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UNITED STATES

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, 2006.

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:
Common Stock, par value $.01 per share

(Title of Class)

Name of Each Exchange on which Registered: NASDAQ Global Market

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

Indicated by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES ̈NO  x.

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ̈NO  x.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES  x    NO ̈.

Indicate by check mark 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 a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of
large accelerated filer and accelerated filer in Rule 12b-2 of the Securities Exchange Act of 1934.

Large Accelerated Filer ̈Accelerated
Filer ̈Non-Accelerated Filer  x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ̈NO  x.



As of December 13, 2006, 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 March 31,
2006, was $37,086,864. 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.



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##### Table of Contents

POCAHONTAS BANCORP, INC.

TABLE OF CONTENTS



|           |  |                                                                                                               |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                               |  | Page
|PART I.    |  |                                                                                                               |  |     
|           |  |                                                                                                              
|Item 1.    |  | Business                                                                                                      |  | 3   
|           |  |                                                                                                              
|Item 1A.   |  | Risk Factors                                                                                                  |  | 19  
|           |  |                                                                                                              
|Item 1B.   |  | Unresolved Staff Comments                                                                                     |  | 20  
|           |  |                                                                                                              
|Item 2.    |  | Properties                                                                                                    |  | 21  
|           |  |                                                                                                              
|Item 3.    |  | Legal Proceedings                                                                                             |  | 21  
|           |  |                                                                                                              
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                           |  | 21  
|           |  |                                                                                                              
|PART II.   |  |                                                                                                               |  |     
|           |  |                                                                                                              
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |  | 22  
|           |  |                                                                                                              
|Item 6.    |  | Selected Consolidated Financial and Other Data                                                                |  | 23  
|           |  |                                                                                                              
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operation                          |  | 25  
|           |  |                                                                                                              
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 34  
|           |  |                                                                                                              
|Item 8.    |  | Financial Statements and Supplementary Data                                                                   |  | 37  
|           |  |                                                                                                              
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          |  | 60  
|           |  |                                                                                                              
|Item 9A.   |  | Controls and Procedures                                                                                       |  | 60  
|           |  |                                                                                                              
|Item 9B.   |  | Other Information                                                                                             |  | 61  
|           |  |                                                                                                              
|PART III.  |  |                                                                                                               |  |     
|           |  |                                                                                                              
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                            |  | 62  
|           |  |                                                                                                              
|Item 11.   |  | Executive Compensation                                                                                        |  | 63  
|           |  |                                                                                                              
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                |  | 64  
|           |  |                                                                                                              
|Item 13.   |  | Certain Relationships and Related Transactions                                                                |  | 65  
|           |  |                                                                                                              
|Item 14.   |  | Principal Accountant Fees and Services                                                                        |  | 65  
|           |  |                                                                                                              
|PART IV.   |  |                                                                                                               |  |     
|           |  |                                                                                                              
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                    |  | 65  
|           | 
|Signatures |  | 68                                                                                                           
|           | 
|Exhibits   |  |                                                                                                              



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##### Table of Contents

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 Depository Insurance Fund
(DIF). 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 the 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 1.

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 acquired 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 federally chartered savings and loan association
regulated by the OTS, which operates 21 full-service offices in its market area consisting of Northeast Arkansas and Tulsa County, Oklahoma. The Bank opened three new branch locations during fiscal 2005.

On July 26, 2006, the Company entered into a definitive agreement with IBERIABANK Corporation (IBERIABANK) pursuant to which IBERIABANK will acquire the
Company (the merger). The merger is discussed in more detail in Note 23 to the Consolidated Financial Statements.

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 191 full-time equivalent employees at September 30, 2006, compared to 208 and 200 at September 30, 2005 and 2004, respectively. The decrease during fiscal 2006 was primarily the result of managements efforts to
improve efficiency and stream line operations. The increase in the number of full-time equivalent employees in fiscal 2005 was the result of the opening of three new branch locations during the year. We believe that we have been successful in
attracting quality employees, and that our employee relations are good.

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 www.fcb-online.com after filing with the United States Securities and Exchange Commission.



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Competition

The Bank
faces strong competition both in attracting deposits and in originating 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, 2006, the Banks net loan portfolio including loans held for sale totaled $435.2 million, of which $131.2 million, or 30.2% were single-family residential
real estate mortgage loans, $9.6 million, or 2.2% were multifamily residential real estate loans, $18.1 million, or 4.1% were agricultural real estate loans, and $130.4 million, or 30.0%, were commercial real estate loans (including land loans).
Additionally, the Banks loans at September 30, 2006 included commercial business loans (i.e., crop production, equipment and inventory loans), which totaled $78.6 million, or 18.1%, of the Banks net loan portfolio as of
September 30, 2006. Other loans, including automobile loans and loans collateralized by deposit accounts totaled $76.0 million, or 17.4% of the Banks net loan portfolio as of September 30, 2006. The composition of the Banks
loan portfolio has changed during the last six years due to acquisitions, with a larger percentage of loans in commercial real estate and non-real estate loans. These 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 the basis for subsequent originations of other commercial and non-real estate loans.

Analysis of Loan Portfolio

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



|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|-------------------------------------------- |  | ---------------------- | ------- | ------- | ----- | - | ------ | ---- | ------- |  | ----- | ------ |  | ------- | ------- |  | ------ | - | ------- | - | ------- | ------ | ----- | ------- |  | - | ------- |  | ----- | -
|                                             |  | At September 30        |        
|                                             |  | 2006                   |         |         | 2005  |   |        | 2004 |         |  | 2003  |        |  | 2002    |        
|                                             |  | Amount                 |         | Percent |       |   | Amount |      | Percent |  |       | Amount |  | Percent |         |  | Amount |   | Percent |   |         | Amount |       | Percent | 
|                                             |  | (Dollars in Thousands) |        
|Real estate loans:                           |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Single-family residential                    |  | $                      | 131,238 |         | 30.2  | % |        | $    | 136,496 |  | 31.8  | %      |  | $       | 128,072 |  | 33.4   | % |         | $ | 139,365 |        | 35.8  | %       |  | $ | 188,113 |  | 46.1  | %
|Multifamily residential                      |  |                        | 9,623   |         | 2.2   |   |        |      | 8,812   |  | 2.0   |        |  |         | 2,393   |  | 0.6    |   |         |   | 1,384   |        | 0.4   |         |  |   | 1,194   |  | 0.3   |  
|Agricultural                                 |  |                        | 18,096  |         | 4.1   |   |        |      | 20,190  |  | 4.7   |        |  |         | 17,915  |  | 4.7    |   |         |   | 20,467  |        | 5.3   |         |  |   | 17,342  |  | 4.2   |  
|Commercial                                   |  |                        | 130,416 |         | 30.0  |   |        |      | 135,811 |  | 31.6  |        |  |         | 135,326 |  | 35.2   |   |         |   | 113,855 |        | 29.2  |         |  |   | 91,298  |  | 22.4  |  
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total real estate loans                      |  |                        | 289,373 |         | 66.5  |   |        |      | 301,309 |  | 70.1  |        |  |         | 283,706 |  | 73.9   |   |         |   | 275,071 |        | 70.7  |         |  |   | 297,947 |  | 73.0  |  
|Other loans:                                 |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Savings account loans                        |  |                        | 6,670   |         | 1.5   |   |        |      | 6,279   |  | 1.5   |        |  |         | 5,571   |  | 1.5    |   |         |   | 6,538   |        | 1.7   |         |  |   | 6,808   |  | 1.7   |  
|Commercial business (1)                      |  |                        | 78,594  |         | 18.1  |   |        |      | 80,695  |  | 18.8  |        |  |         | 57,045  |  | 14.9   |   |         |   | 67,747  |        | 17.3  |         |  |   | 64,524  |  | 15.8  |  
|Other (2)                                    |  |                        | 69,313  |         | 15.9  |   |        |      | 52,150  |  | 12.1  |        |  |         | 44,409  |  | 11.6   |   |         |   | 47,354  |        | 12.2  |         |  |   | 46,459  |  | 11.4  |  
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total other loans                            |  |                        | 154,577 |         | 35.5  |   |        |      | 139,124 |  | 32.4  |        |  |         | 107,025 |  | 28.0   |   |         |   | 121,639 |        | 31.2  |         |  |   | 117,791 |  | 28.9  |  
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total loans receivable                       |  |                        | 443,950 |         | 102.0 |   |        |      | 440,433 |  | 102.5 |        |  |         | 390,731 |  | 101.9  |   |         |   | 396,710 |        | 101.9 |         |  |   | 415,738 |  | 101.9 |  
|Less:                                        |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Undisbursed loan proceeds                    |  |                        | 5,797   |         | 1.3   |   |        |      | 7,456   |  | 1.7   |        |  |         | 2,942   |  | 0.8    |   |         |   | 3,413   |        | 0.9   |         |  |   | 4,243   |  | 1.0   |  
|Unearned discount and net deferred loan fees |  |                        | 147     |         | 0.1   |   |        |      | 172     |  | 0.1   |        |  |         | 214     |  | 0.1    |   |         |   | 227     |        | 0.1   |         |  |   | 209     |  | 0.1   |  
|Allowance for loan losses                    |  |                        | 2,994   |         | 0.6   |   |        |      | 3,209   |  | 0.7   |        |  |         | 3,765   |  | 1.0    |   |         |   | 4,068   |        | 0.9   |         |  |   | 3,205   |  | 0.8   |  
|                                             |  |                        |         |         |       |   |        |      |         |  |       |        |  |         |         |  |        |   |         |   |         |        |       |         |  |   |         |  |       |  
|Total loans receivable, net                  |  | $                      | 435,012 |         | 100.0 | % |        | $    | 429,596 |  | 100.0 | %      |  | $       | 383,810 |  | 100.0  | % |         | $ | 389,002 |        | 100.0 | %       |  | $ | 408,081 |  | 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, 2006, 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.



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|                    |  |                |         |           |   |          |  |           |        |            |   |                |  |       |        |  |   |        |  |   |        
|------------------- |  | -------------- | ------- | --------- | - | -------- |  | --------- | ------ | ---------- | - | -------------- |  | ----- | ------ |  | - | ------ |  | - | -------
|                    |  | Within1 Year   |         | 1-3 Years |   | 3-5Years |  | 5-10Years |        | 10-20Years |   | Beyond20 Years |  | Total
|                    |  | (In Thousands)
|Fixed rate loans    |  | $              | 93,682  |           | $ | 116,915  |  | $         | 62,279 |            | $ | 44,572         |  | $     | 29,631 |  | $ | 12,370 |  | $ | 359,449
|Variable rate loans |  | $              | 6,866   |           | $ | 8,264    |  | $         | 16,565 |            | $ | 5,069          |  | $     | 15,220 |  | $ | 32,517 |  | $ | 84,501 
|                    |  |                |         |           |   |          |  |           |        |            |   |                |  |       |        |  |   |        |  |   |        
|Total               |  | $              | 100,548 |           | $ | 125,179  |  | $         | 78,844 |            | $ | 49,641         |  | $     | 44,851 |  | $ | 44,887 |  | $ | 443,950
|                    |  |                |         |           |   |          |  |           |        |            |   |                |  |       |        |  |   |        |  |   |        

The following table sets forth at September 30, 2006, the dollar amount of all fixed rate and adjustable rate
loans due after September 30, 2007.



|                          |  |                |         |            |   |        |  |   |        
|------------------------- |  | -------------- | ------- | ---------- | - | ------ |  | - | -------
|                          |  | Fixed          |         | Adjustable |   | Total 
|                          |  | (in Thousands)
|Single family residential |  | $              | 58,412  |            | $ | 52,680 |  | $ | 111,092
|Multifamily residential   |  |                | 8,673   |            |   | 140    |  | $ | 8,813  
|Agricultural              |  |                | 14,480  |            |   | 595    |  | $ | 15,075 
|Commercial                |  |                | 99,052  |            |   | 9,225  |  | $ | 108,277
|Commercial Business       |  |                | 20,613  |            |   | 14,901 |  | $ | 35,514 
|Other                     |  |                | 64,537  |            |   | 94     |  | $ | 64,631 
|                          |  |                |         |            |   |        |  |   |        
|Total:                    |  | $              | 265,767 |            | $ | 77,635 |  | $ | 343,402
|                          |  |                |         |            |   |        |  |   |        

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, 2006, the Bank had $131.2 million, or 30.2%, of its total net loan portfolio invested
in single-family residential mortgage loans, most 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 the 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, 2006, loans held for sale were $3.2 million, at September 30, 2005, loans held for sale were $3.1 million, and at
September 30, 2004 loans held sale were $1.5 million. During the fiscal years ended September 30, 2006 and 2005, the Bank sold into the secondary market $49.2 million and $54.5 million, respectively, of single-family, fixed rate,
residential mortgage loans, generally from current period originations. The Bank retained the servicing rights on $19.5 million of loans sold to Fannie Mae in fiscal years 2005; the servicing rights asset, which was $0.6 million as of
September 30, 2005 was included in other assets in the Companys consolidated financial statements. During the fiscal year ended September 30, 2006, the Bank sold the servicing rights on loans sold to Fannie Mae for a net gain of $159
thousand.

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 200 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.



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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 $9.6 million, or 2.2% of the Banks total net loan portfolio at September 30, 2006, compared
to $8.8 million, or 2.0% of the Banks total net loan portfolio at September 30, 2005, $2.4 million, or 0.6% of the Banks total net loan portfolio at September 30, 2004, $1.4 million, or 0.4% of the Banks total net loan
portfolio at September 30, 2003, and $1.2 million, or 0.3% of the Banks total net loan portfolio at September 30, 2002. The Banks multifamily real estate loans are primarily collateralized by multifamily residences, such as
apartment buildings. Multifamily residential real estate loans are offered with fixed and adjustable interest rates and are structured in a number of different ways depending upon the circumstances of the borrower and the type of multifamily
project. Fixed interest rate loans generally have five-to-seven-year terms with a balloon payment based on a 15 to 25 year amortization schedule.

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

Agricultural Real Estate Loans. In recent years the Bank has increased its originations of agricultural real estate loans for
the purchase of farmland in the Banks market area.Loans collateralized by farmland constituted $18.1 million, or 4.1% of the Banks total net loan portfolio at September 30, 2006, compared to $20.2 million, or 4.7% of the
Banks total net loan portfolio at September 30, 2005, $17.9 million or 4.7%, $20.5 million, or 5.3%, and $17.3 million, or 4.2% of the Banks total net loan portfolio at September 30, 2004, 2003, and 2002, respectively.

Agricultural mortgage loans have various terms up to 5 years with a balloon payment based on amortization schedules up to 20 years. 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 $130.4 million, or
30.0% of the Banks total net loan portfolio at September 30, 2006, compared to $135.8 million, or 31.6%, $135.3 million, or 35.2%, $113.9 million, or 29.2%, and $91.3 million, or 22.4% of the Banks total net loan portfolio at
September 30, 2005, 2004, 2003, and 2002, respectively. The Banks commercial real estate loans are collateralized by property such as office buildings, retail buildings, churches and other nonresidential buildings. At September 30,
2006, 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 primarily with fixed rates 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 $78.6 million or 18.1% of the Banks total net loan portfolio at September 30, 2006, as compared to $80.7 million, or 18.8%, $57.0 million, or 14.9%, $67.7 million, or 17.3%, and $64.5 million, or
15.8% of the Banks total net loan portfolio at September 30, 2005, 2004, 2003, and 2002, respectively. When making commercial business loans, we consider the financial strength of the borrower, our lending history with the borrower, the
debt service capabilities of the borrower, the projected cash flows of the business and the value and type of the collateral. In addition, we usually require the business principals to execute personal guarantees. Commercial business loans are
offered primarily on a fixed rate basis with maturities generally of less than five years.



6



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##### Table of Contents

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 commercial business loans generally have a greater credit risk than residential mortgage loans as well. Unlike residential mortgage loans, which generally are made on the basis of the borrowers ability
to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans generally are made on the basis of the borrowers ability to repay
the loan from the cash flow of the borrowers business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself. Further, any collateral securing the
loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We seek to minimize these risks through our underwriting standards.

Other Loans. The Bank originates various consumer loans, including automobile, deposit account loans and second mortgage loans, principally in response to customer demand in our primary market area. As of September 30, 2006,
such loans totaled $76.0 million, or 17.4% of the Banks total net loan portfolio as compared to $58.4 million, or 13.6%, to $50.0 million, or 13.1%, $53.9 million, or 13.9%, and $53.3 million, or 13.1%, of the Banks total net loan
portfolio as of September 30, 2005, 2004, 2003, and 2002, respectively. Consumer loans are offered primarily on a fixed rate basis with maturities generally of less than ten years.

Consumer loans entail greater risk than do residential mortgage loans, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as automobiles, motorcycles, motor homes and
boats. In these cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition,
consumer loan collections depend on the borrowers continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

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 |         
|                                                                                            |  | 2006                    |          |   | 2005 |   |          | 2004 |  |   | 2003     |   |  | 2002 |         
|                                                                                            |  | (In Thousands)          |         
|Total loans receivable, net at beginning of year                                            |  | $                       | 429,596  |   |      | $ | 383,810  |      |  | $ | 389,002  |   |  | $    | 408,081  |   |  | $ | 349,376  |  
|Loans originated:                                                                           |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Real estate:                                                                                |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Single-family residential                                                                   |  |                         | 79,242   |   |      |   | 95,206   |      |  |   | 91,256   |   |  |      | 87,843   |   |  |   | 93,072   |  
|Multifamily residential                                                                     |  |                         | 14,792   |   |      |   | 4,600    |      |  |   | 1,305    |   |  |      | 313      |   |  |   |         |  
|Commercial                                                                                  |  |                         | 29,462   |   |      |   | 50,772   |      |  |   | 60,409   |   |  |      | 55,255   |   |  |   | 41,130   |  
|Agricultural                                                                                |  |                         | 2,195    |   |      |   | 5,396    |      |  |   | 32,188   |   |  |      | 39,287   |   |  |   | 27,100   |  
|Other:                                                                                      |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Commercial business                                                                         |  |                         | 62,029   |   |      |   | 58,929   |      |  |   | 12,855   |   |  |      | 19,140   |   |  |   | 18,324   |  
|Savings account loans                                                                       |  |                         | 5,641    |   |      |   | 4,246    |      |  |   | 2,647    |   |  |      | 5,102    |   |  |   | 6,310    |  
|Other                                                                                       |  |                         | 42,510   |   |      |   | 37,698   |      |  |   | 25,856   |   |  |      | 18,462   |   |  |   | 22,558   |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total loans originated                                                                      |  |                         | 235,871  |   |      |   | 256,847  |      |  |   | 226,516  |   |  |      | 225,402  |   |  |   | 208,494  |  
|Loans purchased                                                                             |  |                         | 5,699    |   |      |   | 5,900    |      |  |   | 9,721    |   |  |      | 20,041   |   |  |   | 76,676   |  
|Loans sold                                                                                  |  |                         | (49,165  | ) |      |   | (54,550  | )    |  |   | (64,604  | ) |  |      | (79,097  | ) |  |   | (28,469  | )
|Loans transferred to REO                                                                    |  |                         | (1,188   | ) |      |   | (2,185   | )    |  |   | (2,707   | ) |  |      | (2,119   | ) |  |   | (2,312   | )
|Loans to facilitate the sale of REO                                                         |  |                         | (384     | ) |      |   | (852     | )    |  |   | (1,150   | ) |  |      | (1,533   | ) |  |   | (1,471   | )
|Loan repayments                                                                             |  |                         | (185,409 | ) |      |   | (159,838 | )    |  |   | (170,241 | ) |  |      | (182,495 | ) |  |   | (194,449 | )
|Other loan activity (net) (1)                                                               |  |                         | (8       | ) |      |   | 464      |      |  |   | (2,727   | ) |  |      | 722      |   |  |   | 236      |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total loans receivable, net at end of year                                                  |  | $                       | 435,012  |   |      | $ | 429,596  |      |  | $ | 383,810  |   |  | $    | 389,002  |   |  | $ | 408,081  |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Mortgage-backed securities, net at beginning of year                                        |  | $                       | 175,189  |   |      | $ | 218,467  |      |  | $ | 216,072  |   |  | $    | 104,835  |   |  | $ | 37,090   |  
|Purchases                                                                                   |  |                         | 14,700   |   |      |   | 53,111   |      |  |   | 105,054  |   |  |      | 239,594  |   |  |   | 106,121  |  
|Sales                                                                                       |  |                         |         |   |      |   | (48,615  | )    |  |   | (31,085  | ) |  |      | (88      | ) |  |   | (19,256  | )
|Fair value adjustment                                                                       |  |                         | (490     | ) |      |   | (2,818   | )    |  |   | (1,922   | ) |  |      | (1,024   | ) |  |   | 745      |  
|Repayments                                                                                  |  |                         | (36,164  | ) |      |   | (44,675  | )    |  |   | (69,514  | ) |  |      | (127,375 | ) |  |   | (20,183  | )
|Discount amortization / accretion                                                           |  |                         | (211     | ) |      |   | (281     | )    |  |   | (138     | ) |  |      | 130      |   |  |   | 318      |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Mortgage-backed and related securities, net at end of year                                  |  | $                       | 153,024  |   |      | $ | 175,189  |      |  | $ | 218,467  |   |  | $    | 216,072  |   |  | $ | 104,835  |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total loans receivable, net, and mortage-backed and related securities, net, at end of year |  | $                       | 588,036  |   |      | $ | 604,785  |      |  | $ | 602,277  |   |  | $    | 605,074  |   |  | $ | 512,916  |  
|                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  



|(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).



7



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##### Table of Contents

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 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 loan loss allowances.

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



|                        |  |                 |       |      |   |       |  |      |       |      |   |       |  |   |      
|----------------------- |  | --------------- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                        |  | At September 30
|                        |  | 2006            |       | 2005 |   | 2004  |  | 2003 |       | 2002
|                        |  | (In Thousands) 
|Substandard assets      |  | $               | 5,139 |      | $ | 5,376 |  | $    | 7,826 |      | $ | 8,150 |  | $ | 4,166
|Doubtful assets         |  |                 | 366   |      |   | 253   |  |      | 600   |      |   | 915   |  |   |     
|                        |  |                 |       |      |   |       |  |      |       |      |   |       |  |   |      
|Total classified assets |  | $               | 5,505 |      | $ | 5,629 |  | $    | 8,426 |      | $ | 9,065 |  | $ | 4,166
|                        |  |                 |       |      |   |       |  |      |       |      |   |       |  |   |      

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 Bank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, 2006, 2005, 2004, 2003, and 2002, the Bank added $845,000,
$525,000, $3,900,000, $2,595,000, and $900,000, respectively, to its allowance for loan losses. The Banks allowance for loan losses totaled $3.0 million, or 0.6% of total loans, $3.2 million, or 0.7% of total loans, $3.8 million, or 1.0% of
total loans, $4.1 million, or 1.0% of total loans, and $3.2 million, or 0.8% of total loans, at September 30, 2006, 2005, 2004, 2003, and 2002, respectively. Net charge offs totaled $1.1 million or 0.2% of total loans, $1.1 million or 0.2% of
total loans, $4.2 million or 1.1% of total loans, $2.1 million or 0.5% of total loans, and $1.1 million or 0.3% of total loans for the years ended September 30, 2006, 2005, 2004, 2003, and 2002, respectively. Total nonperforming loans decreased
$1.8 million to $2.1 million at September 30, 2006 from $3.9 million at September 30, 2005, compared to the decrease of $0.8 million in 2005 from $4.7 million at September 30, 2004. 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 six 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 $2.1 million in nonperforming loans as of September 30, 2006, $0.5 million, or 23.8% were loans acquired as part of the bank acquisitions. Nonperforming commercial loans have increased $0.2 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  2006 totaled $12.8
million with $6.0 million or 46.9% of 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



8



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##### Table of Contents

opinion of management, collection of the remaining balance can be reasonably expected. Non-accrual loans decreased $1.8 million or 46.2% to $2.1 million at
September 30, 2006 from $3.9 million at September 30, 2005. The interest income not recognized by the Company on the non-accrual loans was $0.2 million, $0.4 million, $0.5 million, $0.4 million, and $0.3 million, for the years ended
September 30, 2006, 2005, 2004, 2003, and 2002, respectively. There was no interest income recognized on non-accrual loans during the periods.

The
following table sets forth information regarding non-accrual loans (nonperforming loans) and real estate owned by the Bank at the dates indicated.



|                                                   |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|-------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                                   |  | At September 30        |      
|                                                   |  | 2006                   |       |   | 2005 |   |       | 2004 |  |   | 2003  |   |  | 2002 |      
|                                                   |  | (Dollars In Thousands) |      
|Nonperforming loans:                               |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Single-family residential real estate              |  | $                      | 1,150 |   |      | $ | 2,644 |      |  | $ | 1,540 |   |  | $    | 2,383 |   |  | $ | 1,744 |  
|Agriculture real estate                            |  |                        | 123   |   |      |   | 386   |      |  |   | 1,014 |   |  |      | 66    |   |  |   | 94    |  
|Commercial real estate                             |  |                        | 482   |   |      |   | 581   |      |  |   | 1,726 |   |  |      | 1,919 |   |  |   | 452   |  
|Commercial non real estate                         |  |                        | 246   |   |      |   | 178   |      |  |   | 233   |   |  |      | 764   |   |  |   | 489   |  
|Other loans                                        |  |                        | 58    |   |      |   | 147   |      |  |   | 153   |   |  |      | 478   |   |  |   | 404   |  
|                                                   |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total nonperforming loans                          |  |                        | 2,059 |   |      |   | 3,936 |      |  |   | 4,666 |   |  |      | 5,610 |   |  |   | 3,183 |  
|Total real estate owned and repossessed assets (1) |  |                        | 63    |   |      |   | 349   |      |  |   | 619   |   |  |      | 802   |   |  |   | 1,707 |  
|                                                   |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total nonperforming assets                         |  | $                      | 2,122 |   |      | $ | 4,285 |      |  | $ | 5,285 |   |  | $    | 6,412 |   |  | $ | 4,890 |  
|                                                   |  |                        |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total nonperforming loans to net loans receivable  |  |                        | 0.47  | % |      |   | 0.92  | %    |  |   | 1.22  | % |  |      | 1.43  | % |  |   | 0.78  | %
|Total nonperforming loans to total assets          |  |                        | 0.28  | % |      |   | 0.53  | %    |  |   | 0.65  | % |  |      | 0.73  | % |  |   | 0.52  | %
|Total nonperforming assets to total assets         |  |                        | 0.29  | % |      |   | 0.58  | %    |  |   | 0.73  | % |  |      | 0.84  | % |  |   | 0.79  | %

---

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

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 loss allowance is charged
against earnings, loan loss allowance is added back to capital, subject to a limitation of 1.25% of risk-based assets, in computing risk-based capital under OTS regulations.



