<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
     For the Fiscal Year Ended September 30, 1999

                                 OR

[_]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 [NO FEE REQUIRED]

     For the transition period from _______________ to  ______________________


                           Commission File #0-23969

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

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

203 West Broadway, Pocahontas, Arkansas                          72455
---------------------------------------                          -----
(Address of Principal Executive Offices)                        Zip Code

                                (870) 892-4595
                         ----------------------------
                        (Registrant's telephone number)

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

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

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.

     YES   X  .   NO _____.
         -----

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

     As of December 15, 1999, there were issued and outstanding 5,518,614 shares
of the Registrant's Common Stock. Such shares were listed on the NASDAQ National
Market System.

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the last sale price on December 15,
1999, was $26,068,219. This amount does not include shares held by the Employee
Stock Ownership Plan of Pocahontas Federal Savings and Loan Association (the
Registrant's subsidiary), by executive officers and directors, and by the
Registrant or treasury stock.
<PAGE>

                                    PART I

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

General

     Pocahontas Bancorp, Inc. (the "Registrant" or the "Company") was organized
in March 1998 to be the holding company for Pocahontas Federal Savings and Loan
Association (the "Bank"), a federally chartered savings and loan association
headquartered in Pocahontas, Arkansas. The Bank's deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC") under the Savings Association
Insurance Fund ("SAIF"). The Company is registered as a savings and loan holding
company with the Office of Thrift Supervision ("OTS"). The Company's main office
is located at 205 West Broadway, Pocahontas, Arkansas, and its telephone number
is 870-892-4595.

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

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

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

     Based on the Bank's review of the Bank's internal bookkeeping practices and
the Bank's conferences with its third party service companies, the Bank does not
expect to incur significant additional bookkeeping, data processing or other
expenses, and in particular the Bank does not expect to encounter significant
difficulties with our data processing service provider, in connection with
issues related to the upcoming millennium (that is, "Year 2000" issues).

At September 30, 1999, the Company and its affiliates employed 102 persons.

Competition

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

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

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

Lending Activities

     Loan Portfolio Composition. The Bank's net loan portfolio consists
primarily of first mortgage loans collateralized by single-family residential
real estate and, to a lesser extent, multifamily residential real estate,
commercial real estate and agricultural real estate loans. At September 30,
1999, the Bank's net loan portfolio totaled $217.7 million, of which $173.6
million, or 79.7% were single-family residential real estate mortgage loans,
$1.0 million, or 0.5% were multifamily residential real estate loans, $6.9
million, or 3.2%, were commercial real estate loans (including land loans), and
$23.3 million, or 10.7%, were agricultural real estate loans. The remainder of
the Bank's loans at September 30, 1999 included commercial business loans (i.e.,
crop production, equipment and livestock loans) which totaled $10.9 million, or
5.0%, of the Bank's total net loan portfolio as of September 30, 1999. Other
loans, including automobile loans and loans collateralized by deposit accounts
totaled $9.6 million, or 4.4%, of the Bank's net loan portfolio as of September
30, 1999.

Analysis of Loan Portfolio

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

<TABLE>
<CAPTION>
                                                                     At September 30
                              -----------------------------------------------------------------------------------------------------
                                      1999                 1998                 1997                 1996                1995
                              --------------------   -----------------    -----------------    -----------------   ----------------
                                Amount     Percent   Amount    Percent    Amount    Percent    Amount    Percent   Amount   Percent
                              --------------------   -----------------    -----------------    -----------------   ----------------
                                                                       (Dollars In Thousands)
<S>                            <C>        <C>      <C>        <C>       <C>        <C>       <C>        <C>      <C>        <C>
Real estate loans:
  Single-family residential     $173,622    79.7%   $163,895     84.6%   $138,539    86.8%   $118,291    86.4%   $100,100     86.0%
  Multifamily residential          1,024     0.5       3,124      1.6       1,600     1.0       4,729     3.5       3,500      3.0
  Agricultural                     6,878     3.2       6,532      3.4       4,654     2.9       4,552     3.3       3,995      3.4
  Commercial                      23,296    10.7      10,268      5.3       9,606     6.0       6,703     4.9       5,246      4.5
                                --------   -----    --------   ------    --------   -----    --------   -----    --------   ------

    Total real estate loans      204,820    94.1     183,819     94.9     154,399    96.7     134,275    98.1     112,841     96.9

Other loans:
  Savings account loans            1,528     0.7       1,161      0.6       1,015     0.6         886     0.6         896      0.8
  Commercial business (1)         10,932     5.0       8,568      4.4       6,533     4.1       5,729     4.2       4,466      3.8
  Other (2)                        8,113     3.7       5,943      3.1       2,716     1.7       1,913     1.4       2,137      1.9
                                --------   -----    --------   ------    --------   -----    --------   -----    --------   ------

    Total other loans             20,573     9.4      15,672      8.1      10,264     6.4       8,528     6.2       7,499      6.5
                                --------   -----    --------   ------    --------   -----    --------   -----    --------   ------

    Total loans receivable       225,393   103.5     199,491    103.0     164,663   103.1     142,803   104.3     120,340    103.4

Less:
  Undisbursed loan proceeds        5,753     2.6       3,655      1.9       2,815     1.8       3,715     2.7       1,942      1.7
  Unearned discount and net
    deferred loan fees               287     0.1         424      0.2         467     0.3         482     0.4         594      0.5
  Allowance for loan losses        1,643     0.8       1,684      0.9       1,691     1.0       1,734     1.3       1,357      1.2
                                --------   -----    --------   ------    --------   -----    --------   -----    --------   ------

    Total loans receivable, net $217,710   100.0%   $193,728    100.0%   $159,690   100.0%   $136,872   100.0%   $116,447    100.0%
                                ========   =====    ========   ======    ========   =====    ========   =====    ========   ======
</TABLE>

____________________________________
(1) Includes crop-production loans, livestock loans and equipment loans.
(2) Includes second mortgage loans, unsecured personal lines of credit and
    automobile loans.

     Loan Maturity Schedule.  The following table sets forth certain information
as of September 30, 1999, regarding the dollar amount of gross loans maturing in
the Bank's portfolio based on their contractual terms to maturity. Demand loans,
loans having no stated schedule of repayments, and overdrafts are reported as
due in one year or less.  Adjustable and floating rate loans are included in the
period in which interest rates are next scheduled to adjust rather than in which
they mature, and fixed rate loans are included in the period in which the final
contractual repayment is due.

<TABLE>
<CAPTION>
                                                                                            Beyond
                            Within            1-3         3-5        5-10       10-20         20
                            1 Year           Years       Years       Years      Years       Years        Total
                            -------         -------     -------     -------     -------     -------     --------
                                                                 (In Thousands)
<S>                         <C>             <C>         <C>         <C>         <C>         <C>         <C>

Fixed rate loans            $22,301         $11,293     $14,697     $ 8,905     $34,660     $10,935     $102,791
Variable rate loans              15             369       1,248       8,703      50,645      61,622      122,602
                            -------         -------     -------     -------     -------     -------     --------

    Total                   $22,316         $11,662     $15,945     $17,608     $85,305     $72,557     $225,393
                            =======         =======     =======     =======     =======     =======     ========
</TABLE>

                                       3
<PAGE>

     The following table sets forth at September 30, 1999, the dollar amount of
all fixed rate and adjustable rate loans due after September 30, 2000.

<TABLE>
<CAPTION>
                                                                 Fixed           Adjustable           Total
                                                              -------------    ---------------     --------------
                                                                                 (In Thousands)

<S>                                                             <C>              <C>                 <C>
Single-family residential                                           $49,796           $121,557           $171,353
Multifamily residential                                                   0              1,024              1,024
Agricultural                                                          6,351                  -              6,351
Commercial                                                           14,418                  6             14,424
Other                                                                 9,925                  -              9,925
                                                                    -------           --------           --------

Total                                                               $80,490           $122,587           $203,077
                                                                    =======           ========           ========
</TABLE>


     Single-Family Residential Real Estate Loans.  The Bank's primary lending
activity is the origination of single-family, owner-occupied, residential
mortgage loans collateralized by properties located in the Bank's market area.
The Bank generally does not originate single-family residential loans
collateralized by properties outside of its market area.  At September 30, 1999,
the Bank had $173.6 million, or 79.7%, of its total net loan portfolio invested
in single-family residential mortgage loans, substantially all of which were
collateralized by properties located in the Bank's market area or in counties
contiguous with the Bank's market area.

     The Bank's single-family, fixed rate, residential real estate loans
generally are originated and underwritten according to standards that qualify
such loans for resale in the secondary mortgage market.  The Bank generally
retains adjustable rate mortgage ("ARM") loans that it originates.  Whether the
Bank can or will sell fixed rate loans, however, depends on a number of factors
including the yield and the term of the loan, market conditions, and the Bank's
current interest rate gap position.  At September 30, 1999 and 1998, loans held
for sale were insignificant.  During the fiscal years ended September 30, 1999,
1998 and 1997, the Bank sold into the secondary market $1.8 million, $4.3
million, and $2.2 million, respectively, of single-family, fixed rate,
residential mortgage loans, generally from current period originations.  The
Bank generally does not retain the servicing rights on loans it has sold.

     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 gap position, 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 fixed rate loans are currently originated with terms ranging
from 10 to 30 years and amortize on a monthly basis with principal and interest
due each month.  Generally, fixed rate loans are sold in the secondary market.

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

                                       4
<PAGE>

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

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

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

     Multifamily Residential Real Estate Loans.  Although the Bank does not
emphasize multifamily residential loans and has not been active recently in this
area, the Bank has originated loans collateralized by multifamily residential
real estate.  Such loans constituted approximately $1.0 million, or 0.5% of the
Bank's total net loan portfolio on September 30, 1999, compared to $3.1 million,
or 1.6%, of the Bank's total net loan portfolio at September 30, 1998, $1.6
million, or 1.0%, of the Bank's total net loan portfolio at September 30, 1997,
$4.7 million, or 3.5%, of the total net loan portfolio at September 30, 1996,
and $3.5 million, or 3.0%, of the total net loan portfolio as of  September 30,
1995.  The Bank's multifamily real estate loans are primarily collateralized by
multifamily residences, such as apartment buildings.   Multifamily residential
real estate loans are offered with fixed and adjustable interest rates and are
structured in a number of different ways depending upon the circumstances of the
borrower and the type of multifamily project.  Fixed interest rate loans
generally have five-to-seven-year terms with a balloon payment based on a 15 to
25 year amortization schedule.

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

     Agricultural Real Estate Loans.  In recent years the Bank has increased its
originations of agricultural real estate loans for the purchase of farmland in
the Bank's market area.  Loans collateralized by farmland constituted
approximately $6.9 million, or 3.2%, of the Bank's total net loan portfolio at
September 30, 1999, compared to $6.5 million, or 3.4%, $4.7 million, or 2.9%,
$4.6 million, or 3.3%, and $4.0 million, or 3.4%, of the Bank's total net loan
portfolio at September 30, 1998, 1997, 1996, and 1995, respectively.

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

                                       5
<PAGE>

     Commercial Real Estate Loans.  Loans collateralized by commercial real
estate, including land loans, constituted approximately $23.3 million, or 10.7%
of the Bank's total net loan portfolio at September 30, 1999, compared to $10.3
million, or 5.3%, $9.6 million, or 6.0%, $6.7 million, or 4.9%, and $5.2
million, or 4.5% of the Bank's total net loan portfolio at September 30, 1998,
1997, 1996, and 1995, respectively. The Bank's commercial real estate loans are
collateralized by improved property such as office buildings, churches and other
nonresidential buildings.  At September 30, 1999, substantially all of the
Bank's commercial real estate loans were collateralized by properties located
within the Bank's market area.

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

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

     Other Loans.  The Bank originates various consumer loans, including
automobile, deposit account loans and second mortgage loans, principally in
response to customer demand.  As of September 30, 1999, such loans totaled $9.6
million, or 4.4% of the Bank's total net loan portfolio as compared to $7.1
million, or 3.7%, $3.7 million, or 2.3%, $2.8 million, or 2.0%, and $3.0
million, or 2.7 % of the Bank's total net loan portfolio as of September 30,
1998, 1997, 1996, and 1995, respectively.  Consumer loans are offered primarily
on a fixed rate basis with maturities generally of less than ten years.

