##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------



For the quarterly period ended March 31, 2005



OR



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



COMMISSION FILE # 0-23969



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POCAHONTAS BANCORP, INC.



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|                       |  |                            
|---------------------- |  | ---------------------------
|State of Incorporation |  | IRS Employer Identification
|DELAWARE               |  | No. 71-0806097             



|                          |  |                 
|------------------------- |  | ----------------
|Address                   |  | Telephone Number
|1700 E. Highland          |  | (870) 802-1700  
|Jonesboro, Arkansas 72401 |  |                 



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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve 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 whether the Registrant is an accelerated filer (as
defined by the Rule 12b-2 of the Securities Exchange Act of 1934).    Yes ̈No  x.



There were 4,641,717 shares of Common Stock ($0.01 par value) issued and outstanding as of April 25, 2005.



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##### Table of Contents

POCAHONTAS BANCORP, INC.



TABLE OF CONTENTS



|                              |  |                                                                                                                                        |  |     
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                                        |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                       
|                              |  |                                                                                                                                       
|                              |  | Item 1. Unaudited Financial Statements:                                                                                                |  |     
|                              |  |                                                                                                                                       
|                              |  | Condensed Consolidated Statements of Financial Condition at March 31, 2005 and September 30, 2004                                      |  | 1   
|                              |  |                                                                                                                                       
|                              |  | Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the Three and Six months Ended March 31, 2005 and 2004 |  | 2   
|                              |  |                                                                                                                                       
|                              |  | Condensed Consolidated Statement of Changes in Stockholders Equity for the Six months Ended March 31, 2005                            |  | 4   
|                              |  |                                                                                                                                       
|                              |  | Condensed Consolidated Statements of Cash Flows for the Six months Ended March 31, 2005 and 2004                                       |  | 5   
|                              |  |                                                                                                                                       
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                                   |  | 7   
|                              |  |                                                                                                                                       
|                              |  | Report of Independent Registered Public Accounting Firm                                                                                |  | 11  
|                              |  |                                                                                                                                       
|                              |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                                          |  | 12  
|                              |  |                                                                                                                                       
|                              |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                     |  | 24  
|                              |  |                                                                                                                                       
|                              |  | Item 4. Controls and Procedures                                                                                                        |  | 25  
|                              | 
|PART II. OTHER INFORMATION    |  | 26                                                                                                                                    
|                              |  |                                                                                                                                       
|                              |  | Signatures                                                                                                                             |  | 27  
|                              |  |                                                                                                                                       
|                              |  | Exhibits                                                                                                                               |  | 28  



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##### Table of Contents

Item 1



POCAHONTAS BANCORP, INC.



CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)



|                                                                                                                                                                            |  |                |             |   |                    |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ------------------ | - | ----------- | -
|                                                                                                                                                                            |  | March 31, 2005 |             |   | September 30, 2004 |  
|ASSETS                                                                                                                                                                      |  |                |             |   |                    |   |             |  
|Cash                                                                                                                                                                        |  | $              | 12,856,239  |   |                    | $ | 35,218,491  |  
|Cash surrender value of life insurance                                                                                                                                      |  |                | 7,925,501   |   |                    |   | 7,684,251   |  
|Securities held-to-maturity, at cost                                                                                                                                        |  |                | 138,314,318 |   |                    |   | 86,200,660  |  
|Securities available-for-sale, at fair value                                                                                                                                |  |                | 161,563,993 |   |                    |   | 160,633,022 |  
|Trading securities, at fair value                                                                                                                                           |  |                | 2,905,919   |   |                    |   | 1,982,365   |  
|Loans receivable, net                                                                                                                                                       |  |                | 360,278,949 |   |                    |   | 382,316,096 |  
|Loans receivable, held for sale                                                                                                                                             |  |                | 1,673,903   |   |                    |   | 1,494,200   |  
|Accrued interest receivable                                                                                                                                                 |  |                | 3,985,636   |   |                    |   | 4,196,103   |  
|Premises and equipment, net                                                                                                                                                 |  |                | 15,650,086  |   |                    |   | 13,762,438  |  
|Federal Home Loan Bank stock, at cost                                                                                                                                       |  |                | 8,032,600   |   |                    |   | 7,925,900   |  
|Goodwill                                                                                                                                                                    |  |                | 8,847,572   |   |                    |   | 8,847,572   |  
|Core deposit premiums                                                                                                                                                       |  |                | 5,809,921   |   |                    |   | 6,296,523   |  
|Other assets                                                                                                                                                                |  |                | 4,701,337   |   |                    |   | 3,350,292   |  
|                                                                                                                                                                            |  |                |             |   |                    |   |             |  
|TOTAL ASSETS                                                                                                                                                                |  | $              | 732,545,974 |   |                    | $ | 719,907,913 |  
|                                                                                                                                                                            |  |                |             |   |                    |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                        |  |                |             |   |                    |   |             |  
|LIABILITIES:                                                                                                                                                                |  |                |             |   |                    |   |             |  
|Deposits                                                                                                                                                                    |  | $              | 500,730,675 |   |                    | $ | 491,078,533 |  
|Federal Home Loan Bank advances                                                                                                                                             |  |                | 158,183,028 |   |                    |   | 153,896,869 |  
|Deferred compensation                                                                                                                                                       |  |                | 2,273,772   |   |                    |   | 2,430,094   |  
|Accrued expenses and other liabilities                                                                                                                                      |  |                | 3,488,574   |   |                    |   | 3,059,676   |  
|Trust preferred securities                                                                                                                                                  |  |                | 16,952,300  |   |                    |   | 16,941,917  |  
|                                                                                                                                                                            |  |                |             |   |                    |   |             |  
|Total liabilities                                                                                                                                                           |  |                | 681,628,349 |   |                    |   | 667,407,089 |  
|                                                                                                                                                                            |  |               
|STOCKHOLDERS EQUITY:                                                                                                                                                       |  |                |             |   |                    |   |             |  
|                                                                                                                                                                            |  |               
|Common stock, $0.01 par value, 8,000,000 shares authorized; 7,602,492 shares issued and 4,641,717 shares outstanding at March 31, 2005 and
September 30, 2004, respectively |  |                | 76,024      |   |                    |   | 76,024      |  
|Additional paid-in capital                                                                                                                                                  |  |                | 57,447,655  |   |                    |   | 57,447,655  |  
|Unearned ESOP shares                                                                                                                                                        |  |                | (2,435,931  | ) |                    |   | (2,116,198  | )
|Accumulated other comprehensive loss, net                                                                                                                                   |  |                | (2,785,113  | ) |                    |   | (717,085    | )
|Retained earnings                                                                                                                                                           |  |                | 23,017,534  |   |                    |   | 22,212,972  |  
|                                                                                                                                                                            |  |                |             |   |                    |   |             |  
|                                                                                                                                                                            |  |                | 75,320,169  |   |                    |   | 76,903,368  |  
|                                                                                                                                                                            |  |               
|Treasury stock at cost, 2,960,775 shares, at March 31, 2005 and September 30, 2004                                                                                          |  |                | (24,402,544 | ) |                    |   | (24,402,544 | )
|                                                                                                                                                                            |  |                |             |   |                    |   |             |  
|Total stockholders equity                                                                                                                                                  |  |                | 50,917,625  |   |                    |   | 52,500,824  |  
|                                                                                                                                                                            |  |                |             |   |                    |   |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                  |  | $              | 732,545,974 |   |                    | $ | 719,907,913 |  
|                                                                                                                                                                            |  |                |             |   |                    |   |             |  



See notes to unaudited condensed
consolidated financial statements.



1



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##### Table of Contents

POCAHONTAS BANCORP, INC.



CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)



|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|--------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | ---- | - | --------- |  | ---- | ---------- |  | - | ----------
|                                                    |  | Three Months Ended March 31 |           | Six Months Ended March 31
|                                                    |  | 2005                        |           |                           | 2004 |   | 2005      |  | 2004
|INTEREST INCOME:                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|Loans receivable                                    |  | $                           | 5,522,801 |                           |      | $ | 5,946,192 |  | $    | 11,314,925 |  | $ | 12,159,899
|Investment securities                               |  |                             | 3,201,417 |                           |      |   | 3,196,538 |  |      | 6,187,410  |  |   | 6,436,348 
|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|Total interest income                               |  |                             | 8,724,218 |                           |      |   | 9,142,730 |  |      | 17,502,335 |  |   | 18,596,247
|INTEREST EXPENSE:                                   |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|Deposits                                            |  |                             | 2,934,733 |                           |      |   | 2,964,550 |  |      | 5,730,537  |  |   | 6,407,451 
|Borrowed funds                                      |  |                             | 1,280,508 |                           |      |   | 826,328   |  |      | 2,554,017  |  |   | 1,544,372 
|Trust preferred securities                          |  |                             | 351,875   |                           |      |   | 315,375   |  |      | 693,273    |  |   | 629,569   
|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|Total interest expense                              |  |                             | 4,567,116 |                           |      |   | 4,106,253 |  |      | 8,977,827  |  |   | 8,581,392 
|NET INTEREST INCOME                                 |  |                             | 4,157,102 |                           |      |   | 5,036,477 |  |      | 8,524,508  |  |   | 10,014,855
|PROVISION FOR LOAN LOSSES                           |  |                             |          |                           |      |   | 350,000   |  |      | 125,000    |  |   | 500,000   
|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                             | 4,157,102 |                           |      |   | 4,686,477 |  |      | 8,399,508  |  |   | 9,514,855 
|OTHER INCOME:                                       |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|Fees and service charges                            |  |                             | 769,876   |                           |      |   | 745,435   |  |      | 1,563,580  |  |   | 1,535,957 
|Gain on sale of loans                               |  |                             | 201,608   |                           |      |   | 252,340   |  |      | 475,038    |  |   | 602,421   
|Gain on sale of securities, net                     |  |                             |          |                           |      |   | 52,458    |  |      |           |  |   | 39,535    
|Trading gains (loss), net                           |  |                             | (338,408  | )                         |      |   | 287,231   |  |      | 23,720     |  |   | 440,453   
|Gain on sale of branches                            |  |                             |          |                           |      |   | 139,334   |  |      |           |  |   | 139,334   
|Other                                               |  |                             | 185,625   |                           |      |   | 129,720   |  |      | 307,152    |  |   | 221,984   
|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|Total other income                                  |  |                             | 818,701   |                           |      |   | 1,606,518 |  |      | 2,369,490  |  |   | 2,979,684 
|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|OPERATING EXPENSE:                                  |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|Compensation and benefits                           |  |                             | 2,391,062 |                           |      |   | 2,359,192 |  |      | 4,760,712  |  |   | 4,771,207 
|Occupancy and equipment                             |  |                             | 766,139   |                           |      |   | 723,091   |  |      | 1,434,672  |  |   | 1,451,849 
|Insurance premiums                                  |  |                             | 85,882    |                           |      |   | 92,894    |  |      | 176,341    |  |   | 163,280   
|Professional fees                                   |  |                             | 280,496   |                           |      |   | 240,268   |  |      | 537,253    |  |   | 468,707   
|Data processing                                     |  |                             | 163,410   |                           |      |   | 172,209   |  |      | 311,622    |  |   | 338,702   
|Advertising and donations                           |  |                             | 253,783   |                           |      |   | 71,674    |  |      | 420,528    |  |   | 142,041   
|Office supplies                                     |  |                             | 65,175    |                           |      |   | 50,996    |  |      | 117,929    |  |   | 120,871   
|REO and other repossessed assets                    |  |                             | 11,977    |                           |      |   | 112,875   |  |      | 39,512     |  |   | 177,665   
|Other                                               |  |                             | 307,421   |                           |      |   | 290,836   |  |      | 626,692    |  |   | 611,831   
|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|Total operating expense                             |  |                             | 4,325,345 |                           |      |   | 4,114,035 |  |      | 8,425,261  |  |   | 8,246,153 
|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|INCOME BEFORE INCOME TAXES                          |  |                             | 650,458   |                           |      |   | 2,178,960 |  |      | 2,343,737  |  |   | 4,248,386 
|INCOME TAXES                                        |  |                             | 220,600   |                           |      |   | 747,069   |  |      | 796,500    |  |   | 1,451,000 
|                                                    |  |                             |           |                           |      |   |           |  |      |            |  |   |           
|NET INCOME                                          |  | $                           | 429,858   |                           |      | $ | 1,431,891 |  | $    | 1,547,237  |  | $ | 2,797,386 



(Continued)



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##### Table of Contents

POCAHONTAS BANCORP, INC.



CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)



|                                                                                          |  |                             |            |   |                           |   |           |      |  |   |            |   |  |   |           |  
|----------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | --------- | ---- |  | - | ---------- | - |  | - | --------- | -
|                                                                                          |  | Three Months Ended March 31 |            |   | Six Months Ended March 31 |  
|                                                                                          |  | 2005                        |            |   | 2004                      |   |           | 2005 |  |   | 2004       |  
|OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:                                            |  |                             |            |   |                           |   |           |      |  |   |            |   |  |   |           |  
|Unrealized holding gain (loss) on securities available for-sale arising during the period |  | $                           | (2,423,551 | ) |                           | $ | 1,582,539 |      |  | $ | (2,068,028 | ) |  | $ | 894,378   |  
|Reclassification adjustment for gains included in net income                              |  |                             |           |   |                           |   | (34,622   | )    |  |   |           |   |  |   | (26,093   | )
|                                                                                          |  |                             |            |   |                           |   |           |      |  |   |            |   |  |   |           |  
|Other comprehensive income (loss)                                                         |  |                             | (2,423,551 | ) |                           |   | 1,547,917 |      |  |   | (2,068,028 | ) |  |   | 868,285   |  
|                                                                                          |  |                             |            |   |                           |   |           |      |  |   |            |   |  |   |           |  
|COMPREHENSIVE INCOME (LOSS)                                                               |  | $                           | (1,993,693 | ) |                           | $ | 2,979,808 |      |  | $ | (520,791   | ) |  | $ | 3,665,671 |  
|                                                                                          |  |                             |            |   |                           |   |           |      |  |   |            |   |  |   |           |  
|EARNINGS PER SHARE:                                                                       |  |                             |            |   |                           |   |           |      |  |   |            |   |  |   |           |  
|Basic earnings per share                                                                  |  | $                           | 0.10       |   |                           | $ | 0.32      |      |  | $ | 0.34       |   |  | $ | 0.62      |  
|                                                                                          |  |                             |            |   |                           |   |           |      |  |   |            |   |  |   |           |  
|Diluted earnings per share                                                                |  | $                           | 0.09       |   |                           | $ | 0.31      |      |  | $ | 0.34       |   |  | $ | 0.61      |  
|                                                                                          |  |                             |            |   |                           |   |           |      |  |   |            |   |  |   |           |  



(Concluded)



See notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

POCAHONTAS BANCORP, INC.



CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)



|                                                                                  |  |              |  |                            |        |                      |   |            |                                              |        |            |                   |  |   |                |   |  |                            |            |   |  |           |  |   |             |   |  |   |            |  
|--------------------------------------------------------------------------------- |  | ------------ |  | -------------------------- | ------ | -------------------- | - | ---------- | -------------------------------------------- | ------ | ---------- | ----------------- |  | - | -------------- | - |  | -------------------------- | ---------- | - |  | --------- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                  |  | Common Stock |  | Additional Paid-In Capital |        | Unearned ESOP Shares |   |            | Accumulated Other Comprehensive Income(loss) |        |            | Retained Earnings |  |   | Treasury Stock |   |  | Total Stockholders Equity |           
|                                                                                  |  | Shares       |  | Amount                     |        |                      |   |            |                                              | Shares |            | Amount            |  |  
|BALANCE, OCTOBER 1, 2004                                                          |  | 7,602,492    |  | $                          | 76,024 |                      | $ | 57,447,655 |                                              | $      | (2,116,198 | )                 |  | $ | (717,085       | ) |  | $                          | 22,212,972 |   |  | 2,960,775 |  | $ | (24,402,544 | ) |  | $ | 52,500,824 |  
|Purchase of stock with ESOP loan                                                  |  |              |  |                            |        |                      |   |            |                                              |        | (319,733   | )                 |  |   |                |   |  |                            |            |   |  |           |  |   |             |   |  |   | (319,733   | )
|Net change in unrealized gain (loss) on available-for-sale securities, net of tax |  |              |  |                            |        |                      |   |            |                                              |        |            |                   |  |   | (2,240,871     | ) |  |                            |            |   |  |           |  |   |             |   |  |   | (2,240,871 | )
|Amortization of loss for securities transferred to HTM                            |  |              |  |                            |        |                      |   |            |                                              |        |            |                   |  |   | 172,843        |   |  |                            |            |   |  |          |  |   |            |   |  |   | 172,843    |  
|Net income                                                                        |  |              |  |                            |        |                      |   |            |                                              |        |            |                   |  |   |                |   |  |                            | 1,547,237  |   |  |           |  |   |             |   |  |   | 1,547,237  |  
|Dividends declared                                                                |  |             |  |                            |       |                      |   |           |                                              |        |           |                   |  |   |               |   |  |                            | (742,675   | ) |  |          |  |   |            |   |  |   | (742,675   | )
|                                                                                  |  |              |  |                            |        |                      |   |            |                                              |        |            |                   |  |   |                |   |  |                            |            |   |  |           |  |   |             |   |  |   |            |  
|BALANCE, March 31, 2005                                                           |  | 7,602,492    |  | $                          | 76,024 |                      | $ | 57,447,655 |                                              | $      | (2,435,931 | )                 |  | $ | (2,785,113     | ) |  | $                          | 23,017,534 |   |  | 2,960,775 |  | $ | (24,402,544 | ) |  | $ | 50,917,625 |  
|                                                                                  |  |              |  |                            |        |                      |   |            |                                              |        |            |                   |  |   |                |   |  |                            |            |   |  |           |  |   |             |   |  |   |            |  



See notes to unaudited condensed
consolidated financial statements.



4



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##### Table of Contents

POCAHONTAS BANCORP, INC.



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                                   |  |                            |             |   |      |   |             |  
|---------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                   |  | Six Months Ended March 31, |            
|                                                                                   |  | 2005                       |             |   | 2004 |  
|OPERATING ACTIVITIES:                                                              |  |                            |             |   |      |   |             |  
|Net income                                                                         |  | $                          | 1,547,237   |   |      | $ | 2,797,386   |  
|Adjustments to reconcile net income to net cash provided by operating activities:  |  |                            |             |   |      |   |             |  
|Provision for loan losses                                                          |  |                            | 125,000     |   |      |   | 500,000     |  
|Depreciation of premises and equipment                                             |  |                            | 702,197     |   |      |   | 683,028     |  
|Amortization of deferred loan fees                                                 |  |                            | (34,867     | ) |      |   | (29,823     | )
|Amortization of premiums and discounts, net                                        |  |                            | 84,550      |   |      |   | 30,041      |  
|Amortization of core deposit premium                                               |  |                            | 486,602     |   |      |   | 457,861     |  
|Origination of loans held for sale                                                 |  |                            | (23,908,668 | ) |      |   | (29,567,217 | )
|Proceeds from sale of loans held for sale                                          |  |                            | 24,204,003  |   |      |   | 32,663,496  |  
|Net gains on sales of loans                                                        |  |                            | (475,038    | ) |      |   | (602,421    | )
|Net gain on sales of investment securities                                         |  |                            |            |   |      |   | (39,535     | )
|Gain on sale of branches                                                           |  |                            |            |   |      |   | (139,334    | )
|Increase in cash surrender value of life insurance policies                        |  |                            | (241,250    | ) |      |   | (247,096    | )
|Changes in operating assets and liabilities, net of effects of acquired companies: |  |                            |             |   |      |   |             |  
|Trading securities                                                                 |  |                            | (923,554    | ) |      |   | (522,254    | )
|Accrued interest receivable                                                        |  |                            | 210,467     |   |      |   | 1,371,812   |  
|Other assets                                                                       |  |                            | (1,856,579  | ) |      |   | (1,633,628  | )
|Deferred compensation                                                              |  |                            | (156,322    | ) |      |   | (328,488    | )
|Accrued expenses and other liabilities                                             |  |                            | 428,898     |   |      |   | 270,413     |  
|                                                                                   |  |                            |             |   |      |   |             |  
|Net cash provided by operating activities                                          |  |                            | 192,676     |   |      |   | 5,664,241   |  
|                                                                                   |  |                            |             |   |      |   |             |  
|INVESTING ACTIVITIES:                                                              |  |                            |             |   |      |   |             |  
|Sale of branches to Bank of Cave City, Arkansas                                    |  |                            |            |   |      |   | (9,695,300  | )
|Purchases of securities available-for-sale                                         |  |                            | (78,029,357 | ) |      |   | (37,917,401 | )
|Proceeds from sale of securities available-for-sale                                |  |                            |            |   |      |   | 43,895,306  |  
|Proceeds from maturities, calls and principal prepayment of investment securities  |  |                            | 22,842,533  |   |      |   | 35,256,678  |  
|Net increase in FHLB Bank stock                                                    |  |                            | (106,700    | ) |      |   | (571,700    | )
|Net decrease in loans                                                              |  |                            | 21,947,014  |   |      |   | 4,153,866   |  
|Proceeds from sale of REO                                                          |  |                            | 505,534     |   |      |   | 1,007,387   |  
|Proceeds from sale of assets                                                       |  |                            | 681         |   |      |   | 6,048       |  
|Purchases of premises and equipment                                                |  |                            | (2,590,526  | ) |      |   | (405,110    | )
|                                                                                   |  |                            |             |   |      |   |             |  
|Net cash provided (used) by investing activities                                   |  |                            | (35,430,821 | ) |      |   | 35,729,774  |  
|                                                                                   |  |                            |             |   |      |   |             |  



(Continued)



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##### Table of Contents

POCAHONTAS BANCORP, INC.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                 |  |                            |             |   |      |   |             |  
|------------------------------------------------ |  | -------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                 |  | Six Months Ended March 31, |            
|                                                 |  | 2005                       |             |   | 2004 |  
|FINANCING ACTIVITIES:                            |  |                            |             |   |      |   |             |  
|Net increase (decrease) in deposits              |  | $                          | 9,652,142   |   |      | $ | (37,821,058 | )
|Net increase in FHLB advances                    |  |                            | 4,286,159   |   |      |   | 13,323,404  |  
|Proceeds from stock options                      |  |                            |            |   |      |   | 144,000     |  
|Purchase of stock for ESOP                       |  |                            | (319,733    | ) |      |   | (562,046    | )
|Dividends paid                                   |  |                            | (742,675    | ) |      |   | (729,246    | )
|                                                 |  |                            |             |   |      |   |             |  
|Net cash provided (used) by financing activities |  |                            | 12,875,893  |   |      |   | (25,644,946 | )
|                                                 |  |                            |             |   |      |   |             |  
|NET INCREASE (DECREASE) IN CASH                  |  |                            | (22,362,252 | ) |      |   | 15,749,069  |  
|CASH AT BEGINNING OF PERIOD                      |  |                            | 35,218,491  |   |      |   | 22,020,489  |  
|                                                 |  |                            |             |   |      |   |             |  
|CASH AT END OF PERIOD                            |  | $                          | 12,856,239  |   |      | $ | 37,769,558  |  
|                                                 |  |                            |             |   |      |   |             |  



(Concluded)



See notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

POCAHONTAS BANCORP, INC.



NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



|1. | BASIS OF PRESENTATION
|-- | ---------------------



The condensed consolidated statement of financial condition information at September 30, 2004 was derived from the audited balance sheet of Pocahontas
Bancorp, Inc. (the Company), at September 30, 2004. The condensed consolidated financial statements at and for the three and six months ended March 31, 2005 and 2004 are unaudited. The accompanying condensed consolidated financial
statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation 10 of Regulation S-X. Certain
information required for a complete presentation in accordance with generally accepted accounting principles has been omitted. All adjustments that are, in the opinion of management, necessary for a fair presentation of the interim financial
statements have been included. The results of operations for the three and six months ended March 31, 2005, are not necessarily indicative of the results that may be expected for the entire fiscal year or any interim period.



