<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, 1999

                                       OR

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

          For the transition period from __________ to _______________

                          Commission File No.: 0-28312
                                               -------

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


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


  200 WEST STEPHENSON
   HARRISON, ARKANSAS                                             72601
----------------------------------                  ----------------------------
      (Address)                                                 (Zip Code)

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

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

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

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

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

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

As of March 22, 2000, the aggregate value of the 3,551,231 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
354,243 shares held by all directors and officers of the Registrant as a group,
was approximately $54.2 million. This figure is based on the last sales price of
$15.25 per share of the Registrant's Common Stock on March 22, 2000.

Number of shares of Common Stock outstanding as of  March 22, 2000: 3,905,474

                       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, 1999 are incorporated into Part II, Items 5 through 8 of this Form 10-K.

(2) Portions of the definitive proxy statement for the 2000 Annual Meeting of
Stockholders are incorporated into Part III, Items 10 through 13 of this Form
10-K.


<PAGE>



PART I.

ITEM 1.  BUSINESS

GENERAL

    FIRST FEDERAL BANCSHARES OF ARKANSAS, INC. First Federal Bancshares of
Arkansas, Inc. (the "Company") is a Texas corporation organized in January 1996
by First Federal Bank of Arkansas, FA ("First Federal" or the "Bank") for the
purpose of becoming a unitary holding company of the Bank. The only significant
assets of the Company are the capital stock of the Bank, the Company's loan to
the Employee Stock Ownership Plan ("ESOP"), and the portion of the net proceeds
retained by the Company in connection with the Bank's conversion to stock form
and the concurrent offering of the Company's common stock (the "Conversion").
The business and management of the Company consists of the business and
management of the Bank. The Company does not presently own or lease any
property, but instead uses the premises, equipment and furniture of the Bank. At
the present time, the Company does not employ any persons other than officers of
the Bank, and the Company utilizes the support staff of the Bank from time to
time. Additional employees will be hired as appropriate to the extent the
Company expands or changes its business in the future. At December 31, 1999, the
Company had $680.7 million in total assets, $507.9 million in total deposits and
$78.8 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 (870) 741-7641.

    FIRST FEDERAL BANK OF ARKANSAS, FA. The Bank is a federally chartered stock
savings and loan association which was formed in 1934. First Federal conducts
business from its main office and twelve full service branch offices, all of
which are located in a six county area in Northcentral and Northwest Arkansas
comprised of Benton, Marion, Washington, Carroll, Baxter and Boone counties.
First Federal's deposits are insured by the Savings Association Insurance Fund
("SAIF"), which is administered by the Federal Deposit Insurance Corporation
("FDIC"), to the maximum extent permitted by law.

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

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

                                        1


<PAGE>



    This Form 10-K and the Company's Annual Report to Stockholders contain
certain forward-looking statements and information relating to the Company that
are based on the beliefs of management as well as assumptions made by and
information currently available to management. In addition, in those and other
portions of this document and the Company's Annual Report to Stockholders, the
words "anticipate", "believe," "estimate," "expect," "intend," "should" and
similar expressions, or the negative thereof, as they relate to the Company or
the Company's management, are intended to identify forward-looking statements.
Such statements reflect the current views of the Company with respect to future
looking events and are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. The Company does not intend to update these forward-looking
statements.

LENDING ACTIVITIES

    GENERAL. At December 31, 1999, the Bank's total portfolio of loans
receivable ("total loan portfolio"), amounted to $474.2 million or 69.7% of the
Company's $680.7 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, $368.6 million or 77.73% of the Bank's
total loan portfolio consisted of one- to four-family residential loans at
December 31, 1999. 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, 1999, such loan
categories amounted to $2.8 million, $26.0 million, $25.8 million, $14.2 million
and $36.8 million, respectively, or .59%, 5.49%, 5.44%, 2.99% and 7.76% 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,
                                   ----------------------------------------------------------------------------
                                                  1999                                  1998
                                   ------------------------------------      ----------------------------------
                                                             Percentage                           Percentage
                                      Amount                  of Loans            Amount           of Loans
                                    ----------               ----------         ----------        -----------
                                                                   (Dollars in Thousands)
<S>                                 <C>                       <C>               <C>                <C>

Real estate loans:
 Single-family residential           $ 368,589                 77.73%            $ 370,211          81.66%
 Multi-family residential                2,812                   .59                 1,540            .34
 Commercial real estate                 26,018                  5.49                23,196           5.12
 Construction                           25,797                  5.44                18,226           4.02
                                    ----------               ----------         ----------        -------
   Total real estate loans             423,216                 89.25               413,173          91.14
                                    ----------               ----------         ----------        -------
Commercial loans                        14,171                  2.99                 8,437           1.86
                                    ----------               ----------         ----------        -------
Consumer loans:
 Home equity and second
  mortgage loans                        15,009                  3.17                13,308           2.94
 Automobile                             13,205                  2.78                10,693           2.36
 Other                                   8,577                  1.81                 7,712           1.70
                                    ----------               ----------         ----------        -------
   Total consumer loans                 36,791                  7.76                31,713           7.00
                                    ----------               ----------         ----------        -------
    Total loans receivable             474,178                100.00%              453,323         100.00%
                                    ----------               ==========         ----------        =======
Less:
 Undisbursed loan funds                (10,437)                                     (6,770)
 Unearned discounts and net
  deferred loan fees                    (3,011)                                     (3,296)
 Allowance for loan losses                (752)                                       (771)
                                    ----------                                  ----------
   Total loans receivable, net       $ 459,978                                   $ 442,486
                                     =========                                   =========

