<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, 2002.

                                       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]

         Indicate by check mark whether the Registrant is an accelerated filer
(as defined by the Rule 12G-2 of the Securities Exchange Act of 1934).
         YES _____  NO   X
                       -----

         As of December 20, 2002, there were issued and outstanding 4,314,295
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 13,
2002, was $30,634,610. 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 May 31, 2002, the Company's subsidiary, First Community Bank
acquired Peoples Bank of Imboden, an Arkansas bank subsidiary of Spring Rivers
Bancshares, Inc., in a cash merger valued at approximately $8.0 million. Peoples
Bank, which had assets of $65.1 million, was headquartered in Imboden, Arkansas,
and operated four full-service banking offices.

         On June 18, 2002, the Company acquired North Arkansas Bancshares, Inc.,
the holding company for Newport Federal Savings Bank, for $15.00 per share, or
$4.4 million in the aggregate in a stock for stock exchange. Newport Federal
Savings Bank was a Savings Bank located in Newport, Arkansas with $39.9 million
in total assets at September 30, 2001.

          On October 11, 2002, the Company sold its banking offices in Carlisle
and England, Arkansas to Bank of England.

         On November 27, 2002, the Company signed a definitive merger agreement
pursuant to which the Company will acquire Marked Tree Bancshares, Inc. in a
stock for stock exchange valued at approximately $2.8 million. Marked Tree
Bancshares, Inc. had total assets of $30 million at June 30, 2002. The merger
transaction is subject to the approval of the stockholders of Marked Tree
Bancshares, Inc. and receipt of required regulatory approvals. Subject to those
contingencies, it is expected that the transaction will be consummated during
the quarter ended March 31, 2003. The Board of Directors of each company has
unanimously approved the transaction. The transaction is structured as a tax
free reorganization whereby Marked Tree Bancshares stockholders will receive the
Company's common stock based on the stated book value per share of Marked Tree
Bancshares divided by the stated book value per share of the Company, calculated
as of the last calendar quarter end prior to closing.

         The Bank is a community-oriented savings institution that operates 23
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 and Federal Home Loan Bank
("FHLB") advances.

         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, 2002, the Company and its affiliates employed 232
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, 2002, the Bank's net loan
portfolio totaled $408.1 million, of which $188.1 million, or 46.1% were
single-family residential real estate mortgage loans, $1.2 million, or 0.3% were
multifamily residential real estate loans, $17.3 million, or 4.2%, were
agricultural real estate loans, and $91.3 million, or 22.4%, were commercial
real estate loans (including land loans). The remainder of the Bank's loans at
September 30, 2002 included commercial business loans (i.e., crop production,
equipment and livestock loans) which totaled $64.5 million, or 15.8%, of the
Bank's net loan portfolio as of September 30, 2002. Other loans, including
automobile loans and loans collateralized by deposit accounts totaled $53.3
million, or 13.1% of the Bank's net loan portfolio as of September 30, 2002. Due
to the acquisition of FCB during fiscal 2001, the composition of the Bank's loan
portfolio changed. 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.

<TABLE>
<CAPTION>
                                                                           At September 30
                               -----------------------------------------------------------------------------------------------------
                                       2002               2001                2000               1999                  1998
                               -----------------------------------------------------------------------------------------------------
                                 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    $ 188,143    46.1%  $175,977     50.4%  $175,625     75.0%  $173,622    79.7%   $ 163,895     84.6%
  Multifamily residential          1,194     0.3        826      0.2      1,163      0.5      1,024     0.5        3,124      1.6
  Agricultural                    17,342     4.2     14,386      4.1      7,360      3.1      6,878     3.2        6,532      3.4
  Commercial                      91,298    22.4     73,282     21.0     25,730     11.0     23,296    10.7       10,268      5.3
                               ---------   -----   --------    -----   --------    -----   --------   -----    ---------    -----

   Total real estate loans       297,977    73.0    264,471     75.7    209,878     89.6    204,820    94.1      183,819     94.9

Other loans:
  Savings account loans            6,808     1.7      5,166      1.5      1,665      0.7      1,528     0.7        1,161      0.6
  Commercial business (1)         64,549    15.8     65,722     18.8     12,555      5.3     10,932     5.0        8,568      4.4
  Other (2)                       46,484    11.4     17,551      5.0     13,617      5.8      8,113     3.7        5,943      3.1
                               ---------   -----   --------    -----   --------    -----   --------   -----    ---------    -----

   Total other loans             117,841    28.9     88,439     25.3     27,837     11.8     20,573     9.4       15,672      8.1
                               ---------   -----   --------    -----   --------    -----   --------   -----    ---------    -----

   Total loans receivable        415,818   101.9    352,910    101.0    237,715    101.4    225,393   103.5      199,491    103.0

Less:
  Undisbursed loan proceeds        4,243     1.0        416      0.1      1,345      0.6      5,753     2.6        3,655      1.9
  Unearned discount and net
    deferred loan fees               209     0.1        286      0.1        264      0.1        287     0.1          424      0.2
  Allowance for loan losses        3,285     0.8      2,832      0.8      1,689      0.7      1,643     0.8        1,684      0.9
                               ---------   -----   --------    -----   --------    -----   --------   -----    ---------    -----

   Total loans receivable, net $ 408,081   100.0%  $349,376    100.0%  $234,417    100.0%  $217,710   100.0%   $ 193,728    100.0%
                               =========   =====   ========    =====   ========    =====   ========   =====    =========    =====
</TABLE>

_____________________________________________
(1) Includes crop-production loans, lives tock loans and equipment loans.

(2) Includes second mortgage loans, unsecured personal lines of credit and
    automobile loans.

                                        3

<PAGE>

       Loan Maturity Schedule. The following table sets forth certain
information as of September 30, 2002, 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     $  109,575   $   52,803    $   70,440    $   19,837    $   29,699     $   5,171    $   287,525
Variable rate Loans  $    1,165   $   16,461    $    1,930    $   11,315    $   34,116     $  63,306    $   128,293
                     ----------   ----------    ----------    ----------    ----------     ---------    -----------
Total                $  110,740   $   69,264    $   72,370    $   31,152    $   63,815     $  68,477    $   415,818
                     ==========   ==========    ==========    ==========    ==========     =========    ===========
</TABLE>

       The following table sets forth at September 30, 2002, the dollar amount
of all fixed rate and adjustable rate loans due after September 30, 2003.

<TABLE>
<CAPTION>
                                           Fixed      Adjustable       Total
                                           -----      ----------       -----
                                                     (in  Thousands)
<S>                                     <C>             <C>           <C>
Single-family residential               $  56,026       $111,170     $167,196
Multifamily residential                         -            747          747
Agricultural                               10,630            371       11,001
Commercial                                 83,177         10,697       93,874
Other                                      28,117          4,143       32,260
                                        ---------       --------     --------
Total                                   $ 177,950       $127,128     $305,078
                                        =========       ========     ========
</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 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, 2002, the Bank had $188.1 million, or 46.1%, 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, 2002 loans held for sale
were $11.9 million and at September 30, 2001 loans held for sale were
insignificant. During the fiscal years ended September 30, 2002 and 2001, the
Bank sold into the secondary market $37.2 million and $19.7 million,
respectively, of single-family, fixed rate, residential mortgage loans,
generally from current period originations. The Bank retained the servicing
rights on all loans sold in fiscal year 2002. The servicing right asset, which
is considered insignificant, in included in other assets in the consolidated
financial statements.

       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

                                       4

<PAGE>

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.

       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 $1.2 million, or 0.3% of the
Bank's total net loan portfolio on September 30, 2002, compared to $0.8 million,
or 0.3% of the Bank's total net loan portfolio at September 30, 2001, $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 total net loan portfolio at September 30, 1999,
and $3.1 million, or 1.6%, of the total net loan portfolio at September 30,
1998. 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 $17.3 million or 4.2%, of the Bank's total net loan portfolio at
September 30, 2002, compared to $14.4 million, or 4.1%, $7.4 million, or 3.1%,
$6.9 million, or 3.2%, and $6.5 million, or 3.4%, of the Bank's total net loan
portfolio at September 30, 2001, 2000, 1999, and 1998, 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

                                       5

<PAGE>

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 $91.3 million, or 22.4%
of the Bank's total net loan portfolio at September 30, 2002, compared to $73.3
million, or 21.0%, $25.7 million, or 11.0%, $23.3 million, or 10.7%, and $10.3
million, or 5.3%, of the Bank's total net loan portfolio at September 30, 2001,
2000, 1999, and 1998, 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 property such as office buildings, churches and other
nonresidential buildings. At September 30, 2002, 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 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.

       Commercial Business Loans. 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 $64.5 million, or 15.8% of the Bank's total net
loan portfolio at September 30, 2002, as compared to $65.7 million, or 18.8%,
$12.6 million, or 5.3%, $10.9 million, or 5.0%, and $8.6 million, or 4.4%, of
the Bank's total net loan portfolio at September 30, 2001, 2000, 1999, and 1998,
respectively. Commercial business loans are offered primarily on a fixed rate
basis with maturities generally of less than five years.

       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.

       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, 2002, such loans totaled $53.3
million, or 13.1% of the Bank's total net loan portfolio as compared to $22.7
million, or 6.5%, $15.3 million, or 6.5%, $9.6 million, or 4.4%, and $7.1
million, or 3.7%, of the Bank's total net loan portfolio as of September 30,
2001, 2000, 1999, and 1998, respectively. Consumer loans are offered primarily
on a fixed rate basis with maturities generally of less than ten years.

                                       6

<PAGE>

       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
                                                               2002         2001         2000        1999       1998
                                                            ---------    ---------  -----------   ---------   --------
                                                                                    (In Thousands)
<S>                                                         <C>          <C>         <C>          <C>         <C>
Total loans receivable, net at beginning of year            $ 349,376    $ 234,417   $  217,710   $ 193,728   $159,690
Loans originated:
  Real estate:
    Single-family residential                                  93,072       37,264       38,629      53,499     66,988
    Multifamily residential                                         -            -            -         180        100
    Commercial                                                 41,130       28,367        6,346      13,708      2,010
    Agricultural                                               27,100          920        1,766       2,317      3,429
Other:
  Commercial business                                          18,324       24,305       11,650      11,102      7,593
  Savings account loans                                         6,310        3,387        1,649       1,580        908
  Other                                                        22,558       27,234       10,316       7,504      4,162
                                                            ---------    ---------   ----------   ---------   --------
    Total loans originated                                    208,494      121,477       70,356      89,890     85,190

Loans purchased                                                76,676      139,094        4,333      10,552          -
Loans sold                                                    (28,469)     (21,786)        (635)     (1,765)    (4,287)
Loans transferred to REO                                       (2,312)      (1,603)        (948)       (943)      (129)
Loans to facilitate the sale of REO                            (1,471)        (806)        (505)       (513)         -
Loan repayments                                              (194,449)    (121,571)     (55,989)    (73,239)   (46,478)
Other loan activity (net)                                         236          154           95           -       (258)
                                                            ---------    ---------   ----------   ---------   --------
    Total loans receivable, net at end of year              $ 408,081    $ 349,376   $  234,417   $ 217,710   $193,728
                                                            ---------    ---------   ----------   ---------   --------
Mortgage(backed securities, net at beginning of year        $  37,090    $  86,930   $  191,125   $ 151,970   $168,836
Purchases                                                     106,121          400                   65,737          -
Sales                                                         (19,256)     (41,459)     (91,600)     (1,205)         -
Fair value adjustment                                             745        2,144       (2,005)     (1,222)     2,474
Repayments                                                    (20,183)     (11,194)     (10,831)    (24,431)    19,598)
Discount amortization                                             318          269          241         276        258
                                                            ---------    ---------   ----------   ---------   --------
Mortgage-backed and related securities, net at end of year  $ 104,835    $  37,090   $   86,930   $ 191,125   $151,970
                                                            =========    =========   ==========   =========   ========

Total loans receivable, net, and mortage-backed
  and related securities, net, at end of year               $ 512,916    $ 386,466   $  321,347   $ 408,835   $345,698
                                                            =========    =========   ==========   =========   ========
</TABLE>

       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.

                                       7

<PAGE>

         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
                                                     2002          2001         2000        1999       1998
                                                 -----------   -----------   ----------  ---------- ----------
                                                                  (Dollars In Thousands)
<S>                                              <C>           <C>           <C>         <C>        <C>
Nonperforming loans:
  Single-family residential real estate          $    1,744    $   1,883      $   1,477  $   1,302   $   2,240
  All other real estate loans                           546        2,988            485         10          15
  Other loans                                           893        1,454             54         66          41
                                                 ----------    ---------      ---------  ---------   ---------
    Total delinquent loans                       $    3,183    $   6,325      $   2,016      1,378       2,296
Total real estate owned                               1,707        1,342            646        261          16
                                                 ----------    ---------      ---------  ---------   ---------

    Total nonperforming assets                   $    4,890    $   7,667      $   2,662  $   1,639   $   2,312
                                                 ==========    =========      =========  =========   =========

Total loans delinquent 90 days or more
  to net loans receivable                              0.78%        1.81%          0.86%      0.63%       1.19%

Total loans delinquent 90 days or more
  to total assets                                      0.52%        1.30%          0.50%      0.28%       0.56%

Total nonperforming loans and REO
  to total assets                                      0.80%        1.58%          0.66%      0.34%       0.57%
</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" 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
                                       2002         2001          2000            1999          1998
                                    ----------  ---------- -----------------   ----------    -----------
                                                               (In Thousands)
<S>                                 <C>         <C>         <C>                 <C>          <C>
Substandard assets                  $   4,166   $   5,435       $   2,093       $    2,905   $     2,572
Doubtful assets                             -         597             352                -            18
Loss assets                                80         290              14               32             -
                                    ---------   ---------       ---------       ----------   -----------

   Total classified assets (1)      $   4,246   $   6,322       $   2,459       $    2,937   $     2,590
                                    =========   =========       =========       ==========   ===========
</TABLE>

(1)  With respect to assets classified "doubtful" and "loss," the Bank has
     established aggregate specific loan loss reserves of $80,000, $290,000,
     $14,000, $32,000, and $0 (in actual dollars) for the years ended September
     30, 2002, 2001, 2000, 1999, and 1998, respectively.