The interim financial information should be read in conjunction with the
consolidated financial statements and notes of the Company, including a summary of significant accounting policies followed by the Company, included in the Annual Report for the fiscal year ended September 30, 2004. The accompanying condensed
consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, First Community Bank (the Bank); as well as the Banks subsidiaries, Southern Mortgage Corporation, P.F. Service, Inc. and Sun
Realty, Inc., which provide real estate services (collectively referred to as the Company). All significant intercompany transactions have been eliminated in consolidation.



Use of Estimates - The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Stock Compensation - The Company applies the provisions of APB 25 in accounting for its stock options plans, as allowed under Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized for the options granted to employees or directors with strike prices at or above the
market value of the stock at the date of grant. Had compensation cost for these options been determined at the grant dates for awards under those plans consistent with the methods of SFAS No. 123, the Companys pro forma net income and pro
forma earnings per share for the three and six months ended March 31, 2005 and 2004, would have been as follows:



|                                                                                                                    |  |                              |      |                            |   |       |  |      |       |  |   |       |  
|------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---- | -------------------------- | - | ----- |  | ---- | ----- |  | - | ----- | -
|                                                                                                                    |  | Three Months Ended March 31, |      | Six Months Ended March 31, |  
|                                                                                                                    |  | 2005                         |      | 2004                       |   | 2005  |  | 2004 |      
|                                                                                                                    |  | (in thousands)               |      | (in thousands)             |  
|Net income, as reported                                                                                             |  | $                            | 430  |                            | $ | 1,432 |  | $    | 1,547 |  | $ | 2,797 |  
|Deduct: Total stock-based compensation expense determined under fair value based method, net of related tax effects |  |                              |     |                            |   |      |  |      |      |  |   | (12   | )
|                                                                                                                    |  |                              |      |                            |   |       |  |      |       |  |   |       |  
|Pro forma net income                                                                                                |  | $                            | 430  |                            | $ | 1,432 |  | $    | 1,547 |  | $ | 2,785 |  
|                                                                                                                    |  |                              |      |                            |   |       |  |      |       |  |   |       |  
|Earnings per share:                                                                                                 |  |                              |      |                            |   |       |  |      |       |  |   |       |  
|Basic - as reported                                                                                                 |  | $                            | 0.10 |                            | $ | 0.32  |  | $    | 0.34  |  | $ | 0.62  |  
|Basic - pro forma                                                                                                   |  | $                            | 0.09 |                            | $ | 0.32  |  | $    | 0.34  |  | $ | 0.62  |  
|Diluted - as reported                                                                                               |  | $                            | 0.09 |                            | $ | 0.31  |  | $    | 0.34  |  | $ | 0.61  |  
|Diluted - pro forma                                                                                                 |  | $                            | 0.09 |                            | $ | 0.31  |  | $    | 0.34  |  | $ | 0.61  |  



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##### Table of Contents

In determining the above pro forma disclosure, the fair value of options granted during the year was
estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: expected volatility - 37%, expected life of grant - 6.5 years, risk free interest rate 5.25%, and expected dividend rate of
2.5%.



Recently Adopted or Issued Accounting
Standards Management of the Company is considering the impact of Emerging Issues Task Force (EITF) Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
(EITF 03-1). EITF 03-1 indicates that an investor must have the intent and ability to hold an investment until a forecasted recovery of the fair value up to or beyond the cost of the investment in order to determine that any impairment
is temporary. If the investor does not have the intent and ability to hold the investment until a forecasted recovery, then an other-than-temporary impairment must be recorded. The consensus by the EITF is effective for periods beginning after June
15, 2004. However, the guidance contained in paragraphs 10-20 of EITF 03-1 has been delayed by FASB Staff Position (FSP) EITF Issue 03-1-1, Effective Date of Paragraphs 10-20 of EIFP Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments, posted September 30, 2004. This delay does not suspend the requirements to recognize other-than-temporary impairments as required by existing authoritative
literature. During the period of the delay, an entity holding investments should continue to apply relevant other-than-temporary guidance. The delay of the effective date for paragraphs 10-20 of Issue 03-1 will be superseded concurrent
with the final issuance of FSP EITF Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.
Management has determined that the impact of EITF 03-1 was not material at March 31, 2005, but is continuing to evaluate the possible future impact on the Companys consolidated financial statements.



In December 2004 the FASB issued Statement Number 123 (revised 2004)
(FAS 123 (R)), Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees. The Company is required to
apply FAS 123 (R) on a modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the
date of adoption. In addition, the Company may elect to adopt FAS 123 (R) by restating previously issued financial statements, basing the amounts on the expense previously calculated and reported in their pro forma disclosures that had been required
by FAS 123. FAS 123 (R) is effective for the first fiscal year beginning after June 15, 2005. Management has not completed its evaluation of the effect that FAS 123 (R) will have but believes that the effect will be consistent with the application
disclosed in its pro forma disclosures.



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##### Table of Contents

Reclassifications Certain amounts for the six-month period ended March 31, 2004 have
been reclassified to conform to the presentation for the six-month period ended March 31, 2005.



|2. | EARNINGS PER SHARE
|-- | ------------------



The earnings per share amounts were computed using the weighted average number of shares outstanding during the periods presented. In accordance with
Statement of Position No. 93-6, Employers Accounting for Employee Stock Ownership Plans, issued by the American Institute of Certified Public Accountants, shares owned by the Companys Employee Stock Ownership Plan that have not
been committed to be released are not considered to be outstanding for the purpose of computing earnings per share.



The weighted average numbers of shares used in the basic and diluted earnings per share calculation are set out in the table below:



|                                                                                      |  |                              |  |                            |  |           |  |          
|------------------------------------------------------------------------------------- |  | ---------------------------- |  | -------------------------- |  | --------- |  | ---------
|                                                                                      |  | Three Months Ended March 31, |  | Six Months Ended March 31,
|                                                                                      |  | 2005                         |  | 2004                       |  | 2005      |  | 2004     
|Total weighted average basic shares outstanding                                       |  | 4,491,752                    |  | 4,488,201                  |  | 4,498,732 |  | 4,496,596
|Add dilutive effect of unexercised options                                            |  | 84,243                       |  | 126,377                    |  | 84,012    |  | 116,534  
|                                                                                      |  |                              |  |                            |  |           |  |          
|Total weighted average shares outstanding for dilutive earnings-per-share calculation |  | 4,575,995                    |  | 4,614,578                  |  | 4,582,744 |  | 4,613,130
|                                                                                      |  |                              |  |                            |  |           |  |          



|3. | DECLARATION OF DIVIDENDS
|-- | ------------------------



On February 16, 2005, the Board of Directors declared an $0.08 per share quarterly cash dividend for holders of record March 15, 2005. The dividend was
paid April 4, 2005.



|4. | BENEFIT PLANS
|-- | -------------



Stock Option Plan - The Companys stockholders approved the 1998 Stock Option Plan (SOP) on October 23, 1998. The SOP
provides for a committee of the Companys Board of Directors to award incentive non-qualified or compensatory stock options to purchase up to 357,075 shares of Company common stock. The options vest in equal amounts over five years with the
first vesting date on October 23, 1999. Options granted vest immediately in the event of retirement, disability, or death, or following a change in control of the Company. Outstanding stock options can be exercised over a ten-year period. Under the
SOP, options have been granted to directors and key employees of the Company. The exercise price in each case equals the fair market value of the Companys stock at the date of grant. The Company granted 350,000 options on October 23, 1998,
which have an exercise price of $9.00 per share. As of March 31, 2005, 174,000 options were outstanding and exercisable.



NARK Stock Option PlanDuring the fiscal year ended September 30, 2002, the Company completed its acquisition of North
Arkansas Bancshares, Inc. The Company assumed 30,970 in stock options granted to employees and directors of North Arkansas Bancshares, Inc. related to such acquisition. All options granted to non-employee directors shall expire one year after the
non-employee director ceases to maintain continuous service. On March 31, 2005, 16,831 options were outstanding.



|5. | GOODWILL AND INTANGIBLE ASSETS
|-- | ------------------------------



The Company performed its annual impairment test as of April 1, 2004 and concluded there was no impairment to the book value of the Companys
goodwill. Absent any impairment indicators, the Company will perform its next impairment test as of April 1, 2005, during the quarter ended June 30, 2005.



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##### Table of Contents

As of March 31, 2005 the Company had total core deposit premiums of $5,809,921, net of accumulated
amortization of $3,780,286. Core deposit premiums are estimated to have a useful life of 10 years. The Company has no identifiable intangible assets with indefinite useful lives.



The amortization of core deposit premiums is reported in the interest expense on deposits line item of the
Companys Consolidated Statement of Income. Total amortization expense for core deposit premiums was approximately $486,602 for the six-month period ended March 31, 2005. Amortization expense for the net carrying amount of core deposit premiums
at March 31, 2005, was estimated to be as follows (in thousands):



|                                     |  |   |      
|------------------------------------ |  | - | -----
|Six months ending September 30, 2005 |  | $ | 487  
|Year ending September 30, 2006       |  |   | 973  
|Year ending September 30, 2007       |  |   | 973  
|Year ending September 30, 2008       |  |   | 839  
|Year ending September 30, 2009       |  |   | 794  
|After September 30, 2009             |  |   | 1,744
|                                     |  |   |      
|Total                                |  | $ | 5,810
|                                     |  |   |      



|6. | CONTINGENCIES
|-- | -------------



The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the condensed consolidated financial statements of the Company and its subsidiaries.



|7. | ALLOWANCE FOR LOAN LOSSES
|-- | -------------------------



A summary of the activity in the allowance for loan losses is as follows (in thousands):



|                                   |  |                              |       |   |                            |   |       |      |  |   |       |   |  |   |       |  
|---------------------------------- |  | ---------------------------- | ----- | - | -------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                   |  | Three Months Ended March 31, |       |   | Six Months Ended March 31, |  
|                                   |  | 2005                         |       |   | 2004                       |   |       | 2005 |  |   | 2004  |  
|Balance at beginning of the period |  | $                            | 3,666 |   |                            | $ | 3,857 |      |  | $ | 3,765 |   |  | $ | 4,068 |  
|Provision for losses               |  |                              |      |   |                            |   | 350   |      |  |   | 125   |   |  |   | 500   |  
|Charge-offs                        |  |                              | (378  | ) |                            |   | (352  | )    |  |   | (764  | ) |  |   | (864  | )
|Recoveries                         |  |                              | 149   |   |                            |   | 88    |      |  |   | 311   |   |  |   | 239   |  
|                                   |  |                              |       |   |                            |   |       |      |  |   |       |   |  |   |       |  
|Balance at end of the period       |  | $                            | 3,437 |   |                            | $ | 3,943 |      |  | $ | 3,437 |   |  | $ | 3,943 |  
|                                   |  |                              |       |   |                            |   |       |      |  |   |       |   |  |   |       |  



|8. | EMPLOYEE STOCK OWNERSHIP PLAN
|-- | -----------------------------



The Company established an Employee Stock Ownership Plan (ESOP) on March 31, 1998. During the quarter ended March 31, 2005, the ESOP
established a new $3.09 million line of credit with the Company. The loan proceeds were used to pay off the $0.29 million balance of the loan established during fiscal 2003 and the $1.80 million balance of the loan established during fiscal 2004.
The remaining $1.00 million is to be used to purchase additional shares of Company stock on or before December 31, 2005. The loan is collateralized by shares that are purchased with the proceeds of the loan. As of March 31, 2005, the ESOP owed $2.41
million on the line of credit and had $0.68 million available to purchase additional shares. As the loan is repaid, ESOP shares will be allocated to participants of the ESOP and are available for release to the participants subject to the vesting
provisions of the ESOP.



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders of

Pocahontas Bancorp, Inc.