</TABLE>


<TABLE>
<CAPTION>

                                                                            December 31,
                                  ------------------------------------------------------------------------------------------------
                                              1997                             1996                               1995
                                  ------------------------------       -------------------------      ----------------------------
                                                     Percentage                       Percentage                        Percentage
                                      Amount         of Loans           Amount         of Loans           Amount         of Loans
                                  ----------         ----------        ---------      ----------        ---------       ----------
                                                                       (Dollars in Thousands)
<S>                               <C>                <C>               <C>            <C>               <C>             <C>
Real estate loans:
 Single-family residential         $ 370,955           83.18%          $ 338,349       82.36%           $ 287,872          82.54%
 Multi-family residential              1,303             .29               1,555         .38                1,060            .30
 Commercial real estate               18,593            4.17              19,136        4.66               19,723           5.66
 Construction                         20,753            4.66              20,053        4.88               11,603           3.33
                                  ----------         ----------        ---------      ----------        ---------       ----------
   Total real estate loans           411,604           92.30             379,093       92.28              320,258          91.83
                                  ----------         ----------        ---------      ----------        ---------       ----------
Commercial loans                       5,649            1.27               4,348        1.06                4,014           1.15
                                  ----------         ----------        ---------      ----------        ---------       ----------

Consumer loans:
 Home equity and second
  mortgage loans                      13,023            2.92              12,549        3.06               10,466           3.00
 Automobile                            8,307            1.86               7,556        1.84                6,993           2.01
 Other                                 7,372            1.65               7,244        1.76                7,021           2.01
                                  ----------         ----------        ---------      ----------        ---------       ----------
   Total consumer loans               28,702            6.43              27,349        6.66               24,480           7.02
                                  ----------         ----------        ---------      ----------        ---------       ----------


    Total loans receivable           445,955          100.00%            410,790      100.00%             348,752         100.00%
                                     -------          ======             -------      ======              -------         ======

Less:

 Undisbursed loan funds               (7,305)                             (8,670)                         (4,298)
 Unearned discounts and net
  deferred loan fees                  (3,512)                             (4,361)                         (3,721)
 Allowance for loan losses            (1,196)                             (1,251)                         (1,228)
                                      ------                              ------                          ------
   Total loans receivable, net     $ 433,942                           $ 396,508                       $ 339,505
                                   =========                           =========                       =========

</TABLE>


                                        3


<PAGE>



    LOAN MATURITY AND INTEREST RATES. The following table sets forth certain
information at December 31, 1999 regarding the dollar amount of loans maturing
in the Bank's loan portfolio based on their contractual terms to maturity.
Demand loans and loans having no stated schedule of repayments and no stated
maturity are reported as due in one year or less. All other loans are included
in the period in which the final contractual repayment is due.

<TABLE>
<CAPTION>

                                                              After Three     After Five      After Ten
                                                One Year         Years          Years           Years         Beyond
                                  Within         Through         Through      Through Ten       Through        Twenty
                                 One Year      Three Years     Five Years        Years       Twenty Years       Years         Total
                                -----------    ------------    -----------    -----------    ------------    ----------    ---------
                                                                        (In Thousands)

<S>                             <C>             <C>            <C>             <C>            <C>           <C>            <C>
Real estate loans:
 Single-family residential       $   487         $ 1,034        $ 3,108         $44,540        $141,696      $177,724       $368,589
 Multi-family residential            156              --             --             229           2,427            --          2,812
 Commercial real estate              881           1,474         11,002           3,298           9,363            --         26,018
 Construction                      3,265              --            192           2,830           5,757        13,753         25,797
Commercial loans                      29           8,337          1,667           3,265             873            --         14,171
Consumer loans                       151          14,082         12,546           9,372             640            --         36,791
                                  ------          ------         ------          ------        --------   -----------        -------
     Total(1)                     $4,969         $24,927        $28,515         $63,534        $160,756      $191,477       $474,178
                                   =====          ======         ======          ======         =======       =======        =======
</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, 1999 due after one year from such date which have fixed interest
rates or which have floating or adjustable interest rates.

<TABLE>
<CAPTION>

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

<S>                                                      <C>                     <C>                    <C>
Real estate loans:
  Single-family residential                              $131,178                $236,924               $368,102
  Multi-family residential                                  2,249                     407                  2,656
  Commercial real estate                                   25,137                      --                 25,137
  Construction                                              8,654                  13,878                 22,532
Commercial loans                                           14,142                      --                 14,142
Consumer loans                                             36,640                      --                 36,640
                                                          -------             -----------              ---------
     Total                                               $217,999                $251,209               $469,209
                                                          =======                 =======                =======
</TABLE>


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

    ORIGINATION, PURCHASE AND SALE OF LOANS. The lending activities of the Bank
are subject to the written, non-discriminatory, underwriting standards and 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 appraisal and underwriting staff. The Bank requires
hazard, title and, to the extent applicable, flood insurance on all security
property.

                                        4


<PAGE>



    Loan applications are initially processed by branch managers or loan
officers and all real estate loans up to $500,000 must be approved by two
members of the Bank's Loan Committee, one of which must be a member of senior
management. Loans in excess of $500,000 up to $750,000 must be approved by three
members of the Bank's Loan Committee, two of which must be members of senior
management. Real estate loans in excess of $750,000 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 of loans due to
consistent loan demand. No loans were purchased during the last three years.

    The Bank originates and generally sells all loans with fixed terms of
fifteen years or greater to specific investors in the secondary mortgage loan
market. This allows the Bank to provide to its customers competitive long-term
fixed-rate loan products without assuming additional interest rate risk. These
loans are originated subject to underwriting by a third party with the purchase
price confirmed by the respective investor prior to loan closing. Due to these
loans being underwritten by a third party, the repurchase risk typically
associated with such contracts is being assumed by the underwriter. The Bank is
not involved in loan hedging or other speculative mortgage origination
activities. In 1999, 1998, and 1997, the Bank's loan sales were $15.5 million,
$20.5 million, and $2.2 million, respectively.

