<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]      Annual Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the Fiscal Year Ended September 30, 2001.

                                       OR

[  ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

         For the transition period from ______________ to _____________________


                            Commission File #0-23969

                            POCAHONTAS BANCORP, INC.
                            ------------------------
             (Exact name of registrant as specified in its charter)

                Delaware                                  71-0806097
    -------------------------------                 ----------------------
    (State or other jurisdiction of                    (I.R.S. Employer
    incorporation or organization)                  Identification Number)

      1700 E. Highland, Jonesboro, AR                         72401
  ----------------------------------------                    -----
  (Address of Principal Executive Offices)                  Zip Code

                                 (870) 802-1700
                        --------------------------------
                         (Registrant's telephone number)


Securities Registered Pursuant to Section 12(b) of the Act:   None

Securities Registered Pursuant to Section 12(g) of the Act:   Common Stock, par
                                                              ------------------
value $.01 per share
----------------------
 (Title of Class)



     Indicate by check mark whether the Registrant (1) has filed all reports
required 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
requirements for the past 90 days.

         YES   X  .   NO       .
             -----       ------

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

     As of December 17, 2001, there were issued and outstanding 4,468,680 shares
of the Registrant's Common Stock. Such shares were listed on the NASDAQ National
Market System.

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the last sale price on December 26,
2001, was $27,417,269. This amount does not include shares held by the Employee
Stock Ownership Plan of First Community Bank (the Registrant's subsidiary), by
executive officers and directors, and by the Registrant as treasury stock.

                                       1

<PAGE>

                                     PART I

ITEM 1   BUSINESS
------   --------

General

         Pocahontas Bancorp, Inc. (the "Registrant" or the "Company") was
organized in March 1998 to be the holding company for First Community Bank (the
"Bank"), a federally chartered savings and loan association headquartered in
Jonesboro, Arkansas. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") under the Savings Association Insurance Fund
("SAIF"). The Company is registered as a savings and loan holding company with
the Office of Thrift Supervision ("OTS"). The Company's main office is located
at 1700 E. Highland Drive, Jonesboro, Arkansas, and its telephone number is
870-802-1700.

         The Company was organized in conjunction with the mutual-to-stock
conversion of the Bank's majority stockholder, Pocahontas Bancorp, MHC, a
federal mutual holding company in March 1998. In this "second step" conversion,
3,570,750 shares of the Company's common stock were sold in a subscription and
community offering at $10.00 per share, and the outstanding common stock of the
Bank was exchanged for Company common stock at a ratio of 4.0245 to one. The
consolidated financial statements of the Company set forth herein reflect net
proceeds of approximately $34.8 million raised in conjunction with the second
step offering.

         On May 15, 2001, the Company acquired Walden/Smith Financial Group,
Inc. ("Walden") and its wholly-owned bank subsidiary, First Community Bank
("FCB"). As part of the acquisition, Walden's stockholders received an aggregate
of $27.4 million in cash for all of the issued and outstanding common stock of
Walden. In connection with the acquisition, the Company's savings bank
subsidiary, Pocahontas Federal Savings and Loan Association, changed its name to
First Community Bank. In addition, the Company moved its corporate headquarters
to Jonesboro, Arkansas.

         On November 20, 2001, the Company announced it has agreed to acquire
North Arkansas Bancshares, Inc., the holding company for Newport Federal Savings
Bank, for $15.00 per share, or $4.4 million in the aggregate. Newport Federal
Savings Bank is a Savings Bank located in Newport, Arkansas with $39.9 million
in total assets at September 30, 2001. Under the terms of the agreement, each
share of North Arkansas Bancshares, Inc. common stock will be converted into the
right to receive that number of shares of Company Common Stock equal to the
number obtained by dividing $15.00 by the average of the closing bid price of
the Company Common Stock on the NASDAQ National Market for the 15 consecutive
trading days ending on the fifth day before the closing date.

         The Bank is a community-oriented savings institution that operates 21
full-service offices in its market area consisting of Northeast Arkansas. The
Bank is primarily engaged in the business of originating single family
residential mortgage loans funded with deposits, Federal Home Loan Bank ("FHLB")
advances and securities sold under agreements to repurchase.

         The Bank's operations are affected by general economic conditions, the
monetary and fiscal policies of the federal government and the regulatory
policies of government authorities. Deposit flows and the cost of
interest-bearing liabilities ("cost of funds") to the Bank are affected by
interest rates on competing investments and general market interest rates.
Similarly, the Bank's loan volume and yields on loans and investment securities
and the level of prepayments on such loans and investment securities are
affected by market interest rates, as well as by additional factors affecting
the supply of and demand for housing and the availability of funds.

          At September 30, 2001, the Company and its affiliates employed 169
persons.


                                       2

<PAGE>

Competition

         The Bank faces strong competition both in attracting deposits and in
origination of loans. Competitors for deposits include thrift institutions,
commercial banks, credit unions, money market funds, and other investment
alternatives, such as mutual funds, full service and discount broker-dealers,
brokerage accounts, and savings bonds or other government securities. Primary
competitive factors include convenience of locations, variety of deposit or
investment options, rates or terms offered, and quality of customer service.

         The Bank competes for mortgage loan originations with thrift
institutions, banks and mortgage companies, including many large financial
institutions which have greater financial and marketing resources available to
them. Primary competitive factors include service quality and speed,
relationships with builders and real estate brokers, and rates and fees.

         The Bank believes that it has been able to compete effectively in its
principal markets, and that competitive pressures have not materially interfered
with the Bank's ongoing operations.

Lending Activities

         Loan Portfolio Composition. The Bank's net loan portfolio consists
primarily of first mortgage loans collateralized by single-family residential
real estate, multifamily residential real estate, commercial real estate and
agricultural real estate loans. At September 30, 2001, the Bank's net loan
portfolio totaled $349.4 million, of which $176.0 million, or 50.4% were
single-family residential real estate mortgage loans, $0.8 million, or 0.2% were
multifamily residential real estate loans, $14.4 million, or 4.1%, were
agricultural real estate loans, and $73.3 million, or 21.0%, were commercial
real estate loans (including land loans). The remainder of the Bank's loans at
September 30, 2001 included commercial business loans (i.e., crop production,
equipment and livestock loans) which totaled $65.7 million, or 18.8%, of the
Bank's net loan portfolio as of September 30, 2001. Other loans, including
automobile loans and loans collateralized by deposit accounts totaled $22.7, or
6.5% of the Bank's net loan portfolio as of September 30, 2001. Due to the
acquisition of FCB during fiscal 2001, the composition of the Bank's loan
portfolio changed. As of September 30, 2001, total real estate loans made up
75.8% of the Bank's portfolio compared to 89.6% as of September 30, 2000. The
majority of FCB's loans were commercial real estate and non-real estate loans.

Analysis of Loan Portfolio

         Set forth below is selected data relating to the composition of the
Bank's loan portfolio, including loans held for sale, by type of loan as of the
dates indicated.


                                       3

<PAGE>
<TABLE>
<CAPTION>

                                                                 At September 30,

                      --------------------------------------------------------------------------------------------------
                              2001               2000                1999                1998                1997
                      --------------------------------------------------------------------------------------------------
                        Amount   Percent   Amount    Percent   Amount    Percent   Amount    Percent   Amount    Percent
                      ------------------  ------------------  ------------------  ------------------  ------------------
                                                              (Dollars in Thousands)
<S>                   <C>         <C>    <C>          <C>    <C>          <C>    <C>          <C>    <C>          <C>
Real estate loans:
 Single-family
  residential         $175,977     50.4%  $175,625     75.0%  $173,622     79.7%  $163,895     84.6%  $138,539     86.8%
 Multifamily
  residential              826      0.2      1,163      0.5      1,024      0.5      3,124      1.6      1,600      1.0
 Agricultural           14,386      4.1      7,360      3.1      6,878      3.2      6,532      3.4      4,654      2.9
 Commercial             73,282     21.0     25,730     11.0     23,296     10.7     10,268      5.3      9,606      6.0
                      --------    -----   --------    -----   --------    -----   --------    -----   --------    -----

  Total real
   estate loans        264,471     75.7    209,878     89.6    204,820     94.1    183,819     94.9    154,399     96.7

Other loans:
 Savings account
  loans                  5,166      1.5      1,665      0.7      1,528      0.7      1,161      0.6      1,015      0.6
 Commercial
  business(1)           65,722     18.8     12,555      5.3     10,932      5.0      8,568      4.4      6,533      4.1
 Other (2)              17,551      5.0     13,617      5.8      8,113      3.7      5,943      3.1      2,716      1.7
                      --------    -----   --------    -----   --------    -----   --------    -----   --------    -----

  Total other loans     88,439     25.3     27,837     11.8     20,573      9.4     15,672      8.1     10,264      6.4
                      --------    -----   --------    -----   --------    -----   --------    -----   --------    -----

  Total loans
   receivable          352,910    101.0    237,715    101.4    225,393    103.5    199,491    103.0    164,663    103.1

Less:
 Undisbursed loan
  proceeds                 416      0.1      1,345      0.6      5,753      2.6      3,655      1.9      2,815      1.8
 Unearned discount
  and net deferred
  loan fees                286      0.1        264      0.1        287      0.1        424      0.2        467      0.3
 Allowance for loan
  losses                 2,832      0.8      1,689      0.7      1,643      0.8      1,684      0.9      1,691      1.0
                      --------    -----   --------    -----   --------    -----   --------    -----   --------    -----
  Total loans
   receivable, net    $349,376    100.0%  $234,417    100.0%  $217,710    100.0%  $193,728    100.0%  $159,690    100.0%
                      ========    =====   ========    =====   ========    =====   ========    =====   ========    =====
</TABLE>
------------------------------------
(1)  Includes crop-production loans, livestock loans and equipment loans.
(2)  Includes second mortgage loans, unsecured personal lines of credit and
     automobile loans.

         Loan Maturity Schedule. The following table sets forth certain
information as of September 30, 2001, regarding the dollar amount of gross loans
maturing in the Bank's portfolio based on their contractual terms to maturity.
Demand loans, loans having no stated schedule of repayments, and overdrafts are
reported as due in one year or less. Adjustable and floating rate loans are
included in the period in which interest rates are next scheduled to adjust
rather than in which they mature, and fixed rate loans are included in the
period in which the final contractual repayment is due.
















<TABLE>
<CAPTION>

                                                                              Beyond
                       Within       1-3        3-5       5-10       10-20       20
                       1 Year      Years      Years     Years       Years     Years      Total
                      --------   --------   --------   --------   --------   --------   --------
                                                   (In Thousands)
<S>                   <C>        <C>        <C>        <C>       <C>         <C>        <C>
Fixed rate loans
Variable rate loans   $99,750    $51,654    $45,673    $16,826    $26,971    $ 7,809    $248,683
                           24        340      1,220      8,789     37,877     55,977     104,227
                      -------    -------    -------    -------    -------    -------    --------

   Total              $99,774    $51,994    $46,893    $25,615    $64,848    $63,786    $352,910
                      =======    =======    =======    =======    =======    =======    ========
</TABLE>


         The following table sets forth at September 30, 2001, the dollar amount
of all fixed rate and adjustable rate loans due after September 30, 2002.

<TABLE>
<CAPTION>
                                                 Fixed   Adjustable    Total
                                               --------  ----------   --------
                                                      (in  Thousands)
<S>                                            <C>        <C>        <C>
Single-family residential                      $ 60,140   $103,377   $163,517
Multifamily residential                            --          826        826
Agricultural                                      6,363       --        6,363
Commercial                                       41,973       --       41,973
Other                                            40,457       --       40,457
                                               --------   --------   --------
Total                                          $148,933   $104,203   $253,136
                                               ========   ========   ========

</TABLE>



         Single-Family Residential Real Estate Loans. The Bank's primary lending
activity is the origination of single-family, owner-occupied, residential
mortgage loans collateralized by properties located in the Bank's market area.
The
                                       4

<PAGE>

Bank generally does not originate single-family residential loans collateralized
by properties outside of its market area. However, the Bank has been an active
purchaser of single family loans from outside the Bank's primary market area. At
September 30, 2001, the Bank had $176.0 million, or 50.4%, of its total net loan
portfolio invested in single-family residential mortgage loans, substantially
all of which were collateralized by properties located in the Bank's market area
or in counties contiguous with the Bank's market area.

         The Bank's single-family, fixed rate, residential real estate loans
generally are originated and underwritten according to standards that qualify
such loans for resale in the secondary mortgage market. The Bank generally
retains adjustable rate mortgage ("ARM") loans that it originates. Whether the
Bank can or will sell fixed rate loans, however, depends on a number of factors
including the yield and the term of the loan, market conditions, and the Bank's
current interest rate risk analysis. At September 30, 2001 and 2000, loans held
for sale were insignificant. During the fiscal years ended September 30, 2001,
2000 and 1999, the Bank sold into the secondary market $19.7 million, $0.6
million, and $1.8 million, respectively, of single-family, fixed rate,
residential mortgage loans, generally from current period originations. The Bank
retained the servicing rights on $16.7 million of loans sold in fiscal year
2001.

         The Bank currently offers single-family residential mortgage loans with
terms typically ranging from 10 to 30 years, and with adjustable or fixed
interest rates. Single-family residential real estate loans often remain
outstanding for significantly shorter periods than their contractual terms
because borrowers may refinance or prepay loans at their option. The average
length of time that the Bank's single-family residential mortgage loans remain
outstanding varies significantly depending upon trends in market interest rates
and other factors. Accordingly, estimates of the average length of single-family
loans that remain outstanding cannot be made with any degree of accuracy.

         Originations of fixed-rate mortgage loans versus ARM loans are
monitored on an ongoing basis and are affected significantly by the level of
market interest rates, customer preference, the Bank's interest rate risk
analysis, and loan products offered by the Bank's competitors. Particularly in a
relatively low interest rate environment, borrowers may prefer fixed rate loans
to ARM loans. However, management's strategy is to emphasize ARM loans, and the
Bank has been successful in maintaining a level of ARM loan originations
acceptable to management.

         The Bank's ARM loans are generally for terms of 30 years, with interest
rates that adjust annually. The Bank establishes various annual and
life-of-the-loan caps on ARM loan interest rate adjustments. The Bank's current
index on its ARM loans is the one-year constant maturity treasury ("CMT") rate
for one-year ARM loans, a three-year CMT rate for three-year ARM loans, and a
five-year CMT rate for five-year ARM loans, plus a range of margin of 225 to 300
basis points, subject to change based on market conditions. The Bank determines
whether a borrower qualifies for an ARM loan based on the fully indexed rate of
the ARM loan at the time the loan is originated.

         The primary purpose of offering ARM loans is to make the Bank's loan
portfolio more interest rate sensitive. ARM loans carry increased credit risk
associated with potentially higher monthly payments by borrowers as general
market interest rates increase. It is possible, therefore, that during periods
of rising interest rates, the risk of default on ARM loans may increase due to
the upward adjustment of interest costs to the borrower. Management believes
that the Bank's credit risk associated with its ARM loans is reduced because of
the lifetime interest rate adjustment limitations on such loans. However,
interest rate caps and the changes in the CMT rate, which is a lagging market
index to which the Bank's ARM loans are indexed, may reduce the Bank's net
earnings in a period of rising market interest rates.

         The Bank's single-family residential first mortgage loans customarily
include due-on-sale clauses, which are provisions giving the Bank the right to
declare a loan immediately due and payable in the event, among other things,
that the borrower sells or otherwise disposes of the underlying real property
serving as security for the loan. Due-on-sale clauses are an important means of
adjusting the rates on the Bank's fixed rate mortgage loan portfolio.

         Regulations limit the amount that a savings association may lend
relative to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum loan-to-value ratio of 100% for residential property and a
lower percentage for other real estate loans, depending on the type of loan. The
Bank's lending policies limit the maximum loan-to-value ratio on both fixed rate
and ARM loans without private mortgage insurance to 90% of the lesser of the
appraised value or the purchase price of the property to serve as collateral for
the loan. The Bank generally requires fire and casualty insurance, as well as
title insurance, on all properties securing real estate loans made by the Bank.

                                       5

<PAGE>


         Multifamily Residential Real Estate Loans. Although the Bank does not
emphasize multifamily residential loans and has not been active recently in this
area, the Bank has originated loans collateralized by multifamily residential
real estate. Such loans constituted approximately $0.8 million, or 0.2% of the
Bank's total net loan portfolio on September 30, 2001, compared to $1.2 million,
or 0.5% of the Bank's total net loan portfolio at September 30, 2000, $1.0
million, or 0.5%, of the Bank's total net loan portfolio at September 30, 1999,
$3.1 million, or 1.6%, of the total net loan portfolio at September 30, 1998,
and $1.6 million, or 1.0%, of the total net loan portfolio at September 30,
1997. The Bank's multifamily real estate loans are primarily collateralized by
multifamily residences, such as apartment buildings. Multifamily residential
real estate loans are offered with fixed and adjustable interest rates and are
structured in a number of different ways depending upon the circumstances of the
borrower and the type of multifamily project. Fixed interest rate loans
generally have five-to-seven-year terms with a balloon payment based on a 15 to
25 year amortization schedule.

         Loans collateralized by multifamily real estate generally involve a
greater degree of credit risk than single-family residential mortgage loans and
carry individually larger loan balances. This increased credit risk is a result
of several factors, including the concentration of principal in a limited number
of loans and borrowers, the effects of general economic conditions on income
producing properties, and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans collateralized by
multifamily real estate typically depends upon the successful operation of the
related real estate property. If the cash flow from the project is reduced, the
borrower's ability to repay the loan may be impaired.

         Agricultural Real Estate Loans. In recent years the Bank has increased
its originations of agricultural real estate loans for the purchase of farmland
in the Bank's market area. Loans collateralized by farmland constituted
approximately $14.4 million or 4.1%, of the Bank's total net loan portfolio at
September 30, 2001, compared to $7.4 million, or 3.1%, $6.9 million, or 3.2%,
$6.5 million, or 3.4%, and $4.7 million, or 2.9%, of the Bank's total net loan
portfolio at September 30, 2000, 1999, 1998, and 1997, respectively.

         Agricultural mortgage loans have various terms up to 10 years with a
balloon payment based on a 20-year amortization schedule. Such loans are
originated with fixed rates and generally include personal guarantees. The
loan-to-value ratio on agricultural mortgage loans is generally limited to 75%.
The Bank earns higher yields on agricultural mortgage loans than on
single-family residential mortgage loans. Agricultural related lending, however,
involves a greater degree of risk than single-family residential mortgage loans
because of the typically larger loan amounts and a somewhat more volatile
market. In addition, repayments on agricultural mortgage loans are substantially
dependent on the successful operation or management of the farm property
collateralizing the loan, which is affected by many factors, such as weather and
changing market prices, outside the control of the borrower.

         Commercial Real Estate Loans. Loans collateralized by commercial real
estate, including land loans, constituted approximately $73.6 million, or 21.1%
of the Bank's total net loan portfolio at September 30, 2001, compared to $25.7
million, or 11.0%, $23.3 million, or 10.7%, $10.3 million, or 5.3%, and $9.6
million, or 6.0%, of the Bank's total net loan portfolio at September 30, 2000,
1999, 1998, and 1997, respectively. The increase in these loans during fiscal
2001 was primarily due to the acquisition of FCB, which had approximately $44.8
million in commercial real estate loans. The Bank's commercial real estate loans
are collateralized by improved property such as office buildings, churches and
other nonresidential buildings. At September 30, 2001, substantially all of the
Bank's commercial real estate loans were collateralized by properties located
within the Bank's market area.

         Commercial real estate loans currently are offered with fixed rates
only and are structured in a number of different ways depending upon the
circumstances of the borrower and the nature of the project. Fixed rate loans
generally have five-to-seven year terms with a balloon payment based on a 15 to
25 year amortization schedule.

         Loans collateralized by commercial real estate generally involve a
greater degree of credit risk than single-family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income-producing
properties, and the greater difficulty of evaluating and monitoring these types
of loans. Furthermore, the repayment of loans collateralized by commercial real
estate is typically dependent upon the successful

                                       6

<PAGE>


operation of the related real estate property. If the cash flow from the project
is reduced, the borrower's ability to repay the loan may be impaired.

         Other Loans. The Bank originates various consumer loans, including
automobile, deposit account loans and second mortgage loans, principally in
response to customer demand. As of September 30, 2001, such loans totaled $22.7
million, or 6.5% of the Bank's total net loan portfolio as compared to $15.3
million, or 6.5%, $9.6 million, or 4.4%, $7.1 million, or 3.7%, and $3.7
million, or 2.3%, of the Bank's total net loan portfolio as of September 30,
2000, 1999, 1998, and 1997, respectively. Consumer loans are offered primarily
on a fixed rate basis with maturities generally of less than ten years.

         In recent years, the Bank has emphasized the origination of commercial
business loans, which principally include agricultural-related commercial loans
to finance the purchase of livestock, cattle, farm machinery and equipment,
seed, fertilizer and other farm-related products. Such loans comprised $65.7
million, or 18.8% of the Bank's total net loan portfolio at September 30, 2001,
as compared to $12.6 million, or 5.3%, $10.9 million, or 5.0%, $8.6 million, or
4.4%, and $6.5 million, or 4.1%, of the Bank's total net loan portfolio at
September 30, 2000, 1999, 1998, and 1997, respectively.

         As with agricultural real estate loans, agricultural operating loans
involve a greater degree of risk than residential mortgage loans because the
payments on such loans are dependent on the successful operation or management
of the farm property for which the operating loan is utilized. See "Agricultural
Real Estate Loans" for the various risks associated with agricultural operating
loans.

         Origination, Purchase and Sale of Loans and Mortgage-Backed Securities.
The table below shows the Bank's originations, purchases and sales of loans and
mortgage-backed securities for the periods indicated.

