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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, 2004.



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 incorporation or organization) |  | (I.R.S. Employer 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)



Name of Each Exchange on which Registered: NASDAQ National Market System



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 12b-2 of the Securities Exchange Act of 1934).



YES ̈NO x



As of December 20,
2004, there were issued and outstanding 4,641,717 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 20,
2004, was $43,012,478. 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.



DOCUMENTS INCORPORATED BY REFERENCE:



| | 1. | Part II of Form 10-K  Annual Report to Stockholders for the fiscal year ended September 30, 2004.
| | -- | --------------------------------------------------------------------------------------------------



| | 2. | Part III of Form 10-K  Proxy Statement for the 2004 Annual Meeting of Stockholders.
| | -- | ------------------------------------------------------------------------------------



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1



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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.



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 $8.4 million. Peoples Bank, which had assets of $71.6 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 $4.3 million in the aggregate in a stock- for- stock exchange. Newport Federal Savings Bank was a savings bank located in
Newport, Arkansas with $37.0 million in total assets at September 30, 2001.



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



On April 30, 2003, the Company completed the acquisition of Marked Tree Bancshares (Marked Tree) and its bank subsidiary, Marked Tree Bank, in
a stock transaction valued at approximately $3.2 million. The transaction was structured as a tax-free reorganization whereby Marked Tree stockholders received 103.1004 shares of Company stock for each outstanding share of Marked Tree stock. Marked
Tree was headquartered in Marked Tree, Arkansas and operated one full-service banking office. At April 30, 2003, Marked Tree had total assets of $32.6 million.



On August 15, 2003, the Company sold its banking offices in Brinkley, Arkansas to the Bank of Brinkley.



On March 5, 2004, the Company sold its banking offices in Strawberry,
Arkansas to the Bank of Cave City.



The Bank is a
community-oriented savings institution that operates 18 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, commercial real
estate loans and commercial business 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.



Employees



The Company and its affiliates employed 200 full-time equivalent employees
at September 30, 2004, compared to 221 and 169 at September 30, 2003 and 2002, respectively. The decrease in number of full-time equivalent employees in fiscal 2004 is primarily the result of managements efforts to improve efficiency and
stream line operations; the increase during fiscal 2003 was due primarily to the acquisitions of 2003, and 2002. We believe that we have been successful in attracting quality employees and that our employee relations are good.



2



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Available Information



The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, and all amendments to such reports filed pursuant to Section
13(a) or 15(d) of the Exchange Act, available as soon as reasonably practicable free of charge on or through its website located at fcb-online.com after filing with the United States Securities and Exchange Commission.



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 including loans held for sale, 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, 2004, the Banks net loan portfolio including loans held for sale totaled
$383.8 million, of which $128.1 million, or 33.4% were single-family residential real estate mortgage loans, $2.4 million, or .6% were multifamily residential real estate loans, $17.9 million, or 4.7% were agricultural real estate loans, and $135.3
million, or 35.2%, were commercial real estate loans (including land loans). Additionally, the Banks loans at September 30, 2004 included commercial business loans (i.e., crop production, equipment and inventory loans), which totaled
$57.0 million, or 14.9%, of the Banks net loan portfolio as of September 30, 2004. Other loans, including automobile loans and loans collateralized by deposit accounts totaled $50.0 million, or 13.1% of the Banks net loan portfolio as of
September 30, 2004. The composition of the Banks loan portfolio has changed since 2000 due to acquisitions, with a larger percentage of loans in the commercial real estate and non-real estate loans. Since 2000, the acquisitions of other
depository institutions have increased commercial and non-real estate loans by $145.5 million as of the dates of the acquisitions and provided for subsequent originations of other commercial and non-real estate loans.



3



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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.



|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|-------------------------------------------- |  | ---------------------- | ------- | ------- | ----- | - | ------ | ---- | ------- |  | ----- | ------ |  | ------- | ------- |  | ------ | - | ------- | - | ------- | ------ | ----- | ------- |  | - | ------- |  | ----- | -
|                                             |  | At September 30        |        
|                                             |  | 2004                   |         |         | 2003  |   |        | 2002 |         |  | 2001  |        |  | 2000    |        
|                                             |  | Amount                 |         | Percent |       |   | Amount |      | Percent |  |       | Amount |  | Percent |         |  | Amount |   | Percent |   |         | Amount |       | Percent | 
|                                             |  | (Dollars in Thousands) |        
|Real estate loans:                           |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Single-family residential                    |  | $                      | 128,072 |         | 33.4  | % |        | $    | 139,365 |  | 35.8  | %      |  | $       | 188,113 |  | 46.1   | % |         | $ | 175,977 |        | 50.4  | %       |  | $ | 175,625 |  | 75.0  | %
|Multifamily residential                      |  |                        | 2,393   |         | 0.6   |   |        |      | 1,384   |  | 0.4   |        |  |         | 1,194   |  | 0.3    |   |         |   | 826     |        | 0.2   |         |  |   | 1,163   |  | 0.5   |  
|Agricultural                                 |  |                        | 17,915  |         | 4.7   |   |        |      | 20,467  |  | 5.3   |        |  |         | 17,342  |  | 4.2    |   |         |   | 14,386  |        | 4.1   |         |  |   | 7,360   |  | 3.1   |  
|Commercial                                   |  |                        | 135,326 |         | 35.2  |   |        |      | 113,855 |  | 29.2  |        |  |         | 91,298  |  | 22.4   |   |         |   | 73,282  |        | 21.0  |         |  |   | 25,730  |  | 11.0  |  
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total real estate loans                      |  |                        | 283,706 |         | 73.9  | % |        |      | 275,071 |  | 70.7  |        |  |         | 297,947 |  | 73.0   |   |         |   | 264,471 |        | 75.7  |         |  |   | 209,878 |  | 89.6  |  
|                                             |  |                        |         |         |       |   |        |      |         | 
|Other loans:                                 |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Savings account loans                        |  |                        | 5,571   |         | 1.5   |   |        |      | 6,538   |  | 1.7   |        |  |         | 6,808   |  | 1.7    |   |         |   | 5,166   |        | 1.5   |         |  |   | 1,665   |  | 0.7   |  
|Commercial business(1)                       |  |                        | 57,045  |         | 14.9  |   |        |      | 67,747  |  | 17.3  |        |  |         | 64,524  |  | 15.8   |   |         |   | 65,432  |        | 18.8  |         |  |   | 12,555  |  | 5.3   |  
|Other(2)                                     |  |                        | 44,409  |         | 11.6  |   |        |      | 47,354  |  | 12.2  |        |  |         | 46,459  |  | 11.4   |   |         |   | 17,551  |        | 5.0   |         |  |   | 13,610  |  | 5.8   |  
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total other loans                            |  |                        | 107,025 |         | 28.0  |   |        |      | 121,639 |  | 31.2  |        |  |         | 117,791 |  | 28.9   |   |         |   | 88,149  |        | 25.3  |         |  |   | 27,830  |  | 11.8  |  
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total loans receivable                       |  |                        | 390,731 |         | 101.9 |   |        |      | 396,710 |  | 101.9 |        |  |         | 415,738 |  | 101.9  |   |         |   | 352,620 |        | 101.0 |         |  |   | 237,708 |  | 101.4 |  
|                                             |  |                        |         |         |       |   |        |      |         | 
|Less:                                        |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Undisbursed loan proceeds                    |  |                        | 2,942   |         | 0.8   |   |        |      | 3,413   |  | 0.9   |        |  |         | 4,243   |  | 1.0    |   |         |   | 416     |        | 0.1   |         |  |   | 1,345   |  | 0.6   |  
|Unearned discount and net deferred loan fees |  |                        | 213     |         | 0.1   |   |        |      | 227     |  | 0.1   |        |  |         | 209     |  | 0.1    |   |         |   | 286     |        | 0.1   |         |  |   | 264     |  | 0.1   |  
|Allowance for loan losses                    |  |                        | 3,766   |         | 1.0   |   |        |      | 4,068   |  | 0.9   |        |  |         | 3,205   |  | 0.8    |   |         |   | 2,542   |        | 0.8   |         |  |   | 1,682   |  | 0.7   |  
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total loans receivable, net                  |  | $                      | 383,810 |         | 100.0 | % |        | $    | 389,002 |  | 100.0 | %      |  | $       | 408,081 |  | 100.0  | % |         | $ | 349,376 |        | 100.0 | %       |  | $ | 234,417 |  | 100.0 | %
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  