         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

                                       8

<PAGE>

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 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.

         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, 2002, 2001, 2000, 1999, and
1998, the Bank added $900,000, $200,000, $120,000, $0, and $0 respectively, to
its allowance for loan losses. The Bank's allowance for loan losses totaled $3.3
million, $2.8 million, $1.7 million, $1.6 million, and $1.7 million at September
30, 2002, 2001, 2000, 1999, and 1998, 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
                                                         2002           2001               2000            1999           1998
                                                      ---------       ---------          ---------       ---------      ---------
                                                                                 (Dollars In Thousands)
<S>                                                   <C>             <C>                <C>             <C>            <C>
Total loans outstanding                               $ 415,818       $ 352,910          $ 237,715       $ 225,393      $ 199,491
Average net loans outstanding                           353,585         265,182            224,751         206,001        176,295

Allowance balances (at beginning of year)             $   2,832       $   1,689          $   1,643       $   1,684      $   1,691
Provision for losses:
  Real estate loans                                           -               -                  -               -              -
  Other loans                                               900             200                120               -              -
Balance transferred at acquisition*                         858           1,595                  -               -              -
Charge-offs:
  Real estate loans                                        (242)           (242)               (54)            (67)            (7)
  Other loans                                            (1,131)           (423)               (28)            (29)             -
Recoveries:
  Real estate loans                                           1               1                  4               1              -
  Other loans                                                67              12                  4              54              -
                                                      ---------       ---------          ---------       ---------      ---------

Allowance balance (at end of year)                    $   3,285       $   2,832          $   1,689       $   1,643      $   1,684
                                                      =========       =========          =========       =========      =========

Allowance for loan losses as a percent
  of total loans receivable at end of year                 0.79%           0.80%              0.71%           0.73%          0.84%
Net loans charged off as a percent
  of average net loans outstanding                         0.39%           0.25%              0.04%           0.05%          0.00%
Ratio of allowance for loan losses
  to total nonperforming loans
  at end of year                                         103.20%          44.77%             83.78%         119.23%         73.34%
Ratio of allowance for loan losses to
  total nonperforming loans and
  REO at end of year                                      67.18%          36.94%             63.45%         100.24%         72.84%
</TABLE>

*People's Bank and North Arkansas Bancshares

     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
                                   2002                 2001                2000                 1999                1998
                           -------------------   -------------------  ------------------  -------------------  --------------------
                                   % 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         $  2,398      73.0%   $   716       75.7%   $    843     89.6% $   893      94.1%    $   958      94.9%
    Non-mortgage loans          887      27.0      2,116       24.3         846     10.4      750       5.9         726       5.1
                           --------   -------    -------    -------    --------   ------  -------   -------     -------     ------
    Total allowance for
     loan losses           $  3,285     100.0%   $ 2,832      100.0%   $  1,689    100.0% $ 1,643     100.0%    $ 1,684     100.0%
                           ========   =======    =======    =======    ========   ======  =======   =======     =======    ======
</TABLE>

Investment Activities

     Mortgage-Backed Securities. Mortgage-backed securities represent a
participation interest in a pool of single-family or multi-family mortgages, the
principal and interest payments on which are passed from the 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 mortgages can be

                                       10

<PAGE>

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
                                       2002               2001                 2000                 1999               1998
                              ----------------------------------------------------------------------------------------------------
                                   $         %        $          %         $         %          $          %        $         %
                               --------   ------  --------    ------   --------    ------    --------    -----   --------   -----
                                                                      (Dollars In Thousands)
<S>                            <C>        <C>     <C>         <C>      <C>         <C>       <C>         <C>     <C>        <C>
Mortgage-backed securities:
 Adjustable                    $ 14,075     13.4%  $   796       2.1%   $40,969      47.1%   $119,975     62.8%  $139,528     92.0%
 Fixed                           90,760     86.6    36,294      97.9     45,961      52.9      71,150     37.2     12,442      8.0
                               --------   ------   -------    ------    -------    ------    --------    -----   --------   ------

  Total mortgage-backed
    securities, net            $104,835    100.0%  $37,090     100.0%   $86,930     100.0%   $191,125    100.0%  $151,970    100.0%
                               ========   ======   =======    ======    =======    ======    ========    =====   ========   ======
</TABLE>

     At September 30, 2002, mortgage-backed securities aggregated $104.8
million, or 17.0% of the Bank's total assets. At September 30, 2002, 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 $20.6 million, $39.4 million,
$40.6 million, $36.3 million, and $32.7 million at September 30, 2002, 2001,
2000, 1999 and 1998, respectively. At September 30, 2002, $0.09 million of the
Bank's investment securities, excluding mortgage-backed securities, had a
remaining term to maturity of one year or less, and $4.8 million 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. 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
                                              2002            2001            2000            1999             1998
                                            --------        --------        --------        --------        --------
                                                                     (Dollars In Thousands)
<S>                                         <C>             <C>            <C>              <C>             <C>
Investment securities:
  Mortgage-backed securities                 104,835          37,090          86,930         191,125         151,970
  Corporate Bonds                              3,814           2,014               -               -               -
  U.S. Government treasury obligations             -           1,951               -               -               -
  U.S. Government agency obligations           3,649          13,803          27,095          25,403          21,656
  Trust preferred securities                       -           4,040           4,000               -               -
  Municipal bonds                             13,167          12,537           9,466           9,446           9,425
  Equity securities                                -           5,040           1,127           1,429           1,588
                                            --------        --------        --------        --------        --------

    Total investment securities              125,465          76,475         128,618         227,403         184,639

FHLB stock                                     2,126           3,787           5,988          10,981          10,060
                                            --------        --------        --------        --------        --------

    Total investments                       $127,591        $ 80,262        $134,606        $238,384        $194,699
                                            ========        ========        ========        ========        ========
</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, 2002.

<TABLE>
<CAPTION>
                                        ------------------------------------------------------------------------------------
                                           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>        <C>
Investment securities:
  U.S. Government Agency Securities     $    -       0.00%    $    -      0.00%      $1,075     7.00%   $  2,574     6.22%
  State and municipal obligations (1)       85       4.80%       989      4.81%       3,286     5.18%      8,807     5.34%
  Corporate Bonds                            -       0.00%     3,814      5.02%           -     0.00%          -     0.00%
  CMOs (2)                                   -       0.00%         -      0.00%           -     0.00%     65,432     5.57%
  Mortgage-backed securities                 -       0.00%         -      0.00%           -     0.00%     39,403     5.78%
                                        ------       ----     ------      ----       ------     ----    --------     ----
    Total investment securities             85       4.80%     4,803      4.98%       4,361     5.63%    116,216     5.63%
                                                     ====                 ====                  ====                 ====
FHLB stock
Accrued interest on investments
    Total investment securities,
      including accrued interest

<CAPTION>
                                          -------------------------------------------------
                                                                 Total
                                          -------------------------------------------------
                                                                               Annualized
                                                                   Average      Weighted
                                           Carrying     Market     Life in      Average
                                             Value       Value      Years        Yield
                                          ----------------------- -------------------------
<S>                                        <C>          <C>         <C>        <C>
Investment securities:
  U.S. Government Agency Securities        $  3,649    $  3,649     10.59        6.45%
  State and municipal obligations (1)        13,167      13,542      8.66        5.11%
  Corporate Bonds                             3,814       3,814      2.07        5.02%
  CMOs (2)                                   65,432      65,432     26.06        5.57%
  Mortgage-backed securities                 39,403      39,403     24.08        5.78%
                                           --------    --------                  ----
    Total investment securities             125,465     125,840                  5.59%
                                                                                 ====
FHLB stock                                    2,126       2,126
Accrued interest on investments                 845         845
                                           --------    --------
    Total investment securities,
      including accrued interest            128,436     128,811
                                           ========    ========
</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:

                                        At September 30
                     2002        2001        2000         1999        1998
                  ----------  ----------  ----------   ----------  ----------
                                         (In thousands)

Rate
0.00-3.99%         $235,773   $ 35,219     $     28     $      -    $    275
4.00-5.99%           85,244    154,585       34,126      135,563     111,713
6.00-7.99%           11,165     43,252      128,051       14,924      25,225
8.00-9.99%              225        225            -            -           -
                  ---------   --------    ---------    ---------   ---------

      Total        $332,407   $233,281     $162,205     $150,487    $137,213
                  =========   ========    =========    =========   =========

         Time Deposit Maturities. The following table sets forth the amount and
maturities of certificates of deposit at September 30, 2002.

<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                     $51,771     $51,514     $53,197      $54,318      $210,800
Certificate of Deposit greater than or equal to $100,000       37,188      21,266      32,288       30,865      $121,607
                                                           ----------    --------    --------     --------      --------
 Total Certificates of Deposit                                 88,959      72,780      85,485       85,183       332,407
                                                           ==========    ========    ========     ========      ========
</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 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, 2002, the Bank's FHLB advances totaled $22.1 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

                                       13

<PAGE>

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 remains an asset of the Bank. At September 30, 2002,
the Bank had no securities sold under agreements to repurchase.

         The following table sets forth certain information regarding borrowings
by the Bank during the years ended September 30:

<TABLE>
<CAPTION>
                                                    2002         2001              2000         1999         1998
                                                 ----------   -----------      -----------   -----------  -----------
                                                                   (Dollars In Thousands)
<S>                                              <C>          <C>              <C>           <C>          <C>
Weighed average rate paid on: (1)
  FHLB advances                                      3.70 %        5.66 %           5.78 %        5.03 %       5.75 %
  Other borrowings (2)                               0.00 %        5.38 %           5.62 %        5.16 %       4.97 %

FHLB advances:
  Maximum balance                                $ 73,316     $ 112,125        $ 185,535     $ 216,844    $ 210,325
  Average balance                                $ 36,713     $  82,915        $ 145,312     $ 161,905    $ 173,812
Other borrowings: (2)
  Maximum balance                                $    350     $   2,650        $   2,465     $   3,242    $  21,850
  Average balance                                $      -     $   1,598        $   1,901     $   2,273    $   6,215
</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 the 6-month LIBOR plus 3.75%. The floating rate, however, may not exceed
11.00% until December 8, 2006.


Subsidiaries' Activities

         The Bank is the wholly owned subsidiary of the Company. The Bank has
three wholly owned subsidiaries, Sun Realty, Inc., P.F. Service, Inc., and
Southern Mortgage Corporation. Sun Realty, Inc. and P.F. Services, Inc. are
Arkansas corporations and both are substantially inactive. Southern Mortgage
Corporation is a Tulsa, Oklahoma based lending company that primarily originates
single family loans to sell into the secondary market.

                                       14

<PAGE>

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 purport 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
accumulated unrealized gains or losses on available-for-sale securities
determined in accordance with SFAS No. 115 are excluded from the regulatory
capital calculation. At September 30, 2002, the Bank had $17.9 million in
goodwill and intangible assets and $1.6 million in accumulated unrealized gains
on available-for-sale securities, which were excluded from the regulatory
capital calculation.

         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% 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 to 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, 2002, the Bank had no capital instruments that qualify as
supplementary capital and $3.2 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 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 its 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.

                                       15

<PAGE>

         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, 2002, 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.

         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.

         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 FDIC has adopted a risk-based deposit insurance assessment system.
The FDIC 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
FDIC by the institution's primary federal regulator and information which the
FDIC 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 FDIC is authorized to raise the assessment rates. The FDIC 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 FDIC, it could
have an adverse effect on the earnings of the Bank.

                                       16

<PAGE>

         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.

         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
OTS 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 OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS 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 its non-savings institution subsidiaries.
Section 23A limits the aggregate amount of certain "covered" transactions with
any 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 affiliates are generally prohibited. Section 23B provides that
covered transactions with affiliates, 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, or 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, 2002, the Bank was in compliance with these regulations.

                                       17

<PAGE>

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, 2002, 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.

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 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
institutions or holding companies thereof, without prior written approval of the
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 is 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.

Recent Legislation

     USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001 was
enacted in response to the terrorist attacks in New York, Pennsylvania and
Washington, D.C. which occurred on September 11, 2001. The Patriot Act is
intended to strengthen U.S. law enforcement's and the intelligence communities'
abilities to work cohesively to combat terrorism on a variety of fronts. The
potential impact of the Patriot Act on financial institutions of all kinds is
significant and wide ranging.

                                       18

<PAGE>

The Patriot Act contains sweeping anti-money laundering and financial
transparency laws and requires various regulations, including standards for
verifying customer identification at account opening, and rules to promote
cooperation among financial institutions, regulators, and law enforcement
entities in identifying parties that may be involved in terrorism or money
laundering.

         Financial Services Modernization Legislation. In November 1999, the
Gramm-Leach-Bliley Act of 1999, or the GLB, was enacted. The GLB repeals
provisions of the Glass-Steagall Act which restricted the affiliation of Federal
Reserve member banks with firms "engaged principally" in specified securities
activities, and which restricted officer, director, or employee interlocks
between a member bank and any company or person "primarily engaged" in specified
securities activities.

         In addition, the GLB also contains provisions that expressly preempt
any state law restricting the establishment of financial affiliations, primarily
related to insurance. The general effect of the law is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms, and other financial service providers by revising
and expanding the Bank Holding Company Act framework to permit holding company
to engage in a full range of financial activities through a new entity known as
a "financial holding company." "Financial activities" is broadly defined to
include not only banking, insurance and securities activities, but also merchant
banking and additional activities that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally.

         The GLB provides that no company may acquire control of an insured
savings association unless that company engages, and continues to engage, only
in the financial activities permissible for a financial holding company, unless
the company is grandfathered as a unitary savings and loan holding company on
May 4, 1999 or became a unitary savings and loan holding company pursuant to an
application pending on that date.

