##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q/A



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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 December 31, 2002



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
12g-2 of the Securities Exchange Act of 1934).    Yes ̈No  x



There were 4,299,395 shares of Common Stock
($0.01 par value) issued and outstanding as of December 31, 2002.



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##### Table of Contents

POCAHONTAS BANCORP, INC.



TABLE OF CONTENTS

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|                                                                                                                                         |  | Page
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I. FINANCIAL INFORMATION                                                                                                            |  |     
|                                                                                                                                         | 
|Item 1. Unaudited Financial Statements:                                                                                                  |  |     
|                                                                                                                                         | 
|Condensed Consolidated Statements of Financial Condition at December 31, 2002 and September 30, 2002                                     |  | 1   
|                                                                                                                                         | 
|Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended December 31, 2002 and 2001 (As Restated) |  | 2   
|                                                                                                                                         | 
|Condensed Consolidated Statement of Changes in Stockholders Equity for the Three Months Ended December 31, 2002                         |  | 4   
|                                                                                                                                         | 
|Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2002 (As Restated) and 2001                      |  | 5   
|                                                                                                                                         | 
|Notes to Condensed Consolidated Financial Statements                                                                                     |  | 7   
|                                                                                                                                         | 
|Independent Accountants Report                                                                                                          |  | 12  
|                                                                                                                                         | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations                                            |  | 13  
|                                                                                                                                         | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                                                       |  | 19  
|                                                                                                                                         | 
|Item 4.
Controls and Procedures                                                                                                          |  | 20  
|                                                                                                                                         | 
|PART II.
OTHER INFORMATION                                                                                                               |  | 20  



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##### Table of Contents

EXPLANATORY NOTE



This Form 10-Q/A amends the Companys quarterly report on Form 10-Q for the quarter ended December 31, 2002, as filed on February 14, 2003. Refer to note 10 in the
condensed consolidated financial statements for further discussion of the amendment and the restatement of the condensed consolidated financial statements that lead to the amendment. In order to preserve the nature and character of the disclosures
set forth in the original filing, no attempt has been made in this amendment to modify or update such disclosures, except as required to reflect the effects of the matters described in note 10 in the condensed consolidated financial statements and
to make other non-substantive revisions. The Company therefore recommends that this report be read in conjunction with the Companys reports filed subsequent to the original filing date, including the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 2003



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##### Table of Contents

Item 1



POCAHONTAS BANCORP, INC.



CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

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|                                                                                                                                                                                                           |  | December 31, 2002 |             |   | September 30, 2002 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ------------------ | -
|ASSETS                                                                                                                                                                                                     |  |                   |             |   |                    |  
|Cash and due from banks                                                                                                                                                                                    |  | $                 | 48,356,029  |   |                    | $
|Cash surrender value of life insurance                                                                                                                                                                     |  |                   | 6,931,865   |   |                    |  
|Investment securitiestrading                                                                                                                                                                              |  |                   | 1,071,517   |   |                    |  
|Investment securitiesheld to maturity                                                                                                                                                                     |  |                   | 7,736,024   |   |                    |  
|Investment securitiesavailable for sale                                                                                                                                                                   |  |                   | 142,811,534 |   |                    |  
|Loans receivable, net                                                                                                                                                                                      |  |                   | 393,728,600 |   |                    |  
|Loans receivable, held for sale                                                                                                                                                                            |  |                   | 1,935,494   |   |                    |  
|Accrued interest receivable                                                                                                                                                                                |  |                   | 4,270,417   |   |                    |  
|Premises and equipment, net                                                                                                                                                                                |  |                   | 13,991,179  |   |                    |  
|Federal Home Loan Bank stock, at cost                                                                                                                                                                      |  |                   | 2,140,200   |   |                    |  
|Goodwill                                                                                                                                                                                                   |  |                   | 8,847,572   |   |                    |  
|Core deposit premiums                                                                                                                                                                                      |  |                   | 8,807,567   |   |                    |  
|Other assets                                                                                                                                                                                               |  |                   | 2,955,637   |   |                    |  
|                                                                                                                                                                                                           |  |                   |             |   |                    |  
|TOTAL ASSETS                                                                                                                                                                                               |  | $                 | 643,583,635 |   |                    | $
|                                                                                                                                                                                                           |  |                   |             |   |                    |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                       |  |                   |             |   |                    |  
|LIABILITIES:                                                                                                                                                                                               |  |                   |             |   |                    |  
|Deposits                                                                                                                                                                                                   |  | $                 | 546,966,721 |   |                    | $
|Federal Home Loan Bank advances                                                                                                                                                                            |  |                   | 22,059,382  |   |                    |  
|Deferred compensation                                                                                                                                                                                      |  |                   | 4,361,505   |   |                    |  
|Accrued expenses and other liabilities                                                                                                                                                                     |  |                   | 5,572,214   |   |                    |  
|                                                                                                                                                                                                           |  |                   |             |   |                    |  
|Total liabilities                                                                                                                                                                                          |  |                   | 578,959,822 |   |                    |  
|TRUST PREFERRED SECURITIES                                                                                                                                                                                 |  |                   | 16,905,575  |   |                    |  
|                                                                                                                                                                                                           |  |                  
|STOCKHOLDERS EQUITY:                                                                                                                                                                                      |  |                   |             |   |                    |  
|Common stock, $0.01 par value, 8,000,000 shares authorized; 7,492,353 and 7,492,353 shares issued and 4,299,395 and 4,376,295
shares outstanding at December 31, 2002 and September 30, 2002, respectively |  |                   | 74,923      |   |                    |  
|Additional paid-in capital                                                                                                                                                                                 |  |                   | 56,342,563  |   |                    |  
|Unearned ESOP Shares                                                                                                                                                                                       |  |                   | (671,130    | ) |                    |  
|Unearned RRP Shares                                                                                                                                                                                        |  |                   | (26,439     | ) |                    |  
|Accumulated other comprehensive income                                                                                                                                                                     |  |                   | 1,797,967   |   |                    |  
|Retained earnings                                                                                                                                                                                          |  |                   | 17,165,410  |   |                    |  
|                                                                                                                                                                                                           |  |                   |             |   |                    |  
|                                                                                                                                                                                                           |  |                   | 74,683,294  |   |                    |  
|Treasury stock at cost, 3,192,958 and 3,116,058 shares, at December 31, 2002 and September 30, 2002, respectively                                                                                          |  |                   | (26,965,056 | ) |                    |  
|                                                                                                                                                                                                           |  |                   |             |   |                    |  
|Total stockholders equity                                                                                                                                                                                 |  |                   | 47,718,238  |   |                    |  
|                                                                                                                                                                                                           |  |                   |             |   |                    |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                 |  | $                 | 643,583,635 |   |                    | $
|                                                                                                                                                                                                           |  |                   |             |   |                    |  