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|(1) | Includes crop-production loans, livestock loans and equipment loans.
|--- | --------------------------------------------------------------------



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



Loan Maturity Schedule. The following table sets forth certain information as of September 30, 2004, 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.



|                    |  |                |        |          |   |          |  |           |         |            |   |               |  |       |        |  |   |        |  |   |        
|------------------- |  | -------------- | ------ | -------- | - | -------- |  | --------- | ------- | ---------- | - | ------------- |  | ----- | ------ |  | - | ------ |  | - | -------
|                    |  | Within1 Year   |        | 1-3Years |   | 3-5Years |  | 5-10Years |         | 10-20Years |   | Beyond20Years |  | Total
|                    |  | (In Thousands)
|Fixed rate loans    |  | $              | 77,392 |          | $ | 60,036   |  | $         | 118,083 |            | $ | 13,016        |  | $     | 15,918 |  | $ | 9,372  |  | $ | 293,817
|Variable rate loans |  | $              | 9,185  |          | $ | 6,313    |  | $         | 14,760  |            | $ | 7,488         |  | $     | 21,540 |  | $ | 37,628 |  | $ | 96,914 
|                    |  |                |        |          |   |          |  |           |         |            |   |               |  |       |        |  |   |        |  |   |        
|Total               |  | $              | 86,577 |          | $ | 66,349   |  | $         | 132,843 |            | $ | 20,504        |  | $     | 37,458 |  | $ | 47,000 |  | $ | 390,731
|                    |  |                |        |          |   |          |  |           |         |            |   |               |  |       |        |  |   |        |  |   |        



The following table
sets forth at September 30, 2004, the dollar amount of all fixed rate and adjustable rate loans due after September 30, 2005.



|                          |  |                |         |            |   |        |  |   |        
|------------------------- |  | -------------- | ------- | ---------- | - | ------ |  | - | -------
|                          |  | Fixed          |         | Adjustable |   | Total 
|                          |  | (in Thousands)
|Single family residential |  | $              | 54,870  |            | $ | 66,562 |  | $ | 121,432
|Multifamily residential   |  |                | 1,376   |            |   | 670    |  | $ | 2,046  
|Agricultural              |  |                | 14,317  |            |   |       |  | $ | 14,317 
|Commercial                |  |                | 94,665  |            |   | 14,870 |  | $ | 109,535
|Commercial Business       |  |                | 23,035  |            |   | 3,202  |  | $ | 26,237 
|Other                     |  |                | 28,162  |            |   | 2,425  |  | $ | 30,587 
|                          |  |                |         |            |   |        |  |   |        
|Total:                    |  | $              | 216,425 |            | $ | 87,729 |  | $ | 304,154
|                          |  |                |         |            |   |        |  |   |        



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Single-Family Residential Real Estate Loans. One of the Banks primary lending activities 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, 2004, the Bank had $128.1 million, or 33.4%, of its total net loan portfolio
invested in single-family residential mortgage loans, substantially all of which were collateralized by properties located in the Banks market area or in counties contiguous with the Banks market area.



The Banks single-family, fixed rate, residential real estate loans
generally are originated and underwritten according to standards that qualify such loans for resale in the secondary mortgage market. The Bank generally retains adjustable rate mortgage (ARM) loans that it originates. Whether the Bank
can or will sell fixed rate loans, however, depends on a number of factors including the yield and the term of the loan, market conditions, and the Banks current interest rate risk analysis. At September 30, 2004 loans held for sale were $1.5
million, at September 30, 2003 loans held for sale were $3.1 million, and at September 30, 2002 loans held for sale were $11.9 million. During the fiscal years ended September 30, 2004 and 2003, the Bank sold into the secondary market $27.4 million
and $79.1 million, respectively, of single-family, fixed rate, residential mortgage loans, generally from current period originations. The Bank retained the servicing rights on loans sold in fiscal year 2004 and 2003. The servicing rights asset,
which was $0.7 million and $0.7 million as of September 30, 2004 and 2003, respectively, is 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 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 $2.4 million, or .6% of the Banks total net loan portfolio at September 30, 2004, compared to $1.4
million, or 0.4% of the Banks total net loan portfolio at September 30, 2003, $1.2 million, or 0.3% of the Banks total net loan portfolio at September 30, 2002, $0.8 million, or 0.2%, of the Banks total net loan portfolio at
September 30, 2001, and $1.2 million, or 0.5%, of the total net loan portfolio at September 30, 2000. 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



5



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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 $17.9 million or 4.7%, of the Banks total net loan portfolio at
September 30, 2004, compared to $20.5 million, or 5.3%, $17.3 million, or 4.2%, $14.4 million, or 4.1%, and $7.4 million, or 3.1%, of the Banks total net loan portfolio at September 30, 2003, 2002, 2001, and 2000, respectively.



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



Commercial Real Estate Loans. Loans collateralized by commercial real estate, including land loans, constituted approximately $135.3 million, or 35.2% of the Banks total net loan portfolio at September
30, 2004, compared to $113.9 million, or 29.2%, $91.3 million, or 22.4%, $73.3 million, or 21.0%, and $25.7 million, or 11.0%, of the Banks total net loan portfolio at September 30, 2003, 2002, 2001, and 2000, 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 continued growth in years 2002, 2003 and 2004 is due to the Companys diversification from a
traditional single-family lending institution to an increase in the commercial loan market. The Banks commercial real estate loans are collateralized by property such as office buildings, churches and other nonresidential buildings. At
September 30, 2004, 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 include equipment, inventory and crop production loans. Such loans comprised $57.0 million, or 14.9% of the Banks total net loan portfolio at September 30, 2004, as compared to $67.7 million, or 17.3%, $64.5 million, or 15.8%, $65.4
million, or 18.8%, and $12.6 million, or 5.3%, of the Banks total net loan portfolio at September 30, 2003, 2002, 2001, and 2000, 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, 2004, such loans totaled $50.0 million, or 13.1% of the Banks total net loan portfolio as compared to $53.9 million, or 13.9%, $53.3 million, or 13.1%, $22.7 million, or 6.5%, and $15.3 million,
or 6.5%, of the Banks total net loan portfolio as of September 30, 2003, 2002, 2001, and 2000, respectively. Consumer loans are offered primarily on a fixed rate basis with maturities generally of less than ten years.