     In recent years, the Bank has emphasized the origination of commercial
business loans, which principally include agricultural-related commercial loans
to finance the purchase of livestock, cattle, farm machinery and equipment,
seed, fertilizer and other farm-related products.  Such loans comprised $10.9
million, or 5.0% of the Bank's total net loan portfolio at September 30, 1999,
as compared to $8.6 million, or 4.4%, $6.5 million, or 4.1%, $5.7 million, or
4.2%, and $4.5 million, or 3.8% of the Bank's total net loan portfolio as of
September 30, 1995.

     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.

                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       Year Ended September 30
                                                                   ----------------------------------------------------------------
                                                                     1999          1998          1997          1996          1995
                                                                   --------      --------      --------      --------      --------
                                                                                             (In Thousands)
<S>                                                                <C>           <C>           <C>           <C>           <C>
Total loans receivable, net at beginning of year                   $193,728      $159,690      $136,872      $116,447      $104,083
Loans originated:
  Real estate:
    Single-family residential                                        53,499        66,988        49,215        48,568        28,295
    Multifamily residential                                             180           100            93             -             -
    Commercial                                                       13,708         2,010         3,467           299           552
    Agricultural                                                      2,317         3,429         2,863         1,596         1,654
Other:
  Commercial business                                                11,102         7,593         6,697         5,743         4,510
  Savings account loans                                               1,580           908           926           826           682
  Other                                                               7,504         4,162         2,684         2,023         1,630
                                                                   --------      --------      --------      --------      --------

    Total loans originated                                           89,890        85,190        65,945        59,055        37,323

Loans purchased                                                      10,552             -             -             -           385
Loans sold                                                           (1,765)       (4,287)       (2,156)       (1,371)         (900)
Loans transferred to REO                                               (943)         (129)         (294)         (233)          (88)
Loans to facilitate the sale of REO                                    (513)            -          (349)         (145)         (205)
Loan repayments                                                     (73,239)      (46,478)      (40,004)      (36,470)      (24,350)
Other loan activity (net)                                                            (258)         (324)         (411)          199
                                                                   --------      --------      --------      --------      --------

    Total loans receivable, net at end of year                     $217,710      $193,728      $159,690      $136,872      $116,447
                                                                   ========      ========      ========      ========      ========

Mortgage-backed securities, net at beginning of year               $151,970      $168,836      $179,359      $163,287      $121,925
Purchases                                                            65,737             -             -        38,430        50,176
Sales                                                                (1,205)            -             -       (10,020)            -
Fair value adjustment                                                (1,222)        2,474             -             -             -
Repayments                                                          (24,431)      (19,598)      (10,669)      (13,575)       (8,978)
Discount amortization                                                   276           258           146         1,237           164
                                                                   --------      --------      --------      --------      --------

Mortgage-backed and related securities, net at end of year         $191,125      $151,970      $168,836      $179,359      $163,287
                                                                   ========      ========      ========      ========      ========

Total loans receivable, net, and mortgage-backed
  and related securities, net, at end of year                      $408,835      $345,698      $328,526      $316,231      $279,734
                                                                   ========      ========      ========      ========      ========
</TABLE>


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

Asset Quality

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

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

                                       7
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                                   At September 30
                                                               ----------------------------------------------------
                                                                1999        1998       1997        1996       1995
                                                               ------      ------     ------      ------     ------
                                                                              (Dollars In Thousands)
<S>                                                            <C>         <C>        <C>         <C>        <C>
Nonperforming loans:
  Single-family residential real estate                        $1,302      $2,240     $  422      $  766     $  409
  All other mortgage loans                                         10          15                    195         32
  Other loans                                                      66          41         31          62         55
                                                               ------      ------     ------      ------     ------

    Total delinquent loans                                      1,378       2,296        453       1,023        496
Total real estate owned                                           261          16         17         111        190
                                                               ------      ------     ------      ------     ------

    Total nonperforming assets                                 $1,639      $2,312     $  470      $1,134     $  686
                                                               ======      ======     ======      ======     ======

Total loans delinquent 90 days or more
  to net loans receivable                                        0.63%       1.19%      0.28%       0.74%      0.43%

Total loans delinquent 90 days or more
  to total assets                                                0.28%       0.56%      0.12%       0.27%      0.14%

Total nonperforming loans and REO
  to total assets                                                0.34%       0.57%      0.12%       0.30%      0.20%
</TABLE>

     Classification of Assets.  Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets.  An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any.  "Substandard" assets include those characterized by
the "distinct possibility" that the savings institution will sustain "some loss"
if the deficiencies are not corrected.  Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.  Assets
that do not expose the savings institution to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated "special mention" by management.
Loans designated as special mention are generally loans that, while current in
required payments, have exhibited some potential weaknesses that, if not
corrected, could increase the level of risk in the future.

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

                                       8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            September 30,
                                                 1999            1998            1997            1996            1995
                                                ------          ------          ------          ------          ------
                                                                       (Dollars In Thousands)
<S>                                             <C>             <C>             <C>             <C>             <C>
Substandard assets                              $2,905          $2,572          $1,640          $3,515          $3,074
Doubtful assets                                      -              18               -               -               -
Loss assets                                         32               -              25              89             155
                                                ------          ------          ------          ------          ------

    Total classified assets (1)                 $2,937          $2,590          $1,665          $3,604          $3,229
                                                ======          ======          ======          ======          ======
</TABLE>

 (1)  With respect to assets classified "doubtful" and "loss," the Bank has
      established aggregate specific loan loss reserves of $32,000, $0 $25,000,
      $89,000, and $155,000 (in actual dollars) for the years ended September
      30, 1999, 1998, 1997, 1996, and 1995, respectively.

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

     During the fiscal year ended September 30, 1999, 1998, 1997, 1996, and
1995, the Bank added $0, $0, $60,000, $411,200, and $0, respectively, to its
allowance for loan losses.  The Bank's allowance for loan losses totaled $1.6
million, $1.7 million, $1.7 million,  $1.7 million, and $1.4 million at
September 30, 1999, 1998, 1997, 1996, and 1995, respectively.

                                       9
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                Year Ended September 30,
                                                            ----------------------------------------------------------------
                                                              1999          1998          1997          1996          1995
                                                            --------      --------      --------      --------      --------
                                                                                     (In Thousands)
<S>                                                         <C>           <C>           <C>           <C>           <C>
Total loans outstanding                                     $225,393      $199,491      $164,663      $142,803      $120,340
Average net loans outstanding                                206,001       176,295       147,316       124,609       109,658

Allowance balances (at beginning of year)                   $  1,684      $  1,691      $  1,734      $  1,357      $  1,330
Provision for losses:
  Real estate loans                                                -             -            30             -             -
  Other loans                                                      -             -            30           411             -
Charge-offs:
  Real estate loans                                              (67)           (7)          (11)          (17)          (19)
  Other loans                                                    (29)            -           (93)          (32)           (4)
Recoveries:
  Real estate loans                                                1             -             1            15            50
  Other loans                                                     54             -             -             -             -
                                                            --------      --------      --------      --------      --------

Allowance balance (at end of year)                          $  1,643      $  1,684      $  1,691      $  1,734      $  1,357
                                                            ========      ========      ========      ========      ========

Allowance for loan losses as a percent
  of total loans receivable at end of year                      0.73%         0.84%         1.03%         1.21%         1.13%
Net loans charged off as a percent
  of average net loans outstanding                              0.00%         0.00%         0.07%         0.04%        (0.02)%
Ratio of allowance for loan losses
  to total nonperforming loans
  at end of year                                              119.23%        73.34%       373.45%       169.50%       273.59%
Ratio of allowance for loan losses to
  total nonperforming loans and
  REO at end of year                                          100.24%        72.84%       359.79%       152.91%       197.81%
</TABLE>


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

<TABLE>
<CAPTION>
                                                      1999                      1998                       1997
                                             -----------------------    -----------------------    -----------------------
                                                          % of Loans                 % of Loans                 % of Loans
                                                           In Each                    In Each                    In Each
                                                         Category to                Category to                Category to
                                              Amount     Total Loans     Amount     Total Loans     Amount     Total Loans
                                             -----------------------    -----------------------    -----------------------
<S>                                          <C>         <C>            <C>        <C>             <C>         <C>
Balance at end of period
  applicable to:
    Mortgage loans                            $  893        92.3%       $  958          94.9%      $  927           96.7%
    Non-mortgage loans                           750         7.7           726           5.1          764            3.3
                                              ------      ------        ------        ------       ------         ------

    Total allowance for loan losses           $1,643       100.0%       $1,684         100.0%      $1,691          100.0%
                                              ======      ======        ======        ======       ======         ======

<CAPTION>
                                              1996                     1995
                                       ---------------------    ---------------------
                                                  % of Loans               % of Loans
                                                   In Each                  In Each
                                                 Category to              Category to
                                        Amount   Total Loans     Amount   Total Loans
                                       ---------------------    ---------------------
<S>                                    <C>       <C>            <C>       <C>
Balance at end of period
  applicable to:
    Mortgage loans                      $  903      93.9%        $  894         93.8%
    Non-mortgage loans                     831       6.1            463          6.2
                                        ------     ------        ------       ------

    Total allowance for loan losses     $1,734      100.0%       $1,357        100.0%
                                        ======     ======        ======       ======
</TABLE>

Investment Activities

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

                                       10
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                                     September 30,
                                        1999                    1998                     1997                    1996
                                 ---------------------   ---------------------   ---------------------   -------------------
                                      $           %           $           %           $         %           $           %
                                 ----------   --------   ---------   ---------   ---------   ---------   ---------   -------
                                                                           (Dollars In Thousands)
<S>                              <C>          <C>        <C>         <C>         <C>         <C>         <C>         <C>
Mortgage-backed securities:
  Adjustable                      $119,975      62.8%     $139,528       92.0%    $151,766      89.9%     $155,949      86.9%
  Fixed                             71,150      37.2        12,442        8.0       17,070      10.1        23,410      13.1
                                  --------    ------      --------     ------     --------    ------      --------    ------

    Total mortgage-backed
      securities, net             $191,125      100.0%    $151,970      100.0%    $168,836      100.0%    $179,359     100.0%
                                  ========     ======     ========     ======     ========    ======      ========    ======

<CAPTION>
                                            1995
                                   ---------------------
                                       $            %
                                   --------      -------
                                  (Dollars In Thousands)
<S>                                <C>           <C>
Mortgage-backed securities:
  Adjustable                       $126,654         77.6%
  Fixed                              36,633         22.4
                                   --------      -------
    Total mortgage-backed
      securities, net              $163,287        100.0%
                                   ========      =======
</TABLE>

     At September 30, 1999, mortgage-backed securities aggregated $191.1, or
39.6%, of the Bank's total assets.  At September 30, 1999, all of the Bank's
mortgage-backed securities were classified as available-for-sale.

     Other Investment Securities The Bank's investment portfolio, excluding
mortgage-backed securities and FHLB stock, consists of obligations of the United
States Government and agencies thereof, municipal bonds, interest-earning
deposits in other institutions and equity investments (principally in other
financial institutions).  The carrying value of this portion of the Bank's
investment portfolio totaled $36.3 million, $32.7 million, $31.7 million, $40.3
million, and $51.1 million at September 30, 1999, 1998, 1997, 1996 and 1995,
respectively.  At September 30, 1999, $0.04 million, or 0.01%, of the Bank's
investment securities, excluding mortgage-backed securities, had a remaining
term to maturity of one year or less, and $8.8 million, or  24%, had a remaining
term to maturity of five years or less.

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

<TABLE>
<CAPTION>
                                                                                 September 30,
                                                         ------------------------------------------------------------
                                                           1999         1998         1997         1996         1995
                                                         --------     --------     --------     --------     --------
                                                                            (Dollars In Thousands)
  <S>                                                    <C>          <C>          <C>          <C>          <C>
  Investment securities:
  Mortgage-backed securities                             $191,125     $151,970     $168,836     $179,359     $163,287
  U.S. Government treasury obligations                          -            -            -        1,000        2,948
  U.S. Government agency obligations                       25,403       21,656       26,858       38,872       47,721
  Municipal bonds                                           9,446        9,425        4,859          459          469
  Equity securities                                         1,429        1,588            -            -            -
                                                         --------     --------     --------     --------     --------

    Total investment securities                           227,403      184,639      200,553      219,690      214,425

FHLB stock                                                 10,981       10,060       10,053       11,608       10,549
                                                         --------     --------     --------     --------     --------

    Total investments                                    $238,384     $194,699     $210,606     $231,298     $224,974
                                                         ========     ========     ========     ========     ========
</TABLE>

                                       11
<PAGE>

     Investment Portfolio Maturities  The following table sets forth the
scheduled maturities, carrying values, market values and average yields for the
Bank's investment securities at September 30, 1999.