Pocahontas, Arkansas



We have reviewed the
accompanying condensed consolidated statement of financial condition of Pocahontas Bancorp, Inc. and subsidiaries (the Company) as of March 31, 2005, and the related condensed consolidated statements of income and comprehensive income
(loss) for the three-month and six-month periods ended March 31, 2005 and 2004, of stockholders equity for the six-month period ended March 31, 2005, and of cash flows for the six-month periods ended March 31, 2005 and 2004. These interim
financial statements are the responsibility of the Companys management.



We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of America.



We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition of Pocahontas Bancorp, Inc. and
subsidiaries as of September 30, 2004, and the related consolidated statements of income and comprehensive income, stockholders equity, and cash flows for the year then ended (not presented herein); and in our report dated December 22, 2004,
we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial condition as of September 30, 2004, is fairly stated, in all
material respects, in relation to the consolidated statement of financial condition from which it has been derived.



/s/ Deloitte & Touche LLP



Little Rock, Arkansas

May 10, 2005



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##### Table of Contents

ITEM 2



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



This quarterly
report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words
believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Companys actual
results to differ materially from those contemplated by such forward-looking statements. These important factors include, without limitation, the Banks continued ability to originate quality loans, fluctuation of interest rates, real estate
market conditions in the Banks lending areas, general and local economic conditions, the Banks continued ability to attract and retain deposits, the Companys ability to control costs, new accounting pronouncements and changing
regulatory requirements.



Overview-The Company is a savings and
loan holding company headquartered in Jonesboro, Arkansas. The Company has no substantial operations other than serving as the holding company of its wholly owned subsidiary, First Community Bank (the Bank).



The Bank is a community-oriented federally chartered savings and loan association regulated
by the Office of Thrift Supervision (OTS). The Bank has a total of 18 locations concentrated in the Northeast Arkansas counties of Craighead, Clay, Green, Jackson, Lawrence, Poinsett, Randolph and Sharp. Southern Mortgage Company, a mortgage company
located in Tulsa, Oklahoma, is a wholly owned subsidiary of the Bank.



Our
primary business consists of acting as a financial intermediary by attracting deposits from the general public and using such funds, together with borrowings and other funds, to originate loans and invest in securities. Mortgage loans consist
primarily of single family residential and commercial real estate located in the Companys primary market areas. In addition to mortgage loans the Company uses funds to originate construction, consumer and commercial business loans and to
purchase investment securities.



The Company is moving forward with many
strategic initiatives this fiscal year. The Company is constructing two new branch locations in northeast Arkansas (one in Jonesboro and the other in Paragould). A new mall is scheduled to open in Jonesboro and we expect to open a location there. We
are also expanding our operations in Tulsa, Oklahoma, having purchased a building there during the first quarter of fiscal 2005. The Tulsa branch opened during April 2005 and offers full service banking to our customers.



Second Quarter Highlights - Net income was $0.43 million for the quarter ended
March 31, 2005, compared to net income of $1.43 million for the quarter ended March 31, 2004, a decrease of $1.00 million or 69.9%. Basic earnings per share were $0.10 and diluted earnings per share were $0.09 for the quarter ended March 31, 2005,
compared to basic earnings per share of $0.32 and diluted earnings per share of $0.31 for the same period last year.



The decrease in net income for the quarter ended March 31, 2005 was primarily due to the decrease in net interest income and a $0.34 million trading loss for the quarter
ended March 31, 2005 on our trading securities portfolio compared to a $0.29 million trading gain for the quarter ended March 31, 2004. Net interest income before provision for loan loss for the quarter ended March 31, 2005 decreased 17.3% to $4.16
million from $5.04 million for the quarter ended March 31, 2004. The Companys net interest rate spread was 2.77% for the quarter ended March 31, 2005 compared to 3.18% for the quarter ended March 31, 2004. Net interest margin was 2.59% for the
quarter ended March 31, 2005 compared to 3.09% for the quarter ended March 31, 2004. The yield on average interest earning assets decreased 16 basis points and the cost on average interest bearing liabilities increased 24 basis points for the
quarter ended March 31, 2005 when compared to the rates for the same period last year resulting in the decreased interest rate spread and net interest income for the quarter.



12



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##### Table of Contents

Net income was $1.55 million for the six months ended March 31, 2005, compared to net income of $2.80 million for the six
months ended March 31, 2004, a decrease of $1.25 million or 44.7%. Basic and diluted earnings per share was $0.34 for the six months ended March 31, 2005, compared to basic earnings per share of $0.62 and diluted earnings per share of $0.61 for the
same period last year.



The decrease in net income for the six months ended
March 31, 2005 was primarily due to the decrease in net interest income and net trading gains on our trading securities portfolio. Net interest income before provision for loan loss for the six months ended March 31, 2005 decreased 14.9% to $8.53
million compared to $10.02 million for the six months ended March 31, 2004. The Companys net interest rate spread was 2.82% for the six months ended March 31, 2005 compared to 3.10% for the six months ended March 31, 2004. Net interest margin
was 2.66% for the six months ended March 31, 2005 compared to 3.01% for the six months ended March 31, 2004. The yield on average interest earning assets decreased 13 basis points and the cost on average interest bearing liabilities increased 14
basis points for the six months ended March 31, 2005 when compared to the rates for the same period last year resulting in the decreased interest rate spread and net interest income for the six months.



Critical Accounting Policies - In preparing financial information, management
is required to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the periods shown. The accounting principles followed by the Company and the methods of applying these
principles conform with accounting principles generally accepted in the United States and general banking practices. Estimates and assumptions most significant to the Company are related primarily to allowance for loan losses and goodwill and are
summarized in the following discussion and the notes to the consolidated financial statements.



The Company has established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish a sufficient allowance for losses on loans. The allowance for losses on loans is
based on managements current judgments about the credit quality of individual loans and segments of the loan portfolio. The allowance for losses on loans is established through a provision for loan losses based on managements evaluation
of the risk inherent in the loan portfolio, and considers all known internal and external factors that affect loan collectability as of the reporting date. Such evaluation, which includes a review of all loans on which full collectability may not be
reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, managements knowledge of inherent risks in the
portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance. Although we believe that we have established and maintained the allowance for loan losses at adequate
levels, different assumptions used in evaluating the adequacy of the allowance could result in material changes in the Companys consolidated financial condition and results of operations. The Companys policies and methodology for
determining the allowance involve a high degree of complexity and require subjective judgments about uncertain matters.



The Companys goodwill (the amount paid in excess of fair value of acquired net assets) is reviewed at least annually to ensure that there have been no events or
circumstances resulting in an impairment of the recorded amount of excess purchase price. Adverse changes in the economic environment, operations of acquired business units, or other factors could result in a decline in projected fair values. If the
estimated fair value is less than the carrying amount, a loss would be recognized to reduce the carrying amount to implied fair value.



Management has discussed the development and selection of these critical accounting policies with the Audit Committee of the Board of Directors.



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##### Table of Contents

Balance Sheet Analysis and Comparison of Results of Operations for the Six months Ended March 31, 2005 and
September 30, 2004



The following table shows the variance in dollars
and percent change between the Condensed Consolidated Statements of Financial Condition at March 31, 2005 and at September 30, 2004:



|                                               |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|---------------------------------------------- |  | ---------------------- | ------- | - | ------------------ | - | ------- | -------- |  | - | -------- | - |  | ----- | -
|                                               |  | March 31, 2005         |         |   | September 30, 2004 |   |         | Variance |  |   | % Change |  
|                                               |  | (Amounts in thousands) |         |   |                    |  
|                                               |  | (Unaudited)            |         |   |                    |  
|ASSETS                                         |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|Cash                                           |  | $                      | 12,856  |   |                    | $ | 35,218  |          |  | $ | (22,362  | ) |  | -63.5 | %
|Cash surrender value of life insurance         |  |                        | 7,926   |   |                    |   | 7,684   |          |  |   | 242      |   |  | 3.1   | %
|Securities held-to-maturity, at amortized cost |  |                        | 138,314 |   |                    |   | 86,201  |          |  |   | 52,113   |   |  | 60.5  | %
|Securities available-for-sale, at fair value   |  |                        | 161,564 |   |                    |   | 160,633 |          |  |   | 931      |   |  | 0.6   | %
|Trading securities, at fair value              |  |                        | 2,906   |   |                    |   | 1,982   |          |  |   | 924      |   |  | 46.6  | %
|Loans receivable, net                          |  |                        | 360,279 |   |                    |   | 382,316 |          |  |   | (22,037  | ) |  | -5.8  | %
|Loans receivable held for sale                 |  |                        | 1,674   |   |                    |   | 1,494   |          |  |   | 180      |   |  | 12.0  | %
|Accrued interest receivable                    |  |                        | 3,986   |   |                    |   | 4,196   |          |  |   | (210     | ) |  | -5.0  | %
|Premises and equipment, net                    |  |                        | 15,650  |   |                    |   | 13,762  |          |  |   | 1,888    |   |  | 13.7  | %
|Federal Home Loan Bank Stock, at cost          |  |                        | 8,032   |   |                    |   | 7,926   |          |  |   | 106      |   |  | 1.3   | %
|Goodwill                                       |  |                        | 8,848   |   |                    |   | 8,848   |          |  |   |         |   |  | 0.0   | %
|Core deposit premiums, net                     |  |                        | 5,810   |   |                    |   | 6,297   |          |  |   | (487     | ) |  | -7.7  | %
|Other assets                                   |  |                        | 4,701   |   |                    |   | 3,351   |          |  |   | 1,350    |   |  | 40.3  | %
|                                               |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|TOTAL ASSETS                                   |  | $                      | 732,546 |   |                    | $ | 719,908 |          |  | $ | 12,638   |   |  | 1.8   | %
|                                               |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|LIABILITIES:                                   |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|Deposits                                       |  | $                      | 500,731 |   |                    | $ | 491,078 |          |  | $ | 9,653    |   |  | 2.0   | %
|Federal Home Loan Bank advances                |  |                        | 158,183 |   |                    |   | 153,897 |          |  |   | 4,286    |   |  | 2.8   | %
|Deferred compensation                          |  |                        | 2,274   |   |                    |   | 2,430   |          |  |   | (156     | ) |  | -6.4  | %
|Accrued expenses and other liabilities         |  |                        | 3,488   |   |                    |   | 3,060   |          |  |   | 428      |   |  | 14.0  | %
|Trust preferred securities                     |  |                        | 16,952  |   |                    |   | 16,942  |          |  |   | 10       |   |  | 0.1   | %
|                                               |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|Total liabilities                              |  |                        | 681,628 |   |                    |   | 667,407 |          |  |   | 14,221   |   |  | 2.1   | %
|                                               |  |                        |         |  
|STOCKHOLDERS EQUITY:                          |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|Common stock                                   |  |                        | 76      |   |                    |   | 76      |          |  |   |         |   |  | 0.0   | %
|Additional paid-in capital                     |  |                        | 57,448  |   |                    |   | 57,448  |          |  |   |         |   |  | 0.0   | %
|Unearned ESOP Shares                           |  |                        | (2,436  | ) |                    |   | (2,116  | )        |  |   | (320     | ) |  | 15.1  | %
|Accumulated other comprehensive loss           |  |                        | (2,785  | ) |                    |   | (717    | )        |  |   | (2,068   | ) |  | 288.4 | %
|Retained earnings                              |  |                        | 23,018  |   |                    |   | 22,213  |          |  |   | 805      |   |  | 3.6   | %
|                                               |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|                                               |  |                        | 75,321  |   |                    |   | 76,904  |          |  |   | (1,583   | ) |  | -2.1  | %
|Less treasury stock, at cost                   |  |                        | (24,403 | ) |                    |   | (24,403 | )        |  |   |         |   |  | 0.0   | %
|                                               |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|Total stockholders equity                     |  |                        | 50,918  |   |                    |   | 52,501  |          |  |   | (1,583   | ) |  | -3.0  | %
|                                               |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $                      | 732,546 |   |                    | $ | 719,908 |          |  | $ | 12,638   |   |  | 1.8   | %
|                                               |  |                        |         |   |                    |   |         |          |  |   |          |   |  |       |  