6



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



|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | ------- | -
|                                                                                            |  | Year Ended September 30 |         
|                                                                                            |  | 2004                    |          |   | 2003 |   |          | 2002 |  |   | 2001     |   |  | 2000 |         
|                                                                                            |  | (In Thousands)          |         
|Total loans receivable, net at beginning of year                                            |  | $                       | 389,002  |   |      | $ | 408,081  |      |  | $ | 349,376  |   |  | $    | 234,417  |   |  | $ | 217,710 |  
|Loans originated:                                                                           |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Real estate:                                                                                |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Single-family residential                                                                   |  |                         | 55,019   |   |      |   | 87,843   |      |  |   | 93,072   |   |  |      | 37,264   |   |  |   | 38,629  |  
|Multifamily residential                                                                     |  |                         | 1,305    |   |      |   | 313      |      |  |   |         |   |  |      |         |   |  |   |        |  
|Commercial                                                                                  |  |                         | 60,409   |   |      |   | 55,255   |      |  |   | 41,130   |   |  |      | 28,367   |   |  |   | 6,346   |  
|Agricultural                                                                                |  |                         | 32,188   |   |      |   | 39,287   |      |  |   | 27,100   |   |  |      | 920      |   |  |   | 1,766   |  
|Other:                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Commercial business                                                                         |  |                         | 12,855   |   |      |   | 19,140   |      |  |   | 18,324   |   |  |      | 24,305   |   |  |   | 11,650  |  
|Savings account loans                                                                       |  |                         | 2,647    |   |      |   | 5,102    |      |  |   | 6,310    |   |  |      | 3,387    |   |  |   | 1,649   |  
|Other                                                                                       |  |                         | 25,856   |   |      |   | 18,462   |      |  |   | 22,558   |   |  |      | 27,234   |   |  |   | 10,316  |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Total loans originated                                                                      |  |                         | 190,279  |   |      |   | 225,402  |      |  |   | 208,494  |   |  |      | 121,477  |   |  |   | 70,356  |  
|Loans purchased                                                                             |  |                         | 9,721    |   |      |   | 20,041   |      |  |   | 76,676   |   |  |      | 139,094  |   |  |   | 4,333   |  
|Loans sold                                                                                  |  |                         | (27,382  | ) |      |   | (79,097  | )    |  |   | (28,469  | ) |  |      | (21,786  | ) |  |   | (635    | )
|Loans transferred to REO                                                                    |  |                         | (2,707   | ) |      |   | (2,119   | )    |  |   | (2,312   | ) |  |      | (1,603   | ) |  |   | (948    | )
|Loans to facilitate the sale of REO                                                         |  |                         | (1,150   | ) |      |   | (1,533   | )    |  |   | (1,471   | ) |  |      | (806     | ) |  |   | (505    | )
|Loan repayments                                                                             |  |                         | (171,226 | ) |      |   | (182,495 | )    |  |   | (194,449 | ) |  |      | (121,571 | ) |  |   | (55,989 | )
|Other loan activity (net)(1)                                                                |  |                         | (2,727   | ) |      |   | 722      |      |  |   | 236      |   |  |      | 154      |   |  |   | 95      |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Total loans receivable, net at end of year                                                  |  | $                       | 383,810  |   |      | $ | 389,002  |      |  | $ | 408,081  |   |  | $    | 349,376  |   |  | $ | 234,417 |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Mortgage-backed securities, net at beginning of year                                        |  | $                       | 216,072  |   |      | $ | 104,835  |      |  | $ | 37,090   |   |  | $    | 86,930   |   |  | $ | 191,125 |  
|Purchases                                                                                   |  |                         | 105,054  |   |      |   | 239,594  |      |  |   | 106,121  |   |  |      | 400      |   |  |   |        |  
|Sales                                                                                       |  |                         | (31,085  | ) |      |   | (88      | )    |  |   | (19,256  | ) |  |      | (41,459  | ) |  |   | (91,600 | )
|Fair value adjustment                                                                       |  |                         | (1,922   | ) |      |   | (1,024   | )    |  |   | 745      |   |  |      | 2,144    |   |  |   | (2,005  | )
|Repayments                                                                                  |  |                         | (69,514  | ) |      |   | (127,375 | )    |  |   | (20,183  | ) |  |      | (11,194  | ) |  |   | (10,831 | )
|Discount amortization                                                                       |  |                         | (138     | ) |      |   | 130      |      |  |   | 318      |   |  |      | 269      |   |  |   | 241     |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Mortgage-backed and related securities, net at end of year                                  |  | $                       | 218,467  |   |      | $ | 216,072  |      |  | $ | 104,835  |   |  | $    | 37,090   |   |  | $ | 86,930  |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  
|Total loans receivable, net, and mortage-backed and related securities, net, at end of year |  | $                       | 602,277  |   |      | $ | 605,074  |      |  | $ | 512,916  |   |  | $    | 386,466  |   |  | $ | 321,347 |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |         |  



|(1) | Includes provisions for loan losses and amortization of deferred loan fees.
|--- | ---------------------------------------------------------------------------



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. Real estate that the Company obtains as a result of these proceedings 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. Management periodically performs valuations, and any subsequent decline in estimated fair value is charged to operations.



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 is not warranted. These loss assets are charged against the allowance for loan losses in the period management believes the uncollectibility of a loan balance is confirmed. The amount by which loan principal for classified,
asset-based loans exceeds the estimated value of the collateral on the loan is also considered by the Company a loss asset and afforded the same accounting treatment as other loss assets. 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



7



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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.



|                        |  |                 |       |      |   |       |  |      |       |      |   |       |  |   |      
|----------------------- |  | --------------- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                        |  | At September 30
|                        |  | 2004            |       | 2003 |   | 2002  |  | 2001 |       | 2000
|                        |  | (In Thousands) 
|Substandard assets      |  | $               | 7,826 |      | $ | 8,150 |  | $    | 4,166 |      | $ | 5,435 |  | $ | 2,093
|Doubtful assets         |  |                 | 600   |      |   | 915   |  |      |      |      |   | 597   |  |   | 359  
|                        |  |                 |       |      |   |       |  |      |       |      |   |       |  |   |      
|Total classified assets |  | $               | 8,426 |      | $ | 9,065 |  | $    | 4,166 |      | $ | 6,032 |  | $ | 2,452
|                        |  |                 |       |      |   |       |  |      |       |      |   |       |  |   |      



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



During the fiscal years ended September 30, 2004, 2003, 2002, 2001, and 2000, the Bank added $3,900,000, $2,595,000, $900,000, $200,000, and $120,000,
respectively, to its allowance for loan losses. The Banks allowance for loan losses totaled $3.8 million, or 1.0% of total loans, $4.1 million, or 1.0% of total loans, $3.2 million, or 0.8% of total loans, $2.5 million, or 0.7% of total loans,
and $1.7 million, or 0.7% of total loans, at September 30, 2004, 2003, 2002, 2001, and 2000, respectively. Net charge offs totaled $4.2 million or 1.1% of total loans, $2.1 million or 0.5% of total loans, $1.1 million or 0.3% of total loans, $0.9
million or 0.3% of total loans, and $0.05 million or 0.02% of total loans for the years ended September 30, 2004, 2003, 2002, 2001, and 2000, respectively. Total nonperforming loans decreased $0.9 million to $4.7 million at September 30, 2004 from
$5.6 million at September 30, 2003, compared to the increase of $2.4 in 2003 from $3.2 million at September 30, 2002. Based on presently available information, management believes that the current allowance for loan losses is adequate. Changing
economic and other conditions may require future adjustments to the allowance for loan losses.



During the last three fiscal years, the Company has completed separate acquisitions of four banks. The loans acquired as part of these acquisitions have contributed to the increase in the balance of nonperforming
loans in the Companys portfolio; of the $4.7 million in nonperforming loans as of September 30, 2004, $1.6 million, or 34.0% were loans acquired as part of the bank acquisitions. Nonperforming commercial loans have increased $1.0 million due
to the acquisitions. We believe that the increase in non-performing commercial loans was a result of a lower quality of underwriting and collection efforts at the acquired institutions prior to the Companys acquisition of the institutions
compared to the Companys underwriting and collection efforts. Approximately $2.0 million of loan loss allowance on the loans was transferred with these bank acquisitions. Total charge offs for fiscal years 2001  2004 total $9.4 million
with $4.2 million in charge offs recorded in connection with the loans acquired in these acquisitions.



Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to
warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income and a corresponding specific interest reserve is established. The Bank generally does not accrue interest
on loans past due 90 days or more. Loans may be reinstated to accrual status when payments are made to bring the loan under 90 days past due and, in the opinion of management, collection of the remaining balance can be reasonably expected.
Delinquent loans 90 days or more past due decreased $0.9 million or 16.1% from September 30, 2003 to September 30, 2004 to $4.7 million from $5.6 million. The interest income not recognized by the Company on the non-accrual loans was $0.5 million,
$0.4 million, $0.3 million, $0.4 million, and $0.1 million, for the years ended September 30, 2004, 2003, 2002, 2001, and 2000, respectively. There was no interest income recognized on non-accrual loans during the periods.



8



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



|                                                               |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|-------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                                               |  | At September 30        |      
|                                                               |  | 2004                   |       |   | 2003 |   |       | 2002 |  |   | 2001  |   |  | 2000 |      
|                                                               |  | (Dollars In Thousands) |      
|Nonperforming loans:                                           |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Single-family residential real estate                          |  | $                      | 1,540 |   |      | $ | 2,383 |      |  | $ | 1,744 |   |  | $    | 1,883 |   |  | $ | 1,477 |  
|All other real estate loans                                    |  |                        | 2,740 |   |      |   | 1,985 |      |  |   | 546   |   |  |      | 2,988 |   |  |   | 485   |  
|Other loans                                                    |  |                        | 386   |   |      |   | 1,242 |      |  |   | 893   |   |  |      | 1,454 |   |  |   | 54    |  
|                                                               |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total delinquent loans                                         |  |                        | 4,666 |   |      |   | 5,610 |      |  |   | 3,183 |   |  |      | 6,325 |   |  |   | 2,016 |  
|Total real estate owned                                        |  |                        | 684   |   |      |   | 876   |      |  |   | 1,707 |   |  |      | 1,342 |   |  |   | 646   |  
|                                                               |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total nonperforming assets                                     |  | $                      | 5,350 |   |      | $ | 6,486 |      |  | $ | 4,890 |   |  | $    | 7,667 |   |  | $ | 2,662 |  
|                                                               |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total loans delinquent 90 days or more to net loans receivable |  |                        | 1.22  | % |      |   | 1.44  | %    |  |   | 0.78  | % |  |      | 1.81  | % |  |   | 0.86  | %
|Total loans delinquent 90 days or more to total assets         |  |                        | 0.65  | % |      |   | 0.74  | %    |  |   | 0.52  | % |  |      | 1.30  | % |  |   | 0.50  | %
|Total nonperforming loans and REO to total assets              |  |                        | 0.74  | % |      |   | 0.85  | %    |  |   | 0.80  | % |  |      | 1.58  | % |  |   | 0.66  | %



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.