<TABLE>
<CAPTION>
                                                                    At September 30, 1999
                                    --------------------------------------------------------------------------------------------
                                           One Year          One to Five Years    Five to Ten Years         Over Ten Years
                                     -------------------------------------------------------------------------------------------
                                                 Annualized              Annualized             Annualized            Annualized
                                                  Weighted                Weighted               Weighted              Weighted
                                      Carrying    Average     Carrying    Average     Carrying   Average    Carrying    Average
                                       Value       Yield       Value       Yield       Value      Yield       Value      Yield
                                      --------   ----------   --------   ----------   --------  ----------  --------  ----------
                                                                           (Dollars  in Thousands)
<S>                                   <C>        <C>          <C>        <C>          <C>       <C>         <C>       <C>
Investment securities:
 U.S. Government agency securities    $    36        4.85 %   $              0.00 %     $ 8,771      6.86 %   $ 16,596     7.57 %
 State and municipal obligations(1)         5        5.30 %        20        5.55 %         401      5.36 %      9,020     5.09 %
 CMOs (2)                                 236        7.98 %                  0.00 %       3,667      5.97 %    132,209     6.50 %
 Mortgage-backed securities               567        5.57 %     4,430        6.67 %       1,862      7.15 %     48,154     6.77 %
                                      -------       -----     -------      ------      --------     -----    ---------    -----

  Total investment securities             844        6.21 %     4,450        6.66 %      14,701      6.63 %                6.59 %
                                                   ======                   =====                   =====                 =====

Equity securities
FHLB stock
Accrued interest on investments            11                      24                      251
                                      -------                 -------                  -------

  Total                               $   855                 $ 4,474                  $14,952
                                      =======                 =======                  =======

<CAPTION>
                                     -----------------------------------------------
                                                         Total
                                     -----------------------------------------------
                                                                        Annualized
                                                             Average     Weighted
                                     Carrying      Market    Life in      Average
                                      Value        Value      Years        Yield
                                     --------     --------   --------    ----------
<S>                                  <C>          <C>        <C>         <C>
Investment securities:
 U.S. Government agency securities   $ 25,403     $ 25,403      12.96         6.58 %
 State and municipal obligations(1)     9,446        8,984       7.97         5.39 %
 CMOs (2)                             136,112      136,112      24.10         6.48 %
 Mortgage-backed securities            55,013       55,013      27.32         7.73 %
                                     --------     --------                   -----

  Total investment securities         225,974      225,512                    6.75 %


Equity securities                       1,429        1,429
FHLB stock                             10,981       10,981
Accrued interest on investments         1,465        1,465
                                     --------     --------

  Total                              $239,849     $239,387
                                     ========     ========
</TABLE>


(1) The yield on these tax-exempt obligations has not been compiled on a tax-
    equivalent basis.
(2) The average life in years is based on actual stated maturities; however,
    management anticipates a shorter life on these securities.

                                       12
<PAGE>

Sources of Funds

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

     Deposits.  Consumer and commercial deposits are received principally from
within the Bank's market area through the offering of a broad selection of
deposit instruments including NOW accounts, passbook savings, money market
deposit accounts, term certificate accounts and individual retirement accounts.
The Bank also markets term certificate accounts nationally to attract deposits.
Deposit account terms vary according to the minimum balance required, the period
of time during which the funds must remain on deposit, and the interest rate,
among other factors.  The maximum rate of interest the Bank must pay is not
established by regulatory authority.  The Bank regularly evaluates its internal
cost of funds, surveys rates offered by competing institutions, reviews the
Bank's cash flow requirements for lending and liquidity, and executes rate
changes when deemed appropriate.  As of September 30, 1999, the Bank did not
have any brokered deposits.

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

<TABLE>
<CAPTION>
                                                                          September 30,
                                            1999              1998                  1997               1996              1995
                                         -----------       -----------           -----------        -----------       -----------
                                                                        (In Thousands)
<S>                                      <C>               <C>                   <C>                <C>               <C>
Rate

0.00-3.99%                               $      -            $    275             $     16            $    17           $   126
4.00-5.99%                                135,563             111,713               76,094             75,615            51,125
6.00-7.99%                                 14,924              25,225               32,170              6,205            32,916
8.00-9.99%                                      -                   -                    -                 20                20
                                         --------            --------             --------            -------           -------

            Total                        $150,487            $137,213             $108,280            $81,857           $84,187
                                         ========            ========             ========            =======           =======
</TABLE>


     Time Deposit Maturities.  The following table sets forth the amount and
maturities of certificates of deposit at September 30, 1999.

<TABLE>
<CAPTION>
                                                                                  Maturity
                                                        -----------------------------------------------------------

                                                          3 months     3 to 6     6 to 12     Over 12
                                                          or less      months      months     months       Total
                                                        -----------------------------------------------------------
<S>                                                       <C>         <C>         <C>         <C>         <C>
Certificate of Deposit less than $100,000                  $34,914     $38,832     $31,464     $15,207     $120,417
Certificate of Deposit greater than $100,000                 6,737       8,338      11,705       3,290       30,070
                                                           -------     -------     -------     -------     --------

Total Certificates of Deposit                              $41,651     $47,170     $43,169     $18,497     $150,487
                                                           =======     =======     =======     =======     ========
</TABLE>


Borrowings

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

                                       13
<PAGE>

interest rate and range of maturities.  The maximum amount that the FHLB will
advance to member institutions, including the Bank, for purposes other than
meeting withdrawals, fluctuates from time to time in accordance with the
policies of the FHLB.  The maximum amount of FHLB advances to a member
institution generally is reduced by borrowings from any other source.  At
September 30, 1999, the Bank's FHLB advances totaled $213.1 million.

     The Bank sells securities under agreements to repurchase with selected
dealers (reverse repurchase agreements) as a means of obtaining short-term funds
as market conditions permit.  In a reverse repurchase agreement, the Bank sells
a fixed dollar amount of securities to a dealer under an agreement to repurchase
the securities at a specific price within a specific period of time, typically
not more than 180 days.  Reverse repurchase agreements are treated as a
liability of the Bank.  The dollar amount of securities underlying the
agreements remain an asset of the Bank.  At September 30, 1999, the Bank's
securities sold under agreements to repurchase totaled $2.1 million.

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

<TABLE>
<CAPTION>
                                                                                  Year Ended September 30,
                                                                1999          1998          1997          1996          1995
                                                               ------        ------        ------        ------        ------
                                                                                    (Dollars In Thousands)
<S>                                                            <C>           <C>           <C>           <C>           <C>
Weighed average rate paid on: (1)
  FHLB advances                                                 5.03%         5.75%         5.54%         5.64%         6.17%
  Other borrowings (2)                                          5.16%         4.97%         5.81%         5.59%         5.75%


FHLB advances:
  Maximum balance                                           $216,844      $210,325      $230,317      $239,686      $210,987
  Average balance                                           $161,905      $173,812      $203,835      $224,719      $167,766
Other borrowings: (2)
  Maximum balance                                           $  3,242      $ 21,850      $ 21,060      $ 10,306      $131,500
  Average balance                                           $  2,273      $  6,215      $ 17,684      $  2,940      $ 67,000
</TABLE>


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


Subsidiaries' Activities

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

Regulation

     As a federally chartered, SAIF-insured savings association, the Bank is
subject to examination, supervision and extensive regulation by the OTS and the
FDIC. The Bank is a member of the Federal Home Loan Bank ("FHLB") system.  This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors.  The Registrant also is subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") governing reserves to be maintained against deposits and certain
other matters.  The OTS regularly examines the Registrant and the Bank and
prepares a report for the consideration of the Bank's Board of Directors on any
deficiencies that it may find in the Bank's operations.  The FDIC also examines
the Bank in its role as the administrator of the SAIF.  The Bank's relationship
with its depositors and borrowers also is regulated to a great extent by both
federal and state laws especially in such matters as the ownership of savings
accounts and the form and content of the Bank's mortgage documents.  Any change
in such regulation, whether by the FDIC, the OTS or the Congress, could have a
material impact on the Bank and its operations.

                                       14
<PAGE>

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

     Under the tangible capital requirement, a savings association must maintain
tangible capital in an amount equal to at least 1.5% of adjusted total assets.
Tangible capital generally includes common stockholders' equity including
retained earnings and certain noncumulative perpetual preferred stock and
related earnings.  In addition, all intangible assets, other than a limited
amount of purchased mortgage-servicing rights, must be deducted from tangible
capital for calculating compliance with the requirement.  Further, the valuation
allowance applicable to the write-down of investments and mortgage-backed
securities in accordance with SFAS No. 115 is excluded from the regulatory
capital calculation.  At September 30, 1999, the Bank had no intangible assets
or unrealized loss, net of tax under SFAS No. 115.

     The leverage limit adopted by the OTS requires that savings associations
maintain "core capital" in an amount equal to at least 3% of adjusted total
assets.  Core capital generally consists of tangible capital plus certain
intangible assets, including supervisory goodwill (which is phased out over a
five-year period) and up to 25% of other intangibles that meet certain separate
salability and market valuation tests.  As a result of the prompt corrective
action provisions described below, however, a savings association must maintain
a core capital ratio of at least 4% of to be considered adequately capitalized
unless its supervisory condition is such to allow it to maintain a 3% ratio.  At
September 30, 1999, the Bank had no goodwill or other intangibles.

     Under the risk-based capital requirement, a savings association must
maintain total capital equal of at least 8% of risk-weighted assets.  Total
capital consists of core capital, as defined above, and supplementary capital.
Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and
lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based requirement only to
the extent of core capital.  The OTS is also authorized to require a savings
association to maintain an additional amount of total capital to account for
concentration of credit risk and the risk of non-traditional activities.  At
September 30, 1999, the Bank had no capital instruments that qualify as
supplementary capital and $1.6 million of general loss reserves, which was less
than 1.0% of risk-weighted assets.

     Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital, in addition to the adjustments required
for calculating core capital.  Such exclusions consist of equity investments (as
defined by regulation) and that portion of land loans and nonresidential
construction loans in excess of an 80% loan-to-value ratio and reciprocal
holdings of qualifying capital instruments.  The Bank had no such exclusions
from capital and assets at September 30, 1999.

     In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight based on
the risks inherent in the type of assets.  The risk weights assigned by the OTS
for principal categories of assets are (i) 0% for cash and securities issued by
the U.S. Government or unconditionally backed by the full faith and credit of
the U.S. Government; (ii) 20% for securities (other than equity securities)
issued by U.S. Government sponsored agencies and mortgage-backed securities
issued by, or fully guaranteed as to principal and interest by, the FNMA or the
FHLMC except for those classes with residual characteristics or stripped
mortgage-related securities; (iii) 50% for prudently underwritten permanent one-
to-four-family first lien mortgage loans not more than 90

                                       15
<PAGE>

days delinquent and having a loan-to-value ratio of not more than 80% at
origination unless insured to such ratio by an insurer approved by FNMA or
FHLMC; and (iv) 100% for all other loans and investments, including consumer
loans, commercial loans, repossessed assets, and loans more than 90 days past
due.

     On September 30, 1999, the Bank had total risk-based capital of $46.2
million (including $44.6 million in core capital and $1.6 million in qualifying
supplementary capital) and risk-weighted assets of $227.6 million; or total
capital of 20.3% of risk-weighted assets.  This amount was $23.4 million above
the current 10.0% requirement.

     Under FDICIA, all the federal banking agencies, including the OTS, must
revise their risk-based capital requirements to ensure that such requirements
account for interest rate risk, concentration of credit risk and the risks of
non-traditional activities, and that they reflect the actual performance of and
expected loss on multifamily loans.