<TABLE>
<CAPTION>

                                                                  Year Ended September 30
                                             2001         2000         1999        1998         1997
                                          ---------    ---------    ---------    ---------    ---------
                                                                      (In Thousands)
<S>                                       <C>          <C>          <C>          <C>          <C>
Total loans receivable, net
  at beginning of year                    $ 234,417    $ 217,710    $ 193,728    $ 159,690    $ 136,872
Loans originated:
  Real estate:
    Single-family residential                37,264       38,629       53,499       66,988       49,215
    Multifamily residential                    --           --            180          100           93
    Commercial                               28,367        6,346       13,708        2,010        3,467
    Agricultural                                920        1,766        2,317        3,429        2,863
Other:
  Commercial business                        24,305       11,650       11,102        7,593        6,697
  Savings account loans                       3,387        1,649        1,580          908          926
  Other                                      27,234       10,316        7,504        4,162        2,684
                                          ---------    ---------    ---------    ---------    ---------
    Total loans originated                  121,477       70,356       89,890       85,190       65,945

Loans purchased                             139,094        4,333       10,552         --           --
Loans sold                                  (21,786)        (635)      (1,765)      (4,287)      (2,156)

Loans transferred to REO                     (1,603)        (948)        (943)        (129)        (294)

Loans to facilitate the sale of REO            (777)        (505)        (513)        --           (349)

Loan repayments                            (121,571)     (55,989)     (73,239)     (46,478)     (40,004)

Other loan activity (net)                       125           95         --           (258)        (324)
                                          ---------    ---------    ---------    ---------    ---------
    Total loans receivable,
      net at end of year                  $ 349,376    $ 234,417    $ 217,710    $ 193,728    $ 159,690
                                          =========    =========    =========    =========    =========
Mortgage-backed securities, net
  at beginning of year                    $  86,930    $ 191,125    $ 151,970    $ 168,836    $ 179,359
Purchases                                       400         --         65,737         --           --
Sales                                       (41,459)     (91,600)      (1,205)        --           --
Fair value adjustment                         2,144       (2,005)      (1,222)       2,474         --
Repayments                                  (11,194)     (10,831)     (24,431)     (19,598)     (10,669)
Discount amortization                           269          241          276          258          146
                                          ---------    ---------    ---------    ---------    ---------
Mortgage-backed and related securities,
  net at end of year                      $  37,090    $  86,930    $ 191,125    $ 151,970    $ 168,836
                                          =========    =========    =========    =========    =========

Total loans receivable, net, and
  mortage-backed and related
  securities, net, at end of year         $ 386,466    $ 321,347    $ 408,835    $ 345,698    $ 328,526
                                          =========    =========    =========    =========    =========
</TABLE>


                                       7

<PAGE>

         Loans to One Borrower. The maximum loans that a savings association may
make to one borrower or a related group of borrowers is 15% of the savings
association's unimpaired capital and unimpaired surplus on an unsecured basis,
and an additional amount equal to 10% of unimpaired capital and unimpaired
surplus if the loan is collateralized by readily marketable collateral
(generally, financial instruments and bullion, but not real estate).

Asset Quality

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

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

         Real estate acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned ("REO") until such
time as it is sold. REO is initially recorded at its estimated fair value, less
estimated selling expenses. Valuations are periodically performed by management,
and any subsequent decline in estimated fair value is charged to operations.

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

<TABLE>
<CAPTION>
                                                        At September 30
                                           2001     2000     1999     1998     1997
                                          ------   ------   ------   ------   ------
                                                   (Dollars In Thousands)

<S>                                       <C>      <C>      <C>      <C>      <C>
Nonperforming loans:
  Single-family residential real estate   $1,883   $1,477   $1,302   $2,240   $  422
  All other mortgage loans                 2,988      485       10       15
  Other loans                              1,454       54       66       41       31
                                          ------   ------   ------   ------   ------

    Total delinquent loans                $6,325   $2,016    1,378    2,296      453
Total real estate owned                    1,342      646      261       16       17
                                          ------   ------   ------   ------   ------

    Total nonperforming assets            $7,667   $2,662   $1,639   $2,312   $  470
                                          ======   ======   ======   ======   ======

Total loans delinquent 90 days or more
  to net loans receivable                  1.81%    0.86%    0.63%    1.19%    0.28%

Total loans delinquent 90 days or more
  to total assets                          1.30%    0.50%    0.28%    0.56%    0.12%

Total nonperforming loans and REO
  to total assets                          1.58%    0.66%    0.34%    0.57%    0.12%
</TABLE>


         Classification of Assets. Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the savings institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful"

                                       8

<PAGE>

have all of the weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable." Assets classified as "loss" are those
considered "uncollectible" and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted.
Assets that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management. Loans
designated as special mention are generally loans that, while current in
required payments, have exhibited some potential weaknesses that, if not
corrected, could increase the level of risk in the future.

         A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by
federal regulators, who can order the establishment of additional general or
specific loss allowances.

         The following table sets forth the aggregate amount of the Bank's
classified assets at the dates indicated.

<TABLE>
<CAPTION>
                                               At September 30,
                                   2001     2000     1999     1998     1997
                                  ------   ------   ------   ------   ------
                                            (Dollars In Thousands)

<S>                               <C>      <C>      <C>      <C>      <C>
Substandard assets                $5,435   $2,093   $2,905   $2,572   $1,640
Doubtful assets                      597      352     --         18     --
Loss assets                          290       14       32     --         25
                                  ------   ------   ------   ------   ------
    Total classified assets (1)   $6,322   $2,459   $2,937   $2,590   $1,665
                                  ======   ======   ======   ======   ======
</TABLE>


(1)  With respect to assets classified "doubtful" and "loss," the Bank has
     established aggregate specific loan loss reserves of $290,000, $14,000,
     $32,000, $0, and $25,000 (in actual dollars) for the years ended September
     30, 2001, 2000, 1999, 1998, and 1997, respectively.

         Allowance for Loan Losses. It is management's policy to provide for
estimated losses on the Bank's loan portfolio based on management's evaluation
of the potential losses that may be incurred. The Bank regularly reviews its
loan portfolio, including problem loans, to determine whether any loans require
classification or the establishment of appropriate reserves or allowances for
losses. Such evaluation, which includes a review of all loans for which full
collection of interest and principal may not be reasonably assured, considers,
among other matters, the estimated fair value of the underlying collateral.
Other factors considered by management include the size and risk exposure of
each segment of the loan portfolio, present indicators such as delinquency rates
and the borrower's current financial condition, and the potential for losses in
future periods. Management calculates the general allowance for loan losses in
part based on past experience, and in part based on specified percentages of
loan balances. While both general and specific loss allowances are charged
against earnings, general loan loss allowances are added back to capital,
subject to a limitation of 1.25% of risk-based assets, in computing risk-based
capital under OTS regulations.

         During the fiscal year ended September 30, 2001, 2000, 1999, 1998 and
1997, the Bank added $200,000, $120,000, $0, $0, $60,000 and $411,200,
respectively, to its allowance for loan losses. The Bank's allowance for loan
losses totaled $2.8 million, $1.7 million, $1.6 million, $1.7 million, and $1.7
million at September 30, 2001, 2000, 1999, 1998 and 1997, respectively.

                                       9

<PAGE>


         Analysis of the Allowance for Loan Losses. The following table sets
forth the analysis of the allowance for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                 Year Ended September 30
                                                2001          2000         1999         1998       1997
                                             ---------     ---------     ---------    --------   ---------
                                                                     (In Thousands)

<S>                                            <C>           <C>           <C>         <C>         <C>
Total loans outstanding                       $352,910      $237,715      $225,393    $199,491    $164,663
Average net loans outstanding                  265,182       224,751       206,001     176,295     147,316

Allowance balances (at beginning of year)     $  1,689      $  1,643      $  1,684    $  1,691    $  1,734
Provision for losses:
  Real estate loans                               --            --            --          --            30
  Other loans                                      200           120          --          --            30
Balance transferred at acquisition of FCB        1,595          --            --          --          --
Charge-offs:
  Real estate loans                               (242)          (54)          (67)         (7)        (11)
  Other loans                                     (423)          (28)          (29)       --           (93)
Recoveries:
  Real estate loans                                  1             4             1        --             1
  Other loans                                       12             4            54        --          --
                                             ---------     ---------     ---------    --------   ---------
Allowance balance (at end of year)           $   2,832     $   1,689     $   1,643    $  1,684   $   1,691
                                             =========     =========     =========    ========   =========

Allowance for loan losses as a percent
  of total loans receivable at end of year        0.80%         0.71%         0.73%       0.84%       1.03%
Net loans charged off as a percent
  of average net loans outstanding                0.25%         0.04%         0.05%       0.00%       0.07%
Ratio of allowance for loan losses
  to total nonperforming loans
  at end of year                                 44.77%        83.78%       119.23%      73.34%     373.45%
Ratio of allowance for loan losses to
  total nonperforming loans and
  REO at end of year                             36.94%        63.45%       100.24%      72.84%     359.79%
</TABLE>

         Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of allowance for loan losses by loan category at the dates
indicated.

<TABLE>
<CAPTION>
                                                                    At September 30,

                               2001                  2000                 1999                  1998                   1997
                      --------------------  --------------------  --------------------  --------------------  --------------------
                                % of Loans            % of Loans            % of Loans            % of Loans            % of Loans
                                 in Each               in Each               in Each               in Each               in Each
                               Category to           Category to           Category to           Category to           Category to
                      Amount   Total Loans  Amount   Total Loans  Amount   Total Loans  Amount   Total Loans  Amount   Total Loans
                      --------------------  --------------------  --------------------  --------------------  --------------------
                                                                 (Dollars in Thousands)
<S>                   <C>           <C>      <C>          <C>     <C>           <C>     <C>           <C>     <C>         <C>
Balance at end
  of period
  applicable to:
    Mortgage loans    $  716        75.7%    $  843       89.6%   $  893        94.1%   $  958        94.9%   $  927      96.7%
    Non-mortgage
      loans            2,116        24.3        846       10.4       750         5.9       726         5.1       764       3.3
                      ------       -----     ------      -----    ------       -----    ------       -----    ------     -----

    Total allowance
      for loan
      losses          $2,832       100.0%    $1,689      100.0%   $1,643       100.0%   $1,684       100.0%   $1,691     100.0%
                      ======       =====     ======      =====    ======       =====    ======       =====    ======     =====
</TABLE>

Investment Activities

         Mortgage-Backed Securities. Mortgage-backed securities represent a
participation interest in a pool of single-family or multifamily mortgages, the
principal and interest payments on which are passed from the mortgagors, through
intermediaries that pool and repackage the participation interests in the form
of securities, to investors such as the Bank. Mortgage-backed securities
typically are issued with stated principal amounts. The securities are backed by
pools of mortgages that have loans with interest rates that are within a range
and have varying maturities. The underlying pool of

                                       10

<PAGE>

mortgages can be composed of either fixed-rate mortgages or ARM loans. As a
result, the interest rate risk characteristics of the underlying pool of
mortgages, i.e., fixed-rate or adjustable-rate, as well as the prepayment risk,
are passed on to the certificate holder. The Bank invests in mortgage-backed
securities to supplement local single-family loan originations as well as to
reduce interest rate risk exposure, because mortgage-backed securities are more
liquid than mortgage loans.

         Set forth below is selected data relating to the composition of the
Bank's mortgage-backed securities portfolio as of the dates indicated.

<TABLE>
<CAPTION>
                                                               At September 30,
                               2001                2000                1999                1998                1997
                        ----------------     ----------------    ----------------    ----------------    ----------------
                            $        %          $         %          $        %         $         %          $        %
                        --------   -----     --------   -----    --------   -----    --------   -----    --------   -----
                                                            (Dollars In Thousands)
<S>                     <C>          <C>     <C>        <C>      <C>         <C>     <C>         <C>     <C>         <C>
Mortgage-backed
 securities:
  Adjustable            $    796     2.1%    $40,969    47.1%    $119,975    62.8%   $139,528    92.0%   $151,766    89.9%
  Fixed                   36,294    97.9      45,961    52.9       71,150    37.2      12,442     8.0      17,070    10.1
                        --------   -----     --------  -----     --------   -----    --------   -----    --------   -----

Total mortgage-backed
      securities, net   $ 37,090   100.0%    $86,930   100.0%    $191,125   100.0%   $151,970   100.0%   $168,836   100.0%
                        ========   ======    =======   =====     ========   =====    ========   =====    ========   =====
</TABLE>

         At September 30, 2001, mortgage-backed securities aggregated $37.0
million, or 7.6% of the Bank's total assets. At September 30, 2001, all of the
Bank's mortgage-backed securities were classified as available-for-sale.

         Other Investment Securities. The Bank's investment portfolio, excluding
mortgage-backed securities and FHLB stock, consists of obligations of the United
States Government treasuries and agencies thereof, municipal bonds,
interest-earning deposits in other institutions and equity investments
(principally in other financial institutions). The carrying value of this
portion of the Bank's investment portfolio totaled $39.4 million, $40.6 million,
$36.3 million, $32.7 million, and $31.7 million at September 30, 2001, 2000,
1999, 1998, and 1997, respectively. At September 30, 2001, $3.3 million of the
Bank's investment securities, excluding mortgage-backed securities, had a
remaining term to maturity of one year or less, and $2.3 million, or 3.2%, had a
remaining term to maturity of five years or less.

         The Bank is required under federal regulations to maintain a minimum
amount of liquid assets that may be invested in specified short-term securities
and certain other investments. See "Regulation - Liquidity Requirements." The
Bank generally has maintained a portfolio of liquid assets that exceeds
regulatory requirements. Liquidity levels may be increased or decreased
depending upon the yields on investment alternatives and upon management's
judgment as to the attractiveness of the available yields in relation to other
opportunities, management's expectation of the level of yield that will be
available in the future, as well as management's projections of short term
demand for funds in the Bank's loan origination and other activities.

<TABLE>
<CAPTION>
                                                           At September 30,
                                           2001       2000       1999       1998       1997
                                         --------   --------   --------   --------   --------
                                                        (Dollars In Thousands)
<S>                                      <C>        <C>        <C>        <C>        <C>
Investment securities:
  Mortgage-backed securities             $ 37,090   $ 86,930   $191,125   $151,970   $168,836
  Corporate Bonds                           2,014       --         --         --         --
  U.S. Government treasury obligations      1,951       --         --         --         --
  U.S. Government agency obligations       13,803     27,095     25,403     21,656     26,858
  Trust preferred securities                4,040      4,000       --         --         --
  Municipal bonds                          12,537      9,466      9,446      9,425      4,859
  Equity securities                         5,040      1,127      1,429      1,588       --
                                         --------   --------   --------   --------   --------
    Total investment securities            76,475    128,618    227,403    184,639    200,553
FHLB stock                                  3,787      5,988     10,981     10,060     10,053
                                         --------   --------   --------   --------   --------
    Total investments                    $ 80,262   $134,606   $238,384   $194,699   $210,606
                                         ========   ========   ========   ========   ========
</TABLE>



                                       11

<PAGE>

         Investment Portfolio Maturities The following table sets forth the
scheduled maturities, carrying values, market values and average yields for the
Bank's investment securities at September 30, 2001.

<TABLE>
<CAPTION>

                                                                                 At September 30, 2001
                           ---------------------------------------------------------------------------------------
                            One Year or Less     One to Five Years     Five to Ten Years       Over Ten Years
                           ---------------------------------------------------------------------------------------
                                     Annualized           Annualized            Annualized            Annualized
                                      Weighted             Weighted              Weighted              Weighted
                           Carrying   Average   Carrying   Average    Carrying   Average    Carrying   Average
                            Value      Yield      Value     Yield       Value     Yield       Value     Yield
                           --------  ---------- --------  ----------  --------  ----------  --------  ----------
                                                         (Dollars In Thousands)

<S>                                      <C>       <C>       <C>        <C>          <C>    <C>         <C>
Investment securities:
 U.S. Government Agency
    Securities               $   -       0.00%     $ 519     4.76%      $13,283      7.25%  $   -       0.00%
 U.S. Government Treasury
    securities                1,006      3.85%       946     4.49%         -         0.00%      -       0.00%
 Trust Preferred                 -       0.00%        -      0.00%        4,040      9.74%      -       0.00%
 State and municipal
   obligations (1)              273      4.96%       798     5.35%        8,687      5.42%    2,779     5.67%
 Corporate Bonds              2,014     12.08%        -      0.00%          -        0.00%      -       0.00%
 CMOs (2)                        -       0.00%        -      0.00%        1,885      6.53%   13,397     6.68%
 Mortgage-backed
   securities                    -       0.00%       150     7.70%        2,578      7.16%   19,074     7.48%
                             ------     ------     -------   -----      -------      -----  -------     -----
  Total investment
   securities                 3,293      8.98%     2,413     5.03%       30,473      7.01%   35,250     7.03%
                                        ======               =====                   =====              =====
Equity securities

FHLB stock

Accrued interest on
 investments

    Total investment
     securities,
</TABLE>




<TABLE>
<CAPTION>
                                  At September 30, 2001
                           --------------------------------
                                         Total
                           --------------------------------
                                                   Average
                           Carrying     Market     Life in
                             Value      Value       Years
                           --------     -------    --------
                               (Dollars In Thousands)
<S>                        <C>       <C>            <C>
Investment securities:

 U.S. Government Agency
    Securities             $13,803   $13,803        9.56
 U.S. Government Treasury
    securities               1,951     1,951        0.02
 Trust Preferred             4,040     4,040        8.96
 State and municipal
   obligations (1)          12,537    12,546        8.84
 Corporate Bonds             2,014     2,030        0.13
 CMOs (2)                   15,282    15,282       25.01
 Mortgage-backed
   securities               21,808    21,808       17.23
                           -------   -------
  Total investment
   securities               71,435    71,460

Equity securities            5,040     5,040

FHLB stock                   3,787     3,787

Accrued interest on
 investments                   845       845
                           -------   -------
    Total investment
     securities,            81,107    81,132
                           =======   =======

</TABLE>

(1)  The yield on these tax-exempt obligations has not been compiled on a
     tax-equivalent basis.

(2)  The average life in years is based on actual stated maturities; however,
     management anticipates a shorter life on these securities.

                                       12

<PAGE>


Sources of Funds

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

         Deposits. Consumer and commercial deposits are received principally
from within the Bank's market area through the offering of a broad selection of
deposit instruments including NOW accounts, passbook savings, money market
deposit accounts, term certificate accounts and individual retirement accounts.
The Bank also markets term certificate accounts nationally to attract deposits.
Deposit account terms vary according to the minimum balance required, the period
of time during which the funds must remain on deposit, and the interest rate,
among other factors. The maximum rate of interest the Bank must pay is not
established by regulatory authority. The Bank regularly evaluates its internal
cost of funds, surveys rates offered by competing institutions, reviews the
Bank's cash flow requirements for lending and liquidity, and executes rate
changes when deemed appropriate.

          Time Deposit Rates. The following table sets forth the certificates
of deposit of the Bank classified by rates as of the dates indicated:

<TABLE>
<CAPTION>
                                  At September 30,
               2001       2000       1999       1998       1997
             --------   --------   --------   --------   --------
                               (In thousands)
<S>          <C>        <C>        <C>        <C>        <C>
Rate

0.00-3.99%   $ 35,219   $     28   $   --     $    275   $     16
4.00-5.99%    154,585     34,126    135,563    111,713     76,094
6.00-7.99%     43,252    128,051     14,924     25,225     32,170
8.00-9.99%        225       --         --         --         --
             --------   --------   --------   --------   --------
    Total    $233,281   $162,205   $150,487   $137,213   $108,280
             ========   ========   ========   ========   ========
</TABLE>

          Time Deposit Maturities. The following table sets forth the amount
and maturities of certificates of deposit at September 30, 2001.

<TABLE>
<CAPTION>
                                                                           Maturity
                                                -------------------------------------------------------------
                                                3 months      3 to 6       6 to 12     Over 12
                                                  or less      months       months       months       Total
                                                 --------     -------      --------     -------      --------
                                                                         (In thousands)
<S>                                              <C>          <C>          <C>          <C>          <C>
Certificate of Deposit less than $100,000        $43,880      $59,573      $48,129      $12,644      $164,226
Certificate of Deposit greater than $100,000      21,750       26,312       18,083        2,910      $ 69,055
                                                 -------      -------      -------      -------      --------
Total Certificates of Deposit                     65,630       85,885       66,212       15,554       233,281
                                                 =======      =======      =======      =======      ========

</TABLE>

Borrowings

         Deposits of the Bank are a significant source of funds as is short term
and long term advances from the FHLB. FHLB advances are collateralized by the
Bank's stock in the FHLB, investment securities and a blanket lien on the Bank's
mortgage portfolio. Such advances are made pursuant to different credit
programs, each of which has its own

                                       13

<PAGE>

interest rate and range of maturities. The maximum amount that the FHLB will
advance to member institutions, including the Bank, for purposes other than
meeting withdrawals, fluctuates from time to time in accordance with the
policies of the FHLB. The maximum amount of FHLB advances to a member
institution generally is reduced by borrowings from any other source. At
September 30, 2001, the Bank's FHLB advances totaled $73.3 million.

         The Bank sells securities under agreements to repurchase with selected
dealers (reverse repurchase agreements) as a means of obtaining short-term funds
as market conditions permit. In a reverse repurchase agreement, the Bank sells a
fixed dollar amount of securities to a dealer under an agreement to repurchase
the securities at a specific price within a specific period of time, typically
not more than 180 days. Reverse repurchase agreements are treated as a liability
of the Bank. The dollar amount of securities underlying the agreements remain an
asset of the Bank. At September 30, 2001, the Bank's securities sold under
agreements to repurchase totaled $0.4 million.

         The following table sets forth certain information regarding borrowings
by the Bank during the periods indicated.

<TABLE>
<CAPTION>
                                                     Year Ended September 30,
                                       2001       2000         1999        1998        1997
                                    --------    --------    --------    --------    --------
                                                      (Dollars In Thousands)
<S>                                 <C>         <C>         <C>         <C>         <C>
Weighed average rate paid on: (1)
  FHLB advances                         5.66%       5.78%       5.03%       5.75%       5.54%
  Other borrowings (2)                  5.38%       5.62%       5.16%       4.97%       5.81%


FHLB advances:
  Maximum balance                   $112,125    $185,535    $216,844    $210,325    $230,317
  Average balance                   $ 82,915    $145,312    $161,905    $173,812    $203,835
Other borrowings: (2)
  Maximum balance                   $  2,650    $  2,465    $  3,242    $ 21,850    $ 21,060
  Average balance                   $  1,598    $  1,901    $  2,273    $  6,215    $ 17,684
</TABLE>


(1)  Calculated using monthly weighted average interest rates.
(2)  Includes borrowings under reverse repurchase agreements.

         Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require savings
associations to exhaust other reasonable alternative sources of funds, including
FHLB advances, before borrowing from the Federal Reserve Bank.

Trust Preferred Securities

         On March 28, 2001, the Company issued $7.5 million of trust-preferred
securities with a coupon rate of 10.18%. The net proceeds to the Company were
approximately $7.2 million. The Company contributed $5.0 million to the Bank on
May 15, 2001, as additional paid-in capital to increase the Bank's capital
percentages following the acquisition of Walden. The Company used the remaining
proceeds for general corporate purposes, including but not limited to additional
business acquisitions, stock repurchases, dividends and corporate expenses.
Under current tax law, the dividend paid on trust-preferred securities is
deductible.

         On December 8, 2001, the Company issued $10.0 million of trust
preferred securities. The securities were issued by a special purpose business
trust formed by Pocahontas Bancorp and were sold in a private transaction to a
pooled investment vehicle sponsored by Sandler O'Neil. The securities were sold
pursuant to an exemption from registration under the Securities Act of 1933 (the
"Act"), and have not been registered under the Act. Sandler O'Neil assisted
Pocahontas Bancorp in the placement of the trust preferred securities. The
securities may not be offered or sold in the United States absent registration
under the Act or an applicable exemption from registration. The trust preferred
securities have a floating rate of interest, which is reset semi annually, equal
to 6-month LIBOR plus 3.75%. The floating rate, however, may not exceed 11.00%
until December 8, 2006.