9



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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 |        
|                                                                                |  | 2006                    |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|                                                                                |  | (Dollars In Thousands)  |        
|Total loans receivable                                                          |  | $                       | 443,950 |   |      | $ | 440,433 |      |  | $ | 390,731 |   |  | $    | 396,710 |   |  | $ | 415,738 |  
|Average net loans outstanding                                                   |  |                         | 425,944 |   |      |   | 381,390 |      |  |   | 388,679 |   |  |      | 391,588 |   |  |   | 353,585 |  
|Allowance balances (at beginning of year)                                       |  |                         | 3,209   |   |      |   | 3,765   |      |  |   | 4,068   |   |  |      | 3,205   |   |  |   | 2,542   |  
|Provision for losses:                                                           |  |                         | 845     |   |      |   | 525     |      |  |   | 3,900   |   |  |      | 2,595   |   |  |   | 900     |  
|Balance transferred at acquisition*                                             |  |                         |        |   |      |   |        |      |  |   |        |   |  |      | 355     |   |  |   | 836     |  
|Charge-offs:                                                                    |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Single Family                                                                   |  |                         | (350    | ) |      |   | (374    | )    |  |   | (601    | ) |  |      | (397    | ) |  |   | (239    | )
|Agriculture                                                                     |  |                         |        |   |      |   | (31     | )    |  |   | (87     | ) |  |      | (129    | ) |  |   |        |  
|Commercial real estate                                                          |  |                         | (617    | ) |      |   | (711    | )    |  |   | (858    | ) |  |      | (211    | ) |  |   | (32     | )
|Commercial business                                                             |  |                         | (308    | ) |      |   | (864    | )    |  |   | (2,418  | ) |  |      | (378    | ) |  |   | (692    | )
|Other                                                                           |  |                         | (247    | ) |      |   | (329    | )    |  |   | (681    | ) |  |      | (1,089  | ) |  |   | (174    | )
|Recoveries:                                                                     |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Single Family                                                                   |  |                         | 205     |   |      |   | 104     |      |  |   | 6       |   |  |      | 6       |   |  |   | 1       |  
|Agriculture                                                                     |  |                         |        |   |      |   | 8       |      |  |   | 17      |   |  |      |        |   |  |   |        |  
|Commercial real estate                                                          |  |                         | 39      |   |      |   | 217     |      |  |   | 104     |   |  |      | 27      |   |  |   | 6       |  
|Commercial business                                                             |  |                         | 132     |   |      |   | 769     |      |  |   | 189     |   |  |      |        |   |  |   | 5       |  
|Other                                                                           |  |                         | 86      |   |      |   | 130     |      |  |   | 126     |   |  |      | 84      |   |  |   | 52      |  
|                                                                                |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance balance (at end of year)                                              |  | $                       | 2,994   |   |      | $ | 3,209   |      |  | $ | 3,765   |   |  | $    | 4,068   |   |  | $ | 3,205   |  
|                                                                                |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance for loan losses as a percent of total loans receivable at end of year |  |                         | 0.67    | % |      |   | 0.73    | %    |  |   | 0.96    | % |  |      | 1.03    | % |  |   | 0.77    | %
|Loans charged off as a percent of average net loans outstanding                 |  |                         | 0.36    | % |      |   | 0.61    | %    |  |   | 1.20    | % |  |      | 0.56    | % |  |   | 0.32    | %
|Ratio of allowance for loan losses to total nonperforming loans at end of year  |  |                         | 145.41  | % |      |   | 81.53   | %    |  |   | 80.69   | % |  |      | 72.51   | % |  |   | 100.69  | %
|Ratio of allowance for loan losses to total nonperforming assets at end of year |  |                         | 141.09  | % |      |   | 74.89   | %    |  |   | 71.24   | % |  |      | 63.44   | % |  |   | 65.54   | %



|* | Marked Tree Bancshares in 2003, People's Bank and North Arkansas Bancshares in 2002
|- | -----------------------------------------------------------------------------------

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        |      
|                                        |  | 2006                   |       |                                         | 2005  |   |        | 2004 |                                         |  | 2003  |        |  | 2002                                    |      
|                                        |  | Amount                 |       | % of Loansin EachCategory toTotal Loans |       |   | Amount |      | % of Loansin EachCategory toTotal Loans |  |       | Amount |  | % of Loansin EachCategory toTotal Loans |       |  | Amount |   | % of Loansin EachCategory toTotal Loans |   |       | Amount |       | % of Loansin EachCategory toTotal Loans | 
|                                        |  | (Dollars in Thousands) |      
|Balance at end of period applicable to: |  |                        |       |                                         |       |   |        |      |                                         |  |       |        |  |                                         |       |  |        |   |                                         |   |       |        |       |                                         |  |   |       |  |       |  
|Single Family                           |  | $                      | 889   |                                         | 28.2  | % |        | $    | 736                                     |  | 29.3  | %      |  | $                                       | 601   |  | 31.5   | % |                                         | $ | 705   |        | 33.8  | %                                       |  | $ | 1,445 |  | 45.1  | %
|Multi Family                            |  |                        |      |                                         | 2.2   |   |        |      |                                        |  | 2.0   |        |  |                                         | 34    |  | 0.6    |   |                                         |   | 20    |        | 0.4   |                                         |  |   | 10    |  | 0.3   |  
|Agriculture real estate                 |  |                        | 103   |                                         | 4.1   |   |        |      | 188                                     |  | 4.7   |        |  |                                         | 493   |  | 4.7    |   |                                         |   | 395   |        | 5.3   |                                         |  |   | 135   |  | 4.2   |  
|Commercial real estate                  |  |                        | 675   |                                         | 30.0  |   |        |      | 748                                     |  | 31.6  |        |  |                                         | 1,435 |  | 35.2   |   |                                         |   | 1,606 |        | 29.2  |                                         |  |   | 718   |  | 22.4  |  
|Commercial business                     |  |                        | 1,212 |                                         | 18.1  |   |        |      | 1,352                                   |  | 18.8  |        |  |                                         | 977   |  | 14.9   |   |                                         |   | 1,108 |        | 17.4  |                                         |  |   | 506   |  | 15.8  |  
|Other Loans                             |  |                        | 115   |                                         | 17.4  |   |        |      | 185                                     |  | 13.6  |        |  |                                         | 225   |  | 13.1   |   |                                         |   | 234   |        | 13.9  |                                         |  |   | 391   |  | 12.2  |  
|                                        |  |                        |       |                                         |       |   |        |      |                                         |  |       |        |  |                                         |       |  |        |   |                                         |   |       |        |       |                                         |  |   |       |  |       |  
|Total allowance for loan losses         |  | $                      | 2,994 |                                         | 100.0 | % |        | $    | 3,209                                   |  | 100.0 | %      |  | $                                       | 3,765 |  | 100.0  | % |                                         | $ | 4,068 |        | 100.0 | %                                       |  | $ | 3,205 |  | 100.0 | %
|                                        |  |                        |       |                                         |       |   |        |      |                                         |  |       |        |  |                                         |       |  |        |   |                                         |   |       |        |       |                                         |  |   |       |  |       |  

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



10



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##### Table of Contents

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        |        
|                                     |  | 2006                   |         |   | 2005  |   |   | 2004 |         |  | 2003  |   |  | 2002 |        
|                                     |  | $                      |         | % |       |   | $ |      | %       |  |       | $ |  | %    |         |  | $    |   | % |   |         | $ |      | % | 
|                                     |  | (Dollars in Thousands) |        
|Mortgage-backed securities:          |  |                        |         |   |       |   |   |      |         |  |       |   |  |      |         |  |      |   |   |   |         |   |      |   |  |   |         |  |      |  
|Adjustable                           |  | $                      |        |   | 0.0   | % |   | $    |        |  | 0.0   | % |  | $    | 12,180  |  | 5.6  | % |   | $ | 15,179  |   | 7.0  | % |  | $ | 14,075  |  | 13.4 | %
|Fixed                                |  |                        | 153,024 |   | 100.0 | % |   |      | 175,189 |  | 100.0 | % |  |      | 206,287 |  | 94.4 | % |   |   | 200,893 |   | 93.0 | % |  |   | 90,760  |  | 86.6 | %
|                                     |  |                        |         |   |       |   |   |      |         |  |       |   |  |      |         |  |      |   |   |   |         |   |      |   |  |   |         |  |      |  
|Total mortage-backed securities, net |  | $                      | 153,024 |   | 100   | % |   | $    | 175,189 |  | 100   | % |  | $    | 218,467 |  | 100  | % |   | $ | 216,072 |   | 100  | % |  | $ | 104,835 |  | 100  | %
|                                     |  |                        |         |   |       |   |   |      |         |  |       |   |  |      |         |  |      |   |   |   |         |   |      |   |  |   |         |  |      |  

At September 30, 2006, mortgage-backed securities aggregated $153.0 million, or 20.7% of the Banks
total assets. At September 30, 2006, $91.7 million of the Banks mortgage-backed securities were classified as available-for-sale, and $61.3 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, mutual funds, interest-earning deposits in other institutions and equity investments.The carrying value of this
portion of the Banks investment portfolio totaled $73.7 million, $54.2 million, $28.4 million, $82.9 million, and $20.6 million at September 30, 2006, 2005, 2004, 2003, and 2002, respectively. At September 30, 2006, $13.5 million of
the Banks investment securities, excluding mortgage-backed securities, had a remaining term to maturity of one year or less, and $18.8 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
|                                     |  | 2006            |         | 2005 |   | 2004    |  | 2003 |         | 2002
|                                     |  | (In Thousands) 
|Investment securities:               |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|Mortgage-backed securities           |  | $               | 153,024 |      | $ | 175,189 |  | $    | 218,467 |      | $ | 216,072 |  | $ | 104,835
|Corporate bonds                      |  |                 |        |      |   |        |  |      |        |      |   | 14,269  |  |   | 3,814  
|U.S. Government treasury obligations |  |                 | 19,921  |      |   | 19,844  |  |      |        |      |   | 4,171   |  |   |       
|U.S. Government agency obligations   |  |                 | 4,000   |      |   | 4,000   |  |      | 4,442   |      |   | 39,105  |  |   | 3,648  
|Municipal bonds                      |  |                 | 47,870  |      |   | 29,403  |  |      | 22,934  |      |   | 24,351  |  |   | 13,167 
|Preferred Security                   |  |                 | 108     |      |   |        |  |      |        |      |   |        |  |   |       
|Equity securities (Common Stock)     |  |                 | 795     |      |   |        |  |      |        |      |   |        |  |   |       
|Mutual fund                          |  |                 | 963     |      |   | 976     |  |      | 990     |      |   | 1,005   |  |   |       
|                                     |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total investment securities          |  |                 | 226,681 |      |   | 229,412 |  |      | 246,833 |      |   | 298,973 |  |   | 125,464
|FHLB stock                           |  |                 | 6,572   |      |   | 7,962   |  |      | 7,926   |      |   | 5,584   |  |   | 2,126  
|                                     |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total investments                    |  | $               | 233,253 |      | $ | 237,374 |  | $    | 254,759 |      | $ | 304,557 |  | $ | 127,590
|                                     |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        

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



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##### Table of Contents

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, 2006.



|                                                        |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  |                     |         |                                |   |         |  |      |  |      |  
|------------------------------------------------------- |  | ---------------------- | ------ | ------------------------------ | ----------------- | - | ------------- | ----------------- | ------------------------------ |  | -------------- | ------------- |  | ------------------------------ | ------- |  | ------------- | - | ------------------------------ | - | ------ | ------------- | ---- | ----------- |  | ------------------- | ------- | ------------------------------ | - | ------- |  | ---- |  | ---- | -
|                                                        |  | One Year or Less       |        |                                | One to Five Years |   |               | Five to Ten Years |                                |  | Over Ten Years |               |  | Total                          |        
|                                                        |  | CarryingValue          |        | AnnualizedWeightedAverageYield |                   |   | CarryingValue |                   | AnnualizedWeightedAverageYield |  |                | CarryingValue |  | AnnualizedWeightedAverageYield |         |  | CarryingValue |   | AnnualizedWeightedAverageYield |   |        | CarryingValue |      | MarketValue |  | AverageLife inYears |         | AnnualizedWeightedAverageYield |  
|                                                        |  | (Dollars In Thousands) |       
|Investment securities:                                  |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  |                     |         |                                |   |         |  |      |  |      |  
|U.S. Government Agency Securities                       |  | $                      |       |                                | 0.00              | % |               | $                 |                               |  | 0.00           | %             |  | $                              |        |  | 0.00          | % |                                | $ | 4,000  |               | 3.88 | %           |  | $                   | 4,000   |                                | $ | 3,867   |  | 6.72 |  | 3.88 | %
|U.S. Government Treasury Securities                     |  |                        | 9,988  |                                | 3.69              | % |               |                   | 9,933                          |  | 3.88           | %             |  |                                |        |  | 0.00          | % |                                |   |       |               | 0.00 | %           |  |                     | 19,921  |                                |   | 19,744  |  | 0.90 |  | 3.78 | %
|State and municipal obligations (1)                     |  |                        | 1,656  |                                | 2.71              | % |               |                   | 8,851                          |  | 3.46           | %             |  |                                | 9,630   |  | 3.87          | % |                                |   | 27,733 |               | 4.32 | %           |  |                     | 47,870  |                                |   | 48,004  |  | 4.65 |  | 4.01 | %
|CMOs (2)                                                |  |                        |       |                                | 0.00              | % |               |                   |                               |  | 0.00           | %             |  |                                |        |  | 0.00          | % |                                |   | 19,508 |               | 4.07 | %           |  |                     | 19,508  |                                |   | 18,451  |  | 3.74 |  | 4.07 | %
|Mortgage-backed securities                              |  |                        |       |                                | 0.00              | % |               |                   |                               |  | 0.00           | %             |  |                                | 104,519 |  | 4.04          | % |                                |   | 28,997 |               | 4.35 | %           |  |                     | 133,516 |                                |   | 131,817 |  | 3.41 |  | 4.11 | %
|Preferred Security                                      |  |                        | 108    |                                | 0.00              | % |               |                   |                               |  | 0.00           | %             |  |                                |        |  | 0.00          | % |                                |   |       |               | 0.00 | %           |  |                     | 108     |                                |   | 108     |  |      |  |      |  
|Equity Securities (Common Stock)                        |  |                        | 795    |                                | 0.00              | % |               |                   |                               |  | 0.00           | %             |  |                                |        |  | 0.00          | % |                                |   |       |               | 0.00 | %           |  |                     | 795     |                                |   | 795     |  |      |  |      |  
|Mutual Fund                                             |  |                        | 963    |                                | 4.33              | % |               |                   |                               |  | 0.00           | %             |  |                                |        |  | 0.00          | % |                                |   |       |               | 0.00 | %           |  |                     | 963     |                                |   | 963     |  | 4.57 |  | 4.33 | %
|                                                        |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  |                     |         |                                |   |         |  |      |  |      |  
|Total investment securities                             |  |                        | 13,510 |                                | 3.30              | % |               |                   | 18,784                         |  | 3.46           | %             |  |                                | 114,149 |  | 4.02          | % |                                |   | 80,238 |               | 4.25 | %           |  |                     | 226,681 |                                |   | 223,749 |  |      |  | 4.01 | %
|                                                        |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  |                     |         |                                |   |         |  |      |  |      |  
|FHLB stock                                              |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  |                     | 6,572   |                                |   | 6,572   |  |      |  |      |  
|Accrued interest on investments                         |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  |                     | 1,191   |                                |   | 1,191   |  |      |  |      |  
|                                                        |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  |                     |         |                                |   |         |  |      |  |      |  
|Total investment securities, including accrued interest |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  | $                   | 234,444 |                                | $ | 231,512 |  |      |  |      |  
|                                                        |  |                        |        |                                |                   |   |               |                   |                                |  |                |               |  |                                |         |  |               |   |                                |   |        |               |      |             |  |                     |         |                                |   |         |  |      |  |      |  



|(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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------



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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, savings, money market deposit accounts, term certificate accounts and individual retirement accounts. 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 may 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
|           |  | 2006            |         | 2005 |   | 2004    |  | 2003 |         | 2002
|           |  | (In Thousands) 
|Rate       |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|0.00-1.99% |  | $               | 3,220   |      | $ | 226     |  | $    | 63,971  |      | $ | 57,083  |  | $ | 12,997 
|2.00-2.99% |  |                 | 4,799   |      |   | 58,234  |  |      | 105,611 |      |   | 35,416  |  |   | 95,895 
|3.00-3.99% |  |                 | 68,875  |      |   | 126,083 |  |      | 38,744  |      |   | 130,930 |  |   | 126,881
|4.00-5.99% |  |                 | 264,289 |      |   | 82,428  |  |      | 28,429  |      |   | 47,239  |  |   | 85,244 
|6.00-7.99% |  |                 |        |      |   | 815     |  |      | 2,482   |      |   | 4,013   |  |   | 11,165 
|8.00-9.99% |  |                 |        |      |   |        |  |      | 224     |      |   | 223     |  |   | 225    
|           |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total      |  | $               | 341,183 |      | $ | 267,786 |  | $    | 239,461 |      | $ | 274,904 |  | $ | 332,407
|           |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        

Time Deposit Maturities. The following table sets forth the amount and maturities of certificates of
deposit at September 30, 2006.



|                                                         |  |                 |         |              |   |               |  |               |        |       |   |        |  |   |        
|-------------------------------------------------------- |  | --------------- | ------- | ------------ | - | ------------- |  | ------------- | ------ | ----- | - | ------ |  | - | -------
|                                                         |  | Maturity       
|                                                         |  | 3 monthsor less |         | 3 to 6months |   | 6 to 12months |  | Over 12months |        | Total
|                                                         |  | (In Thousands) 
|Certificate of Deposit less than $100,000                |  | $               | 64,313  |              | $ | 33,641        |  | $             | 54,761 |       | $ | 35,783 |  | $ | 188,498
|Certificate of Deposit greater than or equal to $100,000 |  |                 | 55,389  |              |   | 22,280        |  |               | 40,920 |       |   | 34,096 |  |   | 152,685
|                                                         |  |                 |         |              |   |               |  |               |        |       |   |        |  |   |        
|Total Certificates of Deposit                            |  |                 | 119,702 |              |   | 55,921        |  |               | 95,681 |       |   | 69,879 |  |   | 341,183
|                                                         |  |                 |         |              |   |               |  |               |        |       |   |        |  |   |        

Borrowings

Deposits of the Bank are a significant source of funds as are 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, 2006, the Banks FHLB advances totaled $104.4 million.

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



|                                   |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|---------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | -
|                                   |  | Year Ended September 30, |        
|                                   |  | 2006                     |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|                                   |  | (Dollars In Thousands)   |        
|Weighted average rate paid on: (1) |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|FHLB advances                      |  |                          | 3.97    | % |      |   | 3.41    | %    |  |   | 2.56    | % |  |      | 3.13    | % |  |   | 3.70   | %
|Other borrowings (2)               |  |                          | 0.00    | % |      |   | 0.00    | %    |  |   | 5.25    | % |  |      | 5.25    | % |  |   | 0.00   | %
|FHLB advances:                     |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Maximum balance                    |  | $                        | 171,078 |   |      | $ | 184,950 |      |  | $ | 159,337 |   |  | $    | 110,184 |   |  | $ | 73,316 |  
|Average balance                    |  | $                        | 136,383 |   |      | $ | 154,432 |      |  | $ | 123,107 |   |  | $    | 33,651  |   |  | $ | 36,713 |  
|Other borrowings: (2)              |  |                          |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Maximum balance                    |  | $                        |        |   |      | $ |        |      |  | $ | 671     |   |  | $    | 284     |   |  | $ | 350    |  
|Average balance                    |  | $                        |        |   |      | $ |        |      |  | $ | 336     |   |  | $    | 284     |   |  | $ |       |  



|(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 are included in accrued
expenses and other liabilities in the consolidated statement of financial condition.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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. As of September 30, 2006, the Company had no
discount window borrowings.

Trust Preferred Securities

The Company has issued two series of Trust Preferred Securities totaling $17.5 million. The Trust Preferred Securities are discussed in detail in Note 11 to the Consolidated Financial Statements, contained herein.

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 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, 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 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 DIF. 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, 2006, the Bank had $13.2 million in goodwill and intangible assets and $2.8 million in accumulated unrealized losses on 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, 2006, the Bank had no capital instruments that qualify as supplementary
capital and $2.8 million of general loss reserves, which was less than 1.0% of risk-weighted assets.

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



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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 Companys shareholders do not have preemptive rights.

As of September 30, 2006, the Bank met all capital requirements to which it was subject and satisfied the requirements to be treated as well-capitalized.

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, 2006, 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 regulatory fees involved in converting. 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 May 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, available for 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 insured association from engaging in any activity the FDIC determines by
regulation or order to pose a serious threat to the DIF. 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 Company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 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, 2006, 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, 2006, 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 non-supervisory acquisition by the Company of another savings association or savings bank that meets the QTL test and is deemed to be a savings
institution by the OTS, the Company would become a multiple savings and loan holding company (if the acquired institution is held as a separate subsidiary) and would be subject to extensive limitations on the types of business activities in which it
could engage. The HOLA limits the activities of a multiple savings and loan holding company and its non-insured institution subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act, subject to the prior approval of the OTS, and activities authorized by OTS regulation. The OTS is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies, and (ii) the acquisition of a savings institution in another state if the laws
of the state of the target savings institution specifically permit such acquisitions.



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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 Securities Exchange Commission (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 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.



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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.

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 met certain tests prescribed by the Code were previously granted
favorable provisions regarding deductions from taxable income for annual additions to their bad debt reserve. Most of these favorable provisions have been repealed for years beginning after December 31, 1995. As part of the repeal financial
institutions were required to recapture the balances of excess tax bad debt reserves. The Bank was required to recapture its applicable reserves over a six year period, 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 bank, 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 was allowed for a two-year period upon the Bank meeting 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.

Banks and other financial institutions are still allowed to use the experience method for deducting bad debts under Code Section 585.
However, large financial institutions may no longer be entitled to use the experience method of computing additions to their bad debt reserve. The definition of a large bank is one of which the quarterly average of the institution's
total assets, or the consolidated group of which it is a member, exceeds $500 million for the year. A large institution 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. Since the Bank is a large institution, it is required to use the direct write-off method.

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



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complete liquidation. However, dividends paid out of the Banks current or accumulated earnings and profits, as calculated for federal income tax
purposes, will not be considered to result in a distribution from the Banks tax bad debt reserves. Thus, any dividends to the Company that would reduce amounts appropriated to the Banks tax bad debt reserves and deducted for federal
income tax purposes would create a tax liability for the Bank. The amount of additional taxable income created from an Excess Distribution is an amount that when reduced by the tax attributable to the income is equal to the amount of the
distribution. Thus, if certain portions of the Banks accumulated tax bad debt reserve are used for any purpose other than to absorb qualified tax bad debt losses, such as for the payment of dividends or other distributions with respect to the
Banks capital stock (including distributions upon redemption or liquidation), approximately one and one-half times the amount so used would be includable in gross income for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state taxes). See Regulation - 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
interest on certain tax-exempt bonds issued after August 7, 1986. Also included is an addition of 75% of the adjusted current earnings (ACE). Computations of ACE include a recalculation of tax depreciation, additions for all
tax-exempt income, and a reversal of the deduction for dividends paid to an ESOP. In addition, for purposes of the 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 Company is subject to paying the alternative minimum tax for the year ended September 30, 2006, which is estimated to be approximately $270,000.

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.

State Taxation

Arkansas and Oklahoma generally impose income taxes on thrift institutions computed at a rate of 6.5% and 6.0%, respectively, of net earnings. For purposes of the state 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, plus (ii) any deduction for state income taxes.



|ITEM 1A | RISK FACTORS
|------- | ------------

In analyzing whether to make or to continue
an investment in our securities, investors should consider, among other factors, the following risk factors.

Our results of operations are
significantly dependent on economic conditions and related uncertainties.

Community banking operations are affected, directly and indirectly, by
domestic and international economic and political conditions and by governmental monetary and fiscal policies. Conditions such as inflation, recession, unemployment, volatile interest rates, real estate values, government monetary policy,
international conflicts, the actions of terrorists and other factors beyond our control may adversely affect our results of operations. Changes in interest rates, in particular, could adversely affect our net interest income and have a number
of other adverse effects on our operations, as discussed in the immediately succeeding risk factor. Adverse economic conditions also could result in an increase in loan delinquencies, foreclosures and nonperforming assets and a decrease in the
value of the property or other collateral which secures our loans, all of which could adversely affect our results of operations. We are particularly sensitive to changes in economic conditions and related uncertainties in Northeast Arkansas
because we derive substantially all of our loans, deposits and other business from this area. Accordingly, we remain subject to the risks associated with prolonged declines in national or local economies.

Changes in interest rates could have a material adverse effect on our operations.

The operations of financial institutions such as the Bank are dependent to a large extent on net interest income, which is the difference between the interest income earned on interest earning assets such as loans and
investment securities and the interest expense paid on interest bearing liabilities such as deposits and borrowings. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the
weighted average yield earned on our interest earning assets and the weighted average rate paid on our interest bearing liabilities, or interest rate spread, and the average life of our interest earning assets and interest bearing
liabilities. Changes in interest rates also can affect our ability to originate loans; the value of our interest earning assets; our ability to obtain and retain deposits in competition with other available investment alternatives; and the
ability of our borrowers to repay adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors
beyond our control. Although we believe that the estimated maturities of our interest earning assets currently are well balanced in relation to the estimated maturities of our interest bearing liabilities (which involves various estimates as to
how changes in the general level of interest rates will impact these assets and liabilities), there can be no assurance that our profitability would not be adversely affected during any period of changes in interest rates.

There are increased risks involved with commercial real estate, and commercial business lending activities.

In recent years, the Bank has emphasized the origination of commercial real estate and commercial business loans, which include equipment, inventory and crop production
loans. 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



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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. Other commercial business loans generally have a greater credit risk than residential mortgage loans as well. Unlike residential mortgage loans, which generally are made on the
basis of the borrowers ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans generally are made on the basis of
the borrowers ability to repay the loan from the cash flow of the borrowers business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself.
Further, any collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We seek to minimize these risks through our underwriting standards.

Our allowance for losses on loans may not be adequate to cover probable losses.

We have established an allowance for loan losses which we believe is adequate to offset probable losses on our existing loans. There can be no assurance that any future declines in real estate market conditions,
general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan losses, which would adversely affect our results of operations.

We are subject to extensive regulation which could adversely affect our business and operations.

We are subject to
extensive federal supervision and regulation, which are intended primarily for the protection of depositors. In addition, we are subject to changes in federal laws, as well as changes in regulations, governmental policies and accounting
principles. The effects of any such potential changes cannot be predicted but could adversely affect our business and operations and that of our subsidiaries in the future.

We face strong competition which may adversely affect our profitability.

We are subject to vigorous competition in
all aspects and areas of our business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds,
brokerage firms, consumer finance companies and insurance companies. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or
guaranteed loans to certain borrowers. Certain of our competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services. Competition
from both bank and non-bank organizations will continue.

Our ability to successfully compete may be reduced if we are unable to make technological
advances.

The banking industry is experiencing rapid changes in technology. In addition to improving customer services, effective use of
technology increases efficiency and enables financial institutions to reduce costs. As a result, our future success will depend in part on our ability to address our customers needs by using technology. We cannot assure that we will
be able to effectively develop new technology-driven products and services or be successful in marketing these products to our customers. Many of our competitors have far greater resources than we have to invest in technology.



|ITEM 1B | UNRESOLVED STAFF COMMENTS
|------- | -------------------------

None



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

The Bank conducts its business through its main
office and 20 full-service branch offices located in nine counties in Northeast Arkansas and Tulsa County, Oklahoma. Each office is owned or leased by the Bank. The Company and the Bank believe that their facilities are adequate to meet their
current and immediately foreseeable needs.

The following table sets forth certain information concerning the main office and each branch office of the
Bank at September 30, 2006. The aggregate net book value of the Banks premises and equipment was $15.9 million at September 30, 2006.

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. Kingshighway

Paragould, Arkansas

(Opened 1999)

Swifton Branch

101 Main Street

Swifton, Arkansas

(Opened 2001)

Hoxie Branch

126 SW Texas

Hoxie, Arkansas

(Opened 2002)

Paragould Branch

3104 West Kingshighway

Paragould, Arkansas

(Opened 2005)

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)

Broken Arrow Branch

3101 W Kenosha

Tulsa, Oklahoma

(Opened 2005)

Jonesboro Branch

625 S.W. Drive

Jonesboro, Arkansas

(Opened 1976)

Lake City Branch

100 Cobean Blvd

Lake City, Arkansas

(Opened 1998)

Pocahontas Wal-Mart Branch

1415 Hwy 67 South

Pocahontas, Arkansas

(Opened 1998)

Tuckerman Branch

106 E. Main Street

Tuckerman, Arkansas

(Opened 2001)

Imboden Branch

201 E 3rdStreet

Imboden, Arkansas

(Opened 2002)

Jonesboro Branch

3513 E Johnson Ave.

Jonesboro, Arkansas

(Opened 2005)



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

The Company currently is not involved in
any material 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 2006 to a vote of security holders.



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PART II



|ITEM 5 | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
|------ | --------------------------------------------------------------------------------------------------------------

Trading in Common Stock and Related Matters

The Companys
common stock is traded on the NASDAQ National Market System using the symbol PFSL.

The following table shows the quarterly range of bid prices
for the Companys common stock during fiscal 2006 and 2005. This information has been obtained from monthly statistical stock summaries provided by the NASDAQ Stock Market. As of December 13, 2006, there were 4,641,717 shares of common
stock issued and outstanding and 632 stockholders of record.



|                   |  |         |       |        |   |      
|------------------ |  | ------- | ----- | ------ | - | -----
|Quarter Ended      |  | HighBid |       | LowBid
|December 31, 2005  |  | $       | 13.00 |        | $ | 11.90
|March 31, 2006     |  | $       | 13.36 |        | $ | 12.53
|June 30, 2006      |  | $       | 14.19 |        | $ | 12.00
|September 30, 2006 |  | $       | 17.53 |        | $ | 12.05



|                   |  |         |       |        |   |      
|------------------ |  | ------- | ----- | ------ | - | -----
|Quarter Ended      |  | HighBid |       | LowBid
|December 31, 2004  |  | $       | 16.50 |        | $ | 14.75
|March 31, 2005     |  | $       | 16.25 |        | $ | 15.00
|June 30, 2005      |  | $       | 16.00 |        | $ | 13.80
|September 30, 2005 |  | $       | 15.00 |        | $ | 12.40

Cash Dividends Declared in Fiscal 2006:



|                   |  |                 |  |                   |     
|------------------ |  | --------------- |  | ----------------- | ----
|Record Date        |  | Payment Date    |  | DividendPer Share
|December 15, 2005  |  | January 3, 2006 |  | $                 | 0.08
|March 15, 2006     |  | April 3, 2006   |  | $                 | 0.08
|June 15, 2006      |  | July 3, 2006    |  | $                 | 0.08
|September 15, 2006 |  | October 4, 2006 |  | $                 | 0.08

Cash Dividends Declared in Fiscal 2005:



|                   |  |                 |  |                   |     
|------------------ |  | --------------- |  | ----------------- | ----
|Record Date        |  | Payment Date    |  | DividendPer Share
|December 15, 2004  |  | January 3, 2005 |  | $                 | 0.08
|March 15, 2005     |  | April 4, 2005   |  | $                 | 0.08
|June 15, 2005      |  | July 4, 2005    |  | $                 | 0.08
|September 15, 2005 |  | October 4, 2005 |  | $                 | 0.08

The Companys Board of Directors intends to review the payment of dividends quarterly and plans to continue
to maintain a regular quarterly dividend in the future, subject to financial condition, results of operations, tax considerations, industry standards, economic conditions, regulatory restrictions that affect the payment of dividends by subsidiaries
to the Company and other relevant factors.

The Company is subject to requirements of Delaware law that generally limits dividends to an amount equal to
the difference between the amount by which total assets exceed total liabilities and the amount equal to the aggregate par value of the outstanding shares of capital stock. If there is no difference between these amounts, dividends are limited to
net income for the current and/or immediately preceding year. As of September 30, 2006 and 2005, the Company was in compliance with these requirements.

During the quarter ended September 30, 2006 no shares were purchased by or on behalf of the Company. The Company currently has no repurchase plans or programs outstanding.