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 borrowers 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.



9



---

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



|                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                       |  | Year Ended September 30 |        
|                                                                                       |  | 2004                    |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                                                                       |  | (Dollars In Thousands)  |        
|Total loans outstanding                                                                |  | $                       | 390,731 |   |      | $ | 396,710 |      |  | $ | 415,738 |   |  | $    | 352,620 |   |  | $ | 237,708 |  
|Average net loans outstanding                                                          |  |                         | 388,679 |   |      |   | 391,588 |      |  |   | 353,585 |   |  |      | 265,182 |   |  |   | 224,751 |  
|Allowance balances (at beginning of year)                                              |  |                         | 4,068   |   |      |   | 3,205   |      |  |   | 2,542   |   |  |      | 1,682   |   |  |   | 1,612   |  
|Provision for losses:                                                                  |  |                         | 3,900   |   |      |   | 2,595   |      |  |   | 900     |   |  |      | 200     |   |  |   | 120     |  
|Balance transferred at acquisition*                                                    |  |                         | 0       |   |      |   | 355     |      |  |   | 836     |   |  |      | 1,595   |   |  |   |        |  
|Charge-offs:                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Single Family                                                                          |  |                         | (601    | ) |      |   | (397    | )    |  |   | (239    | ) |  |      | (237    | ) |  |   | (31     | )
|Agriculture                                                                            |  |                         | (87     | ) |      |   | (129    | )    |  |   |        |   |  |      | (2      | ) |  |   | (3      | )
|Commercial real estate                                                                 |  |                         | (858    | ) |      |   | (211    | )    |  |   | (32     | ) |  |      | (221    | ) |  |   |        |  
|Commercial business                                                                    |  |                         | (2,418  | ) |      |   | (378    | )    |  |   | (692    | ) |  |      | (385    | ) |  |   |        |  
|Other                                                                                  |  |                         | (681    | ) |      |   | (1,089  | )    |  |   | (174    | ) |  |      | (103    | ) |  |   | (24     | )
|Recoveries:                                                                            |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Single Family                                                                          |  |                         | 6       |   |      |   | 6       |      |  |   | 1       |   |  |      | 2       |   |  |   | 4       |  
|Agriculture                                                                            |  |                         | 17      |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Commercial real estate                                                                 |  |                         | 104     |   |      |   | 27      |      |  |   | 6       |   |  |      | 2       |   |  |   |        |  
|Commercial business                                                                    |  |                         | 189     |   |      |   |        |      |  |   | 5       |   |  |      |        |   |  |   |        |  
|Other                                                                                  |  |                         | 126     |   |      |   | 84      |      |  |   | 52      |   |  |      | 9       |   |  |   | 4       |  
|                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance balance (at end of year)                                                     |  | $                       | 3,765   |   |      | $ | 4,068   |      |  | $ | 3,205   |   |  | $    | 2,542   |   |  | $ | 1,682   |  
|                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance for loan losses as a percent of total loans receivable at end of year        |  |                         | 0.96    | % |      |   | 1.03    | %    |  |   | 0.77    | % |  |      | 0.72    | % |  |   | 0.71    | %
|Net loans charged off as a percent of average net loans outstanding                    |  |                         | 1.20    | % |      |   | 0.56    | %    |  |   | 0.32    | % |  |      | 0.36    | % |  |   | 0.03    | %
|Ratio of allowance for loan losses to total nonperforming loans at end of year         |  |                         | 80.69   | % |      |   | 72.51   | %    |  |   | 100.69  | % |  |      | 40.19   | % |  |   | 83.43   | %
|Ratio of allowance for loan losses to total nonperforming loans and REO at end of year |  |                         | 70.37   | % |      |   | 62.72   | %    |  |   | 65.54   | % |  |      | 33.16   | % |  |   | 63.19   | %



|* | Marked Tree Bancshares in 2003, Peoples Bank and North Arkansas Bancshares in 2002, and First Community Bank in 2001
|- | ---------------------------------------------------------------------------------------------------------------------



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.



|                                        |  |                        |       |                                         |       |   |        |      |                                          |  |       |        |  |                                          |       |  |        |   |                                          |   |       |        |       |                                          |  |   |       |  |       |  
|--------------------------------------- |  | ---------------------- | ----- | --------------------------------------- | ----- | - | ------ | ---- | ---------------------------------------- |  | ----- | ------ |  | ---------------------------------------- | ----- |  | ------ | - | ---------------------------------------- | - | ----- | ------ | ----- | ---------------------------------------- |  | - | ----- |  | ----- | -
|                                        |  | At September 30        |      
|                                        |  | 2004                   |       |                                         | 2003  |   |        | 2002 |                                          |  | 2001  |        |  | 2000                                     |      
|                                        |  | Amount                 |       | % of Loansin EachCategory toTotal Loans |       |   | Amount |      | % of Loansin Each Category toTotal Loans |  |       | Amount |  | % of Loansin Each Category toTotal Loans |       |  | Amount |   | % of Loansin Each Category toTotal Loans |   |       | Amount |       | % of Loansin Each Category toTotal Loans | 
|                                        |  | (Dollars in Thousands) |      
|Balance at end of period applicable to: |  |                        |       |                                         |       |   |        |      |                                          |  |       |        |  |                                          |       |  |        |   |                                          |   |       |        |       |                                          |  |   |       |  |       |  
|Single Family                           |  | $                      | 601   |                                         | 31.5  | % |        | $    | 705                                      |  | 33.8  | %      |  | $                                        | 1,445 |  | 45.1   | % |                                          | $ | 1,279 |        | 50.3  | %                                        |  | $ | 1,252 |  | 74.4  | %
|Multi Family                            |  |                        | 34    |                                         | 0.6   |   |        |      | 20                                       |  | 0.4   |        |  |                                          | 10    |  | 0.3    |   |                                          |   | 5     |        | 0.2   |                                          |  |   | 8     |  | 0.5   |  
|Agriculture real estate                 |  |                        | 493   |                                         | 4.7   |   |        |      | 395                                      |  | 5.3   |        |  |                                          | 135   |  | 4.2    |   |                                          |   | 104   |        | 4.1   |                                          |  |   | 52    |  | 3.1   |  
|Commercial real estate                  |  |                        | 1,435 |                                         | 35.2  |   |        |      | 1,606                                    |  | 29.2  |        |  |                                          | 718   |  | 22.4   |   |                                          |   | 534   |        | 21.0  |                                          |  |   | 185   |  | 11.0  |  
|Commercial business                     |  |                        | 977   |                                         | 14.9  |   |        |      | 1,108                                    |  | 17.4  |        |  |                                          | 506   |  | 25.8   |   |                                          |   | 582   |        | 22.9  |                                          |  |   | 89    |  | 5.3   |  
|Other Loans                             |  |                        | 225   |                                         | 13.1  |   |        |      | 234                                      |  | 13.9  |        |  |                                          | 391   |  | 12.2   |   |                                          |   | 38    |        | 1.5   |                                          |  |   | 96    |  | 5.7   |  
|                                        |  |                        |       |                                         |       |   |        |      |                                          |  |       |        |  |                                          |       |  |        |   |                                          |   |       |        |       |                                          |  |   |       |  |       |  
|Total allowance for loan losses         |  | $                      | 3,765 |                                         | 100.0 | % |        | $    | 4,068                                    |  | 100.0 | %      |  | $                                        | 3,205 |  | 100.0  | % |                                          | $ | 2,542 |        | 100.0 | %                                        |  | $ | 1,682 |  | 100.0 | %
|                                        |  |                        |       |                                         |       |   |        |      |                                          |  |       |        |  |                                          |       |  |        |   |                                          |   |       |        |       |                                          |  |   |       |  |       |  



10



---

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 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.