                                       14

<PAGE>

Subsidiaries' Activities

         The Bank is the wholly owned subsidiary of the Company. The Bank has
two wholly owned subsidiaries, Sun Realty, Inc. and P.F. Service, Inc. Both are
Arkansas corporations and both are substantially inactive.

Regulation

         As a federally chartered, SAIF-insured savings association, the Bank is
subject to examination, supervision and extensive regulation by the OTS and the
FDIC. The Bank is a member of the Federal Home Loan Bank ("FHLB") system. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. The Registrant also is subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") governing reserves to be maintained against deposits and certain
other matters. The OTS regularly examines the Registrant and the Bank and
prepares a report for the consideration of the Bank's Board of Directors on any
deficiencies that it may find in the Bank's operations. The FDIC also examines
the Bank in its role as the administrator of the SAIF. The Bank's relationship
with its depositors and borrowers also is regulated to a great extent by both
federal and state laws especially in such matters as the ownership of savings
accounts and the form and content of the Bank's mortgage documents. Any change
in such regulation, whether by the FDIC, the OTS or the Congress, could have a
material impact on the Bank and its operations. The description of statutory
provisions and regulations applicable to savings associations set forth herein
does not preport to be a complete description of these statutes and regulations
and their effect on the Bank.

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

         Under the tangible capital requirement, a savings association must
maintain tangible capital in an amount equal to at least 1.5% of adjusted total
assets. Tangible capital generally includes common stockholders' equity
including retained earnings and certain noncumulative perpetual preferred stock
and related earnings. In addition, all intangible assets, other than a limited
amount of purchased mortgage-servicing rights, must be deducted from tangible
capital for calculating compliance with the requirement. Further, the valuation
allowance applicable to the write-down of investments and mortgage-backed
securities in accordance with SFAS No. 115 is excluded from the regulatory
capital calculation. At September 30, 2001, the Bank had no intangible assets or
unrealized loss, net of tax under SFAS No. 115.

         The leverage limit adopted by the OTS requires that savings
associations maintain "core capital" in an amount equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including supervisory goodwill (which is phased out
over a five-year period) and up to 25% of other intangibles that meet certain
separate salability and market valuation tests. As a result of the prompt
corrective action provisions described below, however, a savings association
must maintain a core capital ratio of at least 4% of to be considered adequately
capitalized unless its supervisory condition is such to allow it to maintain a
3% ratio.

         Under the risk-based capital requirement, a savings association must
maintain total capital equal of at least 8% of risk-weighted assets. Total
capital consists of core capital, as defined above, and supplementary capital.
Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and
lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based requirement only to
the extent of core capital. The OTS is also authorized to require a savings
association to maintain an additional amount of total capital to account for
concentration of credit risk and the risk of non-traditional activities. At
September 30, 2001, the Bank had no capital instruments that qualify as
supplementary capital and $2.8 million of general loss reserves, which was less
than 1.0% of risk-weighted assets.

         The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against associations that fail to meet capital
requirements. The OTS is generally required to take action to restrict the
activities

                                     15

<PAGE>


of an "undercapitalized association" (generally defined to be one with less than
either a 4% core ratio, a Tier 1 risk-based capital ratio or an 8% risk-based
capital ratio). Any such association must submit a capital restoration plan and
until such plan is approved by the OTS may not increase its assets, acquire
another institution, establish a branch or engage in any new activities, and
generally may not make capital distributions.

         The imposition by the OTS or the FDIC of any of these measures on the
Bank may have a substantial adverse effect on the Registrant's operations and
profitability and the value of the Common Stock. If the OTS or the FDIC require
an association such as the Bank, to raise additional capital through the
issuance of Company Common Stock or other capital instruments such issuance may
result in the dilution in the percentage of ownership of those persons holding
shares of Common Stock since the Registrant's shareholders do not have
preemptive rights.

         Qualified Thrift Lender Test. All savings associations, including the
Bank, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (which consists of
total assets less intangibles, properties used to conduct the savings
association's business and liquid assets not exceeding 20% of total assets) in
qualifying thrift investments on a monthly average for nine out of every twelve
months on a rolling basis. At September 30, 2001, the Bank met the test.

         A savings institution that fails to become or maintain a qualified
thrift lender must either become a bank (other than a savings bank) or be
subject to certain restrictions. A savings institution that converts to a bank
must pay applicable exit and entrance fees involved in converting from one
insurance fund to another. A savings institution that fails to meet the QTL test
and does not convert to a bank will be: (1) prohibited from making any
investment or engaging in activities that would not be permissible for national
banks; (2) prohibited from establishing any new branch office where a national
bank located in the savings institution's home state would not be able to
establish a branch office; (3) ineligible to obtain new advances from any FHLB;
and (4) subject to limitations on the payment of dividends comparable to the
statutory and regulatory dividend restrictions applicable to national banks.

         Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act Prohibit lenders from discriminating in their lending practices on
the basis of characteristics specified in those statutes. The CRA requires the
OTS, in connection with the examination of the Bank, to assess the institution's
record of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications, such as a merger or the
establishment of a branch, by the Bank. An institution's failure to comply with
the provisions of the CRA could, at a minimum, result in regulatory restrictions
on its activities, and failure to comply with the Equal Credit Opportunity Act
and the Fair Housing Act could result in enforcement actions by the OTS, as well
as other federal regulatory agencies and the Department of Justice. The Bank was
examined for CRA compliance in September 2001 and received a rating of
satisfactory.

         Liquidity Requirements. Federally insured savings associations are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of average daily balances of net withdrawable
deposit accounts and borrowings payable in one year or less. At the present
time, the minimum liquid asset ratio is 4%. At September 30, 2001, the Bank's
liquidity ratio exceeded regulatory requirements.

         Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance with
generally accepted accounting principles ("GAAP"). Under the policy statement,
management must support its classification of and accounting for loans and
securities (i.e., whether held for investment, sale or trading) with appropriate
documentation. The Bank is in compliance with these policy statements.

         The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP, to require that transactions be reported
in a manner that best reflects their underlying economic substance and inherent
risk notwithstanding GAAP and that financial reports must incorporate any other
accounting regulations or orders prescribed by the OTS.

                                       16

<PAGE>


         Insurance of Accounts and Regulation by the FDIC. As insurer of the
Bank's deposit accounts, the FDIC is authorized to conduct examinations of and
to require reporting by the Bank. It also may prohibit any SAIF-insured
association from engaging in any activity the FDIC determines by regulation or
order to pose a serious threat to the SAIF. The FDIC also has the authority to
initiate enforcement actions against savings associations, after first giving
the OTS an opportunity to take such action.

         The Federal Deposit Insurance Corporation has adopted a risk-based
deposit insurance assessment system. The Federal Deposit Insurance Corporation
assigns an institution to one of three capital categories, based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, and one of three supervisory subcategories
within each capital group. The three capital categories are well capitalized,
adequately capitalized and undercapitalized. The supervisory subgroup to which
an institution is assigned is based on a supervisory evaluation provided to the
Federal Deposit Insurance Corporation by the institution's primary federal
regulator and information which the Federal Deposit Insurance Corporation
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned. The
Federal Deposit Insurance Corporation is authorized to raise the assessment
rates. The Federal Deposit Insurance Corporation has exercised this authority
several times in the past and may raise insurance premiums in the future. If
this type of action is taken by the Federal Deposit Insurance Corporation, it
could have an adverse effect on the earnings of the Bank.

         Limitations on Capital Distributions. OTS regulations impose
limitations on all capital distributions by savings institutions. Capital
distributions include cash dividends, payments to repurchase or otherwise
acquire the savings association's shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital.

         Under new regulations effective April 1, 1999, a savings institution
must file an application for OTS approval of the capital distribution if either
(1) the total capital distributions for the applicable calendar year exceed the
sum of the institution's net income for that year to date plus the institution's
retained net income for the preceding two years, (2) the institution would not
be at least adequately capitalized following the distribution, (3) the
distribution would violate any applicable statute, regulation, agreement or
OTS-imposed condition, or (4) the institution is not eligible for expedited
treatment of its filings. If an application is not required to be filed, savings
institutions which are a subsidiary of a holding company, as well as certain
other institutions, must still file a notice with the OTS at least 30 days
before the board of directors declares a dividend or approves a capital
distribution.

         Any additional capital distributions would require prior regulatory
approval. In the event the Bank's capital fell below its required levels or the
Office of Thrift Supervision notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the Office of Thrift Supervision could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the Office of Thrift Supervision determines that
the distribution would constitute an unsafe or unsound practice.

         Equity Risk Limitations. Certain OTS regulations limit the Registrant's
investment in "equity risk investments," which include investments in equity
securities, real estate, service corporations and operating subsidiaries, as
well as land loans and non-residential construction loans with loan-to-value
ratios in excess of 80%. Equity risk investments increase the capital
requirements of the Bank. Federal laws and regulations also impose certain
limitations on operations, including restrictions on loans-to-one-borrower,
transactions with affiliates and affiliated persons and liability growth. They
also impose requirements for the retention of housing and thrift-related
investments. See "Qualified Thrift Lender Test."

Transactions with Affiliates

         The Bank's authority to engage in transactions with related parties or
"affiliates" or to make loans to specified insiders, is limited by Sections 23A
and 23B of the Federal Reserve Act. The term "affiliated" for these purposes
generally means any company that controls or is under common control with an
institution, including the Company and it non-savings institution subsidiaries.
Section 23A limits the aggregate amount of certain "covered" transactions with
any

                                       17

<PAGE>

individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of covered transactions with
all affiliates to 20% of the savings institution's capital and surplus. Covered
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliated is generally prohibited. Section 23B Provides that
covered transactions with affiliated, including loans and asset purchases, must
be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.

         The Bank's authority to extend credit to executive officers, directors
and 10% stockholders, as entities controlled by these persons, is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and also by
Regulation O. Among other things, these regulations generally require these
loans to be made on terms substantially the same as those offered to
unaffiliated individuals and do not involve more than the normal risk of
repayment. However, recent regulations now permit executive officers and
directors to receive the same terms through benefit or compensation plans that
are widely available to other employees, as long as the director or executive
officer is not given preferential treatment compared to other participating
employees. Regulation O also places individual and aggregate limits on the
amount of loans the Bank may make to these person based, in part on the Bank's
capital position, and requires approval procedures to be followed. At September
30, 2001, the Bank was in compliance with these regulations.

The Federal Reserve System

         Federal Reserve Board regulations require all depository institutions
to maintain non-interest earning reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
At September 30, 2001, the Bank was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "Federal Regulations -- Liquidity Requirements."

Holding Company Regulation

         The Company is a non-diversified savings and loan holding company
within the meaning of the HOLA, as amended. As such, the Company is registered
with the OTS and is subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over the
Company and its non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution. The Bank is required
to notify the OTS 30 days before declaring any dividend to the Company.

         As a unitary savings and loan holding company, the Company generally is
not restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank continues to be a QTL. Upon any
nonsupervisory acquisition by the Company of another savings association or
savings bank that meets the QTL test and is deemed to be a savings institution
by the OTS, the Company would become a multiple savings and loan holding company
(if the acquired institution is held as a separate subsidiary) and would become
a multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the
prior approval of the OTS, and activities authorized by OTS regulation. The OTS
is prohibited from approving any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions.

         The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring other savings
institution or holding company thereof, without prior written approval of the


                                       18

<PAGE>


OTS. It also prohibits the acquisition or retention of, with certain exceptions,
more than 5% of non-subsidiary savings institution, a non-subsidiary holding
company, or a non-subsidiary company engaged in activities other than those
permitted by the HOLA; or acquiring or retaining control of an institution that
is not federally insured. In evaluating applications by holding companies to
acquire savings institutions, the OTS must consider the financial and managerial
resources, future prospects of the company and institution involved, the effect
of the acquisition on the risk to the insurance fund, the convenience and needs
of the community and competitive factors.

Federal Securities Laws

         The Company's Common Stock was registered with the SEC under the
Securities Exchange Act of 1934. The Company is subject to the information,
proxy solicitation, insider trading restrictions and other requirements under
the Exchange Act.

         Shares of the Common Stock purchased by persons who are not affiliates
of the Company may be resold without registration. Shares purchased by an
affiliate of the Company are subject to the resale restrictions of Rule 144
under the Securities Act. If the Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the Company
who complies with the other conditions of Rule 144 (including those that require
the affiliate's sale to be aggregated with those of certain other persons) is
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Company or (ii) the average weekly volume of trading in such
shares during the preceding four calendar weeks. Provision may be made in the
future by the Company to permit affiliates to have their shares registered for
sale under the Securities Act under certain circumstances.

Executive Officers of the Registrant

         Listed below is information, as of September 30, 2001, concerning the
Company's executive officers. Such executive officers also serve in the same
positions with the Bank. There are no arrangements or understandings between the
Company and any of the persons named below with respect to which he or she was
to be selected as an officer.

         The following individuals hold positions as executive officers of the
Company as is set forth below opposite their names.

         Name                   Position With the Company
         ----                   -------------------------
         Dwayne Powell ........ President and Chief Executive Officer

         The executive officer of the Company is elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors.

         Effective October 1, 2001, James Edington resigned as President and
Chief Executive Officer.

         Since the formation of the Company, none of the executive officers,
directors or other personnel has received remuneration from the Company.

                           FEDERAL AND STATE TAXATION

Federal Taxation

         Tax Bad Debt Reserves. The Bank is subject to the rules of federal
income taxation generally applicable to corporations under the Internal Revenue
Code of 1986, as amended (the "Code"). Most corporations are not permitted to
make deductible additions to bad debt reserves under the Code. However, savings
and loan associations and savings

                                       19

<PAGE>

associations such as the Bank, which meet certain tests prescribed by the Code
may benefit from favorable provisions regarding deductions from taxable income
for annual additions to their bad debt reserve. For purposes of the bad debt
reserve deduction, loans are separated into "qualifying real property loans,"
which generally are loans collateralized by interests in real property, and
non-qualifying loans, which are all other loans. The bad debt reserve deduction
with respect to non-qualifying loans must be based on actual loss experience.
The amount of the bad debt reserve deduction with respect to qualifying real
property loans may be based upon actual loss experience (the "experience
method") or a percentage of taxable income determined without regard to such
deduction (the "percentage of taxable income method").

         The Bank has elected to use the method that results in the greatest
deduction for federal income tax purposes. The amount of the bad debt deduction
that a thrift institution may claim with respect to additions to its reserve for
bad debts is subject to certain limitations. First, the full deduction is
available only if at least 60% of the institution's assets fall within certain
designated categories. Second, under the percentage of taxable income method the
bad debt deduction attributable to "qualifying real property loans" cannot
exceed the greater of (i) the amount deductible under the experience method or
(ii) the amount which, when added to the bad debt deduction for non-qualifying
loans, equals the amount by which 12% of the sum of the total deposits and the
advance payments by borrowers for taxes and insurance at the end of the taxable
years exceeds the sum of the surplus, undivided profits, and reserves at the
beginning of the taxable year. Third, the amount of the bad debt deduction
attributable to qualifying real property loans computed using the percentage of
taxable income method is permitted only to the extent that the institution's
reserve for losses on qualifying real property loans at the close of the taxable
year does not exceed 6% of such loans outstanding at such time.

         Under recently enacted legislation, the percentage of taxable income
method has been repealed for years beginning after December 31, 1995, "large"
associations, i.e., the quarterly average of the association's total assets or
the consolidated group of which it is a member, exceeds $500 million for the
year, may no longer be entitled to use the experience method of computing
additions to their bad debt reserve. A "large" association must use the direct
write-off method for deducting bad debts, under which charge-offs are deducted
and recoveries are taken into taxable income as incurred. If the Bank is not a
"large" association, the Bank will continue to be permitted to use the
experience method. The Bank will be required to recapture (i.e., take into
income) over a six year period its applicable excess reserves, i.e. the balances
of its reserves for losses on qualifying loans and nonqualifying loans, as of
the close of the last tax year beginning before January 1, 1996, over the
greater of (a) the balance of such reserves as of December 31, 1987 (pre-1988
reserves) or (b) in the case of a bank which is not a "large" association, an
amount that would have been the balance of such reserves as of the close of the
last tax year beginning before January 1, 1996, had the bank always computed the
additions to its reserves using the experience method. Postponement of the
recapture is possible for a two-year period if an association meets a minimum
level of mortgage lending for 1996 and 1997. As of September 30, 2001, the
Bank's bad debt reserve subject to recapture over a two-year period totaled
approximately $389,000. The Bank has established a deferred tax liability of
approximately $149,000 for this recapture.

         If an association ceases to qualify as a "bank" (as defined in Code
Section 581) or converts to a credit union, the pre-1988 reserves and the
supplemental reserve are restored to income ratably over a six-year period,
beginning in the tax year the association no longer qualifies as a bank. The
balance of the pre-1988 reserves are also subject to recapture in the case of
certain excess distributions to (including distributions on liquidation and
dissolution), or redemptions of, shareholders.

                                       20

<PAGE>

         Distributions. To the extent that (i) the Bank's tax bad debt reserve
for losses on qualifying real property loans exceeds the amount that would have
been allowed under an experience method and (ii) the Bank makes "non-dividend
distributions" to stockholders that are considered to result in distributions
from the excess tax bad debt reserve or the reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Bank's taxable income. Non-dividend distributions include distributions
in excess of the Bank's current and accumulated earnings and profits,
distributions in redemption of stock and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the Bank's tax bad debt reserves.
Thus, any dividends to the Holding Company that would reduce amounts
appropriated to the Bank's tax bad debt reserves and deducted for federal income
tax purposes would create a tax liability for the Bank. The amount of additional
taxable income created from an Excess Distribution is an amount that when
reduced by the tax attributable to the income is equal to the amount of the
distribution. Thus, if certain portions of the Bank's accumulated tax bad debt
reserve are used for any purpose other than to absorb qualified tax bad debt
losses, such as for the payment of dividends or other distributions with respect
to the Bank's capital stock (including distributions upon redemption or
liquidation), approximately one and one-half times the amount so used would be
includable in gross income for federal income tax purposes, assuming a 34%
corporate income tax rate (exclusive of state taxes). See
"Regulation(Y)Limitations on Capital Distributions" for limits on the payment of
dividends of the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its tax bad debt reserves.

         Corporate Alternative Minimum Tax. The Bank is subject to the corporate
alternative minimum tax which is imposed to the extent it exceeds the Bank's
regular income tax for the year. The alternative minimum tax will be imposed at
the rate of 20% of a specially computed tax base. Included in this base will be
a number of preference items, including the following: (i) 100% of the excess of
a thrift institution's bad debt deduction over the amount that would have been
allowable on the basis of actual experience; (ii) interest on certain tax-exempt
bonds issued after August 7, 1986; and (iii) for years beginning in 1988 and
1989 an amount equal to one-half of the amount by which a institution's "book
income" (as specially defined) exceeds its taxable income with certain
adjustments, including the addition of preference items (for taxable years
commencing after 1989 this adjustment item is replaced with a new preference
item relating to "adjusted current earnings" as specially computed). In
addition, for purposes of the new alternative minimum tax, the amount of
alternative minimum taxable income that may be offset by net operating losses is
limited to 90% of alternative minimum taxable income.

         The Bank has not had its income tax returns examined by the IRS or the
State of Arkansas within the last three years. The Bank has not been audited by
the IRS or the Arkansas State Revenue Department in recent years.

Arkansas Taxation

         The State of Arkansas generally imposes income tax on thrift
institutions computed at a rate of 6.5% of net earnings. For the purpose of the
6.5% income tax, net earnings are defined as the net income of the thrift
institution computed in the manner prescribed for computing the net taxable
income for federal corporate income tax purposes, less (i) interest income from
obligations of the United States, of any county, municipal or public corporation
authority, special district or political subdivision of Arkansas, plus (ii) any
deduction for state income taxes.

         The Company is a Delaware business corporation is required to file
annual income tax returns and an annual franchise tax returns in the states of
Arkansas and Delaware. These taxes and fees are not expected to be material.

                                       21

<PAGE>


ITEM 2   PROPERTIES
------   ----------

         The Bank conducts its business through its main office and 21
full-service branch offices located in nine counties in Northeast Arkansas. Each
office is owned by the Bank. The following table sets forth certain information
concerning the main office and each branch office of the Bank at September 30,
2001. The aggregate net book value of the Bank's premises and equipment was
$12.3 million at September 30, 2001.

Main Office:
1700 E. Highland
Jonesboro, Arkansas

<TABLE>
<CAPTION>

Branch Offices:
Walnut Ridge Branch         Brinkley Branch              Jonesboro Branches
-------------------         ---------------              ------------------
<S>                         <C>                          <C>
121 SW Third Street         311 West Cedar               1700 E. Highland Drive
Walnut Ridge, Arkansas      Brinkley, Arkansas           Jonesboro, Arkansas
(Opened 1968)               (Opened 1998)                (Opened 2001)

Jonesboro Branch            England Branch
----------------            --------------
700 S.W. Drive              100 Stuttgart Hwy.           209 West Washington
Jonesboro, Arkansas         England, Arkansas            Jonesboro, Arkansas
(Opened 1976)               (Opened 1998)                (Opened 2001)

Corning Branch              Carlisle Branch              Tuckerman Branch
--------------              ---------------              ----------------
309 Missouri Avenue         124 West Main                106 E. Main Street
Corning, Arkansas           Carlisle, Arkansas           Tuckerman, Arkansas
(Opened 1983)               (Opened 1998)                (Opened 2001)

Highland Branch             Lake City Branch             Swifton Branch
---------------             ----------------             --------------
1566 Highway 62/412         100 Cobean Blvd.             101 Main Street
Hardy, Arkansas             Lake City, Arkansas          Swifton, Arkansas
(Opened 1983)               (Opened 1998)                (Opened 2001)

Jonesboro Branch            Hardy Branch                 Newport Branch
----------------            ------------                 --------------
2213 Caraway Road           101 W. Main Street           2101 Malcolm Ave.
Jonesboro, Arkansas         Hardy, Arkansas              Newport, Arkansas
(Opened 1996)               (Opened 1998)                (Opened 2001)

Jonesboro Wal-Mart Branch   Pocahontas Wal-Mart Branch   Grubbs Branch
-------------------------   --------------------------   -------------
1815 E. Highland Drive      1415 Hwy 67 South            130 N. Main
Jonesboro, Arkansas         Pocahontas, Arkansas         Grubbs, Arkansas
(Opened 1999)               (Opened 1998)                (Opened 2001)

Pocahontas Branch           Pocahontas Branch            Paragould Wal-Mart Branch
-----------------           -----------------            -------------------------
205 Rice Street             203 W. Broadway              2802 W. Kings Highway
Pocahontas, Arkansas        Pocahontas, Arkansas         Paragould, Arkansas
(Opened 2001)               (Opened 1935)                (Opened 1999)

</TABLE>

                                       22

<PAGE>

ITEM 3   LEGAL PROCEEDINGS
------   -----------------

         There are various claims and lawsuits in which the Bank is periodically
involved incident to the Bank's business. In the opinion of management, no
material loss is expected from any of such pending claims or lawsuits.