See notes to condensed consolidated
financial statements.



1



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##### Table of Contents

POCAHONTAS BANCORP, INC.



CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (AS RESTATED, SEE NOTE 10)

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|                                                    |  | Three Months EndedDecember 31,
|--------------------------------------------------- |  | ------------------------------
|                                                    |  | 2002                          
|INTEREST INCOME:                                    |  |                               
|Loans receivable                                    |  | $                             
|Investment securities                               |  |                               
|                                                    |  |                               
|Total interest income                               |  |                               
|INTEREST EXPENSE:                                   |  |                               
|Deposits                                            |  |                               
|Borrowed funds                                      |  |                               
|                                                    |  |                               
|Total interest expense                              |  |                               
|                                                    |  |                               
|NET INTEREST INCOME                                 |  |                               
|PROVISION FOR LOAN LOSSES                           |  |                               
|                                                    |  |                               
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                               
|OTHER INCOME:                                       |  |                               
|Dividends                                           |  |                               
|Fees and service charges                            |  |                               
|Gain on sales of loans                              |  |                               
|Gain on sales of securities                         |  |                               
|Gain on sales of branches                           |  |                               
|Trading gains, net                                  |  |                               
|Other, net                                          |  |                               
|                                                    |  |                               
|Total other income                                  |  |                               
|                                                    |  |                               
|OPERATING EXPENSE:                                  |  |                               
|Compensation and benefits                           |  |                               
|Occupancy and equipment                             |  |                               
|Data processing                                     |  |                               
|Advertising                                         |  |                               
|Professional fees                                   |  |                               
|Office supplies                                     |  |                               
|Other                                               |  |                               
|                                                    |  |                               
|Total operating expense                             |  |                               
|                                                    |  |                               
|INCOME BEFORE INCOME TAXES                          |  |                               
|Income Taxes                                        |  |                               
|                                                    |  |                               
|NET INCOME                                          |  | $                             
|                                                    |  |                               



(Continued)



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POCAHONTAS BANCORP, INC.



CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (AS RESTATED, SEE NOTE 10)

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|                                                                                      |  | Three Months EndedDecember 31, |          
|------------------------------------------------------------------------------------- |  | ------------------------------ | ---------
|                                                                                      |  | 2002                           |          
|OTHER COMPREHENSIVE INCOME, NET OF TAX:                                               |  |                                |          
|Unrealized holding gain (loss) on available-for-sale securities arising during period |  | $                              | 206,538  
|Reclassification adjustment for gains included in net income                          |  |                                | (5,496   
|                                                                                      |  |                                |          
|COMPREHENSIVE INCOME                                                                  |  | $                              | 1,414,129
|                                                                                      |  |                                |          
|BASIC EARNINGS PER SHARE                                                              |  | $                              | 0.28     
|                                                                                      |  |                                |          
|DILUTED EARNINGS PER SHARE                                                            |  | $                              | 0.28     
|                                                                                      |  |                                |          
|DIVIDENDS DECLARED PER SHARE                                                          |  | $                              | 0.08     
|                                                                                      |  |                                |          



(Concluded)



See notes to condensed consolidated financial statements.



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POCAHONTAS BANCORP, INC.