     Pursuant to FDICIA, the federal banking agencies, including the OTS, have
also proposed regulations authorizing the agencies to require a depository
institution to maintain additional total capital to account for concentration of
credit risk and the risk of non-traditional activities.  No assurance can be
given as to the final form of any such regulation.

     The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal  to 50% of its interest-rate risk exposure multiplied by the present value
of its assets.  This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in greater decline).  Net portfolio value is
the present value of expected cash flows from assets, liabilities and off-
balance sheet contracts.  The rule provides for a two-quarter lag between
calculating interest rate risk and recognizing any deduction from capital.   The
OTS has indefinitely postponed the effective date of the rule.   However, if
effective, this new rule will have no effect on the Bank's ability to comply
with its risk-based capital requirement.

     The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against associations that fail to meet capital
requirements.  Effective December 19, 1992, the federal banking agencies,
including the OTS, were given additional enforcement authority over
undercapitalized depository institutions.  The OTS is generally required to take
action to restrict the activities of an "undercapitalized association"
(generally defined to be one with less than either a 4% core ratio, a Tier 1
risk-based capital ratio or an 8% risk-based capital ratio).  Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions.  The OTS is authorized to impose the additional
restrictions, discussed below, that are applicable to significantly
undercapitalized associations.

     As a condition to the approval of the capital restoration plan, any company
controlling any undercapitalized association must agree that it will enter into
a limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.

     Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 8%) must be subject
to one or more of additional specified actions and operating restrictions
mandated by FDICIA.  These actions and restrictions include requiring the
issuance of additional voting securities; limitations on asset growth; mandated
asset reduction; changes in senior management; divestiture, merger or
acquisition of the association; restrictions on executive compensation; and any
other action the OTS deems appropriate.

     An association that becomes "critically undercapitalized" (i.e., a tangible
capital ratio of 2% or less) is subject to further restrictions on its
activities in addition to those applicable to significantly undercapitalized
associations.  The FDIC must restrict the activities of a critically
undercapitalized association and, among other things, prohibit any

                                       16
<PAGE>

material transaction outside the ordinary course of business or engaging in
certain transactions with affiliates, without the approval of the FDIC.  The OTS
must be appointed as a receiver (or conservator with the concurrence of the
FDIC) for a savings association, with certain limited exceptions, within 90 days
after it becomes critically undercapitalized.

     Any undercapitalized association is also subject to other possible
enforcement actions by the OTS or the FDIC.  Such actions could include a
capital directive, a cease-and-desist order, civil money penalties, the
establishment of restrictions on all aspects of the association's operations or
the appointment of a receiver or conservator or a forced merger into another
institution.  The grounds for appointment of a conservator or receiver include
substantially insufficient capital and losses or likely losses that will deplete
substantially all capital with no reasonable prospect for replenishment of
capital without federal assistance.

     If the OTS determines that an association is in an unsafe or unsound
condition or is engaged in an unsafe or unsound practice it is authorized to
reclassify a well-capitalized association as an adequately capitalized
association and if the association is adequately capitalized, to impose the
restrictions applicable to an undercapitalized association.  If the association
is undercapitalized, the OTS is authorized to impose the restrictions applicable
to a significantly undercapitalized association.

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

     The OTS regulations establish special capitalization requirements for
savings associations that own service corporations and other subsidiaries,
including subsidiary savings associations.  According to these regulations,
certain subsidiaries are consolidated for capital purposes and others are
excluded from assets and capital.  In determining compliance with the capital
requirements, all subsidiaries engaged solely in activities permissible for
national banks, engaged solely in mortgage-banking activities, or engaged in
certain other activities solely as agent for its customers are "includable"
subsidiaries that are consolidated for capital purposes in proportion to the
association's level of ownership, including the assets of includable
subsidiaries in which the association has a minority interest that is not
consolidated for GAAP purposes.  For excludable subsidiaries, the debt and
equity investments in such subsidiaries are deducted from assets and capital,
with a five-year transition period beginning on July 1, 1990, for investments
made before April 12, 1989.  During the transition period, the assets of the
subsidiary are consolidated for capital purposes in inverse proportion to the
level of investment that is excluded.  All of the Bank's subsidiaries are
includable subsidiaries.

     Loans to One Borrower.  Under the HOLA, savings institutions are generally
subject to the national bank limits on loans to a single or related group of
borrowers.  Generally, this limit is 15% of the Bank's unimpaired capital and
surplus, and an additional 10% of unimpaired capital and surplus if such loan is
secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion.  The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain requirements
to extend loans to one borrower in additional amounts under circumstances
limited essentially to loans to develop or complete residential housing units.

     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, 1999, the Bank met the test.

                                       17
<PAGE>

     Loans and mortgage-backed securities collateralized by domestic residential
housing and FHLB stock, as well as certain obligations of the FDIC and certain
other related entities may be included in qualifying thrift investments without
limit.  FHLMC and FNMA stock and certain other housing-related and non-
residential real estate loans and investments, including loans to develop
churches, nursing homes, hospitals and schools, and consumer loans and
investments to subsidiaries engaged in housing-related activities may also be
included, in varying amounts, to the extent of 20% of portfolio assets.

     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
restrictions specified in FIRREA.  A savings institution that converts to a bank
must pay applicable exit and entrance fees involved in converting from one
insurance fund to another.  A savings institution that fails to meet the QTL
test and does not convert to a bank will be: (1) prohibited from making any
investment or engaging in activities that would not be permissible for national
banks; (2) prohibited from establishing any new branch office where a national
bank located in the savings institution's home state would not be able to
establish a branch office; (3) ineligible to obtain new advances from any FHLB;
and (4) subject to limitations on the payment of dividends comparable to the
statutory and regulatory dividend restrictions applicable to national banks.
Also, beginning three years after the date on which the savings institution
ceases to be a qualified thrift lender, the savings institution would be
prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any Federal Home Loan Bank.  A savings institution may requalify as
a qualified thrift lender if it thereafter complies with the QTL test.

     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. The
CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with CRA. 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 unsatisfactory rating may be used as the basis for the
denial of an application by the OTS.  The federal banking agencies, including
the OTS, have recently revised the CRA regulations and the methodology for
determining an institution's compliance with the CRA. The Bank was examined for
CRA compliance in June 1997 and received a rating of satisfactory.

     Liquidity Requirements.  Federally insured savings associations are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of average daily balances of net withdrawable
deposit accounts and borrowings payable in one year or less.  The liquidity
requirement may vary from time to time (between 4% and 10%) depending upon
economic conditions and savings flows of all savings associations.  At the
present time, the minimum liquid asset ratio is 5%.  At September 30, 1999, the
Bank's liquidity ratio exceeded regulatory requirements.

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

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

                                       18
<PAGE>

     Insurance of Accounts and Regulation by the FDIC.  The Bank's deposits are
insured up to $100,000 per insured member (as defined by law and regulation) by
the SAIF.  This insurance is backed by the full faith and credit of the United
States Government.  The SAIF is administered and managed by the FDIC.  As
insurer, the FDIC is authorized to conduct examinations of and to require
reporting by SAIF-insured associations.  It also may prohibit any SAIF-insured
association from engaging in any activity the FDIC determines by regulation or
order to pose a serious threat to the SAIF.  The FDIC also has the authority to
initiate enforcement actions against savings associations, after first giving
the OTS an opportunity to take such action.

     FDICIA also authorizes the FDIC to implement a risk-based deposit insurance
assessment system.  Pursuant to this requirement, the FDIC adopted a
transitional risk-based assessment system, effective January 1, 1993, under
which all insured depository institutions are placed into one of nine categories
based upon their level of capital and supervisory evaluation.  Under the system,
institutions classified as well-capitalized (i.e., a core capital ratio of at
least 5%, a ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1
risk-based capital") of at least 6% and a risk-based capital ratio of at least
10%) and considered healthy would pay the lowest premium while institutions that
are less than adequately capitalized (i.e., core and Tier 1 risk-based capital
ratios of less than 4% or a risk-based capital ratio of less than 8%) and
considered of substantial supervisory concern would pay the highest premium.
Risk classification of all insured institutions will be made by the FDIC for
each semi-annual assessment period.

The financing corporations created by FIRREA and the Competitive Equality
Banking Act of 1987 are also empowered to assess premiums on savings
associations to help fund the liquidation or sale of troubled associations.
Such premiums cannot, however, exceed the amount of SAIF assessments and are
paid in lieu thereof.

     The FDIC has proposed regulations that generally prohibit payments to
directors, officers and employees contingent upon termination of their
affiliation with an FDIC-insured institution or its holding company (i.e.,
"golden parachute payments") if the payment is received after or in
contemplation of, among other things, insolvency or a determination that the
institution or holding company is in "troubled condition."  Certain types of
employee benefit plans are not subject to the prohibition.  The proposed
regulations would also generally prohibit certain indemnification payments for
civil money penalties or other enforcement action.  No assurance can be given as
to the final form of any such regulation, the date of its effectiveness or its
effect on the Bank.

     Limitations on Capital Distributions.  OTS regulations impose limitations
on all capital distributions by savings institutions. Capital distributions
include cash dividends, payments to repurchase or otherwise acquire the savings
association's shares, payments to shareholders of another institution in a cash-
out merger and other distributions charged against capital. The rule establishes
three tiers of institutions. An institution that exceeds all fully phased-in
capital requirements before and after a proposed capital distribution ("Tier 1
association") may, after prior notice but without the approval of the OTS, make
capital distributions during a calendar year equal to the greater of 100% of its
net income to date during the calendar year plus 50% of the amount by which the
lesser of the association's tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. Any additional capital distributions would require prior regulatory
approval. An institution that meets its regulatory capital requirement before
and after its capital distribution ("Tier 2 association") may, after prior
notice but without the approval of the OTS, make capital distributions of up to
75% of its net income over the most recent four quarter period.  A savings
institution that does not meet its current regulatory capital requirement before
or after payment of a proposed capital distribution ("Tier 3 association") may
not make any capital distributions without the prior approval of the OTS, unless
such distribution is consistent with an approved capital plan. In addition, the
OTS would prohibit a proposed capital distribution by any institution, which
would otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. Also, an
institution meeting the Tier 1 capital criteria which has been notified that it
needs more than normal supervision will be treated as a Tier 2 or Tier 3
association unless the OTS deems otherwise.  As of September 30, 1999, the Bank
was a Tier 1 association, and had not been notified of a need for more than
normal supervision.

                                       19
<PAGE>

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

     Thrift Charter.  Congress has been considering legislation in various forms
that would require federal thrifts, such as the Bank, to convert their charters
to national or state bank charters.  Legislation enacted in 1996 required the
Treasury Department to prepare for Congress a comprehensive study on development
of a common charter for federal savings associations and commercial banks; and
provided for the merger of the BIF and the SAIF into a single deposit insurance
fund on January 1, 1999, provided the thrift charter was eliminated.  The Bank
cannot determine whether, or in what form, such legislation may eventually be
enacted and there can be no assurance that any legislation that is enacted would
not adversely affect the Bank and the Company.

Transactions with Affiliates

     Section 11 of the HOLA provides that transactions between an insured
subsidiary of a holding company and an affiliate thereof will be subject to the
restrictions that apply to transactions between associations that are members of
the Federal Reserve System and their affiliates pursuant to Sections 23A and 23B
of the Federal Reserve Act. Generally, Sections 23A and 23B: (i) limit the
extent to which a financial institution or its subsidiaries may engage in
"covered transactions" with an "affiliate," to an amount equal to 10% of the
institution's capital and surplus, and limit all "covered transactions" in the
aggregate with all affiliates to an amount equal to 20% of such capital and
surplus; and (ii) require that all transactions with an affiliate, whether or
not "covered transactions," be on terms substantially the same, or at least as
favorable to the institution or subsidiary as those provided to a non-affiliate.
The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and similar types of transactions. In addition to the
restrictions that apply to financial institutions generally under Sections 23A
and 23B, Section 11 of the HOLA places several other restrictions on savings
associations, including those that are part of a holding company organization.
First, savings associations may not make any loan or extension of credit to an
affiliate unless that affiliate is engaged only in activities permissible for
bank holding companies. Second, savings associations may not purchase or invest
in affiliate securities except for those of a subsidiary. Finally, the OTS is
granted authority to impose more stringent restrictions when justifiable for
reasons of safety and soundness.