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------   ---------------------------------------------------

         No matters were submitted during the fourth quarter of fiscal 2001 to a
vote of security holders.

                                       23

<PAGE>

                                     PART II

ITEM 5   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
------   --------------------------------------------------------------------

Trading in Common Stock and Related Matters

The Registrant's Common Stock is traded on the NASDAQ National Market System
using the symbol "PFSL."

The following table shows the quarterly range of bid prices for the Company's
common stock during fiscal 2001 and 2000. This information has been obtained
from monthly statistical stock summaries provided by the Nasdaq Stock Market.
As of December 17, 2001, there were 4,468,680 shares of common stock issued
and outstanding and 721 stockholders of record.

                                                  High                Low
Quarter Ended                                     Bid                 Bid
--------------                                   ------              ------
December 31, 2000                                $7.750              $6.880
March 31, 2001                                    7.380               6.630
June 30, 2001                                     8.000               6.810
September 30, 2001                                9.370               8.000


                                                  High                Low
Quarter Ended                                     Bid                 Bid
--------------                                   ------              ------
December 31, 1999                                $7.063              $5.625
March 31, 2000                                    6.313               5.500
June 30, 2000                                     6.188               5.375
September 30, 2000                                7.563               6.250


Cash Dividends Declared in Fiscal 2001:

                     Record                     Payment                Dividend
                      Date                       Date                 Per Share
                     ------                  ---------------          ---------

December 15, 2000                            January 3, 2001           $0.065
March 15, 2001                               April 3, 2001              0.065
June 15, 2001                                July 3, 2001               0.065
September 15, 2001                           October 3, 2001            0.065



Cash Dividends Declared in Fiscal 2000:

                     Record                     Payment                Dividend
                      Date                       Date                 Per Share
                     ------                  ---------------          ---------

December 15, 1999                            January 3, 2000           $0.060
March 15, 2000                               April 3, 2000              0.060
June 15, 2000                                July 3, 2000               0.065
September 15, 2000                           October 3, 2000            0.065



                                       24

<PAGE>

ITEM 6   SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
------   ----------------------------------------------

Set forth below are selected consolidated financial and other data of the
Company. This information is derived in part from and should be read in
conjunction with the Consolidated Financial Statements of the Company and its
subsidiaries and the notes thereto presented elsewhere herein.

Selected Financial Condition Data

<TABLE>
<CAPTION>
                                                           At September 30,
                                           2001       2000       1999       1998      1997
                                         --------   --------   --------   --------   --------
                                                            (In Thousands)
<S>                                      <C>        <C>        <C>        <C>        <C>
Total assets                             $483,565   $401,105   $482,131   $406,981   $383,417
Cash and cash equivalents                  11,146     12,941      8,622      3,781      2,805
Cash surrender value of life insurance      6,589      6,158      5,965      5,822      5,639
Investment securities                      79,650    128,618    227,403    184,640    200,553
Loans receivable, net                     349,376    234,417    217,710    193,728    159,690
Federal Home Loan Bank Stock                3,787      5,988     10,981     10,060     10,053
Deposits                                  348,541    234,972    211,891    195,537    143,354
FHLB advances                              73,316    117,990    213,105    143,670    190,601
Securities sold under agreements to
repurchase                                    350      1,375      2,075      2,107     20,685
Stockholders' equity (1)                   44,589     41,378     48,032     60,567     24,246
</TABLE>


Summary of Operations

<TABLE>
<CAPTION>
                                                 Years Ended September 30,
                                       2001      2000      1999      1998      1997
                                     -------   -------   -------   -------   -------
                                                      (in Thousands)
<S>                                  <C>       <C>       <C>       <C>       <C>
Interest income                      $29,891   $29,927   $27,960   $27,854   $26,093
Interest expense                      19,099    19,724    17,217    18,401    18,699
                                     -------   -------   -------   -------   -------
Net interest income before
provision for loan losses             10,792    10,203    10,743     9,453     7,394
Provision for loan losses                200       120      --        --          60
                                     -------   -------   -------   -------   -------
Net interest income after
provision for loan losses             10,592    10,083    10,743     9,453     7,334

Noninterest income                     3,662     3,102     1,927       920     1,351
Noninterest expense:
Compensation and benefits              8,102     4,383     7,628     3,825     2,954
Occupancy and equipment                1,278       996     1,137       662       566
Federal deposit insurance premiums        66        64       118       104       108
Other                                  3,017     2,658     2,369     1,600     1,337
                                     -------   -------   -------   -------   -------
Total noninterest expense             12,463     8,101    11,252     6,191     4,965
                                     -------   -------   -------   -------   -------

Income before income taxes             1,791     5,084     1,418     4,182     3,720
Income tax provision                     382     1,632       466     1,294     1,344
                                     -------   -------   -------   -------   -------
Net income                           $ 1,409   $ 3,452   $   952   $ 2,888   $ 2,376
                                     =======   =======   =======   =======   =======

</TABLE>


(1)  Includes effect of second step offering during the year ended September 30,
     1998. See equity section of Management's Discussion and Analysis of
     Financial Condition and Results of Operations.

                                       25

<PAGE>

Key Financial Ratios and Other Data

Certain ratios and other data:  (1)

<TABLE>
<CAPTION>
                                                        At or for the Year Ended September 30,
                                                   2001       2000       1999       1998       1997
                                                  -----     ------      -----     ------     ------
<S>                                              <C>        <C>        <C>        <C>        <C>
Performance Ratios:
  Return on average equity                         3.39%      7.79%      1.80%      6.16%     10.07%
  Return on average assets                         0.35       0.80       0.23       0.67       0.63
  Interest rate spread (2)                         2.74       2.28       2.37       1.92       1.83
  Net interest margin (2)                          2.90       2.54       2.72       2.45       2.04
  Noninterest expense to average assets            3.05       1.92       2.66       1.55       1.32
  Net interest income after provision
    for loan losses to noninterest expense        84.99     124.00      95.48     152.69     147.68
  Efficiency (5)                                  87.42      61.77      88.80      59.69      57.17

Asset Quality Ratios:
  Average interest-earning assets to
    average interest-bearing liabilities         103.23     105.22     108.11     110.93     104.09
  Nonperforming loans to net loans (3) (4)         1.81       0.86       0.63       1.19       0.28
  Nonperforming assets to total
    assets (3) (4)                                 1.58       0.66       0.34       0.57       0.12
  Allowance for loan losses to
    nonperforming loans (3) (4)                   44.77      83.78     119.23      73.34     373.45
  Allowance for loan losses to
    nonperforming loan assets (3) (4)             36.94      63.45     100.24      72.84     359.79
  Allowance for loan losses to total
    loans (3)                                      0.80       0.71       0.73       0.86       1.03

Capital, Equity and Dividend Ratios:
  Tangible capital (3)                             7.14       8.92       9.35      10.24       6.32
  Core capital (3)                                 7.14       8.92       9.35      10.24       6.32
  Risk-based capital (3)                          10.17      17.66      20.23      22.62      16.22
  Average equity to average assets ratio           9.47      10.31      12.45      10.87       6.26
  Dividend payout ratio                           81.27      38.46     151.55      43.20      60.74

Per Share Data:
  Dividends per share                             $0.26      $0.25      $0.24      $0.23      $0.22
  Book value per share (6)                        $9.98      $9.29      $8.70      $9.46      $3.82
  Basic earnings per share (7)                    $0.33      $0.67      $0.16      $0.45      $0.38
  Diluted earnings per share (8)                  $0.33      $0.67      $0.16      $0.44      $0.37
  Number of full service offices                     21         14         14         11          6
</TABLE>

(1)  With the exception of period end ratios, ratios are based on average
     monthly balances.

(2)  Interest rate spread represents the difference between the weighted average
     yield on average interest earning assets and the weighted average cost of
     average interest bearing liabilities, and net interest margin represents
     net interest income as a percent of average interest earning assets.

(3)  End of period ratio.

(4)  Nonperforming assets consist of nonperforming loans and real estate owned.
     Nonperforming loans consist of non-accrual loans while REO consists of real
     estate acquired in settlement of loans.

(5)  The efficiency ratio is the ratio of noninterest expense to the sum of net
     interest income and noninterest income.

(6)  This calculation is based on 4,468,680, 4,454,357, 5,518,614, 6,399,623,
     and 6,341,553 shares outstanding at September 30, 2001, 2000, 1999, 1998,
     and 1997, respectively.

(7)  This calculation is based on weighted average shares outstanding of
     4,295,020, 5,166,038, 5,802,860, 6,388,906 and 6,327,798, for the fiscal
     years ended September 30, 2001, 2000, 1999, 1998, and



                                       26

<PAGE>

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

Forward-Looking Statements

When used in this Annual Report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

General

The Company's net income is primarily affected by its net interest income, which
is the difference between interest income earned on its loan, mortgage-backed
securities, and investment portfolios, and its cost of funds consisting of
interest paid on deposits and borrowed funds, including FHLB advances. The
Company's net income also is affected by its provisions for losses on loans and
investments in real estate, as well as the amount of noninterest income
(including fees and service charges and gains or losses on sales of loans), and
noninterest expense, including salaries and employee benefits, premises and
equipment expense, data processing expense, federal deposit insurance premiums
and income taxes. Net income of the Company also is affected significantly by
general economic and competitive conditions, particularly changes in market
interest rates, government policies, and actions of regulatory authorities.

Market Risk Analysis

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.

                                       27

<PAGE>

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 set
forth, quantitatively, as of September 30, 2001, 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 decrease in market interest rates:

<TABLE>
<CAPTION>

  Change in                                                                       Change in NPV
 Interest Rates                 Net Portfolio Value                             as a Percentage of
in Basis Points       -------------------------------------                      Estimated Market
 (Rate Shock)         Amount        $ Change       % Change         Ratio         Value of Assets
---------------      -------        --------       --------         -----       ------------------
                                   (Dollars in Thousands)
<S>                  <C>            <C>            <C>              <C>             <C>
+300                 $ 48,971       $(16,272)      (24.9)%          10.27%          (2.81)%
+200                   54,914        (10,330)      (15.8)%          11.33%          (1.75)%
+100                   60,594         (4,649)       (7.1)%          12.31%          (1.93)%
   0                   65,243              0         0.0%           13.08%           0.00%
-100                   68,501          3,257         5.0%           13.58%           0.50%
-200                   71,350          6,107         9.4%           14.00%           0.93%
-300                        0              0         0.0%            0.00%           0.00%
</TABLE>

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

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

                                       28

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------

Discussion of Changes in Financial Condition

General. The Company's total assets increased $82.5 million, or 20.6%, from
$401.1 million at September 30, 2000 to $483.6 million at September 30, 2001.
The increase was primarily due to the acquisition of First Community Bank that
included total assets of $152.2 million. The Bank sold $16.7 million of
fixed-rate mortgage loans and $45.6 million of available-for-sale investment
securities during fiscal year 2001. Total assets decreased $81.0 million or
16.8% from $482.1 million at September 30, 1999 to $401.1 million at September
30, 2000.

Loans receivable, net. The Company's net loans receivable increased $114.6
million, or 48.9%, and $16.7 million, or 7.7%, in fiscal years 2001 and 2000,
respectively from the prior years. The net change in fiscal year 2001 was
primarily due to the acquisition of First Community Bank that included
approximately $133.8 million in loans, while the Bank sold approximately $16.7
million of fixed rate loans in fiscal year 2001. The Bank retained the servicing
rights and the customer relationships. During the year ended September 30, 2000,
the Bank purchased $4.3 million of loans.

Investment securities. The investment securities portfolio decreased $48.9
million or 38.0% from $128.6 at September 30, 2000, to $79.7 million at
September 30, 2001. In accordance with the Company's present strategy, the
principal pay-downs and maturities of investments were used to fund loan growth.
This net change was primarily due to the sale of $45.6 million of
available-for-sale securities, and called securities of $14.6 million which was
partially offset by the acquisition of First Community Bank that included $12.7
million of available for sale investment securities. The investment securities
portfolio decreased $98.8 million, or 43.4% to $128.6 million at September 30,
2000, compared to $227.4 million at September 30, 1999.

Cash surrender value of life insurance. During the year ended September 30,
1996, the Company purchased life insurance on the lives of executive officers
and members of the board of directors. Such life insurance had cash surrender
value of $6.6 million and $6.2 million at September 30, 2001 and 2000,
respectively. The increase in fiscal 2001 was due to earnings on the cash
surrender value, net of premiums.

Deposits. Historically, deposits have provided the Company with a stable source
of relatively low cost funding. The market for deposits is competitive, which
has caused the Company to utilize primarily certificate accounts that are more
responsive to market interest rates rather than passbook accounts. The Company
offers a traditional line of deposit products that currently includes checking,
interest-bearing checking, savings, certificates of deposit, commercial checking
and money market accounts. Deposits increased $113.5 million or 48.3% to $348.5
million at September 30, 2001, from $235.0 million at September 30, 2000. The
increase was primarily due to the acquisition of First Community Bank on May 15,
2001. Deposits increased $23.1 million or 10.9% during fiscal year 2000,
primarily due to core deposit growth in the Bank's market area.

FHLB advances and reverse repurchase agreements. The Company also relies upon
FHLB advances and reverse repurchase agreements as a source to fund assets.
Approximately 15.2% and 29.8% of the Company's assets were funded with FHLB
advances and reverse repurchase agreements as of September 30, 2001 and 2000,
respectively. At September 30, 2001, FHLB advances and reverse repurchase
agreements totaled $73.7 million, a decrease of $45.7 million, or 38.3%, from
2000. FHLB advances and reverse repurchase agreements totaled $119.4 million at
September 30, 2000, a decrease of $95.8 million, or 44.5% from 1999, reflecting,
in part, the increased deposits resulting from the Company's acquisition of
branches during 1999 and the proceeds from the Company's second step stock
offering.

Trust preferred securities - Trust preferred securities of $7.5 million were
issued during the year ended September 30, 2001. Net proceeds to the Company
were $7.2 million.

Stockholders' Equity. Stockholders' equity increased $3.2 million, or 7.7%, from
$41.4 million to $44.6 million at September 30, 2001. The increase was due to
net income of $1.4 million and in unrealized gains on available-for-sale
securities, offset by dividends of $1.2 million. Stockholders' equity as of
September 30, 2000, decreased by $12.0 million or

                                       29

<PAGE>

19.8%, to $41.4 million. This decrease was primarily due to stock repurchases of
$7.8 million, change in unrealized losses on available-for-sale securities, and
dividends paid of $1.4 million, which offset net income of $3.5 million.

Discussion of Results of Operations

Overview. Net income was $1.4 million for fiscal 2001, compared to $3.5 million
and $0.9 million for fiscal 2000 and 1999, respectively. The Company's average
interest earning assets have increased over the three year period ended
September 30, 2001, which has resulted in higher levels of interest income. The
Company's net interest rate spread increased to 2.74% for the year ended
September 30, 2001 from 2.28% for the year ended September 30, 2000, and 2.37%
for the year ended September 30, 1999. The increase in net interest rate spread
during 2001 was primarily due to a decreased cost of funds. The increase in the
net interest rate spread for fiscal 2001 was a result of an increase in
higher-yielding average loans outstanding, a decrease in relatively
lower-yielding average investments outstanding, a decrease in the average cost
of borrowed funds and a decrease in borrowed funds. The Company's strategy has
been to utilize principal repayments from investment securities to fund loan
growth within the Company's local market.

Net Interest Income. The Company's results of operations depend primarily on its
net interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
The Company's net interest rate spread is impacted by changes in general market
interest rates, including changes in the relation between short- and long-term
interest rates (the "yield curve"), and the Company's interest rate sensitivity
position. While management seeks to manage its business to limit the exposure of
net interest income to changes in interest rates, different aspects of its
business nevertheless remain subject to risk from interest rate changes. Net
interest income was $10.8 million for fiscal 2001 compared to $10.2 million and
$10.7 million, for fiscal 2000 and 1999, respectively. The tables below analyze
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.

The Company's interest-earning assets are primarily comprised of mortgage loans
and investment securities, including mortgage-backed securities.
Interest-bearing liabilities primarily include deposits and FHLB advances. The
increases in average interest-earning assets during fiscal 2000 and 1999can be
attributed to increases in the loan portfolio, funded primarily with deposits
and FHLB advances and increases in capital. The increase in fiscal 2001, was
mainly attributable to the purchase of First Community Bank.

The majority of the Company's interest-earning assets are comprised of
adjustable-rate assets. The Company's adjustable-rate loans and investment
securities are subject to periodic interest rate caps. Periodic caps limit the
amount by which the interest rate on a particular mortgage loan may increase at
its next interest rate reset date. In a rising rate environment, the interest
rate spread could be negatively impacted when the repricing of interest-earning
assets is delayed or prohibited, compared to market interest rate movements, as
a result of periodic interest rate caps.

                                       30

<PAGE>

Average Balance Sheets (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                           Years Ended September 30,
                                                      2001                             2000                         1999
                                       ------------------------------    ----------------------------   ---------------------------
                                                              Average                          Average                      Average
                                       Average                 Yield/    Average                Yield/   Average             Yield/
                                       Balance     Interest     Cost     Balance     Interest    Cost    Balance  Interest    Cost
                                       --------    --------    ------    --------    --------   -----   --------   -------  -------
<S>                                    <C>         <C>           <C>     <C>         <C>         <C>    <C>        <C>        <C>
Interest-earning
assets: (1)
  Loan receivable, net (6)             $265,210    $ 22,151      8.35%   $224,214    $ 17,671    7.88%  $206,001   $16,141    7.84%
  Investment securities                 107,239       7,740      7.22     176,783      12,256    6.93    187,796    11,818    6.29
                                       --------    --------    ------    --------    --------   -----   --------   -------  -------
  Total interest-earning assets         372,449      29,891      8.03     400,997      29,927    7.46    393,797    27,959    7.10
Noninterest-earning cash                  6,383                             3,622                          2,911
Other noninterest-earning assets         29,361                            25,045                         25,750
                                       --------                          --------                       --------
          Total assets                 $408,193                          $429,664                       $422,458
                                       ========                          ========                       ========
Interest-bearing
liabilities:

  Demand deposits                      $ 88,132    $  1,797      2.04    $ 68,779    $  1,705    2.48   $ 61,416   $ 1,568    2.55
  Time deposits                         187,328      11,619      6.20     158,052       8,645    5.47    138,651     7,328    5.29
  Borrowed funds (5)                     85,350       5,683      6.66     154,287       9,374    6.08    164,189     8,321    5.07
                                       --------    --------    ------    --------    --------   -----   -------    -------  -------
          Total interest-
          bearing liabilities           360,810      19,099      5.29     381,118      19,724    5.18    364,256    17,217    4.73
                                       --------    --------    ------    --------    --------   -----   --------   -------  -------
Noninterest-bearing
  liabilities (2)                         5,800                             4,262                          5,590
                                       --------                          --------                       --------
          Total liabilities             366,610                           385,380                        369,846

Stockholders' equity                     41,583                            44,284                         52,612
                                       --------                          --------                        -------
          Total liabilities and
          stockholders' equity         $408,193                          $429,664                       $422,458
                                       ========                          ========                       ========
Net interest income                                $ 10,792                          $ 10,203                     $10,742
                                                   ========                          ========                     ========
Net interest rate spread (3)                                     2.74%                           2.28%                        2.37%
                                                               ======                          ======                       ======
Interest-earning assets and
  net interest margin (4)              $372,449                  2.90%   $400,997                2.54%  $393,797              2.72%
                                       ========                ======    ========              ======   ========            ======

Ratio of average
interest-earning assets to
average interest-bearing liabilities                           103.23%                         105.22%                      108.11%
                                                               ======                          ======                       ======

</TABLE>

(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.

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


                                       31

<PAGE>

Rate/Volume Analysis (in thousands)

<TABLE>
<CAPTION>

                                       2001 vs 2000                          2000 vs 1999                     1999 vs 1998
                        -------------------------------------  -------------------------------------  ----------------------------
                         Increase/(Decrease)                         Increase/(Decrease)                   Increase/(Decrease)
                               Due to                                     Due to                                  Due to
                        --------------------------     Total   ---------------------------   Total    ----------------------------
                                            Rate/    Increase                      Rate/    Increase                       Rate/
                         Volume    Rate     Volume  (Decrease)  Volume    Rate     Volume  (Decrease)  Volume     Rate     Volume
                        -------   -------  -------   --------- -------   -------   -------  ---------  -------   -------   -------
<S>                     <C>       <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Interest income:
  Loans receivable      $ 3,098   $ 1,054  $   197   $ 4,349   $ 1,447   $   124   $    12   $ 1,583   $ 2,399   $  (423)  $   257
  Investment
    securities           (4,821)      513     (206)   (4,514)     (693)    1,183       (78)      412    (1,428)     (420)    1,375
                        -------   -------  -------   -------   -------   -------   -------   -------   -------   -------   -------

Total interest-earning
  assets                $(1,723)  $ 1,567  $    (9)  $  (165)  $   754   $ 1,307   $   (66)  $ 1,995   $   971   $  (843)  $ 1,632
                        =======   =======  ========  =======   =======   =======   =======   =======   =======   =======   =======

Interest expense:
  Deposits                2,217   $   703  $   145     3,065     1,191       540   $    69   $ 1,800     1,569      (434)  $   777
  Borrowed funds         (4,191)      663     (291)   (3,819)     (502)    1,314       (78)      734      (997)   (1,360)      145
                        -------   -------  -------   -------   -------   -------   -------   -------   -------   -------   -------

   Total interest-
   bearing liabilities  $(1,974)  $ 1,366  $  (146)  $  (754)  $   689   $ 1,854   $    (9)  $ 2,534   $   572   $ 1,794   $   922
                        =======   =======  ========  =======   =======   =======   =======   =======   =======   =======   =======

Net change in net
  interest income       $   251   $   201  $   137   $   589   $    65   $  (547)  $   (57)  $  (539)      399   $   951   $   710
                        =======   =======  ========  =======   =======   =======   =======   =======   =======   =======   =======

</TABLE>


                                       32

<PAGE>

During fiscal 2001, loan demand was relatively strong, resulting in an increase
in loans outstanding, an increase in the net interest rate spread and an
increase of $0.6 million, or 5.9%, in net interest income. The average yield on
interest earning assets increased to 8.03% in fiscal 2001 compared to 7.46% and
7.10% in fiscal 2000 and 1999, respectively, while the average cost of interest
bearing liabilities increased to 5.18% and 4.73% in fiscal 2000 and fiscal 1999,
respectively. The increase in the average yield on interest earning assets was
largely due to an increase in higher-yielding average loans receivable and an
increase in the yield on loans receivable. The increase in average cost of
interest bearing liabilities was primarily due to an increase in market rates.

During fiscal 2000 mortgage loan demand weakened resulting in management's need
to seek loan production outside its current market area. During fiscal 2000, the
Bank purchased $4.3 million in loans from outside its market area.