         The GLB also permits national banks to engage in expanded activities
through the formation of financial subsidiaries. A national bank may have a
subsidiary engaged in any activity authorized for national banks directly or any
financial activity, except for insurance underwriting, insurance investments,
real estate investment or development, or merchant banking, which may only be
conducted through a subsidiary of a financial holding company. Financial
activities include all activities permitted under new sections of the Bank
Holding Company Act or permitted by regulation.

         To the extent that the GLB permits banks, securities firms, and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The GLB is intended to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis and which unitary savings and loan holding companies already possess.
Nevertheless, the GLB may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies
offering financial products, many of which may have substantially more financial
resources than we have.

         Sarbanes-Oxley Act. On July 30, 2002, President Bush signed into law
the Sarbanes-Oxley Act of 2002, or the SOA. The stated goals of the SOA are to
increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws.

         The SOA is the most far-reaching U.S. securities legislation enacted in
some time. The SOA generally applies to all companies, both U.S. and non-U.S.,
that file or are required to file periodic reports with the Securities and
Exchange Commission, under the Securities Exchange Act of 1934.

         The SOA includes very specific additional disclosure requirements and
new corporate governance rules, requires the Securities and Exchange Commission
and securities exchanges to adopt extensive additional disclosure, corporate
governance and other related rules and mandates further studies of certain
issues by the Securities and Exchange Commission and the Comptroller General.
The SOA represents significant federal involvement in matters traditionally left
to state regulatory systems, such as the regulation of the accounting
profession, and to state corporate law, such as the relationship between a board
of directors and management and between a board of directors and its committees.

The SOA addresses, among other matters:

         .  audit committees;

                                       19

<PAGE>

     .    certification of financial statements by the chief executive officer
          and the chief financial officer;

     .    the forfeiture of bonuses or other incentive-based compensation and
          profits from the sale of an issuer's securities by directors and
          senior officers in the twelve month period following initial
          publication of any financial statements that later require
          restatement;

     .    a prohibition on insider trading during pension plan black out
          periods;

     .    disclosure of off-balance sheet transactions;

     .    a prohibition on personal loans to directors and officers;

     .    expedited filing requirements for Forms 4;

     .    disclosure of a code of ethics and filing a Form 8-K for a change or
          waiver of such code;

     .    "real time" filing of periodic reports;

     .    the formation of a public accounting oversight board;

     .    auditor independence; and

     .    various increased criminal penalties for violations of securities
          laws.

     The SOA contains provisions which became effective upon enactment, and
provisions which will become effective from within 30 days to one year from
enactment. The Securities and Exchange Commission has been delegated the task of
enacting rules to implement various provisions with respect to, among other
matters, disclosure in periodic filings pursuant to the Securities and Exchange
Act.

Executive Officers of the Registrant

     Listed below is information, as of September 30, 2002, 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.

<TABLE>
<CAPTION>
     Name                                                          Position With the Company
     ----                                                          -------------------------
<S>                                                              <C>
     Dwayne Powell ............................................. President and Chief Executive Officer
     Brad Snider ............................................... Chief Operating Officer
     Terry Prichard ............................................ Chief Financial Officer
</TABLE>

     The executive officers of the Company are 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.

     Since the formation of the Company, none of its 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 associations

                                       20

<PAGE>

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, 2002 the Bank's
bad debt reserve subject to recapture over the next fiscal year totaled
approximately $199,000. The Bank has established a deferred tax liability of
approximately $76,000 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.

     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 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.

                                       21

<PAGE>

     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.

                                       22

<PAGE>

ITEM 2    PROPERTIES

      The Bank conducts its business through its main office and 23 full-service
branch offices located in nine counties in Northeast Arkansas. Each office is
owned or leased by the Bank. The following table sets forth certain information
concerning the main office and each branch office of the Bank at September 30,
2002. The aggregate net book value of the Bank's premises and equipment was
$13.9 million at September 30, 2002.

Main Office:
1700 E. Highland
Jonesboro, Arkansas

<TABLE>
<CAPTION>
Branch Offices:

Walnut Ridge Branch                 Carlisle Branch                    Jonesboro Branch
-------------------                 ---------------                    ----------------
<S>                                 <C>                                <C>
120 W. Main Street                  124 West Main                      1700 E. Highland Dr.
Walnut Ridge, Arkansas              Carlisle, Arkansas                 Jonesboro, Arkansas
(Opened 1968)                       (Opened 1998)                      (Opened 2001)

Jonesboro Branch                    Brinkley Branch                    Jonesboro Branch
----------------                    ---------------                    ----------------
625 S.W. Drive                      311 West Cedar                     209 W. Washington
Jonesboro, Arkansas                 Brinkley, Arkansas                 Jonesboro, Arkansas
(Opened 1976)                       (Opened 1998)                      (Opened 2001)

Corning Branch                      England Branch                     Tuckerman Branch
--------------                      --------------                     ----------------
309 Missouri Drive                  100 Stuttgart Hwy.                 106 E. Main Street
Corning, Arkansas                   England, Arkansas                  Tuckerman, Arkansas
(Opened 1983)                       (Opened 1998)                      (Opened 2001)

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

Imboden Branch                      Hardy Branch                       Pocahontas Branch
--------------                      ------------                       -----------------
201 E 3/rd/ Street                  101 W. Main Street                 203 W. Broadway
Imboden, AR                         Hardy, Arkansas                    Pocahontas, Arkansas
(Opened 2002)                       (Opened 1998)                      (Opened 1935)

Pocahontas Wal-Mart Branch          Jonesboro Wal-Mart Branch          Smithville Branch
--------------------------          -------------------------          -----------------
Hwy 67 South                        Highland Drive                     Hwy 115.
Pocahontas, Arkansas                Jonesboro, Arkansas                Smithville, Arkansas
                                                                       (Opened 2002)

Paragould Wal-Mart Branch           Pocahontas Branch                  Newport Branch
-------------------------           -----------------                  --------------
2802 W. Kings Hwy.                  205 Rice Street                    200 Olivia Drive
Paragould, Arkansas                 Pocahontas, Arkansas               Newport Arkansas
(Opened 1999)                       (Opened 2001)                      (Opened 2002)

Strawberry Branch                   Hoxie Branch
-----------------                   ------------
114 W. River Drive                  126 SW Texas
Strawberry, Arkansas                Hoxie, Arkansas
(Opened 2002)                       (Opened 2002)
</TABLE>

                                       23

<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 2002 to a
vote of security holders.

                                       24

<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 2002 and 2001. This
information has been obtained from monthly statistical stock summaries provided
by the NASDAQ Stock Market. As of December 13, 2002, there were 4,314,295 shares
of common stock issued and outstanding and 800 stockholders of record.

                                                   High                   Low
     Quarter Ended                                 Bid                    Bid
     -------------                                 ---                    ---

     December 31, 2001                          $  8.900               $  7.300
     March 31, 2002                               10.300                  8.650
     June 30, 2002                                10.590                  9.630
     September 30, 2002                           11.350                 10.000


                                                   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

Cash Dividends Declared in Fiscal 2002:

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

     December 14, 2001                        January 3, 2002          $ 0.070
     March 15, 2002                           April 3, 2002              0.070
     June 14, 2002                            July 3, 2002               0.070
     September 13, 2002                       October 3, 2002            0.075

     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

                                       25

<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
                                               2002        2001        2000        1999        1998
                                                                  (In Thousands)
<S>                                          <C>         <C>         <C>         <C>         <C>
Total assets                                 $617,016    $483,565    $401,105    $482,131    $406,981
Cash and cash equivalents                      34,307      11,146      12,941       8,622       3,781
Cash surrender value of life insurance          6,883       6,589       6,158       5,965       5,822
Investment securities                         126,929      79,650     128,618     227,403     184,640
Loans receivable                              408,081     349,376     234,417     217,710     193,728
Federal Home Loan Bank Stock                    2,126       3,787       5,988      10,981      10,060
Deposits                                      520,032     348,541     234,972     211,891     195,537
FHLB advances                                  22,137      73,316     117,990     213,105     143,670
Securities sold under agreements to
  repurchase                                        -         350       1,375       2,075       2,107
Stockholders' equity                           46,722      44,589      41,378      48,032      60,567
</TABLE>

Summary of Operations

<TABLE>
<CAPTION>
                                                                Years Ended September 30
                                              2002        2001       2000       1999          1998
                                                                  (in Thousands)
<S>                                          <C>         <C>         <C>         <C>         <C>
Interest income                              $ 34,107    $ 29,891    $ 29,927    $ 27,960    $ 27,854
Interest expense                               17,200      19,099      19,724      17,217      18,401
                                             --------    --------    --------    --------    --------
      Net interest income before
        provision for loan losses              16,907      10,792      10,203      10,743       9,453
Provision for loan losses                         900         200         120           -           -
                                             --------    --------    --------    --------    --------
      Net interest income after
        provision for loan losses              16,007      10,592      10,083      10,743       9,453
Noninterest income                              5,298       3,662       3,102       1,927         920
Noninterest expense:
  Compensation and benefits                     8,201       8,102       4,383       7,628       3,825
  Occupancy and equipment                       2,419       1,278         996       1,137         662
  Other                                         4,262       3,083       2,722       2,487       1,704
                                             --------    --------    --------    --------    --------
      Total noninterest expense                14,882      12,463       8,101      11,252       6,191
                                             --------    --------    --------    --------    --------
Income before income taxes                      6,423       1,791       5,084       1,418       4,182
Income tax provision                            2,188         382       1,632         466       1,294
                                             --------    --------    --------    --------    --------
      Net income                             $  4,235    $  1,409    $  3,452    $    952    $  2,888
                                             ========    ========    ========    ========    ========
</TABLE>

                                       26

<PAGE>

Key Financial Ratios and Other Data (1):

<TABLE>
<CAPTION>
                                                        At or for the Year Ended September 30
                                                  2002      2001      2000      1999      1998
<S>                                            <C>       <C>        <C>       <C>       <C>
Performance Ratios:
  Return on average equity                         9.15%     3.39%     7.79%     1.80%     6.16%
  Return on average assets                         0.80      0.35      0.80      0.23      0.67
  Interest rate spread (2)                         3.59      2.74      2.28      2.37      1.92
  Net interest margin (2)                          3.56      2.90      2.54      2.72      2.45
  Noninterest expense to average assets            2.79      3.05      1.92      2.66      1.55
  Net interest income after provision
    for loan losses to noninterest expense       107.56     84.99    124.00     95.48    152.69
  Efficiency (5)                                  69.86     87.42     61.77     88.80     59.69

Asset Quality Ratios:
  Average interest-earning assets to
    average interest-bearing liabilities          99.27    103.23    105.22    108.11    110.93
  Nonperforming loans to net loans (3) (4)         0.78      1.81      0.86      0.63      1.19
  Nonperforming assets to total
    assets (3) (4)                                 0.80      1.58      0.66      0.34      0.57
  Allowance for loan losses to
    nonperforming loans (3) (4)                  103.20     44.77     83.78    119.23     73.34
  Allowance for loan losses to
    nonperforming loan assets (3) (4)             67.18     36.94     63.45    100.24     72.84
  Allowance for loan losses to total
    loans (3)                                      0.79      0.80      0.71      0.73      0.86

Capital, Equity and Dividend Ratios:

  Tangible capital (3)                             6.40      7.14      8.92      9.35     10.24
  Core capital (3)                                 6.40      7.14      8.92      9.35     10.24
  Risk-based capital (3)                          10.74     10.17     17.66     20.23     22.62
  Average equity to average assets ratio           9.91     10.18     10.31     12.45     10.87
  Dividend payout ratio                           29.95     81.27     38.46    151.55     43.20

Per Share Data:
  Dividends per share                         $    0.29  $   0.26  $   0.25  $   0.24  $   0.23
  Book value per share (6)                    $   10.68  $   9.98  $   9.29  $   8.70  $   9.46
  Basic earnings per share (7)                $    0.96  $   0.33  $   0.67  $   0.16  $   0.45
  Diluted earnings per share (8)              $    0.96  $   0.33  $   0.67  $   0.16  $   0.44

Number of full service offices                       23        21        14        14        11
</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 4,376,295, 4,468,680, 4,454,357, 5,518,614,
     and 6,399,623, shares outstanding at September 30, 2002, 2001, 2000, 1999,
     and 1998, respectively.
(7)  This calculation is based on weighted average shares outstanding of
     4,400,027, 4,295,002, 5,166,038, 5,802,860, and 6,388,906 and for the
     fiscal years ended September 30, 2002, 2001, 2000, 1999, and 1998 ,
     respectively.
(8)  This calculation is based on weighted average shares outstanding of
     4,428,924, 4,295,793, 5,172,751, 5,837,619, 6,535,068, and 6,486,058, for
     the fiscal years ended September 30, 2002, 2001, 2000, 1999, and 1998,
     respectively.

                                       27

<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 results 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, 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.

                                       28

<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, 2002, the OTS estimate of the
projected changes in NPV in the event of a 100, 200, and 300 basis point
instantaneous and permanent increase and a 100 basis point decrease in market
interest rates. Due to the current low prevailing interest rate environment, the
changes in NPV is not estimated for a decrease in interest rates of 200 or 300
basis points.

<TABLE>
<CAPTION>
       Change in                                                                  Change in NPV
     Interest Rates                                                             as a Percentage of
    in Basis Points                 Net Portfolio Value                          Estimated Market
                         -----------------------------------------
      (Rate Shock)          Amount        $ Change       % Change      Ratio     Value of Assets
      ------------          ------        --------       --------      -----     ---------------
                                   (Dollars in Thousands)
     <S>                 <C>             <C>             <C>           <C>        <C>
          +300           $43,808          $(17,547)       (28.6)%       7.30%        (2.48)%
          +200            51,699            (9,656)       (15.7)%       8.46%        (1.32)%
          +100            58,442            (2,913)        (4.7)%       9.41%        (0.37)%
             0            61,355                 0          0.0 %       9.78%         0.00 %
          -100            60,912              (443)        (0.7)%       9.67%        (0.11)%
</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.