|                                     |  |                        |         |   |      |   |   |      |         |  |      |   |  |      |         |  |      |   |   |   |        |   |      |   |  |   |        |  |      |  
|------------------------------------ |  | ---------------------- | ------- | - | ---- | - | - | ---- | ------- |  | ---- | - |  | ---- | ------- |  | ---- | - | - | - | ------ | - | ---- | - |  | - | ------ |  | ---- | -
|                                     |  | At September 30        |        
|                                     |  | 2004                   |         |   | 2003 |   |   | 2002 |         |  | 2001 |   |  | 2000 |        
|                                     |  | $                      |         | % |      |   | $ |      | %       |  |      | $ |  | %    |         |  | $    |   | % |   |        | $ |      | % | 
|                                     |  | (Dollars in Thousands) |        
|Mortgage-backed securities:          |  |                        |         |   |      |   |   |      |         |  |      |   |  |      |         |  |      |   |   |   |        |   |      |   |  |   |        |  |      |  
|Adjustable                           |  | $                      | 12,180  |   | 5.6  | % |   | $    | 15,179  |  | 7.0  | % |  | $    | 14,075  |  | 13.4 | % |   | $ | 796    |   | 2.1  | % |  | $ | 40,969 |  | 47.1 | %
|Fixed                                |  |                        | 206,287 |   | 94.4 | % |   |      | 200,893 |  | 93.0 | % |  |      | 90,760  |  | 86.6 | % |   |   | 36,294 |   | 97.9 | % |  |   | 45,961 |  | 52.9 | %
|                                     |  |                        |         |   |      |   |   |      |         |  |      |   |  |      |         |  |      |   |   |   |        |   |      |   |  |   |        |  |      |  
|Total mortage-backed securities, net |  | $                      | 218,467 |   | 100  | % |   | $    | 216,072 |  | 100  | % |  | $    | 104,835 |  | 100  | % |   | $ | 37,090 |   | 100  | % |  | $ | 86,930 |  | 100  | %
|                                     |  |                        |         |   |      |   |   |      |         |  |      |   |  |      |         |  |      |   |   |   |        |   |      |   |  |   |        |  |      |  



At September 30, 2004,
mortgage-backed securities aggregated $218.4 million, or 30.35% of the Banks total assets. At September 30, 2004, $159.1 million of the Banks mortgage-backed securities were classified as available-for-sale, and $59.3 million of the
Banks mortgage-backed securities were classified as held-to-maturity.



Other Investment Securities.The Banks investment portfolio, excluding mortgage-backed securities, FHLB stock, and trading securities, consists of obligations of the United States Government treasuries
and agencies thereof, municipal bonds, corporate bonds, interest-earning deposits in other institutions and equity investments.The carrying value of this portion of the Banks investment portfolio totaled $28.4 million, $82.9 million,
$20.6 million, $39.4 million, and $40.6 million at September 30, 2004, 2003, 2002, 2001, and 2000, respectively. At September 30, 2004, $1.6 million of the Banks investment securities, excluding mortgage-backed securities, had a remaining term
to maturity of one year or less, and $3.4 million had a remaining term to maturity of five years or less. During the year ended September 30, 2004, the Company analyzed the classification of securities and subsequently transferred $86.1 million of
securities from available-for-sale to held-to-maturity.



The
following table sets forth the composition of the Banks investments as of the dates indicated.



|                                     |  |                        |         |      |   |         |  |      |         |      |   |        |  |   |        
|------------------------------------ |  | ---------------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------ |  | - | -------
|                                     |  | At September 30       
|                                     |  | 2004                   |         | 2003 |   | 2002    |  | 2001 |         | 2000
|                                     |  | (Dollars In Thousands)
|Investment securities:               |  |                        |         |      |   |         |  |      |         |      |   |        |  |   |        
|Mortgage-backed securities           |  | $                      | 218,467 |      | $ | 216,072 |  | $    | 104,835 |      | $ | 37,090 |  | $ | 86,930 
|Corporate bonds                      |  |                        |        |      |   | 14,269  |  |      | 3,814   |      |   | 2,014  |  |   |       
|U.S. Government treasury obligations |  |                        |        |      |   | 4,171   |  |      |        |      |   | 1,951  |  |   |       
|U.S. Government agency obligations   |  |                        | 4,442   |      |   | 39,105  |  |      | 3,648   |      |   | 13,803 |  |   | 27,095 
|Trust preferred securities           |  |                        |        |      |   |        |  |      |        |      |   | 4,040  |  |   | 4,000  
|Municipal bonds                      |  |                        | 22,934  |      |   | 24,351  |  |      | 13,167  |      |   | 12,537 |  |   | 9,466  
|Equity securities                    |  |                        |        |      |   |        |  |      |        |      |   | 5,040  |  |   | 1,127  
|Mutual fund                          |  |                        | 990     |      |   | 1,005   |  |      |        |      |   |       |  |   |       
|                                     |  |                        |         |      |   |         |  |      |         |      |   |        |  |   |        
|Total investment securities          |  |                        | 246,833 |      |   | 298,973 |  |      | 125,464 |      |   | 76,475 |  |   | 128,618
|FHLB stock                           |  |                        | 7,926   |      |   | 5,584   |  |      | 2,126   |      |   | 3,787  |  |   | 5,988  
|                                     |  |                        |         |      |   |         |  |      |         |      |   |        |  |   |        
|Total investments                    |  | $                      | 254,759 |      | $ | 304,557 |  | $    | 127,590 |      | $ | 80,262 |  | $ | 134,606
|                                     |  |                        |         |      |   |         |  |      |         |      |   |        |  |   |        



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.



11



---

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, 2004.



|                                                        |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  |                       |         |  |   |         |  |     
|------------------------------------------------------- |  | ---------------------- | ----- | ------------------------------ | ----------------- | - | ------------- | ----------------- | ------------------------------ |  | -------------- | ------------- |  | ------------------------------ | ------- |  | ------------- | - | --------------------------------- | - | ------- | ------------- | ---- | ------------ |  | --------------------- | ------- |  | - | ------- |  | ----
|                                                        |  | One Year or Less       |       |                                | One to Five Years |   |               | Five to Ten Years |                                |  | Over Ten Years |               |  | Total                         
|                                                        |  | CarryingValue          |       | AnnualizedWeightedAverageYield |                   |   | CarryingValue |                   | AnnualizedWeightedAverageYield |  |                | CarryingValue |  | AnnualizedWeightedAverageYield |         |  | CarryingValue |   | Annualized Weighted Average Yield |   |         | CarryingValue |      | Market Value |  | Average Life in Years
|                                                        |  | (Dollars In Thousands)
|Investment securities:                                  |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  |                       |         |  |   |         |  |     
|U.S. Government Agency Securities                       |  | $                      |      |                                | 0.00              | % |               | $                 | 501                            |  | 3.81           | %             |  | $                              |        |  | 0.00          | % |                                   | $ | 3,941   |               | 3.88 | %            |  | $                     | 4,442   |  | $ | 4,397   |  | 6.93
|State and municipal obligations(1)                      |  |                        | 652   |                                | 2.69              | % |               |                   | 2,953                          |  | 3.23           | %             |  |                                | 8,503   |  | 4.15          | % |                                   |   | 10,826  |               | 4.70 | %            |  |                       | 22,934  |  |   | 23,480  |  | 3.52
|Corporate Bonds                                         |  |                        |      |                                | 0.00              | % |               |                   |                               |  | 0.00           | %             |  |                                |        |  | 0.00          | % |                                   |   |        |               | 0.00 | %            |  |                       |        |  |   |        |  | 0.00
|CMOs(2)                                                 |  |                        |      |                                | 0.00              | % |               |                   |                               |  | 0.00           | %             |  |                                |        |  | 0.00          | % |                                   |   | 38,042  |               | 4.13 | %            |  |                       | 38,042  |  |   | 37,342  |  | 2.22
|Mortgage-backed securities                              |  |                        |      |                                | 0.00              | % |               |                   |                               |  | 0.00           | %             |  |                                | 114,412 |  | 3.95          | % |                                   |   | 66,013  |               | 4.59 | %            |  |                       | 180,425 |  |   | 180,006 |  | 4.84
|Mutual Fund                                             |  |                        | 990   |                                | 3.55              | % |               |                   |                               |  | 0.00           | %             |  |                                |        |  | 0.00          | % |                                   |   | 0       |               | 0.00 | %            |  |                       | 990     |  |   | 990     |  | 8.04
|                                                        |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  |                       |         |  |   |         |  |     
|Total investment securities                             |  |                        | 1,642 |                                | 3.21              | % |               |                   | 3,454                          |  | 3.32           | %             |  |                                | 122,915 |  | 3.97          | % |                                   |   | 118,822 |               | 4.43 | %            |  |                       | 246,833 |  |   | 246,215 |  |     
|                                                        |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  |                       |         |  |   |         |  |     
|                                                        |  |                        |       |                                |                   |   |               |                   |                                |  |               
|FHLB stock                                              |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  |                       | 7,926   |  |   | 7,926   |  |     
|Accrued interest on investments                         |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  |                       | 1,125   |  |   | 1,125   |  |     
|                                                        |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  |                       |         |  |   |         |  |     
|Total investment securities, including accrued interest |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  | $                     | 255,884 |  | $ | 255,266 |  |     
|                                                        |  |                        |       |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                   |   |         |               |      |              |  |                       |         |  |   |         |  |     