Provision for Loan Losses. The Bank provided for loan losses of $200,000,
$120,000, and $0, respectively, in the fiscal years ended September 30, 2001,
2000, and 1999. Management considered several factors in determining the
necessary level of its allowance for loan losses and as a result of the process,
the necessary provision for loan losses including but not limited to historical
loan losses and current delinquency rates. The increased provision in fiscal
2001 was due to the significant growth in the higher risk categories of the loan
portfolio in fiscal 2001.

Noninterest Income. Non-interest income totaled $3.7 million for the fiscal year
ended September 30, 2001, compared to $3.1 million for the fiscal year ended
September 30, 2000, and $1.9 million for the fiscal year ended September 30,
1999. This increases in 2001 and 2000 were primarily due to an increase in fee
income due to an increase in demand deposit accounts and the change in gain or
loss on trading securities.

Noninterest Expense. Non-interest expense consisting primarily of salaries and
employee benefits, premises and equipment, data processing and federal deposit
insurance premiums totaled $12.5 million for the fiscal year ended September 30,
2001, compared to $8.1 million for the fiscal year ended September 30, 2000, an
increase of 54.3%. The increase was primarily due to charges before taxes of
$3.2 million that was related to the charge-off of excess facilities in the
Pocahontas area and funding of retirement and severance agreements associated
with the move of the corporate headquarters to Jonesboro. Non-interest expense
decreased $3.2 million or 28.3% from $11.3 million for the fiscal year ended
September 30, 1999. The decrease from fiscal 1999 to fiscal 2000 was primarily
attributable to the payment of a severance agreement to a former executive
officer in fiscal 1999.

Income Taxes. Income tax expense for the year ended September 30, 2001, was $0.4
million compared to $1.6 million for the year ended September 30, 2000. The
decrease was primarily due to the decrease in income before taxes and a decrease
in the effective tax rate due to tax-exempt income and changes in tax estimates.
Income tax expense for the year ended September 30, 2000, was $1.6 million
compared to $0.5 million for the year ended September 30, 1999. The increase was
primarily due to an increase in income before tax.

Liquidity and Capital Resources

The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. This requirement, which varies from time to time depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The required ratio is currently 4%. The Bank adjusts
liquidity as appropriate to meet its asset and liability management objectives.
At September 30, 2001, the Bank was in compliance with such liquidity
requirements.

The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities, maturities of investment securities, FHLB
advances, and funds provided from operations. While scheduled principal
repayments on loans, and mortgage-backed securities are a relatively predictable
source of funds, deposit flows, loan prepayments and mortgage-backed securities
are greatly influenced by general interest rates, economic conditions, and
competition. The Bank manages the pricing of its deposits to maintain a desired
deposit balance. For additional information about cash flows from the Bank's
operating, financing, and investing activities, see Consolidated Statements of
Cash Flows included in the Consolidated Financial Statements.

At September 30, 2001, the Bank exceeded all of its regulatory capital
requirements.

                                       33

<PAGE>

Impact of Inflation and Changing Prices


The consolidated financial statements of the Bank and notes thereto, presented
elsewhere herein, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Bank's operations. Unlike
most industrial companies, nearly all the assets and liabilities of the Bank are
monetary. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.

FDIC Insurance Premiums and Assessment

In September 1996, Congress enacted legislation to recapitalize the SAIF by a
one-time assessment on all SAIF-insured deposits held as of March 31, 1995. The
assessment was 65.7 basis points per $100 in deposits, payable on November 30,
1996. For the Bank, the assessment amounted to $937,000 (or $618,000 after
consideration of tax benefits), based on the Bank's SAIF-insured deposits of
$142.6 million. In addition, beginning January 1, 1997, pursuant to the
legislation, interest payments on FICO bonds issued in the late 1980's by the
Financing Corporation to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation were paid jointly by BIF-insured institutions and
SAIF-insured institutions. The FICO assessment was 1.29 basis points per $100 in
BIF deposits and 6.44 basis points per $100 in SAIF deposits. Beginning in
January 1, 2000, the FICO interest payments are to be paid pro-rata by banks and
thrifts based on deposits (approximately 2.4 basis points per $100 in deposits).
The BIF and SAIF was merged on January 1, 1999, provided the saving association
charter is eliminated by that date. In that event, pro-rata FICO sharing will
begin on January 1, 1999.

Impact of New Accounting Standards

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. The
statement discontinues the use of the pooling of interest method of accounting
for business combinations and is effective for all business combinations
initiated after June 30, 2001. Management has completed an evaluation of the
effects of this statement and does not believe that the adoption of SFAS No. 141
will have a material effect on the Company's consolidated financial statements.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. The statement will require 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. Annual amortization expense for the fiscal year ended September 30, 2002,
would have been approximately $383,000. Within six months (by March 31, 2002) of
adoption of SFAS No. 142, the Company will have 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. Any impairment loss resulting from
the transitional impairment test will be recorded as a cumulative effect of a
change in accounting principle for the quarter ended March 31, 2002. Subsequent
impairment losses will be reflected in operating income in the income statement.

In October 2001, the 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 effect
of this adoption on the Company's financial statements, if any, has not been
determined.



                                       34

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors of
Pocahontas Bancorp, Inc.:

We have audited the accompanying consolidated statements of financial condition
of Pocahontas Bancorp, Inc. (the "Company") and subsidiaries as of September 30,
2001 and 2000, and the related consolidated statements of income and
comprehensive income, stockholders' equity, and cash flows for each of the three
years in the period ended September 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and
subsidiaries as of September 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2001, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP

Little Rock, Arkansas
November 9, 2001

                                       35

<PAGE>

ITEM 8   FINANCIAL STATEMENTS
------   --------------------

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                     2001            2000
<S>                                                                            <C>             <C>
ASSETS

Cash and due from banks:
  Interest bearing                                                             $  10,265,642   $  11,177,705
  Noninterest bearing                                                                880,157       1,763,742
                                                                               -------------   -------------
                                                                                  11,145,799      12,941,447

Cash surrender value of life insurance                                             6,589,293       6,158,076
Securities held-to-maturity, at amortized cost
  (fair value of $11,526,845 and $9,105,099 in 2001 and
  2000, respectively)                                                              11,500,879      9,465,856
Securities available-for-sale, at fair value (amortized cost of
  $63,122,537 and $119,683,250 in 2001 and 2000, respectively)                    64,974,115     118,024,962
                                                                                   3,175,274       1,126,712
Securities trading, at fair value
Loans receivable, net                                                            349,376,099     234,416,895
                                                                                   4,860,860       3,251,939
Accrued interest receivable

                                                                                  12,274,154       3,779,850
Premises and equipment, net

Federal Home Loan Bank stock                                                       3,786,500       5,988,200


Goodwill                                                                           7,665,461          --

Core deposit premiums                                                              6,257,469       2,154,131

Other assets                                                                       1,959,575       3,796,455
                                                                               -------------   -------------
TOTAL                                                                          $ 483,565,478   $ 401,104,523
                                                                               =============   =============
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:

  Deposits                                                                     $ 348,540,922   $ 234,971,507
  Federal Home Loan Bank advances                                                 73,315,804     117,990,000
  Securities sold under agreements to repurchase                                     350,000       1,375,000

  Deferred compensation                                                             5,138,759      3,238,092


  Accrued expenses and other liabilities                                           4,400,383       2,151,594
                                                                               -------------   -------------
          Total liabilities                                                      431,745,868     359,726,193
                                                                                   7,231,058              --
TRUST PREFERRED SECURITIES

STOCKHOLDERS' EQUITY:
  Common stock, $0.01 par value, 8,000,000 shares authorized; 6,969,688 and
    6,955,365 shares issued and 4,468,680 and 4,454,357 shares outstanding in
    2001 and 2000, respectively

                                                                                      69,696          69,553
  Additional paid-in capital                                                      51,201,140      51,307,395
  Unearned ESOP shares                                                            (1,441,804)     (2,032,221)
  Unearned RRP shares                                                               (116,237)       (277,660)

  Accumulated other comprehensive income (loss)                                    1,222,042      (1,094,470)
  Retained earnings                                                               13,337,606      13,089,624
                                                                               -------------   -------------
                                                                                  64,272,443      61,062,221
  Less treasury stock at cost, 2,501,008 shares                                  (19,683,891)    (19,683,891)
                                                                               -------------   -------------

           Total stockholders' equity                                             44,588,552      41,378,330
                                                                               -------------   -------------

TOTAL                                                                          $ 483,565,478   $ 401,104,523
                                                                               =============   =============
</TABLE>

                 See notes to consolidated financial statements.

                                       36

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999

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

<TABLE>
<CAPTION>

                                               2001       2000          1999
                                          -----------  -----------  ------------
<S>                                       <C>          <C>          <C>
INTEREST INCOME:
  Loans receivable                        $22,150,724  $17,671,439  $ 16,141,250
  Securities:
    Taxable                                 7,201,164   11,798,274    11,362,574
    Nontaxable                                539,749      457,757       455,706
                                          -----------  -----------  ------------

            Total interest income          29,891,637   29,927,470    27,959,530

INTEREST EXPENSE:
  Deposits                                 13,416,283   10,350,181     8,895,824
  Borrowed funds                            5,683,153    9,373,916     8,321,072
                                          -----------  -----------  ------------

            Total interest expense         19,099,436   19,724,097    17,216,896
                                          -----------  -----------  ------------

NET INTEREST INCOME BEFORE PROVISION
  FOR LOAN LOSSES                          10,792,201   10,203,373    10,742,634


PROVISION FOR LOAN LOSSES                     200,000      120,000          --
                                          -----------  -----------  ------------

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                          10,592,201   10,083,373    10,742,634

OTHER INCOME:
  Dividends on FHLB stock                     272,811      657,457       590,825
  Fees and service charges                  1,987,978    1,617,073       833,277


  Trading gains (losses)                      358,519      130,031       (51,564)
  Gain on sales of investment securities      380,009      447,563       161,411
  Other                                       662,618      249,817       393,492
                                          -----------  -----------  ------------
            Total other income              3,661,934    3,101,941     1,927,441

OTHER EXPENSES:
  Compensation and benefits                 8,102,419    4,383,217     7,628,380
  Occupancy and equipment                   1,278,463      996,156     1,136,583
  Deposit insurance
                                               65,593       64,302       118,395
  Professional fees                           406,201      382,171       297,561
  Data processing                             457,677      406,865       415,597
  Advertising                                 450,396      483,289       472,338
  OTS assessment                               94,294       92,669        87,943
  Other                                     1,607,662    1,292,164     1,094,863
                                          -----------  -----------  ------------
            Total other expenses           12,462,705    8,100,833    11,251,660
                                          -----------  -----------  ------------

INCOME BEFORE INCOME TAXES                  1,791,431    5,084,481     1,418,415
INCOME TAX PROVISION                          382,520    1,632,852       466,178
                                          -----------  -----------  ------------

NET INCOME                                  1,408,911    3,451,629       952,237

</TABLE>

                                                                    (Continued)


                                       37

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                              2001         2000         1999
                                         -----------   -----------   -----------
<S>                                      <C>           <C>           <C>
OTHER COMPREHENSIVE INCOME (LOSS),
  NET OF TAX:
  Unrealized holding gain (loss)
    on securities arising
    during period                        $ 2,567,318   $(1,207,028)  $(1,291,164)

  Reclassification adjustment
    for (gains) losses
    included in net income                  (250,806)     (295,392)     (106,531)
                                         -----------   -----------   -----------
            Other comprehensive

              income (loss)                2,316,512    (1,502,420)   (1,397,695)
                                         -----------   -----------   -----------

COMPREHENSIVE INCOME (LOSS)              $ 3,725,423   $ 1,949,209   $  (445,458)
                                         ===========   ===========   ===========
EARNINGS PER SHARE:
  Basic earnings per share               $      0.33   $      0.67   $      0.16
                                         ===========   ===========   ===========
  Diluted earnings per share             $      0.33   $      0.67   $      0.16
                                         ===========   ===========   ===========
  Dividends per share                    $      0.26   $      0.25   $      0.24
                                         ===========   ===========   ===========
</TABLE>

                                                                    (Concluded)

                See notes to consolidated financial statements.

                                       38

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                                    Accumulated

                                                   Common Stock          Additional     Unearned      Unearned        Other
                                           --------------------------     Paid-In         ESOP          RRP        Comprehensive
                                              Shares         Amount       Capital        Shares        Shares      Income (Loss)
                                           -----------   ------------   ------------   -----------   -----------   -------------



<S>                                        <C>           <C>            <C>            <C>           <C>           <C>
BALANCE, SEPTEMBER 30, 1998                $ 6,685,283   $     66,853   $ 50,094,461   $(2,856,600)                  $ 1,805,645

  Repayment of ESOP loan
    and related
    increase in share value                                                                413,075
  Options exercised                            154,416          1,544        382,146
  RRP shares granted                           142,830          1,428      1,284,042                 $(1,285,470)
  RRP shares forfeited                         (35,707)          (357)      (321,006)                    321,363
  RRP shares earned                                                                                      439,631
  Net change in unrealized
    gain (loss) on
    available-for-sale
    securities, net of
    tax                                                                                                               (1,397,695)
  Treasury stock purchased
  Net income
  Dividends
                                           -----------   ------------   ------------   -----------   -----------   -------------
BALANCE, SEPTEMBER 30, 1999                  6,946,822         69,468     51,439,643    (2,443,525)     (524,476)        407,950
  Repayment of ESOP loan
    and related
    decrease in
    share value                                                             (153,416)      411,304
  Options exercised                              8,543             85         21,168
  RRP shares earned                                                                                      246,816
  Net change in unrealized
    gain (loss) on
    available-for-sale
    securities, net of
    tax                                                                                                               (1,502,420)
  Treasury stock purchased
  Net income
  Dividends
                                           -----------   ------------   ------------   -----------   -----------   -------------
  BALANCE, SEPTEMBER 30, 2000                6,955,365         69,553     51,307,395    (2,032,221)     (277,660)     (1,094,470)
  Repayment of ESOP loan and
    related decrease in share
    value                                                                   (141,700)      590,417
  Options exercised                             14,323            143         35,445

  RRP shares earned                                                                                      161,423
  Net change in unrealized
    gain (loss) on
    available-for-sale
    securities, net of
    tax                                                                                                                2,316,512

  Net income

  Dividends

                                           ------------   ------------   -----------   -----------   ------------   -----------
  BALANCE, SEPTEMBER 30, 2001               $6,969,688        $69,696    $51,201,140   $(1,441,804)    $(116,237)    $1,222,042
                                           ===========   ============   ============   ===========   ===========   ============


</TABLE>

<TABLE>
<CAPTION>

                                                                  Treasury Stock          Total
                                               Retained     ------------------------    Stockholders'
                                               Earnings       Shares       Amount         Equity
                                             -----------    ----------   -----------   ------------



<S>                                         <C>              <C>         <C>          <C>
BALANCE, SEPTEMBER 30, 1998                 $ 11,456,439                              $60,566,798

  Repayment of ESOP loan
    and related
    increase in share value                                                               413,075
  Options exercised                                                                       383,690
  RRP shares granted
  RRP shares forfeited
  RRP shares earned                                                                       439,631
  Net change in unrealized
    gain (loss) on
    available-for-sale
    securities, net of
    tax                                                                                (1,397,695)
  Treasury stock purchased                                   1,428,208  $(11,882,222) (11,882,222)
  Net income                                     952,237                                  952,237
  Dividends                                   (1,443,076)                              (1,443,076)
                                             -----------    ----------   -----------   ----------
BALANCE, SEPTEMBER 30, 1999                   10,965,600     1,428,208   (11,882,222)  48,032,438
  Repayment of ESOP loan
    and related
    decrease in
    share value                                                                           257,888
  Options exercised                                                                        21,253
  RRP shares earned                                                                       246,816
  Net change in unrealized
    gain (loss) on
    available-for-sale
    securities, net of
    tax                                                                                (1,502,420)
  Treasury stock purchased                                   1,072,800    (7,801,669)  (7,801,669)
  Net income                                   3,451,629                                3,451,629
  Dividends                                   (1,327,605)                              (1,327,605)
                                             -----------    ----------   -----------   ----------
  BALANCE, SEPTEMBER 30, 2000                 13,089,624     2,501,008   (19,683,891)  41,378,330
  Repayment of ESOP loan and
    related decrease in share
    value                                                                                 448,717
  Options exercised                                                                        35,588

  RRP shares earned                                                                       161,423
  Net change in unrealized
    gain (loss) on
    available-for-sale
    securities, net of
    tax                                                                                 2,316,512

  Net income                                   1,408,911                                1,408,911

  Dividends                                   (1,160,929)                              (1,160,929)
                                             -----------    ----------   -----------   ----------
  BALANCE, SEPTEMBER 30, 2001                $13,337,606    $2,501,008  $(19,683,891) $44,588,552
                                             ===========    ==========   ===========   ==========
</TABLE>

                See notes to consolidated financial statements.

                                       39

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                               2001                2000                1999
                                                       ---------------     ---------------    ---------------

<S>                                                    <C>                 <C>                <C>
OPERATING ACTIVITIES:
  Net income                                           $     1,408,911     $     3,451,629    $       952,237
  Adjustments to reconcile net income to net cash
    provided (used) by operating activities:
    Provision for loan losses                                  200,000             120,000             -
    Depreciation of premises and equipment                     599,326             478,937            472,633
    Deferred income tax benefit                               (925,321)           (107,635)        (1,281,899)
    Amortization of deferred loan fees                         (74,982)            (56,746)          (115,677)
    Amortization of premiums and discounts, net               (408,253)           (266,428)          (280,855)
    Amortization of core deposit premium                       428,124             286,056            136,721
    Amortization of goodwill                                    63,857              -                   -
    Adjustment of ESOP shares and release of
      shares under recognition and retention plan              610,140             504,704            852,706
    Net gains on sales of assets                              (375,339)           (469,895)           (30,821)
    Increase in cash surrender value of life
      insurance policies                                     (193,488)            (193,488)          (142,788)
    Changes in operating assets and liabilities:
      Trading securities                                    (2,048,562)            302,484            159,339
      Accrued interest receivable                              399,724             (86,512)          (758,154)
      Other assets                                             436,106          (2,485,432)            95,951
      Deferred compensation                                  1,900,667            (119,798)         2,640,164
      Accrued expenses and other liabilities                   849,029          (1,518,149)          (712,478)
                                                       ---------------     ---------------    ---------------
            Net cash provided (used) by
              operating activities                           2,869,939            (160,273)         1,987,079

INVESTING ACTIVITIES:
  Acquisition of Walden/Smith Financial Group, Inc.,       (15,385,654)
    net of cash acquired of $12,035,545                                            -                   -
  Purchases of investment securities                        (9,338,050)         (8,000,000)       (91,852,663)
  Proceeds from sale of securities available-for-sale       49,818,508          97,041,274         13,318,453
  Proceeds from maturities and principal repayments
    of investment securities                                30,179,578          13,646,889         33,572,759
  Increase in loans, net                                    (3,967,258)        (16,125,559)       (23,835,771)


  Proceeds from sale of loans                               19,686,272             -                   -
  Purchases of premises and equipment                       (2,106,836)           (240,629)        (1,163,714)
                                                       ---------------     ---------------    ---------------
            Net cash provided (used) by
              investing activities                          68,886,560          86,321,975        (69,960,936)

</TABLE>

                                                                     (Continued)
                                       40

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                               2001                2000                1999
                                                       ---------------     ---------------    ---------------

<S>                                                    <C>                 <C>                <C>
  Net increase (decrease) in deposits other
    than in acquisitions                               $   (30,521,001)    $    23,080,716    $    16,354,083
  Federal Home Loan Bank advances                        1,448,426,334       3,006,964,100      1,551,084,601
  Repayment of Federal Home Loan Bank
    advances                                            (1,496,538,197)     (3,102,079,100)    (1,481,649,601)
  Net decrease in repurchase agreements                     (1,025,000)           (700,000)           (32,645)
  Proceeds from issuance of trust preferred
    securities, net of issuance costs                        7,231,058              -                      -
  Exercise of stock options                                     35,588              21,253            383,690
  Purchase of treasury shares                                    -              (7,801,669)       (11,882,222)
  Dividends paid                                            (1,160,929)         (1,327,605)        (1,443,076)
                                                       ---------------     ---------------    ---------------

            Net cash provided (used) by
              financing activities                         (73,552,147)        (81,842,305)        72,814,830

NET INCREASE (DECREASE) IN CASH
  AND DUE FROM BANKS                                        (1,795,648)          4,319,397          4,840,973

CASH AND DUE FROM BANKS,
  BEGINNING OF YEAR                                         12,941,447           8,622,050          3,781,077
                                                       ---------------     ---------------    ---------------

CASH AND DUE FROM BANKS,
  END OF YEAR                                          $    11,145,799     $    12,941,447    $     8,622,050
                                                       ===============     ===============    ===============

SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest                                          $     18,231,042     $    20,123,108     $   16,923,600
                                                       ===============     ===============    ===============

    Income taxes                                      $        662,442     $     2,274,076     $    1,175,000
                                                       ===============     ===============    ===============


SUPPLEMENTAL DISCLOSURES OF
  NONCASH INVESTMENT ACTIVITIES:
  Transfers from loans to real estate acquired,
   or deemed acquired, through foreclosure            $      1,607,364     $       947,756         $  943,789
                                                       ===============     ===============    ===============


  Loans originated to finance the sale of real
    estate acquired through foreclosure               $        805,846     $       505,147       $    513,150
                                                       ===============     ===============    ===============

</TABLE>

                                                                     (Concluded)

                See notes to consolidated financial statements.

                                       41

<PAGE>

POCAHONTAS BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001, 2000, AND 1999
-------------------------------------------------------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Organization and Principles of Consolidation - The accompanying
      consolidated financial statements include the accounts of Pocahontas
      Bancorp, Inc. ("Bancorp"), its wholly owned subsidiary, First Community
      Bank (the "Bank"), as well as the Bank's subsidiaries, P.F. Service, Inc.
      and Sun Realty, Inc. which provide real estate services (collectively
      referred to as the "Company"). All significant intercompany transactions
      have been eliminated in consolidation. The Bank operates 21 branches in
      northern and eastern Arkansas as a federally chartered savings and loan.

      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.

      Cash and Due From Banks - For the purpose of presentation in the
      consolidated statements of cash flows, cash, and cash equivalents are
      defined as those amounts included in the statement of financial condition
      caption "cash and due from banks." Principally this includes cash on hand
      and amounts due from depository institutions and investments having a
      maturity at acquisition of three months or less.

      Liquidity Requirement - Regulations require the Bank to maintain an amount
      equal to 4% of deposits (net of loans on deposits) plus short-term
      borrowings in cash and U.S. Government and other approved securities.

      Trading Securities - Equity securities held principally for resale in the
      near term are classified as trading securities and recorded at their fair
      values. Unrealized gains and losses on trading securities are included in
      other income.