14



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The following table shows the variance in dollars and percent change between the Condensed Consolidated Statements of
Income for the six months ended March 31, 2005 and 2004:



|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|--------------------------------------------------- |  | ---------------------------------- | ------ | ---- | - | -------- |  | - | -------- | - |  | ------ | -
|                                                    |  | Six Months Ended March 31          |        |      |   |          |  |  
|                                                    |  | 2005                               |        | 2004 |   | Variance |  |   | % Change |  
|                                                    |  | (amounts in thousands) (unaudited) |        |     
|                                                    |  |                                    |       
|INTEREST INCOME:                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|Loans receivable                                    |  | $                                  | 11,315 |      | $ | 12,160   |  | $ | (845     | ) |  | -6.9   | %
|Investment securities                               |  |                                    | 6,187  |      |   | 6,436    |  |   | (249     | ) |  | -3.9   | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|Total interest income                               |  |                                    | 17,502 |      |   | 18,596   |  |   | (1,094   | ) |  | -5.9   | %
|INTEREST EXPENSE:                                   |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|Deposits                                            |  |                                    | 5,730  |      |   | 6,407    |  |   | (677     | ) |  | -10.6  | %
|Borrowed funds                                      |  |                                    | 2,554  |      |   | 1,544    |  |   | 1,010    |   |  | 65.4   | %
|Trust preferred securities                          |  |                                    | 693    |      |   | 630      |  |   | 63       |   |  | 10.0   | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|Total interest expense                              |  |                                    | 8,977  |      |   | 8,581    |  |   | 396      |   |  | 4.6    | %
|                                                    |  |                                    |        |     
|NET INTEREST INCOME                                 |  |                                    | 8,525  |      |   | 10,015   |  |   | (1,490   | ) |  | -14.9  | %
|                                                    |  |                                    |        |     
|PROVISION FOR LOAN LOSSES                           |  |                                    | 125    |      |   | 500      |  |   | (375     | ) |  | -75.0  | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                                    | 8,400  |      |   | 9,515    |  |   | (1,115   | ) |  | -11.7  | %
|                                                    |  |                                    |        |     
|OTHER INCOME:                                       |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|Fees and service charges                            |  |                                    | 1,563  |      |   | 1,536    |  |   | 27       |   |  | 1.8    | %
|Gain on sale of loans                               |  |                                    | 475    |      |   | 602      |  |   | (127     | ) |  | -21.1  | %
|Loss on sale of securities                          |  |                                    |       |      |   | 40       |  |   | (40      | ) |  | -100.0 | %
|Trading gains, net                                  |  |                                    | 24     |      |   | 440      |  |   | (416     | ) |  | -94.5  | %
|Gain on sale of branches                            |  |                                    |       |      |   | 139      |  |   | (139     | ) |  | -100.0 | %
|Other                                               |  |                                    | 307    |      |   | 222      |  |   | 85       |   |  | 38.3   | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|Total other income                                  |  |                                    | 2,369  |      |   | 2,979    |  |   | (610     | ) |  | -20.5  | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|OPERATING EXPENSE:                                  |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|Compensation and benefits                           |  |                                    | 4,761  |      |   | 4,771    |  |   | (10      | ) |  | -0.2   | %
|Occupancy and equipment                             |  |                                    | 1,435  |      |   | 1,452    |  |   | (17      | ) |  | -1.2   | %
|Insurance premiums                                  |  |                                    | 176    |      |   | 163      |  |   | 13       |   |  | 8.0    | %
|Professional fees                                   |  |                                    | 537    |      |   | 469      |  |   | 68       |   |  | 14.5   | %
|Data processing                                     |  |                                    | 312    |      |   | 339      |  |   | (27      | ) |  | -8.0   | %
|Advertising and donations                           |  |                                    | 420    |      |   | 142      |  |   | 278      |   |  | 195.8  | %
|Office supplies                                     |  |                                    | 118    |      |   | 121      |  |   | (3       | ) |  | -2.5   | %
|REO and other repossessed assets                    |  |                                    | 39     |      |   | 177      |  |   | (138     | ) |  | -78.0  | %
|Other                                               |  |                                    | 627    |      |   | 612      |  |   | 15       |   |  | 2.5    | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|Total operating expense                             |  |                                    | 8,425  |      |   | 8,246    |  |   | 179      |   |  | 2.2    | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|INCOME BEFORE INCOME TAXES                          |  |                                    | 2,344  |      |   | 4,248    |  |   | (1,904   | ) |  | -44.8  | %
|                                                    |  |                                    |        |     
|INCOME TAXES                                        |  |                                    | 797    |      |   | 1,451    |  |   | (654     | ) |  | -45.1  | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  
|NET INCOME                                          |  | $                                  | 1,547  |      | $ | 2,797    |  | $ | (1,250   | ) |  | -44.7  | %
|                                                    |  |                                    |        |      |   |          |  |   |          |   |  |        |  



15



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Investment Activities - The Companys investment portfolio, FHLB stock and trading securities, consist
of mortgage-backed securities, obligations of the United States Government and agencies thereof, municipal bonds, corporate bonds, interest-earning deposits in other institutions and equity investments. A majority of the Companys investment
portfolio, over 75%, is held in mortgage-backed securities; these securities are backed by pools of mortgages which can be composed of either fixed-rate mortgages or ARM loans. The Bank invests in mortgage-backed securities to supplement local
single-family loan originations as well as to reduce interest rate risk exposure because mortgage-backed securities are more liquid than mortgage loans. In the current, ongoing, low interest rate environment, mortgages with higher interest rates are
continuing to prepay resulting in large monthly principal payments on the Companys mortgage-backed securities. At March 31, 2005, amortized cost and estimated fair value of the Companys investment securities were as follows:



|                           |  |                |             |                      |   |            
|-------------------------- |  | -------------- | ----------- | -------------------- | - | -----------
|                           |  | Amortized Cost |             | Estimated Fair Value
|Held-to-Maturity           |  |                |             |                      |   |            
|US Government Agencies     |  | $              | 3,996,739   |                      | $ | 3,879,434  
|US Treasury Notes          |  |                | 19,806,946  |                      |   | 19,776,563 
|Mortgage-Backed Securities |  |                | 87,033,344  |                      |   | 84,792,031 
|Municipal bonds            |  |                | 27,477,289  |                      |   | 27,609,968 
|                           |  |                |             |                      |   |            
|Total                      |  | $              | 138,314,318 |                      | $ | 136,057,996
|                           |  |                |             |                      |   |            
|Available-for-sale         |  |                |             |                      |   |            
|Mortgage-Backed Securities |  |                | 163,707,827 |                      |   | 160,589,823
|Mutual fund                |  |                | 1,000,000   |                      |   | 974,170    
|                           |  |                |             |                      |   |            
|Total                      |  | $              | 164,707,827 |                      | $ | 161,563,993
|                           |  |                |             |                      |   |            



Changes in the composition of
investment securities for the six-month period ended March 31, 2005, from September 30, 2004 were as follows:



|                           |  |                |             |                    |   |             |  |   |            |  
|-------------------------- |  | -------------- | ----------- | ------------------ | - | ----------- |  | - | ---------- | -
|                           |  | Carrying Value |             |                    |  
|                           |  | March 31, 2005 |             | September 30, 2004 |   | Change      | 
|Held-to-Maturity           |  |                |             |                    |   |             |  |   |            |  
|US Government Agencies     |  | $              | 3,996,739   |                    | $ | 3,940,795   |  | $ | 55,944     |  
|US Treasury Notes          |  |                | 19,806,946  |                    |   |            |  |   | 19,806,946 |  
|Mortgage-Backed Securities |  |                | 87,033,344  |                    |   | 59,325,377  |  |   | 27,707,967 |  
|Municipal bonds            |  |                | 27,477,289  |                    |   | 22,934,488  |  |   | 4,542,801  |  
|                           |  |                |             |                    |   |             |  |   |            |  
|Total                      |  | $              | 138,314,318 |                    | $ | 86,200,660  |  | $ | 52,113,658 |  
|                           |  |                |             |                    |   |             |  |   |            |  
|Available-for-sale         |  |                |             |                    |   |             |  |   |            |  
|US Government Agencies     |  | $              |            |                    | $ | 501,487     |  | $ | (501,487   | )
|Mortgage-Backed Securities |  |                | 160,589,823 |                    |   | 159,141,683 |  |   | 1,448,140  |  
|Mutual fund                |  |                | 974,170     |                    |   | 989,852     |  |   | (15,682    | )
|                           |  |                |             |                    |   |             |  |   |            |  
|Total                      |  | $              | 161,563,993 |                    | $ | 160,633,022 |  | $ | 930,971    |  
|                           |  |                |             |                    |   |             |  |   |            |  



Investment balances have increased for
the six-month period ended March 31, 2005, from September 30, 2004. This increase was primarily due to investment purchases of $78.03 million, offset by $21.16 million in principal payments and maturities, and $0.50 million in securities called.
During the six months ended March 31, 2005 the accumulated other comprehensive loss increased to $2.79 million from $0.72 million at September 30, 2004. Accumulated other comprehensive loss is reported in the equity section of the financials and is
considered a temporary impairment; the Company has the intent and ability to hold investments until the fair market value of the portfolio recovers.



Loans receivable, net - The Companys net loan portfolio including loans held for sale, consists primarily of first mortgage loans collateralized by
single-family residential real estate, multifamily residential real estate,



16



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commercial real estate and agricultural real estate located in the Companys primary market area or in counties contiguous with the Companys
market area. To reduce interest rate risk exposure, and satisfy consumer demand for fixed-rate mortgage loans during the period of historically low interest rates, the Company has been focusing more on originating fixed-rate loans to sell
individually into the secondary market, retaining the servicing rights and customer relationships.



As interest rates begin to stabilize, the Bank has seen a reduction in the demand for fixed rate mortgages during the six-month period ended March 31, 2005, compared to the six-month period ended March 31, 2004 which
resulted in both lower service fee income and gains from sale of loans. During the six-month period ended March 31, 2005, the Company recognized a $0.48 million gain on the sale of $23.73 million of loans held for sale, compared to a $0.60 million
gain on the sale of $32.06 million of loans held for sale during the six-month period ended March 31, 2004.



The Companys net loan portfolio also includes commercial business loans (i.e., crop production, equipment and inventory loans), and other consumer loans, including loans secured by automobiles and deposit
accounts. The composition of the Companys loan portfolio began to change in 2001, due to acquisitions of other banking institutions, to include a larger percentage of commercial loans; the Company intends to continue to increase the commercial
loan portfolio through originations. During the six-month period ended March 31, 2005, the Companys loan portfolio decreased approximately 5.0%.



Nonperforming Loans and Loan Loss Provisions -The allowance for loan losses is established through a provision for loan losses based on managements
quarterly asset classification review and evaluation of the risk inherent in the Companys loan portfolio and changes in the nature and volume of its loan activity. Such evaluation, which includes a review of all loans on which full collection
may not be reasonably assured, considers among other matters, the estimated value of collateral, cash flow analysis, historical loan loss experience, and other factors that warrant recognition in providing allowances.



A provision of $0.13 million was made during the six months ended March 31, 2005. The
Companys allowance for loan losses totaled $3.44 million, or 0.9% of total loans at March 31, 2005 compared to $3.77 million, or 1.0% of total loans, at September 30, 2004, a decrease of $0.33 million or 8.7%. Charge-offs, net of recoveries
totaled $0.45 million, or 0.12% of total loans, for the six months ended March 31, 2005. Total nonperforming loans decreased $0.32 million to $4.35 million at March 31, 2005 from $4.67 million at September 30, 2004. Based on presently available
information, management believes that the current allowance for loan losses is appropriate. Changing economic and other conditions may require future adjustments to the allowance for loan losses.