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

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

Selected Financial Condition Data



|                                       |  |                 |         |      |   |         |  |      |         |      |   |         |  |   |        
|-------------------------------------- |  | --------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                       |  | At September 30
|                                       |  | 2006            |         | 2005 |   | 2004    |  | 2003 |         | 2002
|                                       |  | (in Thousands) 
|Total assets                           |  | $               | 738,454 |      | $ | 741,264 |  | $    | 719,908 |      | $ | 763,488 |  | $ | 617,016
|Cash and cash equivalents              |  |                 | 23,825  |      |   | 23,411  |  |      | 35,218  |      |   | 22,020  |  |   | 34,307 
|Cash surrender value of life insurance |  |                 | 8,392   |      |   | 8,019   |  |      | 7,684   |      |   | 7,341   |  |   | 6,883  
|Investment securities                  |  |                 | 226,681 |      |   | 229,412 |  |      | 246,834 |      |   | 298,973 |  |   | 125,465
|Loans receivable                       |  |                 | 435,012 |      |   | 429,596 |  |      | 383,810 |      |   | 389,002 |  |   | 408,081
|Federal Home Loan Bank Stock           |  |                 | 6,572   |      |   | 7,962   |  |      | 7,926   |      |   | 5,584   |  |   | 2,126  
|Deposits                               |  |                 | 557,788 |      |   | 514,044 |  |      | 491,079 |      |   | 586,092 |  |   | 520,032
|FHLB advances                          |  |                 | 104,398 |      |   | 148,645 |  |      | 153,897 |      |   | 100,694 |  |   | 22,137 
|Stockholders equity                   |  |                 | 52,956  |      |   | 52,368  |  |      | 52,501  |      |   | 52,997  |  |   | 47,493 

Summary of Operations



|                                                     |  |                          |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|---------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                     |  | Years Ended September 30
|                                                     |  | 2006                     |        |   | 2005 |   | 2004   |  | 2003 |        | 2002
|                                                     |  | (in Thousands)          
|Interest income                                      |  | $                        | 39,182 |   |      | $ | 35,632 |  | $    | 36,080 |      | $ | 37,044 |  | $ | 34,107
|Interest expense                                     |  |                          | 24,131 |   |      |   | 18,942 |  |      | 16,658 |      |   | 19,241 |  |   | 17,200
|                                                     |  |                          |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|Net interest income before provision for loan losses |  |                          | 15,051 |   |      |   | 16,690 |  |      | 19,422 |      |   | 17,803 |  |   | 16,907
|Provision for loan losses                            |  |                          | 845    |   |      |   | 525    |  |      | 3,900  |      |   | 2,595  |  |   | 900   
|                                                     |  |                          |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|Net interest income after provision for loan losses  |  |                          | 14,206 |   |      |   | 16,165 |  |      | 15,522 |      |   | 15,208 |  |   | 16,007
|Noninterest income                                   |  |                          | 5,022  |   |      |   | 5,676  |  |      | 5,672  |      |   | 10,552 |  |   | 5,196 
|Noninterest expense:                                 |  |                          |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|Compensation and benefits                            |  |                          | 9,350  |   |      |   | 9,342  |  |      | 9,540  |      |   | 10,444 |  |   | 8,201 
|Occupancy and equipment                              |  |                          | 2,942  |   |      |   | 2,780  |  |      | 2,723  |      |   | 2,654  |  |   | 2,419 
|Other                                                |  |                          | 4,812  |   |      |   | 5,383  |  |      | 4,011  |      |   | 4,981  |  |   | 4,160 
|                                                     |  |                          |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|Total noninterest expense                            |  |                          | 17,104 |   |      |   | 17,505 |  |      | 16,274 |      |   | 18,079 |  |   | 14,780
|                                                     |  |                          |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|Income before income taxes                           |  |                          | 2,124  |   |      |   | 4,336  |  |      | 4,920  |      |   | 7,681  |  |   | 6,423 
|Income tax expense (benefit)                         |  |                          | (90    | ) |      |   | 1,097  |  |      | 1,463  |      |   | 2,387  |  |   | 2,188 
|                                                     |  |                          |        |   |      |   |        |  |      |        |      |   |        |  |   |       
|Net income                                           |  | $                        | 2,214  |   |      | $ | 3,239  |  | $    | 3,457  |      | $ | 5,294  |  | $ | 4,235 
|                                                     |  |                          |        |   |      |   |        |  |      |        |      |   |        |  |   |       



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Key Financial Ratios and Other Data (1):



|                                                                           |  |                                       |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |        |  
|-------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ------ | -
|                                                                           |  | At or for the Year Ended September 30 |       
|                                                                           |  | 2006                                  |        |   | 2005 |   |       | 2004 |  |   | 2003  |   |  | 2002 |      
|Performance Ratios:                                                        |  |                                       |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |        |  
|Return on average equity                                                   |  |                                       | 4.24   | % |      |   | 6.16  | %    |  |   | 6.63  | % |  |      | 10.72 | % |  |   | 9.15   | %
|Return on average assets                                                   |  |                                       | 0.30   |   |      |   | 0.44  |      |  |   | 0.47  |   |  |      | 0.77  |   |  |   | 0.80   |  
|Interest rate spread (2)                                                   |  |                                       | 2.28   |   |      |   | 2.64  |      |  |   | 2.97  |   |  |      | 2.98  |   |  |   | 3.59   |  
|Net interest margin (2)                                                    |  |                                       | 2.23   |   |      |   | 2.55  |      |  |   | 2.93  |   |  |      | 2.91  |   |  |   | 3.56   |  
|Noninterest expense to average assets                                      |  |                                       | 2.31   |   |      |   | 2.38  |      |  |   | 2.22  |   |  |      | 2.64  |   |  |   | 2.79   |  
|Net interest income after provision for loan losses to noninterest expense |  |                                       | 83.05  |   |      |   | 92.34 |      |  |   | 95.38 |   |  |      | 84.12 |   |  |   | 107.56 |  
|Efficiency (5)                                                             |  |                                       | 88.96  |   |      |   | 80.15 |      |  |   | 76.79 |   |  |      | 70.18 |   |  |   | 69.86  |  
|Asset Quality Ratios:                                                      |  |                                       |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |        |  
|Average interest-earning assets to average interest-bearing liabilities    |  |                                       | 98.72  |   |      |   | 96.80 |      |  |   | 98.24 |   |  |      | 97.74 |   |  |   | 99.27  |  
|Nonperforming loans to net loans (3) (4)                                   |  |                                       | 0.47   |   |      |   | 0.92  |      |  |   | 1.22  |   |  |      | 1.44  |   |  |   | 0.78   |  
|Nonperforming assets to total assets (3) (4)                               |  |                                       | 0.29   |   |      |   | 0.58  |      |  |   | 0.74  |   |  |      | 0.85  |   |  |   | 0.80   |  
|Allowance for loan losses to nonperforming loans (3) (4)                   |  |                                       | 145.41 |   |      |   | 81.53 |      |  |   | 80.69 |   |  |      | 72.51 |   |  |   | 100.69 |  
|Allowance for loan losses to nonperforming assets (3) (4)                  |  |                                       | 141.09 |   |      |   | 74.89 |      |  |   | 71.24 |   |  |      | 63.44 |   |  |   | 65.54  |  
|Allowance for loan losses to total loans (3)                               |  |                                       | 0.67   |   |      |   | 0.73  |      |  |   | 0.96  |   |  |      | 1.03  |   |  |   | 0.77   |  
|Capital, Equity and Dividend Ratios:                                       |  |                                       |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |        |  
|Tangible capital (3) (9)                                                   |  |                                       | 7.51   |   |      |   | 6.80  |      |  |   | 6.88  |   |  |      | 6.40  |   |  |   | 6.40   |  
|Core capital (3) (9)                                                       |  |                                       | 7.51   |   |      |   | 6.80  |      |  |   | 6.88  |   |  |      | 6.40  |   |  |   | 6.40   |  
|Risk-based capital (3) (9)                                                 |  |                                       | 12.39  |   |      |   | 11.50 |      |  |   | 12.59 |   |  |      | 11.85 |   |  |   | 10.74  |  
|Average equity to average assets ratio                                     |  |                                       | 7.06   |   |      |   | 7.15  |      |  |   | 7.11  |   |  |      | 7.20  |   |  |   | 8.66   |  
|Dividend payout ratio                                                      |  |                                       | 67.10  |   |      |   | 44.41 |      |  |   | 41.74 |   |  |      | 26.43 |   |  |   | 29.95  |  
|Per Share Data:                                                            |  |                                       |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |        |  
|Dividends per share                                                        |  | $                                     | 0.32   |   |      | $ | 0.32  |      |  | $ | 0.32  |   |  | $    | 0.32  |   |  | $ | 0.29   |  
|Book value per share (6)                                                   |  | $                                     | 11.41  |   |      | $ | 11.28 |      |  | $ | 11.31 |   |  | $    | 11.65 |   |  | $ | 10.85  |  
|Basic earnings per share (7)                                               |  | $                                     | 0.49   |   |      | $ | 0.72  |      |  | $ | 0.77  |   |  | $    | 1.22  |   |  | $ | 0.96   |  
|Diluted earnings per share (8)                                             |  | $                                     | 0.48   |   |      | $ | 0.71  |      |  | $ | 0.75  |   |  | $    | 1.20  |   |  | $ | 0.96   |  
|Number of full service offices                                             |  |                                       | 21     |   |      |   | 21    |      |  |   | 18    |   |  |      | 20    |   |  |   | 23     |  

---

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



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



|(3) | End of period ratio.
|--- | --------------------



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



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



|(6) | This calculation is based on 4,641,717, 4,641,717, 4,641,717, 4,549,791, and 4,376,295 shares outstanding at September 30, 2006, 2005, 2004, 2003, and 2002, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | This calculation is based on weighted average shares outstanding of 4,508,501, 4,492,462, 4,470,913, 4,345,113, and 4,400,027 for the fiscal years ended September 30, 2006,
2005, 2004, 2003 and 2002, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | This calculation is based on weighted average shares outstanding of 4,577,265, 4,571,234, 4,597,097, 4,414,843, and 4,428,924 for the fiscal years ended September 30, 2006,
2005, 2004, 2003 and 2002, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | This calculation is the Bank only ratio as reported to the Office of Thrift Supervision
|--- | ---------------------------------------------------------------------------------------



24



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##### Table of Contents

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

Forward- Looking Statements

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

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

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

The Bank is a community-oriented federally chartered savings and loan association regulated by the Office of Thrift
Supervision (OTS). The Bank has a total of 21 locations: 20 locations are concentrated in the Northeast Arkansas counties of Craighead, Clay, Greene, Jackson, Lawrence, Poinsett, Randolph and Sharp, and the 21stlocation is in Tulsa County Oklahoma. Southern Mortgage Corporation, a mortgage company located in Tulsa, Oklahoma, is a wholly owned subsidiary of
the Bank.

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

During
2001, 2002 and 2003, the Company acquired four financial institutions which have added significantly to growth. During 2004, the Company turned its attention to integrating and streamlining operations, cutting costs and organic growth. During 2005,
the Company purchased a building in Broken Arrow, Oklahoma which allowed us to open a full service branch to better serve our customers in this area. We also constructed two new branch locations in northeast Arkansas (one in Jonesboro and the other
in Paragould). During 2006, the Company again focused its attention to organic growth.

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

2006 Highlights - Net income for
the year ended September 30, 2006 was $2.2 million, compared to $3.2 million for the year ended September 30, 2005. Basic earnings per share was $0.49 and diluted earnings per share was $0.48 for the year ended September 30, 2006
compared to basic earnings per share of $0.72 and diluted earnings per share of $0.71 for the year ended September 30, 2005.

The decrease in net
income for the year ended September 30, 2006 was primarily due to the decrease in net interest income, partially offset by a decrease in income tax expense for the twelve months ended September 30, 2006 compared to the twelve months ended
September 30, 2005. Net interest income before provision for loan loss for the twelve months ended September 30, 2006 decreased 9.8% to $15.1 million from $16.7 million for the twelve months ended September 30, 2005. The Federal
Reserve raised interest rates 150 basis points during the twelve month period ended September 30, 2006; the period of increasing interest rates have lowered our net interest rate spread by 36 basis points to 2.28% for the year ended
September 30, 2006 from 2.64% for the year ended September 30, 2005. The yield on average interest-earning assets increased 38 basis points and the cost on average interest-bearing liabilities increased 74 basis points for the twelve
months ended September 30, 2006 when compared to the rates for the same period last year, resulting in the decreased interest rate spread and net interest income for the twelve months.

The Companys effective tax rate for the twelve months ended September 30, 2006 was (4.3)% compared to 25.3% for the year ended September 30, 2005. The
decrease in the effective tax rate was due to the increased investment in non-taxable securities, most of which occurred during the last quarter of the year ended September 30, 2005 and the first quarter of fiscal 2006.

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



25



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##### Table of Contents

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

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

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

Off-Balance Sheet
Arrangements and Contractual Obligations

The Company, in the normal course of business, makes commitments to buy or sell assets or to incur or fund
liabilities. Commitments include, but are not limited, to the origination, purchase, or sale of loans, the purchase of investment securities, fulfillment of commitments under letters-of-credit, extensions of credit on home equity lines of credit and
construction loans, and the commitment to fund withdrawals of savings accounts at maturity. A discussion of significant commitments under which the Company may be held contingently liable, including guarantee arrangements, is included in Note 19
 Off-Balance Sheet Arrangements and Commitments to the Consolidated Financial Statements.

The Company may also have liabilities under
certain contractual agreements contingent upon occurrence of certain events. The following table presents, as of September 30, 2006, the future payments on our significant contractual obligations.



|                                       |  |                                       |         |                  |   |           |  |           |        |               |   |        |  |   |      
|-------------------------------------- |  | ------------------------------------- | ------- | ---------------- | - | --------- |  | --------- | ------ | ------------- | - | ------ |  | - | -----
|                                       |  | Payments Due by Period (in thousands)
|Contractual Obligations                |  | Total                                 |         | Less than 1 year |   | 1-3 years |  | 3-5 years |        | After 5 years
|Loan rate lock agreements              |  | $                                     | 3,696   |                  | $ | 3,696     |  | $         |       |               | $ |       |  | $ |     
|Operating lease obligations            |  |                                       | 373     |                  |   | 126       |  |           | 187    |               |   | 60     |  |   |     
|Certificates of deposit maturities (1) |  |                                       | 341,183 |                  |   | 271,304   |  |           | 57,350 |               |   | 12,529 |  |   |     
|FHLB advances maturities               |  |                                       | 104,398 |                  |   | 75,784    |  |           | 15,247 |               |   | 11,136 |  |   | 2,231
|                                       |  |                                       |         |                  |   |           |  |           |        |               |   |        |  |   |      
|Total contractual obligations          |  | $                                     | 449,650 |                  | $ | 350,910   |  | $         | 72,784 |               | $ | 23,725 |  | $ | 2,231
|                                       |  |                                       |         |                  |   |           |  |           |        |               |   |        |  |   |      



|(1) | Net of $131 thousand in unamortized discounts
|--- | ---------------------------------------------



26



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##### Table of Contents

Balance Sheet Analysis and Comparison of Results of Operations for the Years Ended September 30, 2006 and 2005

The following table shows the variance in dollars and percent change between the Consolidated Statements of Financial Condition at
September 30, 2006 and September 30, 2005:



|                                               |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|---------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -------- |  | - | ------- | - |  | ------- | -
|                                               |  | September 30,          |         |   |      |   |         |          | 
|                                               |  | 2006                   |         |   | 2005 |   |         | Variance |  |   | %Change |  
|                                               |  | (Amounts in Thousands) |         |   |      |   |         |          | 
|ASSETS                                         |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|Cash                                           |  | $                      | 23,825  |   |      | $ | 23,411  |          |  | $ | 414     |   |  | 1.77    | %
|Cash surrender value of life insurance         |  |                        | 8,392   |   |      |   | 8,019   |          |  |   | 373     |   |  | 4.65    | %
|Securities held-to-maturity, at amortized cost |  |                        | 133,120 |   |      |   | 129,952 |          |  |   | 3,168   |   |  | 2.44    | %
|Securities available-for-sale, at fair value   |  |                        | 93,561  |   |      |   | 99,460  |          |  |   | (5,899  | ) |  | -5.93   | %
|Trading securities, at fair value              |  |                        |        |   |      |   | 3,126   |          |  |   | (3,126  | ) |  | -100.00 | %
|Loans receivable, net                          |  |                        | 431,768 |   |      |   | 426,538 |          |  |   | 5,230   |   |  | 1.23    | %
|Loans receivable held for sale                 |  |                        | 3,244   |   |      |   | 3,058   |          |  |   | 186     |   |  | 6.08    | %
|Accrued interest receivable                    |  |                        | 5,038   |   |      |   | 4,488   |          |  |   | 550     |   |  | 12.25   | %
|Premises and equipment, net                    |  |                        | 15,876  |   |      |   | 16,717  |          |  |   | (841    | ) |  | -5.03   | %
|Federal Home Loan Bank Stock, at cost          |  |                        | 6,572   |   |      |   | 7,962   |          |  |   | (1,390  | ) |  | -17.46  | %
|Goodwill                                       |  |                        | 8,848   |   |      |   | 8,848   |          |  |   |        |   |  | 0.00    | %
|Core deposit premiums, net                     |  |                        | 4,350   |   |      |   | 5,323   |          |  |   | (973    | ) |  | -18.28  | %
|Other assets                                   |  |                        | 3,860   |   |      |   | 4,362   |          |  |   | (502    | ) |  | -11.51  | %
|                                               |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|TOTAL ASSETS                                   |  | $                      | 738,454 |   |      | $ | 741,264 |          |  | $ | (2,810  | ) |  | -0.38   | %
|                                               |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|LIABILITIES:                                   |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|Deposits                                       |  | $                      | 557,788 |   |      | $ | 514,044 |          |  | $ | 43,744  |   |  | 8.51    | %
|Federal Home Loan Bank advances                |  |                        | 104,398 |   |      |   | 148,645 |          |  |   | (44,247 | ) |  | -29.77  | %
|Deferred compensation                          |  |                        | 1,789   |   |      |   | 2,177   |          |  |   | (388    | ) |  | -17.82  | %
|Accrued interest payable                       |  |                        | 1,244   |   |      |   | 1,290   |          |  |   | (46     | ) |  | -3.57   | %
|Accrued expenses and other liabilties          |  |                        | 3,296   |   |      |   | 5,777   |          |  |   | (2,481  | ) |  | -42.95  | %
|Trust preferred securities                     |  |                        | 16,983  |   |      |   | 16,963  |          |  |   | 20      |   |  | 0.12    | %
|                                               |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|Total liabilities                              |  | $                      | 685,498 |   |      | $ | 688,896 |          |  | $ | (3,398  | ) |  | -0.49   | %
|STOCKHOLDERS EQUITY:                          |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|Common stock                                   |  | $                      | 76      |   |      | $ | 76      |          |  | $ |        |   |  | 0.00    | %
|Additional paid-in capital                     |  |                        | 57,135  |   |      |   | 57,275  |          |  |   | (140    | ) |  | -0.24   | %
|Unearned ESOP Shares                           |  |                        | (1,799  | ) |      |   | (2,077  | )        |  |   | 278     |   |  | -13.38  | %
|Accumulated other comprehensive loss           |  |                        | (2,837  | ) |      |   | (2,517  | )        |  |   | (320    | ) |  | 12.71   | %
|Retained earnings                              |  |                        | 24,784  |   |      |   | 24,014  |          |  |   | 770     |   |  | 3.21    | %
|                                               |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|                                               |  |                        | 77,359  |   |      |   | 76,771  |          |  |   | 588     |   |  | 0.77    | %
|                                               |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|Less treasury stock, at cost                   |  |                        | (24,403 | ) |      |   | (24,403 | )        |  |   |        |   |  | 0.00    | %
|Total stockholders equity                     |  |                        | 52,956  |   |      |   | 52,368  |          |  |   | 588     |   |  | 1.12    | %
|                                               |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY     |  | $                      | 738,454 |   |      | $ | 741,264 |          |  | $ | (2,810  | ) |  | -0.38   | %
|                                               |  |                        |         |   |      |   |         |          |  |   |         |   |  |         |  



27



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##### Table of Contents

Investment Activities -The Companys investment portfolio, including FHLB stock, and trading
securities, consists of mortgage-backed securities, obligations of the United States Government and agencies thereof, municipal bonds, corporate bonds, interest-earning deposits in other institutions and equity investments. Over 65% of the
Companys investment portfolio is held in mortgage-backed securities; these securities are backed by pools of mortgages that can be composed of either fixed-rate mortgages or ARM loans. We invest in mortgage-backed securities to supplement
local single-family loan originations as well as to reduce interest rate risk exposure, because mortgage-backed securities are more liquid than mortgage loans. In the current, ongoing, low interest rate environment, mortgages with higher interest
rates are continuing to prepay resulting in large monthly principal payments on the Companys mortgage-backed securities. Investment balances have decreased $2.7 million during the year ended September 30, 2006 due primarily to $37.0 million in
principal paydowns and maturities and the sale and call of $3.4 million in securities, which was partly offset by $36.9 million in securities purchased. As interest rates have begun to rise, and higher-yielding products have become available, the
Companys relatively lower-yielding investment portfolio has declined in market value, resulting in accumulated other comprehensive loss of $2.8 million at September 30, 2006 compared to a comprehensive loss of $2.5 million at September 30,
2005. Accumulated other comprehensive loss is reported in the equity section of our Consolidated Financial Statements and is considered a temporary impairment due to interest rate changes; the Company has the intent and ability to hold its
investments until the fair market value of the portfolio recovers.

Loans receivable, net -The Companys net loan portfolio including
loans held for sale, consists mainly of first mortgage loans collateralized by single-family residential real estate, multifamily residential real estate, commercial real estate and agricultural real estate located in the Companys primary
market area or in counties contiguous with the Companys market area.

To reduce interest rate risk exposure, and satisfy consumer demand for
fixed-rate mortgage loans during the period of low interest rates, the Company has been focusing more on originating fixed-rate loans to sell individually into the secondary market. As interest rates on loans have increased, the Company has
experienced a reduction in the demand for fixed-rate mortgages during the year ended September 30, 2006, compared to the year ended September 30, 2005. During the year ended September 30, 2006, the Company recognized a $0.8 million
gain on the sale of $49.2 million of loans held for sale, compared to a $1.1 million gain on the sale of $54.5 million of loans held for sale during the year ended September 30, 2005.

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

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

A provision of $0.8 million was made during the year ended
September 30, 2006. The Companys allowance for loan losses totaled $3.0 million, or 0.67% of total loans at September 30, 2006 compared to $3.2 million, or 0.73% of total loans, at September 30, 2005, a decrease of $0.4 million.
Charge offs, net of recoveries totaled $1.1 million or 0.24% of total loans, for the year ended September 30, 2006. Total nonperforming loans decreased to $2.1 million at September 30, 2006 from $3.9 million at September 30, 2005, a
decrease of $1.8 million. Based on presently available information, management believes that the allowance for loan losses at September 30, 2006 was appropriate. Changing economic and other conditions, as well as increased emphasis on
commercial loan origination, may require future adjustments and increases to the allowance for loan losses.

During the last six 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 $2.1 million in nonperforming loans as
of September 30, 2006, $0.5 million, or 23.8% were loans acquired as part of the bank acquisitions. Nonperforming commercial loans have increased $0.2 million from portfolios acquired in bank acquisitions. We believe that the increase in
nonperforming commercial loans is a result of a lower quality of underwriting and collection efforts at the acquired institutions prior to the Companys acquisition of the institutions compared to the Companys underwriting and collection
efforts. At the acquisition dates, approximately $2.0 million of allowance was transferred. Since the acquisition dates, approximately $6.0 million in charge offs have been recorded relative to 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 less than 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 $1.8 million or 46.2% to $2.1 million at September 30, 2006 from $3.9 million at September 30, 2005. The balance of interest income not recognized by the Company on the non-accrual loans was $0.2 million at
September 30, 2006 compared to $0.4 million at September 30, 2005. There was no interest income recognized on non-accrual loans during the periods.

Deposits and FHLB Advances - Deposits are a significant source of the Companys funds for lending and other investment purposes. In addition to deposits, the Company 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 to help manage interest
rate risk and for general business purposes.



28



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##### Table of Contents

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



|                           |  |                        |         |      |   |         |  |   |         |   |  |        |  
|-------------------------- |  | ---------------------- | ------- | ---- | - | ------- |  | - | ------- | - |  | ------ | -
|                           |  | At September 30        |         |      |   |         |  |  
|                           |  | 2006                   |         | 2005 |   | Change  |  |   | %Change |  
|                           |  | (Amounts in Thousands) |         |      |   |         |  |  
|Checking Accounts          |  | $                      | 181,900 |      | $ | 200,411 |  | $ | (18,511 | ) |  | -9.24  | %
|Savings Accounts           |  |                        | 34,705  |      |   | 45,847  |  |   | (11,142 | ) |  | -24.30 | %
|Certificate Accounts (net) |  |                        | 341,183 |      |   | 267,786 |  |   | 73,397  |   |  | 27.41  | %
|                           |  |                        |         |      |   |         |  |   |         |   |  |        |  
|                           |  | $                      | 557,788 |      | $ | 514,044 |  | $ | 43,744  |   |  | 8.51   | %
|                           |  |                        |         |      |   |         |  |   |         |   |  |        |  

Total deposits increased $43.7 million or 8.51% during the year ended September 30, 2006. The increase was
mainly due to the Company refocusing its efforts on attracting certificate accounts by offering more competitive interest rates and terms on those accounts. The cost on average certificate accounts for the year ended September 30, 2006 was
4.14%, up 114 basis points from 3.00% for the year ended September 30, 2005.

FHLB advances are collateralized by the Banks stock in the FHLB,
investment securities and a blanket lien on the Banks mortgage portfolio. Such advances are made pursuant to different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will
advance to member institutions, including the Bank, for purposes other than meeting withdrawals, fluctuates from time to time in accordance with the policies of the FHLB. The maximum amount of FHLB advances to a member institution generally is
reduced by borrowings from any other source. The Company also relies upon FHLB advances as a source to fund assets. At September 30, 2006, FHLB advances totaled $104.4 million, with an average cost of 3.97% compared to $148.6 million, with an
average cost of 3.41% at September 30, 2005. Based on the current level of advances, asset size and available collateral under the FHLB programs, the Bank estimates that an additional $96.6 million of funding was available from FHLB advances at
September 30, 2006.

Accrued expenses and other liabilities - Accrued expenses and other liabilities includes items such as the
Companys accrual for income taxes, accounts payable, escrowed taxes and insurance and other miscellaneous obligations that may occur during the normal course of business. Accrued expenses and other liabilities decreased $2.5 million or 35.76%
during the year ended September 30, 2006, to $4.5 million from $7.0 million at September 30, 2005. The decrease was mainly due to a payable associated with the purchase of $2.4 million in investment securities that were committed prior to
fiscal year end 2005 but had a settlement date in the 2006 fiscal year.

Stockholders equity -The Companys book
value per share was $11.41 at September 30, 2006 compared to $11.28 at September 30, 2005. The Companys average capital ratio, or average capital to average assets, was 7.06% for the year ended September 30, 2006,
compared to 7.15% for the year ended September 30, 2005. Stockholders equity increased $0.6 million or 1.12% during the year ended September 30, 2006; net income for fiscal 2006 was partially offset by dividends to stockholders and
an increase in accumulated other comprehensive loss on securities.