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

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|                                                                                |  | Common Stock |  | Additional Paid-In Capital |        | Unearned ESOP Shares |   |            | Unearned RRP Shares |   |          | Accumulated Other Comprehensive Income (Loss) |        | Retained Earnings |         |   | Treasury Stock |   |           | Total Stockholders Equity |  
|------------------------------------------------------------------------------- |  | ------------ |  | -------------------------- | ------ | -------------------- | - | ---------- | ------------------- | - | -------- | --------------------------------------------- | ------ | ----------------- | ------- | - | -------------- | - | --------- | -------------------------- | -
|                                                                                |  | Shares       |  | Amount                     |        |                      |   |            |                     |   | Shares   |                                               | Amount |                   |        
|Balance, September 30, 2002                                                     |  | 7,492,353    |  | $                          | 74,923 |                      | $ | 56,342,563 |                     | $ | (671,130 | )                                             |        | $                 | (35,251 | ) |                | $ | 1,596,925 |                            | $
|                                                                                |  |              |  |                            |        |                      |   |            |                     |  
|RRP shares earned                                                               |  |              |  |                            |        |                      |   |            |                     |   |          |                                               |        |                   | 8,812   |   |                |   |           |                            |  
|Net change in unrealized gain(loss) on available-for-sale securities,net of tax |  |              |  |                            |        |                      |   |            |                     |   |          |                                               |        |                   |         |   |                |   | 201,042   |                            |  
|Treasury stock purchased                                                        |  |              |  |                            |        |                      |   |            |                     |   |          |                                               |        |                   |         |   |                |   |           |                            |  
|Net income                                                                      |  |              |  |                            |        |                      |   |            |                     |   |          |                                               |        |                   |         |   |                |   |           |                            |  
|Dividends                                                                       |  |              |  |                            |        |                      |   |            |                     |   |          |                                               |        |                   |         |   |                |   |           |                            |  
|                                                                                |  |              |  |                            |        |                      |   |            |                     |   |          |                                               |        |                   |         |   |                |   |           |                            |  
|Balance, December 31, 2002                                                      |  | 7,492,353    |  | $                          | 74,923 |                      | $ | 56,342,563 |                     | $ | (671,130 | )                                             |        | $                 | (26,439 | ) |                | $ | 1,797,967 |                            | $
|                                                                                |  |              |  |                            |        |                      |   |            |                     |   |          |                                               |        |                   |         |   |                |   |           |                            |  



See notes to condensed consolidated
financial statements.



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POCAHONTAS BANCORP, INC.



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

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|                                                                                         |  | Three months endedDecember 31, |            
|---------------------------------------------------------------------------------------- |  | ------------------------------ | -----------
|                                                                                         |  | 2002                           |            
|                                                                                         |  | (As restated,see note 10)      |            
|OPERATING ACTIVITIES:                                                                    |  |                                |            
|Net income                                                                               |  | $                              | 1,213,087  
|Adjustments to reconcile net income to net cash provided (used) by operating activities: |  |                                |            
|Provision for loan losses                                                                |  |                                | 745,000    
|Depreciation of premises and equipment                                                   |  |                                | 281,372    
|Amortization of core deposit premium                                                     |  |                                | 276,461    
|Accretion of deferred loan fees                                                          |  |                                | (22,730    
|Amortization (accretion) of premiums and discounts, net                                  |  |                                | (166,248   
|Net (gain) loss on sales of loans                                                        |  |                                | (1,127,845 
|Net (gain) loss on sales of securities                                                   |  |                                | (5,496     
|Net (gain) loss on sales of branches                                                     |  |                                | (513,595   
|Increase in cash surrender value of life insurance policies                              |  |                                | (48,373    
|Change in operating assets and liabilities:                                              |  |                                |            
|Trading securities                                                                       |  |                                | 392,941    
|Accrued interest receivable                                                              |  |                                | 87,717     
|Other assets                                                                             |  |                                | (470,662   
|Deferred compensation                                                                    |  |                                | 237,953    
|Accrued expenses and other liabilities                                                   |  |                                | (743,739   
|                                                                                         |  |                                |            
|Net cash provided (used) by operating activities                                         |  |                                | 135,843    
|                                                                                         |  |                                |            
|INVESTING ACTIVITIES:                                                                    |  |                                |            
|Adjustment to acquisition of Walden/Smith Financial Group, Inc., net                     |  |                                |           
|Acquisition of Southern Mortgage Corporation, net of cash acquired                       |  |                                |           
|Loan repayments, originations, and purchases, net                                        |  |                                | (8,475,005 
|Net decrease in cash from sale of branches                                               |  |                                | (14,044,395
|Proceeds from sale of loans                                                              |  |                                | 21,112,428 
|Proceeds from sale (purchase) of FHLB stock                                              |  |                                | (14,700    
|Purchase of investment securities                                                        |  |                                | (51,024,764
|Proceeds from sale of REO                                                                |  |                                |           
|Proceeds from sale of premises and equipment                                             |  |                                | 5,413      
|Proceeds from sales, maturities and principal repayments of securities                   |  |                                | 26,319,834 
|Purchases of premises and equipment                                                      |  |                                | (414,531   
|                                                                                         |  |                                |            
|Net cash provided (used) by investing activities                                         |  |                                | (26,535,720
|                                                                                         |  |                                |            



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POCAHONTAS BANCORP, INC.



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

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|                                                                            |  | Three months endedDecember 31, |           
|--------------------------------------------------------------------------- |  | ------------------------------ | ----------
|                                                                            |  | 2002                           |           
|                                                                            |  | (As restated,see note 10)      |           
|FINANCING ACTIVITIES:                                                       |  |                                |           
|Net increase in deposits                                                    |  | $                              | 41,715,399
|Net increase (decrease) in repurchase agreements                            |  |                                |          
|Net decrease in FHLB advances                                               |  |                                | (77,585   
|Proceeds from issuance of trust preferred securities, net of issuance costs |  |                                |          
|Purchase of treasury shares                                                 |  |                                | (845,420  
|Issuance of RRPs                                                            |  |                                | 8,812     
|Exercise of stock options                                                   |  |                                |          
|Dividends paid                                                              |  |                                | (351,898  
|                                                                            |  |                                |           
|Net cash provided (used) by financing activities                            |  |                                | 40,449,308
|                                                                            |  |                                |           
|NET INCREASE IN CASH                                                        |  |                                | 14,049,431
|CASH AT BEGINNING OF PERIOD                                                 |  |                                | 34,306,598
|                                                                            |  |                                |           
|CASH AT END OF PERIOD                                                       |  | $                              | 48,356,029
|                                                                            |  |                                |           



(Concluded)



See notes to condensed consolidated financial statements.