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

<TABLE>
<CAPTION>

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

                                                      1999                    1998                   1997
                                                -------------------    -------------------    -------------------
                                                                          (In Thousands)

<S>                                                <C>                     <C>                    <C>
Loans receivable at beginning
  of period                                         $453,323                $445,955               $410,790
                                                     -------                 -------                -------
Loan originations:
  Real estate:
    Single-family residential                         97,236                 114,518                 92,684
    Multi-family residential                           1,812                     590                     --
    Commercial real estate                             7,266                  13,776                  3,633
    Construction                                      31,175                  24,033                 20,587
  Commercial loans                                    10,783                   7,159                  5,257
  Consumer:
    Home equity and second
      mortgage loans                                  11,861                   9,652                  8,807
    Automobile                                        11,735                  10,273                  7,311
    Other                                              8,801                   8,830                  6,798
                                                    --------               ---------              ---------
      Total loan originations                        180,669                 188,831                145,077
Purchases                                                 --                      --                     --
                                                ------------           -------------           ------------
      Total loan originations and
        purchases                                    180,669                 188,831                145,077
Repayments                                          (143,388)               (156,426)              (106,408)
Loan sales                                           (15,516)                (20,494)                (2,244)
Other                                                   (910)                 (4,543)                (1,260)
                                                 -----------               ---------              ---------
Net loan activity                                     20,855                   7,368                 35,165
                                                   ---------               ---------               --------
Loans receivable
  at end of period                                  $474,178                $453,323               $445,955
                                                     =======                 =======                =======
</TABLE>




                                        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,
1999, the Bank's limit on loans-to-one borrower was approximately $11.4 million.
At December 31, 1999, the Bank's largest loans or groups of loans-to-one
borrower, including persons or entities related to the borrower, amounted to
$5.7 million. Such amount consists of 23 loans, primarily commercial real estate
loans, all of which were current at December 31, 1999. The Bank's ten largest
loans or groups of loans-to-one borrower, including persons or entities related
to the borrower, amounted to $30.4 million at December 31, 1999. All of such
loans are current.

    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, 1999, $368.6 million or 77.7% of the Bank's total loan portfolio consisted
of one- to four-family residential real estate loans. The Bank originated $97.2
million, $114.5 million and $92.7 million of one- to four-family residential
loans in 1999, 1998, and 1997, 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 $368.6
million of such loans at December 31, 1999, $236.9 million or 64.3% had
adjustable-rates of interest (including $177.9 million in seven-year adjustable
rates) and $131.7 million or 35.7% had fixed-rates of interest.

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

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

    The Bank's residential mortgage loans typically do not exceed 90% of the
appraised value of the security property. However, pursuant to underwriting
guidelines adopted by the Board of Directors, the Bank can lend up to 97% of the
appraised value of the property securing a one- to four-family residential loan,
and requires borrowers to obtain private mortgage insurance on loans where the
principal amount of the loan exceeds 90% of the appraised value of the security
property. At December 31, 1999, the Bank had $1.2 million of nonperforming
single-family residential loans. See "- Asset Quality."

    MULTI-FAMILY RESIDENTIAL REAL ESTATE LOANS. Although the Bank does not
emphasize multi-family residential loans and has not been active in this area,
the Bank offers mortgage loans for the acquisition and refinancing of existing
multi-family residential properties. At December 31, 1999, $2.8 million or .6%
of the Bank's total loan portfolio consisted of loans collateralized by existing
multi-family residential real estate properties.

                                        6


<PAGE>



    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, 1999, 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, 1999, $26.0 million or 5.5% 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, 1999, the Bank had approximately $8.4 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 generally based on 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,
1999, the Bank did not have any nonperforming commercial real estate loans.
See"-Asset Quality."

    CONSTRUCTION LOANS. The Bank also originates primarily residential
construction loans, although the Bank has originated commercial real estate and
multi-family residential construction loans. The Bank's construction lending
activities are limited to the Bank's primary market area. At December 31, 1999,
construction loans amounted to $25.8 million or 5.4% of the Bank's total loan
portfolio, of which $20.2 million consisted of single-family residential
construction loans and $5.6 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%.

                                        7


<PAGE>



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

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

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

    The Bank has attempted to minimize the foregoing risks by, among other
things, limiting the extent of its construction lending generally and by
limiting its construction lending to primarily residential properties. In
addition, the Bank has adopted underwriting guidelines which impose stringent
loan to value, debt service and other requirements for loans which are believed
to involve higher elements of credit risk, by limiting the geographic area in
which the Bank will do business and by working with builders with whom it has
established relationships. At December 31, 1999, the Bank did not have any
nonperforming construction loans. See "- Asset Quality."

             COMMERCIAL LOANS. To a limited extent, the Bank offers commercial
loans which primarily consist of equipment and inventory loans which are
typically cross-collateralized by commercial real estate. The Bank does not
actively market such loans and offers such loans primarily as an accommodation
to its present customers. At December 31, 1999, such loans amounted to $14.2
million or 3.0% of the total loan portfolio. At December 31, 1999, the Bank had
two nonperforming commercial loans totaling $23,000. See "- Asset Quality."

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

    CONSUMER LOANS. The Bank offers consumer loans in order to provide a full
range of financial services to its customers. The consumer loans offered by the
Bank include primarily home equity and second mortgage loans, automobile loans,
deposit account secured loans and unsecured loans. Consumer loans amounted to
$36.8 million or 7.8% of the total loan portfolio at December 31, 1999, of which
$15.0 million, $13.2 million and $8.6 million consisted of home equity and
second mortgage loans, automobile loans and other consumer loans, respectively.
The Bank intends to continue its emphasis on consumer loans in furtherance of
its role as a community oriented financial institution.

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

                                        8


<PAGE>




    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, 1999, the Bank had $121,000 of
nonperforming consumer loans. See "-Asset Quality."