                                       29

<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 $133.5 million, or 27.6%, from
$483.6 million at September 30, 2001 to $617.0 million at September 30, 2002.
The increase was primarily due to the acquisitions of Peoples Bank of Imboden
and North Arkansas Bancshares, Inc. The Company acquired Peoples Bank of Imboden
with assets of $71.6 million on May 31, 2002 and North Arkansas Bancshares with
assets of $37.0 million on June 18, 2002.

Loans receivable, net. The Company's net loans receivable increased $46.7
million, or 13.4%, from $349.4 million at September 30, 2001 to $396.1 million
at September 30, 2002. The net increase in fiscal year 2002 was primarily due to
the acquisition of Peoples Bank of Imboden with loans totaling $49.1 million and
North Arkansas Bancshares with loans totaling $26.9 million, while the Company
sold approximately $28.5 million of fixed rate loans in fiscal year 2002. The
Company retained the servicing rights and the customer relationships. Servicing
rights as of September 30, 2002 and 2001 were not considered significant.

Loans receivable, held for sale. At September 30, 2002, the Company classified
$11.9 million of single-family residential loans as held for sale. The Company
sold the majority of these loans in October 2002 in the secondary market. Loans
held for sale at September 30, 2001 were not considered significant. Management
expects to continue to sell loans in the secondary market as necessary to manage
interest rate risks.

Investment securities. The investment securities portfolio increased $47.2
million or 59.2% from $79.7 million at September 30, 2001, to $126.9 million at
September 30, 2002. This net change was primarily due to the sale of $26.6
million of available-for-sale securities, principal paydowns of $20.2 million,
called securities of $18.8 million which were more than offset by the purchase
of $116.8 million of available-for-sale investment securities and investment
securities of $16.7 million obtained in the acquisitions of Peoples Bank of
Imboden and North Arkansas Bancshares.

Cash surrender value of life insurance. The Company has purchased life insurance
on the lives of executive officers and members of the board of directors. Such
life insurance had total cash surrender value of $6.9 million and $6.6 million
at September 30, 2002 and 2001, respectively. The increase in fiscal 2002 was
due to earnings on the cash surrender value, net of premiums.

Goodwill. During the year ended September 30, 2001, the Company recorded $7.7
million of goodwill related to the acquisition of Walden/Smith Financial Group,
Inc. and its wholly-owned bank subsidiary, First Community Bank. During the year
ended September 30, 2002, goodwill increased $1.1 million to $8.8 million. The
increase related to goodwill of $0.8 million recorded related to the acquisition
of Southern Mortgage Corp. and $0.3 million increase in the allocation of
goodwill related to the acquisition of Walden/Smith Financial Group, Inc.

Core deposit premiums. Core deposit premiums increased $2.8 million, or 44.4%,
from $6.3 million at September 30, 2001 to $9.1 million at September 30, 2002.
The increase related to core deposit premiums of $3.7 million being recorded
during fiscal year 2002 related to the acquisition of Peoples Bank of Imboden
and North Arkansas Bancshares, Inc. net of amortization of $0.5 million during
fiscal year 2002.

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 $171.5 million or 49.2% to $520.0
million at September 30, 2002, from $348.5 million at September 30, 2001. The
increase was primarily due to the acquisitions of Peoples Bank of Imboden and
North Arkansas Bancshares.

FHLB advances and reverse repurchase agreements. The Company also relies upon
FHLB advances as a source to fund assets. Approximately 3.6% of the Company's
assets were funded with FHLB advances as of September 30, 2002 and 15.2% were
funded with FHLB advances and reverse repurchase agreements as of September 30,
2001. At September 30, 2002, FHLB advances totaled $22.1 million, a decrease of
$51.2 million, or 69.8%, from 2001, reflecting the increase in deposits
resulting from the acquisitions of Peoples bank of Imboden and North Arkansas
Bancshares.

Trust preferred securities. During the year ended September 30, 2002, the
Company, through a subsidiary business trust, issued $10.0 million of trust
preferred securities with a floating coupon rate, which is reset semi-annually,
equal to the six-month LIBOR plus 375 basis points. The proceeds, net of
issuance costs, to the Company were approximately $9.65 million. Trust preferred
securities of $7.5 million were issued by the Company through a subsidiary
business trust during the year ended September 30, 2001. Net proceeds to the
Company were $7.2 million. The Company expects to use the net proceeds of the
issuances for general corporate purposes, including business acquisitions, stock
repurchases, cash dividends and corporate expenses.

                                       30

<PAGE>

Stockholders' Equity. Stockholders' equity increased $2.1 million, or 4.7%, from
$44.6 million at September 30, 2001, to $46.7 million at September 30, 2002. The
increase was due to net income of $4.2 million, an increase in unrealized gains
on available-for-sale securities of $0.4 million, the exercise of options,
repayment of ESOP loan and RRP shares earned of $1.6 million, and the issuance
of stock of $4.4 million in common stock related to the acquisition of North
Arkansas Bancshares, Inc. The increase was partially offset by cash dividends of
$1.3 million and the repurchase of $6.4 million in common stock.

Discussion of Results of Operations

Overview. Net income was $4.2 million for fiscal 2002, compared to $1.4 million
and $3.5 million for fiscal 2001 and 2000, respectively. The Company's average
interest earning assets have increased over the three year period ended
September 30, 2002, which has resulted in higher levels of interest income. The
Company's net interest rate spread increased to 3.59% for the year ended
September 30, 2002 from 2.74% for the year ended September 30, 2001, and 2.28%
for the year ended September 30, 2000. The increase in the net interest rate
spread for fiscal 2002 was primarily due to a decrease in the average cost of
borrowed funds and a decrease in borrowed funds, reflecting the increase in
deposits resulting from the acquisitions of Peoples bank of Imboden and North
Arkansas Bancshares.

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 $16.9 million for fiscal 2002 compared to $10.8 million and
$10.2 million, for fiscal 2001 and 2000, 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
increase in average interest-earning assets during fiscal 2002 was mainly
attributable to the acquisitions of Peoples Bank of Imboden and North Arkansas
Bancshares.

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 or investment
securities 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.

                                       31

<PAGE>

Average Balance Sheets (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                    Years Ended September 30
                                                2002                          2001                           2000
                                    -----------------------------  ---------------------------- ---------------------------------
                                                         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)          $ 353,585   $26,664    7.54%   $265,210   $22,151    8.35%  $ 224,214  $ 17,671     7.88%
  Investment securities               121,083     7,443    6.15     107,239     7,740    7.22     176,783    12,256     6.93
                                    ---------   -------   -----    --------   -------  ------   ---------  --------   ------
     Total interest-
      earning assets                  474,668    34,107    7.19     372,449    29,891    8.03     400,997    29,927     7.46

Noninterest-earning cash               20,559                         6,383                         3,622
Other noninterest-
  earning assets                       39,201                        29,361                        25,045
                                    ---------                      --------                     ---------
      Total assets                  $ 534,428                      $408,193                     $ 429,664
                                    =========                      ========                     =========

Interest-bearing liabilities:
  Demand deposits                   $ 147,789   $ 1,988    1.35    $ 88,314   $ 1,797    2.04   $  68,779  $  1,705     2.48
  Time deposits                       274,805    11,976    4.36     187,146    11,619    6.20     158,052     8,645     5.47
  Borrowed funds (5)                   55,582     3,236    5.82      85,350     5,683    6.66     154,287     9,374     6.08
                                    ---------   -------   -----    --------   -------  ------   ---------  --------   ------

     Total interest-
      bearing liabilities             478,176    17,200    3.60     360,810    19,099    5.29     381,118    19,724     5.18
                                    ---------   -------   -----    --------   -------  ------   ---------  --------   ------

Noninterest-bearing
  liabilities (2)                       9,959                         5,800                         4,262
                                    ---------                      --------                     ---------

      Total liabilities               488,135                       366,610                       385,380

Stockholders' equity                   46,293                        41,583                        44,284
                                    ---------                      --------                     ---------
      Total liabilities and
      stockholders' equity          $ 534,428                      $408,193                     $ 429,664
                                    =========                      ========                     =========
Net interest income                             $16,907                       $10,792                      $ 10,203
                                                =======                       =======                      ========
Net interest rate spread (3)                               3.59%                         2.74%                          2.28%
                                                          =====                        ======                         ======
Interest-earning assets and
  net interest margin (4)           $ 474,668              3.56%   $372,449              2.90%  $ 400,997               2.54%
                                    =========             =====    ========            ======   =========             ======
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                            99.27%                       103.23%                        105.22%
                                                          -----                        ------                         ------
</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.

                                       32

<PAGE>

Rate/Volume Analysis (in thousands)

<TABLE>
<CAPTION>
                                                  2002 vs 2001                           2001 vs 2000
                                     --------------------------------------- -------------------------------------
                                         Increase/(Decrease)                    Increase/(Decrease)
                                               Due to                Total              Due to             Total
                                     ----------------------------            --------------------------
                                                         Rate/     Increase                       Rate/   Increase
                                      Volume    Rate    Volume    (Decrease)    Volume   Rate    Volume  (Decrease)
                                      ------    ----    ------    ----------    ------   ----    ------  ----------
<S>                                  <C>      <C>       <C>       <C>           <C>      <C>     <C>      <C>
Interest income:
  Loans receivable                   $ 7,379  $ (2,148) $  (717)  $  4,514      $ 3,098  $ 1,054 $  197   $ 4,349
  Investment securities                  815    (1,008)    (106)      (299)      (4,821)     513   (206)   (4,514)
                                     -------  --------  -------   --------      -------  ------- ------   -------
        Total interest-
         earning assets              $ 8,194  $ (3,156) $  (823)  $  4,215      $(1,723) $ 1,567 $   (9)  $  (165)
                                     =======  ========  =======   ========      =======  ======= ======   =======

Interest expense:
  Deposits                           $ 7,471  $ (4,435) $(2,488)  $    548      $ 2,217  $   703 $  145   $ 3,065
  Borrowed funds                      (3,052)    1,306     (701)    (2,447)      (4,191)     663   (291)   (3,819)
                                     -------  --------  -------   --------      -------  ------- ------   -------

        Total interest-
         bearing liabilities         $ 4,419  $ (3,129) $(3,189)  $ (1,899)     $(1,974) $ 1,366 $ (146)  $  (754)
                                     =======  ========  =======   ========      =======  ======= ======   =======

Net change in net
  interest income                    $ 3,775  $    (27) $ 2,366   $  6,114      $   251  $   201 $  137   $   589
                                     =======  ========  =======   ========      =======  ======= ======   =======
</TABLE>

During fiscal 2002, loan demand was strong due to low mortgage rates, which
resulted in an increase in loans outstanding and an increase of $6.1 million, or
56.7%, in net interest income. The average yield on interest earning assets
decreased to 7.19% in fiscal 2002 compared to 8.03% and 7.46% in fiscal 2001 and
2000, respectively, while the average cost of interest bearing liabilities
decreased to 3.60% in fiscal 2002 compared to 5.29% and 5.18% in fiscal 2001 and
fiscal 2000, respectively, reflecting lower market interest raters generally in
fiscal 2002. In addition, the decrease in the average cost of interest bearing
liabilities reflected the acquisitions of Peoples Bank of Imboden and North
Arkansas Bancshares, which contributed to an increase of $87.7 million, or
46.8%, in the average balance of lower-cost time deposits and a decrease of
$29.8 million, or $34.9%, in the average balance of higher-cost borrowed funds.

During fiscal 2001, loan demand was relatively strong, resulting in an increase
in loans outstanding 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% in fiscal 2000, while the average cost of interest
bearing liabilities increased to 5.29% in fiscal 2000. 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.

Provision for Loan Losses. The Company provided for loan losses of $900,000,
$200,000, and $120,000, respectively, in the fiscal years ended September 30,
2002, 2001, and 2000. Management considered several factors in determining the
necessary level of its allowance for loan losses, including but not limited to
historical loan losses and current delinquency rates. The increased provision in
fiscal 2002 was due to the significant growth in the higher risk categories of
the loan portfolio in fiscal 2002, as commercial loans have increased over the
past two years.

Noninterest Income. Non-interest income totaled $5.3 million for the fiscal year
ended September 30, 2002, compared to $3.7 million for the fiscal year ended
September 30, 2001, and $3.1 million for the fiscal year ended September 30,
2000. The increase in 2002 was primarily due to a gain of $1.0 million on sale
of loans totaling $28.5 million, gain of $0.6 million on the sale of
investments, an increase in fee income due to an increase in demand deposit
accounts and the gains on trading securities. The increase in fiscal 2001 was
primarily due to a gain of $0.4 million on sale of loans totaling $16.7 million,
a gain on sale of investments of $0.4 million, and an increase in fees and
service charges on demand deposit accounts and the gains on trading securities.

Noninterest Expense. Non-interest expense consisting primarily of salaries and
employee benefits, premises and equipment and data processing totaled $14.9
million for the fiscal year ended September 30, 2002, compared to $12.5 million
for the fiscal year ended September 30, 2001, an increase of 19.2%. Non-interest
expense increased $3.2 million or 28.3% to $12.5 million for the year ended
September 30, 2001 from $8.1 million for the fiscal year ended September 30,
2000. The increases were primarily a result of additional compensation and
benefits and occupancy expense from the acquisition of First Community Bank.

Income Taxes. Income tax expense for the year ended September 30, 2002, was $2.2
million compared to $0.4 million for the year ended September 30, 2001. The
increase was primarily due to an increase in income before 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.

                                       33

<PAGE>

Liquidity and Capital Resources

The Company 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
Company adjusts liquidity as appropriate to meet its asset and liability
management objectives. At September 30, 2002, the Company was in compliance with
such liquidity requirements.

The Company'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 Company manages the pricing of its deposits to maintain a
desired deposit balance. For additional information about cash flows from the
Company's operating, financing, and investing activities, see Consolidated
Statements of Cash Flows included in the Consolidated Financial Statements.

At September 30, 2002, the Company exceeded all of its regulatory capital
requirements.

Impact of Inflation and Changing Prices

The consolidated financial statements of the Company 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
Company's operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Company are monetary. As a result, interest rates have a
greater impact on the Company'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.