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POCAHONTAS BANCORP, INC.



NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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



The condensed consolidated balance sheet information at September 30, 2002 was derived from the audited balance sheets of Pocahontas Bancorp, Inc, (the
Company), at September 30, 2002. The condensed consolidated financial statements at and for the three months ended December 31, 2002 and 2001 are unaudited. The accompanying condensed consolidated financial statements were prepared in
accordance with generally accepted accounting principles 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 months ended December 31, 2002, 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, 2002. The accompanying condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, First Community Bank (the Bank), Pocahontas Capital Trust I and II (the Trusts), which are business trusts established to facilitate the issuance of the trust preferred
securities; 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). The intercompany accounts of the
Company and the Bank 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 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 Opinion No. 25, Accounting for Stock Issued to Employees(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 (SFAS 123). Accordingly, no compensation cost has been recognized for the options granted to employees or directors. Had compensation cost for these been determined on the fair value 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 months ended December 31, 2002 and 2001, would have been as follows:



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|                                                                                                                    |  | Three-Months EndedDecember 31, |      
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -----
|                                                                                                                    |  | 2002                           |      
|                                                                                                                    |  | (In thousands)                 |      
|Net income, as reported                                                                                             |  | $                              | 1,213
|Deduct: Total stock-based compensation expense determined under fair value based method, net of related tax
effects |  | $                              | (27  
|                                                                                                                    |  |                                |      
|Pro forma net income                                                                                                |  | $                              | 1,186
|                                                                                                                    |  |                                |      
|Earnings per share:                                                                                                 |  |                                |      
|Basicas reported                                                                                                   |  | $                              | 0.28 
|Basicpro forma                                                                                                     |  | $                              | 0.28 
|Dilutedas reported                                                                                                 |  | $                              | 0.28 
|Dilutedpro forma                                                                                                   |  | $                              | 0.27 



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 Accounting StandardsIn October 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 provides one accounting model, based on the framework established by SFAS No. 121, for long-lived assets to be disposed of by sale and addresses significant
implementation issues. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on October 1, 2002.



In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions. This Statement amends Statements No. 72 and 144 and
FASB Interpretation No. 9. Among other topics, this Statement requires that an unidentifiable intangible asset that is recognized in an acquisition of a financial institution, which is accounted for as a business combination, in which the
liabilities assumed exceed the identifiable assets acquired, be recorded as goodwill. Consequently, this unidentifiable intangible asset will be subject to the goodwill accounting standards set forth in SFAS No. 142 and will be evaluated for
impairment on an annual basis instead of being amortized. The Company, which owns intangible assets of this nature, adopted this Statement on October 1, 2002. The adoption of SFAS No. 147 did not have a material impact on the results of operations
or financial condition of the Company.



Recently Issued
Accounting StandardsIn December 2002, the FASB issued Statement No. 148 (SFAS 148), Accounting for Stock-Based CompensationTransition and Disclosure, an amendment to SFAS 123. SFAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for financial statements for fiscal years ending after December 15, 2002. The
adoption of SFAS No. 148 is not expected to have a material impact on the results of operations or financial condition of the Company.



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##### Table of Contents

|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 number of shares used in the basic and diluted earnings per share calculation are set out in the table below:



|                                                                                      |  | Three Months Ended
|------------------------------------------------------------------------------------- |  | ------------------
|                                                                                      |  | December 31, 2002 
|Total weighted average basic shares outstanding                                       |  | 4,303,532         
|Add dilutive effect of unexercised options                                            |  | 37,085            
|                                                                                      |  |                   
|Total weighted average shares outstanding for dilutive earnings-per-share calculation |  | 4,340,617         
|                                                                                      |  |                   



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



On November 19, 2002, the Board of Directors declared a $.08 per share quarterly cash dividend for holders of record December 13, 2002. The dividend was
paid January 3, 2003.



|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 stock options, 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 December 31, 2002, 270,000 options were outstanding.



|5. |  | ACQUISITION
|-- |  | -----------



On November 27, 2002, the Company, announced that it had signed a definitive merger agreement pursuant to which the Company will acquire Marked Tree
Bancshares in a stock transaction valued at approximately $2.8 million. The merger transaction is subject to the approval of the stockholders of Marked Tree Bancshares and receipt of required regulatory approvals. Subject to those contingencies, it
is expected that the transaction will be consummated during the first or second quarter of 2003. The Board of Directors of each company has unanimously approved the transaction. Due diligence has been completed and the transaction is structured as a
tax free reorganization whereby Marked Tree Bancshares stockholders will receive the Companys common stock based on the stated book value per share of Marked Tree Bancshares divided by the stated book value per share of the Company.