ASSET QUALITY

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

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

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

    At December 31, 1999, the Bank owned a 75% interest in a 202 room hotel in
the Oklahoma City metropolitan area. This ownership was acquired as the result
of the Bank's foreclosure of such property in 1998. Originally valued at
approximately $4.7 million, the real estate has been written down to
approximately $3.5 million at December 31, 1999. The Bank has received an offer
to sell such property. While Bank management believes the offeror will proceed
to closing and that the Bank will receive at least the carrying value of the
real estate as net proceeds of the sale, the contract can be rescinded and the
sale may not proceed to closing. The offeror owns other lodging facilities in
the Oklahoma City area and continues to carry out steps consistent with their
expressed plan for acquiring the real estate.

    The operations of the hotel are managed by a retained hotel management
company. The hotels operation's lost approximately $98,000 for the year ended
December 31, 1999.

                                        9


<PAGE>



    DELINQUENT LOANS. The following table sets forth information concerning
delinquent loans at December 31, 1999, in dollar amounts and as a percentage of
the Bank's total loan portfolio. The amounts presented represent the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due.


<TABLE>
<CAPTION>

                           Single-family
                             Residential                   Construction                       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             $1,326              .28%         $   --          --%       $   --           --%         $131          .03%
60-89 days                474              .10             233         .05            --           --            76          .02
90 days and
over                    1,203              .25              --          --            23          .01           121          .03
                        -----                             -----                       ---                       ---
Total                  $3,003                             $233                      $ 23                       $328
                        =====                              ===                       ===                        ===
</TABLE>


    Interest income that would have been recorded under the original terms of
the Bank's non-accruing loans for the year ended December 31, 1999 amounted to
$106,000, and the interest recognized during this period amounted to $59,000.

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

<TABLE>
<CAPTION>
                                                                          December 31,
                                                ------------------------------------------------------------------
                                                    1999           1998         1997         1996            1995
                                                  -------         ------       ------        ----           -----
                                                                       (Dollars in Thousands)

<S>                                               <C>            <C>         <C>           <C>             <C>
Nonperforming loans:
  Single-family residential                        $1,203         $1,275      $ 1,001       $ 493           $ 223
  Multi-family residential                             --             --          109          --              --
  Commercial real estate                               --             --        3,365(1)       --              --
  Commercial loans                                     23             30           48          --              --
  Consumer loans                                      121            159          434         228             127
                                                  -------         ------       ------        ----           -----
     Total nonperforming loans                      1,347          1,464        4,957         721             350
                                                  -------         ------       ------        ----           -----
Real estate owned                                   3,940(1)       4,270(1)       195         154             234
                                                  -------         ------       ------        ----           -----
     Total nonperforming assets                    $5,287         $5,734       $5,152        $875           $ 584
                                                  =======         ======       ======        ====           =====
Total nonperforming loans as a
  percentage of total loans
  receivable                                         0.28%         0.32%         1.11%       0.18%          0.10%
                                                     ====          ====          ====        ====           ====

Total nonperforming assets as a
  percentage of total assets                         0.78%         0.93%         0.94%       0.17%          0.13%
                                                     ====         =====          ====        ====           ====
</TABLE>

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

                                       10


<PAGE>



    CLASSIFIED ASSETS. Federal regulations require that each insured savings
association classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. At December 31,
1999, the Bank had $4.4 million of classified assets, $4.3 million of which were
classified as substandard and $141,000 of which were classified as loss. In
addition, at such date, the Bank had $187,000 of assets designated as special
mention.

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

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

    Homogeneous loans are those that are considered to have common
characteristics that provide for evaluation on an aggregate or pool basis. The
Bank considers the characteristics of (1) one-to-four family residential first
mortgage loans; (2) unsecured consumer loans and; (3) secured consumer loans to
permit consideration of the appropriateness of the allowance for losses of each
group of loans on a pool basis. The primary methodology used to determine the
appropriateness of the allowance for losses includes segregating certain
specific, poorly performing loans based on their performance characteristics
from the pools of loans as to type, grading these loans, and then applying a
loss factor to the remaining pool balance based on several factors including
past loss experience, inherent risks, economic conditions in the primary market
areas, and other factors which usually are beyond the control of the Bank.

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

                                       11


<PAGE>



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

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


<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                             --------------------------------------------------------------------
                                                 1999          1998            1997           1996              1995
                                             ------------  ------------    ------------   ------------    ------------

                                                                    (Dollars in Thousands)

<S>                                           <C>            <C>              <C>            <C>              <C>
Total loans outstanding at
 end of period                                $ 474,178      $ 453,323        $445,955       $410,790         $348,752
                                               ========       ========         =======        =======          =======
Average loans outstanding                     $ 447,631      $ 441,702        $415,075       $369,185         $306,175
                                               ========       ========         =======        =======          =======
Allowance at beginning of period              $     771      $   1,196        $  1,251       $  1,228          $ 1,134
                                            -----------     ----------       ---------       ---------         --------
Charge-offs:

  Single-family residential                          (9)           (17)             --             --               (2)
  Commercial real estate                             --           (369)             --             --               (8)
  Consumer loans                                    (57)          (103)            (67)           (40)             (30)
                                                 -------      ---------      ---------        -------         --------
    Total charge-offs                               (66)          (489)            (67)           (40)             (40)
                                                 -------      ---------      ---------        -------         --------
Recoveries:
  Commercial real estate                             --             --              --              1               --
  Consumer loans                                     27              9              12              2                1
                                                -------      ---------        --------        -------         --------
    Total recoveries                                 27              9              12              3                1
                                                -------      ---------        --------        -------         --------
Net charge-offs                                     (39)          (480)            (55)           (37)             (39)
                                                --------       --------       --------        -------         --------
Total provisions for losses                          20             55              --             60              133
                                                -------       --------       ---------        -------          -------
Allowance at end of period                      $   752       $    771          $1,196         $1,251           $1,228
                                                 ======        =======           =====          =====            =====