Impact of New Accounting Standards

See note 1 to the consolidated financial statements.

Critical Accounting Policy

The Company's critical accounting policy relates to the allowance for losses on
loans. The Company has established a systematic method of periodically reviewing
the credit quality of the loan portfolio in order to establish a sufficient
allowance for losses on loans. The allowance for losses on loans is based on
management's current judgments about the credit quality of individual loans and
segments of the loan portfolio. The allowance for losses on loans in established
through a provision for loan losses based on management's evaluation of the risk
inherent in the loan portfolio, and considers all known internal and external
factors that affect loan collectability as of the reporting date. Such
evaluation, which include a review of all loans on which full collectability may
not be reasonably assured, considers among other matters, the estimate net
realizable value or the fair value of the underlying collateral, economic
conditions, historical loan loss experience, management's knowledge of inherent
risks in the portfolio that are probable and reasonably estimable and other
factors that warrant recognition in providing an appropriate loan loss
allowance.

                                       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,
2002 and 2001, 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, 2002. 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, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2002, in conformity with accounting principles generally accepted
in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill to conform to Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, as
of October 1, 2001.


Deloitte & Touche LLP


Little Rock, Arkansas
November 8, 2002

                                       35

<PAGE>

ITEM 8   FINANCIAL STATEMENTS

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 30, 2002 AND 2001
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                    2002             2001
ASSETS
<S>                                                                             <C>              <C>
Cash and due from banks:
  Interest bearing                                                              $      12,709    $  10,265,642
  Noninterest bearing                                                              34,293,889          880,157
                                                                                -------------    -------------
                                                                                   34,306,598       11,145,799
Cash surrender value of life insurance                                              6,883,493        6,589,293
Securities held-to-maturity, at amortized cost
  (fair value of $8,499,577 and $11,526,845 in 2002 and
  2001, respectively)                                                               8,123,832       11,500,879
Securities available-for-sale, at fair value (amortized cost of
  $114,921,234 and $63,122,537 in 2002 and 2001, respectively)                    117,340,818       64,974,115
Trading securities, at fair value                                                   1,464,458        3,175,274
Loans receivable, net                                                             396,141,853      348,990,322
Loans receivable, held for sale                                                    11,939,522          385,777
Accrued interest receivable                                                         4,362,821        4,860,860
Premises and equipment, net                                                        13,910,158       12,274,154
Federal Home Loan Bank stock                                                        2,125,500        3,786,500
Goodwill                                                                            8,847,572        7,665,461
Core deposit premiums                                                               9,084,027        6,257,469
Other assets                                                                        2,484,974        1,959,575
                                                                                -------------    -------------
TOTAL                                                                           $ 617,015,626    $ 483,565,478
                                                                                =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Deposits                                                                      $ 520,031,702    $ 348,540,922
  Federal Home Loan Bank advances                                                  22,136,967       73,315,804
  Securities sold under agreements to repurchase                                            -          350,000
  Deferred compensation                                                             4,123,553        5,138,759
  Accrued expenses and other liabilities                                            6,330,406        4,400,383
                                                                                -------------    -------------
          Total liabilities                                                       552,622,628      431,745,868
TRUST PREFERRED SECURITIES                                                         16,900,383        7,231,058
STOCKHOLDERS' EQUITY:
  Common stock, $0.01 par value, 8,000,000 shares authorized;
    7,492,353 and 6,969,688 shares issued and 4,376,295 and
    4,468,680 shares outstanding at 2002 and 2001, respectively                        74,923           69,696
  Additional paid-in capital                                                       56,342,563       51,201,140
  Unearned ESOP shares                                                               (671,130)      (1,441,804)
  Unearned RRP shares                                                                 (35,251)        (116,237)
  Accumulated other comprehensive income                                            1,596,925        1,222,042
  Retained earnings                                                                16,304,221       13,337,606
                                                                                -------------    -------------
                                                                                   73,612,251       64,272,443
  Less treasury stock at cost, 3,116,058 and 2,501,008 shares
    at 2002 and 2001, respectively                                                (26,119,636)     (19,683,891)
                                                                                -------------    -------------

           Total stockholders' equity                                              47,492,615       44,588,552
                                                                                -------------    -------------
TOTAL                                                                           $ 617,015,626    $ 483,565,478
                                                                                =============    =============
</TABLE>

See notes to consolidated financial statements.

                                       36

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  2002             2001              2000
<S>                                                          <C>               <C>              <C>
INTEREST INCOME:
  Loans receivable                                           $ 26,664,444      $ 22,150,724     $ 17,671,439
  Securities:
    Taxable                                                     6,817,199         7,201,164       11,798,274
    Nontaxable                                                    625,532           539,749          457,757
                                                             ------------      ------------     ------------
            Total interest income                              34,107,175        29,891,637       29,927,470

INTEREST EXPENSE:
  Deposits                                                     13,964,221        13,416,283       10,350,181
  Borrowed funds                                                3,236,011         5,683,153        9,373,916
                                                             ------------      ------------     ------------
            Total interest expense                             17,200,232        19,099,436       19,724,097
                                                             ------------      ------------     ------------

NET INTEREST INCOME BEFORE PROVISION
  FOR LOAN LOSSES                                              16,906,943        10,792,201       10,203,373
PROVISION FOR LOAN LOSSES                                         900,000           200,000          120,000
                                                             ------------      ------------     ------------

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                              16,006,943        10,592,201       10,083,373

NON-INTEREST INCOME:
  Dividends on FHLB stock                                         114,914           272,811          657,457
  Fees and service charges                                      3,482,084         1,987,978        1,617,073
  Trading gains (losses)                                         (381,528)          358,519          130,031
  Gain on sales of loans                                        1,002,501           423,845            7,800
  Gain on sales of investment securities, net                     555,497           380,009          447,563
  Other                                                           524,457           238,773          242,017
                                                             ------------      ------------     ------------
            Total non-interest income, net                      5,297,925         3,661,935        3,101,941

NON-INTEREST EXPENSES:
  Compensation and benefits                                     8,200,671         8,102,419        4,383,217
  Occupancy and equipment                                       2,419,280         1,278,463          996,156
  Data processing                                                 596,402           457,677          406,865
  Advertising                                                     588,215           450,396          483,289
  Professional fees                                               533,494           406,201          382,171
  Office supplies                                                 449,137           214,222          108,092
  Other                                                         2,094,983         1,553,327        1,341,043
                                                             ------------      ------------     ------------
            Total non-interest expenses                        14,882,182        12,462,705        8,100,833
                                                             ------------      ------------     ------------
INCOME BEFORE INCOME TAXES                                      6,422,686         1,791,431        5,084,481

INCOME TAX PROVISION                                            2,187,692           382,520        1,632,852
                                                             ------------      ------------     ------------
NET INCOME                                                      4,234,994         1,408,911        3,451,629
</TABLE>

                                                                     (Continued)

                                       37

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                    2002            2001             2000
<S>                                                             <C>             <C>               <C>
OTHER COMPREHENSIVE INCOME (LOSS),
  NET OF TAX:
  Unrealized holding gain (loss) on securities arising
    during the year                                             $   741,511     $ 2,567,318      ($1,207,028)

  Reclassification adjustment for gains
    included in net income                                         (366,628)       (250,806)        (295,392)
                                                                -----------     -----------      -----------
              Other comprehensive income (loss)                     374,883       2,316,512       (1,502,420)
                                                                -----------     -----------      -----------
COMPREHENSIVE INCOME                                            $ 4,609,877     $ 3,725,423      $ 1,949,209
                                                                ===========     ===========      ===========

EARNINGS PER SHARE:
  Basic earnings per share                                      $      0.96     $      0.33      $      0.67
                                                                ===========     ===========      ===========
  Diluted earnings per share                                    $      0.96     $      0.33      $      0.67
                                                                ===========     ===========      ===========
  Dividends per share                                           $      0.29     $      0.26      $      0.25
                                                                ===========     ===========      ===========
</TABLE>

                                                                     (Concluded)

See notes to consolidated financial statements.

                                       38

<PAGE>

POCAHONTAS BANCORP, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
------------------------------------------------------------------------------------------------------------------------------
                                                                                                                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, 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 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 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
 Repayment of ESOP loan and related
   decrease in share value                                                               770,674
 Options exercised                                80,000        800        719,200
 Shares issued related to acquisition            442,665      4,427      4,422,223
 RRP shares earned                                                                                    80,986
 Net change in unrealized gain on
   available-for-sale securities, net of tax                                                                       374,883
 Treasury stock purchased
 Net income
 Dividends
                                              ----------  ---------    -----------   -----------   ---------   -----------
 BALANCE, SEPTEMBER 30, 2002                   7,492,353  $  74,923    $56,342,563   $  (671,130)  $ (35,251)  $ 1,596,925
                                              ==========  =========    ===========   ===========   =========   ===========

<CAPTION>
-------------------------------------------------------------------------------------------------------

                                                                 Treasury Stock            Total
                                                          ----------------------------
                                               Retained                                 Stockholders'
                                               Earnings       Shares        Amount         Equity
<S>                                          <C>            <C>         <C>             <C>
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 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 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
 Repayment of ESOP loan and related
   decrease in share value                                                                  770,674
 Options exercised                                                                          720,000
 Shares issued related to acquisition                                                     4,426,650
 RRP shares earned                                                                           80,986
 Net change in unrealized gain on
   available-for-sale securities, net of tax                                                374,883
 Treasury stock purchased                                     615,050     (6,435,745)    (6,435,745)
 Net income                                    4,234,994                                  4,234,994
 Dividends                                    (1,268,379)                                (1,268,379)
                                             -----------   ----------   ------------    -----------
 BALANCE, SEPTEMBER 30, 2002                 $16,304,221    3,116,058   $(26,119,636)   $47,492,615
                                             ===========   ==========   ============    ===========
</TABLE>


See notes to consolidated financial statements.

                                       39

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                2002            2001              2000
<S>                                                                        <C>              <C>                <C>
OPERATING ACTIVITIES:
  Net income                                                               $  4,234,994     $ 1,408,911        $  3,451,629
  Adjustments to reconcile net income to net cash
    provided (used) by operating activities:
    Provision for loan losses                                                   900,000         200,000             120,000
    Depreciation of premises and equipment                                    1,012,490         599,326             478,937
    Deferred income tax benefit                                                 (45,222)       (925,321)           (107,635)
    Amortization of deferred loan fees                                         (133,537)        (74,982)            (56,746)
    Amortization of premiums and discounts, net                                (308,050)       (408,253)           (266,428)
    Amortization of core deposit premium                                        839,639         428,124             286,056
    Amortization of goodwill                                                          -          63,857                   -
    Adjustment of ESOP shares and release of
      shares under recognition and retention plan                               851,660         610,140             504,704
    Net gains on sales of loans                                              (1,002,501)       (423,845)             (7,800)
    Net gains on sales of investment securities                                (555,497)       (380,009)           (447,563)
    Increase in cash surrender value of life
      insurance policies                                                       (294,200)       (193,488)           (193,488)
    Increase in loans receivable, held for sale                             (11,553,745)              -                   -
    Changes in operating assets and liabilities, net of
      effects of acquired companies:
         Trading securities                                                   1,710,816      (2,048,562)            302,484
         Accrued interest receivable                                          1,360,461         399,724             (86,512)
         Other assets                                                        (1,223,706)        864,621          (2,499,964)
         Deferred compensation                                               (1,015,206)      1,900,667            (119,798)
         Accrued expenses and other liabilities                                 781,750         849,029          (1,518,149)
                                                                           ------------     -----------        ------------
            Net cash provided (used) by operating activities                 (4,439,854)      2,869,939            (160,273)

INVESTING ACTIVITIES:
  Acquisition of Walden/Smith Financial Group, Inc., net of cash acquired      (372,866)    (15,385,654)                  -
  Acquisition of Southern Mortgage Corporation, net of cash acquired           (849,049)              -                   -
  Acquisition of Peoples Bank of Imboden, net of cash acquired                1,223,629               -                   -
  Cash acquired from acquisition of North Arkansas Bancshares, Inc.           2,925,033               -                   -
  Purchases of investment securities available-for-sale                    (116,841,893)     (9,338,050)         (8,000,000)
  Proceeds from sale of securities available-for-sale                        43,693,096      49,818,508          97,041,274
  Proceeds from maturities, calls and principal
    prepayment of investment securities                                      44,592,767      30,179,578          13,646,889
  Decrease (increase) in loans, net                                             632,559      (3,967,258)        (16,125,559)
  Proceeds from sale of loans                                                28,468,899      19,686,272                   -
  Proceeds from sale of REO                                                     775,800               -                   -
  Purchases of premises and equipment                                        (2,144,071)     (2,106,836)           (240,629)
                                                                           ------------     -----------        ------------
            Net cash provided by investing activities                         2,103,904      68,886,560          86,321,975
</TABLE>

                                                                     (Continued)

                                       40

<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              2002              2001               2000
<S>                                                      <C>               <C>              <C>
FINANCING ACTIVITIES:
  Net increase (decrease) in deposits other
    than in acquisitions                                 $   79,609,766    $  (30,521,001)  $    23,080,716
  Federal Home Loan Bank advances                           943,128,600     1,448,426,334     3,006,964,100
  Repayment of Federal Home Loan Bank
    advances                                               (999,557,993)   (1,496,538,197)   (3,102,079,100)
  Net decrease in repurchase agreements                        (350,000)       (1,025,000)         (700,000)
  Proceeds from issuance of trust preferred
    securities, net of issuance costs                         9,650,500         7,231,058                 -
  Exercise of stock options                                     720,000            35,588            21,253
  Purchase of treasury shares                                (6,435,745)                -        (7,801,669)
  Dividends paid                                             (1,268,379)       (1,160,929)       (1,327,605)
                                                         --------------    --------------   ---------------

      Net cash provided (used) by
       financing activities                                  25,496,749       (73,552,147)      (81,842,305)

NET INCREASE (DECREASE) IN CASH
  AND DUE FROM BANKS                                         23,160,799        (1,795,648)        4,319,397

CASH AND DUE FROM BANKS,
  BEGINNING OF YEAR                                          11,145,799        12,941,447         8,622,050
                                                         --------------    --------------   ---------------
CASH AND DUE FROM BANKS,
  END OF YEAR                                            $   34,306,598    $   11,145,799   $    12,941,447
                                                         ==============    ==============   ===============

SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest                                             $   15,655,380    $   18,231,042   $    20,123,108
                                                         ==============    ==============   ===============

    Income taxes                                         $    2,489,843    $      662,442   $     2,274,076
                                                         ==============    ==============   ===============

SUPPLEMENTAL DISCLOSURES OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:
  Transfers from loans to real estate acquired,
    or deemed acquired, through foreclosure              $    2,311,641    $    1,607,364   $       947,756
                                                         ==============    ==============   ===============

  Loans originated to finance the sale of real
    estate acquired through foreclosure                  $    1,471,369    $      805,846   $       505,147
                                                         ==============    ==============   ===============

  Issuance of common stock for acquisition               $    4,426,650
                                                         ==============
</TABLE>

                                                                     (Concluded)
See notes to consolidated financial statements.