29



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##### Table of Contents

The following table shows the variance in dollars and percent change between the Consolidated Statements of Income for
the years ended September 30, 2006 and 2005:



|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|--------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | -------- |  | - | ------- | - |  | ------- | -
|                                                    |  | September 30,          |        |   |      |   |          | 
|                                                    |  | 2006                   |        |   | 2005 |   | Variance |  |   | %Change |  
|                                                    |  | (Amounts in Thousands) |        |   |      |  
|INTEREST INCOME:                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|Loans receivable                                    |  | $                      | 28,772 |   |      | $ | 23,805   |  | $ | 4,967   |   |  | 20.87   | %
|Investment securities                               |  |                        | 10,410 |   |      |   | 11,827   |  |   | (1,417  | ) |  | -11.98  | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|Total interest income                               |  |                        | 39,182 |   |      |   | 35,632   |  |   | 3,550   |   |  | 9.96    | %
|INTEREST EXPENSE:                                   |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|Deposits                                            |  |                        | 17,105 |   |      |   | 12,232   |  |   | 4,873   |   |  | 39.84   | %
|Borrowed funds                                      |  |                        | 5,416  |   |      |   | 5,269    |  |   | 147     |   |  | 2.79    | %
|Trust preferred securities                          |  |                        | 1,610  |   |      |   | 1,441    |  |   | 169     |   |  | 11.73   | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|Total interest expense                              |  |                        | 24,131 |   |      |   | 18,942   |  |   | 5,189   |   |  | 27.39   | %
|NET INTEREST INCOME                                 |  |                        | 15,051 |   |      |   | 16,690   |  |   | (1,639  | ) |  | -9.82   | %
|PROVISION FOR LOAN LOSSES                           |  |                        | 845    |   |      |   | 525      |  |   | 320     |   |  | 60.95   | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                        | 14,206 |   |      |   | 16,165   |  |   | (1,959  | ) |  | -12.12  | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|NON-INTEREST INCOME:                                |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|Dividends                                           |  |                        | 387    |   |      |   | 319      |  |   | 68      |   |  | 21.32   | %
|Fees and service charges                            |  |                        | 3,084  |   |      |   | 3,187    |  |   | (103    | ) |  | -3.23   | %
|Gain on sale of loans                               |  |                        | 777    |   |      |   | 1,056    |  |   | (279    | ) |  | -26.42  | %
|Gain on sale of securities, net                     |  |                        | 270    |   |      |   | 566      |  |   | (296    | ) |  | -52.30  | %
|Trading gains, net                                  |  |                        | 1      |   |      |   | 241      |  |   | (240    | ) |  | -99.59  | %
|Gain on sale of loan servicing                      |  |                        | 159    |   |      |   |         |  |   | 159     |   |  | 100.00  | %
|Other                                               |  |                        | 344    |   |      |   | 307      |  |   | 37      |   |  | 12.05   | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|Total non-interest income                           |  |                        | 5,022  |   |      |   | 5,676    |  |   | (654    | ) |  | -11.52  | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|NON-INTEREST EXPENSES:                              |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|Compensation and benefits                           |  |                        | 9,350  |   |      |   | 9,342    |  |   | 8       |   |  | 0.09    | %
|Occupancy and equipment                             |  |                        | 2,942  |   |      |   | 2,780    |  |   | 162     |   |  | 5.83    | %
|Insurance premiums                                  |  |                        | 406    |   |      |   | 374      |  |   | 32      |   |  | 8.56    | %
|Professional fees                                   |  |                        | 1,479  |   |      |   | 1,008    |  |   | 471     |   |  | 46.73   | %
|Data processing                                     |  |                        | 765    |   |      |   | 669      |  |   | 96      |   |  | 14.35   | %
|Advertising and donations                           |  |                        | 478    |   |      |   | 1,194    |  |   | (716    | ) |  | -59.97  | %
|Office supplies                                     |  |                        | 291    |   |      |   | 373      |  |   | (82     | ) |  | -21.98  | %
|REO and other repossessed assets                    |  |                        | 90     |   |      |   | 211      |  |   | (121    | ) |  | -57.35  | %
|Other                                               |  |                        | 1,303  |   |      |   | 1,554    |  |   | (251    | ) |  | -16.15  | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|Total non-interest expense                          |  |                        | 17,104 |   |      |   | 17,505   |  |   | (401    | ) |  | -2.29   | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|INCOME BEFORE INCOME TAXES                          |  |                        | 2,124  |   |      |   | 4,336    |  |   | (2,212  | ) |  | -51.01  | %
|INCOME TAXES                                        |  |                        | (90    | ) |      |   | 1,097    |  |   | (1,187  | ) |  | -108.20 | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  
|NET INCOME                                          |  | $                      | 2,214  |   |      | $ | 3,239    |  | $ | (1,025  | ) |  | -31.65  | %
|                                                    |  |                        |        |   |      |   |          |  |   |         |   |  |         |  



30



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##### Table of Contents

Net interest income In 2006, our net interest income decreased due to the flattening yield curve
that resulted from continued increases by the Federal Reserve in short term interest rates. However, this decrease was partially offset by positive effects of our growth in the balances of both loans and deposits at favorable interest rates.
Net interest income decreased $1.6 million for the year ended September 30, 2006 compared to the year ended September 30, 2005. The cost on average interest bearing liabilities, including deposits, increased 74 basis points while the yield
on average interest earning assets increased 38 basis points when comparing the year ended September 30, 2006 to the year ended September 30, 2005. The Companys net interest rate spread decreased to 2.28% for the year ended
September 30, 2006 compared to 2.64% for the year ended September 30, 2005. Net interest margin decreased to 2.23% for the year ended September 30, 2006 compared to 2.55% for the year ended September 30, 2005.

Non-interest income Non-interest income decreased $0.7 million or 11.52% to $5.0 million for the year ended September 30, 2006 compared to the
$5.7 million for the year ended September 30, 2005. The increase in the rate of earnings on FHLB stock and the income from the sale of servicing rights to Centennial Bank was offset by a decrease in the gain on the sale of loans, a decrease in
the gain on the sale of securities, and a decrease in the trading gains for the fiscal year ended September 30, 2006 compared to the year ended September 30, 2005.

Operating expense  Operating expense decreased $0.4 million or 2.3% to $17.1 million for the year ended September 30, 2006 compared to the $17.5 million for the year ended September 30,
2005. The Company launched a new logo and advertising campaign in the year ended September 30, 2005, which resulted in several one time charges that were not repeated in the year ended September 30, 2006. The decrease in expenses
associated with the logo and advertising for the year ended September 30, 2006, was partially offset by an increase in professional fees and in occupancy and equipment.

Income taxes  The Companys effective tax rate for the twelve months ended September 30, 2006 was (4.3)% compared to 25.3% for the year ended September 30, 2005. The decrease in the
effective tax rate and income tax benefit for the twelve months ended September 30, 2006 was due to the increased investment in non-taxable securities, most of which occurred during the last quarter of the year ended September 30, 2005 and
the first quarter of fiscal 2006.

The table below analyzes net interest income by component and in terms of changes in the volume of interest-earning
assets and interest-bearing liabilities and the changes in the related yields and rates for the year ended September 30, 2006, compared to the year ended September 30, 2005.

Rate/Volume Analysis (in thousands)



|                                   |  |                            |        |   |                         |   |        |                            |  |   |                         |        |  |   |        |   |  |             |      |   |  |   |        |   |  |   |     |   |  |   |        |  
|---------------------------------- |  | -------------------------- | ------ | - | ----------------------- | - | ------ | -------------------------- |  | - | ----------------------- | ------ |  | - | ------ | - |  | ----------- | ---- | - |  | - | ------ | - |  | - | --- | - |  | - | ------ | -
|                                   |  | 2006 vs 2005               |        |   | 2005 vs 2004            |  
|                                   |  | Increase/(Decrease) Due to |        |   | TotalIncrease(Decrease) |   |        | Increase/(Decrease) Due to |  |   | TotalIncrease(Decrease) |       
|                                   |  | Volume                     |        |   | Rate                    |   |        | Rate/Volume                |  |   |                         | Volume |  |   | Rate   |   |  | Rate/Volume |      |  
|Interest income:                   |  |                            |        |   |                         |   |        |                            |  |   |                         |        |  |   |        |   |  |             |      |   |  |   |        |   |  |   |     |   |  |   |        |  
|Loans receivable                   |  | $                          | 2,780  |   |                         | $ | 1,945  |                            |  | $ | 242                     |        |  | $ | 4,967  |   |  | $           | (450 | ) |  | $ | 272    |   |  | $ | (15 | ) |  | $ | (193   | )
|Investment securities              |  |                            | (1,121 | ) |                         |   | (328   | )                          |  |   | 32                      |        |  |   | (1,417 | ) |  |             | (50  | ) |  |   | (220   | ) |  |   | 15  |   |  |   | (255   | )
|                                   |  |                            |        |   |                         |   |        |                            |  |   |                         |        |  |   |        |   |  |             |      |   |  |   |        |   |  |   |     |   |  |   |        |  
|Total interest earning assets      |  |                            | 1,659  |   |                         |   | 1,617  |                            |  |   | 274                     |        |  |   | 3,550  |   |  |             | (500 | ) |  |   | 52     |   |  |   |    |   |  |   | (448   | )
|                                   |  |                            |        |   |                         |   |        |                            |  |   |                         |        |  |   |        |   |  |             |      |   |  |   |        |   |  |   |     |   |  |   |        |  
|Interest expense:                  |  |                            |        |   |                         |   |        |                            |  |   |                         |        |  |   |        |   |  |             |      |   |  |   |        |   |  |   |     |   |  |   |        |  
|Deposits                           |  |                            | 573    |   |                         |   | 4,092  |                            |  |   | 208                     |        |  |   | 4,873  |   |  |             | (651 | ) |  |   | 1,338  |   |  |   | (75 | ) |  |   | 612    |  
|Borrowed funds                     |  |                            | (615   | ) |                         |   | 865    |                            |  |   | (103                    | )      |  |   | 147    |   |  |             | 955  |   |  |   | 443    |   |  |   | 120 |   |  |   | 1,518  |  
|Trust Preferred                    |  |                            | 2      |   |                         |   | 168    |                            |  |   | (1                      | )      |  |   | 169    |   |  |             | 2    |   |  |   | 152    |   |  |   | 0   |   |  |   | 154    |  
|                                   |  |                            |        |   |                         |   |        |                            |  |   |                         |        |  |   |        |   |  |             |      |   |  |   |        |   |  |   |     |   |  |   |        |  
|Total interest bearing liabilities |  |                            | (40    | ) |                         |   | 5,125  |                            |  |   | 104                     |        |  |   | 5,189  |   |  |             | 306  |   |  |   | 1,933  |   |  |   | 45  |   |  |   | 2,284  |  
|                                   |  |                            |        |   |                         |   |        |                            |  |   |                         |        |  |   |        |   |  |             |      |   |  |   |        |   |  |   |     |   |  |   |        |  
|Net change in net interest income  |  | $                          | 1,699  |   |                         | $ | (3,508 | )                          |  | $ | 170                     |        |  | $ | (1,639 | ) |  | $           | (806 | ) |  | $ | (1,881 | ) |  | $ | (45 | ) |  | $ | (2,732 | )
|                                   |  |                            |        |   |                         |   |        |                            |  |   |                         |        |  |   |        |   |  |             |      |   |  |   |        |   |  |   |     |   |  |   |        |  



31



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##### Table of Contents

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

Average Balance Sheets (Dollars in thousands)



|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|-------------------------------------------------------------------------------- |  | ------------------------ | ------- | -------- | ---- | ----------------- |  | ----- | -------------- |  | -------- | ------- | ----------------- | - | ------ | -------------- | ----- | -------- |  | ----------------- | ------- |  | - | ------ |  | ----- | -
|                                                                                 |  | Years Ended September 30 |        
|                                                                                 |  | 2006                     |         |          | 2005 |                   |  | 2004  |               
|                                                                                 |  | AverageBalance           |         | Interest |      | AverageYield/Cost |  |       | AverageBalance |  | Interest |         | AverageYield/Cost |   |        | AverageBalance |       | Interest |  | AverageYield/Cost |        
|Interest-earning assets: (1)                                                     |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Loan receivable, net (2)                                                         |  | $                        | 425,924 |          | $    | 28,772            |  | 6.75  | %              |  | $        | 381,390 |                   | $ | 23,805 |                | 6.24  | %        |  | $                 | 388,679 |  | $ | 23,998 |  | 6.17  | %
|Investment securities                                                            |  |                          | 247,583 |          |      | 10,410            |  | 4.20  |                |  |          | 273,530 |                   |   | 11,827 |                | 4.32  |          |  |                   | 274,655 |  |   | 12,082 |  | 4.40  |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total interest-earning assets                                                    |  |                          | 673,507 |          |      | 39,182            |  | 5.82  | %              |  |          | 654,920 |                   |   | 35,632 |                | 5.44  | %        |  |                   | 663,334 |  |   | 36,080 |  | 5.44  | %
|Noninterest-earning cash                                                         |  |                          | 20,117  |          |      |                   |  |       |                |  |          | 33,823  |                   |   |        |                |       |          |  |                   | 25,800  |  |   |        |  |       |  
|Other noninterest-earning assets                                                 |  |                          | 45,440  |          |      |                   |  |       |                |  |          | 46,521  |                   |   |        |                |       |          |  |                   | 44,009  |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total assets                                                                     |  | $                        | 739,064 |          |      |                   |  |       |                |  | $        | 735,264 |                   |   |        |                |       |          |  | $                 | 733,143 |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Interest-bearing liabilities:                                                    |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Demand deposits                                                                  |  | $                        | 232,307 |          | $    | 4,828             |  | 2.08  | %              |  | $        | 254,156 |                   | $ | 4,692  |                | 1.85  | %        |  | $                 | 287,682 |  | $ | 4,765  |  | 1.66  | %
|Time deposits                                                                    |  |                          | 296,571 |          |      | 12,277            |  | 4.14  |                |  |          | 251,027 |                   |   | 7,540  |                | 3.00  |          |  |                   | 247,504 |  |   | 6,855  |  | 2.77  |  
|Borrowed funds (3)                                                               |  |                          | 136,383 |          |      | 5,416             |  | 3.97  |                |  |          | 154,432 |                   |   | 5,269  |                | 3.41  |          |  |                   | 123,107 |  |   | 3,751  |  | 3.05  |  
|Trust Preferred                                                                  |  |                          | 16,974  |          |      | 1,610             |  | 9.49  |                |  |          | 16,953  |                   |   | 1,441  |                | 8.50  |          |  |                   | 16,933  |  |   | 1,287  |  | 7.60  |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total interest-bearing liabilities                                               |  |                          | 682,235 |          |      | 24,131            |  | 3.54  | %              |  |          | 676,568 |                   |   | 18,942 |                | 2.80  | %        |  |                   | 675,226 |  |   | 16,658 |  | 2.47  | %
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Noninterest-bearing liabilities (4)                                              |  |                          | 4,619   |          |      |                   |  |       |                |  |          | 6,108   |                   |   |        |                |       |          |  |                   | 5,793   |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total liabilities                                                                |  |                          | 686,854 |          |      |                   |  |       |                |  |          | 682,676 |                   |   |        |                |       |          |  |                   | 681,019 |  |   |        |  |       |  
|Stockholders equity                                                             |  |                          | 52,210  |          |      |                   |  |       |                |  |          | 52,588  |                   |   |        |                |       |          |  |                   | 52,124  |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Total liabilities and stockholders equity                                       |  | $                        | 739,064 |          |      |                   |  |       |                |  | $        | 735,264 |                   |   |        |                |       |          |  | $                 | 733,143 |  |   |        |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Net interest income                                                              |  |                          |         |          | $    | 15,051            |  |       |                |  |          |         |                   | $ | 16,690 |                |       |          |  |                   |         |  | $ | 19,422 |  |       |  
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Net interest rate spread (5)                                                     |  |                          |         |          |      |                   |  | 2.28  | %              |  |          |         |                   |   |        |                | 2.64  | %        |  |                   |         |  |   |        |  | 2.97  | %
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Interest-earning assets and net interest margin (6)                              |  | $                        | 673,527 |          |      |                   |  | 2.23  | %              |  | $        | 654,920 |                   |   |        |                | 2.55  | %        |  | $                 | 663,334 |  |   |        |  | 2.93  | %
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                          |         |          |      |                   |  | 98.72 | %              |  |          |         |                   |   |        |                | 96.80 | %        |  |                   |         |  |   |        |  | 98.24 | %
|                                                                                 |  |                          |         |          |      |                   |  |       |                |  |          |         |                   |   |        |                |       |          |  |                   |         |  |   |        |  |       |  



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



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



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



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



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



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



32



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##### Table of Contents

The following table shows the variance in dollars and percent change between the Consolidated Statements of Income for
the years ended September 30, 2005 and 2004:



|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|--------------------------------------------------- |  | ---------------------- | ------ | ---- | - | -------- |  | - | ------- | - |  | ------- | -
|                                                    |  | September 30,          |        |      |   |          |  |  
|                                                    |  | 2005                   |        | 2004 |   | Variance |  |   | %Change |  
|                                                    |  | (Amounts in Thousands) |        |      |   |         
|INTEREST INCOME:                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|Loans receivable                                    |  | $                      | 23,805 |      | $ | 23,998   |  | $ | (193    | ) |  | -0.80   | %
|Investment securities                               |  |                        | 11,827 |      |   | 12,082   |  |   | (255    | ) |  | -2.11   | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|Total interest income                               |  |                        | 35,632 |      |   | 36,080   |  |   | (448    | ) |  | -1.24   | %
|INTEREST EXPENSE:                                   |  |                        |        |      |   |          |  |   |         |   |  |         |  
|Deposits                                            |  |                        | 12,232 |      |   | 11,620   |  |   | 612     |   |  | 5.27    | %
|Borrowed funds                                      |  |                        | 5,269  |      |   | 3,751    |  |   | 1,518   |   |  | 40.47   | %
|Trust preferred securities                          |  |                        | 1,441  |      |   | 1,287    |  |   | 154     |   |  | 11.97   | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|Total interest expense                              |  |                        | 18,942 |      |   | 16,658   |  |   | 2,284   |   |  | 13.71   | %
|NET INTEREST INCOME                                 |  |                        | 16,690 |      |   | 19,422   |  |   | (2,732  | ) |  | -14.07  | %
|PROVISION FOR LOAN LOSSES                           |  |                        | 525    |      |   | 3,900    |  |   | (3,375  | ) |  | -86.54  | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                        | 16,165 |      |   | 15,522   |  |   | 643     |   |  | 4.14    | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|NON-INTEREST INCOME:                                |  |                        |        |      |   |          |  |   |         |   |  |         |  
|Fees and service charges                            |  |                        | 3,187  |      |   | 3,082    |  |   | 105     |   |  | 3.41    | %
|Gain on sale of loans                               |  |                        | 1,056  |      |   | 1,239    |  |   | (183    | ) |  | -14.77  | %
|Gain on sale of securities, net                     |  |                        | 566    |      |   | 386      |  |   | 180     |   |  | 46.63   | %
|Trading gains, net                                  |  |                        | 241    |      |   | 398      |  |   | (157    | ) |  | -39.45  | %
|Gain on sale of branches                            |  |                        |       |      |   | 137      |  |   | (137    | ) |  | -100.00 | %
|Other                                               |  |                        | 626    |      |   | 430      |  |   | 196     |   |  | 45.58   | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|Total non-interest income                           |  |                        | 5,676  |      |   | 5,672    |  |   | 4       |   |  | 0.07    | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|NON-INTEREST EXPENSE:                               |  |                        |        |      |   |          |  |   |         |   |  |         |  
|Compensation and benefits                           |  |                        | 9,342  |      |   | 9,540    |  |   | (198    | ) |  | -2.08   | %
|Occupancy and equipment                             |  |                        | 2,780  |      |   | 2,723    |  |   | 57      |   |  | 2.09    | %
|Insurance premiums                                  |  |                        | 374    |      |   | 335      |  |   | 39      |   |  | 11.64   | %
|Professional fees                                   |  |                        | 1,008  |      |   | 826      |  |   | 182     |   |  | 22.03   | %
|Data processing                                     |  |                        | 669    |      |   | 675      |  |   | (6      | ) |  | -0.89   | %
|Advertising and donations                           |  |                        | 1,194  |      |   | 408      |  |   | 786     |   |  | 192.65  | %
|Office supplies                                     |  |                        | 373    |      |   | 234      |  |   | 139     |   |  | 59.40   | %
|REO and other repossessed assets                    |  |                        | 211    |      |   | 321      |  |   | (110    | ) |  | -34.27  | %
|Other                                               |  |                        | 1,554  |      |   | 1,212    |  |   | 342     |   |  | 28.22   | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|Total non-interest expense                          |  |                        | 17,505 |      |   | 16,274   |  |   | 1,231   |   |  | 7.56    | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|INCOME BEFORE INCOME TAXES                          |  |                        | 4,336  |      |   | 4,920    |  |   | (584    | ) |  | -11.87  | %
|INCOME TAXES                                        |  |                        | 1,097  |      |   | 1,463    |  |   | (366    | ) |  | -25.02  | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  
|NET INCOME                                          |  | $                      | 3,239  |      | $ | 3,457    |  | $ | (218    | ) |  | -6.31   | %
|                                                    |  |                        |        |      |   |          |  |   |         |   |  |         |  



33



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Net interest income In 2005, the Company launched an advertising campaign in our market areas to
increase both loans and deposits by offering more attractive products, rates and terms. Our net interest income decreased due to the flattening yield curve that resulted from continuing increases by the Federal Reserve in short term interest
rates. However, this decrease was partially offset by positive effects of our advertising campaign, which contributed to growth in the balances of both loans and deposits at favorable interest rates. Net interest income decreased $2.7 million for
the year ended September 30, 2005 compared to the year ended September 30, 2004. The cost on average interest bearing liabilities, including deposits, increased 33 basis points while the yield on average interest earning assets remained constant at
5.44% when comparing the year ended September 30, 2005 to the year ended September 30, 2004. The Companys net interest rate spread decreased to 2.64% for the year ended September 30, 2005 compared to 2.97% for the year ended September 30,
2004. Net interest margin decreased to 2.55% for the year ended September 30, 2005 compared to 2.93% for the year ended September 30, 2004.

Non-interest income Non-interest income remained constant in the year ended September 30, 2005 compared to the year ended September 30, 2004. The increased portfolio balance of loans and deposits contributed
to an increase in fees and service charges and a higher dividend was received on FHLB stock which increased other income. These increases were offset by a decrease in net trading gains and gain on sale of branches. A decrease in the origination of
loans held for sale and resulting decrease in the gain on sale of loans was offset by an increase in the gain on sale of securities for the year ended September 30, 2005 compared to the year ended September 30, 2004.

Operating expense The Company hired a professional advertising company to assist in the design and marketing of a new logo for the Bank during 2005.
The new logo and marketing campaign included several one time charges which contributed to the $1.2 million increase in operating expenses for the year ended September 30, 2005 compared to the year ended September 30, 2004. Professional
fees increased for the year ended September 30, 2005 compared to the same period last year due to increasing costs associated with new regulations.

Income taxes  During 2005 the Company increased our investment in non-taxable securities, half of which occurred during the last quarter. The increase in non-taxable securities resulted in a lower effective tax rate for
the Company compared to prior years. During the fourth quarter of the year ended September 30, 2005, the Company recorded an income tax benefit of $0.1 million.



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

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

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

Net Portfolio Value. The value of the Companys loan and investment portfolio will change as interest rates change. Rising interest rates will generally
decrease the Companys net portfolio value (NPV), while falling interest rates will generally increase the value of that portfolio. The table below sets forth, quantitatively, as of September 30, 2006, the estimate of the
projected changes in NPV in the event of a 100, 200, and 300 basis point instantaneous and permanent increase and a 100 and 200 basis point instantaneous and permanent decrease in market interest rates. Due to the current low prevailing interest
rate environment, the changes in NPV is not estimated for a decrease in interest rates of 300 basis points.



|                                                   |                     |                        |          |  |   |          |   |  |       |                                              |  |        |   |  |       |   
|-------------------------------------------------- | ------------------- | ---------------------- | -------- |  | - | -------- | - |  | ----- | -------------------------------------------- |  | ------ | - |  | ----- | --
|Change inInterest Ratesin Basis Points(Rate Shock) |                     |                        |          |  |   |          |   |  |       | NPV as a% of EstimatedMarket Value of Assets | 
|                                                   | Net Portfolio Value |                        |         
|                                                   | Amount              |                        | $ Change |  |   | % Change |   |  | Ratio |                                              |  | Change |  
|                                                   |                     | (Amounts in Thousands) |          |  |   |         
|+300                                               |                     | $                      | 49,670   |  | $ | (25,884  | ) |  | (34.0 | )%                                           |  | 6.98   | % |  | (3.13 | )%
|+200                                               |                     |                        | 58,551   |  |   | (17,003  | ) |  | (23.0 | )%                                           |  | 8.09   | % |  | (2.02 | )%
|+100                                               |                     |                        | 67,105   |  |   | (8,449   | ) |  | (11.0 | )%                                           |  | 9.13   | % |  | (0.99 | )%
|0                                                  |                     |                        | 75,554   |  |   |         |   |  | 0.0   | %                                            |  | 10.11  | % |  | 0.00  | % 
|-100                                               |                     |                        | 82,934   |  |   | 7,379    |   |  | 10.0  | %                                            |  | 10.94  | % |  | 0.83  | % 
|-200                                               |                     |                        | 87,499   |  |   | 11,945   |   |  | 16.0  | %                                            |  | 11.43  | % |  | 1.31  | % 

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

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



34



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Pocahontas Bancorp, Inc.

Jonesboro, Arkansas

We have audited the accompanying consolidated statement
of financial condition of Pocahontas Bancorp, Inc. and subsidiaries (the Company) as of September 30, 2006, and the related consolidated statements of income, stockholders equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Pocahontas
Bancorp, Inc. and subsidiaries for the years ended September 30, 2005 and 2004, were audited by other auditors whose report, dated December 22, 2005 (December 21, 2006 and May 19, 2006 as to the effects of the restatements of those financial
statements, as described in the first and second paragraphs, respectively, of Note 26 thereof), expressed an unqualified opinion on those statements.

We
conducted our audit of the 2006 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2006 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pocahontas Bancorp, Inc.
and subsidiaries as of September 30, 2006, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

LOGO

Nashville, Tennessee

November 21,
2006



35



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Pocahontas Bancorp, Inc.

Jonesboro, Arkansas

We have audited the accompanying
consolidated statement of financial condition of Pocahontas Bancorp, Inc. and subsidiaries (the Company) as of September 30, 2005, and the related consolidated statements of income, stockholders equity, and cash flows for the years
ended September 30, 2005 and 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2005, and the
results of its operations and its cash flows for the years ended September 30, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 26, the consolidated financial statements for the years ended September 30, 2005 and 2004 have been restated.

LOGO

Little Rock, Arkansas

December 22,
2005 (December 21, 2006 and May 19, 2006 as to the effects of the

restatements described in the first and second paragraphs, respectively, in Note 26)



36



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##### Table of Contents

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

POCAHONTAS
BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 30, 2006 AND 2005



|                                                                                                                                      |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                      |  | 2006 |             |   | 2005 |  
|ASSETS                                                                                                                                |  |      |             |   |      |   |             |  
|Cash and due from banks:                                                                                                              |  |      |             |   |      |   |             |  
|Interest bearing                                                                                                                      |  | $    | 17,055      |   |      | $ | 14,600      |  
|Noninterest bearing                                                                                                                   |  |      | 23,808,233  |   |      |   | 23,396,851  |  
|                                                                                                                                      |  |      |             |   |      |   |             |  
|                                                                                                                                      |  |      | 23,825,288  |   |      |   | 23,411,451  |  
|Cash surrender value of life insurance                                                                                                |  |      | 8,392,191   |   |      |   | 8,019,097   |  
|Securities held-to-maturity, at amortized cost (fair value of $130,187,272 and $127,755,514 in 2006 and 2005, respectively)           |  |      | 133,120,083 |   |      |   | 129,952,373 |  
|Securities available-for-sale, at fair value (amortized cost of $97,152,528 and $102,343,904 in 2006 and 2005, respectively)          |  |      | 93,561,067  |   |      |   | 99,460,045  |  
|Trading securities, at fair value                                                                                                     |  |      |            |   |      |   | 3,126,044   |  
|Loans receivable, net                                                                                                                 |  |      | 431,768,328 |   |      |   | 426,538,047 |  
|Loans receivable, held for sale                                                                                                       |  |      | 3,243,591   |   |      |   | 3,057,985   |  
|Accrued interest receivable                                                                                                           |  |      | 5,037,759   |   |      |   | 4,487,837   |  
|Premises and equipment, net                                                                                                           |  |      | 15,876,493  |   |      |   | 16,716,912  |  
|Federal Home Loan Bank stock, at cost                                                                                                 |  |      | 6,571,500   |   |      |   | 7,962,000   |  
|Goodwill                                                                                                                              |  |      | 8,847,572   |   |      |   | 8,847,572   |  
|Core deposit premiums, net                                                                                                            |  |      | 4,350,114   |   |      |   | 5,323,319   |  
|Other assets                                                                                                                          |  |      | 3,859,743   |   |      |   | 4,360,885   |  
|                                                                                                                                      |  |      |             |   |      |   |             |  
|TOTAL ASSETS                                                                                                                          |  | $    | 738,453,729 |   |      | $ | 741,263,567 |  
|                                                                                                                                      |  |      |             |   |      |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                  |  |      |             |   |      |   |             |  
|LIABILITIES:                                                                                                                          |  |      |             |   |      |   |             |  
|Deposits                                                                                                                              |  | $    | 557,788,431 |   |      | $ | 514,043,734 |  
|Federal Home Loan Bank advances                                                                                                       |  |      | 104,398,292 |   |      |   | 148,645,397 |  
|Deferred compensation                                                                                                                 |  |      | 1,788,721   |   |      |   | 2,176,859   |  
|Accrued interest payable                                                                                                              |  |      | 1,243,944   |   |      |   | 1,289,978   |  
|Accrued expenses and other liabilities                                                                                                |  |      | 3,294,690   |   |      |   | 5,776,662   |  
|Trust preferred securities                                                                                                            |  |      | 16,983,450  |   |      |   | 16,962,683  |  
|                                                                                                                                      |  |      |             |   |      |   |             |  
|Total liabilities                                                                                                                     |  |      | 685,497,528 |   |      |   | 688,895,313 |  
|                                                                                                                                      |  |      |             |   |      |   |             |  
|STOCKHOLDERS EQUITY:                                                                                                                 |  |      |             |   |      |   |             |  
|Common stock, $0.01 par value, 8,000,000 shares authorized; 7,602,492 shares issued and 4,641,717 shares outstanding at 2006 and
2005 |  |      | 76,024      |   |      |   | 76,024      |  
|Additional paid-in capital                                                                                                            |  |      | 57,134,937  |   |      |   | 57,275,390  |  
|Unearned ESOP shares                                                                                                                  |  |      | (1,799,459  | ) |      |   | (2,076,856  | )
|Accumulated other comprehensive loss                                                                                                  |  |      | (2,837,087  | ) |      |   | (2,517,282  | )
|Retained earnings                                                                                                                     |  |      | 24,784,330  |   |      |   | 24,013,522  |  
|                                                                                                                                      |  |      |             |   |      |   |             |  
|                                                                                                                                      |  |      | 77,358,745  |   |      |   | 76,770,798  |  
|Less treasury stock at cost, 2,960,775 shares at 2006 and 2005                                                                        |  |      | (24,402,544 | ) |      |   | (24,402,544 | )
|                                                                                                                                      |  |      |             |   |      |   |             |  
|Total stockholders equity                                                                                                            |  |      | 52,956,201  |   |      |   | 52,368,254  |  
|                                                                                                                                      |  |      |             |   |      |   |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                            |  | $    | 738,453,729 |   |      | $ | 741,263,567 |  
|                                                                                                                                      |  |      |             |   |      |   |             |  

See notes to consolidated financial statements.