Allowance for loan losses as a
  percentage of total loans
  outstanding at end of period                     0.16%          0.17%           0.27%           0.03%           0.35%
                                                   ====           ====            ====            ====            ====
Net loans charged-off as a
  percentage of average loans
  outstanding                                      0.01%          0.11%           0.01%           0.01%           0.01%
                                                   ====          =====            ====            ====            ====
</TABLE>



                                       12


<PAGE>



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

<TABLE>
<CAPTION>


                                                                     December 31,
                              -----------------------------------------------------------------------------------------------------
                                           1999                          1998                        1997
                              -------------------------      ------------------------      ----------------------

                                               Percent of                   Percent of                   Percent of
                                               Total Loans                  Total Loans                  Total Loans
                                 Amount        by Category     Amount       by Category     Amount       by Category     Amount
                                -----------    ------------   ---------      ----------    --------      -----------    --------
                                                                                            (Dollars in Thousands)
<S>                             <C>               <C>        <C>               <C>        <C>               <C>        <C>

Single-family residential        $   50            77.73%     $   46            81.66%     $   49            83.18%     $   11
Multi-family residential             --              .59          --              .34          --              .29          --
Commercial real estate              149             5.49         147             5.12         125             4.17         117
Construction loans                   --             5.44          --             4.02          --             4.66          --
Commercial loans                     31             2.99          60             1.86          13             1.27          19
Consumer loans                      144             7.76         135             7.00         221             6.43         270
Unallocated                         378               --         383               --         788               --         834
                                 ------            ------      ------           ------       ------          ------       ------
    Total                        $  752           100.00%     $  771           100.00%     $1,196           100.00%      $1,251
                                 ======            ======      ======          ======       ======           ======       ======
</TABLE>



<TABLE>
<CAPTION>

                                             December 31,
                              -------------------------------------------
                                   1996                  1995
                              ----------------  -------------------------
                                Percent of                     Percent of
                                Total Loans                    Total Loans
                                by Category      Amount       by Category
                               ------------    -----------    ------------
                                        (Dollars in Thousands)
<S>                              <C>          <C>               <C>
Single-family residential         82.36%       $   11            82.54%
Multi-family residential            .38            --              .30
Commercial real estate             4.66           124             5.66
Construction loans                 4.88            --             3.33
Commercial loans                   1.06            27             1.15
Consumer loans                     6.66           241             7.02
Unallocated                          --           825               --
                                 ------        ------           ------
    Total                        100.00%       $1,228           100.00%
                                 ======        ======           ======
</TABLE>


                                       13


<PAGE>

INVESTMENT ACTIVITIES

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

    Investment securities that management has the positive intent and ability to
hold to maturity are classified as held to maturity and are reported at
amortized cost. Investment securities classified as available for sale are
reported at fair value, with unrealized gains and losses excluded from earnings,
net of taxes, and reported as a separate component of equity. At December 31,
1999, the Bank held no investment securities classified as available for sale.
At December 31, 1999, approximately $13 million of the Bank's investment
securities were pledged as collateral for certain deposits in excess of
$100,000. At December 31, 1999, investments in the debt and/or equity securities
of any one issuer, other than those issued by U.S. Government agencies, did not
exceed more than 10% of the Company's stockholders' equity.

    The maturity terms of the investment securities purchased in 1999 totaling
$92.2 million generally have been longer term, up to fifteen years with three
month to two year call protections.

    The following table sets forth the amount of investment securities which
contractually mature during each of the periods indicated and the weighted
average yields for each range of maturities at December 31, 1999. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay the obligation without prepayment penalties.

<TABLE>
<CAPTION>

                                 Less Than            One to Five          Five to Ten            After Ten
                                  One Year               Years                Years                 Years                 Total
                             ----------------      -----------------    ----------------      ----------------      ----------------
                              Amount    Yield      Amount     Yield     Amount     Yield     Amount     Yield      Amount     Yield
                            --------    -----     --------   ------    -------    ------    --------    -----     --------    -----
                                                                       (Dollars in Thousands)
<S>                         <C>          <C>      <C>         <C>      <C>        <C>       <C>         <C>      <C>          <C>
Bonds and other debt
 securities held to
 maturity:
 U.S. Government and
  agency obligations        $3,503       5.25%     $1,501      5.93%    $18,211    7.05%     $166,048    6.89%    $189,263     6.87%
                            ======                 ======               =======              ========             ========
</TABLE>


         As of December 31, 1999, there were approximately $184 million of
investments with issuer call options, of which approximately $169 million are
callable within one year.

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

<TABLE>
<CAPTION>

                                                             December 31,
                                       --------------------------------------------------
                                              1999               1998               1997
                                       ---------------    ---------------    ---------------
                                                       (Dollars in Thousands)

<S>                                         <C>                <C>                 <C>
Investment securities held
  to maturity:
  U.S. Government and agency
    obligations                             $189,263           $127,175            $95,533
                                             =======            =======             ======
</TABLE>

         As a member of the FHLB of Dallas, the Bank is required to maintain an
investment in FHLB stock. At December 31, 1999, the Bank's investment in FHLB
stock amounted to $4.3 million. No ready market exists for such stock and it has
no quoted market value.


                                       14

<PAGE>



SOURCES OF FUNDS

         GENERAL. Deposits are the primary source of the Bank's funds for
lending and other investment purposes. In addition to deposits, the Bank derives
funds from loan principal repayments and prepayments and interest payments,
maturities of investment securities and advances from the FHLB of Dallas. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows are significantly influenced by general interest rates and money market
conditions. Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources. They may also be
used on a longer term basis for general business purposes. The Bank began
utilizing FHLB of Dallas advances as an additional source of funds during 1997.