|(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



---

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
|           |  | 2004            |         | 2003 |   | 2002    |  | 2001 |         | 2000
|           |  | (In thousands) 
|Rate       |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|0.00-1.99% |  | $               | 63,971  |      | $ | 57,083  |  | $    | 12,997  |      | $ | 2,167   |  | $ | 28     
|2.00-2.99% |  |                 | 105,611 |      |   | 35,416  |  |      | 95,895  |      |   | 683     |  |   |       
|3.00-3.99% |  |                 | 38,744  |      |   | 130,930 |  |      | 126,881 |      |   | 32,369  |  |   |       
|4.00-5.99% |  |                 | 28,429  |      |   | 47,239  |  |      | 85,244  |      |   | 154,585 |  |   | 34,126 
|6.00-7.99% |  |                 | 2,482   |      |   | 4,013   |  |      | 11,165  |      |   | 43,252  |  |   | 128,051
|8.00-9.99% |  |                 | 224     |      |   | 223     |  |      | 225     |      |   | 225     |  |   |       
|           |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total      |  | $               | 239,461 |      | $ | 274,904 |  | $    | 332,407 |      | $ | 233,281 |  | $ | 162,205
|           |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        



Time Deposit
Maturities. The following table sets forth the amount and maturities of certificates of deposit at September 30, 2004.



|                                                         |  |                 |        |              |   |               |  |               |        |       |   |        |  |   |        
|-------------------------------------------------------- |  | --------------- | ------ | ------------ | - | ------------- |  | ------------- | ------ | ----- | - | ------ |  | - | -------
|                                                         |  | Maturity       
|                                                         |  | 3 monthsor less |        | 3 to 6months |   | 6 to 12months |  | Over 12months |        | Total
|                                                         |  | (In thousands) 
|Certificate of Deposit less than $100,000                |  | $               | 30,153 |              | $ | 30,398        |  | $             | 55,986 |       | $ | 36,373 |  | $ | 152,910
|Certificate of Deposit greater than or equal to $100,000 |  |                 | 11,433 |              |   | 11,347        |  |               | 32,572 |       |   | 31,199 |  | $ | 86,551 
|                                                         |  |                 |        |              |   |               |  |               |        |       |   |        |  |   |        
|Total Certificates of Deposit                            |  |                 | 41,586 |              |   | 41,745        |  |               | 88,558 |       |   | 67,572 |  |   | 239,461
|                                                         |  |                 |        |              |   |               |  |               |        |       |   |        |  |   |        



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, 2004, the Banks FHLB advances totaled $153.9 million.



13



---

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



|                                  |  |                          |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |         |  
|--------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------ | - |  | ---- | ------- | - |  | - | ------- | -
|                                  |  | Year Ended September 30, |        
|                                  |  | 2004                     |         |   | 2003 |   |         | 2002 |  |   | 2001   |   |  | 2000 |        
|                                  |  | (Dollars In Thousands)   |        
|Weighted average rate paid on:(1) |  |                          |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |         |  
|FHLB advances                     |  |                          | 2.56    | % |      |   | 3.13    | %    |  |   | 3.70   | % |  |      | 5.66    | % |  |   | 5.78    | %
|Other borrowings(2)               |  |                          | 5.25    | % |      |   | 5.25    | %    |  |   | 0.00   | % |  |      | 5.38    | % |  |   | 5.62    | %
|                                  |  |                          |         |   |     
|FHLB advances:                    |  |                          |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |         |  
|Maximum balance                   |  | $                        | 159,337 |   |      | $ | 110,184 |      |  | $ | 73,316 |   |  | $    | 112,125 |   |  | $ | 185,535 |  
|Average balance                   |  | $                        | 123,107 |   |      | $ | 33,651  |      |  | $ | 36,713 |   |  | $    | 82,915  |   |  | $ | 145,312 |  
|Other borrowings:(2)              |  |                          |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |         |  
|Maximum balance                   |  | $                        | 671     |   |      | $ | 284     |      |  | $ | 350    |   |  | $    | 2,650   |   |  | $ | 2,465   |  
|Average balance                   |  | $                        | 336     |   |      | $ | 284     |      |  | $ |       |   |  | $    | 1,598   |   |  | $ | 1,901   |  



|(1) | Calculated using monthly weighted average interest rates.
|--- | ---------------------------------------------------------



|(2) | Includes securities sold under agreements to repurchase and a loan assumed with the
acquisition of Marked Tree Bancshares, Inc in 2003. Other borrowings, as of September 30, 2003 are included in accrued expenses and other liabilities in the consolidated statement of financial condition.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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, Pocahontas Capital Trust I, a Delaware statutory business
trust wholly owned by Pocahontas Bancorp, Inc., sold to qualified buyers in a private placement offering $7.5 million of 10.18% cumulative trust preferred securities. The proceeds were used to purchase an equal principal amount of 10.18%
subordinated debentures of Pocahontas Bancorp, Inc. Pocahontas Bancorp, Inc. has, through various contractual arrangements, fully and unconditionally guaranteed all obligations of Pocahontas Capital Trust I on a subordinated basis with respect to
the preferred securities. Subject to certain limitations, the preferred securities qualify as regulatory Tier 1 capital and are presented in the consolidated statements of financial condition as Trust Preferred Securities. The sole asset of
Pocahontas Capital Trust I is the subordinated debentures issued by Pocahontas Bancorp, Inc. Both the preferred securities of Pocahontas Capital Trust I and the subordinated debentures of Pocahontas Bancorp, Inc. will mature on June 6, 2031;
however, they may be prepaid, prior to maturity at any time on or after June 8, 2011, or earlier upon the occurrence of a special event as defined as certain changes in tax or investment company laws or regulatory capital requirements.



On November 28, 2001, Pocahontas Capital Trust II, a Delaware statutory
business trust wholly owned by Pocahontas Bancorp, Inc., sold to qualified buyers in a private placement offering $10.0 million of variable rate (LIBOR +3.75%) cumulative trust preferred securities. The coupon resets semi-annually and has a coupon
cap of 11.0% until December 8, 2006. The proceeds were used to purchase an equal principal amount of variable rate (LIBOR +3.75%) subordinated debentures of Pocahontas Bancorp, Inc. Pocahontas Bancorp, Inc. has, through various contractual
arrangements, fully and unconditionally guaranteed all obligations of Pocahontas Capital Trust II on a subordinated basis with respect to the preferred securities. Subject to certain limitations, the preferred securities qualify as regulatory Tier 1
capital and are presented in the consolidated statements of financial condition as Trust Preferred Securities. The sole asset of Pocahontas Capital Trust II is the subordinated debentures issued by Pocahontas Bancorp, Inc. Both the preferred
securities of Pocahontas Capital Trust II and the subordinated debentures of Pocahontas Bancorp, Inc. will mature on December 8, 2031; however, they may be prepaid, prior to maturity and upon prior approval from the OTS at any time on or after
December 8, 2006, or earlier upon the occurrence of a special event as defined as certain changes in tax or investment company laws or regulatory capital requirements.



For the year ended September 30, 2004, 2003, 2002 and 2001, interest expense incurred on the trust preferred securities
totaled $1,286,688, $1,292,519, $1,248,692 and $388,490, respectively. Such interest expense is shown under interest expense as a separate line item, in the consolidated statements of income and comprehensive income.



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.



Regulation



The following discussion describes elements of the extensive regulatory framework applicable to savings and loan holding companies and federal savings
associations and provides some specific information relevant to us. This regulatory framework is



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primarily intended for the protection of depositors, federal deposit insurance funds and the banking system as a whole rather than for the protection of
shareholders and creditors.



To the extent that this section
describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. Those statutes and regulations, as well as related policies, are subject to change by Congress, state legislatures and federal and state
regulators. Changes in statutes, regulations or regulatory policies applicable to the Company, including interpretation or implementation thereof, could have a material effect on the Companys business.