37



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##### Table of Contents

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED SEPTEMBER 30, 2006, 2005, AND 2004



|                                                     |  |      |            |   |      |   |            |  |   |            |  
|---------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- |  | - | ---------- | -
|                                                     |  | 2006 |            |   | 2005 |   | 2004       | 
|INTEREST INCOME:                                     |  |      |            |   |      |   |            |  |   |            |  
|Loans receivable                                     |  | $    | 28,771,889 |   |      | $ | 23,804,611 |  | $ | 23,997,993 |  
|Securities:                                          |  |      |            |   |      |   |            |  |   |            |  
|Taxable                                              |  |      | 8,527,625  |   |      |   | 10,772,099 |  |   | 11,158,113 | *
|Nontaxable                                           |  |      | 1,882,097  |   |      |   | 1,054,706  |  |   | 924,043    | *
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|Total interest income                                |  |      | 39,181,611 |   |      |   | 35,631,416 |  |   | 36,080,149 |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|INTEREST EXPENSE:                                    |  |      |            |   |      |   |            |  |   |            |  
|Deposits                                             |  |      | 17,105,078 |   |      |   | 12,232,219 |  |   | 11,619,647 |  
|Borrowed funds                                       |  |      | 5,415,796  |   |      |   | 5,269,259  |  |   | 3,751,246  |  
|Trust preferred securities                           |  |      | 1,610,239  |   |      |   | 1,440,363  |  |   | 1,286,688  |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|Total interest expense                               |  |      | 24,131,113 |   |      |   | 18,941,841 |  |   | 16,657,581 |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES |  |      | 15,050,498 |   |      |   | 16,689,575 |  |   | 19,422,568 |  
|PROVISION FOR LOAN LOSSES                            |  |      | 845,000    |   |      |   | 525,000    |  |   | 3,900,000  |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  |  |      | 14,205,498 |   |      |   | 16,164,575 |  |   | 15,522,568 |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|NON-INTEREST INCOME:                                 |  |      |            |   |      |   |            |  |   |            |  
|Dividends                                            |  |      | 386,678    |   |      |   | 319,108    |  |   | 135,413    |  
|Fees and service charges                             |  |      | 3,083,804  |   |      |   | 3,187,079  |  |   | 3,081,843  |  
|Trading gains, net                                   |  |      | 337        |   |      |   | 240,736    |  |   | 398,165    |  
|Gain on sales of loans                               |  |      | 777,312    |   |      |   | 1,056,477  |  |   | 1,239,706  |  
|Gain on sales of securities, net                     |  |      | 269,941    |   |      |   | 565,939    |  |   | 385,866    |  
|Gain on sale of branches                             |  |      |           |   |      |   |           |  |   | 136,834    |  
|Gain on sale of loan servicing                       |  |      | 159,148    |   |      |   |           |  |   |           |  
|Other                                                |  |      | 344,314    |   |      |   | 306,465    |  |   | 294,690    |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|Total non-interest income, net                       |  |      | 5,021,534  |   |      |   | 5,675,804  |  |   | 5,672,517  |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|NON-INTEREST EXPENSES:                               |  |      |            |   |      |   |            |  |   |            |  
|Compensation and benefits                            |  |      | 9,350,132  |   |      |   | 9,342,144  |  |   | 9,539,845  |  
|Occupancy and equipment                              |  |      | 2,941,812  |   |      |   | 2,779,615  |  |   | 2,723,191  |  
|Insurance premiums                                   |  |      | 406,065    |   |      |   | 373,886    |  |   | 334,768    |  
|Professional fees                                    |  |      | 1,478,705  |   |      |   | 1,008,483  |  |   | 826,156    |  
|Data processing                                      |  |      | 765,205    |   |      |   | 668,737    |  |   | 675,485    |  
|Advertising and donations                            |  |      | 478,135    |   |      |   | 1,193,756  |  |   | 408,480    |  
|Office supplies                                      |  |      | 290,779    |   |      |   | 373,345    |  |   | 234,129    |  
|REO and other repossessed assets                     |  |      | 89,889     |   |      |   | 210,695    |  |   | 321,249    |  
|Other                                                |  |      | 1,303,230  |   |      |   | 1,554,128  |  |   | 1,211,924  |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|Total non-interest expenses                          |  |      | 17,103,952 |   |      |   | 17,504,789 |  |   | 16,275,227 |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|INCOME BEFORE INCOME TAXES                           |  |      | 2,123,080  |   |      |   | 4,335,590  |  |   | 4,919,858  |  
|INCOME TAX EXPENSE (BENEFIT)                         |  |      | (90,550    | ) |      |   | 1,096,534  |  |   | 1,463,244  |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|NET INCOME                                           |  | $    | 2,213,630  |   |      | $ | 3,239,056  |  | $ | 3,456,614  |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|EARNINGS PER SHARE:                                  |  |      |            |   |      |   |            |  |   |            |  
|Basic earnings per share                             |  | $    | 0.49       |   |      | $ | 0.72       |  | $ | 0.77       |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|Diluted earnings per share                           |  | $    | 0.48       |   |      | $ | 0.71       |  | $ | 0.75       |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  
|DIVIDENDS PAID                                       |  | $    | 0.32       |   |      | $ | 0.32       |  | $ | 0.32       |  
|                                                     |  |      |            |   |      |   |            |  |   |            |  



|* | 2004 amounts as restated, see Note 26
|- | -------------------------------------

See notes to
consolidated financial statements.



38



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##### Table of Contents

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

YEARS ENDED SEPTEMBER 30, 2006, 2005, AND 2004



|                                                                              |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|----------------------------------------------------------------------------- |  | ------------ |  | ------------------------- | ------ |  | ------------------- | ---------- | ---------------- | ------------------------------------------- | - | ---------- | - | ------ | - | -------------- | - |  | ------------------------- | ---------- | - |  | --------- |  | - | ----------- | - |  | - | ---------- | -
|                                                                              |  | Common Stock |  | Additional Paid-InCapital |        |  | Unearned ESOPShares |            |                  | AccumulatedOther ComprehensiveIncome (Loss) |   |            |   |        |   | Treasury Stock |   |  | Total StockholdersEquity |           
|                                                                              |  | Shares       |  | Amount                    |        |  |                     |            | RetainedEarnings |                                             |   | Shares     |   | Amount |   |               
|BALANCE, OCTOBER 1, 2003                                                      |  | 7,497,066    |  | $                         | 74,970 |  | $                   | 56,533,430 |                  |                                             | $ | (538,121   | ) |        | $ | 899,339        |   |  | $                         | 20,199,149 |   |  | 2,947,275 |  | $ | (24,172,200 | ) |  | $ | 52,996,567 |  
|Comprehensive income (loss)                                                   |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|Net change in unrealized gain on available-for-sale securities, net of tax    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | (478,727       | ) |  |                           |            |   |  |           |  |   |             |   |  |   | (478,727   | )
|Unrealized loss for securities transferred to held-to-maturity                |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | (906,107       | ) |  |                           |            |   |  |           |  |   |             |   |  |   | (906,107   | )
|Amortization of unrealized loss on securities transferred to held-to-maturity |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | 23,082         |   |  |                           |            |   |  |           |  |   |             |   |  |   | 23,082     |  
|Less reclassification adjustment for (gains) losses included in net income    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | (254,672       | ) |  |                           |            |   |  |           |  |   |             |   |  |   | (254,672   | )
|Net income                                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           | 3,456,614  |   |  |           |  |   |             |   |  |   | 3,456,614  |  
|                                                                              |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|Total comprehensive income                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | 1,840,190  |  
|Repayment of ESOP loan and related increase in share value                    |  |              |  |                           |        |  |                     | (9,424     | )                |                                             |   | 692,663    |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | 683,239    |  
|Purchase of stock for ESOP                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   | (2,270,740 | ) |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | (2,270,740 | )
|Options exercised                                                             |  | 105,426      |  |                           | 1,054  |  |                     | 923,649    |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | 924,703    |  
|Treasury stock purchased                                                      |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  | 13,500    |  |   | (230,344    | ) |  |   | (230,344   | )
|Dividends                                                                     |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           | (1,442,791 | ) |  |           |  |   |             |   |  |   | (1,442,791 | )
|                                                                              |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|BALANCE, SEPTEMBER 30, 2004                                                   |  | 7,602,492    |  |                           | 76,024 |  |                     | 57,447,655 |                  |                                             |   | (2,116,198 | ) |        |   | (717,085       | ) |  |                           | 22,212,972 |   |  | 2,960,775 |  |   | (24,402,544 | ) |  |   | 52,500,824 |  
|Comprehensive income (loss)                                                   |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|Net change in unrealized loss on available-for-sale securities, net of tax    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | (1,695,767     | ) |  |                           |            |   |  |           |  |   |             |   |  |   | (1,695,767 | )
|Amortization of unrealized loss on securities transferred to held-to-maturity |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | 269,090        |   |  |                           |            |   |  |           |  |   |             |   |  |   | 269,090    |  
|Less reclassification adjustment for (gains) losses included in net income    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | (373,520       | ) |  |                           |            |   |  |           |  |   |             |   |  |   | (373,520   | )
|Net income                                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           | 3,239,056  |   |  |           |  |   |             |   |  |   | 3,239,056  |  
|                                                                              |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|Total comprehensive income                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | 1,438,859  |  
|Repayment of ESOP loan and related increase in share value                    |  |              |  |                           |        |  |                     | (172,265   | )                |                                             |   | 508,252    |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | 335,987    |  
|Purchase of stock for ESOP                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   | (468,910   | ) |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | (468,910   | )
|Dividends                                                                     |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           | (1,438,506 | ) |  |           |  |   |             |   |  |   | (1,438,506 | )
|                                                                              |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|BALANCE, SEPTEMBER 30, 2005                                                   |  | 7,602,492    |  |                           | 76,024 |  |                     | 57,275,390 |                  |                                             |   | (2,076,856 | ) |        |   | (2,517,282     | ) |  |                           | 24,013,522 |   |  | 2,960,775 |  |   | (24,402,544 | ) |  |   | 52,368,254 |  
|Comprehensive income (loss)                                                   |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|Net change in unrealized gain on available-for-sale securities, net of tax    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | (288,856       | ) |  |                           |            |   |  |           |  |   |             |   |  |   | (288,856   | )
|Amortization of unrealized loss on securities transferred to held-to-maturity |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | 147,212        |   |  |                           |            |   |  |           |  |   |             |   |  |   | 147,212    |  
|Less reclassification adjustment for (gains) losses included in net income    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   | (178,161       | ) |  |                           |            |   |  |           |  |   |             |   |  |   | (178,161   | )
|Net income                                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           | 2,213,630  |   |  |           |  |   |             |   |  |   | 2,213,630  |  
|                                                                              |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|Total comprehensive income                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | 1,893,825  |  
|Repayment of ESOP loan and related increase in share value                    |  |              |  |                           |        |  |                     | (140,453   | )                |                                             |   | 353,509    |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | 213,056    |  
|Purchase of stock for ESOP                                                    |  |              |  |                           |        |  |                     |            |                  |                                             |   | (76,112    | ) |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   | (76,112    | )
|Dividends                                                                     |  |             |  |                           |       |  |                     |           |                  |                                             |   |           |   |        |   |               |   |  |                           | (1,442,822 | ) |  |          |  |   |            |   |  |   | (1,442,822 | )
|                                                                              |  |              |  |                           |        |  |                     |            |                  |                                             |   |            |   |        |   |                |   |  |                           |            |   |  |           |  |   |             |   |  |   |            |  
|BALANCE, SEPTEMBER 30, 2006                                                   |  | 7,602,492    |  | $                         | 76,024 |  | $                   | 57,134,937 |                  |                                             | $ | (1,799,459 | ) |        | $ | (2,837,087     | ) |  | $                         | 24,784,330 |   |  | 2,960,775 |  | $ | (24,402,544 | ) |  | $ | 52,956,201 |  

See notes to consolidated financial statements.



39



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##### Table of Contents

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED SEPTEMBER 30, 2006, 2005, AND 2004



|                                                                                     |  |      |             |   |                            |   |             |      |  |   |              |  
|------------------------------------------------------------------------------------ |  | ---- | ----------- | - | -------------------------- | - | ----------- | ---- |  | - | ------------ | -
|                                                                                     |  | 2006 |             |   | 2005                       |   |             | 2004 | 
|                                                                                     |  |      |             |   | (As restated, see Note 26) |  
|OPERATING ACTIVITIES:                                                                |  |      |             |   |                            |   |             |      |  |   |              |  
|Net income                                                                           |  | $    | 2,213,630   |   |                            | $ | 3,239,056   |      |  | $ | 3,456,614    |  
|Adjustments to reconcile net income to net cash provided by operating activities:    |  |      |             |   |                            |   |             |      |  |   |              |  
|Provision for loan losses                                                            |  |      | 845,000     |   |                            |   | 525,000     |      |  |   | 3,900,000    |  
|Depreciation of premises and equipment                                               |  |      | 1,297,821   |   |                            |   | 1,302,848   |      |  |   | 1,259,864    |  
|Deferred income tax provision (benefit)                                              |  |      | (533,993    | ) |                            |   | 487,640     |      |  |   | (1,324,590   | )
|Amortization of deferred loan fees                                                   |  |      | (60,390     | ) |                            |   | (67,185     | )    |  |   | (66,577      | )
|Amortization of premiums and discounts, net                                          |  |      | 153,163     |   |                            |   | 244,153     |      |  |   | 147,083      |  
|Amortization of core deposit premium                                                 |  |      | 973,205     |   |                            |   | 973,204     |      |  |   | 944,696      |  
|Adjustment of ESOP shares and release of shares under recognition and retention plan |  |      | 213,056     |   |                            |   | 335,987     |      |  |   | 683,239      |  
|(Increase) decrease in loans held for sale                                           |  |      | 591,706     |   |                            |   | (507,309    | )    |  |   | 2,875,744    |  
|Net gains on sales of loans                                                          |  |      | (777,312    | ) |                            |   | (1,056,477  | )    |  |   | (1,239,706   | )
|Net gains on sales of investment securities                                          |  |      | (269,941    | ) |                            |   | (565,939    | )    |  |   | (385,866     | )
|Net gains on sales of branches                                                       |  |      |            |   |                            |   |            |      |  |   | (136,834     | )
|Net gain on sale of mortgage servicing rights                                        |  |      | (159,148    | ) |                            |   |            |      |  |   |             |  
|Increase in cash surrender value of life insurance policies                          |  |      | (373,093    | ) |                            |   | (334,846    | )    |  |   | (343,633     | )
|Stock dividends on FHLB stock                                                        |  |      | (348,700    | ) |                            |   | (257,700    | )    |  |   | (113,400     | )
|Changes in operating assets and liabilities, net                                     |  |      |             |   |                            |   |             |      |  |   |              |  
|Trading securities                                                                   |  |      | (442,256    | ) |                            |   | (1,143,679  | )    |  |   | (485,113     | )
|Accrued interest receivable                                                          |  |      | (549,921    | ) |                            |   | (291,734    | )    |  |   | 964,903      |  
|Accrued interest payable                                                             |  |      | (46,034     | ) |                            |   | 263,943     |      |  |   | (21,783      | )
|Other assets                                                                         |  |      | 1,298,788   |   |                            |   | (1,123,662  | )    |  |   | 1,832,607    |  
|Deferred compensation                                                                |  |      | (388,139    | ) |                            |   | (253,235    | )    |  |   | (455,144     | )
|Accrued expenses and other liabilities                                               |  |      | (51,973     | ) |                            |   | 1,313,021   |      |  |   | (798,322     | )
|                                                                                     |  |      |             |   |                            |   |             |      |  |   |              |  
|Net cash provided by operating activities                                            |  |      | 3,585,469   |   |                            |   | 3,083,086   |      |  |   | 10,693,782   |  
|INVESTING ACTIVITIES:                                                                |  |      |             |   |                            |   |             |      |  |   |              |  
|Sale of branches to Bank of Cave City, Arkansas                                      |  |      |            |   |                            |   |            |      |  |   | (9,697,800   | )
|Purchases of available for sale and held to maturity securities                      |  |      | (36,868,631 | ) |                            |   | (80,574,357 | )    |  |   | (112,557,349 | )
|Proceeds from sale of securities available-for-sale                                  |  |      | 2,900,647   |   |                            |   | 49,180,848  |      |  |   | 86,953,100   |  
|Proceeds from maturities, calls and principal prepayment of investment securities    |  |      | 37,414,708  |   |                            |   | 49,787,128  |      |  |   | 76,386,821   |  
|Net (increase) decrease in FHLB Bank stock                                           |  |      | 1,739,200   |   |                            |   | 221,600     |      |  |   | (2,228,800   | )
|Increase in loans, net                                                               |  |      | (6,819,525  | ) |                            |   | (46,043,012 | )    |  |   | (1,834,799   | )
|Proceeds from sale of REO                                                            |  |      | 940,713     |   |                            |   | 988,675     |      |  |   | 881,693      |  
|Proceeds from sale of premises and equipment                                         |  |      | 3,235       |   |                            |   | 13,456      |      |  |   | 7,567        |  
|Purchases of premises and equipment                                                  |  |      | (460,638    | ) |                            |   | (4,270,778  | )    |  |   | (1,042,267   | )
|                                                                                     |  |      |             |   |                            |   |             |      |  |   |              |  
|Net cash provided (used) by investing activities                                     |  |      | (1,150,291  | ) |                            |   | (30,696,440 | )    |  |   | 36,868,166   |  

(Continued)



40



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##### Table of Contents

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED SEPTEMBER 30, 2006, 2005, AND 2004



|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|------------------------------------------------------------------------------------- |  | ---- | -------------- | - | -------------------------- | - | -------------- | ---- |  | - | ------------ | -
|                                                                                      |  | 2006 |                |   | 2005                       |   |                | 2004 | 
|                                                                                      |  |      |                |   | (As restated, see Note 26) |  
|FINANCING ACTIVITIES:                                                                 |  |      |                |   |                            |   |                |      |  |   |              |  
|Net increase (decrease) in deposits other than in acquisitions and branch sales       |  | $    | 43,744,697     |   |                            | $ | 22,965,201     |      |  | $ | (84,548,016  | )
|Federal Home Loan Bank advances                                                       |  |      | 1,446,820,000  |   |                            |   | 1,000,211,000  |      |  |   | 877,684,600  |  
|Repayment of Federal Home Loan Bank advances                                          |  |      | (1,491,067,104 | ) |                            |   | (1,005,462,472 | )    |  |   | (824,481,358 | )
|Exercise of stock options                                                             |  |      |               |   |                            |   |               |      |  |   | 924,703      |  
|Purchase of treasury shares                                                           |  |      |               |   |                            |   |               |      |  |   | (230,344     | )
|Purchase of stock for ESOP                                                            |  |      | (76,112        | ) |                            |   | (468,909       | )    |  |   | (2,270,740   | )
|Dividends paid                                                                        |  |      | (1,442,822     | ) |                            |   | (1,438,506     | )    |  |   | (1,442,791   | )
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|Net cash provided (used) by financing activities                                      |  |      | (2,021,341     | ) |                            |   | 15,806,314     |      |  |   | (34,363,946  | )
|NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS                                    |  |      | 413,837        |   |                            |   | (11,807,040    | )    |  |   | 13,198,002   |  
|CASH AND DUE FROM BANKS, BEGINNING OF YEAR                                            |  |      | 23,411,451     |   |                            |   | 35,218,491     |      |  |   | 22,020,489   |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|CASH AND DUE FROM BANKS, END OF YEAR                                                  |  | $    | 23,825,288     |   |                            | $ | 23,411,451     |      |  | $ | 35,218,491   |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                    |  |      |                |   |                            |   |                |      |  |   |              |  
|Cash paid during the year for:                                                        |  |      |                |   |                            |   |                |      |  |   |              |  
|Interest                                                                              |  | $    | 24,177,147     |   |                            | $ | 18,677,897     |      |  | $ | 16,679,365   |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|Income taxes                                                                          |  | $    | 533,026        |   |                            | $ | 1,138,685      |      |  | $ | 2,884,070    |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH                                                   |  |      |                |   |                            |   |                |      |  |   |              |  
|INVESTING AND FINANCING ACTIVITIES:                                                   |  |      |                |   |                            |   |                |      |  |   |              |  
|Transfers from loans to real estate acquired, or deemed acquired, through foreclosure |  | $    | 1,188,433      |   |                            | $ | 2,184,747      |      |  | $ | 2,706,959    |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|Loans originated to finance the sale of real estate acquired through foreclosure      |  | $    | 383,799        |   |                            | $ | 821,500        |      |  | $ | 1,149,662    |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|Trading securities transferred to available-for-sale                                  |  | $    | 3,568,300      |   |                            | $ |               |      |  | $ |             |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|Securities purchased not settled                                                      |  | $    |               |   |                            | $ | 2,430,000      |      |  | $ |             |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  
|Securities transferred to held-to-maturity                                            |  | $    |               |   |                            | $ |               |      |  | $ | 86,089,901   |  
|                                                                                      |  |      |                |   |                            |   |                |      |  |   |              |  

(Concluded)

See notes to consolidated financial statements.



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POCAHONTAS BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2006, 2005, AND 2004



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Organization and Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Pocahontas Bancorp, Inc. (Bancorp), its wholly owned subsidiary, First Community Bank (the
Bank), as well as the Banks subsidiaries, Southern Mortgage Corporation, P.F. Service, Inc. and Sun Realty, Inc. (collectively referred to as the Company). All significant intercompany transactions have been eliminated
in consolidation. The Bank operates 21 offices in northeastern Arkansas and Tulsa County Oklahoma, as a federally chartered savings and loan.

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

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

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

Securities Held-to-Maturity - Bonds, notes, and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for the amortization of premiums
and the accretion of discounts, which are recognized in income using the level-yield method over the assets remaining lives and adjusted for anticipated prepayments. Should other than a temporary decline in the fair value of a security occur,
the carrying value of such security would be written down to current market value by a charge to operations. As of September 30, 2006 and 2005, no securities were determined to have other than a temporary decline in fair value below cost. For a
debt security transferred into the held-to-maturity category from the available-for-sale category, the unrealized holding gain or loss at the date of the transfer, which is included in accumulated other comprehensive income, is amortized over the
remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount.

Securities Available-for-Sale - Available-for-sale securities consist of securities that the Company intends to hold for an indefinite period of time and are reported at fair value. Unrealized holding gains and losses, net of
tax, on available-for-sale securities are reported as accumulated other comprehensive income (loss), a separate component of stockholders equity, until realized. Gains and losses on the sale of available-for-sale securities are determined
using the specific-identification method. Declines in the fair value of individual available-for-sale securities below their cost that are other than temporary would result in a write-down of the individual security to its fair value. The related
write-down would be included in earnings as a realized loss. As of September 30, 2006, no securities were determined to have other than a temporary decline in fair value below cost.

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

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

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

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

Allowance for Loan Losses - The allowance for loan losses is a valuation allowance to provide for incurred but not yet realized losses. The Company reviews its loans for impairment on a quarterly basis.
Impairment is determined by assessing the probability that the borrower will not be able to fulfill the contractual terms of the agreement. If a loan is determined to be impaired, the amount of the impairment is measured based on the present value
of expected future cash flows discounted at the loans effective interest rate or by



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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. Loans are charged off by reducing the loan balance and the allowance in the period in which the loans are deemed uncollectible in whole or in part.

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

Homogeneous loans are
those that are considered to have common characteristics that provide for evaluation on an aggregate or pool basis. The Company considers the characteristics of (1) one-to-four family residential first mortgage loans; (2) automobile loans;
and (3) consumer and home improvement loans to permit consideration of the appropriateness of the allowance for losses of each group of loans on a pool basis. The primary methodology used to determine the appropriateness of the allowance for
losses includes segregating certain specific, poorly performing loans based on their performance characteristics from the pools of loans as to type and then applying a loss factor to the remaining pool balance based on several factors including
classification of the loans as to grade, past loss experience, inherent risks, economic conditions in the primary market areas and other factors which usually are beyond the control of the Company. Those segregated specific loans are evaluated using
the present value of future cash flows, usually determined by estimating the fair value of the loans collateral reduced by any cost of selling and discounted at the loans effective interest rate if the estimated time to receipt of monies
is more than three months.

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

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

Servicing -Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. Capitalized servicing rights are reported in other assets and
are amortized into noninterest income in proportion to, and over the period of the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon the fair value of the rights as
compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for similar assets with similar characteristics, when available, or
based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum.

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

Foreclosed Real Estate - Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair value, less estimated costs to sell, at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenues and expenses from operations and changes
in the valuation allowance are included in non-interest expenses. Properties obtained in this matter are also referred to as real estate owned (REO).

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

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

Goodwill -Goodwill is tested periodically for impairment and written down to fair value as necessary. As of April 1, 2006 and 2005, the Company performed its annual impairment test and concluded
there was no impairment of the carrying value of the Companys goodwill. Absent any impairment indicators, the Company expects to perform its next impairment test as of April 1, 2007.



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Income Taxes - Deferred tax assets and liabilities are recorded for temporary differences
between the carrying value and tax bases of assets and liabilities. Such amounts are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce the deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in applicable deferred tax assets and liabilities.

Stock Compensation  At September 30, 2006, the Company has two stock-based employee compensation plans, which are more fully described in Note 21. Financial Accounting Standards Board
Statement Number 123 (revised 2004) (FAS 123 (R)), Share-Based Payments,requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to
employees. As of October 1, 2005, the Company adopted FAS 123(R) using the modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of
previously granted awards that remained outstanding at the date of adoption. As of October 1, 2005, the Companys options were fully vested, requiring no expense to be recorded for the year ended September 30, 2006.

Recently Adopted or Issued Accounting Standards In November 2005, FSP FAS 115-1 and FAS 124-1 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments was issued. The FSP addressed the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of
an impairment loss. It also included accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary
impairments. The guidance of the FSP amended FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities, No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB
Opinion No 18, The Equity Method of Accounting for Investments in Common Stock. The FSP nullified certain requirements of Emerging Issues Task Force (EITF) Issue 03-1 and supersedes EITF Topic No. D-44, Recognition of
Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value. The FSP gives guidance regarding how to determine whether an investment is impaired, if impaired how to evaluate whether the impairment is
other-than-temporary, and proper accounting and disclosures for the investments. The Guidance is effective for reporting periods beginning after December 15, 2005; earlier application is permitted. The adoption of EITF 03-1 did not have an
effect on the Companys consolidated financial statements.

In July 2006, the Financial Accounting Standards Board (FASB) issued
Financial Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 which is effective for fiscal years beginning after December 15, 2006. FIN No. 48 provides
guidance regarding the recognition, measurement, presentation and disclosure in the financial statements of tax positions taken or expected to be taken on a tax return, including the decision whether to file or not file in a particular
jurisdiction. The cumulative effect of the changes arising from the initial application of FIN 48 is required to be reported as an adjustment to the opening balance of retained earnings in the period of adoption. The Company is currently
evaluating the impact, if any, of the adoption of FIN 48 on our financial statements.