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##### Table of Contents

|6. |  | BRANCH SALES
|-- |  | ------------



On July 23, 2002, the Company entered into an agreement with Bank of England, Arkansas for the Company to sell its two branches in Carlisle and England,
Arkansas to the Bank of England, Arkansas. The sale of the branches resulted from managements decision to concentrate in the Banks primary market area. The sale was finalized on October 11, 2002, with the Company recognizing a gain of
approximately $0.5 million.



|7. |  | GOODWILL AND INTANGIBLE ASSETS
|-- |  | ------------------------------



In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. The statement required discontinuing the amortization of goodwill
and other intangible assets with indefinite useful lives. Instead, these assets will be tested periodically for impairment and written down to their fair value as necessary. The Company adopted the provisions of this statement on October 1, 2001.



The Company has completed a transitional impairment review to
identify if there is an impairment to the goodwill or intangible assets of indefinite life using fair value methodology which differs from an undiscounted cash flow methodology which continues to be used for intangible assets with an identifiable
life. There was no impairment loss resulting from the transitional impairment test as of October 1, 2001. As of March 31, 2002, the Company performed its annual impairment test and concluded there was no impairment to the book value of the
Companys goodwill. Absent any impairment indicators, the Company expects to perform its next impairment test as of March 31, 2003.



As of December 31, 2002 the Company had total core deposit premiums of $10,924,108, net of accumulated amortization of $2,116,542. Core deposit premiums
are estimated to have a useful life of 10 years.



The Company
has no identifiable intangible assets with indefinite useful lives.



Total amortization expense for core deposit intangible assets was approximately $276,000 for the three month period ended December 31, 2002. Amortization expense for the net carrying amount of core deposit intangible assets at December 31,
2002, is estimated to be as follows (in thousands):



|Year ended September 30, 2003 |  |   | 1,104
|----------------------------- |  | - | -----
|Year ended September 30, 2004 |  |   | 1,104
|Year ended September 30, 2005 |  |   | 1,104
|Year ended September 30, 2006 |  |   | 1,104
|Year ended September 30, 2007 |  |   | 1,104
|After September 30, 2007      |  |   | 3,288
|                              |  |   |      
|Total                         |  | $ | 8,808
|                              |  |   |      



|8. |  | COMMITMENTS AND 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 subsidiaries.



10



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##### Table of Contents

|9. |  | ALLOWANCE FOR LOAN LOSSES
|-- |  | -------------------------



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



|                                       |  | Three Months Ended |      
|-------------------------------------- |  | ------------------ | -----
|                                       |  | December 31, 2002  |      
|Balance at the beginning of the period |  | $                  | 3,205
|Provision for losses                   |  |                    | 745  
|Charge-offs, net of recoveries         |  |                    | (499 
|                                       |  |                    |      
|Balance at the end of the period       |  | $                  | 3,451
|                                       |  |                    |      



|10. |  | RESTATEMENT
|--- |  | -----------



Subsequent to the filing of Form 10-Q for the quarter ended March 31, 2003, the Company determined that the sale of its bank branches that occurred during
the first quarter ended December 31, 2002 should not have been reported as discontinued operations. The Company initially determined that the sale of branches met the requirements in SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets for presentation as discontinued operations. However, after further consideration , we have determined that the sale of our two branches did not meet such requirements. Net income, basic and diluted earning per share and
stockholders equity were not affected by such presentation. The Company determined that it was necessary to amend the December 31, 2002 and the March 31, 2003, Form 10-Qs to exclude the sale of branches from the discontinued operations
presentation. The effect of the amendment related to the sale of the branches is reflected in the table below.



The Company also corrected a mathematical error in the condensed consolidated statement of cash flows related to the presentation of the gain on sale of
the branches, the net decrease in cash from the sale of the branches, and the net increase in deposits. Additionally, the Company determined that it was necessary to add a footnote disclosure on the activity in the allowance for loan losses, which
is included in note 9 to condensed consolidated financial statements.



|                                                |  | Three Months Ended December 31,
|----------------------------------------------- |  | -------------------------------
|                                                |  | 2002                           
|                                                |  | AsPreviouslyReported           
|Total other income                              |  | $                              
|Total operating expenses                        |  |                                
|Income Taxes                                    |  |                                
|DISCONTINUED OPERATIONS:                        |  |                                
|Loss from operations of discontinued branches   |  |                                
|Gain on sale of branches                        |  |                                
|Income taxes (benefit) on discontinued branches |  |                                

|                           | 
|-------------------------- | 
|                           | 
|                           | 
|                           | 
|NET INCOME                 | 
|                           | 
|BASIC EARNINGS PER SHARE   | 
|                           | 
|DILUTED EARNINGS PER SHARE | 
|                           | 



11



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##### Table of Contents

INDEPENDENT ACCOUNTANTS REPORT



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 December 31, 2002, and the related condensed consolidated statements of income and comprehensive income, and cash flows for
the three-month periods ended December 31, 2002 and 2001, and stockholders equity for the three-month period ended December 31, 2002. These financial statements are the responsibility of the Companys management.



We conducted our review in accordance with standards established by the American Institute of
Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, 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 review, we are not aware of
any material modifications that should be made to such condensed consolidated 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 auditing standards generally accepted in the
United States of America, the consolidated statement of financial condition of Pocahontas Bancorp, Inc. and subsidiaries as of September 30, 2002, 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 November 8, 2002, we expressed an unqualified opinion, which includes an explanatory paragraph relating to the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets 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, 2002, is fairly stated, in all material
respects, in relation to the consolidated statement of financial condition from which it has been derived.