      Securities Held-to-Maturity - Bonds, notes, and debentures for which the
      Company has the positive intent and ability to hold to maturity are
      reported at cost, adjusted for the amortization of premiums and the
      accretion of discounts, which are recognized in income using the
      level-yield method over the assets' remaining lives and adjusted for
      anticipated prepayments. Should other than a temporary decline in the fair
      value of a security occur, the carrying value of such security would be
      written down to current market value by a charge to operations. As of
      September 30, 2001, no securities were determined to have other than a
      temporary decline in fair value below cost.

      Securities Available-for-Sale - Available-for-sale securities consist of
      bonds, notes and debentures. Unrealized holding gains and losses, net of
      tax, on available-for-sale securities are reported as accumulated other
      comprehensive income, a separate component of stockholders' equity, until
      realized. Gains and losses on the sale of available-for-sale securities
      are determined using the specific-identification method. Declines in the
      fair value of individual available-for-sale securities below their

                                       42

<PAGE>

      cost that are other than temporary would result in a write-down of the
      individual security to its fair value. The related write-down would be
      included in earnings as a realized loss. As of September 30, 2001, no
      securities were determined to have other than a temporary decline in fair
      value below cost.

      Loans Receivable - Loans receivable that management has the intent and
      ability to hold for the foreseeable future or until maturity or pay-off
      are reported at their outstanding principal adjusted for any charge-offs,
      the allowance for loan losses, and any deferred fees or costs on
      originated loans and unamortized premiums or discounts on purchased loans.

      Discounts and premiums on purchased residential real estate loans are
      amortized to income using the interest method over the remaining period to
      contractual maturity, adjusted for anticipated prepayments. Discounts and
      premiums on purchased consumer loans are recognized over the expected
      lives of the loans using methods that approximate the interest method.
      Loan origination fees and certain direct origination costs are capitalized
      and recognized as an adjustment of the yield of the related loan.

      The accrual of interest on impaired loans is discontinued when, in
      management's opinion, the borrower may be unable to meet contractual
      principal or interest obligations or where interest or principal is 90
      days or more past due. When a loan is placed on nonaccrual status, accrual
      of interest ceases and, in general, uncollected past due interest
      (including interest applicable to prior reporting periods, if any) is
      reversed and charged against current income. Therefore, interest income is
      not recognized unless the financial condition or payment record of the
      borrower warrant the recognition of interest income. Interest on loans
      that have been restructured is generally accrued according to the
      renegotiated terms.

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

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

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

                                       43

<PAGE>

      value of future cash flows, usually determined by estimating the fair
      value of the loan's collateral reduced by any cost of selling and
      discounted at the loan's effective interest rate if the estimated time to
      receipt of monies is more than three months.

      Non-homogeneous loans are those loans that can be included in a particular
      loan type, such as commercial loans and multi-family and commercial first
      mortgage loans, but which differ in other characteristics to the extent
      that valuation on a pool basis is not valid. After segregating specific,
      poorly performing loans and applying the methodology as noted in the
      preceding paragraph for such specific loans, the remaining loans are
      evaluated based on payment experience, known difficulties in the borrowers
      business or geographic area, loss experience, inherent risks and other
      factors usually beyond the control of the Company. These loans are then
      graded and a factor, based on experience, is applied to estimate the
      probable loss.

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

      Interest Rate Risk - The Company's asset base is exposed to risk including
      the risk resulting from changes in interest rates and changes in the
      timing of cash flows. The Company monitors the effect of such risks by
      considering the mismatch of the maturities of its assets and liabilities
      in the current interest rate environment and the sensitivity of assets and
      liabilities to changes in interest rates. The Company's management has
      considered the effect of significant increases and decreases in interest
      rates and believes such changes, if they occurred, would be manageable and
      would not affect the ability of the Company to hold its assets as planned.
      However, the Company is exposed to significant market risk in the event of
      significant and prolonged interest rate changes.

      Foreclosed Real Estate - Real estate properties acquired through, or in
      lieu of, loan foreclosure are initially recorded at fair value at the date
      of foreclosure establishing a new cost basis. After foreclosure,
      valuations are periodically performed by management and the real estate is
      carried at the lower of carrying amount or fair value less cost to sell.
      Revenues and expenses from operations and changes in the valuation
      allowance are included in loss on foreclosed real estate.

      Premises and Equipment - Land is carried at cost. Buildings and furniture,
      fixtures, and equipment are carried at cost, less accumulated
      depreciation. Depreciation for financial statement purposes is computed
      using the straight-line method over the estimated useful lives of the
      assets ranging from 3 to 40 years.

      Core Deposit Premium - Core deposit premiums paid are being amortized over
      ten years which approximates the estimated life of the purchased deposits.
      The carrying value of core deposit premiums is periodically evaluated to
      estimate the remaining periods of benefit. If these periods of benefits
      are determined to be less than the remaining amortizable life, an
      adjustment to reflect such shorter life will be made.

      Goodwill - Costs in excess of net assets acquired are amortized on a
      straight-line basis over 20 years.

                                       44

<PAGE>

      Income Taxes - Deferred tax assets and liabilities are recorded for
      temporary differences between the carrying value and tax bases of assets
      and liabilities. Such amounts are reflected at currently enacted income
      tax rates applicable to the period in which the deferred tax assets or
      liabilities are expected to be realized or settled. As changes in tax laws
      or rates are enacted, deferred tax assets and liabilities are adjusted
      through the provision for income taxes.

      Stock Compensation - The Company applies the provisions of Accounting
      Principles Board Opinion No. 25 in accounting for its stock option plans.

      Impact of New Accounting Standards - In July 2001, the Financial
      Accounting Standards Board ("FASB") issued Statement of Financial
      Accounting Standards ("SFAS") No. 141, Business Combinations. The
      statement discontinues the use of the pooling of interest method of
      accounting for business combinations and is effective for all business
      combinations initiated after June 30, 2001. Management has completed an
      evaluation of the effects of this statement and does not believe that the
      adoption of SFAS No. 141 will have a material effect on the Company's
      consolidated financial statements.

      In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
      Assets. The statement will require 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. Annual amortization
      expense would have been approximately $383,000 for the year ended
      September 30, 2002. Within six months (by March 31, 2002) of adoption of
      SFAS No. 142, the Company will have 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. Any impairment loss resulting
      from the transitional impairment test will be recorded as a cumulative
      effect of a change in accounting principle for the quarter ended March 31,
      2002. Subsequent impairment losses will be reflected in operating income
      in the income statement.

      In October 2001, the 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 effect of this adoption on the
      Company's financial statements, if any, has not been determined.

      Reclassifications - Certain 2000 and 1999 amounts have been reclassified
      to conform to the 2001 presentation.

2.   ACQUISITION

      On May 15, 2001, the Company completed its acquisition of Walden/Smith
      Financial Group, Inc. ("Walden") and its wholly-owned bank subsidiary,
      First Community Bank. As part of the acquisition, Walden's stockholders
      received an aggregate of $27.4 million for all of the issued and
      outstanding common stock of Walden. The transaction was accounted for
      using the purchase method. Goodwill of approximately $7.7 million is being
      amortized on a straight-line basis over 20 years. A core deposit premium
      intangible asset of approximately $4.5 million was recorded using the best
      available evidence as of September 30, 2001. The Company has engaged a
      valuation specialist to perform a study of the fair value of the core
      deposit premium as of the acquisition date. The preliminary amounts
      assigned to core deposit premium and goodwill may change as a result of
      the study.

                                       45

<PAGE>

      In connection with the acquisition, the Company's savings bank subsidiary,
      Pocahontas Federal Savings and Loan Association, changed its name to First
      Community Bank. In addition, the Company has moved its corporate
      headquarters to Jonesboro, Arkansas.

      The following unaudited pro forma information is being provided as though
      the Company purchased Walden at the beginning of the year ended September
      30.

<TABLE>
<CAPTION>

                                             2001        2000
                                           -------     -------
<S>                                        <C>         <C>
Net interest income                        $15,263     $13,208

Income before income taxes                   2,811       2,551

Net income                                   2,032       1,819

Earnings per share - basic & diluted         $0.47     $  0.35
</TABLE>

3.   FAIR VALUES OF FINANCIAL INSTRUMENTS

      The estimated fair value amounts of financial instruments have been
      determined by the Company using available market information and
      appropriate valuation methodologies. However, considerable judgment is
      required to interpret market data to develop the estimates of fair value.
      Accordingly, the estimates presented herein are not necessarily indicative
      of the amounts the Company could realize in a current market exchange. The
      use of different market assumptions and/or estimation methodologies may
      have a material effect on the estimated fair value amounts. The carrying
      amounts and estimated fair values of financial instruments at September
      30, 2001 and 2000, were as follows (items which are not financial
      instruments are not included):

<TABLE>
<CAPTION>

                                              2001                         2000
                                   -------------------------   --------------------------
                                     Carrying     Estimated       Carrying     Estimated
                                      Amounts     Fair Value      Amounts      Fair Value
                                   ------------  -----------   ------------  ------------
<S>                                <C>           <C>           <C>           <C>
Financial assets and liabilities:

  Cash and due from banks          $ 11,145,799  $ 11,145,799  $ 12,941,447  $ 12,941,447
  Cash surrender value of
    life insurance                    6,589,293     6,589,293     6,158,076     6,158,076
  Securities held-to-maturity        11,500,879    11,526,845     9,465,856     9,105,099
  Securities available-for sale      64,974,115    64,974,115   118,024,962   118,024,962
  Securities trading                  3,175,274     3,175,274     1,126,712     1,126,712
  Loans receivable, net             349,376,099   349,233,000   234,416,895   234,896,000
  Accrued interest receivable         4,860,860     4,860,860     3,251,939     3,251,939
  Federal Home Loan Bank Stock        3,786,500     3,786,500     5,988,200     5,988,200
  Demand and savings deposits       115,259,333   115,259,333    72,766,639    72,766,639
  Time deposits                     233,281,589   232,624,000   162,204,868   162,144,000
  Federal Home Loan Bank
    advances                         73,315,804    73,315,804   117,990,000   117,990,000
  Securities sold under
    agreements to repurchase            350,000       350,000     1,375,000     1,375,000
</TABLE>

      For purposes of the above disclosures of estimated fair value, the
      following assumptions were used. The estimated fair value for cash and due
      from banks, cash surrender value of life insurance, accrued interest
      receivable, and Federal Home Loan Bank ("FHLB") stock is considered to
      approximate cost. The estimated fair values for securities are based on
      quoted market values for the individual securities or for equivalent
      securities. The fair value for loans is estimated by discounting the
      future cash flows using the current rates the Company would charge for
      similar such loans at the applicable date. The estimated fair value for
      demand and savings deposits is based on the amount for which they could be
      settled on demand. The estimated fair values for time deposits, FHLB
      advances and securities sold

                                       46

<PAGE>

      under agreements to repurchase are based on estimates of the rate the
      Company would pay on such deposits and borrowed funds at the applicable
      date, applied for the time period until maturity. The estimated fair
      values for other financial instruments and off-balance sheet loan
      commitments approximate cost and are not considered significant to this
      presentation.

4.   INVESTMENT SECURITIES

      The amortized cost and estimated fair values of securities at September 30
are as follows:

<TABLE>
<CAPTION>

                                                      2001

                              ------------------------------------------------------
                                              Gross          Gross       Estimated
                                Amortized   Unrealized    Unrealized       Fair
Held-to-Maturity                   Cost       Gains          Losses        Value
                              ------------    --------    -----------   ------------
<S>                            <C>            <C>           <C>          <C>
Municipal Bonds                $ 9,487,265    $157,544      $(148,269)   $ 9,496,540
Corporate Bonds                  2,013,614      16,691           --        2,030,305
                              ------------    --------    -----------   ------------
              Total            $11,500,879    $174,235      $(148,269)   $11,526,845
                               ===========    ========      =========    ===========
</TABLE>

<TABLE>
<CAPTION>

                                                      2001

                              ------------------------------------------------------
                                              Gross          Gross       Estimated
                                Amortized   Unrealized     Unrealized      Fair
 Available-for-sale               Cost        Gains          Losses        Value
                              ------------    --------    -----------   ------------
<S>                            <C>          <C>               <C>        <C>
U.S. Government Agencies       $15,427,193  $  327,056        $  --      $15,754,249
Mortgage backed securities      35,699,548   1,390,670           --       37,090,218
Municipal Bonds                  2,980,824      71,367         (2,543)     3,049,648
Trust preferred securities       3,974,972      65,028           --        4,040,000
Equity preferred securities      5,040,000        --             --        5,040,000
                              ------------    --------    -----------   ------------
              Total            $63,122,537  $1,854,121        $(2,543)   $64,974,115
                               ===========    ========      =========    ===========
</TABLE>

<TABLE>
<CAPTION>

                                                      2000

                              ------------------------------------------------------
                                               Gross         Gross       Estimated
                                Amortized   Unrealized     Unrealized      Fair
Held-to-maturity                   Cost        Gains         Losses        Value
                              ------------    --------    -----------   ------------
<S>                             <C>            <C>          <C>           <C>
State and municipal securities  $9,465,856     $40,051      $(400,808)    $9,105,099
                              ------------    --------    -----------   ------------

              Total             $9,465,856     $40,051      $(400,808)    $9,105,099
                               ===========    ========      =========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                      2000
                              ------------------------------------------------------
                                            Gross            Gross       Estimated
                                 Amortized  Unrealized     Unrealized      Fair
  Available-for-sale               Cost       Gains          Losses        Value
                              ------------    --------    -----------   ------------
<S>                           <C>             <C>         <C>           <C>
U.S. Government agencies      $ 28,000,000    $   --      $  (904,802)  $ 27,095,198
Corporate Bonds                  4,000,000        --             --        4,000,000
Mortgage backed securities      87,683,250     493,043     (1,246,529)    86,929,764
                              ------------    --------    -----------   ------------
              Total           $119,683,250    $493,043    $(2,151,331)  $118,024,962
                              ============    ========    ===========   ============
</TABLE>

                                       47

<PAGE>

      The amortized cost and estimated fair value of debt securities at
      September 30, 2001, by contractual maturity, are shown below. Expected
      maturities will differ from contractual maturities because borrowers may
      have the right to call or prepay obligations with or without call or
      prepayment penalties.

<TABLE>
<CAPTION>
                                        Held-to-Maturity        Available-for-Sale
                                   -----------------------   -----------------------
                                                 Estimated                 Estimated
                                   Amortized       Fair      Amortized       Fair
                                     Cost          Value       Cost          Value
                                  -----------  -----------  -----------  -----------
<S>                               <C>          <C>          <C>          <C>
Due in one year or less           $ 2,018,614  $ 2,035,321  $ 1,269,437  $ 1,280,106
Due from one year to five years        20,000       20,045    2,188,435    2,243,116
Due from five years to ten years    2,744,762    2,831,567    1,695,742    1,793,761
Due after ten years                 6,717,503    6,639,912   17,229,375   17,526,914
Mortgage backed securities               --           --     35,699,548   37,090,218
Equity preferred securities              --           --      5,040,000    5,040,000
                                  -----------  -----------  -----------  -----------
            Total                 $11,500,879  $11,526,845  $63,122,537  $64,974,115
                                  ===========  ===========  ===========  ===========
</TABLE>

      Securities with a carrying value and a fair value of $29,507,871 and
      $10,648,549 at September 30, 2001 and 2000, respectively, were pledged to
      collateralize public and trust deposits.

5.   LOANS RECEIVABLE

      Loans receivable at September 30 are summarized as follows:

<TABLE>
<CAPTION>

                                  2001          2000
                             ------------  ------------
<S>                          <C>           <C>
Real estate loans:
  Single-family residential  $175,976,974  $175,625,198
  Multifamily residential         825,600     1,163,052
  Agricultural                 14,385,767     7,360,257
  Commercial                   73,282,495    25,729,930
                             ------------  ------------
    Total real estate loans   264,470,836   209,878,437

Other loans:
  Savings account loans         5,165,816     1,665,225
  Commercial business          65,722,144    12,554,881
  Other                        17,551,593    13,616,455
                             ------------  ------------
    Total other loans          88,439,553    27,836,561
                             ------------  ------------
    Total loans receivable    352,910,389   237,714,998

Less:
  Undisbursed loan proceeds       416,130     1,345,162
  Unearned fees, net              286,161       264,192
  Allowance for loan losses     2,831,999     1,688,749
                             ------------  ------------
    Loans receivable, net    $349,376,099  $234,416,895
                             ============  ============
</TABLE>


      The Company originates adjustable rate mortgage loans to hold for
      investment. The Company also originates 15 year and 30 year fixed rate
      mortgage loans and sells substantially all new originations of such loans
      to outside investors. Certain loans are originated for sale. These loans
      are typically held for sale only a short time, and do not represent a
      material amount in the aggregate prior to their sale. Normally the short
      time between origination and sale does not provide for significant
      differences between cost and market values.

                                       48

<PAGE>

      The Company is not committed to lend additional funds to debtors whose
      loans have been modified.

      The Company grants real estate loans, primarily single-family residential
      loans, and consumer and agricultural real estate loans, primarily in north
      and east Arkansas. Substantially all loans are collateralized by real
      estate or consumer assets.

6.   ACCRUED INTEREST RECEIVABLE

      Accrued interest receivable at September 30 is summarized as follows:

<TABLE>
<CAPTION>

                                           2001       2000
                                       ----------  ----------
<S>                                    <C>         <C>
Securities                             $  951,743  $1,202,317
Loans receivable                        3,909,117   2,049,622
                                       ----------  ----------
TOTAL                                  $4,860,860  $3,251,939
                                       ==========  ==========
</TABLE>

7.   ALLOWANCE FOR LOAN AND FORECLOSED REAL ESTATE LOSSES

      Activity in the allowance for losses on loans and foreclosed real estate
      for the years ended September 30, 2001, 2000, and 1999 is as follows:

<TABLE>
<CAPTION>

                                                    Foreclosed
                                         Loans     Real Estate
                                      -----------   ---------
<S>                                  <C>           <C>
BALANCE, SEPTEMBER 30, 1998           $ 1,684,441   $  42,092
  Charge-offs, net of recoveries          (41,102)    (42,092)
                                      -----------   ---------
BALANCE, SEPTEMBER 30, 1999             1,643,339        --
                                      -----------   ---------
  Provision for losses                    120,000        --
  Charge-offs, net of recoveries          (74,590)       --
                                      -----------   ---------
BALANCE, SEPTEMBER 30, 2000             1,688,749        --
                                      -----------   ---------
  Provision for losses                    200,000     100,000
  Balance transferred at acquisition    1,594,506        --
  Charge-offs, net of recoveries         (651,256)       --
                                      -----------   ---------
BALANCE, SEPTEMBER 30, 2001           $ 2,831,999   $ 100,000
                                      ===========   =========

</TABLE>

      Gross recoveries are not material.


                                       49

<PAGE>

8.   PREMISES AND EQUIPMENT

     Premises and equipment at September 30 are summarized as follows:

<TABLE>
<CAPTION>

                                                  2001           2000
                                              ------------   ------------
<S>                                           <C>            <C>
Cost:
  Land                                        $  1,483,490   $    573,490
  Buildings and improvements                    10,473,412      3,820,888
  Furniture, fixtures, and equipment             3,090,223      1,609,221
                                              ------------   ------------
                                                15,047,125      6,003,599
Less accumulated depreciation                   (2,772,971)    (2,223,749)
                                              ------------   ------------
TOTAL                                         $ 12,274,154   $  3,779,850
                                              ============   ============
</TABLE>

9.   DEPOSITS

      Deposits at September 30 are summarized as follows:

<TABLE>
<CAPTION>

                                                   2001          2000
                                              ------------   ------------
<S>                                           <C>            <C>
Checking accounts, including
  noninterest-bearing deposits of
  $24,180,340 and $11,402,437 in
  2001 and 2000, respectively                 $ 92,806,085   $ 57,461,316
Passbook savings                                22,453,248     15,305,323
Certificates of deposit                        233,281,589    162,204,868
                                              ------------   ------------
TOTAL                                         $348,540,922   $234,971,507
                                              ============   ============
</TABLE>

      The aggregate amount of short-term jumbo certificates of deposit with a
      minimum denomination of $100,000 was $31,757,753 and $26,779,134 at
      September 30, 2001 and 2000, respectively.

      At September 30, 2001, scheduled maturities of certificates of deposit are
as follows:

<TABLE>
<CAPTION>

Years ending September 30:                                       Total
                                                             ------------
<S>                                                          <C>
  2002                                                       $217,726,684
  2003                                                         10,984,903
  2004                                                          2,821,253
  2005                                                          1,343,958
  2006                                                            404,791
                                                             ------------
TOTAL                                                        $233,281,589
                                                             ============
</TABLE>

      Interest expense on deposits for the years ended September 30, 2001, 2000,
      and 1999, is summarized as follows:

<TABLE>
<CAPTION>
                                 2001             2000            1999
                             -----------      -----------      ----------
<S>                          <C>              <C>              <C>
Checking                     $   779,118      $ 1,008,497      $1,206,611
Passbook savings                 606,777          397,124         361,103
Certificates of deposit       12,030,388        8,944,560       7,328,110
                             -----------      -----------      ----------
TOTAL                        $13,416,283      $10,350,181      $8,895,824
                             ===========      ===========      ==========

</TABLE>

                                       50

<PAGE>

10.  FEDERAL HOME LOAN BANK ADVANCES

      The Company is required to purchase stock in the FHLB. Such stock may be
      redeemed at par but is not readily marketable. At September 30, 2001 and
      2000, the Company had stock of $3,786,500 and $5,988,200, respectively.
      Pursuant to collateral agreements with the FHLB, advances are
      collateralized by all of the Company's stock in the FHLB and by 75% of
      qualifying single-family first mortgage loans with a carrying value at
      September 30, 2001 and 2000, of approximately $169,319,000 and
      $132,000,000, respectively. Advances at September 30, 2001 and 2000, have
      maturity dates as follows:

<TABLE>
<CAPTION>

                                                      2001                             2000
                                         ------------------------------- ---------------------------------
                                           Weighted                        Weighted
                                           Average                         Average
                                             Rate          Amount            Rate           Amount
                                           --------    -------------       --------        --------------

<S>                                         <C>            <C>              <C>                 <C>
September 30:                                                                 -                     -
  2001                                                                      6.63%            $109,990,000
  2002                                      3.33%        $51,895,000        6.42%               4,000,000

  2003                                      6.60%         14,400,000          -                     -
  Greater than 5 years                      6.78%          7,020,804        7.03%               4,000,000
                                                       -------------                       --------------

TOTAL                                                  $  73,315,804                       $  117,990,000
                                                       =============                       ==============
</TABLE>

      Interest expense on FHLB advances was $5,117,593, $8,946,927, and
      $7,966,406 for the years ended September 30, 2001, 2000, and 1999,
      respectively. Interest rates on all FHLB advances are fixed as of
      September 30, 2001.