During the 2001, 2002 and 2003 fiscal years, the Company completed separate acquisitions of
four banks. The loans acquired as part of these acquisitions have contributed to the increase in the balance of nonperforming loans in the Companys portfolio; of the $4.35 million in nonperforming loans as of March 31, 2005, $1.44 million, or
33.1% were loans acquired as part of the bank acquisitions. Nonperforming commercial loans have increased $0.65 million due to the acquisitions. We believe that the increase in nonperforming commercial loans is a result of a lower quality of
underwriting and collection efforts at the acquired institutions compared to the Companys underwriting and collection efforts. Approximately $2.03 million of loan loss allowance on the commercial loans was transferred with these bank
acquisitions. Additionally, $4.75 million in charge-offs have been recorded in connection with the loans acquired in these acquisitions since June 2001.



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 and a corresponding specific interest reserve is established. The Bank generally 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. Delinquent loans 90 days or
more past due decreased $0.32 million or 6.9% to $4.35 million at March 31, 2005



17



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from $4.67 million at September 30, 2004. The balance of interest income not recognized by the Company on the non-accrual loans was $0.51 million at March
31, 2005 compared to $0.49 million at September 30, 2004. There was no interest income recognized on non-accrual loans during the periods.



The following table sets forth information regarding loans delinquent for 90 days or more (nonperforming loans) and real estate owned by the Company on the dates
indicated.



|                                                    |  |                        |       |   |                    |   |       |  
|--------------------------------------------------- |  | ---------------------- | ----- | - | ------------------ | - | ----- | -
|                                                    |  | March 31, 2005         |       |   | September 30, 2004 |  
|                                                    |  | (Dollars in Thousands) |      
|Nonperforming loans:                                |  |                        |       |   |                    |   |       |  
|Single family                                       |  | $                      | 2,008 |   |                    | $ | 1,540 |  
|Agriculture real estate                             |  |                        | 646   |   |                    |   | 1,014 |  
|Commercial real estate                              |  |                        | 1,274 |   |                    |   | 1,726 |  
|Commercial non real estate                          |  |                        | 275   |   |                    |   | 233   |  
|Other loans                                         |  |                        | 142   |   |                    |   | 153   |  
|                                                    |  |                        |       |   |                    |   |       |  
|Total nonperforming loans:                          |  |                        | 4,345 |   |                    |   | 4,666 |  
|Total real estate owned and repossessed assets (1)  |  |                        | 470   |   |                    |   | 619   |  
|                                                    |  |                        |       |   |                    |   |       |  
|Total nonperforming assets                          |  | $                      | 4,815 |   |                    | $ | 5,285 |  
|                                                    |  |                        |       |   |                    |   |       |  
|Total nonperforming loans to total loans receivable |  |                        | 1.19  | % |                    |   | 1.22  | %
|Total nonperforming loans to total assets           |  |                        | 0.59  | % |                    |   | 0.65  | %
|Total nonperforming assets to total assets          |  |                        | 0.66  | % |                    |   | 0.73  | %
|Allowance to nonperforming loans                    |  |                        | 79.10 | % |                    |   | 80.69 | %
|Allowance to total loans receivable                 |  |                        | 0.94  | % |                    |   | 0.98  | %

---

|(1) | Net of valuation allowances
|--- | ---------------------------



The Company determines the impairment of loans by assessing the probability that the borrower will not be able to fulfill the contractual terms of the agreement as part of the quarterly review for determining
necessary provisions and loan loss allowances. Impaired loans decreased $0.01 million or 0.12% to $8.42 million at March 31, 2005 from $8.43 million at September 30, 2004.



The following is a summary of information pertaining to impaired and non-accrual loans:



|                                                            |  |                                 |       |                              |   |      
|----------------------------------------------------------- |  | ------------------------------- | ----- | ---------------------------- | - | -----
|                                                            |  | March 31, 2005                  |       | September 30, 2004          
|                                                            |  | (in thousands)                 
|Impaired loans with a valuation allowance                   |  | $                               | 8,417 |                              | $ | 8,426
|Impaired loans without a valuation allowance                |  |                                 |      |                              |   |     
|                                                            |  |                                 |       |                              |   |      
|Total Impaired Loans                                        |  | $                               | 8,417 |                              | $ | 8,426
|                                                            |  |                                 |       |                              |   |      
|Valuation allowance related to impaired loans               |  | $                               | 1,490 |                              | $ | 1,474
|Total non-accrual loans                                     |  | $                               | 4,345 |                              | $ | 4,666
|Total loans past-due ninety days or more and still accruing |  | $                               | 161   |                              | $ | 68   
|                                                            |  |                                
|                                                            |  | Six Months Ended March 31, 2005 |       | Year EndedSeptember 30, 2004
|                                                            |  | (in thousands)                 
|Average investment in impaired loans                        |  | $                               | 8,336 |                              | $ | 8,562
|                                                            |  |                                 |       |                              |   |      
|Interest income recognized on impaired loans *              |  | $                               | 165   |                              | $ | 355  
|                                                            |  |                                 |       |                              |   |      

---

|* | Interest income recognized on a cash basis on impaired loans is not significantly different from interest recognized on impaired loans above. No additional funds are committed to be
advanced in connection with impaired loans.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



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Loan delinquency and losses on loans and REO are closely connected to the local economy. The Company operates in rural
areas and in many of its locations one or two employers significantly influence the local markets. Should the economy deteriorate to a point that those employers begin reducing their work force, it could have a material negative impact on the
Company.



Deposits and FHLB Advances - Deposits are a significant
source of the Banks funds for lending and other investment purposes. In addition to deposits, the Bank derives funds from FHLB advances, the amortization and prepayment of loans and mortgage-backed securities, the sale or maturity of
investment securities, and operations. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by general interest rates and market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources or on a longer-term basis for general business purposes.



Historically, deposits have provided the Company with a stable source of relatively low cost funding. The market for deposits is
competitive, which had caused the Company to utilize primarily certificate accounts that are more responsive to market interest rates rather than passbook accounts. Recent efforts to control cost of funds and manage interest rate risk have caused
the Company to shift some of the focus off of certificate accounts to low rate FHLB advances. The Company offers a traditional line of deposit products that currently includes checking, interest-bearing checking, savings, certificates of deposit,
commercial checking and money market accounts. Total deposit balances by category were as follows:



|                          |  |                        |         |                    |   |         |  |          |       |  |      |  
|------------------------- |  | ---------------------- | ------- | ------------------ | - | ------- |  | -------- | ----- |  | ---- | -
|                          |  | March 31, 2005         |         | September 30, 2004 |   | Change  |  | % Change |      
|                          |  | (amounts in thousands) |         |                    |   |         | 
|Checking Accounts         |  | $                      | 204,240 |                    | $ | 203,471 |  | $        | 769   |  | 0.38 | %
|Passbook Savings Accounts |  |                        | 51,104  |                    |   | 48,146  |  |          | 2,958 |  | 6.14 | %
|Certificate Accounts      |  |                        | 245,387 |                    |   | 239,461 |  |          | 5,926 |  | 2.47 | %
|                          |  |                        |         |                    |   |         |  |          |       |  |      |  
|                          |  | $                      | 500,731 |                    | $ | 491,078 |  | $        | 9,653 |  | 1.97 | %
|                          |  |                        |         |                    |   |         |  |          |       |  |      |  



The increase in deposits was
distributed throughout the various types and terms of accounts offered. The cost on average demand deposits (checking and savings accounts) for the six-month period ended March 31, 2005 was 1.76%, up 10 basis points from 1.66% for the year ended
September 30, 2004. The cost on average certificate accounts for the six-month period ended March 31, 2005 remained constant at 2.77%, the same as for the year ended September 30, 2004.



FHLB advances are collateralized by the Banks stock in the FHLB, investment securities and a blanket lien on the Banks mortgage
portfolio. Such advances are made pursuant to different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions, including the Bank, for purposes other
than meeting withdrawals, fluctuates from time to time in accordance with the policies of the FHLB. The maximum amount of FHLB advances to a member institution generally is reduced by borrowings from any other source. The Company also relies upon
FHLB advances as a source to fund assets. At March 31, 2005, FHLB advances totaled $158.18 million, with an average cost of 3.30% compared to $153.90 million, with an average cost of 3.05% at September 30, 2004. Based on the current level of
advances, asset size and available collateral under the FHLB programs, the Bank at March 31, 2005, estimates that an additional $82.54 million of funding is available from FHLB advances.



Accrued expenses and other liabilities - Accrued expenses and other liabilities includes items such as the Companys
accrual for income taxes, accounts payable, escrowed taxes and insurance and other miscellaneous obligations that may occur during the normal course of business. Accrued expenses and other liabilities increased $0.43 million or 14.0% during the
six-month period ended March 31, 2005 to $3.49 million from $3.06 million at September 30, 2004.



19



---

##### Table of Contents

Stockholders equity - The Companys book value per share was $10.97 at March 31, 2005 compared
to $11.31 at September 30, 2004. The Companys average capital ratio, average capital to average assets, was 7.14% for the six months ended March 31, 2005 compared to 7.11% for the year ended September 30, 2004. The decrease in
stockholders equity at March 31, 2005 compared to September 30, 2004, was primarily the result of net income for the six-month period; which was more than offset by the change in accumulated other comprehensive loss on securities and unearned
ESOP shares.



Regulatory Capital - The Bank is subject to various
regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatoryand possibly additional discretionaryactions by regulators that, if undertaken,
could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Banks assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.



Quantitative measures
established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to adjusted total assets (as defined), and of
total capital (as defined) to risk weighted assets (as defined). As of March 31, 2005, the Bank met all capital adequacy requirements to which it was subject.



As of March 31, 2005, the most recent notification from the OTS categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized the Bank must maintain minimum total, tangible, and core capital ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the
institutions category.



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



|                                         |  |        |  |       |                                        |  |        |                                                                                          |       |   |  |        |  |       |  
|---------------------------------------- |  | ------ |  | ----- | -------------------------------------- |  | ------ | ---------------------------------------------------------------------------------------- | ----- | - |  | ------ |  | ----- | -
|                                         |  | Actual |  |       | Required For Capital Adequacy Purposes |  |        | Required To Be Categorized As Well Capitalized Under Prompt Corrective Action
Provisions |      
|                                         |  | Amount |  | Ratio |                                        |  | Amount |                                                                                          | Ratio |   |  | Amount |  | Ratio |  
|As of March 31, 2005:                    |  |        |  |       |                                        |  |        |                                                                                          |       |   |  |        |  |       |  
|                                         |  |        |  |       |                                        | 
|Tangible capital to tangible assets      |  | 46,779 |  | 6.53  | %                                      |  | 10,745 |                                                                                          | 1.50  | % |  | N/A    |  | N/A   |  
|Core capital to adjusted tangible assets |  | 46,779 |  | 6.53  | %                                      |  | 28,652 |                                                                                          | 4.00  | % |  | 35,815 |  | 5.00  | %
|Total capital to risk weighted assets    |  | 50,216 |  | 12.23 | %                                      |  | 32,854 |                                                                                          | 8.00  | % |  | 41,067 |  | 10.00 | %
|Tier I capital to risk weighted assets   |  | 46,779 |  | 11.39 | %                                      |  | 16,427 |                                                                                          | 4.00  | % |  | 24,640 |  | 6.00  | %



Net interest income The low interest rate environment has decreased the yield on average interest earning assets 13 basis points when comparing the six-month period ended March 31, 2005 to the six-month period ended March 31, 2004. The cost on the variable
trust preferred liability has increased 74 basis points when comparing the six-month period ended March 31, 2005 to the six-month period ended March 31, 2004. This increase caused the cost on total interest bearing liabilities to increase 14 basis
points. The Companys net interest rate spread was 2.82% for the six-month period ended March 31, 2005 compared to 3.10% for the six-month period ended March 31, 2004. Net interest margin was 2.66% for the six-month period ended March 31, 2005
compared to 3.01% for the six-month period ended March 31, 2004.