As discussed in Note 10, the accompanying condensed consolidated financial statements for the three-month periods ended December 31, 2002 and 2001 have been restated.



/s/ Deloitte & Touche LLP



Little Rock, Arkansas

February 10, 2003

(August 1, 2003, as to Notes 9 & 10)



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##### Table of Contents

ITEM 2



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



As discussed in
Note 10 to the condensed consolidated financial statements, the Company restated its condensed consolidated financial statements for the three-months ended December 31, 2002. The accompanying managements discussion and analysis gives effect to
the restatement.



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.



Critical Accounting PolicyThe Companys critical accounting policy
relates to the allowance for losses on loans. 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 estimate 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.



Financial Condition at December 31, 2002, as compared to September 30, 2002.



General. The Companys total assets increased to $643.6 million at
December 31, 2002 from $617.0 million at September 30, 2002, an increase of $26.6 million or 4.3%. The increase was primarily the result of a net increase in investment securities of $25.5 million. The Company used the increase in cash obtained from
the increase in deposits to purchase investment securities during the quarter. The average yield on average interest earning assets for the quarter ended December 31, 2002 was 7.18% compared to 7.19% at September 30, 2002.



Loans receivable, net. Net loans receivable decreased to $393.7 million at
December 31, 2002 from $396.1 million at September 30, 2002, a decrease of $2.4 million or 0.6%. Total nonperforming loans increased to $4.8 million at December 31, 2002 from $3.2 million at September 30, 2002, an increase of $1.6 million or 50.0%.
The increase in nonperforming loans was primarily a result of a weakening economy and a normal transition period of identifying problem loans following acquisitions.



Loans receivable, held for sale. Loans held for sale decreased to $1.9 million at December 31, 2002 from $11.9 million at
September 30, 2002, a decrease of $10.0 million or 84.0%. During the quarter ended December 31, 2002 the Company sold $21.1 million of loans, of which, $10.0 million were classified held



13



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##### Table of Contents

for sale as of September 30, 2002. Management expects to continue to sell loans in the secondary market as necessary to manage interest rate risks.



Investment securities available for sale. Investment securities
available for sale increased $25.5 million, or 21.7%, to $142.8 million at December 31, 2002, from $117.3 million at September 30, 2002. This net change was due to the purchase of $51.0 million of securities, offset by the principal pay down, call
and maturity of $26.3 million of investment securities.



Investment
securities trading. Investment securities trading decreased $0.4 million, or 26.7%, to $1.1 million, at December 31, 2002, from $1.5 million at September 30, 2002. The net change was primarily due to the purchase and transfer of treasury
stock and changes in the market value of trading securities.



Deposits. Deposits increased to $547.0 million at December 31, 2002 from $520.0 million at September 30, 2002, an increase of $27.0 million or 5.2%. The net increase in deposits was primarily the result of an increased deposit
base from offering competitive rates and was partially offset by the sale of Carlisle and England, Arkansas branches that had combined deposits of $14.8 million.



Deferred compensation. Deferred compensation increased $0.3 million or 7.3% to $4.4 million at December 31, 2002, from $4.1
million at September 30, 2002. The increase related to a new deferred compensation agreement entered into during the quarter, net of quarterly payments made to retired directors and officers in accordance with their respective retirement and
severance agreements.



Accrued expenses and other liabilities.
Accrued expenses and other liabilities decreased $0.7 million, or 11.1%, to $5.6 million at December 31, 2002, from $6.3 million at September 30, 2002. The decrease was primarily due to the payment of accrued expenses resulting from the acquisitions
of Peoples Bank and North Arkansas Bancshares, Inc.



Stockholders
equity. Stockholders equity increased $0.2 million or 0.4% to $47.7 million at December 31, 2002, from $47.5 million at September 30, 2002. The change in stockholders equity was primarily due to net income of $1.2 million and
$0.2 million increase in unrealized gain on securities, which was partially offset by dividends of $0.4 million and common stock repurchased for the three-month period of $0.8 million.



Comparison of Results of Operations for the Three Months Ended December 31, 2002 and
2001.



Overview. Net income was $1,213,087 for the
quarter ended December 31, 2002, compared to net income of $1,017,790 for quarter ended December 31, 2001, an increase of $195,297 or 19.2%. Basic and diluted earnings per share increased $0.05 per share or 21.7% to $0.28 for the quarter ended
December 31, 2002 compared to basic and diluted earnings per share of $0.23 for the same period last year.



Net interest income.Net interest income after provision for loan losses for the quarter ended December 31, 2002 was $3,665,179 compared to $3,735,499 for the quarter ended December 31, 2001, a decrease
of $70,320 or 1.9%. The decrease was primarily due to $745,000 provision for loan loss for quarter ended December 31, 2002 compared to $100,000 provision for loan loss for quarter ended December 31, 2001. The increase of $645,000 in the provision
for loan loss was partially a result of a weakening economy and the Banks shift from being a traditional single-family lending institution to diversifying into a larger percentage of commercial loans and the corresponding need to increase the
allowance for loan losses. The Companys net interest rate spread was 3.54% for the quarter ended December 31, 2002 compared to 3.59% for the year ended September 30, 2002 and 3.89% for the quarter ended December 31, 2001. Net interest margin
was 3.50% for the quarter ended December 31, 2002 compared to 3.56% for the year ended September 30, 2002



14



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##### Table of Contents

and 3.98% for the quarter ended December 31, 2001. The decrease was primarily due to lower average yields on interest earning assets for the quarter ended
December 31, 2002 compared to September 30, 2002 and December 31, 2001 and higher average costs associated with demand deposits.