11.  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

      Securities sold under agreements to repurchase ("Reverse Repurchase
      Agreements" or "Reverse Repos") are as follows:

<TABLE>
<CAPTION>

                                                                                  2001              2000
                                                                             -------------       ------------
<S>                                                                          <C>                 <C>
Balance outstanding at September 30                                          $     350,000       $  1,375,000

Average balance during the year                                                  1,598,333          1,900,833

Average interest rate during the year                                                 5.38%              5.62%

Maximum month-end balance during the year                                        2,650,000          2,465,000

Investment securities underlying the agreements at year-end:
  Carrying value                                                                 3,965,037          2,528,996
  Estimated market value                                                         3,965,037          2,528,996

</TABLE>

      Interest expense on Reverse Repurchase Agreements was $99,206, $108,293,
      and $118,962 for the years ended September 30, 2001, 2000 and 1999,
      respectively.

12.  TRUST PREFERRED SECURITIES

      On March 28, 2001, the Company issued $7.5 million of trust-preferred
      securities with a coupon rate of 10.18%. The net proceeds to the Company
      were approximately $7.2 million. The Company contributed $5.0 million to
      the Bank on May 15, 2001, as additional paid-in capital to increase the
      Bank's capital percentages following the acquisition of Walden (see Note
      2). The Company used the

                                       51

<PAGE>

      remaining proceeds for general corporate purposes, including but not
      limited to additional business acquisitions, stock repurchases, dividends
      and corporate expenses. Under current tax law, the dividend paid on
      trust-preferred securities is deductible.

13.  DEFERRED COMPENSATION

      The Company has funded and unfunded deferred compensation agreements with
      a former executive and non-officer members of the Board of Directors. The
      plans limit the ability of the executive to compete with the Company and
      require that the directors continue to serve for a specified period of
      time. The amount of expense related to such plans for the years ended
      September 30, 2001, 2000 and 1999, was approximately $340,000, $277,000,
      and $277,000, respectively. During the year ended September 30, 2001, an
      additional expense of $900,730 was incurred related to the termination of
      the agreements with certain directors. As of September 30, 2001,
      approximately $534,000 had not been paid to certain directors as a result
      of the termination of the agreements. As of September 30, 2001, an
      additional amount of approximately $529,000 was payable to the directors
      under the remaining agreements.

      On March 2, 1999, the Company, the Bank and an executive entered into an
      Employment Separation Agreement and Release (the "Agreement"). The
      Agreement provides, among other things, for the payment by the Company to
      the executive of $2,750,000, in installments of not less than $150,000
      annually, with the entire unpaid amount due upon the executive's death.
      Total payments under this agreement were expensed during the year ended
      September 30, 1999. The unpaid balance earns interest at the Federal Funds
      rate, as determined each month, compounded monthly, until distributed. The
      unpaid balance, including accrued interest, was $2,476,414 and $2,645,814
      at September 30, 2001 and 2000, respectively. The Agreement provides that
      the executive will be entitled to an additional payout equal to $550,000
      should there be a change in control of the Company or the Bank on or
      before April 30, 2003. Pursuant to the Agreement, the executive forfeits
      all shares of restricted stock awarded to him under the Company's current
      Recognition and Retention Plan and foregoes any additional benefits
      accruals or contributions under the Company's Restated Supplemental
      Executive Retirement Agreement. Pursuant to the Agreement, the executive's
      employment agreement was terminated (except for certain specified
      provisions) and no further payouts under the Employment Agreement are due
      to him.

      On June 13, 2001, the Company, the Bank, and an executive entered into an
      agreement to terminate his employment as President and Chief Executive
      Officer (the "Termination Agreement") effective September 30, 2001. The
      Termination Agreement provides, among other things, for the payment by the
      Company to the executive of $1,600,000, in installments of not less than
      $60,000 annually, with the entire unpaid amount due upon the executive's
      death. Total payments under this agreement were expensed during the year
      ended September 30, 2001. The unpaid balances earn interest at the Federal
      Funds rate, as determined each month, compounded monthly, until
      distributed. The unpaid balance, including accrued interest, was
      $1,600,000 at September 30, 2001. Pursuant to the Termination Agreement,
      the parties agree that the stock options and common stock awarded to the
      executive under the stock option plans and the Recognition and Retention
      Plan shall continue to vest in accordance with the terms of such plans for
      so long as the executive maintains Continuous Service (as defined in the
      Termination Agreement) as an employee of the Company or the Bank. Pursuant
      to the Termination Agreement, the executive forgoes any additional benefit
      accruals or contributions under the Company's Restated Supplemental
      Executive Retirement Agreement.

14.  RETIREMENT PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN

      The Bank has a defined contribution retirement plan. The plan covers all
      employees who have accumulated one year with 1,000 hours of service in
      each year. A flat percentage rate, selected by

                                       52

<PAGE>

      discretion of the Board of Directors is applied to the base salary of each
      eligible employee. The Company made no contributions to the plan for the
      years ended September 30, 2001, 2000 and 1999.

      The Bank established an Employee Stock Ownership Plan ("ESOP") on October
      1, 1993. During 1994, the ESOP borrowed $523,250 which is collateralized
      by common stock of the Company and a guaranty of the Company. The note
      payable is guaranteed by the Company and was paid off during the year
      ended September 30, 1998. In connection with the Reorganization on March
      31, 1998, the Company established a new ESOP. During 1998, the ESOP
      borrowed approximately $2.9 million from the Company to purchase shares of
      Company stock. The loan is collateralized by the shares that were
      purchased with the proceeds of the loan. As the loan is repaid, ESOP
      shares will be allocated to participants of the ESOP and are available for
      release to the participants subject to the vesting provisions of the ESOP.
      The Company contributed $473,627, $514,858 and $302,425, respectively, to
      the ESOP in years ended September 30, 2001, 2000 and 1999.

      The Company also has a supplemental retirement plan for certain executive
      officers. The plan requires that a set amount be deposited into a trust
      each year until the executive officers reach 60 years of age. The amount
      of expense related to such plans was approximately $220,000, $220,000 and
      $402,000 for the years ended September 30, 2001, 2000 and 1999,
      respectively.

15.  INCOME TAXES

      The Company and subsidiaries file consolidated federal income tax returns
      on a fiscal year basis. During the year ended September 30, 1997, new
      legislation was enacted which provides for the recapture into taxable
      income of certain amounts previously deducted as additions to the bad debt
      reserves for income tax purposes. The Company began changing its method of
      determining bad debt reserves for tax purposes following the year ended
      September 30, 1996. The amounts to be recaptured for income tax reporting
      purposes are considered by the Company in the determination of the net
      deferred tax liability.

      Income tax provision (benefit) for the years ended September 30 is
summarized as follows:

<TABLE>
<CAPTION>

                                  2001               2000              1999
                           --------------     -------------     -------------
<S>                        <C>                <C>               <C>
Current                    $    1,307,841     $   1,740,487     $   1,748,077
Deferred                         (925,321)         (107,635)       (1,281,899)
                           --------------     -------------     -------------
TOTAL                      $      382,520     $   1,632,852     $     466,178
                           ==============     =============     =============
</TABLE>

      The net deferred tax amount, which is included in other assets at
      September 30, 2001, and other liabilities at September 30, 2000, consisted
      of the following:

<TABLE>
<CAPTION>

                                                           2001              2000
                                                        ----------       ----------
<S>                                                    <C>             <C>
Deferred tax assets:
  Deferred compensation                                $ 2,101,084     $  1,327,210
  Allowance for loan losses                                599,364          447,220
  Unrealized loss on securities - trading                       --          162,753
  Unrealized loss on available-for-sale securities              --          537,238
  Core deposit premium amortization
  Other                                                    116,608           96,703
                                                        ----------       ----------
                                                            27,593          122,590
                                                        ----------       ----------
          Total deferred tax assets                      2,844,649        2,693,714

Deferred tax liabilities:
  Acquired intangibles                                  (2,296,511)              --


  Unrealized gain on available-for-sale securities        (629,537)              --
  FHLB stock dividends                                    (202,205)        (628,423)
  Other                                                    (38,283)         (12,686)
                                                        ----------       ----------
            Total deferred tax liabilities              (3,166,536)        (641,109)
                                                        ----------       ----------
Net deferred tax asset (liability)                     $  (321,887)    $  2,052,605
                                                        ==========       ==========
</TABLE>

                                       53

<PAGE>

      The income tax provision differed from the amounts computed by applying
      the federal income tax rates as a result of the following:

<TABLE>
<CAPTION>

                                        2001                         2000                         1999
                                ---------------------        -------------------          ------------------

<S>                              <C>        <C>              <C>      <C>                  <C>      <C>
Expected income tax expense      34.0%      $ 609,087        34.0%    $1,728,724           34.0%    $482,261
Exempt income                   (10.2)       (183,515)       (3.0)      (155,637)         (10.2)    (144,679)
Cash surrender value of life
  insurance                        --              -           -             -             (6.4)     (90,565)
State tax, net of federal
benefit                           1.8          32,624         7.1        363,357           11.2      158,669
ESOP contribution                  --              -           -             -             (1.8)     (25,343)
Change in estimate               (4.8)        (85,849)       (0.2)       (10,208)             -          -
Other                             0.6          10,173        (6.0)      (293,384)           6.1       85,835
                                ------       --------        -----    ----------          ------    --------
TOTAL                            21.4%       $382,520        31.9%    $1,632,852           32.9%    $466,178
                                ======       ========        =====    ==========           =====    ========
</TABLE>

      The Company and the Bank provide for the recognition of a deferred tax
      asset or liability for the future tax consequences of differences in
      carrying amounts and tax bases of assets and liabilities. Specifically
      exempted from this provision are bad debt reserves for tax purposes of
      U.S. savings and loan associations in the association's base year, as
      defined. Base year reserves total approximately $2,979,000 at September
      30, 2001. Consequently, a deferred tax liability of approximately
      $1,141,000 related to such reserves is not provided for in the statement
      of financial condition at September 30, 2001.

16.  REGULATORY MATTERS

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

      Quantitative measures established by regulation to ensure capital adequacy
      require the Bank to maintain minimum amounts and ratios (set forth in the
      table below) of tangible and core capital (as defined in the regulations)
      to adjusted total assets (as defined), and of total capital (as defined)
      to risk weighted assets (as defined). Management believes, as of September
      30, 2001, that the Bank meets all capital adequacy requirements to which
      it is subject.

      As of September 30, 2001 and 2000, the most recent notification from the
      OTS categorized the Bank as well capitalized under the regulatory
      framework for prompt corrective action. To be categorized as well
      capitalized the Bank must maintain minimum total, tangible, and core
      capital ratios as set forth in the table below. There are no conditions or
      events since that notification that management believes have changed the
      institution's category.

                                       54

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                                           Required To
                                                                                                         Be Categorized
                                                                                                            As Well
                                                                                     Required           Capitalized Under
                                                                                    For Capital         Prompt Corrective
                                                          Actual                 Adequacy Purposes      Action Provisions
                                                   -----------------------    ---------------------     -------------------
                                                    Amount          Ratio     Amount          Ratio       Amount      Ratio
                                                   --------         -----     ------          -----       ------      ------
<S>                                                <C>               <C>      <C>             <C>
As of September 30, 2001:
  Tangible capital to tangible assets              $33,153           7.14%   $ 6,968          1.50%         N/A         N/A
  Core capital to adjusted tangible
    assets                                          33,153           7.14     18,581          4.00     $ 23,227        5.00

  Total capital to risk weighted
    assets                                          35,599          10.17     27,993          8.00       34,991       10.00

  Tier I capital to risk weighted
    assets                                          33,153           9.47     13,996          4.00       20,995        6.00

As of September 30, 2000:

  Tangible capital to tangible assets              $35,423           8.92%   $ 5,955          1.50%         N/A         N/A

  Core capital to adjusted tangible
    assets                                          35,423           8.92     15,880          4.00      $19,850        5.00

  Total capital to risk weighted
    assets                                          37,050          17.66     16,784          8.00       20,968       10.00

  Tier I capital to risk weighted
    assets                                          35,423          16.88      8,392          4.00       12,581        6.00
</TABLE>

17.  RETAINED EARNINGS

      The Bank may not declare or pay cash dividends on its shares of common
      stock if the effect thereof would cause the Bank's stockholders' equity to
      be reduced below applicable regulatory capital maintenance requirements
      for insured institutions or below the special liquidation account referred
      to above. This requirement effectively limits the dividend paying ability
      of the Company in that the Company must maintain an investment in equity
      of the Bank sufficient to enable the Bank to meet its requirements as
      noted above. Required capital amounts are shown in Note 16 to the
      consolidated financial statements. Liquidation account balances are not
      maintained because of the cost of maintenance and the remote likelihood of
      complete liquidation. Additionally, the Bank is limited to distributions
      it may make to Bancorp without OTS approval if the distribution would
      cause the total distributions to exceed the Bank's net income for the year
      to date plus the Bank's net income (less distributions) for the preceding
      two years. Bancorp may use assets other than its investment in the Bank as
      a source of dividends.

18.  EARNINGS PER SHARE

<TABLE>
<CAPTION>

                                                                      Year Ended September 30
                                                                2001             2000              1999
                                                             ---------         ---------        ---------
<S>                                                          <C>               <C>              <C>
Basic EPS weighted average shares                            4,295,002         5,166,038        5,802,860
Add dilutive effect of unexercised options                         791             6,713           34,759
                                                             ---------         ---------        ---------
            Dilutive EPS weighted average shares             4,295,793         5,172,751        5,837,619
                                                             =========         =========        =========
</TABLE>

19.  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 consolidated
      financial statements of the Company and subsidiaries.

                                       55

<PAGE>

20.  FINANCIAL INSTRUMENTS

      The Company is a party to financial instruments with off-balance sheet
      risk in the normal course of business to meet the financing needs of its
      customers and to reduce its own exposure to fluctuations in interest
      rates. These financial instruments include commitments to extend credit,
      standby letters of credit and financial guarantees. Those instruments
      involve, to varying degrees, elements of credit and interest-rate risk in
      excess of the amount recognized in the consolidated statements of
      financial condition. Instruments used to reduce exposure to fluctuations
      in interest rates are considered in the aggregate and individually
      immaterial. The contract or notional amounts of those instruments reflect
      the extent of the Company's involvement in particular classes of financial
      instruments.

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

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

      Commitments to Extend Credit and Financial Guarantees - Commitments to
      extend credit are agreements to lend to a customer as long as there is no
      violation of any condition established in the contract. Commitments
      generally have fixed expiration dates or other termination clauses and may
      require payment of a fee. Since many of the commitments are expected to
      expire without being drawn upon, the total commitment amounts do not
      necessarily represent future cash requirements. The Company evaluates each
      customer's creditworthiness on a case-by-case basis. The amount of
      collateral obtained, if it is deemed necessary by the Company upon
      extension of credit, is based on management's credit evaluation of the
      counterparty.

      Standby letters of credit are conditional commitments issued by the
      Company to guarantee the performance of a customer to a third party. The
      credit risk involved in issuing letters of credit is essentially the same
      as that involved in extending loan facilities to customers. The Company
      holds marketable securities as collateral supporting these commitments for
      which collateral is deemed necessary.

      At September 30, 2001, the Company had the following outstanding
commitments to extend credit:

<TABLE>

<S>                                                     <C>
Undisbursed loans in process                            $      416,130
Unfunded lines and letters of credit                        10,311,631
Outstanding loan commitments                                 5,238,404
                                                        --------------
            Total outstanding commitments               $   15,966,165
                                                        ==============
</TABLE>

      The Company has not incurred any losses on its commitments in any of the
      three years in the period ended September 30, 2001.

                                       56

<PAGE>

19.   RELATED PARTY TRANSACTIONS

      In the normal course of business, the Company has made loans to its
      directors, officers, and their related business interests. In the opinion
      of management, related party loans are made on substantially the same
      terms, including interest rates and collateral, as those prevailing at the
      time for comparable transactions with unrelated persons and do not involve
      more than the normal risk of collectibility. The aggregate dollar amount
      of loans outstanding to directors, officers, and their related business
      interests total approximately $14,233,928, $1,542,073 and $1,045,214 at
      September 30, 2001, 2000 and 1999, respectively. The increase in the
      amount of loans outstanding to directors, officers, and their related
      business interests was a result of the appointment of new directors during
      the year ended September 30, 2001. During the year ended September 30,
      2001, total principal additions were $17,514,900 and total principal
      payments were $4,823,045.

      Deposits from related parties held by the Company at September 30, 2001
      and 2000, amounted to $4,530,282 and $627,578, respectively.

22.  RESTRICTED STOCK AWARD PROGRAMS AND STOCK OPTION PLANS

      1994 Incentive Stock Option Plan -

      The 1994 Incentive Stock Option Plan for senior executives and key
      employees granted options to purchase 49,833 shares of common stock. The
      plan authorizes the grant of incentive stock options, non-statutory stock
      options, and limited rights. Under the plan, options become exercisable
      20% after each of the five years following the grant. The exercise price
      for incentive stock options may not be less than the fair market value of
      the underlying shares on the date of grant. The plan is administered by a
      committee of the Board of Directors. The committee has the authority to
      determine the employees to whom awards will be made, the amount of the
      awards, and the other terms and conditions of the awards.

      1994 Stock Option Plan -

      The 1994 Stock Option Plan for outside directors may grant non-qualified
      stock options to purchase shares of common stock for each outside director
      who was serving in such a capacity on the date of the Company's initial
      stock offering in 1994. The purchase price of the common stock deliverable
      upon the execution of each non-qualified stock option was the price at
      which the common stock of the Company was offered in the initial offering
      ($10). The Company granted options on 20,643 shares of common stock
      (options on 24,917 shares may be granted under the plan). The plan also
      provides for subsequent grants of non-qualifying stock options to others
      who become outside directors after the date of the offering. Options
      reserved for future grant shall vest ratably at 20% each year commencing
      on the first September 30th after the person becomes an outside director
      through September 30, 2002, at which time all options shall become vested.

      1998 Stock Option Plan -

      The Company's stockholders adopted 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 any one or a combination of incentive stock options,
      non-statutory or compensatory stock options, limited rights, dividend
      equivalent rights and reload options, representing up to 357,075 shares of
      the Company's stock. The options will vest in equal amounts over five
      years beginning one year from the date of grant. Options granted vest
      immediately in the event of retirement, disability, or death and are
      generally exercisable for a three year period following such event.
      Outstanding stock options expire no later than 10 years from the date of
      grant. 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

                                       57

<PAGE>

      date of grant. The Company granted 350,000 options on October 23, 1998,
      which have an exercise price of $9.00 per share, the fair value of the
      stock on that date. The weighted average remaining contractual life of the
      options as of September 30, 2001, is 7.1 years.

      A summary of the activity of the Company's 1998 Stock Option Plan is as
follows:

<TABLE>
<CAPTION>

                                                              Weighted
                                                              Average
                                                              Exercise
                                               Shares          Price
                                              -------         ---------
<S>                                           <C>              <C>
Outstanding at September 30, 1999             350,000          $9.00
Granted                                          -
Exercised                                        -
Forfeited                                        -
                                              -------
Outstanding at September 30, 2000             350,000          $9.00
Granted
Exercised                                        -
Forfeited                                        -
                                              -------
Outstanding at September 30, 2001             350,000          $9.00
                                              =======
Options exercisable at September 30, 2000      70,000
                                              =======
Options exercisable at September 30, 2001     197,600          $9.00
                                              =======
</TABLE>

      The Company applies the provisions of APB 25 in accounting for its stock
      options plans, as allowed under SFAS 123, Accounting for Stock-Based
      Compensation. Accordingly, no compensation cost has been recognized for
      the options granted to employees or directors. Had compensation cost for
      these plans 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 would have
      been as follows:

<TABLE>
<CAPTION>

                                         Year Ended September 30
                                     --------------------------------
                                       2001         2000         1999
                                      -----        -----         -----
<S>                                   <C>          <C>           <C>
Net income (in thousands):
  As reported                         $1,409       $3,452        $952
                                         999        3,180         816
Earnings per share:
  Basic - as reported                  0.33          0.67        0.16
  Basic - pro forma                    0.23          0.62        0.14
  Diluted - as reported                0.33          0.67        0.16
  Diluted - pro forma                  0.23          0.62        0.14
</TABLE>

      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%.

                                       58

<PAGE>

      1998 Recognition Plan -

      The 1998 Recognition and Retention Plan ("RRP") provides for a committee
      of the Company's Board of Directors to award restricted stock to key
      officers as well as non-employee directors. The RRP authorizes the Company
      to grant up to 142,830 shares of the Company's common stock. The Committee
      granted 142,830 shares to key officers and non-employee directors on
      October 23, 1998.

      Compensation expense is being recognized based on the fair market value of
      the shares on the grant date of $9.00 over the vesting period. The shares
      will vest equally over a five year period with the first vesting date of
      January 3, 2000. Shares granted will be vested immediately in the event of
      disability or death. Approximately $161,000 and $247,000 in compensation
      expense was recognized during the year ended September 30, 2001 and 2000,
      respectively.

23.  OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
                                                              Year Ended September 30, 2001
                                                   ------------------------------------------------
                                                    Before Tax       Tax Expense        Net-of-Tax
                                                       Amount         (Benefit)           Amount
                                                    -----------       ----------        -----------
<S>                                                 <C>               <C>               <C>
UNREALIZED GAINS (LOSSES) ON SECURITIES:
  Unrealized holding gain (loss) on securities
    arising during period                           $ 3,889,876       $ 1,322,558       $ 2,567,318
  Less reclassification adjustment for
    (gains) losses included in net income              (380,009)         (129,203)         (250,806)
                                                    -----------       ----------        -----------
            Other comprehensive income (loss)       $ 3,509,867       $ 1,193,355       $ 2,316,512
                                                    ===========       ===========       ===========
</TABLE>


<TABLE>
<CAPTION>
                                                              Year Ended September 30, 2000
                                                    -----------------------------------------------
                                                     Before Tax      Tax Expense         Net-of-Tax
                                                       Amount         (Benefit)            Amount
                                                    -----------       ----------        -----------
<S>                                                 <C>               <C>               <C>
UNREALIZED GAINS (LOSSES) ON SECURITIES:
  Unrealized holding gain (loss) on securities
    arising during period                           $(1,828,831)      $ (621,803)       $(1,207,028)
  Less reclassification adjustment for
    (gains) losses included in net income              (447,563)        (152,171)          (295,392)
                                                    -----------       ----------        -----------
            Other comprehensive income (loss)       $(2,276,394)      $ (773,974)       $(1,502,420)
                                                    ============    ============        ===========
</TABLE>

<TABLE>
<CAPTION>
                                                              Year Ended September 30, 1999
                                                   ------------------------------------------------
                                                     Before Tax      Tax Expense         Net-of-Tax
                                                       Amount         (Benefit)            Amount
                                                    -----------       ----------        -----------
<S>                                                 <C>               <C>               <C>
UNREALIZED GAINS (LOSSES) ON SECURITIES:
  Unrealized holding gain (loss) on securities
    arising during period                           $(1,956,309)    $   (665,145)       $(1,291,164)
  Less reclassification adjustment for
    (gains) losses included in net income              (161,411)         (54,880)          (106,531)
                                                    -----------       ----------        -----------
            Other comprehensive income (loss)       $(2,117,720)    $   (720,025)       $(1,397,695)
                                                    ============    ============        ===========
</TABLE>



                                       59

<PAGE>

24.  SUBSEQUENT EVENTS

      The Company entered into an Agreement and Plan of Merger (the "Plan of
      Merger") with North Arkansas Bancshares, Inc. ("NARK"), which provides,
      among other things, that (i) NARK will be merged (the "Merger") with and
      into the Company, with the Company as the surviving corporation (ii)
      Newport Federal Savings Bank, the savings bank subsidiary of NARK
      ("Newport Federal"), will be merged with and into the Bank with the Bank
      as the surviving institution, (iii) each outstanding share of NARK common
      stock issued and outstanding at the effective time of the Merger will be
      converted into shares of common stock of the Company in accordance with an
      "Exchange Ratio," as defined in the Plan of Merger, and (iv) each share of
      the Registrant's common stock issued and outstanding immediately prior to
      the effective time of the Merger will remain an outstanding share of
      common stock of the Company. The directors and executive officers of NARK
      have entered into agreements to vote NARK shares owned by them in favor of
      the Plan of Merger.

