and Supplementary Data.

    The information required herein is incorporated by reference from page 5 
and pages 17 to 38 of the 1996 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 May 7, 1997 ("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.

                                 30

<PAGE>

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 11 
of the Definitive Proxy Statement.

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,
           1996 and 1995
         Consolidated Statements of Income for the years ended 
           December 31, 1996, 1995 and 1994
         Consolidated Statements of Changes in Stockholders' Equity for
           the years ended December 31, 1996, 1995 and 1994.
         Consolidated Statements of Cash Flows for the years ended 
           December 31, 1996, 1995 and 1994.
         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.

                                 31

<PAGE>
                                Exhibit Index



                                                                          Page
                                                                          ----
2.1  Plan of Conversion                                                    *
3.1  Articles of Incorporation of First Federal Bancshares 
     of Arkansas, Inc.                                                     *
3.2  Bylaws of First Federal Bancshares of Arkansas, Inc.                  *
4.0  Stock Certificate of First Federal Bancshares of Arkansas, Inc.       **
10.5 Employment Agreement between the Company, the Bank  
     and Frank L. Coffman                                                  *
10.6 Employment Agreement between the Company, the Bank 
      and Larry J. Brandt                                                  *
10.7 Employment Agreement between the Company, the Bank 
     and Carolyn M. Thomason                                               *
13.0 1996 Annual Report to Stockholders                                    E-1
22.0 Subsidiaries of the Registrant - Reference is made to 
     "Item 1 Business - Subsidiaries" for the required information         

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

(*)   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.

                                 32


 
<PAGE>

                                      SIGNATURES


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


                        FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.



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


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



/s/ Frank L. Coffman                                        March 21, 1997
-------------------------------
Frank L. Coffman
Chairman of the Board and Chief
  Executive Officer


/s/ Larry J. Brandt                                         March 21, 1997
-------------------------------
Larry J. Brandt
President and Chief 
 Operating Officer


/s/ John P. Hammerschmidt                                   March 21, 1997
-------------------------------
John P. Hammerschmidt
Director


/s/ James D. Heuer                                          March 21, 1997
-------------------------------
James D. Heuer
Director


/s/ William F. Smith                                        March 21, 1997
-------------------------------
William F. Smith
Director


/s/ Tommy W. Richardson                                     March 21, 1997
-------------------------------
Tommy W. Richardson
Senior Vice President and Chief
 Financial Officer