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

         The Bank considers its primary market area to be Northcentral and
Northwest Arkansas. The Bank utilizes traditional marketing methods to attract
new customers and savings deposits. The Bank does not advertise for deposits
outside of its primary market area or utilize the services of deposit brokers,
and management believes that an insignificant number of deposit accounts were
held by non-residents of Arkansas at December 31, 1999.

         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,
                                                 -----------------------------------------------------------------------------
                                                           1999                      1998                    1997
                                                 -------------------------------------------------  ----------------------
                                                      Amount          %         Amount         %         Amount         %
                                                      ------          -         ------         -         ------         -
                                                                            (Dollars in Thousands)

<S>                                              <C>                 <C>      <C>              <C>        <C>               <C>
Certificate accounts:
      3.00% - 3.99%                                $    1,107           .2%    $    453            .1%     $      362           .1%
      4.00% - 5.99%                                   291,342         57.4      278,335          57.9         241,660         53.6
      6.00% - 7.99%                                   107,065         21.1       91,156          18.9          97,885         21.7
      8.00% and over                                    5,800          1.1        8,821           1.8          20,236          4.5
                                                    ---------        -----    ---------         ------        --------      -------
  Total certificate accounts                          405,314         79.8      378,765          78.7         360,143         79.9
                                                    ---------        -----    ---------         ------        --------      -------

Transaction accounts:
  Passbook and statement savings                       26,031          5.1       25,916           5.4          25,330          5.6
  Money market accounts                                15,735          3.1       16,164           3.4          15,438          3.4
  NOW accounts/DDA                                     60,795         12.0       60,248          12.5          49,963         11.1
                                                     --------         -----     --------        ------         -------       ------
     Total transaction accounts                       102,561         20.2      102,328          21.3          90,731         20.1
                                                      -------        ------     -------         ------         -------       ------
     Total deposits                                  $507,875        100.0%    $481,093         100.0%        $450,874       100.0%
                                                      =======        =====      =======         =====          =======        =====
</TABLE>




                                       15


<PAGE>



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

<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                                                  -----------------------
                                                1999                          1998                         1997
                                        ----------------------     ---------------------------     ---------------------
                                                       Average                        Average                     Average
                                         Average        Rate          Average           Rate        Average        Rate
                                         Balance        Paid          Balance           Paid        Balance        Paid
                                        ----------   ----------    -------------    ------------   ----------    ---------
                                                                   (Dollars in Thousands)

<S>                                     <C>               <C>         <C>                 <C>      <C>              <C>
Passbook and statement savings
  accounts                              $ 27,098          2.72%       $ 26,128            2.72%    $ 26,092         2.72%
Money market accounts and
  NOW accounts                            64,043          2.32          58,226            2.33       55,486         2.34
Demand deposit accounts                   14,063            --          11,758              --        9,624           --
Certificates of deposit                  396,616          5.63         366,484            5.99      348,945         6.11
                                         -------          ----         -------            ----      -------         ----
    Total deposits                      $501,820          4.90%       $462,596            5.19%    $440,147         5.30%
                                         =======          ====         =======            ====      =======         ====
</TABLE>


         The following table presents, by various interest rate categories, the
amount of certificates of deposit at December 31, 1999 and 1998 and the amounts
at December 31, 1999 which mature during the periods indicated.

<TABLE>
<CAPTION>

                                                                           Balance at December 31, 1999
                                              December 31,            Maturing in the 12 Months Ending December 31,
                                     --------------------------     ------------------------------------------------
                                          1999            1998          2000           2001         2002       Thereafter
                                     ------------    ------------   -----------    -----------   ---------    -----------
                                                                         (In Thousands)

<S>                                    <C>             <C>            <C>           <C>           <C>           <C>
Certificates of Deposit
3.00% - 3.99%                            $    1,107     $       453    $    1,107    $        --    $     --     $       --
4.00% - 5.99%                               291,342         278,335       207,870         72,234       3,697          7,541
6.00% - 7.99%                               107,065          91,156        16,002         43,766      19,461         27,836
8.00% and over                                5,800           8,821            --             --          --          5,800
                                          ---------       ---------   -----------    ----------- -----------       --------
  Total certificate accounts               $405,314        $378,765      $224,979       $116,000     $23,158        $41,177
                                            =======         =======       =======        =======      ======         ======
</TABLE>


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


<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                                        -------------------------------------------
                                                            1999            1998             1997
                                                        -----------    ------------    -------------
                                                                    (In Thousands)

<S>                                                     <C>               <C>              <C>
Increase before interest credited                        $  7,926          $11,895          $10,786
Interest credited                                          18,856           18,324           17,230
                                                           ------           ------           ------
  Net increase in deposits                                $26,782          $30,219          $28,016
                                                           ======           ======           ======
</TABLE>


         The following table sets forth maturities of the Bank's certificates of
deposit of $100,000 or more at December 31, 1999 by time remaining to maturity.

<TABLE>
<CAPTION>

                                                                Amount
                                                           ----------------
Period Ending:                                             (In Thousands)
<S>                                                          <C>
March 31, 2000                                                $14,497
June 30, 2000                                                  17,223
September 30, 2000                                              9,608
December 31, 2000                                               6,975
After December 31, 2000                                        32,479
                                                               ------
  Total certificates of deposit with
    balances of $100,000 or more                              $80,782
                                                               ======
</TABLE>


                                       16


<PAGE>


         BORROWED FUNDS. The Bank utilizes FHLB advances in its normal operating
and investing activities. The Bank pledges as collateral for FHLB advances their
FHLB stock and has entered into blanket collateral agreements with the FHLB
whereby the Bank agrees to maintain, free of other encumbrances, qualifying
single family first mortgage loans with unpaid principal balances, when
discounted at 75% of the such balances, of at least 100% of total outstanding
advances.