     Extensions of credit by the Bank to executive officers are subject to
Section 12(g) of the Federal Reserve Act, and extensions of credit to executive
officers, directors and principal stockholders and related interests of such
persons are subject to Section 22(h) of the Federal Reserve Act, which prohibits
loans to any such individual where the aggregate amount exceeds an amount equal
to 15% of a bank's unimpaired capital and surplus, plus an additional 10% of
unimpaired capital and surplus in the case of loans that are fully
collateralized by readily marketable collateral. Section 22(h) provides that no
institution shall make any loan or extension of credit in any manner to any of
its executive officers or directors, or to any person who directly or acting
through or in concert with one or more persons,owns, controls, or has the power
to vote more than 10% of any class of voting securities of such institution, or
to any company controlled by such executive officer, director, or person, or to
any political or campaign committee the funds or services of which will benefit
such executive officer, director, or person or which is controlled by such
executive officer, director, or person, unless such loan or extension of credit
is made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and does not involve more than the normal risk of repayment or
present other unfavorable features. A savings association is therefore
prohibited from making any new loans or extensions of credit to the savings
association's executive officers, directors and 10% stockholders at different
rates or terms than those offered to the general public.

                                       20
<PAGE>

Federal Home Loan Bank System

     The Bank, as a federal association, is required to be a member of the FHLB
System, which consists of 12 regional FHLBs.  The FHLB provides a central credit
facility primarily for member institutions.  The Bank, as a member of the FHLB
of Dallas, is required to acquire and hold shares of capital stock in that FHLB
in an amount at least equal to 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year, or 1/20 of its advances (borrowings) from the FHLB, whichever is
greater.  As of September 30, 1999, the Bank was in compliance with this
requirement.  The FHLBs are required to provide funds for the resolution of
insolvent thrifts and to contribute funds for affordable housing programs.
These requirements could reduce the amount of dividends that the FHLBs pay to
their members and could also result in the FHLBs imposing a higher rate of
interest on advances to their members.

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, 1999, the Bank was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "Federal Regulations -- Liquidity Requirements."

Holding Company Regulation

     The Company is a non-diversified savings and loan holding company within
the meaning of the HOLA, as amended.  As such, the Company is registered with
the OTS and is subject to OTS regulations, examinations, supervision and
reporting requirements.  In addition, the OTS has enforcement authority over the
Company and its non-savings institution subsidiaries.  Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution.  The Savings 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 Savings Bank continues to be a QTL.  Upon any
nonsupervisory acquisition by the Company of another savings association or
savings bank that meets the QTL test and is deemed to be a savings institution
by the OTS, the Company would become a multiple savings and loan holding company
(if the acquired institution is held as a separate subsidiary) and would become
a multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be subject to extensive limitations on the
types of business activities in which it could engage.  The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the
prior approval of the OTS, and activities authorized by OTS regulation.  The OTS
is prohibited from approving any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions:  (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions.

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

                                       21
<PAGE>

     Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or in concert with one or more
persons, may acquire "control," as that term is defined in OTS regulations, of a
federally insured savings institution without giving at least 60 days written
notice to the OTS and providing the OTS an opportunity to disapprove of the
proposed acquisition.  Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings institution or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity of
the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by such person.

Federal Securities Laws

     At the time of the Conversion, the Company filed with the Securities and
Exchange Commission (the "SEC") a registration statement under the Securities
Act for the registration of the Common Stock to be issued pursuant to the
Conversion.  Upon completion of the Conversion, the Company's Common Stock was
registered with the SEC under the Exchange Act.  The Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements under the Exchange Act.

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

Executive Officers of the Registrant

     Listed below is information, as of September 30, 1999, concerning the
Company's executive officers.  Such executive officers also serve in the same
positions with the Savings Bank.  There are no arrangements or understandings
between the Company and any of the persons named below with respect to which he
or she was or its to be selected as an officer.

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

     Name                                Position With the Company
     ----                                -------------------------

     James Edington....................  President and Chief Executive Officer
     Dwayne Powell.....................  Senior Vice President, Secretary and
                                           Treasurer

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

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

                                       22
<PAGE>

                          FEDERAL AND STATE TAXATION

Federal Taxation

     Tax Bad Debt Reserves.  The Bank is subject to the rules of federal income
taxation generally applicable to corporations under the Internal Revenue Code of
1986, as amended (the "Code").  Most corporations are not permitted to make
deductible additions to bad debt reserves under the Code.  However, savings and
loan associations and savings associations such as the Bank, which meet certain
tests prescribed by the Code may benefit from favorable provisions regarding
deductions from taxable income for annual additions to their bad debt reserve.
For purposes of the bad debt reserve deduction, loans are separated into
"qualifying real property loans," which generally are loans collateralized by
interests in real property, and non-qualifying loans, which are all other loans.
The bad debt reserve deduction with respect to non-qualifying loans must be
based on actual loss experience.  The amount of the bad debt reserve deduction
with respect to qualifying real property loans may be based upon actual loss
experience (the "experience method") or a percentage of taxable income
determined without regard to such deduction (the "percentage of taxable income
method").

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

     Under recently enacted legislation, the percentage of taxable income method
has been repealed for years beginning after December 31, 1995, "large"
associations, i.e., the quarterly average of the association's total assets or
the consolidated group of which it is a member, exceeds $500 million for the
year, may no longer be entitled to use the experience method of computing
additions to their bad debt reserve.  A "large" association must use the direct
write-off method for deducting bad debts, under which charge-offs are deducted
and recoveries are taken into taxable income as incurred.  If the Bank is not a
"large" association, the Bank will continue to be permitted to use the
experience method.  The Bank will be required to recapture (i.e., take into
income) over a six year period its applicable excess reserves, i.e. the balances
of its reserves for losses on qualifying loans and nonqualifying loans, as of
the close of the last tax year beginning before January 1, 1996, over the
greater of (a) the balance of such reserves as of December 31, 1987 (pre-1988
reserves) or (b) in the case of a bank which is not a "large" association, an
amount that would have been the balance of such reserves as of the close of the
last tax year beginning before January 1, 1996, had the bank always computed the
additions to its reserves using the experience method.  Postponement of the
recapture is possible for a two-year period if an association meets a minimum
level of mortgage lending for 1996 and 1997.  As of September 30, 1999, the
Bank's bad debt reserve subject to recapture over a four-year period totaled
approximately $779,000.  The Bank has established a deferred tax liability of
approximately $277,000 for this recapture.

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

                                       23
<PAGE>

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

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

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

Arkansas Taxation

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

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

                                       24
<PAGE>

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

     The Bank conducts its business through its main office and 13 full-service
branch offices located in eight counties in Northeast Arkansas.  Each office is
owned by the Bank.  The following table sets forth certain information
concerning the main office and each branch office of the Bank at September 30,
1999.  The aggregate net book value of the Bank's premises and equipment was
$4.0 million at September 30, 1999.

Main Office:                             Brinkley Branch
203 W. Broadway                          --------------
Pocahontas, Arkansas                     811 West Cedar
(Opened 1935)                            Brinkley, Arkansas
                                         (Opened 1998)
Branch Offices:
Walnut Ridge Branch
-------------------                      England Branch
120 W. Main Street                       --------------
Walnut Ridge, Arkansas                   100 Stuttgart Hwy.
(Opened 1968)                            England, Arkansas
                                         (Opened 1998)
Jonesboro Branch
----------------                         Carlisle Branch
700 S.W. Drive                           ---------------
Jonesboro, Arkansas                      124 West Main
(Opened 1976)                            Carlisle, Arkansas
                                         (Opened 1998)
Corning Branch
--------------                           Lake City Branch
309 Missouri Avenue                      ----------------
Corning, Arkansas                        100 Colbine
(Opened 1983)                            Lake City, Arkansas
                                         (Opened 1998)
Highland Branch
---------------                          Hardy Branch
Highway 62                               ------------
Hardy, Arkansas                          530 Main Street
(Opened 1983)                            Hardy, Arkansas
                                         (Opened 1998)
Jonesboro Branch
----------------                         Pocahontas Walmart Branch
2213 Caraway Road                        -------------------------
Jonesboro, Arkansas                      Hwy 67 South
(Opened 1996)                            Pocahontas, Arkansas
                                         (Opened 1998)
Jonesboro Walmart Branch
------------------------                 Paragould Walmart Branch
Highland Drive                           ------------------------
Jonesboro, Arkansas                      2802 W. Kingshighway
(Opened 1999)                            Paragould, Arkansas
                                         (Opened 1999)

                                       25
<PAGE>

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

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

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

     No matters were submitted during the fourth quarter of fiscal 1999 to a
vote of security holders.

                                       26
<PAGE>

                                 PART II

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

Trading in Common Stock and Related Matters

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

The following table shows the quarterly range of bid prices for the Company's
common stock during fiscal 1999 and 1998, as adjusted to reflect the exchange of
Bank common stock for Company common stock in the second step conversion of
March 1998.  Prior to March 1998, the data is for common stock of the Bank.
These quotations represent prices between dealers and do not include retail
markups, markdowns, or commissions and do no reflect actual transactions.  This
information has been obtained from monthly statistical stock summaries provided
by the Nasdaq Stock Market.  As of December 15, 1999, there were 5,518,614
shares of common stock issued and outstanding and 764 stockholders of record.

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

     December 31, 1998                              $  9.25       $ 7.75
     March 31, 1999                                    8.25         7.13
     June 30, 1999                                    7.563        6.500
     September 30, 1999                               7.563         6.25


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

     December 31, 1997                              $ 11.43       $ 8.08
     March 31, 1998                                   11.37         9.94
     June 30, 1998                                   10.375        9.625
     September 30, 1998                               9.875         6.75


Cash Dividends Declared in Fiscal 1999:

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

                                            January 3, 1999      $ 0.06
                                            April 3, 1999          0.06
                                            July 3, 1999           0.06
                                            October 3, 1999        0.06

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

                                            January 3, 1998      $0.056
                                            April 3, 1998         0.056
                                            July 3, 1998          0.060
                                            October 3, 1998       0.060

                                       27
<PAGE>

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

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

<TABLE>
<CAPTION>
Selected Financial Condition Data
                                                                      September 30,
                                           --------------------------------------------------------------------------------
                                                1999           1998          1997          1996          1995
                                                                       (In Thousands)
<S>                                           <C>            <C>           <C>           <C>           <C>
Total assets                                  $482,131       $406,981      $383,417      $381,562      $348,554
Cash and cash equivalents                        8,622          3,781         2,805         2,046         1,860
Cash surrender value of life insurance           5,965          5,822         5,639         5,439             -
Investment securities                          227,403        184,640       200,553       219,690       214,425
Loans receivable, net                          217,710        193,728       159,690       136,872       116,447
Federal Home Loan Bank Stock                    10,981         10,060        10,053        11,608        10,549
Deposits (3)                                   211,891        195,537       143,354       116,283       112,458
FLHB advances (2)                              213,105        143,670       190,601       227,221       210,987
Securities sold under agreements to
  repurchase                                     2,075          2,107        20,685        10,100             -
Stockholders' equity (2)                        48,032         60,567        24,246        22,689        21,008
</TABLE>


<TABLE>
<CAPTION>
Summary of Operations
                                                                 Years Ended September 30,
                                           -----------------------------------------------------------------------------
                                                   1999            1998           1997           1996           1995
                                                                        (In Thousands)
<S>                                              <C>             <C>            <C>            <C>            <C>
Interest income                                  $27,960         $27,854        $26,093        $25,417        $23,300
Interest expense                                  17,217          18,401         18,699         18,628         17,241
                                                 -------         -------        -------        -------        -------

            Net interest income before
              provision for loan losses           10,743           9,453          7,394          6,789          6,059

Provision for loan losses                              -               -             60            411              -
                                                 -------         -------        -------        -------        -------

            Net interest income after
              provision for loan losses           10,743           9,453          7,334          6,378          6,059

Noninterest income                                 1,927             920          1,351          1,526            911
Noninterest expense:
  Compensation and benefits                        7,628           3,825          2,954          2,704          2,624
  Occupancy and equipment                          1,137             662            566            439            377
  Federal deposit insurance premiums (1)             118             104            108          1,198            279
  Other                                            2,369           1,600          1,337          1,210            746
                                                 -------         -------        -------        -------        -------

            Total noninterest expense             11,252           6,191          4,965          5,551          4,026
                                                 -------         -------        -------        -------        -------

Income before income taxes                         1,418           4,182          3,720          2,353          2,944
Income tax provision                                 466           1,294          1,344            386          1,001
                                                 -------         -------        -------        -------        -------

            Net income                           $   952         $ 2,888        $ 2,376        $ 1,967        $ 1,943
                                                 =======         =======        =======        =======        =======
</TABLE>

(1)  Includes nonrecurring SAIF Premium Assessment of approximately
     $937,000 in the fiscal year ended September 30, 1996.