                                       41

<PAGE>

POCAHONTAS BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2002, 2001, AND 2000
--------------------------------------------------------------------------------

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 subsidiaries, First Community
     Bank (the "Bank"), Pocahontas Capital Trust I and II (the "Trusts"), which
     are business trusts established to facilitate the issuance of the trust
     preferred securities; as well as the Bank's subsidiaries, Southern Mortgage
     Corporation, P.F. Service, Inc. and Sun Realty, Inc., which provide real
     estate services (collectively referred to as the "Company"). All
     significant intercompany transactions have been eliminated in
     consolidation. The Bank operates 23 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.

     Securities Trading - 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 occurs, the carrying value of such security would be
     written down to current market value by a charge to operations. As of
     September 30, 2002, 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 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, 2002, no securities were
     determined to have other than a temporary decline in fair value below cost.

                                       42

<PAGE>

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 warrants the recognition of interest income. Interest on
loans that have been restructured is generally accrued according to the
renegotiated terms.

Loans Receivable, Held for Sale - Loans receivable, held for sale are carried at
the lower of cost or market, which is computed by the aggregate method
(unrealized losses are offset by unrealized gains). Gains or losses on loan
sales are recognized at the time of sale and are determined by the difference
between net sales proceeds and the unpaid principal balance of loans sold,
adjusted for unamortized discount points and fees collected from borrowers,
deferred origination costs and amounts allocated to retained servicing rights.

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
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.

                                       43

<PAGE>

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 - On October 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. The
Statement required the Company to discontinue 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. During the year ended September 30, 2001, goodwill was amortized on a
straight-line basis over 20 years. Amortization expense was $63,857 for the year
ended September 30, 2001.

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 ("APB 25") in accounting for its stock option plans. Under
APB 25, because the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense

                                       44

<PAGE>

     is recorded. The Company has adopted the disclosure-only provisions of SFAS
     No. 123, Accounting for Stock-Based Compensation.

     Recently Adopted Accounting Standards - In July 2001, the Financial
     Accounting Standards Board ("FASB") issued 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. The Company adopted
     SFAS No. 141 on October 1, 2001. The adoption of SFAS No. 141 did not have
     a material effect on the Company's consolidated financial statements.

     Recently Issued Accounting Standards - 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 adoption
     of SFAS No. 144 is not expected to have a material impact on the results of
     operations or financial condition of the Company.

     In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
     No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
     This Statement requires that a liability for costs associated with an exit
     or disposal activity be recognized when the liability is incurred and be
     measured at fair value and adjusted for changes in estimated cash flows.
     Existing generally accepted accounting principles provide for the
     recognition of such costs at the date of management's commitment to an exit
     plan. Under SFAS No. 146, management's commitment to an exit plan would not
     be sufficient, by itself, to recognize a liability. The Statement is
     effective for exit or disposal activities initiated after December 31,
     2002, and are not expected to have a material impact on the results of
     operations or financial condition of the Company.

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

     Reclassifications - Certain 2001 and 2000 amounts have been reclassified to
     conform to the 2002 presentation.

2.   ACQUISITIONS

     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 in cash 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 and core
     deposit premium intangible asset of approximately $4.5 million was recorded
     related to the acquisition. The core deposit intangible asset is estimated
     to have a useful life of 10 years.

     In connection with the acquisition, the Company's savings association
     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.

                                       45

<PAGE>

     On October 1, 2001, Pocahontas Bancorp, Inc. purchased Southern Mortgage
     Corporation, a mortgage company based in Tulsa, Oklahoma, for cash of $0.9
     million. Goodwill of approximately $0.8 million was recorded related to the
     acquisition.

     On May 31, 2002, the Company completed its acquisition of Peoples Bank of
     Imboden, an Arkansas bank based in Imboden, Arkansas, for cash of $8.4
     million. Peoples Bank of Imboden had $71.6 million in assets as of May 31,
     2002. Peoples Bank of Imboden operated four branches in Lawrence County,
     Arkansas. A core deposit intangible asset of $2.5 million and no goodwill
     was recognized related to the acquisition. The core deposit intangible
     asset is estimated to have useful life of 10 years.

     On June 18, 2002, the Company completed its acquisition of North Arkansas
     Bancshares, Inc., the holding company for Newport Federal Savings Bank, in
     a merger valued at $4.3 million or $15.00 per share. In the transaction,
     Pocahontas Bancorp issued 442,665 shares of stock to the stockholders of
     North Arkansas Bancshares at an exchange ratio of 1.5150 Company shares for
     each North Arkansas Bancshares share. Newport Federal Savings Bank had
     assets of $37.0 million as of June 18, 2002. A core deposit intangible
     asset of $0.6 million and no goodwill was recognized related to the
     acquisition. The core deposit intangible asset is estimated to have a
     useful life of 10 years.

     The following unaudited pro forma information is being provided for the
     business acquisitions made during the year ended September 30, 2002, as
     though the Company made the acquisitions at the beginning of the year ended
     September 30:

                                                 2002             2001

                                       (in thousands, except earnings per share)

     Net interest income                      $  19,703        $  14,280

     Income before income taxes                   6,095            3,251

     Net income                                   3,505            2,402

     Basic earnings per share                 $    0.80        $    0.56

     Diluted earnings per share               $    0.79        $    0.56

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.

                                       46

<PAGE>

     The carrying amounts and estimated fair values of financial instruments at
     September 30, 2002 and 2001, were as follows (items which are not financial
     instruments are not included):

<TABLE>
<CAPTION>
                                                           2002                            2001
                                                 Carrying        Estimated       Carrying         Estimated
                                                  Amounts        Fair Value       Amounts         Fair Value
       <S>                                     <C>             <C>             <C>              <C>
       Financial assets and liabilities:
         Cash and due from banks               $  34,306,598   $  34,306,598   $  11,145,799    $  11,145,799
         Cash surrender value of
           life insurance                          6,883,493       6,883,493       6,589,293        6,589,293
         Securities held-to-maturity               8,123,832       8,499,577      11,500,879       11,526,845
         Securities available-for sale           117,340,818     117,340,818      64,974,115       64,974,115
         Trading securities                        1,464,458       1,464,458       3,175,274        3,175,274
         Loans receivable, net                   396,141,853     405,906,000     349,376,099      349,233,000
         Loans receivable, held for sale          11,939,522      12,432,000               -                -
         Accrued interest receivable               4,362,821       4,362,821       4,860,860        4,860,860
         Federal Home Loan Bank stock              2,125,500       2,125,500       3,786,500        3,786,500
         Demand and savings deposits             187,624,693     187,624,693     115,259,333      115,259,333
         Time deposits                           332,407,009     336,167,000     233,281,589      232,624,000
         Federal Home Loan Bank
           advances                               22,136,967      23,459,000      73,315,804       73,315,804
         Securities sold under
           agreements to repurchase                        -               -         350,000          350,000
         Commitments                                       -               -               -                -
</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 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 approximate cost and are not
     considered significant to this presentation. Commitments are generally made
     at prevailing interest rates at the time of funding and therefore, there is
     no difference between the contract amount and fair value.

4.  INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                     2002
                                                             Gross        Gross       Estimated
                                              Amortized    Unrealized   Unrealized       Fair
             Held-to-Maturity                    Cost        Gains        Losses        Value
     <S>                                    <C>            <C>          <C>          <C>
     Municipal bonds                        $  8,123,832   $  375,745   $        -   $  8,499,577
          Total                             ------------   ----------   ----------   ------------
                                            $  8,123,832   $  375,745   $        -   $  8,499,577
                                            ============   ==========   ==========   ============
</TABLE>

                                       47

<PAGE>

<TABLE>
<CAPTION>
                                                               2002
                                                       Gross           Gross         Estimated
                                    Amortized        Unrealized      Unrealized        Fair
     Available-for-sale               Cost             Gains           Losses          Value
<S>                               <C>               <C>             <C>            <C>
U.S. Government agencies          $   3,450,000     $   198,406     $         -    $  3,648,406
Mortgage backed securities          102,697,968       2,165,764          28,273     104,835,459
Municipal bonds                       4,878,052         169,854           5,332       5,042,574
Corporate bonds                       3,895,214               -          80,835       3,814,379
                                  -------------     -----------     -----------    ------------

              Total               $ 114,921,234     $ 2,534,024     $   114,440    $117,340,818
                                  =============     ===========     ===========    ============

<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
                                  =============     ===========     ===========    ============

<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>

The amortized cost and estimated fair value of debt securities at September 30,
2002, 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           $      5,000       $    5,021    $     80,000    $     80,000
Due from one year to five years         50,000           50,178       4,816,836       4,753,083
Due from five years to ten years     2,020,408        2,184,195       2,199,101       2,339,645
Due after ten years                  6,048,424        6,260,183       5,127,329       5,332,631
Mortgage backed securities                   -                -     102,697,968     104,835,459
                                  ------------      -----------    ------------    ------------
            Total                 $  8,123,832      $ 8,499,577    $114,921,234    $117,340,818
                                  ============      ===========    ============    ============
</TABLE>

                                       48

<PAGE>

      Securities with a carrying value and a fair value of $66,414,882 and
      $29,507,871 at September 30, 2002 and 2001, respectively, were pledged to
      collateralize public and trust deposits.

5.   LOANS RECEIVABLE

      Loans receivable at September 30 are summarized as follows:

                                                      2002             2001
        Real estate loans:
          Single-family residential             $  176,203,820    $ 175,976,974
          Multifamily residential                    1,194,390          825,600
          Agricultural                              17,342,162       14,385,767
          Commercial                                91,298,606       73,282,495
                                                --------------    -------------
                    Total real estate loans        286,038,978      264,470,836

        Other loans:
          Savings account loans                      6,808,067        5,165,816
          Commercial business                       64,549,555       65,722,144
          Other                                     46,482,679       17,551,593
                                                --------------    -------------

                    Total other loans              117,840,301       88,439,553
                                                --------------    -------------

                    Total loans receivable         403,879,279      352,910,389


        Less:
          Undisbursed loan proceeds                  4,242,669          416,130
          Unearned fees, net                           209,533          286,161
          Allowance for loan losses                  3,285,224        2,831,999
                                                --------------    -------------

                    Loans receivable, net       $  396,141,853    $ 349,376,099
                                                ==============    =============


      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.

      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:

                                             2002           2001
        Securities                      $     798,986    $   951,743
        Loans receivable                    3,563,835      3,909,117
                                        -------------    -----------

        TOTAL                           $   4,362,821    $ 4,860,860
                                        =============    ===========

                                       49

<PAGE>

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, 2002, 2001, and 2000 is as follows:

                                                                   Foreclosed
                                                      Loans        Real Estate
                                                  ------------    ------------

     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

       Provision for losses                            900,000         165,000
       Balance transferred at acquisition              858,100
       Charge-offs, net of recoveries               (1,304,875)       (104,512)
                                                  ------------    ------------

     BALANCE, SEPTEMBER 30, 2002                  $  3,285,224    $    160,488
                                                  ============    ============

    Gross recoveries are not material.

8. PREMISES AND EQUIPMENT

    Premises and equipment at September 30 are summarized as follows:

                                                      2002             2001

     Cost:
       Land                                       $  2,163,919    $   1,483,490
       Buildings and improvements                   11,088,401       10,473,412
       Furniture, fixtures, and equipment            4,236,240        3,090,223
                                                  ------------    -------------
                                                    17,488,560       15,047,125
     Less accumulated depreciation                  (3,578,402)      (2,772,971)
                                                  ------------    -------------
     TOTAL                                        $ 13,910,158    $  12,274,154
                                                  ============    =============


9.   GOODWILL AND INTANGIBLE ASSETS

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

     The Company has completed a transitional impairment review to identify if
     there is an impairment to recorded goodwill using fair value methodology,
     which differs from an undiscounted cash flow methodology that

                                       50

<PAGE>

continues to be used for intangible assets with an identifiable life. There was
no impairment loss resulting from the transitional impairment test as of October
1, 2001. As of March 31, 2002, the Company performed its annual impairment test
and concluded there was no impairment to the book value of the Company's
goodwill. Absent any impairment indicators, the Company expects to perform its
next impairment test as of March 31, 2003.