Reclassifications -Certain 2004 and
2005 amounts have been reclassified to conform to the 2006 presentations. Accrued interest payable is being presented as a separate line item on the Consolidated Statements of Financial Condition in 2006 compared to 2005, dividends are being
presented as a separate line item on the Consolidated Statements of Income in 2006 compared to 2005 and 2004, and the other comprehensive income is presented in the Consolidated Statements of Stockholders Equity in 2006 instead of in a
Statement of Income and Other Comprehensive Income in 2005 and 2004.



|2. | FAIR VALUES OF FINANCIAL INSTRUMENTS
|-- | ------------------------------------

The estimated
fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates
of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

The carrying amounts and estimated fair values of financial instruments at
September 30, 2006 and 2005, were as follows (items which are not financial instruments are not included):



|                                       |  |                 |             |                     |   |                 |  |                     |             |  |   |            
|-------------------------------------- |  | --------------- | ----------- | ------------------- | - | --------------- |  | ------------------- | ----------- |  | - | -----------
|                                       |  | 2006            |             | 2005               
|                                       |  | CarryingAmounts |             | Estimated FairValue |   | CarryingAmounts |  | Estimated FairValue
|Financial assets and liabilities:      |  |                 |             |                     |   |                 |  |                     |             |  |   |            
|Cash and due from banks                |  | $               | 23,825,288  |                     | $ | 23,825,288      |  | $                   | 23,411,451  |  | $ | 23,411,451 
|Cash surrender value of life insurance |  |                 | 8,392,191   |                     |   | 8,392,191       |  |                     | 8,019,097   |  |   | 8,019,097  
|Securities held-to-maturity            |  |                 | 133,120,083 |                     |   | 130,187,272     |  |                     | 129,952,373 |  |   | 127,755,514
|Securities available-for-sale          |  |                 | 93,561,067  |                     |   | 93,561,067      |  |                     | 99,460,045  |  |   | 99,460,045 
|Trading securities                     |  |                 |            |                     |   |                |  |                     | 3,126,044   |  |   | 3,126,044  
|Loans receivable, net                  |  |                 | 431,768,328 |                     |   | 432,669,000     |  |                     | 426,538,047 |  |   | 423,664,000
|Loans receivable held for sale         |  |                 | 3,243,591   |                     |   | 3,308,000       |  |                     | 3,057,985   |  |   | 3,260,000  
|Accrued interest receivable            |  |                 | 5,037,759   |                     |   | 5,037,759       |  |                     | 4,487,837   |  |   | 4,487,837  
|Federal Home Loan Bank stock           |  |                 | 6,571,500   |                     |   | 6,571,500       |  |                     | 7,962,000   |  |   | 7,962,000  
|Demand and savings deposits            |  |                 | 216,605,387 |                     |   | 216,605,387     |  |                     | 246,257,677 |  |   | 245,604,000
|Time deposits                          |  |                 | 341,183,044 |                     |   | 339,821,000     |  |                     | 267,786,057 |  |   | 267,157,000
|Federal Home Loan Bank advances        |  |                 | 104,398,292 |                     |   | 104,198,000     |  |                     | 148,645,397 |  |   | 147,967,000



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For purposes of the above disclosures of estimated fair value, the following assumptions were used. The
estimated fair values for cash and due from banks, cash surrender value of life insurance, accrued interest receivable, and FHLB stock are considered to approximate cost. The estimated fair values for securities are based on quoted market values for
the individual securities or for equivalent securities. The fair value for loans is estimated by discounting the future cash flows using the current rates the Company would charge for similar such loans at the applicable date. The estimated fair
values for demand and savings deposits are based on the amounts for which they could be settled on demand. The estimated fair values for time deposits and FHLB advances are based on estimates of the rate the Company would pay on such deposits and
borrowed funds at the applicable date, applied for the time period until maturity. The estimated fair values for other financial instruments approximate cost and are not considered significant to this presentation. Fair values for the Companys
off-balance-sheet instruments, which consist of lending commitments and standby and commercial letters of credit, are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the
counterparties credit standing. Management believes that the fair value of these off-balance-sheet instruments is not significant.



|3. | SECURITIES
|-- | ----------

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



|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            
|-------------------------------- |  | -------------- | ----------- | -------------------- | - | --------------------- |  | ------------------- | --------- |  | - | -----------
|                                 |  | 2006          
|Held-to-Maturity                 |  | Amortized Cost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Estimated FairValue
|US Government Agencies           |  | $              | 4,000,000   |                      | $ |                      |  | $                   | 133,380   |  | $ | 3,866,620  
|US Government Treasury Notes     |  |                | 19,920,698  |                      |   |                      |  |                     | 176,948   |  |   | 19,743,750 
|Mortgage Backed Securites        |  |                | 61,329,055  |                      |   |                      |  |                     | 2,755,893 |  |   | 58,573,162 
|Municipal bonds                  |  |                | 47,870,330  |                      |   | 268,955               |  |                     | 135,545   |  |   | 48,003,740 
|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            
|Total                            |  | $              | 133,120,083 |                      | $ | 268,955               |  | $                   | 3,201,766 |  | $ | 130,187,272
|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            
|                                 |  |                |             |                     
|Available-for-sale               |  | Amortized Cost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Estimated FairValue
|Mortgage backed securities       |  | $              | 95,214,934  |                      | $ |                      |  | $                   | 3,520,437 |  | $ | 91,694,497 
|Preferred Security               |  |                | 111,350     |                      |   |                      |  |                     | 3,325     |  |   | 108,025    
|Equity Securities (Common Stock) |  |                | 826,244     |                      |   | 26,000                |  |                     | 56,799    |  |   | 795,445    
|Mutual fund                      |  |                | 1,000,000   |                      |   |                      |  |                     | 36,900    |  |   | 963,100    
|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            
|Total                            |  | $              | 97,152,528  |                      | $ | 26,000                |  | $                   | 3,617,461 |  | $ | 93,561,067 
|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            
|                                 | 
|                                 |  | 2005          
|Held-to-Maturity                 |  | Amortized Cost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Estimated FairValue
|US Government Agencies           |  | $              | 4,000,000   |                      | $ |                      |  | $                   | 74,057    |  | $ | 3,925,943  
|US Government Treasury Notes     |  |                | 19,844,509  |                      |   |                      |  |                     | 133,571   |  |   | 19,710,938 
|Mortgage Backed Securites        |  |                | 76,704,653  |                      |   | 9,560                 |  |                     | 2,101,766 |  |   | 74,612,447 
|Municipal bonds                  |  |                | 29,403,211  |                      |   | 257,902               |  |                     | 154,927   |  |   | 29,506,186 
|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            
|Total                            |  | $              | 129,952,373 |                      | $ | 267,462               |  | $                   | 2,464,321 |  | $ | 127,755,514
|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            
|                                 |  |                |             |                     
|Available-for-sale               |  | Amortized Cost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Estimated FairValue
|Mortgage backed securities       |  | $              | 101,343,904 |                      | $ |                      |  | $                   | 2,859,874 |  | $ | 98,484,030 
|Mutual fund                      |  |                | 1,000,000   |                      |   |                      |  |                     | 23,985    |  |   | 976,015    
|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            
|Total                            |  | $              | 102,343,904 |                      | $ |                      |  | $                   | 2,883,859 |  | $ | 99,460,045 
|                                 |  |                |             |                      |   |                       |  |                     |           |  |   |            

The amortized cost and estimated fair value of securities at September 30, 2006, by
contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



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|                                 |  |                  |             |                     |   |               |  |                     |            |  |   |           
|-------------------------------- |  | ---------------- | ----------- | ------------------- | - | ------------- |  | ------------------- | ---------- |  | - | ----------
|                                 |  | Held-to-Maturity |             | Available-for-Sale 
|                                 |  | Amortized Cost   |             | Estimated FairValue |   | AmortizedCost |  | EstimatedFair Value
|Due in one year or less          |  | $                | 11,643,160  |                     | $ | 11,582,568    |  | $                   |           |  | $ |          
|Due from one year to five years  |  |                  | 18,784,018  |                     |   | 18,607,185    |  |                     |           |  |   |          
|Due from five years to ten years |  |                  | 9,630,181   |                     |   | 9,629,987     |  |                     |           |  |   |          
|Due after ten years              |  |                  | 31,733,669  |                     |   | 31,794,370    |  |                     |           |  |   |          
|Mortgage backed securities       |  |                  | 61,329,055  |                     |   | 58,573,162    |  |                     | 95,214,934 |  |   | 91,694,497
|Preferred Security               |  |                  |            |                     |   |               |  |                     | 111,350    |  |   | 108,025   
|Equity Securities (Common Stock) |  |                  |            |                     |   |               |  |                     | 826,244    |  |   | 795,445   
|Mutual fund                      |  |                  |            |                     |   |              |  |                     | 1,000,000  |  |   | 963,100   
|                                 |  |                  |             |                     |   |               |  |                     |            |  |   |           
|Total                            |  | $                | 133,120,083 |                     | $ | 130,187,272   |  | $                   | 97,152,528 |  | $ | 93,561,067
|                                 |  |                  |             |                     |   |               |  |                     |            |  |   |           

Available-for-sale securities with a carrying value and a fair value of $41,759,272 and $16,440,711
at September 30, 2006 and 2005, respectively, and held-to-maturity securities with a carrying value of $65,953,046 and a fair value of $64,641,364 at September 30, 2006, and a carrying value of $87,277,527 and a fair value of $85,722,293
at September 30, 2005, were pledged to collateralize public and trust deposits.

For the years ended September 30, 2006, 2005, and
2004, proceeds from the sales of securities available-for-sale amounted to $2,900,647, $49,180,848, and $86,953,100, respectively. Gross realized gains amounted to $295,059, $566,790, and $845,892, respectively. Gross realized losses amounted to
$25,118, $851, and $460,026, respectively.

The following table presents those investments of the Company with gross unrealized losses,
along with the related fair value, by investment category and length of time in a loss position. These individual securities have been in a continuous unrealized loss position as of September 30, 2006.



|                                     |  |                     |            |                  |                     |          |              |       |                  |            |  |              |            |                  |  |   |            |  |   |            |  
|------------------------------------ |  | ------------------- | ---------- | ---------------- | ------------------- | -------- | ------------ | ----- | ---------------- | ---------- |  | ------------ | ---------- | ---------------- |  | - | ---------- |  | - | ---------- | -
|                                     |  | Less than 12 months |            |                  | 12 months or longer |          |              | Total |                 
|Security Description                 |  | Market Value        |            | UnrealizedLosses |                     |          | Market Value |       | UnrealizedLosses |            |  | Market Value |            | UnrealizedLosses | 
|Held-to-Maturity                     |  |                     |            |                  |                     |          |              |       |                  |            |  |              |            |                  |  |   |            |  |   |            |  
|U.S. Government agency obligations   |  | $                   |           |                  | $                   |         |              |       | $                | 3,866,620  |  | $            | (133,380   | )                |  | $ | 3,866,620  |  | $ | (133,380   | )
|U.S. Government Treasury obligations |  |                     |           |                  |                     |         |              |       |                  | 19,743,750 |  |              | (176,948   | )                |  |   | 19,743,750 |  |   | (176,948   | )
|Mortgage-backed securities           |  |                     |           |                  |                     |         |              |       |                  | 58,573,162 |  |              | (2,755,893 | )                |  |   | 58,573,162 |  |   | (2,755,893 | )
|Municipal Bonds                      |  |                     | 7,406,237  |                  |                     | (35,967  | )            |       |                  | 7,177,054  |  |              | (99,578    | )                |  |   | 14,583,291 |  |   | (135,545   | )
|                                     |  |                     |            |                  |                     |          |              |       |                  |            |  |              |            |                  |  |   |            |  |   |            |  
|                                     |  | $                   | 7,406,237  |                  | $                   | (35,967  | )            |       | $                | 89,360,586 |  | $            | (3,165,799 | )                |  | $ | 96,766,823 |  | $ | (3,201,766 | )
|                                     |  |                     |            |                  |                     |          |              |       |                  |            |  |              |            |                  |  |   |            |  |   |            |  
|Available-for-Sale                   |  |                     |            |                  |                     |          |              |       |                  |            |  |              |            |                  |  |   |            |  |   |            |  
|Mortgage-backed securities           |  | $                   | 12,688,113 |                  | $                   | (107,337 | )            |       | $                | 79,006,384 |  | $            | (3,413,100 | )                |  | $ | 91,694,497 |  | $ | (3,520,437 | )
|Preferred Security                   |  |                     | 108,025    |                  |                     | (3,325   | )            |       |                  |           |  |              |           |                  |  |   | 108,025    |  |   | (3,325     | )
|Equity Securities (Common Stock)     |  |                     | 486,945    |                  |                     | (34,049  | )            |       |                  | 58,500     |  |              | (22,750    | )                |  |   | 545,445    |  |   | (56,799    | )
|Mutual Fund                          |  |                     | 963,100    |                  |                     | (36,900  | )            |       |                  |           |  |              |           |                  |  |   | 963,100    |  |   | (36,900    | )
|                                     |  |                     |            |                  |                     |          |              |       |                  |            |  |              |            |                  |  |   |            |  |   |            |  
|                                     |  | $                   | 14,246,183 |                  | $                   | (181,611 | )            |       | $                | 79,064,884 |  | $            | (3,435,850 | )                |  | $ | 93,311,067 |  | $ | (3,617,461 | )
|                                     |  |                     |            |                  |                     |          |              |       |                  |            |  |              |            |                  |  |   |            |  |   |            |  

Management of the Company anticipates that the market values of its investments which have
unrealized losses for 12 months or longer at September 30, 2006, will increase to at least the cost of the investment to the Company. The investments with indicated losses above include debt securities whose market values have declined due to
interest rate fluctuations and equity securities whose decline appears to be due to normal market factors including the issuers financial performance. In determining that the investment is not other-than-temporarily impaired the Company
considered reports of financial specialists and the volatility of the investments fair value.

U.S. Government Obligations.The
unrealized losses on the Companys investments in U.S. Treasury obligations and direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle
the securities at a price less than the amortized cost of the investment. Because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments
to be other-than-temporarily impaired at September 30, 2006.

Federal Agency Mortgage-Backed Securities. The unrealized losses
on the Companys investment in federal agency mortgage-backed securities were caused by interest rate increases. The Company purchased those investment securities at a premium relative to their face amount, and the contractual cash flows of
those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Companys investment. Because the decline in market value
is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider those investments
to be other-than-temporarily impaired at September 30, 2006.

Municipal Bonds. The unrealized losses on the Companys
investments in municipal bonds were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost of the



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investment. Because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does
not consider those investments to be other-than-temporarily impaired at September 30, 2006.

Mutual Fund.The unrealized loss on
the Companys investment in the CRA Mutual Fund was caused by interest rate increases. The composition of the Fund includes Asset Backed Securities/CMOs, Targeted Mortgage-backed Securities, FNMA, Taxable Municipal Bonds, Money markets, and
project loans. Because the Company has the ability and intent to hold this investment until a recovery of fair value, the Company does not consider this investment to be other-than-temporarily impaired at September 30, 2006.



|4. | LOANS RECEIVABLE
|-- | ----------------

Loans receivable at
September 30 are summarized as follows:



|                          |  |      |             |      |   |            
|------------------------- |  | ---- | ----------- | ---- | - | -----------
|                          |  | 2006 |             | 2005
|Real estate loans:        |  |      |             |      |   |            
|Single-family residential |  | $    | 127,993,914 |      | $ | 133,438,043
|Multifamily residential   |  |      | 9,623,559   |      |   | 8,812,085  
|Agricultural              |  |      | 18,095,981  |      |   | 20,190,397 
|Commercial                |  |      | 130,415,628 |      |   | 135,810,958
|                          |  |      |             |      |   |            
|Total real estate loans   |  |      | 286,129,082 |      |   | 298,251,483
|                          |  |      |             |      |   |            
|Other loans:              |  |      |             |      |   |            
|Savings account loans     |  |      | 6,669,883   |      |   | 6,279,261  
|Commercial business       |  |      | 78,594,307  |      |   | 80,695,014 
|Other                     |  |      | 69,313,129  |      |   | 52,150,010 
|                          |  |      |             |      |   |            
|Total other loans         |  |      | 154,577,319 |      |   | 139,124,285
|                          |  |      |             |      |   |            
|Total loans receivable    |  |      | 440,706,401 |      |   | 437,375,768
|Less:                     |  |      |             |      |   |            
|Undisbursed loan proceeds |  |      | 5,796,604   |      |   | 7,456,048  
|Unearned fees, net        |  |      | 147,412     |      |   | 172,412    
|Allowance for loan losses |  |      | 2,994,057   |      |   | 3,209,261  
|                          |  |      |             |      |   |            
|Loans receivable, net     |  | $    | 431,768,328 |      | $ | 426,538,047
|                          |  |      |             |      |   |            

The Company originates adjustable rate mortgage loans to hold for investment. The Company also
originates 15 year, 20 year and 30 year fixed-rate mortgage loans and sells substantially all new originations of such loans to outside investors. Such loans are typically originated for sale. These loans are typically held for sale only a short
time, and were approximately $3.2 million and $3.1 million as of September 30, 2006 and 2005, respectively. Normally the short time between origination and sale does not provide for significant differences between cost and market values.

During 2006, the Company sold the servicing rights on $97.2 million of loans previously sold to Fannie Mae for a net gain of $159 thousand.

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

The Company grants real estate, commercial, consumer and agricultural real estate loans, primarily in northeastern Arkansas and Tulsa County Oklahoma.
Substantially all loans are collateralized by real estate or consumer assets.



|5. | ACCRUED INTEREST RECEIVABLE
|-- | ---------------------------

Accrued interest
receivable at September 30 is summarized as follows:



|                 |  |      |           |      |   |          
|---------------- |  | ---- | --------- | ---- | - | ---------
|                 |  | 2006 |           | 2005
|Securities       |  | $    | 1,191,180 |      | $ | 1,050,443
|Loans receivable |  |      | 3,846,579 |      |   | 3,437,394
|                 |  |      |           |      |   |          
|TOTAL            |  | $    | 5,037,759 |      | $ | 4,487,837
|                 |  |      |           |      |   |          



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|6. | ALLOWANCE FOR LOAN AND FORECLOSED REAL ESTATE LOSSES
|-- | ----------------------------------------------------

Activity in the allowance for losses on loans and foreclosed real estate for the years ended September 30, 2006, 2005 and 2004 is as follows:



|                            |  |       |            |   |             |   |          |  
|--------------------------- |  | ----- | ---------- | - | ----------- | - | -------- | -
|                            |  | Loans |            |   | Real Estate |  
|BALANCE, OCTOBER 1, 2003    |  | $     | 4,067,660  |   |             | $ | 88,293   |  
|Provision for losses        |  |       | 3,900,000  |   |             |   | 272,515  |  
|Charge-offs                 |  |       | (4,645,193 | ) |             |   | (317,717 | )
|Recoveries                  |  |       | 443,033    |   |             |   | 34,264   |  
|                            |  |       |            |   |             |   |          |  
|BALANCE, SEPTEMBER 30, 2004 |  |       | 3,765,500  |   |             |   | 77,355   |  
|Provision for losses        |  |       | 525,000    |   |             |   | 161,200  |  
|Charge-offs                 |  |       | (2,309,202 | ) |             |   | (201,244 | )
|Recoveries                  |  |       | 1,227,963  |   |             |   | 7,000    |  
|                            |  |       |            |   |             |   |          |  
|BALANCE, SEPTEMBER 30, 2005 |  |       | 3,209,261  |   |             |   | 44,311   |  
|Provision for losses        |  |       | 845,000    |   |             |   | 76,700   |  
|Charge-offs                 |  |       | (1,522,663 | ) |             |   | (111,939 | )
|Recoveries                  |  |       | 462,459    |   |             |   | 4,411    |  
|                            |  |       |            |   |             |   |          |  
|BALANCE, SEPTEMBER 30, 2006 |  | $     | 2,994,057  |   |             | $ | 13,483   |  
|                            |  |       |            |   |             |   |          |  

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



|                                                            |  |                          |       |      |   |      
|----------------------------------------------------------- |  | ------------------------ | ----- | ---- | - | -----
|                                                            |  | September 30,           
|                                                            |  | 2006                     |       | 2005
|                                                            |  | (in thousands)          
|Impaired loans with a valuation allowance                   |  | $                        | 1,875 |      | $ | 937  
|Impaired loans without a valuation allowance                |  |                          |      |      |   |     
|                                                            |  |                          |       |      |   |      
|Total Impaired Loans                                        |  | $                        | 1,875 |      | $ | 937  
|                                                            |  |                          |       |      |   |      
|Valuation allowance related to impaired loans               |  | $                        | 409   |      | $ | 229  
|Total non-accrual loans                                     |  | $                        | 2,059 |      | $ | 3,936
|Total loans past-due ninety days or more and still accruing |  | $                        | 4     |      | $ | 161  
|                                                            | 
|                                                            |  | Years EndedSeptember 30,
|                                                            |  | 2006                     |       | 2005
|                                                            |  | (in thousands)          
|Average investment in impaired loans                        |  | $                        | 1,354 |      | $ | 4,700
|                                                            |  |                          |       |      |   |      
|Interest income recognized on impaired loans                |  | $                        | 69    |      | $ | 35   
|                                                            |  |                          |       |      |   |      

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



|7. | PREMISES AND EQUIPMENT
|-- | ----------------------

Premises and equipment at
September 30 are summarized as follows:



|                                   |  |      |            |   |      |   |            |  
|---------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                   |  | 2006 |            |   | 2005 |  
|Cost:                              |  |      |            |   |      |   |            |  
|Land                               |  | $    | 3,654,614  |   |      | $ | 3,654,614  |  
|Buildings and improvements         |  |      | 14,429,261 |   |      |   | 14,186,463 |  
|Furniture, fixtures, and equipment |  |      | 5,638,965  |   |      |   | 5,481,484  |  
|                                   |  |      |            |   |      |   |            |  
|                                   |  |      | 23,722,840 |   |      |   | 23,322,561 |  
|Less accumulated depreciation      |  |      | (7,846,347 | ) |      |   | (6,605,649 | )
|                                   |  |      |            |   |      |   |            |  
|TOTAL                              |  | $    | 15,876,493 |   |      | $ | 16,716,912 |  
|                                   |  |      |            |   |      |   |            |  



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The Company is obligated under various non-cancelable operating leases for premises and
equipment. Rental expense was $125,000, $122,000, and $131,000 for the years ended September 30, 2006, 2005 and 2004, respectively. Most of the leases contain options to extend for periods of 5 years. As of September 30, 2006,
the approximate future minimum lease payments due under the aforementioned operating leases for their base terms are as follows:



|                           |  |   |        
|-------------------------- |  | - | -------
|Years ending September 30: |  |   |        
|2007                       |  | $ | 125,931
|2008                       |  |   | 117,216
|2009                       |  |   | 69,927 
|2010                       |  |   | 55,539 
|2011                       |  |   | 4,177  
|                           |  |   |        
|Total                      |  | $ | 372,792
|                           |  |   |        



|8. | GOODWILL AND CORE DEPOSIT PREMIUMS, NET
|-- | ---------------------------------------

There has
been no change in the $8,847,572 carrying amount of goodwill for the years ended September 30, 2006 and 2005.

As of September 30,
2006, the Company has total core deposit intangible assets of $4,350,114 net of accumulated amortization of approximately $5,240,092. Core deposit intangible assets are estimated to have a useful life of 10 years.

The amortization of core deposit premiums is reported in the interest expense on deposits line item of the Companys Consolidated
Statements of Income. Total amortization expense for core deposit intangible assets was approximately $973,204, $973,204, and $944,696 for the years ended September 30, 2006, 2005, and 2004 respectively. Amortization expense for the net
carrying amount of core deposit intangible assets at September 30, 2006 is estimated to be as follows:



|                           |  |   |          
|-------------------------- |  | - | ---------
|Years ending September 30: |  |   |          
|2007                       |  | $ | 973,204  
|2008                       |  |   | 838,883  
|2009                       |  |   | 794,109  
|2010                       |  |   | 794,109  
|2011                       |  |   | 643,060  
|After September 30, 2011   |  |   | 306,749  
|                           |  |   |          
|Total                      |  | $ | 4,350,114
|                           |  |   |          



|9. | DEPOSITS
|-- | --------

Deposits at September 30 are
summarized as follows:



|                                                                                                                            |  |      |             |      |   |            
|--------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                                                                                                            |  | 2006 |             | 2005
|Checking accounts, including noninterest-bearing deposits of $32,426,589 and $40,043,005 in 2006 and in 2005 , respectively |  | $    | 181,900,018 |      | $ | 200,411,165
|Passbook savings                                                                                                            |  |      | 34,705,369  |      |   | 45,846,512 
|Certificates of deposit                                                                                                     |  |      | 341,183,044 |      |   | 267,786,057
|                                                                                                                            |  |      |             |      |   |            
|TOTAL                                                                                                                       |  | $    | 557,788,431 |      | $ | 514,043,734
|                                                                                                                            |  |      |             |      |   |            

The aggregate amount of jumbo certificates of deposit with a minimum denomination of $100,000 was
$152,742,712 and $115,268,031 at September 30, 2006 and 2005, respectively.

At September 30, 2006, scheduled maturities of
certificates of deposit, net are as follows:



|                                   |  |       |             |  
|---------------------------------- |  | ----- | ----------- | -
|                                   |  | Total |            
|Years ending September 30:         |  |       |             |  
|2007                               |  | $     | 271,418,792 |  
|2008                               |  |       | 39,774,661  |  
|2009                               |  |       | 17,591,134  |  
|2010                               |  |       | 8,396,597   |  
|2011                               |  |       | 4,132,360   |  
|                                   |  |       |             |  
|Subtotal                           |  | $     | 341,313,544 |  
|Unamortized acquisition adjustment |  |       | (130,500    | )
|                                   |  |       |             |  
|TOTAL                              |  | $     | 341,183,044 |  
|                                   |  |       |             |  

Interest expense on deposits for the years ended September 30, 2006, 2005, and 2004, is
summarized as follows:



|                        |  |      |            |      |   |            |  |   |           
|----------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                        |  | 2006 |            | 2005 |   | 2004      
|Checking                |  | $    | 3,905,559  |      | $ | 3,191,612  |  | $ | 3,529,430 
|Savings                 |  |      | 921,980    |      |   | 851,069    |  |   | 585,210   
|Certificates of deposit |  |      | 12,277,539 |      |   | 8,189,538  |  |   | 7,505,007 
|                        |  |      |            |      |   |            |  |   |           
|TOTAL                   |  | $    | 17,105,078 |      | $ | 12,232,219 |  | $ | 11,619,647
|                        |  |      |            |      |   |            |  |   |           



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|10. | FEDERAL HOME LOAN BANK STOCK AND ADVANCES
|--- | -----------------------------------------

The
Company is required to purchase stock in the FHLB. Such stock may be redeemed at par but is not readily marketable. At September 30, 2006 and 2005, the Company had stock of $6,571,500 and $7,962,000, respectively. Pursuant to collateral
agreements with the FHLB, advances are collateralized by all of the Companys stock in the FHLB and by 75% of qualifying loans with a carrying value at September 30, 2006 and 2005, of approximately $138,991,000 and $136,740,000,
respectively. Advances at September 30, 2006 and 2005, have maturity dates as follows:



|              |  |                     |   |      |        |             |                     |      |   |        |   |            
|------------- |  | ------------------- | - | ---- | ------ | ----------- | ------------------- | ---- | - | ------ | - | -----------
|              |  | 2006                |   | 2005
|              |  | WeightedAverageRate |   |      | Amount |             | WeightedAverageRate |      |   | Amount
|September 30: |  |                     |   |      |        |             |                     |      |   |        |   |            
|2006          |  |                     |   |      | $      |            |                     | 2.93 | % |        | $ | 76,980,000 
|2007          |  | 3.99                | % |      |        | 75,500,000  |                     | 3.31 | % |        |   | 49,500,000 
|2008          |  | 3.91                | % |      |        | 10,357,965  |                     | 3.95 | % |        |   | 10,574,980 
|2009          |  | 4.43                | % |      |        | 5,000,000   |                     | 4.43 | % |        |   | 5,000,000  
|2010          |  | 7.03                | % |      |        | 4,000,000   |                     | 7.03 | % |        |   | 4,000,000  
|2011          |  | 5.06                | % |      |        | 7,000,000   |                     |      |   |        |   |           
|Thereafter    |  | 6.97                | % |      |        | 2,540,327   |                     | 6.97 | % |        |   | 2,590,417  
|              |  |                     |   |      |        |             |                     |      |   |        |   |            
|TOTAL         |  | 4.26                | % |      | $      | 104,398,292 |                     | 3.36 | % |        | $ | 148,645,397
|              |  |                     |   |      |        |             |                     |      |   |        |   |            

Interest expense on FHLB advances was $5,195,592, $4,997,198, and $3,657,921, for the years ended
September 30, 2006, 2005, and 2004, respectively. Interest rates on all FHLB advances are fixed as of September 30, 2006.



|11. | 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
liabilities. 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 liabilities. 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 years ended September 30, 2006, 2005 and 2004, interest expense incurred on the trust preferred securities totaled $1,610,239, $1,440,363, and $1,286,688, respectively. Such interest is shown under interest expense as a separate line item,
in the consolidated statements of income.



|12. | DEFERRED COMPENSATION
|--- | ---------------------

The Company has funded and
unfunded deferred compensation agreements with a former executive and non-officer members of the Board of Directors. The plans limit the ability of the executive to compete with the Company and require that the directors continue to serve for a
specified period of time. The amount of expense related to such plans for the years ended September 30, 2006, 2005, and 2004, was approximately $1,700, $14,000, and $13,000, respectively. As of September 30, 2006 and 2005, approximately
$23,000, and $302,000, respectively was payable under the remaining agreements.

On March 2, 1999, the Company, the Bank, and an
executive entered into an Employment Separation Agreement and Release (the Agreement). The Agreement provides, among other things, for the payment by the Company to the executive of $2,750,000, plus interest on the unpaid balance at the
federal funds rate as determined monthly, in installments of not less than $150,000 annually, with the entire unpaid amount due upon the executives death. The unpaid balance, including accrued interest, was approximately $1,766,000 and
$1,875,000 at September 30, 2006 and 2005, respectively.



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|13. | RETIREMENT PLAN AND 401K AND EMPLOYEE STOCK OWNERSHIP PLAN
|--- | ----------------------------------------------------------

The Company has a 401K and Employee Stock Ownership Plan (ESOP). The 401K portion of the plan has semi-annual open enrollment dates and covers all employees who have accumulated one hour of service in each year. The Company can
make either matching contributions or contribute an amount equal to a flat percentage rate, selected by discretion of the Board of Directors, applied to the base salary of each eligible employee. The Company made no contributions to the 401K portion
of the plan for the years ended September 30, 2006, 2005 and 2004.

The Company established the ESOP on March 31, 1998. The plan
covers all employees who have accumulated one year with 1,000 hours of service in each year. In 2003, the ESOP established a $2.0 million line of credit with the Company that was to be used to purchase additional shares of Company stock. In 2004,
the ESOP established a second $2.0 million line of credit with the Company that was to be used to purchase additional shares of Company stock. Both loans were collateralized by the shares that were purchased with the proceeds of the loan; as of
September 30, 2004, the ESOP owed $0.3 million on the first line of credit and $1.8 million on the second line of credit.

During
October 2004, the ESOP established a third line of credit for $3.1 million with the Company to be used to payoff the outstanding balances of $0.3 million on the first line of credit and the $1.8 million on the second line of credit and purchase up
to $1.0 million in additional shares of Company stock on or before December 31, 2005. The loan is collateralized by shares that were purchased with the proceeds of the loans; as of September 30, 2005, the ESOP owed $1.8 million on the line
of credit. As the loan is repaid, ESOP shares will be allocated to participants of the ESOP and are available for release to the participants subject to the vesting provisions of the ESOP. The Company contributed $316,757, $503,605, and $717,636,
respectively, to the ESOP in years ended September 30, 2006, 2005, and 2004.