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



Regulatory Capital Requirements.The Company is not currently subject to any regulatory capital requirements, but its subsidiary federal savings
association is subject to various 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, 2004, the Bank had $8.8 million in goodwill and intangible assets and $0.26 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, 2004, the Bank had no capital instruments that qualify as supplementary capital and $3.8 million of general loss reserves, which was less than 1.0% of risk-weighted assets.



The OTS and the FDIC are authorized and under, certain circumstances
required, to take certain actions against associations that fail to meet capital requirements. The OTS is generally required to take action to restrict the activities of an undercapitalized association (generally defined to be one with
less than 4% tier 1 risk-based capital, 3% leverage capital, or 8% total risk-based capital). 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.



As of September 30, 2004, the Bank met all capital requirements to which it was subject and satisfied the requirements to be treated as
well-capitalized.



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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, 2004, 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 June 2004 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.



Limitations on Dividends and Capital Distributions. The Company is a legal entity separate and distinct from its banking and other subsidiaries.
Its principal sources of funds are cash dividends paid by those subsidiaries, investment income, and borrowings. OTS regulations impose limitations on all capital distributions by savings institutions such as the Bank. 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.



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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.



Mortgage Banking and Mortgage Servicing Rights.The four federal banking agencies, including the Companys regulators, have jointly issued
expanded examination and supervision guidance relating to mortgage banking and mortgage servicing rights. The guidance on mortgage banking activities and mortgage servicing rights highlights the banking agencies concerns about and provides
guidance relating to mortgage banking activities, primarily in the valuation and hedging of mortgage servicing rights. The guidance states that institutions with significant exposure to mortgage related assets, especially mortgage servicing rights,
should expect greater scrutiny of those assets during examinations, and additional capital may be required for institutions that fail to follow the practices set forth in the guidelines.



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, 2004, the Bank was in compliance with these regulations.



The Federal Reserve System



Federal Reserve Board regulations require all depository institutions to maintain non-interest earning reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits. At September 30, 2004, 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 Home Owners Loan Act (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



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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. 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, 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



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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, 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 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. 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;
| | - | -----------------



| |  | 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 became 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.



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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 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.



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.



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



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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 - Limitations on Dividends and Capital Distributions for limits on the payment of dividends of the Bank. The Bank
does not intend to pay dividends that would result in a recapture of any portion of its tax bad debt reserves.



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



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



Arkansas
Taxation



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



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



21



---

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



The Bank conducts its business through its main office and 17 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, 2004. The aggregate net book value of the Banks premises and equipment was $13.9
million at September 30, 2004.



Main Office:

1700 E. Highland

Jonesboro, Arkansas

(Opened 2001)



Branch Offices:



Pocahontas
Branch

203 W. Broadway

Pocahontas, Arkansas

(Opened 1935)



Corning Branch

309 Missouri Drive

Corning, Arkansas

(Opened 1983)



Hardy Branch

101 W. Main Street

Hardy, Arkansas

(Opened 1998)



Paragould Wal-Mart Branch

2802 W. Kings Hwy

Paragould, Arkansas

(Opened 1999)



Swifton Branch

101 Main Street

Swifton, Arkansas

(Opened 2001)



Hoxie Branch

126 SW Texas

Hoxie, Arkansas

(Opened 2002)



Walnut Ridge Branch

120 W. Main Street

Walnut Ridge, Arkansas

(Opened 1968)



Highland Branch

1566 Highway 62

Hardy, Arkansas

(Opened 1983)



Pocahontas Branch

205 Rice Street

Pocahontas, Arkansas

(Opened 2001)



Jonesboro Branch

209 W. Washington.

Jonesboro, Arkansas

(Opened 2001)



Newport Branch

200 Olivia Drive

Newport, Arkansas

(Opened 2002)



Marked Tree Branch

210 Frisco Street

Marked Tree, Arkansas

(Opened 2003)



Jonesboro Branch

625 S.W. Drive

Jonesboro, Arkansas

(Opened 1976)



Lake City Branch

100 Colbean Blvd

Lake City, Arkansas

(Opened 1998)



Pocahontas Wal-Mart Branch

Hwy 67 South

Pocahontas, Arkansas

(Opened 1998)



Tuckerman Branch

106 E. Main Street

Tuckerman, Arkansas

(Opened 2001)



Imboden Branch

201 E 3rdStreet

Imboden, AR

(Opened 2002)



22



---

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



The Company currently is not involved in any 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 2004 to a vote of security holders.



PART II



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



Page 4 of the Annual Report to Stockholders is herein incorporated by reference.



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



Pages 1 through 3 of the Annual Report to Stockholders are herein incorporated by reference.



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



Pages 5 through 13 of the Annual Report to Stockholders are herein incorporated by reference.



|ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



Page 13 of the Annual Report to Stockholders is herein incorporated by reference.



|ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------ | -------------------------------------------



Pages 15 through 40 of the Annual Report to Stockholders are herein incorporated by reference.



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



Not applicable.



|ITEM 9A | CONTROLS AND PROCEDURES
|------- | -----------------------



Under the supervision and with the participation of our management, including the Companys Chief Executive Officer and Chief Financial Officer, the
Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective to ensure that information required to be
disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified by the SECs rules and forms 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.



There has been no change in the Companys internal control over financial reporting during the Companys fourth quarter of fiscal year 2004 that
has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



23



---

PART III



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



Pages 4 and 5 of the Proxy Statement are herein incorporated by reference.



Audit Committee Financial Expert



The Companys Board of Directors has appointed Marcus Van Camp as the audit committee financial expert serving on the Companys Audit Committee.
The Company believes Mr. Van Camp satisfies the current requirements for an audit committee financial expert as well as other criteria that the Company believes are important for the financial expert to make a meaningful contribution to the
deliberations of the Board of Directors as a whole.



The
Company has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Committee is composed of Directors Marcus Van Camp, Robert Rainwater, N. Ray Campbell, and A. J. Baltz, Jr.



Code of Ethics



The Company has adopted a Code of Ethics that applies to the Companys
principal executive officer, principal financial officer and principal accounting officer. The Company has included the Code of Ethics as Exhibit 14 to this Form 10K.



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



Page 9 of the Proxy Statement is herein incorporated by reference.



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



Pages 2 and 3 of the Proxy Statement are herein incorporated by reference.



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, 2004 regarding equity-based compensation plans for directors and
executive officers of the Company, all of which have been approved by stockholders. The Company maintains no equity compensation plans that have not been approved by stockholders.



|                                    |  |                                                                                |  |                               |  |                                                              
|----------------------------------- |  | ------------------------------------------------------------------------------ |  | ----------------------------- |  | -------------------------------------------------------------
|Plan                                |  | Number of Securitiesto be issued uponexercise of outstandingoptions and rights |  | Weightedaverageexercise price |  | Number ofSecurities remainingavailable forIssuance under plan
|1994 Stock Option Plan              |  |                                                                               |  |                              |  | 4,274                                                        
|1998 Stock Option Plan              |  | 174,000                                                                        |  | 9.00                          |  | 23,075                                                       
|1998 Recognition and Retention Plan |  |                                                                               |  |                              |  | 35,707                                                       
|                                    |  |                                                                                |  |                               |  |                                                              
|Total                               |  | 174,000                                                                        |  | 9.00                          |  | 63,056                                                       
|                                    |  |                                                                                |  |                               |  |                                                              



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



Page 18 of the Proxy Statement is herein incorporated by reference.



24



---

|ITEM 14 | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|------- | ---------------------------------------



Pages 18 and 19 of the Proxy Statement are herein incorporated by reference.



PART IV



|ITEM 15 | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|------- | ---------------------------------------------------------------



(a)(1) Financial Statements



The Companys Consolidated Financial Statements contained in the Annual Report to Stockholders, including the Notes thereto and the Independent
Auditors Report thereon, are incorporated herein by this reference. The remaining information appearing in the Annual Report to Stockholders is not deemed to be filed as part of this report, except as expressly provided herein.