Had the Company been accounting for its goodwill under SFAS No, 142 for all
periods presented, the Company's net income and earnings per share would have
been as follows:

<TABLE>
<CAPTION>
                                                                                     Year Ended
                                                                                    September 30
                                                                         --------------------------------
                                                                           2002         2001       2000
<S>                                                                      <C>          <C>        <C>
      (in thousands, except earnings per share amounts):
        Net income - as reported                                         $  4,235     $  1,409  $   3,452
        Add back:  Goodwill amortization, net of tax                                        42
                                                                         --------     --------  ---------
        Net income - adjusted                                            $  4,235     $  1,451  $   3,452
                                                                         ========     ========  =========

      Basic earnings per share:
        As reported                                                      $   0.96     $   0.33  $    0.67
        As adjusted                                                      $   0.96     $   0.34  $    0.67

      Diluted earnings per share:
        As reported                                                      $   0.96     $   0.33  $    0.67
        As adjusted                                                      $   0.96     $   0.34  $    0.67
</TABLE>

Changes in the carrying amount of goodwill for the year ended September 30,
2002, were as follows:

<TABLE>
<S>                                                                                            <C>
      Balance as of October 1, 2000                                                             $        -

        Additions related to business acquisitions                                               7,729,318
        Amortization                                                                               (63,857)
                                                                                                ----------
      Balance as of September 30, 2001                                                           7,665,461

        Additions related to business acquisitions                                                 809,245
        Adjustment to Walden/Smith acquistion                                                      372,866
                                                                                                ----------
      Balance as of September 30, 2002                                                          $8,847,572
                                                                                                ==========
</TABLE>

During the year ended September 30, 2002, the Company acquired approximately
$3.7 million of core deposit intangible assets. As of September 30, 2002 the
Company has total core deposit intangible assets of $9,084,027, net of
accumulated amortization of approximately $1,974,000. Core deposit intangible
assets are estimated to have a useful life of 10 years.

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

                                       51

<PAGE>

     Total amortization expense for core deposit intangible assets was
     approximately $831,000, $513,000 and $286,000 for the years ended September
     30, 2002, 2001 and 2000, respectively. Amortization expense for the net
     carrying amount of core deposit intangible assets at September 30, 2002 is
     estimated to be as follows:

           Year ended September 30, 2003                          $    1,105,843
           Year ended September 30, 2004                               1,105,843
           Year ended September 30, 2005                               1,105,843
           Year ended September 30, 2006                               1,105,843
           Year ended September 30, 2007                               1,105,843
           After September 30, 2007                                    3,554,812
                                                                  --------------

                       Total                                      $    9,084,027
                                                                  ==============


10.  DEPOSITS

      Deposits at September 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                             2002                2001
<S>                                                                                    <C>                 <C>
           Checking accounts, including noninterest-bearing deposits of
             $38,323,290 and $24,180,340 in 2002 and 2001, respectively                $  121,777,628      $   92,806,085
           Passbook savings                                                                65,847,065          22,453,248
           Certificates of deposit                                                        332,407,009         233,281,589
                                                                                       --------------      --------------

           TOTAL                                                                       $  520,031,702      $  348,540,922
                                                                                       ==============      ==============
</TABLE>

     The aggregate amount of short-term jumbo certificates of deposit with a
     minimum denomination of $100,000 was $83,217,466 and $31,757,753 at
     September 30, 2002 and 2001, respectively.

     At September 30, 2002, scheduled maturities of certificates of deposit are
     as follows:

           Years ending September 30:                                  Total

             2003                                                 $  247,153,992
             2004                                                     65,764,323
             2005                                                      5,676,141
             2006                                                      2,134,831
             2007                                                     11,677,722
                                                                  --------------

           TOTAL                                                  $  332,407,009
                                                                  ==============


     Interest expense on deposits for the years ended September 30, 2002, 2001,
     and 2000, is summarized as follows:

<TABLE>
<CAPTION>
                                                        2002                    2001                2000
<S>                                              <C>                     <C>                    <C>
           Checking                              $    1,359,815          $      779,118         $ 1,008,497
           Passbook savings                           1,244,393                 606,777             397,124
           Certificates of deposit                   11,360,013              12,030,388           8,944,560
                                                 --------------          --------------         -----------

           TOTAL                                 $   13,964,221          $   13,416,283         $10,350,181
                                                 ==============          ==============         ===========
</TABLE>

                                       52

<PAGE>

11.  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, 2002 and
      2001, the Company had stock of $2,125,500 and $3,786,500, 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, 2002 and 2001, of approximately $212,094,750 and
      $169,319,000, respectively. Advances at September 30, 2002 and 2001, have
      maturity dates as follows:

<TABLE>
<CAPTION>
                                                                 2002                            2001
                                                    ------------------------------- ----------------------------
                                                     Weighted                        Weighted
                                                      Average                         Average
                                                       Rate          Amount            Rate           Amount
<S>                                                  <C>          <C>                <C>            <C>
           September 30:
            2002                                                                      3.33%         $51,895,000
            2003                                       6.36%      $14,260,428         6.60%          14,400,000
            Greater than 5 years                       6.84%        7,876,539         6.78%           7,020,804
                                                                  -----------                       -----------

           TOTAL                                                  $22,136,967                       $73,315,804
                                                                  ===========                       ============
</TABLE>

      Interest expense on FHLB advances was $1,782,432, $5,117,593, and
      $8,946,927 for the years ended September 30, 2002, 2001, and 2000,
      respectively. Interest rates on all FHLB advances are fixed as of
      September 30, 2002.

12.  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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

<TABLE>
<CAPTION>
                                                                                         2001
<S>                                                                                 <C>
           Balance outstanding at September 30                                      $    350,000

           Average balance during the year                                             1,598,333

           Average interest rate during the year                                            5.38%

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

           Investment securities underlying the agreements at year-end:
             Carrying value                                                            3,965,037
             Estimated market value                                                    3,965,037
</TABLE>

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


13.  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 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.

                                       53

<PAGE>

      On December 8, 2001, the Company issued $10.0 million of trust preferred
      securities with a floating coupon rate, which is reset semi-annually,
      equal to the six-month LIBOR plus 375 basis points. The floating rate may
      not exceed 11.0% until December 8, 2006. The proceeds, net of issuance
      costs, to the Company were approximately $9.65 million. The Company plans
      to use the 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.

14.  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, 2002, 2001, and 2000, was approximately $81,000, $340,000,
      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. During the year ended September 30,
      2002, an additional expense of $133,000 was incurred related to the
      separation agreement with an officer. As of September 30, 2002,
      approximately $616,000 was payable 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 $2,230,688 and $2,476,414
      at September 30, 2002 and 2001, 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 forfeited
      all shares of restricted stock awarded to him under the Company's current
      Recognition and Retention Plan and agreed to forego 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
      $1,276,973 and $1,600,000 at September 30, 2002 and 2001, respectively.
      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.

                                       54

<PAGE>

15.  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 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, 2002, 2001, and 2000.

      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 second-step
      reorganization and offering 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 $671,780,
      $573,627, and $514,858, respectively, to the ESOP in years ended September
      30, 2002, 2001, and 2000.

      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 $122,000, $220,000, and
      $220,000 for the years ended September 30, 2002, 2001, and 2000,
      respectively.

16.  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:

                                        2002           2001             2000

          Current                  $  2,232,914    $  1,307,841    $  1,740,487
          Deferred                      (45,222)       (925,321)       (107,635)
                                   ------------    ------------    ------------
          TOTAL                    $  2,187,692    $    382,520    $  1,632,852
                                   ============    ============    ============

                                       55

<PAGE>

      The net deferred tax amount, which is included in other liabilities,
consisted of the following:

<TABLE>
<CAPTION>
                                                                                 2002               2001
   <S>                                                                       <C>                <C>
   Deferred tax assets:
     Deferred compensation                                                   $  1,703,846       $  2,101,084
     Allowance for loan losses                                                  1,172,844            599,364
     Core deposit premium amortization                                            174,376            116,608
     Other                                                                        110,876             27,593
                                                                             ------------       ------------
             Total deferred tax assets                                          3,161,942          2,844,649

   Deferred tax liabilities:
     Acquired intangibles                                                      (2,582,573)        (2,296,511)
     Unrealized gain on available-for-sale securities                            (824,068)          (629,537)
     FHLB stock dividends                                                        (234,848)          (202,205)
     Other                                                                       (277,711)           (38,283)
                                                                             ------------       ------------
               Total deferred tax liabilities                                  (3,919,200)        (3,166,536)
                                                                             ------------       ------------
   Net deferred tax liability                                                $   (757,258)      $   (321,887)
                                                                             ============       ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                   2002                     2001                 2000
                                          ------------------------ ----------------------  ---------------------
  <S>                                     <C>         <C>           <C>         <C>          <C>     <C>
  Expected income tax expense                34.0%    $ 2,183,713      34.0 %   $ 609,087     34.0%  $ 1,728,724
  Exempt income                              (3.3)       (212,681)    (10.2)     (183,515)    (3.0)     (155,637)
  Cash surrender value of life
    insurance                                (1.1)        (67,541)        -             -        -             -
  State tax, net of federal benefit           2.7         172,033       1.8        32,624      7.1       363,357
  Change in estimate                            -               -      (4.8)      (85,849)    (0.2)      (10,208)
  Other                                       1.8         112,168       0.6        10,173     (6.0)     (293,384)
                                          -------     -----------  --------     ---------  -------   -----------
  TOTAL                                      34.1%    $ 2,187,692      21.4%    $ 382,520     31.9%  $ 1,632,852
                                          =======     ===========  ========     =========  =======   ===========
</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, 2002. 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, 2002.

17.  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.

                                       56

<PAGE>

      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, 2002, that the Bank met all capital adequacy requirements to which it
      is subject.

      As of September 30, 2002 and 2001, the most recent notification from the
      OTS categorized the Bank as well capitalized under the regulatory
      framework for prompt corrective action. To be categorized as well
      capitalized the Bank must maintain minimum total, tangible, and core
      capital ratios as set forth in the table below. There are no conditions or
      events since that notification that management believes have changed the
      institution's category.

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

<TABLE>
<CAPTION>
                                                                                                              Required
                                                                                                          To Be Categorized
                                                                                                                 As
                                                                                                          Well Capitalized
                                                                                         Required              Under
                                                                                        For Capital      Prompt Corrective
                                                                    Actual          Adequacy Purposes    Action Provisions
                                                            --------------------- --------------------- --------------------
                                                              Amount     Ratio      Amount     Ratio       Amount    Ratio
        <S>                                                  <C>        <C>        <C>        <C>       <C>         <C>
        As of September 30, 2002:

          Tangible capital to tangible assets                $ 38,132        6.40%  $  8,934    1.50%          N/A    N/A

          Core capital to adjusted tangible assets             38,132        6.40     23,823    4.00     $  29,779   5.00

          Total capital to risk weighted assets                41,337       10.74     30,786    8.00        38,482  10.00

          Tier I capital to risk weighted assets               38,132        9.91     15,393    4.00        23,089   6.00

        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
</TABLE>

18.  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 stockholder's equity to
      be reduced below applicable regulatory capital maintenance requirements
      for insured institutions. 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 17
      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.

                                       57

<PAGE>

19.  EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                       Year Ended September 30
                                                                   2002        2001          2000
        <S>                                                    <C>           <C>          <C>
        Basic EPS weighted average shares                       4,400,027    4,295,002    5,166,038
        Add dilutive effect of unexercised options                 28,897          791        6,713
                                                              -----------   ----------   ----------
                    Dilutive EPS weighted average shares        4,428,924    4,295,793    5,172,751
                                                              ===========   ==========   ==========
</TABLE>

20.  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.

21.  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.

                                       58

<PAGE>

      At September 30, 2002, the Company had the following outstanding
      commitments to extend credit:

         Undisbursed loans in process                            $    4,242,669
         Unfunded lines and letters of credit                        20,089,000
         Outstanding loan commitments                                11,709,032
                                                                 --------------

                     Total outstanding commitments               $   36,040,701
                                                                 ==============

      The Company has not incurred any losses on its commitments in any of the
      three years in the period ended September 30, 2002.

22.  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 $8,458,178, $8,085,688 and $1,542,073 at
      September 30, 2002, 2001, and 2000, 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,
      2002, total principal additions were $6,089,855 and total principal
      payments were $5,717,365.

      Deposits from related parties held by the Company at September 30, 2002
      and 2001, amounted to $3,035,226 and $4,530,282, respectively.

23.  RESTRICTED STOCK AWARD PROGRAMS AND STOCK OPTION PLANS

      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 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,
      2002, is 6.1 years.

                                       59

<PAGE>

      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
      Granted                                                       -
      Exercised                                               (80,000)
      Forfeited                                                     -
                                                        -------------
      Outstanding at September 30, 2002                       270,000     $     9.00
                                                        =============

      Options exercisable at September 30, 2000                70,000     $     9.00
                                                        =============
      Options exercisable at September 30, 2001               197,600     $     9.00
                                                        =============
      Options exercisable at September 30, 2002               248,400     $     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
                                                 ---------------------------------------
                                                     2002       2001       2000
        <S>                                      <C>        <C>        <C>
        Net income (in thousands):
          As reported                            $   4,235  $   1,409  $   3,452
          Pro forma                                  4,127        999      3,180
        Earnings per share:
          Basic - as reported                         0.96       0.33       0.67
          Basic - pro forma                           0.94       0.23       0.62
          Diluted - as reported                       0.96       0.33       0.67
          Diluted - pro forma                         0.93       0.23       0.62
</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%.

                                       60

<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 $81,000, $161,000 and $247,000 in
      compensation expense was recognized during the years ended September 30,
      2002, 2001 and 2000, respectively.

24.  OTHER COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                        Year Ended September 30, 2002
                                                               -----------------------------------------------
                                                                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                                $  1,123,502    $   (381,991)    $      741,511
        Less reclassification adjustment for
          (gains) losses included in net income                    (555,497)        188,869           (366,628)
                                                               ------------    ------------     --------------

                  Other comprehensive income (loss)            $    568,005    $   (193,122)    $      374,883
                                                               ============    ============     ==============

<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>

                                       61

<PAGE>

<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>

25.  SUBSEQUENT EVENTS

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

26.  ACQUISITION (UNAUDITED)

      On November 27, 2002, the Company signed a definitive merger agreement
      pursuant to which the Company will acquire Marked Tree Bancshares, Inc. in
      a stock transaction valued at approximately $2.8 million. Marked Tree
      Bancshares, Inc. had total assets of $30.0 million at June 30, 2002. The
      merger transaction is subject to the approval of the stockholders of
      Marked Tree Bancshares, Inc. and receipt of required regulatory approvals.
      Subject to those contingencies, it is expected that the transaction will
      be consummated during the quarter ended March 31, 2003. The Board of
      Directors of each company has unanimously approved the transaction. Upon
      completion of the transaction, the Company will have approximately $647
      million in assets and will have a total of 22 offices in Northeast
      Arkansas.