      In connection with the Plan of Merger, the Company and NARK entered into a
      Stock Option Agreement in which NARK granted to the Company the option to
      purchase, under certain conditions, up to 55,802 shares of NARK common
      stock at an exercise price of $11.25 per share. The option is exercisable
      only upon the occurrence of certain events that would jeopardize
      completion of the Merger. The Stock Option Agreement also permits the
      Company to require NARK to repurchase the option shares.

      Consummation of the Merger is subject to certain conditions, including the
      approval of stockholders of NARK, and the receipt of all required
      regulatory approvals. The Merger is structured as a tax-free
      reorganization. It is expected that the Merger will be completed prior to
      June 30, 2002.

                                       60

<PAGE>

22. PARENT COMPANY ONLY FINANCIAL INFORMATION

    The following condensed statements of financial condition as of September
    30, 2001 and 2000, and condensed statements of income and cash flows for
    the years ended September 30, 2001 and 2000, for Pocahontas Bancorp, Inc.
    should be read in conjunction with the consolidated financial statements
    and the notes herein.

    POCAHONTAS BANCORP, INC.
    (PARENT COMPANY ONLY)

    CONDENSED STATEMENTS OF FINANCIAL CONDITION
    SEPTEMBER 30, 2001 AND 2000

<TABLE>
<CAPTION>
                                                         2001            2000
    <S>                                              <C>             <C>
    ASSETS

    Deposit in Bank                                  $  2,317,583    $  4,013,763
    Investment in Bank                                 48,392,301      36,481,860
    Loan receivable                                     2,000,068       2,443,525
    Investment securities                               3,175,274       1,126,712
    Other assets                                          878,842       2,145,272
                                                     ------------    ------------

    TOTAL ASSETS                                     $ 56,764,068    $ 46,211,132
                                                     ============    ============

    LIABILITIES AND STOCKHOLDERS' EQUITY

    Accrued expenses and other liabilities           $    335,253    $  2,186,988
    Deferred compensation                               4,609,205       2,645,814
    Trust preferred securities                          7,231,058               -
    Stockholders' equity                               44,588,552      41,378,330
                                                     ------------    ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $ 56,764,068    $ 46,211,132
                                                     ============    ============

    CONDENSED STATEMENTS OF INCOME
    YEARS ENDED SEPTEMBER 30, 2001 AND 2000

    INCOME:
      Interest and dividend income                   $    593,573    $    515,573

    EXPENSES:
      Operating expenses                                3,907,547         785,477
                                                     ------------    ------------

    LOSS BEFORE INCOME TAXES AND EQUITY IN
      IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY     (3,313,974)       (269,904)
    INCOME TAX BENEFIT                                 (1,128,956)       (289,582)
                                                     ------------    ------------
    INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED
      EARNINGS OF BANK SUBSIDIARY                      (2,185,018)         19,678

    EQUITY IN UNDISTRIBUTED EARNINGS OF BANK
      SUBSIDIARY                                        3,593,929       3,431,951
                                                     ------------    ------------

    NET INCOME                                       $  1,408,911    $  3,451,629
                                                     ============    ============
</TABLE>

                                             61

<PAGE>

POCAHONTAS BANCORP, INC.
(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                   2001            2000
<S>                                                           <C>             <C>
 OPERATING ACTIVITIES:

 Net income                                                   $  1,408,911    $  3,451,629
 Adjustments to reconcile net income to net cash provided
   (used) by operating activities:
   Equity in undistributed earnings of Bank subsidiary          (3,593,929)     (3,431,951)
   Stock compensation                                              610,140         504,704
   Changes in operating assets and liabilities:
     Investment securities                                      (2,048,562)        302,484
     Loan receivable                                               443,457
     Other assets                                                1,266,430        (744,157)
     Accrued expenses and other liabilities                     (1,851,735)       (915,743)
     Deferred compensation                                       1,963,391         (57,074)
                                                              ------------    ------------

           Net cash provided (used) by operating activities     (1,801,897)       (890,108)

 INVESTING ACTIVITIES:
   Distribution from (to) subsidiary                          $ (6,000,000)   $ 13,000,000

 FINANCING ACTIVITIES:
   Options exercised                                                35,588          21,253
   Dividends paid                                               (1,160,929)     (1,327,605)
   Proceeds from issuance of trust preferred securities,
     net of issuance costs                                       7,231,058
   Purchase of treasury stock                                            -      (7,801,669)
                                                              ------------    ------------

           Net cash used by financing activities                 6,105,717      (9,108,021)
                                                              ------------    ------------

 NET INCREASE (DECREASE)
   IN CASH AND CASH EQUIVALENTS                                 (1,696,180)      3,001,871

 CASH AND CASH EQUIVALENTS
   Beginning of period                                           4,013,763       1,011,892
                                                              ------------    ------------

   End of period                                              $  2,317,583    $  4,013,763
                                                              ============    ============
</TABLE>

                                       62

<PAGE>

26.  QUARTERLY FINANCIAL DATA (UNAUDITED)

      The following tables represent summarized data for each of the four
      quarters in the years ended September 30, 2001 and 2000:

                                                          2001
                                           (in thousands, except per share data)

                                          Fourth     Third     Second     First
                                          Quarter   Quarter    Quarter   Quarter

      Interest income                     $ 8,528   $ 7,435    $ 6,872   $ 7,056
      Interest expense                      4,967     4,772      4,459     4,901
                                          -------   -------    -------   -------

      Net interest income                   3,561     2,663      2,413     2,155
      Provision for loan losses               200         -          -         -
                                          -------   -------    -------   -------

      Net interest income after
       provision for loan losses            3,361     2,663      2,413     2,155
      Non-interest income                     755     1,172      1,061       674
      Non-interest expense                  3,109     5,272      2,096     1,986
                                          -------   -------    -------   -------

      Income (loss) before income taxes     1,007    (1,437)     1,378       843
      Income tax expense (benefit)            115      (473)       550       190
                                          -------   -------    -------   -------

      Net (loss) income                   $   892   $  (964)   $   828   $   653
                                          =======   =======    =======   =======

      Basic earnings per share            $  0.21   $  0.22    $  0.19   $  0.15

      Diluted earnings per share          $  0.21   $  0.22    $  0.19   $  0.15


      Cash dividends declared per
        common share                      $ 0.065   $ 0.065    $ 0.065   $ 0.065


                                                           2000
                                           (in thousands, except per share data)

                                          Fourth     Third     Second     First
                                          Quarter   Quarter    Quarter   Quarter

      Interest income                     $ 7,037   $ 7,415    $ 7,659   $ 7,816
      Interest expense                      4,908     4,981      4,904     4,932
                                          -------   -------    -------   -------

      Net interest income                   2,129     2,434      2,755     2,884
      Provision for loan losses               120         -          -         -
                                          -------   -------    -------   -------

      Net interest income after
       provision for loan losses            2,009     2,434      2,755     2,884
      Non-interest income                     761       879        630       832
      Non-interest expense                  1,695     2,125      2,177     2,102
                                          -------   -------    -------   -------

      Income before income taxes            1,075     1,188      1,208     1,614
      Income tax expense                      218       441        399       575
                                          -------   -------    -------   -------
      Net income                          $   857   $   747    $   809   $ 1,039
                                          =======   =======    =======   =======

      Basic earnings per share            $  0.18   $  0.14    $  0.15   $  0.20

      Diluted earnings per share          $  0.18   $  0.14    $  0.15   $  0.20

      Cash dividends declared per
        common share                      $ 0.065   $ 0.065    $ 0.060   $ 0.060


                                   * * * * * *

                                       63

<PAGE>

ITEM 9      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------      ---------------------------------------------------------------
            FINANCIAL DISCLOSURE
            --------------------

        Not applicable.

                                       64

<PAGE>

                                    PART III

ITEM 10  DIRECTORS AND OFFICERS OF THE REGISTRANT
-------  ----------------------------------------

     The table below sets forth certain information, as of September 30, 2001,
regarding members of the Company's Board of Directors, including the terms of
office of Board members.

<TABLE>
<CAPTION>
                                                                       Shares of
                                                                     Common Stock
                             Positions                               Beneficially
                            Held in the    Served   Current Term       Owned on        Percent
Name (1)              Age     Company     Since (2)   to Expire      Record Date (3)  Of Class
--------              ---     -------     ---------   ---------      ---------------  --------
<S>                <C>   <C>           <C>         <C>            <C>              <C>
Directors Continuing in Office
------------------------------

Ralph B. Baltz        53      Chairman     1986         2003           193,094          4.3%

Marcus Van Camp       52      Director     1990         2003            42,352            *

N. Ray Campbell       50      Director     1992         2003            54,299          1.2%

Dwayne Powell         36      President,   2000         2004           166,633          3.7%
                              CEO And
                              Director

Nominees
--------

James A. Edington     50      Director     1994         2002           229,611          5.1%

Robert Rainwater      65      Director     1981         2002            42,524          1.0%

A.J. Baltz, JR        74      Director     2001         2002           190,952          4.3%
</TABLE>


___________________________


*    Less than 1%
(1)  The mailing address for each person listed is 1700 East Highland Drive,
     Jonesboro, AR 72401. Each of the persons listed is also a director of First
     Community Bank (the "Bank"), the Company's wholly owned subsidiary.
(2)  Reflects initial appointment to the Board of Directors of the Bank's mutual
     predecessor.
(3)  See definition of "beneficial ownership" in the table "Beneficial Ownership
     of Common Stock."

                                       65

<PAGE>

     James A. Edington served as President and CEO from April 1999 through
September 2001. Prior to that he served the Bank and the Company as Executive
Vice President. He has been the Bank's compliance officer, security officer,
secretary, and treasurer. Mr. Edington has been employed in executive roles with
the Bank since 1983.

     Ralph P. Baltz has been Chairman of the Board of the Bank since January
1997 and of the Company since its formation. Mr. Baltz is a general contractor
and residential developer and is the President and owner/operator of Tri-County
Sand and Gravel, Inc.

     Marcus Van Camp is the Superintendent of Schools at Pocahontas Public
Schools, and has been employed by such schools for 25 years.

     N. Ray Campbell is the owner and operator of Big Valley Trailer
Manufacturing. Prior to this, Mr. Campbell was the Plant Manager of Waterloo
Industries, an industrial firm located in Pocahontas, Arkansas.

     Robert Rainwater is semi-retired. Prior to his retirement, Mr. Rainwater
was the owner of Sexton Pharmacy in Walnut Ridge, Arkansas.

     Dwayne Powell, CPA, is the President and CEO, being appointed in October
2001. Previously, he served as Chief Financial Officer of the Bank from October
1996 thru September 2001 and of the Company since its formation. Prior to that,
Mr. Powell was an Audit Manager for Deloitte & Touche LLP, primarily serving
financial institution clients.

     A. J. Baltz, Jr. is owner and operator of Baltz Feed Store in Pocahontas,
AR. Mr. Baltz owns farmland and leases out commercial properties. Mr. Baltz is a
distant cousin of Ralph P. Baltz.

                                       66

<PAGE>

ITEM 11         EXECUTIVE COMPENSATION
-------         ----------------------

         The following table sets forth for the years ended September 30, 2001,
2000, and 1999, certain information as to the total remuneration paid by the
Company to the Chief Executive Officer and all other executive officers whose
salary and bonuses exceeded $100,000 ("Named Executive Officers").

<TABLE>
<CAPTION>
                                                                               Long-Term Compensation
                                                                            -----------------------------
                                                Annual Compensation              Awards            Payout
                                           -------------------------------  -----------------------------
                                   Year                           Other      Restricted   Options/                   All
Name and                          Ended                        Annual Com-     Stock       SARS       LTIP          Other
PrincipalPosition                Sept.30,  Salary (1)  Bonus    pensation    Awards (3)    (#)       Payouts     Compensation
-----------------                --------  ----------  -----    ---------    ----------    ---       -------     ------------
(2)
---
<S>                              <C>      <C>          <C>     <C>           <C>         <C>         <C>         <C>
Dwayne Powell .................    2001     169,250       --        --         --          --            --         34,667
   President and CEO(4) .......    2000     153,500       --        --         --          --            --         27,668
 ..............................    1999     150,175       --        --      321,354      80,000          --         29,387
</TABLE>

------------------------------------
(1)  Includes Board of Director and committee fees.
(2)  Consists of payments made pursuant to the Bank's Profit Sharing Plan. See
     "--Benefits for Employees and Officers." Also includes the Bank's
     contributions or allocations (but not earnings) pursuant to the Bank's
     Employee Stock Ownership Plan. Does not include benefits pursuant to the
     Bank's Pension Plan. See "--Benefits for Employees and Officers."
(3)  Represents awards made pursuant to the Company's Recognition and Retention
     Plan for Employees, which awards vest in five equal annual installments
     commencing on January 3, 2000. Dividends on such shares accrue and are paid
     to the recipient when the shares are granted. The value of such shares was
     determined by multiplying the number of shares awarded by the price at
     which the shares of common stock were sold.
(4)  Mr. Powell was appointed President and Chief Executive Officer in October
     2001 upon retirement of Mr. Edington.

<TABLE>
<CAPTION>
=================================================================================================================

                              AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                       FISCAL YEAR-END OPTION VALUES

=================================================================================================================

           Name               Shares       Value       Number of Unexercised           Value of Unexercised
                             Acquired    Realized           Options at               In-The-Money Options at
                               Upon                       Fiscal Year-End                Fiscal Year-End
                             Exercise
                                                   --------------------------------------------------------------
                                                     Exercisable/Unexercisable      Exercisable/Unexercisable
=================================================================================================================
<S>                             <C>                          <C>                              <C>

Dwayne Powell                   --                           0/80,000                         $0/$0



=================================================================================================================
</TABLE>

                                       67

<PAGE>

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

     Persons and groups who beneficially own in excess of 5% of Common Stock are
required to file certain reports with the Securities and Exchange Commission
(the "SEC") regarding such ownership pursuant to the Securities Exchange Act of
1934 (the "Exchange Act").

     The following table sets forth, as of the Record Date, the shares of Common
Stock beneficially owned by the Company's directors, named executive officers
(as defined in "--Executive Compensation"), and executive officers and directors
as a group, as well as each person who was the beneficial owner of more than 5%
of the outstanding shares of Company Common Stock as of the Record Date.

                                          Amount of Shares
                                          Owned and Nature  Percent of Shares of
                                            of Beneficial       Common Stock
Holder                                      Ownership (1)      Outstanding (4)
------                                      -------------      ---------------

All Directors and Executive Officers
as a Group (8 persons)                         919,465              20.6%

Pocahontas Federal Savings and Loan            468,623              10.5%
401(k) Savings and Employee Stock
Ownership Plan. (2)(3)

----------
(1)  Based solely upon the filings made pursuant to the Exchange Act and
     information furnished by the respective persons. In accordance with Rule
     13d-3 under the Exchange Act, a person is deemed to be the beneficial owner
     for purposes of this table, of any shares of Common Stock if he has sole or
     shared voting or investment power with respect to such shares, or has a
     right to acquire beneficial ownership at any time within 60 days from the
     date as to which beneficial ownership is being determined. As used herein,
     "voting power" is the power to vote or direct the voting of shares and
     "investment power" is the power to dispose or direct the disposition of
     shares. Includes all shares held directly as well as shares owned by
     spouses and minor children, in trust and other indirect ownership, over
     which shares the named individuals effectively exercise sole or shared
     voting or investment power.
(2)  Under the First Community Bank 401(k) Savings and Employee Stock Ownership
     Plan (the "ESOP"), shares allocated to participants' accounts are voted in
     accordance with the participants' directions. Unallocated shares held by
     the ESOP are voted by the ESOP Trustee in the manner calculated to most
     accurately reflect the instructions it has received from the participants
     regarding the allocated shares. As of the Record Date, 367,717 shares of
     Common Stock were allocated under the ESOP.
(3)  Excludes 43,274 shares of Common Stock or 8.5% of the shares of Common
     Stock outstanding, owned by the ESOP for the benefit of the named Executive
     Officers of the Bank.
(4)  Total Common Stock outstanding includes shares that may be acquired
     pursuant to presently exercisable options.

                                       68

<PAGE>

ITEM 13   CERTAIN TRANSACTIONS
-------   --------------------

     The Bank has followed a policy of granting consumer loans and loans secured
by one to four family real estate to officers, directors and employees. Loans to
directors and executive officers are made in the ordinary course of business and
on the same terms and conditions as those of comparable transactions with the
general public prevailing at the time, in accordance with the Bank's
underwriting guidelines, and do not involve more than the normal risk of
collectability or present other unfavorable features.

     All loans by the Bank to its directors and executive officers are subject
to OTS regulations restricting loan and other transactions with affiliated
persons of the Bank. Federal law generally requires that all loans to directors
and executive officers be made on terms and conditions comparable to those for
similar transactions with non-affiliates, subject to limited exceptions.
However, recent regulations now permit executive officers and directors to
receive the same terms on loans through plans that are widely available to other
employees, as long as the director or executive officer is not given
preferential treatment compared to the other participating employees. Loans to
all directors, executive officers, and their associates totaled $14,233,928 at
September 30, 2001, which was 31.9% of the Company's stockholders' equity at
that date. There were no loans outstanding to any director, executive officer or
their affiliates at preferential rates or terms during the three years ended
September 30, 2001. All loans to directors and officers were performing in
accordance with their terms at September 30, 2001.

                                     PART IV

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

     (a)(1)  Financial Statements
             --------------------

     Financial statements have been included in Item 8.

     (a)(2)  Financial Statement Schedules
             -----------------------------

     All financial statement schedules have been omitted as the required
information is inapplicable or has been included in the Notes to Consolidated
Financial Statements.

     (a)(3)  Exhibits
             --------

<TABLE>
<CAPTION>
                                                         Sequential Page
                                                       Reference to Prior       Number Where
                                                        Filing or Exhibit    Attached Exhibits
Regulation S-K                                           Number Attached    Are Located in This
Exhibit Number             Document                          Hereto          Form 10-K Report
--------------             --------                          ------          ----------------
<S>               <C>                                  <C>                  <C>
      2           Plan of Reorganization                      None            Not Applicable

      3           Articles of Incorporation                   None            Not Applicable
</TABLE>

                                       69

<PAGE>

<TABLE>
<CAPTION>

                                                       Sequential Page
                                                    Reference to Prior         Number Where
                                                    Filing or Exhibit       Attached Exhibits
    Regulation S-K                                   Number Attached       Are Located in This
    Exhibit Number         Document                       Hereto             Form 10-K Report
    --------------         --------                       ------             ----------------
    <S>             <C>                             <C>                    <C>
          3                 Bylaws                         None               Not Applicable

          4        Instruments defining the                None               Not Applicable
                  rights of security holders,
                     including debentures

          9         Voting trust agreement                 None               Not Applicable

         10           Material contracts                   None               Not Applicable

         11        Statement re: computation               Not                Not Applicable
                     of per share earnings                 Required

         12        Statement re: computation               Not                Not Applicable
                           of ratios                       Required

         13      Annual Report to Stockholders             None               Not Applicable


         16           Letter re: change in
                           certifying                      None               Not Applicable
                          accountants

         18           Letter re: change in
                      accounting principles                None               Not Applicable

         19            Previously unfiled
                            documents                      None               Not Applicable


         21         Subsidiaries of Registrant              21                   Page 29
</TABLE>

                                       70

<PAGE>

<TABLE>
<CAPTION>
                                                        Sequential Page
                                                      Reference to Prior         Number Where
                                                       Filing or Exhibit       Attached Exhibits
    Regulation S-K                                      Number Attached       Are Located in This
    Exhibit Number            Document                      Hereto             Form 10-K Report
    --------------            --------                      ------             ----------------
    <S>                <C>                             <C>                    <C>
        22           Published report regarding              None               Not Applicable
                    matters submitted to vote of
                          security holders

        23             Consent of Experts and                Not                Not Applicable
                               Counsel                       Required

        24                Power of Attorney                  None               Not Applicable

        28             Information from reports              None               Not Applicable
                          furnished to state
                         insurance regulatory
                              authorities

        99                Additional Exhibits                None               Not Applicable

        (b)     Reports on Form 8-K:

                None
</TABLE>

                                       71

<PAGE>

                                   SIGNATURES

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

                            POCAHONTAS BANCORP, INC.

Date: December 20, 2001                  By: /s/ Dwayne Powell
      -----------------                     ------------------------------------
                                               Dwayne Powell, President and
                                               Chief Executive Officer

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


By: /s/ Dwayne Powell                        By: /s/ Terry Prichard
    ------------------------------------         -------------------------------
   Dwayne Powell                                Terry Prichard
   President, Chief Executive Officer,          Vice President, Controller
    Treasurer and Director                      (Principal Financial Officer)
   (Principal Executive Officer)

Date: December 26, 2001                      Date: December 26, 2001
      -----------------                            -----------------


By: /s/ Ralph P. Baltz                       By: /s/ James Edington
    ------------------------------------         -------------------------------
    Ralph P. Baltz                               James Edington
    Chairman of the Board and Director           Director

Date: December 26, 2001                      Date: December 26, 2001
      -----------------                            -----------------



By: /s/ A.J. Baltz, Jr.                      By: /s/ Marcus Van Camp
    ------------------------------------         -------------------------------
    A.J. Baltz, Jr.                              Marcus Van Camp
    Director                                     Director

Date: December 26, 2001                      Date: December 26, 2001
      -----------------                            -----------------



By: /s/ N. Ray Campbell                      By: /s/ Robert Rainwater
    ------------------------------------         -------------------------------
     N. Ray Campbell                             Robert Rainwater
     Director                                    Director



Date: December 26, 2001                      Date: December 26, 2001
      -----------------                            -----------------

                                       72