The Company also has a supplemental retirement plan for
certain executive officers. The plan requires that a set amount be deposited into a trust each year until the executive officers reach 60 years of age. The amount of expense related to such plans was approximately $122,000, for each of the years
ended September 30, 2006, 2005, and 2004, respectively.



|14. | INCOME TAXES
|--- | ------------

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

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



|             |  |      |          |   |      |   |           |  |   |            |  
|------------ |  | ---- | -------- | - | ---- | - | --------- |  | - | ---------- | -
|             |  | 2006 |          |   | 2005 |   | 2004      | 
|Current tax  |  |      |          |   |      |   |           |  |   |            |  
|Federal      |  | $    | 498,393  |   |      | $ | 535,991   |  | $ | 2,335,897  |  
|State        |  |      | (54,950  | ) |      |   | 72,903    |  |   | 451,937    |  
|             |  |      |          |   |      |   |           |  |   |            |  
|             |  |      | 443,443  |   |      |   | 608,894   |  |   | 2,787,834  |  
|Deferred tax |  |      |          |   |      |   |           |  |   |            |  
|Federal      |  |      | (478,401 | ) |      |   | 404,860   |  |   | (1,117,427 | )
|State        |  |      | (55,592  | ) |      |   | 82,780    |  |   | (207,163   | )
|             |  |      |          |   |      |   |           |  |   |            |  
|             |  |      | (533,993 | ) |      |   | 487,640   |  |   | (1,324,590 | )
|             |  |      |          |   |      |   |           |  |   |            |  
|Total        |  | $    | (90,550  | ) |      | $ | 1,096,534 |  | $ | 1,463,244  |  
|             |  |      |          |   |      |   |           |  |   |            |  

For the year ended September 30, 2006, the Company incurred federal alternative minimum tax of
approximately $269,000 due principally to significant earnings from tax-exempt municipal bonds and the increase in the cash surrender value of officers life insurance. This amount will be available as a credit to offset regular federal tax in
future years.

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



|                                       |  |       |    |  |      |          |   |      |      |   |  |   |           |   |  |      |   |  |   |           |  
|-------------------------------------- |  | ----- | -- |  | ---- | -------- | - | ---- | ---- | - |  | - | --------- | - |  | ---- | - |  | - | --------- | -
|                                       |  | 2006  |    |  | 2005 |          |   | 2004 |     
|Expected income tax expense            |  | 34.0  | %  |  | $    | 721,847  |   |      | 34.0 | % |  | $ | 1,496,541 |   |  | 34.0 | % |  | $ | 1,672,752 |  
|Exempt income                          |  | (30.1 | )  |  |      | (639,913 | ) |      | (8.1 | ) |  |   | (358,600  | ) |  | (6.4 | ) |  |   | (314,175  | )
|Cash surrender value of life insurance |  | (5.5  | )  |  |      | (117,257 | ) |      | (2.4 | ) |  |   | (104,851  | ) |  | (2.2 | ) |  |   | (107,839  | )
|State tax, net of federal benefit      |  | (3.4  | )  |  |      | (72,958  | ) |      | 2.4  |   |  |   | 104,345   |   |  | 3.3  |   |  |   | 161,551   |  
|Other                                  |  | 0.8   |    |  |      | 17,731   |   |      | (0.6 | ) |  |   | (40,901   | ) |  | 1.0  |   |  |   | 50,955    |  
|                                       |  |       |    |  |      |          |   |      |      |   |  |   |           |   |  |      |   |  |   |           |  
|TOTAL                                  |  | (4.3  | )% |  | $    | (90,550  | ) |      | 25.3 | % |  | $ | 1,096,534 |   |  | 29.7 | % |  | $ | 1,463,244 |  
|                                       |  |       |    |  |      |          |   |      |      |   |  |   |           |   |  |      |   |  |   |           |  



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



|                                                 |  |      |            |   |      |   |            |  
|------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                 |  | 2006 |            |   | 2005 |  
|Deferred tax assets:                             |  |      |            |   |      |   |            |  
|Deferred compensation                            |  | $    | 712,092    |   |      | $ | 869,288    |  
|Allowance for loan losses                        |  |      | 1,633,504  |   |      |   | 1,857,974  |  
|Unrealized loss on available-for-sale securities |  |      | 1,221,097  |   |      |   | 980,512    |  
|Acquired deposit discount                        |  |      | 75,779     |   |      |   |           |  
|Acquired loan premium                            |  |      | 170,790    |   |      |   |           |  
|Tax credits                                      |  |      | 268,789    |   |      |   |           |  
|Other                                            |  |      | 17,271     |   |      |   | 17,946     |  
|                                                 |  |      |            |   |      |   |            |  
|Total deferred tax assets                        |  |      | 4,099,321  |   |      |   | 3,725,720  |  
|Deferred tax liabilities:                        |  |      |            |   |      |   |            |  
|Acquired core deposit intangible                 |  |      | (740,068   | ) |      |   | (1,001,136 | )
|Acquired deposit discount                        |  |      |           |   |      |   | (156,643   | )
|Acquired loan premium                            |  |      |           |   |      |   | (21,351    | )
|FHLB stock dividends                             |  |      | (315,956   | ) |      |   | (214,572   | )
|Other                                            |  |      | (407,145   | ) |      |   | (470,444   | )
|                                                 |  |      |            |   |      |   |            |  
|Total deferred tax liabilities                   |  |      | (1,463,169 | ) |      |   | (1,864,146 | )
|                                                 |  |      |            |   |      |   |            |  
|Net deferred tax asset (liability)               |  | $    | 2,636,152  |   |      | $ | 1,861,574  |  
|                                                 |  |      |            |   |      |   |            |  

The Company provides for the recognition of a deferred tax asset or liability for the future tax
consequences of differences in carrying amounts and tax bases of assets and liabilities. Specifically exempted from this provision are bad debt reserves for tax purposes of U.S. savings and loan associations in the associations base year, as
defined. Base year reserves total approximately $3,600,000. Consequently, a deferred tax liability of approximately $1,378,000 related to such reserves is not provided for in the statement of financial condition.



|15. | REGULATORY MATTERS
|--- | ------------------

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

Quantitative measures established by regulation to ensure capital adequacy require
the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to adjusted total assets (as defined), and of total capital (as defined) to risk weighted assets (as
defined). Management believes, as of September 30, 2006, that the Bank met all capital adequacy requirements to which it is subject.

As of September 30, 2006 and 2005, the most recent notification from the Office of Thrift Supervision (OTS) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total, tangible, and core capital ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the
institutions category.

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



|                                         |  |        |        |       |                                        |   |        |                                                                                       |        |  |      |        |  |       |        |  |      
|---------------------------------------- |  | ------ | ------ | ----- | -------------------------------------- | - | ------ | ------------------------------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | -----
|                                         |  | Actual |        |       | Required For Capital Adequacy Purposes |   |        | Required To Be Categorized AsWell Capitalized UnderPrompt CorrectiveAction Provisions
|                                         |  | Amount |        | Ratio |                                        |   | Amount |                                                                                       | Ratio  |  |      | Amount |  | Ratio
|As of September 30, 2006:                |  |        |        |       |                                        |   |        |                                                                                       |        |  |      |        |  |       |        |  |      
|Tangible capital to tangible assets      |  | $      | 54,579 |       | 7.51                                   | % |        | $                                                                                     | 10,906 |  | 1.50 | %      |  |       | N/A    |  | N/A  
|Core capital to adjusted tangible assets |  |        | 54,579 |       | 7.51                                   |   |        |                                                                                       | 29,084 |  | 4.00 |        |  | $     | 36,355 |  | 5.00 
|Total capital to risk weighted assets    |  |        | 57,573 |       | 12.39                                  |   |        |                                                                                       | 37,176 |  | 8.00 |        |  |       | 46,471 |  | 10.00
|Tier I capital to risk weighted assets   |  |        | 54,579 |       | 11.74                                  |   |        |                                                                                       | 18,588 |  | 4.00 |        |  |       | 27,882 |  | 6.00 
|As of September 30, 2005:                |  |        |        |       |                                        |   |        |                                                                                       |        |  |      |        |  |       |        |  |      
|Tangible capital to tangible assets      |  | $      | 49,414 |       | 6.80                                   | % |        | $                                                                                     | 10,903 |  | 1.50 | %      |  |       | N/A    |  | N/A  
|Core capital to adjusted tangible assets |  |        | 49,414 |       | 6.80                                   |   |        |                                                                                       | 29,074 |  | 4.00 |        |  | $     | 36,343 |  | 5.00 
|Total capital to risk weighted assets    |  |        | 52,623 |       | 11.50                                  |   |        |                                                                                       | 36,595 |  | 8.00 |        |  |       | 45,743 |  | 10.00
|Tier I capital to risk weighted assets   |  |        | 49,414 |       | 10.80                                  |   |        |                                                                                       | 18,297 |  | 4.00 |        |  |       | 27,446 |  | 6.00 



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|16. | RETAINED EARNINGS
|--- | -----------------

The Bank may not declare or pay
cash dividends on its shares of common stock if the effect thereof would cause the Banks stockholders equity to be reduced below applicable regulatory capital maintenance requirements for insured institutions. This requirement
effectively limits the dividend paying ability of the Company in that the Company must maintain an investment in equity of the Bank sufficient to enable the Bank to meet its requirements as noted above. Required capital amounts are shown in Note 15
to the consolidated financial statements. Liquidation account balances are not maintained because of the cost of maintenance and the remote likelihood of complete liquidation. Additionally, the Bank is limited to distributions it may make to Bancorp
without OTS approval if the distribution would cause the total distributions to exceed the Banks net income for the year to date plus the Banks net income (less distributions) for the preceding two years. Bancorp may use assets other
than its investment in the Bank as a source of dividends.



|17. | EARNINGS PER SHARE
|--- | ------------------

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

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



|                                           |  |                         |  |           |  |          
|------------------------------------------ |  | ----------------------- |  | --------- |  | ---------
|                                           |  | Year Ended September 30
|                                           |  | 2006                    |  | 2005      |  | 2004     
|Basic EPS weighted average shares          |  | 4,508,501               |  | 4,492,462 |  | 4,470,913
|Add dilutive effect of unexercised options |  | 68,764                  |  | 78,772    |  | 126,184  
|                                           |  |                         |  |           |  |          
|Dilutive EPS weighted average shares       |  | 4,577,265               |  | 4,571,234 |  | 4,597,097
|                                           |  |                         |  |           |  |          



|18. | CONTINGENCIES
|--- | -------------

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



|19. | OFF-BALANCE SHEET ARRANGEMENTS AND COMMITMENTS
|--- | ----------------------------------------------

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

At September 30, 2006, the Companys off-balance sheet arrangements principally included lending commitments, which are described
below. At September 30, 2006, the Company had no interests in non-consolidated special purpose entities. At September 30, 2006, commitments included:

Total approved loan origination commitments outstanding were $6.4 million.

Rate lock agreements with
customers of $3.7 million, all of which have been locked with an investor.

Undisbursed balances of construction loans of $5.8 million.

Total unused lines of credit of $26.9 million.

Outstanding letters of credit of $0.7 million.

Total certificates of deposit scheduled to mature in one
year or less of $271.3 million.

Total unfunded commitments to originate loans for sale and the related commitments to sell of $3.7 million
meet the definition of a derivative financial instrument; the related asset and liability are considered immaterial at September 30, 2006.

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

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

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



53



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##### Table of Contents

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

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

The Company has not incurred any losses on its commitments in any of the three years in the period ended September 30, 2006.



|20. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

In the normal course of
business, the Company has made loans to its directors, officers, and their related business interests. In the opinion of management, related party loans are made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of loans outstanding to directors, officers, and their related business interests
total approximately $14,886,239, and $13,110,829 at September 30, 2006, and 2005, respectively. During the year ended September 30, 2006, total principal additions were $7,977,280 and total principal reductions were $6,201,870.

Deposits from related parties held by the Company at September 30, 2006, and 2005, amounted to $5,586,355 and $4,823,108, respectively.



|21. | RESTRICTED STOCK AWARD PROGRAMS AND STOCK OPTION PLANS
|--- | ------------------------------------------------------

1998 Stock Option Plan -

The Companys stockholders adopted the 1998 Stock Option Plan (SOP) on
October 23, 1998. The SOP provides for a committee of the Companys Board of Directors to award any one or a combination of incentive stock options, non-statutory or compensatory stock options, limited rights, dividend equivalent rights
and reload options, representing up to 357,075 shares of the Companys stock. The options will vest in equal amounts over five years beginning one year from the date of grant. Options granted vest immediately in the event of retirement,
disability, or death and are generally exercisable for a three year period following such event. Outstanding stock options expire no later than 10 years from the date of grant. Under the SOP, options have been granted to directors and key employees
of the Company. The exercise price in each case equals the fair market value of the Companys stock at the date of grant. The Company granted 350,000 options on October 23, 1998, which have an exercise price of $9.00 per share, the fair
value of the stock on that date. The weighted average remaining contractual life of the options as of September 30, 2006, is 2.1 years.

Stock Options Assumed in Acquisition -

During the year ended September 30, 2002, the Company completed its
acquisition of North Arkansas Bancshares, Inc. The Company assumed 30,970 in stock options granted to employees and directors of North Arkansas Bancshares, Inc. related to such acquisition. All options granted to non-employee directors shall expire
one year after the non-employee director ceases to maintain continuous service.

A summary of the activity of the Companys stock
option plans is as follows:



|                                          |  |         |  |                                 |     
|----------------------------------------- |  | ------- |  | ------------------------------- | ----
|                                          |  | Shares  |  | Weighted Average Exercise Price
|Outstanding at October 01, 2004           |  | 190,831 |  | $                               | 8.77
|                                          |  |         |  |                                 |     
|Granted                                   |  |        |  |                                 |     
|Exercised                                 |  |        |  |                                 |     
|Forfeited                                 |  |        |  |                                 |     
|                                          |  |         |  |                                 |     
|Outstanding at September 30, 2005         |  | 190,831 |  | $                               | 8.77
|                                          |  |         |  |                                 |     
|Granted                                   |  |        |  |                                 |     
|Exercised                                 |  |        |  |                                 |     
|Forfeited                                 |  |        |  |                                 |     
|                                          |  |         |  |                                 |     
|Outstanding at September 30, 2006         |  | 190,831 |  | $                               | 8.77
|                                          |  |         |  |                                 |     
|Options exercisable at September 30, 2004 |  | 190,831 |  | $                               | 8.77
|                                          |  |         |  |                                 |     
|Options exercisable at September 30, 2005 |  | 190,831 |  | $                               | 8.77
|                                          |  |         |  |                                 |     
|Options exercisable at September 30, 2006 |  | 190,831 |  | $                               | 8.77
|                                          |  |         |  |                                 |     



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1998 Recognition Plan

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

Compensation expense was recognized based on the fair market value of the shares on the grant date of $9.00 over the vesting period.
The shares vested equally over a five year period with the first vesting date of January 3, 2000. All expense associated with this plan has been recognized.



|22. | OTHER COMPREHENSIVE INCOME
|--- | --------------------------



|                                                                   |  |                               |            |   |            |   |                  |  |   |            |  
|------------------------------------------------------------------ |  | ----------------------------- | ---------- | - | ---------- | - | ---------------- |  | - | ---------- | -
|                                                                   |  | Year Ended September 30, 2006 |           
|                                                                   |  | Before TaxAmount              |            |   | TaxBenefit |   | Net-of-TaxAmount | 
|UNREALIZED GAINS (LOSSES) ON SECURITIES:                           |  |                               |            |   |            |   |                  |  |   |            |  
|Unrealized holding gain (loss) on securities arising during period |  | $                             | (214,612   | ) |            | $ | 72,968           |  | $ | (141,644   | )
|Less reclassification adjustment for gains included in net income  |  |                               | (269,941   | ) |            |   | 91,780           |  |   | (178,161   | )
|                                                                   |  |                               |            |   |            |   |                  |  |   |            |  
|Other comprehensive income (loss)                                  |  | $                             | (484,553   | ) |            | $ | 164,748          |  | $ | (319,805   | )
|                                                                   |  |                               |            |   |            |   |                  |  |   |            |  
|                                                                   | 
|                                                                   |  | Year Ended September 30, 2005 |           
|                                                                   |  | Before TaxAmount              |            |   | TaxBenefit |   | Net-of-TaxAmount | 
|UNREALIZED GAINS (LOSSES) ON SECURITIES:                           |  |                               |            |   |            |   |                  |  |   |            |  
|Unrealized holding gain (loss) on securities arising during period |  | $                             | (2,161,632 | ) |            | $ | 734,955          |  | $ | (1,426,677 | )
|Less reclassification adjustment for gains included in net income  |  |                               | (565,939   | ) |            |   | 192,419          |  |   | (373,520   | )
|                                                                   |  |                               |            |   |            |   |                  |  |   |            |  
|Other comprehensive income (loss)                                  |  | $                             | (2,727,571 | ) |            | $ | 927,374          |  | $ | (1,800,197 | )
|                                                                   |  |                               |            |   |            |   |                  |  |   |            |  
|                                                                   | 
|                                                                   |  | Year Ended September 30, 2004 |           
|                                                                   |  | Before TaxAmount              |            |   | TaxBenefit |   | Net-of-TaxAmount | 
|UNREALIZED GAINS (LOSSES) ON SECURITIES:                           |  |                               |            |   |            |   |                  |  |   |            |  
|Unrealized holding gain (loss) on securities arising during period |  | $                             | (2,063,261 | ) |            | $ | 701,509          |  | $ | (1,361,752 | )
|Less reclassification adjustment for gains included in net income  |  |                               | (385,867   | ) |            |   | 131,195          |  |   | (254,672   | )
|                                                                   |  |                               |            |   |            |   |                  |  |   |            |  
|Other comprehensive income (loss)                                  |  | $                             | (2,449,128 | ) |            | $ | 832,704          |  | $ | (1,616,424 | )
|                                                                   |  |                               |            |   |            |   |                  |  |   |            |  



|23. | MERGER AGREEMENT
|--- | ----------------

On July 26, 2006, the
Company entered into a definitive agreement with IBERIABANK Corporation (IBERIABANK) pursuant to which IBERIABANK will acquire the Company. According to the agreement, shareholders of Bancorp will receive 0.2781 share of IBERIABANK
common stock per outstanding share of Bancorp common stock. The merger consideration is not subject to caps or collars. The transaction is expected to be consummated in the first calendar quarter of 2007, subject to regulatory and Bancorp
shareholder approvals. Subsequent to completion of the merger, First Community Bank will operate as a separately chartered banking subsidiary of IBERIABANK.



|24. | PARENT COMPANY ONLY FINANCIAL INFORMATION
|--- | -----------------------------------------

The
following condensed statements of financial condition as of September 30, 2006 and 2005, and condensed statements of income and cash flows for the years ended September 30, 2006, 2005 and 2004, for Pocahontas Bancorp, Inc. should be read
in conjunction with the consolidated financial statements and the notes herein.



55



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POCAHONTAS BANCORP, INC.

(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 30, 2006 AND 2005



|                                           |  |      |            |      |   |           
|------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                                           |  | 2006 |            | 2005
|ASSETS                                     |  |      |            |      |   |           
|Cash                                       |  | $    | 20,690     |      | $ |          
|Deposit in Bank                            |  |      | 4,916,039  |      |   | 6,297,468 
|Investment in Bank                         |  |      | 65,340,575 |      |   | 62,061,533
|Loan receivable                            |  |      | 1,815,885  |      |   | 2,056,529 
|Investment securities                      |  |      | 903,470    |      |   | 3,126,044 
|Other assets                               |  |      | 1,747,576  |      |   | 1,323,652 
|                                           |  |      |            |      |   |           
|TOTAL ASSETS                               |  | $    | 74,744,235 |      | $ | 74,865,226
|                                           |  |      |            |      |   |           
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |      |            |      |   |           
|Accrued expenses and other liabilities     |  | $    | 3,038,363  |      | $ | 3,659,300 
|Deferred compensation                      |  |      | 1,766,221  |      |   | 1,874,989 
|Trust preferred securities                 |  |      | 16,983,450 |      |   | 16,962,683
|Stockholders equity                       |  |      | 52,956,201 |      |   | 52,368,254
|                                           |  |      |            |      |   |           
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |  | $    | 74,744,235 |      | $ | 74,865,226
|                                           |  |      |            |      |   |           

CONDENSED STATEMENTS OF INCOME

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004



|                                                                                            |  |      |            |   |      |   |           |  |   |            |  
|------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- |  | - | ---------- | -
|                                                                                            |  | 2006 |            |   | 2005 |   | 2004      | 
|INCOME:                                                                                     |  |      |            |   |      |   |           |  |   |            |  
|Dividend from the Bank                                                                      |  | $    |           |   |      | $ | 4,000,000 |  | $ | 5,500,000  |  
|Interest and investment income                                                              |  |      | 543,898    |   |      |   | 497,144   |  |   | 536,154    |  
|                                                                                            |  |      |            |   |      |   |           |  |   |            |  
|Total Income                                                                                |  |      | 543,898    |   |      |   | 4,497,144 |  |   | 6,036,154  |  
|EXPENSES:                                                                                   |  |      |            |   |      |   |           |  |   |            |  
|Interest expense                                                                            |  |      | 1,703,511  |   |      |   | 1,568,526 |  |   | 1,335,162  |  
|Operating expenses                                                                          |  |      | 1,090,918  |   |      |   | 748,985   |  |   | 671,960    |  
|                                                                                            |  |      |            |   |      |   |           |  |   |            |  
|Total Expenses                                                                              |  |      | 2,794,429  |   |      |   | 2,317,511 |  |   | 2,007,122  |  
|                                                                                            |  |      |            |   |      |   |           |  |   |            |  
|EARNINGS (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY |  |      | (2,250,531 | ) |      |   | 2,179,633 |  |   | 4,029,032  |  
|INCOME TAX BENEFIT                                                                          |  |      | 887,836    |   |      |   | 726,535   |  |   | 517,437    |  
|                                                                                            |  |      |            |   |      |   |           |  |   |            |  
|EARNINGS (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY                  |  |      | (1,362,695 | ) |      |   | 2,906,168 |  |   | 4,546,469  |  
|EQUITY IN UNDISTRIBUTED EARNINGS (DISTRIBUTIONS IN EXCESS OF EARNINGS) OF BANK SUBSIDIARY   |  |      | 3,576,325  |   |      |   | 332,888   |  |   | (1,089,855 | )
|                                                                                            |  |      |            |   |      |   |           |  |   |            |  
|NET INCOME                                                                                  |  | $    | 2,213,630  |   |      | $ | 3,239,056 |  | $ | 3,456,614  |  
|                                                                                            |  |      |            |   |      |   |           |  |   |            |  



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POCAHONTAS BANCORP, INC.

(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004



|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                  |  | 2006 |            |   | 2005 |   |            | 2004 | 
|OPERATING ACTIVITIES:                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Net income                                                                        |  | $    | 2,213,630  |   |      | $ | 3,239,056  |      |  | $ | 3,456,614  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |            |   |      |   |            |      |  |   |            |  
|Equity in undistributed earnings of Bank subsidiary                               |  |      | (3,576,325 | ) |      |   | (332,888   | )    |  |   | 1,089,855  |  
|ESOP allocation                                                                   |  |      | 213,056    |   |      |   | 335,987    |      |  |   |           |  
|Amortization                                                                      |  |      | 20,767     |   |      |   | 20,766     |      |  |   | 20,767     |  
|Gain on sales of securities                                                       |  |      | (265,857   | ) |      |   |           |      |  |   |           |  
|Changes in operating assets and liabilities:                                      |  |      |            |   |      |   |            |      |  |   |            |  
|Trading securities                                                                |  |      | (442,256   | ) |      |   | (1,143,679 | )    |  |   | (485,113   | )
|Loan receivable                                                                   |  |      | 240,644    |   |      |   | 34,696     |      |  |   | (1,553,104 | )
|Other assets                                                                      |  |      | (412,324   | ) |      |   | (559,079   | )    |  |   | 166,505    |  
|Accrued expenses and other liabilities                                            |  |      | (697,046   | ) |      |   | 623,938    |      |  |   | (74,045    | )
|Deferred compensation                                                             |  |      | (108,769   | ) |      |   | (107,945   | )    |  |   | (125,737   | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash (used) provided by operating activities                                  |  |      | (2,814,480 | ) |      |   | 2,110,852  |      |  |   | 2,495,742  |  
|INVESTING ACTIVITIES:                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Proceeds from sales of investments                                                |  |      | 2,896,563  |   |      |   |           |      |  |   |           |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by investing activities                                         |  |      | 2,896,563  |   |      |   |           |      |  |   |           |  
|FINANCING ACTIVITIES:                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Options exercised                                                                 |  |      |           |   |      |   |           |      |  |   | 924,703    |  
|Dividends paid                                                                    |  |      | (1,442,822 | ) |      |   | (1,438,506 | )    |  |   | (1,442,791 | )
|Purchase of treasury stock                                                        |  |      |           |   |      |   |           |      |  |   | (230,344   | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash used by financing activities                                             |  |      | (1,442,822 | ) |      |   | (1,438,506 | )    |  |   | (748,432   | )
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|NET INCREASE (DECREASE) IN                                                        |  |      |            |   |      |   |            |      |  |   |            |  
|CASH AND CASH EQUIVALENTS                                                         |  |      | (1,360,739 | ) |      |   | 672,346    |      |  |   | 1,747,310  |  
|CASH AND CASH EQUIVALENTS:                                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Beginning of year                                                                 |  |      | 6,297,468  |   |      |   | 5,625,122  |      |  |   | 3,877,812  |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|End of year                                                                       |  | $    | 4,936,729  |   |      | $ | 6,297,468  |      |  | $ | 5,625,122  |  
|                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  



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|25. | QUARTERLY FINANCIAL DATA (UNAUDITED)
|--- | ------------------------------------

The following
tables represent summarized data for each of the four quarters in the years ended September 30, 2006 and 2005:



|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|--------------------------------------------------- |  | ------------------------------------------ | ------ | - | ------------ | - | ----- | ------------- |  | - | ------------ | - |  | - | -----
|                                                    |  | 2006 (in thousands, except per share data)
|                                                    |  | FourthQuarter                              |        |   | ThirdQuarter |   |       | SecondQuarter |  |   | FirstQuarter
|Interest income                                     |  | $                                          | 10,145 |   |              | $ | 9,816 |               |  | $ | 9,770        |   |  | $ | 9,451
|Interest expense                                    |  |                                            | 6,550  |   |              |   | 6,204 |               |  |   | 5,879        |   |  |   | 5,498
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Net interest income                                 |  |                                            | 3,595  |   |              |   | 3,612 |               |  |   | 3,891        |   |  |   | 3,953
|Provision for loan losses                           |  |                                            | 535    |   |              |   |      |               |  |   | 310          |   |  |   |     
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Net interest income after provision for loan losses |  |                                            | 3,060  |   |              |   | 3,612 |               |  |   | 3,581        |   |  |   | 3,953
|Non-interest income                                 |  |                                            | 1,065  |   |              |   | 1,150 |               |  |   | 1,352        |   |  |   | 1,455
|Non-interest expense                                |  |                                            | 4,247  |   |              |   | 4,161 |               |  |   | 4,379        |   |  |   | 4,317
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Income before income taxes                          |  |                                            | (122   | ) |              |   | 601   |               |  |   | 554          |   |  |   | 1,091
|Income tax expense (benefit)                        |  |                                            | (209   | ) |              |   | (38   | )             |  |   | (77          | ) |  |   | 234  
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Net income                                          |  | $                                          | 87     |   |              | $ | 639   |               |  | $ | 631          |   |  | $ | 857  
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Basic earnings per share                            |  | $                                          | 0.02   |   |              | $ | 0.14  |               |  | $ | 0.14         |   |  | $ | 0.19 
|Diluted earnings per share                          |  | $                                          | 0.01   |   |              | $ | 0.14  |               |  | $ | 0.14         |   |  | $ | 0.19 
|Cash dividends declared per common share            |  | $                                          | 0.08   |   |              | $ | 0.08  |               |  | $ | 0.08         |   |  | $ | 0.08 
|                                                    | 
|                                                    |  | 2005 (in thousands, except per share data)
|                                                    |  | Fourth Quarter                             |        |   | ThirdQuarter |   |       | SecondQuarter |  |   | FirstQuarter
|Interest income                                     |  | $                                          | 9,071  |   |              | $ | 9,059 |               |  | $ | 8,724        |   |  | $ | 8,778
|Interest expense                                    |  |                                            | 5,102  |   |              |   | 4,862 |               |  |   | 4,567        |   |  |   | 4,411
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Net interest income                                 |  |                                            | 3,969  |   |              |   | 4,197 |               |  |   | 4,157        |   |  |   | 4,367
|Provision for loan losses                           |  |                                            | 400    |   |              |   |      |               |  |   |             |   |  |   | 125  
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Net interest income after provision for loan losses |  |                                            | 3,569  |   |              |   | 4,197 |               |  |   | 4,157        |   |  |   | 4,242
|Non-interest income                                 |  |                                            | 1,572  |   |              |   | 1,734 |               |  |   | 819          |   |  |   | 1,551
|Non-interest expense                                |  |                                            | 4,427  |   |              |   | 4,653 |               |  |   | 4,325        |   |  |   | 4,100
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Income before income taxes                          |  |                                            | 714    |   |              |   | 1,278 |               |  |   | 651          |   |  |   | 1,693
|Income tax expense (benefit)                        |  |                                            | (140   | ) |              |   | 440   |               |  |   | 221          |   |  |   | 576  
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Net income                                          |  | $                                          | 854    |   |              | $ | 838   |               |  | $ | 430          |   |  | $ | 1,117
|                                                    |  |                                            |        |   |              |   |       |               |  |   |              |   |  |   |      
|Basic earnings per share                            |  | $                                          | 0.19   |   |              | $ | 0.19  |               |  | $ | 0.09         |   |  | $ | 0.25 
|Diluted earnings per share                          |  | $                                          | 0.19   |   |              | $ | 0.19  |               |  | $ | 0.09         |   |  | $ | 0.24 
|Cash dividends declared per common share            |  | $                                          | 0.08   |   |              | $ | 0.08  |               |  | $ | 0.08         |   |  | $ | 0.08 



|26. | RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
|--- | ------------------------------------------------

Subsequent to the issuance of the Companys consolidated financial statements included in its Form 10-K/A for the year ended September 30, 2005, the Company determined that a restatement of the amounts for the taxable and nontaxable
securities interest income line items of the consolidated statement of income for the year ended September 30, 2004 was necessary due to a classification error. The previously reported nontaxable securities interest income of $0.3 million was
understated by $0.6 million and the previously reported taxable securities interest income of $11.8 million was overstated by $0.6 million for the year ended September 30, 2004. The reclassification within securities interest income had no effect on
total interest income or any other financial statement line item. In addition, the Company determined that amounts previously presented in the Companys consolidated statements of cash flows for the years ended September 30, 2005 and 2004
contained errors related to the Companys transfers from loans to real estate acquired, or deemed acquired, through foreclosure and the loans originated to finance the sale of real estate acquired through foreclosure. As a result, the
accompanying consolidated statements of cash flows for the years ended September 30, 2005, and 2004 have been restated to eliminate the effect of the non cash transactions from both the investing activities and operating activities sections. These
corrections resulted in an increase in net cash provided by operating activities and a corresponding decrease in cash provided by (or increase in cash used in) investing activities of $2.2 million, and $2.7 million from those amounts previously
restated in the consolidated statements of cash flows for the years ended September 30, 2005 and 2004, respectively. There was no change in the net increase (decrease) in cash resulting from these corrections. Further, these changes had no effect on
the Companys consolidated statements of income, consolidated statements of financial condition, or consolidated statements of shareholders equity.