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

(3)  Increase during the year ended September 30, 1998, was due mainly to
     acquisition of branches. See Management's Discussion and Analysis of
     Financial Condition and Results of Operations.

                                       28
<PAGE>

Key Financial Ratios and Other Data

Certain ratios And other data: (2)

<TABLE>
<CAPTION>
                                                                   At or for the Year Ended September 30,
                                                  -------------------------------------------------------------------
                                                   1999           1998           1997           1996           1995
<S>                                               <C>            <C>            <C>            <C>            <C>
Performance Ratios:
  Return on average equity                          1.80%          6.16%         10.07%          8.98%          9.58%
  Return on average assets                          0.23           0.67           0.63           0.54           0.58
  Interest rate spread (3)                          2.37           1.93           1.83           1.65           1.57
  Net interest margin (3)                           2.72           2.45           2.04           1.89           1.85
  Noninterest expense to average assets             2.66           1.55           1.32           1.52           1.20
  Net interest income after provision
    for loan losses to noninterest expense         95.48         152.69         147.68         114.89         150.49
  Efficiency (6)                                   88.80          59.69          57.17          70.23          57.77

Asset Quality Ratios:
  Average interest-earning assets to
    average interest-bearing liabilities          108.11         110.93         104.09         104.61         105.49
  Nonperforming loans to net loans (4) (5)          0.63           1.19           0.28           0.74           0.43
  Nonperforming assets to total assets (4) (5)      0.34           0.57           0.12           0.30           0.20
  Allowance for loan losses to
    nonperforming loans (4) (5)                   119.23          73.34         373.45         169.50         273.59
  Allowance for loan losses to
    nonperforming assets (4) (5)                  100.24          72.84         359.79         152.91         197.81
  Allowance for loan losses to total loans (4)      0.73           0.86           1.03           1.21           1.13

Capital, Equity and Dividend Ratios:
  Tangible capital (4)                              9.35          10.24           6.32           5.97           6.02
  Core capital (4)                                  9.35          10.24           6.32           5.97           6.02
  Risk-based capital (4)                           20.28          22.62          16.22          16.75          18.80
  Average equity to average assets ratio           12.45          10.87           6.26           5.98           6.06
  Dividend payout ratio (1)                       151.55          43.20          60.74          63.46          48.90

Per Share Data:
  Dividends per share                              0.240          0.232          0.220          0.191          0.147
  Book value per share (7)                          8.70           9.46           3.82           3.62           3.41
  Basic earnings per share (8)                      0.16           0.45           0.38           0.32           0.32
  Diluted earnings per share (9)                    0.16           0.44           0.37           0.31           0.31

  Number of full service offices                      14             11              6              5              5
</TABLE>

(1)  The fiscal year ended September 30, 1995, was the first full year that the
     Bank was a publicly traded company. Dividend payout ratio is the total
     dividends declared divided by net income.
(2)  With the exception of period end ratios, ratios are based on average
     monthly balances.
(3)  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.
(4)  End of period ratio.
(5)  Nonperforming assets consists 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.
(6)  The efficiency ratio is the ratio of noninterest expense to the sum of net
     interest income and noninterest income.
(7)  This calculation is based on 5,518,614, 6,399,623, 6,341,553, 6,267,905,
     and 6,167,055 shares outstanding at September 30, 1999, 1998, 1997, 1996,
     and 1995, respectively.
(8)  This calculation is based on weighted average shares outstanding of
     5,802,860, 6,388,906, 6,327,798, 6,240,231, and 6,167,055 for the fiscal
     years ended September 30, 1999, 1998, 1997, 1996, and 1995, respectively.
(9)  This calculation is based on weighted average shares outstanding of
     5,837,619, 6,535,068, 6,486,058, 6,382,328, 6,367,886 and 6,367,886 for the
     fiscal years ended September 30, 1999, 1998, 1997, 1996, and 1995,
     respectively.

                                       29
<PAGE>

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

General

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

Certain statements in this report which relate to the Company's plans,
objectives or future performance may be deemed to be forward-looking statements
within the meaning of the Private Securities Litigation Act of 1995. Such
statements are based on management's current expectations. Actual strategies and
results in future periods may differ materially from those currently expected
because of various risks and uncertainties. Additional discussion of factors
affecting the Company's business and prospects is contained in periodic filings
with the Securities and Exchange Commission.

Market Risk Analysis

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

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

Net Portfolio Value. The value of the Company's loan and investment portfolio
will change as interest rates change. Rising interest rates will generally
decrease the Company's net portfolio value ("NPV"), while falling interest rates
will generally increase the value of that portfolio. The following tables set
forth, quantitatively, as of September 30, 1999 and 1998, the OTS estimate of
the projected changes in NPV in the event of a 100, 200, and 300 basis point
instantaneous and permanent increase and decrease in market interest rates:

<TABLE>
<CAPTION>
                                                      1999
     ----------------------------------------------------------------------------------------------------
          Change in                                                                     Change In NPV
       Interest Rates                                                                 as a Percentage of
       in Basis Points                Net Portfolio Value                              Estimated Market
                           ---------------------------------------
        (Rate Shock)         Amount       $ Change       % Change         Ratio         Value of Assets
        ------------       ---------     ----------     ----------        -----         ---------------
       <S>                 <C>           <C>            <C>               <C>         <C>
                                    (Dollars in Thousands)
            +300           $ 20,028     $  (32,975)        (62)%           4.50              (646)%
            +200             32,615        (20,388)        (38)%           7.10              (386)%
            +100             43,928         (9,075)        (17)%           9.30              (167)%
               0             53,003                                       10.96
            -100             59,245          6,241          12 %          12.05               109 %
            -200             59,801          6,798          13 %          12.10               114 %
            -300             62,533          9,530          18 %          12.53               157 %
</TABLE>

                                       30
<PAGE>

<TABLE>
<CAPTION>
                                                      1998
     ----------------------------------------------------------------------------------------------------
          Change in                                                                     Change in NPV
       Interest Rates                                                                 as a Percentage of
       in Basis Points                Net Portfolio Value                              Estimated Market
                           ---------------------------------------
        (Rate Shock)         Amount       $ Change       % Change         Ratio         Value of Assets
        ------------       ---------     ----------     ----------        -----         ---------------
       <S>                 <C>           <C>            <C>               <C>         <C>
                                    (Dollars in Thousands)
            +400           $ 42,360      $  (12,354)       (23)%          10.89              (2.33)%
            +300             48,890          (5,824)       (11)%          12.28              (0.95)%
            +200             54,645             (69)         0 %          13.43               0.20 %
            +100             58,425           3,711          7 %          14.11               0.89 %
               0             54,714               -          -            13.22                  -
            -100             53,552          (1,162)        (2)%          12.87              (0.36)%
            -200             53,536          (1,178)        (2)%          14.74              (0.48)%
            -300             54,226            (488)        (1)%          12.76              (0.47)%
            -400             55,042             328          1 %          12.79              (0.44)%
</TABLE>

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

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

                                       31
<PAGE>

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

Discussion of Changes in Financial Condition

General. The Company's total assets increased $75.1 million, or 18.5%, from
$407.0 million at September 30, 1998 to $482.1 million at September 30, 1999.
Total assets increased $23.6 million, or 6.2%, from $383.4 million at September
30, 1997 to $407.0 million at September 30, 1998.

Loans receivable, net. The Company's net loans receivable increased
approximately $24.0 million, or 12.4%, and $34.0 million, or 21.3%, in fiscal
years 1999 and 1998, respectively from the prior years. The increases in both
periods were due to loan demand within the Company's market area. The increase
in 1999 was also due to the purchase of a $9.3 million portfolio of loans.

Investment securities. The investment securities portfolio increased
approximately $42.8 million or 23.2% from September 30, 1998, to $227.4 million
at September 30, 1999. In accordance with the Company's present strategy, the
principal paydowns and maturities of investments were used to fund loan growth.
The investment securities portfolio decreased $17.4 million, or 8.7% to $183.2
million at September 30, 1998, compared to $200.6 million at September 30, 1997.

Cash surrender value of life insurance. During the year ended September 30,
1996, the Company purchased life insurance on the lives of executive officers
and members of the board of directors. Such life insurance had cash surrender
value of $6.0 million and $5.8 million at September 30, 1999 and 1998,
respectively. The increase in fiscal 1999 was due to earnings on the cash
surrender value, net of premiums paid.

Other assets. Other assets increased $1.2 million from September 30, 1998 to
September 30, 1999, primarily due to the increase of $1.3 million in the net
deferred tax asset. Deferred income taxes increased mainly as a result of the
increase in deferred compensation discussed below.

Deposits. Historically, deposits have provided the Company with a stable source
of relatively low cost funding. The market for deposits is competitive, which
has caused the Company to utilize primarily certificate accounts that are more
responsive to market interest rates rather than passbook accounts. The Company
offers a traditional line of deposit products that currently includes checking,
interest-bearing checking, savings, certificates of deposit, commercial checking
and money market accounts. The $16.4 million, or 8.4%, increase in deposits
during the year ended September 30, 1999, was primarily due to core deposit
growth in the bank's market areas.

FHLB advances and reverse repurchase agreements. The Company also relies upon
FHLB advances and reverse repurchase agreements as a source to fund assets.
Approximately 44.2% and 48.0% of the Company's assets were funded with FHLB
advances and reverse repurchase agreements as of September 30, 1999 and 1998,
respectively. At September 30, 1999, FHLB advances and reverse repurchase
agreements totaled $215.2 million, an increase of $69.4 million, or 47.6%, from
1998. FHLB advances and reverse repurchase agreements totaled $145.8 million at
September 30, 1998, a decrease of $65.5 million, or 31.0% from 1997, reflecting,
in part, the increased deposits resulting from the Company's acquisition of
branches during 1998 and the proceeds from Company's second step stock offering.

Deferred compensation. Deferred compensation increased approximately $2.6
million between September 30, 1998 and 1999, mainly due to an agreement entered
into with a former executive requiring payments totaling $2.75 million plus
interest.

Stockholders' Equity. Stockholders' equity decreased $12.5 million, or 20.7%,
from $60.6 million to $48.1 million at September 30, 1999. This was primarily
due to stock repurchases of $11.9 million, dividends paid of $1.4 million and
net income of $1.0 million.

                                       32
<PAGE>

Stockholders' equity increased by $36.3 million or 59.9%, to $60.6 million at
September 30, 1998 from September 30, 1997. This was primarily due to the second
step conversion completed on March 31, 1998. Concurrent with the second step
conversion, the Company sold 3,570,750 additional shares to members of the
Mutual Holding Company, employees of the Bank and the public at a price of
$10.00 per share. Reorganization and stock offering costs of approximately
$919,000 resulted in net proceeds from the offering of approximately
$34,800,000.

Discussion of Results of Operations

Overview. Net income was $1.0 million for fiscal 1999, compared to $2.9 million
and $2.4 million for fiscal 1998 and 1997, respectively. The Company's average
interest earning assets have increased over the three year period ended
September 30, 1999, which has resulted in higher levels of interest income. The
Company's net interest rate spread increased to 2.37% for the year ended
September 30, 1999, from 1.92% for the year ended September 30, 1998, and 1.83%
for the year ended September 30, 1997. The increase in net interest rate spread
was a result of an increase in average loans outstanding, a decrease in average
investments outstanding, a decrease in the average cost of borrowed funds and,
in fiscal 1999, an increase in deposits and a decrease in borrowed funds.