15



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##### Table of Contents

Average Balance Sheets (Dollars in Thousands)



|                                                                                 |  | Quarter Ended December 31,2002 |         |          | Year Ended September 30, 2002 |                     |  | Quarter Ended December 31, 2001 |                
|-------------------------------------------------------------------------------- |  | ------------------------------ | ------- | -------- | ----------------------------- | ------------------- |  | ------------------------------- | ---------------
|                                                                                 |  | Average Balance                |         | Interest |                               | Average Yield/ Cost |  |                                 | Average Balance
|Interest-earning assets: (1)                                                     |  |                                |         |          |                               |                     |  |                                 |                
|Loan receivable, net (6)                                                         |  | $                              | 366,093 |          | $                             | 6,982               |  | 7.63                            | %              
|Investment securities                                                            |  |                                | 137,833 |          |                               | 2,065               |  | 5.99                            | %              
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Total interest-earning assets                                                    |  |                                | 503,926 |          |                               | 9,046               |  | 7.18                            | %              
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Noninterest-earning cash                                                         |  |                                | 21,611  |          |                               |                     |  |                                 |                
|Other noninterest-earning assets                                                 |  |                                | 39,366  |          |                               |                     |  |                                 |                
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Total assets                                                                     |  |                                | 564,903 |          |                               |                     |  |                                 |                
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Interest-bearing liabilities:                                                    |  |                                |         |          |                               |                     |  |                                 |                
|Demand deposits                                                                  |  | $                              | 168,183 |          | $                             | 917                 |  | 2.18                            | %              
|Time deposits                                                                    |  |                                | 290,916 |          |                               | 3,058               |  | 4.20                            | %              
|Borrowed funds (5)                                                               |  |                                | 49,137  |          |                               | 662                 |  | 5.38                            | %              
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Total interest-bearing liabilities                                               |  |                                | 508,236 |          |                               | 4,637               |  | 3.65                            | %              
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Noninterest-bearing liabilities (2)                                              |  |                                | 9,750   |          |                               |                     |  |                                 |                
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Total liabilities                                                                |  |                                | 517,986 |          |                               |                     |  |                                 |                
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Stockholders equity                                                             |  |                                | 46,917  |          |                               |                     |  |                                 |                
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Total liabilities and stockholders equity                                       |  | $                              | 564,903 |          |                               |                     |  |                                 |                
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Net interest income                                                              |  |                                |         |          | $                             | 4,410               |  |                                 |                
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Net interest rate spread (3)                                                     |  |                                |         |          |                               |                     |  | 3.54                            | %              
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Interest-earning assets and net interest margin (4)                              |  | $                              | 503,926 |          |                               |                     |  | 3.50                            | %              
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                                |         |          |                               |                     |  | 99.15                           | %              
|                                                                                 |  |                                |         |          |                               |                     |  |                                 |                

---

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

|(2) |  | Escrow accounts are noninterest-bearing and are included in noninterest-bearing liabilities.
|--- |  | --------------------------------------------------------------------------------------------

|(3) |  | Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Net interest margin represents the net interest income as a percentage of average interest-earning assets.
|--- |  | ----------------------------------------------------------------------------------------------------------

|(5) |  | Includes FHLB advances and securities sold under agreements to repurchase.
|--- |  | --------------------------------------------------------------------------



16



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##### 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 three-month period ended December 31, 2002, compared to the three-months ended December 31, 2001.



|                                    |  | Rate/Volume Analysis (in thousands) Three-Month PeriodEnded December 31, 2002 vs. 2001 Increase/(Decrease) Due to |       
|----------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- | ------
|                                    |  | Volume                                                                                                            |       
|Interest income:                    |  |                                                                                                                   |       
|Loan Receivable                     |  | $                                                                                                                 | 7,186 
|Investment securities               |  |                                                                                                                   | 2,216 
|                                    |  |                                                                                                                   |       
|Total interest earning assets       |  |                                                                                                                   | 9,402 
|                                    |  |                                                                                                                   |       
|Interest expense:                   |  |                                                                                                                   |       
|Deposits                            |  |                                                                                                                   | 6,554 
|Borrowed funds                      |  |                                                                                                                   | (1,423
|                                    |  |                                                                                                                   |       
|Total interest bearing liabilities  |  |                                                                                                                   | 5,131 
|                                    |  |                                                                                                                   |       
|Net change in net interest income   |  | $                                                                                                                 | 4,271 
|                                    |  |                                                                                                                   |       
|Change in provision for loan losses |  |                                                                                                                   |       
|                                    |  |                                                                                                                   |       
|Net change after provision          |  |                                                                                                                   |       
|                                    |  |                                                                                                                   |       



Non-Interest income.
Non-interest income increased to $2,157,188 for the three-month period ended December 31, 2002 compared to $1,159,080 for the quarter ended December 31, 2001, an increase of $998,108 or 86.1%. The increase in non-interest income was primarily due to
a gain on sale of loans of $1.1 million during the quarter ended December 31, 2002.