20



---

##### Table of Contents

The following tables summarize rates, yields and balances of average assets and liabilities for the periods
indicated:



Average Balance Sheets (Dollars in
Thousands)



|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ------- | -------- | ---------------------------- | ------------------- |  | ----- | --------------- |  | -------- | ------- | ------------------- | - | ----- |  | ----- | -
|                                                                                  |  | Three Months Ended March2005 |         |          | Three Months Ended March2004 |                    
|                                                                                  |  | Average Balance              |         | Interest |                              | Average Yield/ Cost |  |       | Average Balance |  | Interest |         | Average Yield/ Cost |  
|Interest-earning assets: (1)                                                      |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Loan receivable, net (2)                                                          |  | $                            | 360,261 |          | $                            | 5,523               |  | 6.13  | %               |  | $        | 385,033 |                     | $ | 5,946 |  | 6.18  | %
|Investment securities                                                             |  |                              | 281,561 |          |                              | 3,201               |  | 4.55  | %               |  |          | 267,584 |                     |   | 3,197 |  | 4.78  | %
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Total interest- earning assets                                                    |  |                              | 641,822 |          |                              | 8,724               |  | 5.44  | %               |  |          | 652,617 |                     |   | 9,143 |  | 5.60  | %
|                                                                                  |  |                              |         |          |                              |                    
|Noninterest-earning cash                                                          |  |                              | 53,416  |          |                              |                     |  |       |                 |  |          | 40,833  |                     |   |       |  |       |  
|Other noninterest- earning assets                                                 |  |                              | 45,266  |          |                              |                     |  |       |                 |  |          | 43,734  |                     |   |       |  |       |  
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Total assets                                                                      |  |                              | 740,504 |          |                              |                     |  |       |                 |  |          | 737,184 |                     |   |       |  |       |  
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Interest-bearing liabilities:                                                     |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Demand deposits                                                                   |  | $                            | 263,106 |          | $                            | 1,189               |  | 1.81  | %               |  | $        | 295,243 |                     | $ | 1,157 |  | 1.57  | %
|Time deposits                                                                     |  |                              | 248,188 |          |                              | 1,746               |  | 2.81  | %               |  |          | 256,475 |                     |   | 1,808 |  | 2.82  | %
|Borrowed funds (3)                                                                |  |                              | 155,264 |          |                              | 1,280               |  | 3.30  | %               |  |          | 107,370 |                     |   | 826   |  | 3.08  | %
|Trust Preferred                                                                   |  |                              | 16,951  |          |                              | 352                 |  | 8.31  | %               |  |          | 16,930  |                     |   | 315   |  | 7.44  | %
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Total interest- bearing liabilities                                               |  |                              | 683,509 |          |                              | 4,567               |  | 2.67  | %               |  |          | 676,018 |                     |   | 4,106 |  | 2.43  | %
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Noninterest-bearing liabilities (4)                                               |  |                              | 4,752   |          |                              |                     |  |       |                 |  |          | 6,663   |                     |   |       |  |       |  
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Total liabilities                                                                 |  |                              | 688,261 |          |                              |                     |  |       |                 |  |          | 682,681 |                     |   |       |  |       |  
|                                                                                  |  |                              |         |          |                              |                    
|Stockholders equity                                                              |  |                              | 52,243  |          |                              |                     |  |       |                 |  |          | 54,503  |                     |   |       |  |       |  
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Total liabilities and stockholders equity                                        |  | $                            | 740,504 |          |                              |                     |  |       |                 |  | $        | 737,184 |                     |   |       |  |       |  
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Net interest income                                                               |  |                              |         |          | $                            | 4,157               |  |       |                 |  |          |         |                     | $ | 5,037 |  |       |  
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Net interest rate spread (5)                                                      |  |                              |         |          |                              |                     |  | 2.77  | %               |  |          |         |                     |   |       |  | 3.18  | %
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Interest-earning assets and net interest margin (6)                               |  | $                            | 641,822 |          |                              |                     |  | 2.59  | %               |  | $        | 652,617 |                     |   |       |  | 3.09  | %
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  
|Ratio of average interest- earning assets to average interest-bearing liabilities |  |                              |         |          |                              |                     |  | 93.90 | %               |  |          |         |                     |   |       |  | 96.54 | %
|                                                                                  |  |                              |         |          |                              |                     |  |       |                 |  |          |         |                     |   |       |  |       |  

---

|(1) | All interest-earning assets are disclosed net of loans in process, unamortized yield adjustments, and valuation allowances.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(2) | Does not include interest on nonaccrual loans. Non-performing loans are included in loans receivable, net.
|--- | ----------------------------------------------------------------------------------------------------------

|(3) | Includes FHLB advances and securities sold under agreements to repurchase.
|--- | --------------------------------------------------------------------------

|(4) | Escrow accounts are noninterest-bearing and are included in noninterest-bearing liabilities.
|--- | --------------------------------------------------------------------------------------------

|(5) | Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Net interest margin represents the net interest income as a percentage of average interest-earning assets.
|--- | ----------------------------------------------------------------------------------------------------------



21



---

##### Table of Contents

Average Balance Sheets (Dollars in Thousands)



|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------- | -------- | ------------------------- | ------------------- |  | --------------------------- | --------------- |  | -------- | ------- | ------------------- | - | ------ | --------------- | ----- | -------- |  | ------------------- | ------- |  | - | ------ |  | ----- | -
|                                                                                  |  | Six Months Ended March 2005 |         |          | Year Ended September 2004 |                     |  | Six Months Ended March 2004 |                
|                                                                                  |  | Average Balance             |         | Interest |                           | Average Yield/ Cost |  |                             | Average Balance |  | Interest |         | Average Yield/ Cost |   |        | Average Balance |       | Interest |  | Average Yield/ Cost |        
|Interest-earning assets: (1)                                                      |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Loan receivable, net (2)                                                          |  | $                           | 365,182 |          | $                         | 11,315              |  | 6.20                        | %               |  | $        | 388,679 |                     | $ | 23,998 |                 | 6.17  | %        |  | $                   | 389,599 |  | $ | 12,160 |  | 6.24  | %
|Investment securities                                                             |  |                             | 276,280 |          |                           | 6,187               |  | 4.48                        | %               |  |          | 267,114 |                     |   | 12,082 |                 | 4.52  | %        |  |                     | 275,594 |  |   | 6,436  |  | 4.67  | %
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Total interest- earning assets                                                    |  |                             | 641,462 |          |                           | 17,502              |  | 5.46                        | %               |  |          | 655,793 |                     |   | 36,080 |                 | 5.50  | %        |  |                     | 665,193 |  |   | 18,596 |  | 5.59  | %
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                
|Noninterest-earning cash                                                          |  |                             | 51,688  |          |                           |                     |  |                             |                 |  |          | 33,341  |                     |   |        |                 |       |          |  |                     | 37,342  |  |   |        |  |       |  
|Other noninterest- earning assets                                                 |  |                             | 45,318  |          |                           |                     |  |                             |                 |  |          | 44,009  |                     |   |        |                 |       |          |  |                     | 44,072  |  |   |        |  |       |  
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Total assets                                                                      |  |                             | 738,468 |          |                           |                     |  |                             |                 |  |          | 733,143 |                     |   |        |                 |       |          |  |                     | 746,607 |  |   |        |  |       |  
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Interest-bearing liabilities:                                                     |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Demand deposits                                                                   |  | $                           | 261,501 |          | $                         | 2,301               |  | 1.76                        | %               |  | $        | 287,682 |                     | $ | 4,765  |                 | 1.66  | %        |  | $                   | 306,939 |  | $ | 2,628  |  | 1.71  | %
|Time deposits                                                                     |  |                             | 247,540 |          |                           | 3,430               |  | 2.77                        | %               |  |          | 247,504 |                     |   | 6,855  |                 | 2.77  | %        |  |                     | 261,473 |  |   | 3,779  |  | 2.89  | %
|Borrowed funds (3)                                                                |  |                             | 154,560 |          |                           | 2,554               |  | 3.30                        | %               |  |          | 123,107 |                     |   | 3,751  |                 | 3.05  | %        |  |                     | 101,634 |  |   | 1,544  |  | 3.04  | %
|Trust Preferred                                                                   |  |                             | 16,948  |          |                           | 693                 |  | 8.18                        | %               |  |          | 16,933  |                     |   | 1,287  |                 | 7.60  | %        |  |                     | 16,927  |  |   | 630    |  | 7.44  | %
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Total interest- bearing liabilities                                               |  |                             | 680,549 |          |                           | 8,978               |  | 2.64                        | %               |  |          | 675,226 |                     |   | 16,658 |                 | 2.47  | %        |  |                     | 686,973 |  |   | 8,581  |  | 2.50  | %
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Noninterest-bearing liabilities (4)                                               |  |                             | 5,186   |          |                           |                     |  |                             |                 |  |          | 5,793   |                     |   |        |                 |       |          |  |                     | 6,398   |  |   |        |  |       |  
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Total liabilities                                                                 |  |                             | 685,735 |          |                           |                     |  |                             |                 |  |          | 681,019 |                     |   |        |                 |       |          |  |                     | 693,371 |  |   |        |  |       |  
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                
|Stockholders equity                                                              |  |                             | 52,733  |          |                           |                     |  |                             |                 |  |          | 52,124  |                     |   |        |                 |       |          |  |                     | 53,236  |  |   |        |  |       |  
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Total liabilities and stockholders equity                                        |  | $                           | 738,468 |          |                           |                     |  |                             |                 |  | $        | 733,143 |                     |   |        |                 |       |          |  | $                   | 746,607 |  |   |        |  |       |  
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Net interest income                                                               |  |                             |         |          | $                         | 8,524               |  |                             |                 |  |          |         |                     | $ | 19,422 |                 |       |          |  |                     |         |  | $ | 10,015 |  |       |  
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Net interest rate spread (5)                                                      |  |                             |         |          |                           |                     |  | 2.82                        | %               |  |          |         |                     |   |        |                 | 3.04  | %        |  |                     |         |  |   |        |  | 3.10  | %
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Interest-earning assets and net interest margin (6)                               |  | $                           | 641,462 |          |                           |                     |  | 2.66                        | %               |  | $        | 655,793 |                     |   |        |                 | 2.96  | %        |  | $                   | 665,193 |  |   |        |  | 3.01  | %
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  
|Ratio of average interest- earning assets to average interest-bearing liabilities |  |                             |         |          |                           |                     |  | 94.26                       | %               |  |          |         |                     |   |        |                 | 97.12 | %        |  |                     |         |  |   |        |  | 96.83 | %
|                                                                                  |  |                             |         |          |                           |                     |  |                             |                 |  |          |         |                     |   |        |                 |       |          |  |                     |         |  |   |        |  |       |  

---

|(1) | All interest-earning assets are disclosed net of loans in process, unamortized yield adjustments, and valuation allowances.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(2) | Does not include interest on nonaccrual loans. Non-performing loans are included in loans receivable, net.
|--- | ----------------------------------------------------------------------------------------------------------

|(3) | Includes FHLB advances and securities sold under agreements to repurchase.
|--- | --------------------------------------------------------------------------

|(4) | Escrow accounts are noninterest-bearing and are included in noninterest-bearing liabilities.
|--- | --------------------------------------------------------------------------------------------

|(5) | Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Net interest margin represents the net interest income as a percentage of average interest-earning assets.
|--- | ----------------------------------------------------------------------------------------------------------



22



---

##### Table of Contents

The table below analyzes net interest income by component and in terms of changes in the volume of interest-earning
assets and interest-bearing liabilities and the changes in the related yields and rates for the six-month period ended March 31, 2005, compared to the six-month period ended March 31, 2004.