Net Interest Income. The Company's results of operations depend primarily on its
net interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
The Company's net interest rate spread is impacted by changes in general market
interest rates, including changes in the relation between short- and long-term
interest rates (the "yield curve"), and the Company's interest rate sensitivity
position. While management seeks to manage its business to limit the exposure of
net interest income to changes in interest rates, different aspects of its
business nevertheless remain subject to risk from interest rate changes. Net
interest income was $10.7 million for fiscal 1999 compared to $9.5 million and
$7.4 million, for fiscal 1998 and 1997, respectively. The tables below analyze
net interest income by component and in terms of changes in the volume of
interest-earning assets and interest-bearing liabilities and the changes in the
related yields and rates.

The Company's interest-earning assets are primarily comprised of single family
mortgage loans and investment securities, which are primarily mortgage-backed
securities. Interest-bearing liabilities primarily include deposits and FHLB
advances. The increases in average interest-earning assets during fiscal 1999,
1998, and 1997 can be attributed to increases in the loan portfolio, funded
primarily with deposits and FHLB advances and increases in capital. See
"Discussion of Changes in Financial Condition" for a discussion of the Company's
asset portfolio and "Capital Resources and Liquidity" for discussion of
borrowings.

Increased net interest income resulted from higher average loans outstanding and
improved net interest rate spreads during fiscal 1999 and 1998. The average
balance of interest earning assets increased $7.7 million, $23.8 million and
$5.4 million in fiscal 1999, 1998, and 1997, respectively. The net interest rate
spread increased 45 basis points, 9 basis points and 18 basis points in fiscal
1999, 1998, and 1997, respectively. Average loans receivable increased to 52.4%
of average total interest earning assets in fiscal 1999 from 45.7% in 1998 and
40.7% in 1997.

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

Fiscal 1998 also benefited from the proceeds of the sale of stock which provided
approximately $34.0 million to purchase investment securities or repay
borrowings.

                                       33
<PAGE>

Average Balance Sheets (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                      Years Ended September 30:
                                             1999                               1998                              1997
                               -------------------------------     -------------------------------    -----------------------------
                                                       Average                             Average                          Average
                               Average                 Yield/      Average                 Yield/     Average               Yield/
                               Balance     Interest     Cost       Balance     Interest     Cost      Balance    Interest    Cost
                               --------    --------   --------     --------    --------   --------    --------   --------  --------
<S>                            <C>         <C>        <C>          <C>         <C>        <C>         <C>        <C>       <C>
Interest-earning assets: (1)
  Loan receivable, net   (6)   $206,001    $ 16,141       7.84%    $176,295    $ 14,240       8.08%   $147,317   $ 12,007      8.15%
  Investment securities         187,796      11,818       6.29      209,799      13,614       6.49     214,953     14,086      6.55
                               --------    --------   --------     --------    --------   --------    --------   --------  --------

     Total interest-
       earning assets           393,797      27,959       7.10      386,094      27,854       7.21     362,270     26,093      7.20

Noninterest-earning cash          2,911                                 685                                775
Other noninterest-
  earning assets                 25,750                              11,863                             14,041
                               --------                            --------                           --------

     Total assets              $422,458                            $398,642                           $377,086
                               ========                            ========                           ========

Interest-bearing liabilities:
  Demand deposits              $ 61,416    $  1,568       2.55     $ 45,513    $  1,056       2.32    $ 33,919   $    857      2.53
  Time deposits                 138,651       7,328       5.29      121,232       6,797       5.61      93,428      5,082      5.44
  Borrowed funds (5)            164,189       8,321       5.07      181,319      10,548       5.82     220,690     12,760      5.78
                               --------    --------   --------     --------    --------   --------    --------   --------  --------

     Total interest-
       bearing liabilities      364,256      17,217       4.73      348,064      18,401       5.29     348,037     18,699      5.37
                                           --------   --------                 --------   --------               --------  --------

Noninterest-bearing
  liabilities (2)                 5,590                               7,233                              5,447
                               --------                            --------                           --------

     Total liabilities          369,846                             355,297                            353,484

Stockholders' equity             52,612                              43,345                             23,602
                               --------                            --------                           --------

     Total liabilities and
       stockholders' equity    $422,458                            $398,642                           $377,086
                               ========                            ========                           ========

Net interest income                        $ 10,742                            $  9,453                          $  7,394
                                           ========                            ========                          ========

Net interest rate spread (3)                              2.37%                               1.92%                            1.83%
                                                      ========                            ========                         ========

Interest-earning assets and
  net interest margin (4)      $393,797                   2.72%    $386,094                   2.45%   $362,270                 2.04%
                               ========               ========     ========               ========    ========             ========

Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                          108.11%                             110.93%                          104.09%
                                                      ========                            ========                         ========
</TABLE>


(1)  All interest-earning assets are disclosed net of loans in process,
     unamortized yield adjustments, and valuation allowances.
(2)  Escrow accounts are noninterest-bearing and are included in noninterest-
     bearing liabilities.
(3)  Net interest rate spread represents the difference between the average
     yield on interest-earning assets and the average cost of interest-bearing
     liabilities.
(4)  Net interest margin represents the net interest income as a percentage of
     average interest-earning assets.
(5)  Includes FHLB advances and securities sold under agreements to repurchase.
(6)  Does not include interest on nonaccrual loans. Non-performing loans are
     included in loans receivable, net.

                                       34
<PAGE>

Rate/Volume Analysis (in thousands)

<TABLE>
<CAPTION>
                                          1999 vs 1998                                1998 vs 1997
                               -------------------------------------------  -------------------------------------------

                                      Increase/(Decrease)                           Increase/(Decrease)
                                            Due to               Total                  Due to
                               -------------------------------              ---------------------------         Total
                                                        Rate/   Increase                             Rate/     Increase
                                  Volume      Rate     Volume   (Decrease)     Volume     Rate       Volume   (Decrease)
<S>                            <C>           <C>       <C>      <C>         <C>           <C>        <C>      <C>
Interest income:

  Loans receivable                $ 2,399    $  (423)   $  257   $ 2,233       $ 2,059    $  (442)   $   616    $ 2,233
  Investment securities            (1,428)      (420)    1,375      (473)         (357)      (473)       358       (472)
                                  -------    -------    ------   -------       -------    -------    -------    -------

            Total interest-
              earning assets      $   971    $  (843)   $1,632   $ 1,760       $ 1,702    $  (915)   $   974    $ 1,761
                                  =======    =======    ======   =======       =======    =======    =======    =======

Interest expense:
  Deposits                        $ 1,569    $  (434)   $  777   $ 1,912       $ 1,663    $  (840)   $ 1,091    $ 1,914
  Borrowed funds                     (997)    (1,360)      145    (2,212)       (2,362)     2,295     (2,145)    (2,212)
                                  -------    -------    ------   -------       -------    -------    -------    -------

            Total interest-
              bearing             $   572    $(1,794)   $  922   $  (300)      $  (699)   $ 1,455    $(1,054)   $  (298)
               liabilities        =======    =======    ======   =======       =======    =======    =======    =======

Net change in net
  interest income                 $   399    $   951    $  710   $ 2,060       $ 2,401    $(2,370)   $ 2,028    $ 2,059
                                  =======    =======    ======   =======       =======    =======    =======    =======

<CAPTION>
                                               1997 vs 1996
                               --------------------------------------------

                                       Increase/(Decrease)
                                             Due to               Total
                               --------------------------------
                                                        Rate/    Increase
                               Volume          Rate    Volume   (Decrease)
<S>                            <C>          <C>        <C>      <C>
Interest income:

  Loans receivable                  $ 1,908    $(312)   $(106)     $1,490
  Investment securities              (1,112)     325      (27)       (814)
                                    -------    -----    -----      ------

            Total interest-
              earning assets        $   796    $  13    $(133)     $  676
                                    =======    =====    =====      ======

Interest expense:
  Deposits                          $   642    $ (80)   $ 559      $  559
  Borrowed funds                       (391)    (114)    (488)       (488)
                                    -------    -----    -----      ------

            Total interest-
              bearing               $   251    $(194)   $  71      $   71
               liabilities          =======    =====    =====      ======

Net change in net
  interest income                   $   545    $ 207    $(147)     $  605
                                    =======    =====    =====      ======
</TABLE>

                                      35

<PAGE>

During fiscal 1999, loan demand remained relatively strong, resulting in an
increase in mortgage loans outstanding, an increase in the net interest rate
spread and an increase of $1.3 million, or 13.6%, in net interest income.  The
average yield on interest earning assets decreased to 7.10% in fiscal 1999
compared to 7.21% and 7.20% in fiscal 1998 and fiscal 1997, respectively, while
the average cost of interest bearing liabilities decreased to 4.73% from 5.29%
and 5.37% in fiscal 1998 and fiscal 1997, respectively.  The increase in the
average yield on interest earning assets was largely due to an increase in
average loans receivable, net and a decrease in average investments receivable.
The decrease in average cost of interest bearing liabilities was primarily due
to an increase in average deposits and decrease in average borrowed funds.

The increase in average deposits was primarily due to the acquisition of
approximately $27.9 million of deposits in January of 1998 and the acquisition
of approximately $28.0 million of deposits in September, 1998.

Provision for Loan Losses.  The Bank provided for loan losses of $0, $0 and
$60,000, respectively, in the fiscal years ended September 30, 1999, 1998, and
1997.  Management considered several factors in determining the necessary level
of its allowance for loan losses, including but not limited to historical loan
losses and current delinquency rates.  As a result of the process, management
determined the allowance to be appropriate.

Noninterest Income.  Non-interest income totaled $1.9 million for the fiscal
year ended September 30, 1999, compared to $0.9 million for the fiscal year
ended September 30, 1998, and $1.4 million for the fiscal year ended September
30, 1997.  This increase in 1999 was primarily due to an increase in fee income
due to an increase in demand deposit accounts and a smaller loss on equity
trading securities.  Fee income also increased as a result of the new Totally
Free Checking program.  The decrease in 1998 was primarily due to a loss on
equity securities classified as trading of approximately $427,000 before income
tax benefit.

Noninterest Expense.  Non-interest expense consisting primarily of salaries and
employee benefits, premises and equipment, data processing and federal deposit
insurance premiums totaled $11.2 million for the fiscal year ended September 30,
1999, compared to $6.2 million for the fiscal year ended September 30, 1998, an
increase of 80.6%.  Such increase was primarily attributable to the severance
agreement with a former executive officer, an increase in the number of
employees and due to the acquisition of new branches and personnel for 3 denovo
branches.

Income Taxes.  Income tax expense for the year ended September 30, 1999, was $.5
million compared to $1.3 million for the year ended September 30, 1998, and $1.3
million for the year ended September 30, 1997.  The decrease from 1998 to 1999
was primarily due to a decrease in income before tax and an increase in tax
exempt income.

Liquidity and Capital Resources

The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations.  This requirement, which varies from time to time depending
upon economic conditions and deposit flows, is based upon a percentage of
deposits and short-term borrowings.  The required ratio is currently 4%. The
Bank adjusts liquidity as appropriate to meet its asset and liability management
objectives.  At September 30, 1999, the Bank was in compliance with such
liquidity requirements.

                                       36
<PAGE>

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

At September 30, 1999, the Bank exceeded all of its regulatory capital
requirements.

Impact of Inflation and Changing Prices

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

FDIC Insurance Premiums and Assessment

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

Impact of New Accounting Standards

In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components.  SFAS 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.  The Company is required to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the statement of financial condition.  Also in June 1997, the FASB
issued Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information, establishing standards for the way public enterprises
report information about operating segments in interim financial reports issued
to shareholders.  It

                                       37
<PAGE>

also establishes standards for related disclosures about products and services,
geographic areas, and major customers.  The Company adopted SFAS 130 and 131
during the year ended September 30, 1999.  The adoption of SFAS 130 and 131 did
not have a material effect on the Company's consolidated financial statements.

In February 1998, the FASB issued Statement No. 132, Employer's Disclosures
about Pensions and Other Postretirement Benefits, an amendment of FASB
Statements No. 87, 88 and 106 ("SFAS 132").  The statement revises employers'
disclosures about pensions and other postretirement benefits.  It does not
change the measurement or recognition of those plans.  It standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when FASB Statements No. 87, No. 88, and No. 106 were issued.  The
Statement suggests combined formats for presentation of pension and other
postretirement benefit disclosures.  This Statement was adopted by the Company
during the year ended September 30, 1999.  The adoption of SFAS 132 did not have
a material effect on the Company's consolidated financial statements.