Operating expense.Total operating expenses were $4,432,980 for the quarter ended December 31, 2002, compared to $3,203,212 for the quarter ended December 31, 2001, an increase of $1,229,768 or 38.4%. The increase for the
quarter ended December 31, 2002 compared to the same period last year was primarily the result of operating expenses associated with the acquisitions of Peoples Bank of Imboden and North Arkansas Bancshares.



17



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##### Table of Contents

Non-performing 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 its 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
$745,000 was made during the three month period ended December 31, 2002. Total nonperforming loans increased to $4.8 million at December 31, 2002 from $3.2 million at September 30, 2002, an increase of $1.6 million.



The Companys allowance for loan losses was $3,450,801 at December 31, 2002, or 0.86% of
total loans, compared with $3,205,224 or 0.78% of total loans, at September 30, 2002, and $2,570,838, or 0.78% of total loans, at December 31, 2001. Changing economic and other conditions may require future adjustments to the allowance for loan
losses.



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



|                                                               |  | December 31, 2002      |       |   | September 30, 2002 |  
|-------------------------------------------------------------- |  | ---------------------- | ----- | - | ------------------ | -
|                                                               |  | (Dollars in Thousands) |      
|Delinquent loans:                                              |  |                        |       |   |                    |  
|Single family mortgage                                         |  | $                      | 2,341 |   |                    | $
|Other mortgage loans                                           |  |                        | 1,356 |   |                    |  
|Other loans                                                    |  |                        | 1,092 |   |                    |  
|                                                               |  |                        |       |   |                    |  
|Total delinquent loans                                         |  |                        | 4,789 |   |                    |  
|Total real estate owned (1)                                    |  |                        | 1,547 |   |                    |  
|                                                               |  |                        |       |   |                    |  
|Total non-performing assets                                    |  | $                      | 6,336 |   |                    | $
|                                                               |  |                        |       |   |                    |  
|Total loans delinquent 90 days or more to net loans receivable |  |                        | 1.21  | % |                    |  
|Total loans delinquent 90 days or more to total assets         |  |                        | 0.75  | % |                    |  
|Total nonperforming loans and REO to total assets              |  |                        | 0.99  | % |                    |  

---

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



It is the policy of the Bank to place loans 90 days or more past due on a non-accrual status by establishing a specific interest reserve that provides for a corresponding reduction in interest income. Delinquent loans
90 days or more past due increased $1.6 million or 50.5% between September 30, 2002 and December 31, 2002 to $4.8 million from $3.2 million.



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.



18



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##### Table of Contents

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-earnings 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.



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, 2002, the OTS 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.



|Changes inInterest Ratesin Basis Points(Rate Shock) |        | Net Portfolio Value |          |  |   |          |   | Change in NPVas a Percentage ofEstimated MarketValue of Assets |      
|--------------------------------------------------- | ------ | ------------------- | -------- |  | - | -------- | - | -------------------------------------------------------------- | -----
|                                                    | Amount |                     | $ Change |  |   | % Change |   |                                                                | Ratio
|+300bp                                              |        | $                   | 43,808   |  | $ | (17,547  | ) |                                                                | (28.6
|+200bp                                              |        |                     | 51,699   |  |   | (9,656   | ) |                                                                | (15.7
|+100bp                                              |        |                     | 58,442   |  |   | (2,913   | ) |                                                                | (4.7 
|0bp                                                 |        |                     | 61,355   |  |   |         |   |                                                                | 0    
|-100bp                                              |        |                     | 60,912   |  |   | (443     | ) |                                                                | (0.7 



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



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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



The Companys Chief Executive Officer and Chief Financial Officer
have concluded, based on their evaluation within 90 days prior to the filing date of this report, that the Companys disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-14 (c) and 15d-14 (c)) are effective to
ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the significant changes
in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of the foregoing evaluation.



PART II. OTHER INFORMATION



Item 1. Legal
Proceedings



None



Item 2. Changes in Securities and Use of Proceeds



None



Item 3. Defaults Upon Senior Securities



None



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



|Election of Directors: |  | For       |  | %     |  | Withheld |  | %   
|---------------------- |  | --------- |  | ----- |  | -------- |  | ----
|Ralph Baltz            |  | 3,864,144 |  | 99.8% |  | 8,235    |  | 0.2%
|Marcus Van Camp        |  | 3,858,172 |  | 99.6% |  | 14,207   |  | 0.4%



The ratification of Auditors was
approved by vote of 3,847,254 in favor, 4,524 against, and 20,601 abstentions.



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Item 5. Other Information



None



Item 6. Exhibits and Reports



(a) Exhibits



Exhibit No. 99.1Written statement of President and Chief Executive Officer.



Exhibit No. 99.2Written statement of Chief Financial Officer



(b) Reports



On December 9, 2002, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K. The report disclosed in Item 5 Other Events that the Company had entered into an Agreement
and Plan of Merger with Marked Tree Bancshares. No financial statements were required to be filed with this report. The Agreement and Plan of Merger dated November 27, 2002, was filed as an exhibit to the report.



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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.



|      |  |                 |  | 
|----- |  | --------------- |  | 
|      |  |                 |  | 
|      |  |                 |  | 
|Date: |  | August 14, 2003 |  | 
|      |  |                 |  | 
|      |  |                 |  | 
|Date: |  | August 14, 2003 |  | 
|      |  |                 |  | 



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