      The transaction is structured as a tax free reorganization whereby Marked
      Tree Bancshares stockholders will receive the Company's common stock based
      on the stated book value per share of Marked Tree Bancshares divided by
      the stated book value per share of the Company, calculated as of the last
      calendar quarter end prior to closing, subject to adjustment based on
      changes in the trading price of the Company's common stock.

                                       62

<PAGE>

27.  PARENT COMPANY ONLY FINANCIAL INFORMATION

      The following condensed statements of financial condition as of September
      30, 2002 and 2001, and condensed statements of income and cash flows for
      the years ended September 30, 2002 and 2001, 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, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                                   2002               2001
        ASSETS
<S>                                                                            <C>                <C>
        Deposit in Bank                                                        $   6,426,458      $   2,317,583
        Investment in Bank                                                        58,181,507         48,392,301
        Loan receivable                                                            1,373,202          2,000,068
        Investment securities                                                      1,464,458          3,175,274
        Other assets                                                               1,522,736            878,842
                                                                               -------------      -------------
        TOTAL ASSETS                                                           $  68,968,361      $  56,764,068
                                                                               =============      =============

        LIABILITIES AND STOCKHOLDERS' EQUITY

        Accrued expenses and other liabilities                                 $   1,067,701      $     335,253
        Deferred compensation                                                      3,507,662          4,609,205
        Trust preferred securities                                                16,900,383          7,231,058
        Stockholders' equity                                                      47,492,615         44,588,552
                                                                               -------------      -------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $  68,968,361      $  56,764,068
                                                                               =============      =============

        CONDENSED STATEMENTS OF INCOME
        YEARS ENDED SEPTEMBER 30, 2002 AND 2001

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

        EXPENSES:
          Operating expenses                                                       2,074,228          3,907,547
                                                                               -------------      -------------

        LOSS BEFORE INCOME TAXES AND EQUITY IN
          IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY                            (2,074,228)        (3,313,974)

        INCOME TAX BENEFIT                                                           811,104          1,128,956
                                                                               -------------      -------------

        LOSS BEFORE EQUITY IN UNDISTRIBUTED
          EARNINGS OF BANK SUBSIDIARY                                             (1,263,124)        (2,185,018)

        EQUITY IN UNDISTRIBUTED EARNINGS OF BANK
          SUBSIDIARY                                                               5,498,118          3,593,929
                                                                               -------------      -------------
        NET INCOME                                                             $   4,234,994      $   1,408,911
                                                                               =============      =============
</TABLE>

                                       63

<PAGE>

POCAHONTAS BANCORP, INC.
(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                               2002           2001
<S>                                                                        <C>            <C>
   OPERATING ACTIVITIES:
     Net income                                                            $ 4,234,994    $ 1,408,911
     Adjustments to reconcile net income to net cash provided
       (used) by operating activities:
       Equity in undistributed earnings of Bank subsidiary                  (5,498,118)    (3,593,929)
       Amortization                                                             18,825              -
       Stock compensation                                                      851,660        610,140
       Changes in operating assets and liabilities:
         Investment securities                                               1,710,816     (2,048,562)
         Loan receivable                                                       626,866        443,457
         Other assets                                                         (643,894)     1,266,430
         Accrued expenses and other liabilities                                732,448     (1,851,735)
         Deferred compensation                                              (1,101,543)     1,963,391
                                                                           -----------    -----------

               Net cash provided (used) by operating activities                932,054     (1,801,897)

   INVESTING ACTIVITIES:
     Distribution to subsidiary                                                      -     (6,000,000)
     Cash acquired from acquisition of North Arkansas Bancshares, Inc.         510,445              -
                                                                           -----------    -----------

               Net cash provided (used) by investing activities                510,445     (6,000,000)

   FINANCING ACTIVITIES:
     Options exercised                                                         720,000         35,588
     Dividends paid                                                         (1,268,379)    (1,160,929)
     Proceeds from issuance of trust preferred securities, net of
      issuance costs                                                         9,650,500      7,231,058
     Purchase of treasury stock                                             (6,435,745)             -
                                                                           -----------    -----------

               Net cash provided by financing activities                     2,666,376      6,105,717
                                                                           -----------    -----------

   NET INCREASE (DECREASE) IN
     CASH AND CASH EQUIVALENTS                                               4,108,875     (1,696,180)

   CASH AND CASH EQUIVALENTS:
     Beginning of year                                                       2,317,583      4,013,763
                                                                           -----------    -----------

     End of year                                                           $ 6,426,458    $ 2,317,583
                                                                           ===========    ===========
</TABLE>

                                       64

<PAGE>

28.  QUARTERLY FINANCIAL DATA (UNAUDITED)

      The following tables represent summarized data for each of the four
      quarters in the years ended September 30, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                    2002
                                                    (in thousands, except per share data)

                                                Fourth       Third       Second         First
                                                Quarter     Quarter      Quarter       Quarter
  <S>                                           <C>         <C>          <C>           <C>
  Interest income                               $9,634      $8,674       $7,780        $8,019
  Interest expense                               4,835       4,215        3,966         4,183
                                                ------      ------       ------        ------
  Net interest income                            4,799       4,459        3,814         3,836
  Provision for loan losses                        500         200          100           100
                                                ------      ------       ------        ------
  Net interest income after
    provision for loan losses                    4,299       4,259        3,714         3,736
  Non-interest income                            1,396       1,484        1,258         1,159
  Non-interest expense                           4,033       3,821        3,680         3,348
                                                ------      ------       ------        ------
  Income before income taxes                     1,662       1,922        1,292         1,547
  Income tax expense                               570         650          439           529
                                                ------      ------       ------        ------

  Net income                                    $1,092      $1,272       $  853        $1,018
                                                ======      ======       ======        ======
  Basic earnings per share                      $ 0.25      $ 0.29       $ 0.19        $ 0.23
  Diluted earnings per share                    $ 0.25      $ 0.29       $ 0.19        $ 0.23
  Cash dividends declared per
    common share                                $0.075      $0.070       $0.070        $0.070
</TABLE>

<TABLE>
<CAPTION>
                                                                  2001
                                                    (in thousands, except per share data)

                                                Fourth      Third       Second         First
                                                Quarter    Quarter      Quarter       Quarter
  <S>                                           <C>        <C>          <C>           <C>
  Interest income                               $8,528     $ 7,435      $ 6,872       $ 7,056
  Interest expense                               4,967       4,772        4,459         4,901
                                                ------     -------      -------       -------

                                                 3,561       2,663        2,413         2,155
  Net interest income
  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 before income taxes                     1,007      (1,437)       1,378           843
  Income tax expense                               115        (473)         550           190
                                                ------     -------      -------       -------

  Net 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
</TABLE>

                                   * * * * * *

                                       65

<PAGE>

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

     Not applicable.

                                    PART III

ITEM 10   DIRECTORS AND OFFICERS OF THE REGISTRANT

     The table below sets forth certain information, as of September 30, 2002,
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
------------------------------
James A. Edington                52       Director             1994            2005             251,770           5.8%

Robert Rainwater                 67       Director             1981            2005              48,924           1.1%

A.J. Baltz, JR                   75       Director             2001            2004             197,252           4.6%

Dwayne Powell                    38       President, CEO       2000            2004             189,000           4.4%
                                          And Director

N. Ray Campbell                  52       Director             1992            2004              60,699           1.4%

Nominees
--------

Ralph P. Baltz                   55       Chairman             1986            2003             196,894           4.6%

Marcus Van Camp                  54       Director             1990            2003              48,752           1.1%
</TABLE>

----------------------------
(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."
(4)  As of December 13, 2002

          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 26 years.

                                       66

<PAGE>

     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.

ITEM 11  EXECUTIVE COMPENSATION

     The following table sets forth for the years ended September 30, 2002,
2001, and 2000, 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               Payouts
                           --------------------------------------------   -------------------------------
                              Year                             Other      Restricted    Options/             All Other
Name and                     Ended                          Annual Com-      Stock       SARS       LTIP      Compens-
Principal Position         Sept. 30,   Salary (1)   Bonus    pensation    Awards (3)      (#)     Payouts    sation (2)
------------------         ---------   ----------   -----    ---------    ----------      ---     -------    ----------
<S>                        <C>         <C>          <C>     <C>           <C>            <C>      <C>        <C>
Dwayne Powell ............    2002       246,000       --           --            --         --        --        37,667
  President and CEO(4) ...    2001       169,250       --           --            --         --        --        34,667
  ........................    2000       153,500       --           --       321,354     80,000        --        27,668
</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, effective
     October 1, 2001, upon the retirement of James A. Edington.

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

               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                          FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
==================================================================================================================

           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>                            <C>
Dwayne Powell                   --                            64,000/16,000                 $111,360/$27,840


==================================================================================================================
</TABLE>
                                       67

<PAGE>

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     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.

<TABLE>
<CAPTION>
                                                   Amount of Shares
                                                   Owned and Nature                Percent of Shares
                                                     of Beneficial                  of Common Stock
 Holder                                              Ownership (1)                  Outstanding (4)
 ------                                          ---------------------          ----------------------
<S>                                              <C>                            <C>
All Directors and Executive Officers
as a Group (7 persons)                                  993,290                          23.0%

First Community Bank                                    484,467                          11.2%
401(k) Savings and Employee Stock
Ownership Plan. (2)(3)
1700 East Highland Drive
Jonesboro, AR 72403

Tontine Financial Partners, L.P.                        465,348                          10.8
Tontine Partners, L.P.
Tontine Management, L.L. C.
Jeffrey L. Gendell
200 Park Avenue, Suite 3900
New York, New York 10166

Dimensional Fund Advisers, Inc.                         300,100                           7.0
1299 Ocean Avenue, 11/th/ Floor
Santa Monica, California 90401
</TABLE>

(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, 468,555 shares of
     Common Stock were allocated under the ESOP.

(3)  Excludes 51,201 shares of Common Stock or 9.6% 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>

Equity-Based Compensation Plans

     The Company has adopted three equity-based compensation plans: the 1994
Stock Option Plan, the 1998 Stock Option Plan and the 1998 Recognition and
Retention Plan. All three equity-based compensation plans have been approved by
stockholders of the Company.

     Set forth below is certain information as of September 30, 2002 regarding
equity-based compensation plans for directors and executive officers of the
Company that have been approved by stockholders.


<TABLE>
<CAPTION>
                                     Number of Securities to                       Number of Securities
                                     be issued upon exercise       Weighted         remaining available
                                      of outstanding options        average         for Issuance under
         Plan                              and rights           exercise price            plan
<S>                                  <C>                        <C>                <C>
1994 Stock Option Plan                            -                     -                4,274
1998 Stock Option Plan                      254,000                  9.00               16,000
1998 Recognition and Retention Plan               -                     -               35,707
                                      ---------------------------------------------------------------
Total                                       254,000                  9.00               55,981
                                      ===============================================================
</TABLE>

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 $8,458,178 at
September 30, 2002, which was 18.1% 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, 2002. All loans to directors and officers were performing in
accordance with their terms at September 30, 2002.

ITEM 14  CONTROLS AND PROCEDURES

     (a) Evaluation of disclosure controls and procedures.
         ------------------------------------------------

     Under the supervision and with the participation of our management,
including the Company's Chief Executive Officer and Chief Financial Officer, the
Company evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-14(c) under the
Exchange Act) as of a date (the "Evaluation Date") within 90 days prior to the
filing date of this report. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures were effective in timely
alerting them to the material information relating to the Company (or its
consolidated subsidiaries) required to be included in its periodic SEC filings.

                                       69

<PAGE>

(b)  Changes in internal controls.

     There were no significant changes made in the Company's internal controls
during the period covered by this report or, to management's knowledge, in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.

                                     PART IV

ITEM 15      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

       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
</TABLE>

                                       70

<PAGE>

<TABLE>
<S>           <C>                                             <C>                        <C>
                             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

   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

  99.1       Statement of Chief Executive Officer                99.1                        Page 77
             pursuant to 18 U.S.C. Section 1350, as
             adopted pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002.

  99.2       Statement of Chief Financial Officer                99.2                        Page 78
             pursuant to 18 U.S.C. Section 1350, as
             adopted pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002.

    (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, 2002                      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.

<TABLE>
<S>                                                <C>
By:   /s/ Dwayne Powell                                 By: /s/ Terry Prichard
     -----------------------------------------             --------------------------------------------------
     Dwayne Powell                                      Terry Prichard
     President, Chief Executive Officer,               Executive Vice President, Chief Financial Officer
     Director                                          Treasurer (Principal Financial Officer)
     (Principal Executive Officer)

Date: December  20, 2002                               Date: December 20, 2002
      ------------------                                     -----------------

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

Date: December 20, 2002                                Date: December 20, 2002
      -----------------                                      -----------------

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

Date: December 20, 2002                                Date: December 20, 2002
      -----------------                                      -----------------

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

Date: December 20, 2002                                Date: December 20, 2002
      -----------------                                      -----------------
</TABLE>

                                       72

<PAGE>

                    Certification of Chief Executive Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dwayne Powell, President and Chief Executive Officer, certify that:
1.       I have reviewed this annual report on Form 10-K of Pocahontas Bancorp,
         Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements and other financial
         information included in this annual report fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures
                  based on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officer and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

December 20, 2002                          /s/ Dwayne Powell
---------------------                      -------------------------------------
Date                                       Dwayne Powell
                                           President and Chief Executive Officer

                                       73

<PAGE>

                    Certification of Chief Financial Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Terry Prichard, Chief Financial Officer, certify that:
1.       I have reviewed this annual report on Form 10-K of Pocahontas Bancorp,
         Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements and other financial
         information included in this annual report fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officer and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures
                  based on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officer and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

December 20, 2002                                    /s/ Terry Prichard
-----------------                                    -----------------------
Date                                                 Terry Prichard
                                                     Chief Financial Officer

                                       74