         Advances at December 31, 1999, have maturity dates and weighted average
rates as follows:


<TABLE>
<CAPTION>

                                WEIGHTED
    YEAR ENDING                 AVERAGE
    DECEMBER 31                   RATE         AMOUNT
-----------------              ------------   ---------

<S>                               <C>        <C>
        2000                       5.79%      $68,000
        2001                       4.85         7,000
        2002                       6.60         3,972
        2003                       5.56         1,000
        2004                       6.07         1,000
     Thereafter                    5.99         3,000
                                              -------
       Total                       5.76%      $83,972
                                               ======
</TABLE>


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

<TABLE>
<CAPTION>

                                           AT OR FOR THE YEAR ENDED DECEMBER 31,
                                           -------------------------------------
                                        1999                1998                 1997
                                        ----                ----                 ----
                                               (DOLLARS IN THOUSANDS)


<S>                                   <C>                 <C>                  <C>
MAXIMUM BALANCE                        $83,972             $50,687              $12,997

AVERAGE BALANCE                         57,949              30,452                6,493

YEAR END BALANCE                        83,972              48,985               11,997

WEIGHTED AVERAGE

INTEREST RATE:

  AT END OF YEAR                          5.76%               5.57%                6.31%

  DURING THE YEAR                         5.58                5.81                 6.42
</TABLE>



EMPLOYEES

         The Bank had 189 full-time employees and 23 part-time employees at
December 31, 1999. None of these employees is represented by a collective
bargaining agent, and the Bank believes that it enjoys good relations with its
personnel.



                                       17
<PAGE>



SUBSIDIARIES

         The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. The Bank's only
subsidiary, First Harrison Service Corporation (the "Service Corporation"), was
formed in 1971. At December 31, 1999, the Service Corporation's only significant
asset was a $3.5 million repossessed commercial loan collateralized by a hotel
in Oklahoma City, Oklahoma. A contract to sell such property has been signed
with closing anticipated in the second quarter of 2000. The Service Corporation
recorded a net loss of approximately $270,000 during 1999.

COMPETITION

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

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

                                       18


<PAGE>



                                   REGULATION

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

THE COMPANY

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

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

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

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

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

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

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

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

         The activities financial holding companies may engage in include:

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

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


                                       19
<PAGE>


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

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

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

         -        merchant banking activities.

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

         -        the payment of dividends by the savings institution;

         -        transactions between the savings institution and its
                  affiliates; and

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

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

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

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

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

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

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

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


                                       20
<PAGE>


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

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 January, 1999. The Bank was
not required to make any material changes to its operations as a result of such
examination. The investment and lending authority of savings institutions are
prescribed by federal laws and regulations, and such institutions are prohibited
from engaging in any activities not permitted by such laws and regulations.
Those laws and regulations generally are applicable to all federally chartered
savings institutions and may also apply to state-chartered savings institutions.
Such regulation and supervision is primarily intended for the protection of
depositors.

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

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

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

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

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

         Current OTS capital standards require savings institutions to satisfy
three different capital requirements. Under these standards, savings
institutions must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets, "core" capital equal to at least 3.0% of adjusted total assets and
"total" capital (a combination of core and "supplementary" capital) equal to at
least 8.0% of "risk-weighted" assets. For purposes of the regulation, core
capital generally consists

                                       21


<PAGE>



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, 1999. 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, 1999, the Bank exceeded its tangible, core
and risk-based capital requirements.

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

         LIQUIDITY REQUIREMENTS. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required minimum
liquid asset ratio is 4%. At December 31, 1999, the Bank's liquidity ratio was
32.8%.

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

         Currently, the QTL test requires that 65% of an institution's
"portfolio assets" (as defined) consist of certain housing and consumer-related
assets on a monthly average basis in nine out of every 12 months. Assets that
qualify without limit for inclusion as part of the 65% requirement are loans
made to purchase, refinance, construct, improve or repair domestic residential
housing and manufactured housing; home equity loans; mortgage-backed securities
(where the mortgages are secured by domestic residential housing or manufactured
housing); stock issued by the FHLB of Dallas; and direct or indirect obligations
of the FDIC. In addition, the following assets, among others, may be included

                                       22


<PAGE>



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, 1999, the qualified thrift investments of the Bank
were approximately 79.2% 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, 1999, the Bank had $84.0 million of outstanding FHLB advances.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At December 31, 1999, the Bank had $4.3 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, 1999, no reserves were required to be maintained on
the first $5.0 million of transaction accounts, reserves of 3% were required to
be maintained against the next $44.3 million of net transaction accounts (with
such dollar amounts subject to adjustment by the FRB), and a reserve of 10%
(which is subject to adjustment by the FRB to a level between 8% and 14%)
against all remaining net transaction accounts. Because required reserves must
be maintained in the form of vault cash or a noninterest-bearing account at a
Federal Reserve Bank, the effect of this reserve requirement is to reduce an
institution's earning assets.

                                    TAXATION

FEDERAL TAXATION

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

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

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

                                       23


<PAGE>



         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, the amount of the
institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or, (b) what the thrift's reserves would have been at
the close of its last year beginning before January 1, 1996, had the thrift
always used the experience method.

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

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

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

                                       24


<PAGE>



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, 1999, the Bank's pre-1988 reserves
for tax purposes totaled approximately $4.2 million.

         MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. The Code provides that an item of tax preference is the excess of the
bad debt deduction allowable for a taxable year pursuant to the percentage of
taxable income method over the amount allowable under the experience method.
Other items of tax preference that constitute AMTI include (a) tax-exempt
interest on newly issued (generally, issued on or after August 8, 1986) private
activity bonds other than certain qualified bonds and (b) 75% of the excess (if
any) of (i) adjusted current earnings as defined in the Code, over (ii) AMTI
(determined without regard to this preference and prior to reduction by net
operating losses).