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As previously reported in its Form 10-K/A for the year ended September 30, 2005, the Company had also
previously determined that amounts presented in the Companys consolidated statement of cash flows for the year ended September 30, 2005, reflected an error in the presentation of the Companys investment securities that were purchased,
but not yet settled, at September 30, 2005. An error in the presentation of the receipt of stock dividends paid on FHLB stock has also been corrected for the years ended September 30, 2005 and 2004. As a result, the consolidated statement of cash
flows for the year ended September 30, 2005 has previously been restated to present the purchase of securities not yet settled at September 30, 2005 as a non-cash activity rather than in the investing activities and operating activities sections.
The amounts presented in the Companys consolidated statements of cash flows for the years ended September 30, 2005 and 2004 also reflect a correction in the presentation of the receipt of stock dividends on FHLB stock as an adjustment to
reconcile net income to net cash provided by operating activities rather than investing activities. There was no change in the net increase (decrease) in cash resulting from either of these corrections. Further, these changes had no effect on the
Companys consolidated statements of income, consolidated statements of financial condition, or consolidated statements of shareholders equity.

The effect of the restatements on the Companys consolidated statements of cash flows for the years ended September 30, 2005 and 2004 is reflected in the table below:

Consolidated statement of cash flows:



|                                                                        |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  
|----------------------------------------------------------------------- |  | --------------------- | ----------- | - | --------------------- | - | ----------- | -------------------- |  | - | --------------------- | - |  | --------------------- | ------------ | - | -------------------- | - | ------------ | - |  | - | ------------ | -
|                                                                        |  | 2005                  |             |   | 2004                  |  
|                                                                        |  | As originallyreported |             |   | As previouslyrestated |   |             | As currentlyrestated |  |   | As originallyreported |   |  | As previouslyrestated |              |   | As currentlyrestated |  
|OPERATING ACTIVITIES:                                                   |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  
|Stock dividends on FHLB stock                                           |  | $                     |            |   |                       | $ | (257,700    | )                    |  | $ | (257,700              | ) |  | $                     |             |   |                      | $ | (113,400     | ) |  | $ | (113,400     | )
|Changes in operating assets and liabilities:                            |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  
|Other assets                                                            |  |                       | (3,308,409  | ) |                       |   | (3,308,409  | )                    |  |   | (1,123,662            | ) |  |                       | (874,352     | ) |                      |   | (874,352     | ) |  |   | 1,832,607    |  
|Accrued expenses and other liabilities                                  |  |                       | 3,743,021   |   |                       |   | 1,313,021   |                      |  |   | 1,313,021             |   |  |                       | (798,322     | ) |                      |   | (798,322     | ) |  |   | (798,322     | )
|Net cash provided by operating activities                               |  |                       | 3,586,039   |   |                       |   | 898,339     |                      |  |   | 3,083,086             |   |  |                       | 8,100,223    |   |                      |   | 7,986,823    |   |  |   | 10,693,782   |  
|INVESTING ACTIVITIES:                                                   |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  
|Purchases of available for sale and held to maturity securities         |  |                       | (83,004,357 | ) |                       |   | (80,574,357 | )                    |  |   | (80,574,357           | ) |  |                       | (112,557,349 | ) |                      |   | (112,557,349 | ) |  |   | (112,557,349 | )
|Net (increase) decrease in FHLB Bank stock                              |  |                       | (36,100     | ) |                       |   | 221,600     |                      |  |   | 221,600               |   |  |                       | (2,342,200   | ) |                      |   | (2,228,800   | ) |  |   | (2,228,800   | )
|Increase in loans, net                                                  |  |                       | (44,679,765 | ) |                       |   | (44,679,765 | )                    |  |   | (46,043,012           | ) |  |                       | (277,502     | ) |                      |   | (277,502     | ) |  |   | (1,834,799   | )
|Proceeds from sale of REO                                               |  |                       | 1,810,175   |   |                       |   | 1,810,175   |                      |  |   | 988,675               |   |  |                       | 2,031,355    |   |                      |   | 2,031,355    |   |  |   | 881,693      |  
|Net cash provided (used) by investing activities                        |  |                       | (31,199,393 | ) |                       |   | (28,511,693 | )                    |  |   | (30,696,440           | ) |  |                       | 39,461,725   |   |                      |   | 39,575,125   |   |  |   | 36,868,166   |  
|FINANCING ACTIVITIES:                                                   |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  
|Net cash provided (used) by financing activities                        |  |                       | 15,806,314  |   |                       |   | 15,806,314  |                      |  |   | 15,806,314            |   |  |                       | (34,363,946  | ) |                      |   | (34,363,946  | ) |  |   | (34,363,946  | )
|NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS                      |  |                       | (11,807,040 | ) |                       |   | (11,807,040 | )                    |  |   | (11,807,040           | ) |  |                       | 13,198,002   |   |                      |   | 13,198,002   |   |  |   | 13,198,002   |  
|CASH AND DUE FROM BANKS, AT BEGINNING OF PERIOD                         |  |                       | 35,218,491  |   |                       |   | 35,218,491  |                      |  |   | 35,218,491            |   |  |                       | 22,020,489   |   |                      |   | 22,020,489   |   |  |   | 22,020,489   |  
|                                                                        |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  
|CASH AND DUE FROM BANKS, AT END OF PERIOD                               |  | $                     | 23,411,451  |   |                       | $ | 23,411,451  |                      |  | $ | 23,411,451            |   |  | $                     | 35,218,491   |   |                      | $ | 35,218,491   |   |  | $ | 35,218,491   |  
|                                                                        |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  
|Purchase of securities not yet settled                                  |  | $                     |            |   |                       | $ | 2,430,000   |                      |  | $ | 2,430,000             |   |  | $                     |             |   |                      | $ |             |   |  | $ |             |  
|                                                                        |  |                       |             |   |                       |   |             |                      |  |   |                       |   |  |                       |              |   |                      |   |              |   |  |   |              |  



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

On June 21, 2006, the Audit Committee of the Company approved the dismissal of Deloitte & Touche, LLP as the Companys independent registered public accounting firm, effective for fiscal year 2006.
The audit reports of Deloitte & Touche, LLP on the financial statements of the Company for the years ended September 30, 2005 and 2004 did not contain an adverse opinion or disclaimer of opinion, nor were the reports qualified or
modified as to uncertainty, audit scope or accounting principles.

On June 21, 2006, the Company approved BKD, LLP as the Companys new
independent registered public accounting firm for the fiscal year 2006 subject to their normal acceptance procedures. During the two most recent fiscal years and the subsequent interim period through the date of the dismissal of Deloitte &
Touche, LLP, the Company did not consult with BKD, LLP regarding any matters described in Item 304(a)(2)(i) or (ii) of Regulation S-K.

Reference
is made to the Companys Current Report on Form 8-K, which was filed with the SEC on June 26, 2006 and contains additional details regarding the transaction.

On October 4, 2006, the Audit Committee of the Company accepted the resignation of BKD, LLP as the Companys independent registered public accounting firm. BKD, LLP, which was initially engaged by the
Company on June 21, 2006, cited the Companys impending merger with IBERIABANK Corporation as the reason for its resignation. The merger was announced on July 27, 2006. Because of the brevity of its engagement, BKD, LLP did not
produce an audit report on the financial statements of the Company for either of the years in the two-year period ended September 30, 2006.

On
October 4, 2006, the Audit Committee of the Company approved the engagement of KraftCPAs, PLLC as the Companys new independent registered public accounting firm for the fiscal year ended September 30, 2006. During the two most recent
fiscal years and the subsequent interim period through the date of the resignation of BKD, LLP, the Company did not consult with KraftCPAs, PLLC regarding any matters described in Item 304(a)(2)(i)or (ii) of Regulation S-K.

Reference is made to the Companys Current Report on Form 8-K, which was filed with the SEC on October 10, 2006 and contains additional details regarding the
transaction.



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

Evaluation of Disclosure
Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed
in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SECs rules and forms. In designing and evaluating the disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and
management is required to apply judgment in evaluating its controls and procedures.



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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 of the end of the period covered by this report. Based upon the October 26, 2006 evaluation, the Chief
Executive Officer and Chief Financial Officer previously concluded that, as of the end of the period covered by this report, the Companys disclosure controls and procedures were effective. Subsequent to the date of that evaluation, December
20, 2006, management considered the restatement of the Companys consolidated financials statements and concluded that the restatement itself was an indicator of a material weakness related to controls over the preparation and review of its
consolidated statement of cash flows. Based on such considerations, the Companys Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2006, the Companys disclosure controls and procedures were not
effective because of the material weakness described below. Specifically, the Company did not maintain effective controls to appropriately classify the presentation of transfers from loans to real estate acquired, or deemed acquired, through
foreclosure and the loans originated to finance the sale of real estate acquired through foreclosure, as discussed in Note 26 to the accompanying consolidated financial statements.

Changes in Internal Controls Over Financial Reporting

In an effort to reduce the possibility of classification
errors in the future, the Company has modified the internal controls over the preparation and review of its consolidated statements of cash flows during the first quarter of 2007. Management has implemented a process to aid in ensuring the correct
classification of items included in the consolidated statements of cash flows, including a detailed statement of cash flows preparation checklist and an additional level of review by a qualified individual, not involved in the preparation of the
document. Accordingly, management believes that this process will accentuate the internal controls already in place and remediate the material weakness discussed above. There have been no other changes made in the Companys internal controls
over financial reporting that occurred during the Companys last fiscal quarter that have materially affected or are reasonably likely to materially affect the Companys internal control over financial reporting.



|ITEM 9B | OTHER INFORMATION
|------- | -----------------

None.



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##### Table of Contents

PART III



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



|                               |  |        |  |                                                 |  |                |  |                      |  |                                                        |  |                |  
|------------------------------ |  | ------ |  | ----------------------------------------------- |  | -------------- |  | -------------------- |  | ------------------------------------------------------ |  | -------------- | -
|Name (1)                       |  | Age(4) |  | Positions Held in the Company                   |  | ServedSince(2) |  | CurrentTerm toExpire |  | Shares ofCommonStockBeneficiallyOwned onRecordDate (3) |  | PercentOfClass |  
|Directors Continuing in Office |  |        |  |                                                 |  |                |  |                      |  |                                                        |  |                |  
|James A. Edington              |  | 56     |  | Director                                        |  | 1994           |  | 2008                 |  | 314,744                                                |  | 6.8            | %
|Bruce Burrow                   |  | 63     |  | Director                                        |  | 2005           |  | 2008                 |  | 123,000                                                |  | 2.6            | %
|Ralph P. Baltz                 |  | 58     |  | Chairman of the Board                           |  | 1986           |  | 2009                 |  | 188,274                                                |  | 4.1            | %
|Marcus Van Camp                |  | 58     |  | Director                                        |  | 1990           |  | 2009                 |  | 48,752                                                 |  | 1.0            | %
|Nominees                       |  |        |  |                                                 |  |                |  |                      |  |                                                        |  |                |  
|Dwayne Powell                  |  | 42     |  | President, Chief Executive Officer and Director |  | 2000           |  | 2007                 |  | 214,733                                                |  | 4.6            | %
|N. Ray Campbell                |  | 57     |  | Director                                        |  | 1992           |  | 2007                 |  | 35,591                                                 |  | 0.8            | %
|A.J. Baltz, Jr.                |  | 79     |  | Director                                        |  | 2001           |  | 2007                 |  | 158,752                                                |  | 3.4            | %
|Executive Officers             |  |        |  |                                                 |  |                |  |                      |  |                                                        |  |                |  
|Terry Davis                    |  | 47     |  | Chief Financial Officer                         |  | 2001           |  | N/A                  |  | 22,402                                                 |  | 0.5            | %
|Brad Snider                    |  | 46     |  | Chief Operating Officer                         |  | 2002           |  | N/A                  |  | 46,770                                                 |  | 1.0            | %



|(1) | The mailing address for each person listed is 1700 East Highland Drive, Jonesboro, AR 72401. Each of the directors listed is also a director of First Community Bank (the
Bank), the Companys wholly owned subsidiary.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Reflects initial appointment to the Board of Directors of the Companys mutual predecessor for directors who have served since earlier than 1994.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | See definition of beneficial ownership in the table Beneficial Ownership of Common Stock.
|--- | ---------------------------------------------------------------------------------------------



|(4) | As of December 20, 2006
|--- | -----------------------

Board of Directors

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

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

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

Marcus Van Camp is retired. Prior to his retirement, Mr. Van Camp was Superintendent of Schools at Pocahontas Public Schools for over 30 years.

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

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

Bruce Burrow is a commercial real estate developer and a Governor-appointed Commissioner
to the Arkansas Department of Economic Development. Mr. Burrow is partner of the Jonesboro-based MBC Holdings, LLC (formerly Belz-Burrow Development Group); is president of Realty Associates Development Group; and is chairman of Burrow Halsey
Realty Group, Inc. He also serves on the board of directors for the Craighead County Jail, Jonesboro Unlimited and the Cardiology Associates Foundation.

Terry Davisis the Chief Financial Officer of the Company and the Bank and was appointed to those positions in August 2002. Previously she served the Company and the Bank as Controller and has been employed by the Bank since
1986.



62



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##### Table of Contents

Brad Snideris the Chief Operating Officer of the Company and the Bank and was appointed to those positions in
June 2002. Previously he served as the President and Chief Executive Officer of North Arkansas Bancshares, Inc. from July 1991 through June 2002 when that company merged into the Company. Mr. Snider also serves on the Board of Directors
for the Bank.

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, N. Ray Campbell, A. J. Baltz, Jr., and Bruce Burrow.

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. The Code of Ethics is available at the Companys website, www.fcb-online.com, and will be provided, without charge, upon written request to the Corporate Secretary,
1700 E. Highland Drive, Jonesboro, AR 72401.



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

The following table sets forth for
the years ended September 30, 2006, 2005 and 2004, certain information as to the total remuneration paid by the Company to the Chief Executive Officer and those other executive officers whose total remuneration exceeded $100,000 (the
Named Executive Officers). No other executive officer received salary and bonuses exceeding $100,000 in the year ended September 30, 2006.



|                            |  |                   |  |                     |         |        |   |                          |  |                          |  |                 |  |             |  |                          |  |       
|--------------------------- |  | ----------------- |  | ------------------- | ------- | ------ | - | ------------------------ |  | ------------------------ |  | --------------- |  | ----------- |  | ------------------------ |  | ------
|                            |  |                   |  |                     |         |        |   |                          |  | Long-Term Compensation  
|                            |  |                   |  | Annual Compensation |         | Awards |   | Payouts                 
|Name and Principal Position |  | YearEndedSept.30, |  | Salary (1)          |         | Bonus  |   | OtherAnnualCompen-sation |  | RestrictedStockAwards(3) |  | Options/SARS(#) |  | LTIPPayouts |  | AllOtherCompen-sation(2)
|Dwayne Powell               |  | 2006              |  | $                   | 264,507 |        | $ |                         |  |                         |  |                |  |            |  |                         |  | 17,467
|President and Chief         |  | 2005              |  |                     | 264,507 |        |   |                         |  |                         |  |                |  |            |  |                         |  | 14,204
|Executive Officer           |  | 2004              |  |                     | 261,000 |        |   | 60,507                   |  |                         |  |                |  |            |  |                         |  | 38,284
|Brad Snider,                |  | 2006              |  |                     | 165,507 |        |   |                         |  |                         |  |                |  |            |  |                         |  | 9,691 
|Chief Operating Officer     |  | 2005              |  |                     | 161,007 |        |   |                         |  |                         |  |                |  |            |  |                         |  | 11,340
|                            |  | 2004              |  |                     | 150,136 |        |   | 25,507                   |  |                         |  |                |  |            |  |                         |  | 26,210
|Terry Davis,                |  | 2006              |  |                     | 134,507 |        |   |                         |  |                         |  |                |  |            |  |                         |  | 12,500
|Chief Financial Officer     |  | 2005              |  |                     | 134,507 |        |   |                         |  |                         |  |                |  |            |  |                         |  | 9,675 
|                            |  | 2004              |  |                     | 122,750 |        |   | 25,507                   |  |                         |  |                |  |            |  |                         |  | 29,627
|Ralph Baltz,                |  | 2006              |  |                     | 73,507  |        |   |                         |  |                         |  |                |  |            |  |                         |  | 5,157 
|Chairman of the Board       |  | 2005              |  |                     | 73,507  |        |   |                         |  |                         |  |                |  |            |  |                         |  | 6,256 
|                            |  | 2004              |  |                     | 70,000  |        |   |                         |  |                         |  |                |  |            |  |                         |  |      

---

|(1) | Includes Board of Director and committee fees.
|--- | ----------------------------------------------



|(2) | Consists of payments made pursuant to the Banks Profit Sharing Plan. See Benefits for Employees and Officers. Also includes the Banks contributions or
allocations (but not earnings) pursuant to the Banks Employee Stock Ownership Plan. Does not include benefits pursuant to the Banks Pension Plan. See Benefits for Employees and Officers.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Represents awards made pursuant to the Companys Recognition and Retention Plan for Employees, which awards vested in five equal annual installments commencing on
January 3, 2000. Dividends on such shares accrue and were paid to the recipient when the shares were granted. The value of such shares was determined by multiplying the number of shares awarded by the price at which the shares of common stock
were sold.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



63



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##### Table of Contents

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



|                                                                                                                                                           |  |                                                             |  |                                                 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------- |  | ----------------------------------------------- | -
|Holder                                                                                                                                                     |  | Amount of Shares Ownedand Nature of BeneficialOwnership (1) |  | Percent of Shares ofCommon StockOutstanding (4) |  
|All Directors and Executive Officers as a Group (9 persons)                                                                                                |  | 1,153,018                                                   |  | 24.8                                            | %
|                                                                                                                                                           |  |                                                            
|First Community Bank 401(k) Savings and Employee Stock Ownership Plan. (2)(3) 1700 East Highland Drive Jonesboro, AR 72401                                 |  | 615,437                                                     |  | 13.3                                            | %
|                                                                                                                                                           |  |                                                            
|James A. Edington 1700 East Highland Drive Jonesboro, Arkansas 72401                                                                                       |  | 314,744                                                     |  | 6.8                                             | %
|                                                                                                                                                           |  |                                                            
|Tontine Financial Partners, L.P. Tontine Partners, L.P. Tontine Management, L.L.C. Jeffrey L. Gendell 200 Park Avenue, Suite 3900 New York, New York 10166 |  | 409,848                                                     |  | 8.8                                             | %
|                                                                                                                                                           |  |                                                            
|Dimensional Fund Advisers, Inc. 1299 Ocean Avenue, 11thFloor Santa Monica, California 90401                                                                |  | 285,215                                                     |  | 6.1                                             | %

---

|(1) | Based solely upon the filings made pursuant to the Exchange Act and information furnished by the respective persons. In accordance with Rule 13d-3 under the Exchange Act, a person
is deemed to be the beneficial owner for purposes of this table, of any shares of Common Stock if he has sole or shared voting or investment power with respect to such shares, or has a right to acquire beneficial ownership at any time within 60 days
from the date as to which beneficial ownership is being determined. As used herein, voting power is the power to vote or direct the voting of shares and investment power is the power to dispose or direct the disposition of
shares. Includes all shares held directly as well as shares owned by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting or investment power.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Under the First Community Bank 401(k) Savings and Employee Stock Ownership Plan (the ESOP), shares allocated to participants accounts are voted in accordance with
the participants directions. Unallocated shares held by the ESOP are voted by the ESOP Trustee in the manner calculated to most accurately reflect the instructions it has received from the participants regarding the allocated shares. As of the
Record Date, 572,406 shares of Common Stock were allocated under the ESOP.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Excludes 91,577 shares of Common Stock or 13.0% of the shares of Common Stock outstanding, owned by the ESOP for the benefit of the Named Executive Officers.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Total Common Stock outstanding includes shares that may be acquired pursuant to presently exercisable options.
|--- | --------------------------------------------------------------------------------------------------------------

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, 2006 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 Securities to beissued upon exercise ofoutstanding options andrights |  | Weighted averageexercise price |  | Number of Securitiesremaining available 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                                                        
|                                    |  |                                                                                |  |                                |  |                                                               



64



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##### Table of Contents

|ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|------- | ----------------------------------------------

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

All loans by the Bank to its directors and executive officers are subject to Office of Thrift Supervision regulations restricting loan and other
transactions with affiliated persons of the Bank. Federal law generally requires that all loans to directors and executive officers be made on terms and conditions comparable to those for similar transactions with non-affiliates, subject to limited
exceptions. However, recent regulations now permit executive officers and directors to receive the same terms on loans through plans that are widely available to other employees, as long as the director or executive officer is not given preferential
treatment compared to the other participating employees. Loans to all directors, executive officers, and their associates totaled $14.9 million at September 30, 2006, which was 28.1% of the Companys stockholders equity at that date.
There were no loans outstanding to any director, executive officer or their affiliates at preferential rates or terms during the three years ended September 30, 2006. All loans to directors and officers were performing in accordance with their
terms at September 30, 2006.

Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits an issuer from: (1) extending or maintaining
credit; (2) arranging for the extension of credit; or (3) renewing an extension of credit in the form of a personal loan for an officer or director. There are several exceptions to this general prohibition, one of which is applicable to
the Company. Sarbanes-Oxley does not apply to loans made by a depository institution that is insured by the FDIC and is subject to the insider lending restrictions of the Federal Reserve Act. All loans to the Companys directors and officers
are made in conformity with the Federal Reserve Act and applicable regulations of the FDIC and the Office of Thrift Supervision.

Lindley Smith, a director
of the Bank, has been engaged to provide consulting services to the Company and the Bank. During the year ended September 30, 2006, the Company paid Mr. Smith $36,000 in consulting fees and approximately $23,000 for life, health and
disability insurance.



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

The Sarbanes-Oxley
Act of 2002 requires the Audit Committee of the Board of Directors to be directly responsible for the appointment, compensation, and oversight of the audit work of the independent auditors. As discussed in ITEM 9, KraftCPAs was appointed
as the new auditors of the company for fiscal 2006.

Set forth below is certain information concerning aggregate fees billed for professional services
rendered by the independent public accountants during fiscal years 2006 and 2005.



|                   |  |      |         |      |   |        
|------------------ |  | ---- | ------- | ---- | - | -------
|                   |  | 2006 |         | 2005
|Audit Fees         |  | $    | 336,785 |      | $ | 269,520
|Audit Related Fees |  |      | 21,563  |      |   | 8,000  
|Tax Fees           |  |      |        |      |   |       
|All Other Fees     |  |      | 7,777   |      |   |       

The Audit Committee pre-approves all auditing services and permitted non-audit services (including the fees and
terms thereof) to be performed for the Company by the independent public accountants, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended, which are
approved by the Audit Committee prior to the completion of the audit. The Audit Committee pre-approved 100% of the audit-related fees described above during the fiscal years ended September 30, 2006 and 2005.

PART IV



|ITEM 15 | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|------- | ---------------------------------------

(a)(1) Financial Statements

The following information is filed as part of this report:



|         |  |                                                                                      |  |            
|-------- |  | ------------------------------------------------------------------------------------ |  | -----------
|Item #   |  | Heading                                                                              |  | Page Number
|         |  |                                                                                     
|Item 6.  |  | Selected Consolidated Financial and Other Data                                       |  | 23         
|         |  |                                                                                     
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operation |  | 25         
|         |  |                                                                                     
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                           |  | 34         
|         |  |                                                                                     
|Item 8.  |  | Financial Statements and Supplementary Data                                          |  | 35         

(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.



65



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##### Table of Contents

(a)(3) Exhibits



|                           |  |                                                                                                                                                           |  |                                                                         |  |                                                                 
|-------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------- |  | ----------------------------------------------------------------
|RegulationS-KExhibitNumber |  | 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                                                  
|                           |  |                                                                                                                                                           | 
|12                         |  | Statement re: computation of ratios                                                                                                                       |  | Not Required                                                            |  | Not Applicable                                                  
|                           |  |                                                                                                                                                           | 
|13                         |  | Annual Report to Stockholders                                                                                                                             |  | None                                                                    |  | Not Applicable                                                  
|                           |  |                                                                                                                                                           | 
|14                         |  | Code of Ethics                                                                                                                                            |  | 14                                                                      |  | Page 69                                                         
|                           |  |                                                                                                                                                           | 
|16                         |  | Letter re: change in certifying accountants                                                                                                               |  | None                                                                    |  | Not Applicable                                                  
|                           |  |                                                                                                                                                           | 
|18                         |  | Letter re: change in accounting principles                                                                                                                |  | None                                                                    |  | Not Applicable                                                  
|                           |  |                                                                                                                                                           | 
|19                         |  | Previously unfiled documents                                                                                                                              |  | None                                                                    |  | Not Applicable                                                  
|                           |  |                                                                                                                                                           | 
|21                         |  | Subsidiaries of Registrant                                                                                                                                |  | 21                                                                      |  | Page 70                                                         
|                           |  |                                                                                                                                                           | 
|22                         |  | Published report regarding matters submitted to vote of security holders                                                                                  |  | None                                                                    |  | Not Applicable                                                  
|                           |  |                                                                                                                                                           | 
|23.1                       |  | Consent of Experts and Counsel                                                                                                                            |  | 23.1                                                                    |  | Page 71                                                         
|                           |  |                                                                                                                                                           | 
|23.2                       |  | Consent of Experts and Counsel                                                                                                                            |  | 23.2                                                                    |  | Page 72                                                         
|                           |  |                                                                                                                                                           | 
|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 73                                                         
|                           |  |                                                                                                                                                           | 
|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 74                                                         
|                           |  |                                                                                                                                                           | 
|32.1                       |  | 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.            |  | 32.1                                                                    |  | Page 75                                                         
|                           |  |                                                                                                                                                           | 
|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 76                                                         



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



66



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|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 Form 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



67



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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 28, 2006 |  |  |  | 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 Davis                                       
|                        |  | Dwayne Powell                       |  |                         |  |     |  | Terry Davis                                           
|                        |  | President, Chief Executive Officer, |  |                         |  |     |  | Executive Vice President, Chief Financial Officer     
|                        |  | Director                            |  |                         |  |     |  | Treasurer (Principal Financial and Accounting Officer)
|                        |  | (Principal Executive Officer)       |  |                         |  |     |  |                                                       
|                        |  |                                    
|Date: December 28, 2006 |  |                                     |  | Date: December 28, 2006
|                        |  |                                     |  |                        
|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 28, 2006 |  |                                     |  | Date: December 28, 2006
|                        |  |                                     |  |                        
|By:                     |  | /s/ A.J. Baltz, Jr.                 |  |                         |  | By: |  | /s/ Marcus Van Camp                                   
|                        |  | A. J. Baltz. Jr.                    |  |                         |  |     |  | Marcus Van Camp                                       
|                        |  | Director                            |  |                         |  |     |  | Director                                              
|                        |  |                                    
|Date: December 28, 2006 |  |                                     |  | Date: December 28, 2006
|                        |  |                                     |  |                        
|By:                     |  | /s/ N. Ray Campbell                 |  |                         |  | By: |  | /s/ Bruce Burrow                                      
|                        |  | N. Ray Campbell                     |  |                         |  |     |  | Bruce Burrow                                          
|                        |  | Director                            |  |                         |  |     |  | Director                                              
|                        |  |                                    
|Date: December 28, 2006 |  |                                     |  | Date: December 28, 2006



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