Rate/Volume Analysis (in thousands)

Six-Month period ended March 31, 2005 vs. 2004

|                                   |  |                            |        |   |                           |   |        |              |  |   |       |   |  |   |        |  
|---------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ------------ |  | - | ----- | - |  | - | ------ | -
|                                   |  | Increase/(Decrease) Due to |        |   | Total Increase (Decrease) |  
|                                   |  | Volume                     |        |   | Rate                      |   |        | Rate/ Volume |  |  
|Interest income:                   |  |                            |        |   |                           |   |        |              |  |   |       |   |  |   |        |  
|Loan Receivable                    |  | $                          | (1,524 | ) |                           | $ | (156   | )            |  | $ | 835   |   |  | $ | (845   | )
|Investment securities              |  |                            | 32     |   |                           |   | (524   | )            |  |   | 243   |   |  |   | (249   | )
|                                   |  |                            |        |   |                           |   |        |              |  |   |       |   |  |   |        |  
|Total interest earning assets      |  |                            | (1,492 | ) |                           |   | (680   | )            |  |   | 1,078 |   |  |   | (1,094 | )
|                                   |  |                            |        |  
|Interest expense:                  |  |                            |        |   |                           |   |        |              |  |   |       |   |  |   |        |  
|Deposits                           |  |                            | (1,336 | ) |                           |   |       |              |  |   | 659   |   |  |   | (677   | )
|Borrowed funds                     |  |                            | 1,609  |   |                           |   | 264    |              |  |   | (863  | ) |  |   | 1,010  |  
|Trust Preferred                    |  |                            | 2      |   |                           |   | 125    |              |  |   | (64   | ) |  |   | 63     |  
|                                   |  |                            |        |   |                           |   |        |              |  |   |       |   |  |   |        |  
|Total interest bearing liabilities |  |                            | 275    |   |                           |   | 389    |              |  |   | (268  | ) |  |   | 396    |  
|                                   |  |                            |        |   |                           |   |        |              |  |   |       |   |  |   |        |  
|Net change in net interest income  |  | $                          | (1,767 | ) |                           | $ | (1,069 | )            |  | $ | 1,346 |   |  | $ | (1,490 | )
|                                   |  |                            |        |   |                           |   |        |              |  |   |       |   |  |   |        |  



Other income -In
addition to the decrease in gain on sale of loans, the decrease in loan originations caused a decrease in loan fees which was offset by an increase in fees and charges associated with the increase in deposits during the six-month period ended March
31, 2005 compared to the six-month period ended March 31, 2004, resulting in consistent income from fees and service charges. The change in market value of the trading securities contributed $0.02 million to other income for the six-month period
ended March 31, 2005 compared to $0.44 million during the same period last year. Other income increased due to the higher dividend rate received on Federal Home Loan Bank stock during the six months ended March 31, 2005 compared to the same period
last year.



Operating expense - The increase in total operating
expense was primarily due to the increases in advertising and donations and in professional fees. Advertising expenses during the six-month period ended March 31, 2005 increased $0.28, as the Company hired an outside advertising firm instead of
handling advertising internally; professional fees increased $0.07 million during the six-month period ended March 31, 2005 compared to the same period last year. These increases were partially offset by the decrease in expenses associated with REO
and other repossessed assets and managements ongoing efforts to monitor expenses and increase efficiency.



Off-Balance Sheet Arrangements and Commitments-The Company, in the normal course of business, makes commitments to buy or sell assets or to incur or fund
liabilities. Commitments include, but are not limited to the origination, purchase, or sale of loans, the purchase of investment securities, fulfillment of commitments under letters-of-credit, extensions of credit on home equity lines of credit and
construction loans, and the commitment to fund withdrawals of savings accounts at maturity.



At March 31, 2005, the Companys off-balance sheet arrangements principally included lending commitments, which are described below. At March 31, 2005, the Company had no interests in non-consolidated special
purpose entities. At March 31, 2005, commitments included:



Total approved loan origination commitments outstanding were $5.86 million, including $1.30 million in loans committed to sell.



Rate lock agreements with customers of $3.10 million, all of which have been locked with an investor.



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Undisbursed balances of construction loans of $2.16 million.



Total unused lines of credit of $30.79 million.



Outstanding letters of credit of $0.60 million.



Total certificates of deposit scheduled to mature in one year or less of
$162.20 million.



Total unfunded commitments to originate
loans for sale and the related commitments to sell of $1.30 million meet the definition of a derivative financial instrument; the related asset and liability are considered immaterial at March 31, 2005.



Based on historical experience, management believes that a significant portion of maturing
deposits will remain with the Company. The Company anticipates that it will continue to have sufficient funds, through repayments, deposits and borrowings, to meet its current commitments.



The Companys exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees written is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet instruments.



Unless noted otherwise, the Company does not require collateral or other security to support such financial instruments with credit risk.



The Company may also have liabilities under certain contractual agreements contingent upon occurrence of certain events. The following table presents, as of March 31,
2005, the future payments on our significant contractual obligations.



|                                   |  |                                       |         |                  |   |           |  |           |         |               |   |        |  |   |      
|---------------------------------- |  | ------------------------------------- | ------- | ---------------- | - | --------- |  | --------- | ------- | ------------- | - | ------ |  | - | -----
|                                   |  | Payments Due by Period (in thousands)
|Contractual Obligations            |  | Total                                 |         | Less than 1 year |   | 1-3 years |  | 3-5 years |         | After 5 years
|Loan rate lock agreements          |  | $                                     | 3,095   |                  | $ | 3,095     |  | $         |        |               | $ |       |  | $ |     
|Operating lease obligations        |  |                                       | 498     |                  |   | 116       |  |           | 231     |               |   | 124    |  |   | 27   
|Certificates of deposit maturities |  |                                       | 245,387 |                  |   | 162,199   |  |           | 52,088  |               |   | 31,100 |  |   |     
|FHLB advances maturities           |  |                                       | 158,183 |                  |   | 61,171    |  |           | 80,554  |               |   | 10,128 |  |   | 6,330
|                                   |  |                                       |         |                  |   |           |  |           |         |               |   |        |  |   |      
|Total off-balance sheet items      |  | $                                     | 407,163 |                  | $ | 226,581   |  | $         | 132,873 |               | $ | 41,352 |  | $ | 6,357
|                                   |  |                                       |         |                  |   |           |  |           |         |               |   |        |  |   |      



ITEM 3



QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK



General. It is the objective of the
Company to minimize, to the degree prudently possible, its exposure to interest rate risk, while maintaining an acceptable interest rate spread. Interest rate spread is the difference between the Companys yield on its interest-earning assets
and its cost of interest-bearing liabilities. Interest rate risk is generally understood to be the sensitivity of the Companys earnings, net asset values, and stockholders equity to changes in market interest rates.



Changes in interest rates affect the Companys earnings. The effect on earnings of
changes in interest rates generally depends on how quickly the Companys yield on interest-earning assets and cost of interest-bearing liabilities react to the changes in market rates of interest. If the Companys cost of deposit accounts
reacts more quickly to changes in market interest rates than the yield on the Companys mortgage loans and other interest-earnings assets, then an increasing interest rate environment is likely to adversely affect the Companys earnings
and a decreasing interest rate environment is likely to favorably affect the Companys earnings. On the other hand, if the Companys yield on its mortgage loans and other interest-earnings assets reacts more quickly to changes in market
interest rates than the Companys cost of deposit accounts, then an increasing rate environment is likely to favorably affect the Companys earnings and a decreasing interest rate environment is likely to adversely affect the
Companys earnings.



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Net Portfolio Value. The value of the Companys loan and investment portfolio will change as interest rates
change. Rising interest rates will generally decrease the Companys net portfolio value (NPV), while falling interest rates will generally increase the value of that portfolio. The following table sets forth, quantitatively, as of
September 30, 2004, the estimate of the projected changes in NPV in the event of a 100, 200, and 300 basis point instantaneous and permanent increase and a 100 basis point decrease in market interest rates. Due to the current low prevailing interest
rate environment, the changes in NPV is not estimated for a decrease in interest rates of 200 or 300 basis points.



|                                                      |        |                        |          |  |   |          |   |                                                                   |       |    |  |       |   |  |       |   
|----------------------------------------------------- | ------ | ---------------------- | -------- |  | - | -------- | - | ----------------------------------------------------------------- | ----- | -- |  | ----- | - |  | ----- | --
|Change in Interest
Rates in Basis Points (Rate
Shock) |        | Net Portfolio Value    |          |  |   |          |   | Change in NPV as a Percentage of Estimated Market Value of Assets |      
|                                                      | Amount |                        | $ Change |  |   | % Change |   |                                                                   | Ratio |    | 
|                                                      |        | (Dollars in Thousands) |          |  |   |          |   |                                                                   |      
|+300                                                  |        | $                      | 49,510   |  | $ | (26,034  | ) |                                                                   | (34.0 | )% |  | 7.12  | % |  | (3.19 | )%
|+200                                                  |        |                        | 58,401   |  |   | (17,143  | ) |                                                                   | (23.0 | )% |  | 8.25  | % |  | (2.06 | )%
|+100                                                  |        |                        | 67,299   |  |   | (8,244   | ) |                                                                   | (11.0 | )% |  | 9.33  | % |  | (0.97 | )%
|0                                                     |        |                        | 75,544   |  |   |         |   |                                                                   | 0.0   | %  |  | 10.30 | % |  | 0.00  | % 
|-100                                                  |        |                        | 80,450   |  |   | 4,906    |   |                                                                   | 6.0   | %  |  | 10.84 | % |  | 0.54  | % 



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



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



ITEM 4



CONTROLS AND PROCEDURES



Under the supervision and with the participation of our management,
including the Companys Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Companys disclosure
controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms.



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There has been no change made in the Companys internal controls over financial reporting in connection with the
quarterly evaluation that occurred during the Companys last fiscal quarter that has materially affected or is reasonably likely to materially affect the Companys internal control over financial reporting.



PART II. OTHER INFORMATION



Item 1. Legal
Proceedings



None



Item 2. Changes in Securities and Use of Proceeds



During the quarter ended March 31, 2005 no shares were purchased by or on behalf of the
Company. The Company currently has no repurchase plans or programs outstanding. As reported in footnote eight of the Notes to Condensed Consolidated Financial Statements, the Company made a loan to the ESOP during the six months ended March 31, 2005
to purchase an aggregate of up to $1 million of Company stock. The Employee Stock Ownership Plan, an affiliated purchaser, made no purchases of Company stock during the quarter ended March 31, 2005 as shown in the table below.



|                       |  |                                      |  |                                  |      |                                                                                      |     |                                                                                                                  |   |            
|---------------------- |  | ------------------------------------ |  | -------------------------------- | ---- | ------------------------------------------------------------------------------------ | --- | ---------------------------------------------------------------------------------------------------------------- | - | -----------
|Period                 |  | (a) Total Number of Shares Purchased |  | (b) Average Price Paid per Share |      | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |     | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet
Be Purchased Under the Plans or Programs
|Month of January 2005  |  |                                     |  | $                                | 0.00 |                                                                                      | N/A |                                                                                                                  | $ | 0.7 Million
|Month of February 2005 |  |                                     |  | $                                | 0.00 |                                                                                      | N/A |                                                                                                                  | $ | 0.7 Million
|Month of March 2005    |  |                                     |  | $                                | 0.00 |                                                                                      | N/A |                                                                                                                  | $ | 0.7 Million
|Total                  |  |                                     |  | $                                | 0.00 |                                                                                      | N/A |                                                                                                                  | $ | 0.7 Million



Item 3. Defaults Upon Senior
Securities



None



Item 4. Submission of Matters to a Vote of Security Holders



None



Item 5. Other Information



None



Item 6. Exhibits



Exhibits



Exhibit No. 31.1  Certification of President and Chief Executive Officer.



Exhibit No. 31.2  Certification of Chief Financial Officer



Exhibit No. 32.1  Written Statement of President and Chief Executive Officer.



Exhibit No. 32.2  Written Statement of Chief Financial Officer



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SIGNATURES



Pursuant to the requirements 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.



|                   |  |  |  |                                      
|------------------ |  |  |  | -------------------------------------
|                   |  |  |  | POCAHONTAS BANCORP, INC.             
|                   |  | 
|Date: May 13, 2005 |  |  |  | /s/ Dwayne Powell                    
|                   |  |  |  | Dwayne Powell                        
|                   |  |  |  | President and Chief Executive Officer
|                   |  | 
|Date: May 13, 2005 |  |  |  | /s/ Terry Prichard                   
|                   |  |  |  | Terry Prichard                       
|                   |  |  |  | Chief Financial Officer              



27