         NET OPERATING LOSS CARRYOVERS. A financial institution may, for federal
income tax purposes, carry back net operating losses ("NOLs") to the preceding
two taxable years and forward to the succeeding 20 taxable years. This provision
applies to losses incurred in taxable years beginning after 1997. At December
31, 1999, 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, 1996 forward are open under the statute of limitations and are subject to
review by the IRS.

STATE TAXATION

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

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

                                       25


<PAGE>



ITEM 2.  PROPERTIES.

         At December 31, 1999, the Bank conducted its business from its
executive office in Harrison, Arkansas, and twelve 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, 1999.


<TABLE>
<CAPTION>

                                               Leased/                      Net Book Value
     Description/Address                       Owned                          of Property                Amount of Deposits
----------------------------------    ----------------------             ----------------------       -----------------------
                                                                                          (In Thousands)

<S>                                        <C>                                 <C>                         <C>
200 West Stephenson                             Owned                                $1,783(1)                $141,963
Harrison, AR 72601

128 West Stephenson                             Owned                                   216                            (2)
Harrison, AR  72601

Corner Central & Willow                         Owned                                   244                            (2)
Harrison, AR  72601

Ozark Mall - Hwy. 62-65 North                 Leased(3)                                  33                     25,352
Harrison, AR  72601

324 Hwy. 62-65 Bypass                           Owned                                   290                     43,624
Harrison, AR  72601

210 South Main                                  Owned                                   269                     29,372
Berryville, AR  72616

668 Highway 62 East                             Owned                                   650                    160,535
Mountain Home, AR  72653

1337 Highway 62 SW                              Owned                                 1,016                      6,340
Mountain Home, AR 72653

301 Highway 62 West                             Owned                                   121                     20,740
Yellville, AR  72687

307 North Walton Blvd.                          Owned                                   321                     27,040
Bentonville, AR  72712

3460 North College                              Owned                                   424                     31,196
Fayetteville, AR  72703

1303 West Hudson                                Owned                                   228                      3,976
Rogers, AR  72756

201 East Henri De Tonti Blvd.                   Owned                                   238                      5,221
Tontitown, AR  72762

2025 North Crossover Road                       Owned                                   816                      6,845
Fayetteville, AR 72703

249 West Main Street                          Leased(4)                                 160                      5,671
Farmington, AR 72730
</TABLE>

--------------
(1)      Includes property acquisition for expansion in north Harrison.
(2)      Such offices do not open deposit accounts.
(3)      Such property is subject to a month-to-month lease.
(4)      Such property is subject to a five year lease expiring November 1,2002.

                                       26


<PAGE>



ITEM 3.  LEGAL PROCEEDINGS.

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

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

         None.

PART II.

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

         The information required herein, to the extent applicable, is
incorporated by reference from page 44 of the Company's 1999 Annual Report to
Stockholders ("1999 Annual Report").

ITEM 6.  SELECTED FINANCIAL DATA.

         The information required herein is incorporated by reference from pages
4and 5 of the 1999 Annual Report.

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

         The information required herein is incorporated by reference from pages
7 to 16 of the 1999 Annual Report.

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

         The information required herein is incorporated by reference from pages
7 to 9 of the 1999 Annual Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The information required herein is incorporated by reference from page
6 and pages 18 to 42 of the 1999 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
4 to 6 of the definitive proxy statement of the Company for the Annual Meeting
of Stockholders to be held on April 27, 2000 ("Definitive Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION.

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

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

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

                                       27


<PAGE>



PART IV.

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

         (A)  DOCUMENTS FILED AS PART OF THIS REPORT

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

                  Independent Auditors' Report
                  Consolidated Statements of Financial Condition at December 31,
                    1999 and 1998
                  Consolidated Statements of Income and Comprehensive Income for
                    the years ended December 31, 1999, 1998 and 1997
                  Consolidated Statements of Changes in Stockholders' Equity for
                    the years ended December 31, 1999, 1998 and 1997.
                  Consolidated Statements of Cash Flows for the years ended
                    December 31, 1999, 1998 and 1997.
                  Notes to Consolidated Financial Statements.

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

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

                                       28


<PAGE>



                                                           EXHIBIT INDEX

2.1*      Plan of Conversion

3.1*     Articles of Incorporation of First Federal Bancshares of Arkansas, Inc.

3.2*     Bylaws of First Federal Bancshares of Arkansas, Inc.

4.0**    Stock Certificate of First Federal Bancshares of Arkansas, Inc.

10.5*    Employment Agreement between the Company, the Bank and Frank L.
         Coffman, Jr.

10.6*    Employment Agreement between the Company, the Bank and Larry J. Brandt

10.7*    Employment Agreement between the Company, the Bank and Carolyn M.
         Thomason

13.0     1999 Annual Report to Stockholders

22.0     Subsidiaries of the Registrant - Reference is made to "Item 1 Business
         - Subsidiaries" for the required information

27.0     Financial Data Schedule

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

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

                                       29


<PAGE>


                                   SIGNATURES

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

                             FIRST FEDERAL BANCSHARES OF ARKANSAS, INC.

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

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


/s/ FRANK L. COFFMAN, JR.                                  March 30, 2000
------------------------------------------
Frank L. Coffman, Jr.
Chairman of the Board and Chief
  Executive Officer

/s/ LARRY J. BRANDT                                        March 30, 2000
------------------------------------------
Larry J. Brandt
President and Chief
Operating Officer

/s/ JOHN P. HAMMERSCHMIDT                                  March 30, 2000
------------------------------------------
John P. Hammerschmidt
Director

/s/ JAMES D. HEUER                                         March 30, 2000
--------------------------------------------
James D. Heuer
Director

/s/ KENNETH C. SAVELLS                                     March 30, 2000
-------------------------------------------
Kenneth C. Savells
Director

/s/ TOMMY W. RICHARDSON                                    March 30, 2000
-------------------------------------------
Tommy W. Richardson
Senior Vice President and Chief
 Financial Officer