(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



|                             |  |                                                                                               |  |                                                                         |  |                                                                 
|---------------------------- |  | --------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------- |  | ----------------------------------------------------------------
|Regulation S-KExhibit Number |  | Document                                                                                      |  | Sequential PageReference to PriorFiling or ExhibitNumber AttachedHereto |  | Number WhereAttached ExhibitsAre Located in ThisForm 10-K Report
|2                            |  | Plan of Reorganization                                                                        |  | Footnote (1)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|3(a)                         |  | Articles of Incorporation                                                                     |  | Footnote (2)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|3(b)                         |  | Bylaws                                                                                        |  | Footnote (3)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|4                            |  | Instruments defining the rights of security holders, including debentures                     |  | Footnote (4)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|9                            |  | Voting trust agreement                                                                        |  | None                                                                    |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|10(a)                        |  | Employment Agreement between First Community Bank and Dwayne Powell.                          |  | Footnote (5)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|10(b)                        |  | Stock Option Plan                                                                             |  | Footnote (6)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|10(c)                        |  | Amended 401(k) Savings and Employee Stock Ownership Plan.                                     |  | Footnote (7)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|10(d)                        |  | Restated Supplemental Retirement Income Agreement for Dwayne Powell                           |  | Footnote (8)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|10(e)                        |  | Amended and Restated Stock Option Plan                                                        |  | Footnote (9)                                                            |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|10(f)                        |  | Agreement with Ralph P. Baltz amending his Director Supplemental Retirement Income Agreement. |  | Footnote (10)                                                           |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|10(g)                        |  | Agreement with Dwayne Powell amending his Director Supplemental Retirement Income Agreement   |  | Footnote (11)                                                           |  | Not Applicable                                                  
|                             |  |                                                                                               | 
|11                           |  | Statement re: computation of per share earnings                                               |  | Not Required                                                            |  | Not Applicable                                                  



25



---

|     |  |                                                                                                                                                           |  |              |  |               
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | --------------
|12   |  | Statement re: computation of ratios                                                                                                                       |  | Not Required |  | Not Applicable
|     |  |                                                                                                                                                           | 
|13   |  | Annual Report to Stockholders                                                                                                                             |  | 13           |  | Page 29       
|     |  |                                                                                                                                                           | 
|14   |  | Code of Ethics                                                                                                                                            |  | 14           |  | Page 71       
|     |  |                                                                                                                                                           | 
|16   |  | Letter re: change in certifying accountants                                                                                                               |  | None         |  | Not Applicable
|     |  |                                                                                                                                                           | 
|18   |  | Letter re: change in accounting principles                                                                                                                |  | None         |  | Not Applicable
|     |  |                                                                                                                                                           | 
|19   |  | Previously unfilled documents                                                                                                                             |  | None         |  | Not Applicable
|     |  |                                                                                                                                                           | 
|21   |  | Subsidiaries of Registrant                                                                                                                                |  | 21           |  | Page 72       
|     |  |                                                                                                                                                           | 
|22   |  | Published report regarding matters submitted to vote of security holders                                                                                  |  | None         |  | Not Applicable
|     |  |                                                                                                                                                           | 
|23   |  | Consent of Experts and Counsel                                                                                                                            |  | 23.1         |  | Page 73       
|     |  |                                                                                                                                                           | 
|24   |  | Power of Attorney                                                                                                                                         |  | None         |  | Not Applicable
|     |  |                                                                                                                                                           | 
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | 31.1         |  | Page 74       
|     |  |                                                                                                                                                           | 
|31.2 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | 31.2         |  | Page 75       
|     |  |                                                                                                                                                           | 
|32.1 |  | Statement of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.            |  | 32.1         |  | Page 76       
|     |  |                                                                                                                                                           | 
|32.2 |  | Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.            |  | 32.2         |  | Page 77       

---

|1) | Incorporated by reference from Exhibit 2 of the S-1 Registration Statement, filed on December 23, 1997, Registration No. 333-43143.
|-- | -----------------------------------------------------------------------------------------------------------------------------------



|2) | Incorporated by reference from Exhibit 3.1 of the S-1 Registration Statement, filed on December 23, 1997, Registration No. 333-43143.
|-- | -------------------------------------------------------------------------------------------------------------------------------------



|3) | Incorporated by reference from Exhibit 3.2 of the Forms S-1 Registration Statement, filed on December 23, 1997, Registration No. 333-43143.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------



|4) | Incorporated by reference from Exhibit 4 of the S-1 Registration Statement, filed on December 23, 1997, Registration No. 333-43143.
|-- | -----------------------------------------------------------------------------------------------------------------------------------



|5) | Incorporated by reference from Exhibit 10.3 of the S-1 Registration Statement, filed on December 23, 1997, Registration No. 333-43143.
|-- | --------------------------------------------------------------------------------------------------------------------------------------



|6) | Incorporated by reference from Exhibit A to the proxy statement dated September 16, 1998 for the Annual Meeting of Stockholders held on October 23, 1998.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|7) | Incorporated by reference from Exhibit 10(e) of the S-4 Registration Statement, filed on January 31, 2003, Registration No. 333-102880.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------



|8) | Incorporated by reference from Exhibit 10.6 of the S-1 Registration Statement, filed on December 23, 1997, Registration No. 333-43143.
|-- | --------------------------------------------------------------------------------------------------------------------------------------



|9) | Incorporated by reference from Exhibit 10(g) of the S-4 Registration Statement, filed on March 29, 2002, Registration No. 333-85222.
|-- | ------------------------------------------------------------------------------------------------------------------------------------



|10) | Incorporated by reference from Exhibit 10(i) of the S-4 Registration Statement, filed on March 29, 2002, Registration No. 333-85222.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|11) | Incorporated by reference from Exhibit 10(j) of the S-4 Registration Statement, filed on March 29, 2002, Registration No. 333-85222.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



26



---

(b) Reports on Form 8-K:



On August 3, 2004, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K. The report
disclosed in Item 9 Regulation FD Disclosure that the Company had released earnings for the three and nine month periods ended on June 30, 2004. Financial statements were filed as an exhibit to the report.



27



---



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 29, 2004 |  |  |  | By: |  | /s/ Dwayne Powell
|                        |  |  |  |     |  |                   |  | Dwayne Powell, President and Chief Executive
Officer



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



|                        |  |                                                                            |  |                         |  |     |  |                                                                                                         
|----------------------- |  | -------------------------------------------------------------------------- |  | ----------------------- |  | --- |  | --------------------------------------------------------------------------------------------------------
|                        |  |                                                                            |  |                        
|By:                     |  | /s/ Dwayne Powell                                                          |  |                         |  | By: |  | /s/ Terry Prichard                                                                                      
|                        |  | Dwayne Powell                                                              |  |                         |  |     |  | Terry Prichard                                                                                          
|                        |  | President, Chief Executive Officer, Director
(Principal Executive Officer) |  |                         |  |     |  | Executive Vice President, Chief Financial Officer Treasurer (Principal Financial and Accounting Officer)
|                        |  |                                                                           
|Date: December 29, 2004 |  |                                                                            |  | Date: December 29, 2004



|                        |  |                                    |  |                         |  |     |  |                       
|----------------------- |  | ---------------------------------- |  | ----------------------- |  | --- |  | ----------------------
|                        |  |                                    |  |                        
|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 29, 2004 |  |                                    |  | Date: December 29, 2004



|                        |  |                     |  |                         |  |     |  |                    
|----------------------- |  | ------------------- |  | ----------------------- |  | --- |  | -------------------
|                        |  |                     |  |                        
|By:                     |  | /s/ A.J. Baltz, Jr. |  |                         |  | By: |  | /s/ Marcus Van Camp
|                        |  | A.J. Baltz. Jr.     |  |                         |  |     |  | Marcus Van Camp    
|                        |  | Director            |  |                         |  |     |  | Director           
|                        |  |                    
|Date: December 29, 2004 |  |                     |  | Date: December 29, 2004



|                        |  |                     |  |                         |  |     |  |                     
|----------------------- |  | ------------------- |  | ----------------------- |  | --- |  | --------------------
|                        |  |                     |  |                        
|By:                     |  | /s/ N. Ray Campbell |  |                         |  | By: |  | /s/ Robert Rainwater
|                        |  | N. Ray Campbell     |  |                         |  |     |  | Robert Rainwater    
|                        |  | Director            |  |                         |  |     |  | Director            
|                        |  |                    
|Date: December 29, 2004 |  |                     |  | Date: December 29, 2004



|                        |  |                   |  |  |  |  |  | 
|----------------------- |  | ----------------- |  |  |  |  |  | 
|                        |  |                   |  | 
|By:                     |  | /s/ Lindley Smith |  |  |  |  |  | 
|                        |  | Lindley Smith     |  |  |  |  |  | 
|                        |  | Director          |  |  |  |  |  | 
|                        |  |                  
|Date: December 29, 2004 |  |                   |  | 



28