The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133") on
July 1, 1998.  As permitted by SFAS No. 133, on July 1, 1998, the Company
transferred securities previously classified as held-to-maturity with a carrying
value of approximately $177,800,000 and a fair value of approximately
$182,400,000 into the available-for-sale category, where their carrying value
became their fair value.  This transfer resulted in a approximately $2,900,000
unrealized gain, net of tax, at July 1, 1998.  The other provisions of SFAS No.
133 had no material effect on the Company.

Year 2000

Changing from the year 1999 to 2000 has the potential to cause problems in data
processing and other date-sensitive systems, a problem known as the Year 2000 or
Y2K dilemma.  The Year 2000 date change can affect any system that uses computer
software programs or computer chips, including automated equipment and
machinery.  For example, many software programs or computer chips store calendar
dates as two-digits rather than four-digit numbers.  These software programs
record the year 1998 as "98."  This approach will work until the Year 2000 when
"00" may be read as 1900 instead of 2000.

Regarding the Company, computer systems are used to perform financial
calculations, track deposits and loan payments, transfer funds and make direct
deposits.  The processing of the Company's loan and deposit transactions is
outsourced to a third-party data processing vendor.  Computer software and
computer chips also are used to run security systems, vaults, communications
networks and other essential bank equipment.

Because of its reliance on these systems (including those used by its third-
party data processing vendor), the Company is following a comprehensive process
to ensure that such systems are ready for the Year 2000 date change.

To become Y2K compliant, the Company is following a five-step process suggested
by federal bank regulatory agencies.  A description of each of the steps and the
status of the Company's efforts in completing the steps is as follows:

   Step 1.  Awareness and Understanding of the Problem.  The Company has formed
   a Year 2000 team that has investigated the problem and its potential impact
   on the Company's systems.  This phase also includes education of the
   Company's employees and customers about Y2K issues.  The awareness and
   understanding phase of this step has been completed.  Training and
   communication has taken place and will continue through 1999.

   Step 2.  Identification of All Potentially Affected Systems.  This step has
   included a review of all major information technology ("IT") and non-
   information technology ("non-IT") systems to determine how they are impacted
   by Y2K issues.  An inventory has been prepared of all vendors who render IT
   and non-IT services to the Company.  This step is considered complete.

                                       38
<PAGE>

   Step 3.  Assessment and Planning.  The Year 2000 team has completed its
   assessment of which systems and equipment are most prone to placing the
   Company at risk if they are not Y2K compliant.  The project team has
   developed an inventory of its vendors, an inventory of actions to be taken,
   identification of the team members responsible for completion of each action,
   a completion timetable and a project tracking methodology.  Significant
   vendors have been requested to advise the Company in writing of their Y2K
   readiness, including actions to become compliant if they are not already
   compliant.  A plan has been developed to repair or replace systems and
   equipment not currently Y2K compliant.  This step is considered complete.

   Step 4.  Correction and Testing.  The Company's third party data processing
   services as well as vendors who provide significant technology-related
   services have modified their systems to become Y2K compliant.  It has also
   arranged for repair or replacement of equipment programs affected by Y2K
   issues.  The testing and corrections have taken place.

   Step 5.  Implementation.  This step includes repair or replacement of systems
   and computer equipment and the development of contingency plans.  The repair
   and replacement phase is completed.  Contingency plans for how the Company
   would resume business if unanticipated problems arise from non-performance by
   IT and non-IT vendors has been completed and tested.

The Company's efforts to become Y2K compliant are being monitored by its federal
banking regulators.  Failure to be Y2K compliant could subject the Company to
formal supervisory or enforcement actions.

The Company's expenses related to Y2K have not been material.  The Company
expects to incur additional costs to become Y2K compliant.  It does not expect
such costs to be material to the operating expenses of the Company.  Some of the
costs are not expected to be incremental to the Company, but rather represent
new equipment and software that would otherwise be purchased in the normal
course of the Company's business.

The Company presently believes the Y2K issue will not pose significant operating
problems for the Company.  However, if implementation and testing plans are not
completed in a satisfactory and timely manner, in particular by third parties on
which the Company is dependent, or other unforeseen problems arise, the Y2K
issue could have a material adverse effect on the operations of the Company.

                                       39
<PAGE>

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





INDEPENDENT AUDITORS' REPORT

The Board of Directors of
Pocahontas Bancorp, Inc.:

We have audited the accompanying consolidated statements of financial condition
of Pocahontas Bancorp, Inc. (the "Company") and subsidiaries as of September 30,
1999 and 1998, and the related consolidated statements of income and
comprehensive income, stockholders' equity, and cash flows for each of the three
years in the period ended September 30, 1999.  These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and
subsidiaries as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, on July 1,
1998, the Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities.


/s/ Deloitte & Touche LLP


Little Rock, Arkansas
November 1, 1999

                                       40
<PAGE>

POCAHONTAS BANCORP, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1999 AND 1998
-------------------------------------------------------------------------------------------------------------
                                                                                1999                 1998
<S>                                                                         <C>                  <C>
ASSETS

Cash and due from banks:
  Interest bearing                                                          $  5,273,379         $  2,703,972
  Noninterest bearing                                                          3,348,671            1,077,105
                                                                            ------------         ------------

                                                                               8,622,050            3,781,077

Cash surrender value of life insurance                                         5,964,588            5,821,800
Securities held-to-maturity, at amortized cost
  (fair value of $9,020,480 and $9,568,105 in 1999 and
  1998, respectively)                                                          9,482,122            9,425,080
Securities available-for-sale, at fair value (amortized cost of
  $215,874,086 and $170,804,700 in 1999 and 1998, respectively)              216,492,192          173,626,023
Securities-trading, at fair value (amortized cost of $2,060,455
  and $2,015,655 in 1999 and 1998, respectively)                               1,429,196            1,588,535
Loans receivable, net                                                        217,709,933          193,727,664
Accrued interest receivable                                                    3,165,427            2,407,273
Premises and equipment, net                                                    4,018,157            3,327,076
Federal Home Loan Bank stock                                                  10,981,300           10,059,900
Core deposit premium                                                           2,440,187            2,576,908
Other assets                                                                   1,825,710              639,762
                                                                            ------------         ------------
TOTAL                                                                       $482,130,862         $406,981,098
                                                                            ============         ============
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Deposits                                                                  $211,890,791         $195,536,708
  Federal Home Loan Bank advances                                            213,105,000          143,670,000
  Securities sold under agreements to repurchase                               2,075,000            2,107,645
  Deferred compensation                                                        3,357,890              717,726
  Accrued expenses and other liabilities                                       3,669,743            4,382,221
                                                                            ------------         ------------

          Total liabilities                                                  434,098,424          346,414,300

STOCKHOLDERS' EQUITY:
  Common stock, $0.01 par value, 8,000,000 shares authorized;
    6,946,822 and 6,685,283 shares issued and 5,518,614 and
    6,685,283 shares outstanding in 1999 and 1998, respectively                   69,468               66,853
  Additional paid-in capital                                                  51,439,643           50,094,461
  Unearned ESOP shares                                                        (2,443,525)          (2,856,600)
  Unearned RRP shares                                                           (524,476)                   -
  Accumulated other comprehensive income                                         407,950            1,805,645
  Retained earnings                                                           10,965,600           11,456,439
                                                                            ------------         ------------

                                                                              59,914,660           60,566,798

  Less treasury stock at cost, 1,428,208 shares                              (11,882,222)                   -
                                                                            ------------         ------------

           Total stockholders' equity                                         48,032,438           60,566,798
                                                                            ------------         ------------

TOTAL                                                                       $482,130,862         $406,981,098
                                                                            ============         ============
</TABLE>

See notes to consolidated financial statements.

                                       41
<PAGE>

POCAHONTAS BANCORP, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
-----------------------------------------------------------------------------------------------------------
                                                            1999                1998               1997
<S>                                                     <C>                <C>                 <C>
INTEREST INCOME:
  Loans receivable                                      $16,141,250         $14,239,771         $12,006,825
  Securities:
    Taxable                                              11,362,574          13,298,678          13,943,746
    Nontaxable                                              455,706             315,008             142,606
                                                        -----------         -----------         -----------

            Total interest income                        27,959,530          27,853,457          26,093,177

INTEREST EXPENSE:
  Deposits                                                8,895,824           7,852,334           5,939,098
  Borrowed funds                                          8,321,072          10,548,315          12,759,704
                                                        -----------         -----------         -----------

            Total interest expense                       17,216,896          18,400,649          18,698,802
                                                        -----------         -----------         -----------

NET INTEREST INCOME BEFORE PROVISION
  FOR LOAN LOSSES                                        10,742,634           9,452,808           7,394,375

PROVISION FOR LOAN LOSSES                                      -                   -                 60,000
                                                        -----------         -----------         -----------

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                        10,742,634           9,452,808           7,334,375

OTHER INCOME:
  Dividends on FHLB stock                                   590,825             627,676             626,422
  Fees and service charges                                  833,277             484,419             398,234
  Unrealized loss on trading securities                     (51,564)           (427,120)
  Gain on sale of investment securities                     161,411               6,569
  Other                                                     393,492             228,343             326,526
                                                        -----------         -----------         -----------

            Total other income                            1,927,441             919,887           1,351,182

OTHER EXPENSES:
  Compensation and benefits                               7,628,380           3,824,786           2,954,912
  Occupancy and equipment                                 1,136,583             662,486             566,229
  Deposit insurance                                         118,395             104,020             108,136
  Professional fees                                         297,561             231,714             276,149
  Data processing                                           415,597             294,837             237,995
  Advertising                                               472,338             220,862             184,456
  OTS assessment                                             87,943              93,629              92,034
  Other                                                   1,094,863             758,791             545,639
                                                        -----------         -----------         -----------

            Total other expenses                         11,251,660           6,191,125           4,965,550
                                                        -----------         -----------         -----------

INCOME BEFORE INCOME TAXES                                1,418,415           4,181,570           3,720,007

INCOME TAX PROVISION                                        466,178           1,294,239           1,344,490
                                                        -----------         -----------         -----------

NET INCOME                                                  952,237           2,887,331           2,375,517
</TABLE>

                                                                     (Continued)

                                       42
<PAGE>

POCAHONTAS BANCORP, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
-----------------------------------------------------------------------------------------------------------
                                                                    1999             1998           1997
<S>                                                             <C>              <C>             <C>
OTHER COMPREHENSIVE INCOME (LOSS),
  NET OF TAX:
  Unrealized holding gain (loss) on securities arising
    during period                                               $(1,291,164)     $1,809,981      $        -

  Reclassification adjustment for (gains) losses
   included in net income                                          (106,531)         (4,336)              -
                                                                -----------      ----------      ----------

              Other comprehensive income (loss)                  (1,397,695)      1,805,645               -
                                                                -----------      ----------      ----------

COMPREHENSIVE INCOME (LOSS)                                     $  (445,458)     $4,692,976      $2,375,517
                                                                ===========      ==========      ==========

EARNINGS PER SHARE:
  Basic earnings per share                                      $      0.16      $     0.45      $     0.38
                                                                ===========      ==========      ==========

  Diluted earnings per share                                    $      0.16      $     0.44      $     0.37
                                                                ===========      ==========      ==========

  Dividends per share                                           $      0.24      $     0.23      $     0.22
                                                                ===========      ==========      ==========
</TABLE>

                                                                     (Concluded)


See notes to consolidated financial statements.

                                       43
<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                    Accumulated
                                                   Common Stock        Additional      Unearned       Unearned         Other
                                              ---------------------
                                                                         Paid-in         ESOP            RRP       Comprehensive
                                                 Shares     Amount       Capital        Shares         Shares          Income

<S>                                           <C>           <C>        <C>            <C>             <C>          <C>
BALANCE, OCTOBER 1, 1996                       6,637,673    $66,377    $14,866,651    $  (209,300)

  Repayment of ESOP loan and related
    increase in share value                                                 65,405        105,656
  Options exercised                               31,512        315         77,985
  Net income
  Dividends
                                               ---------    -------    -----------    -----------    -----------   -------------

BALANCE, SEPTEMBER 30, 1997                    6,669,185     66,692     15,010,041       (103,644)

  Repayment of ESOP loan and related
    increase in share value                                                256,356        103,644
  Options exercised                               16,098        161         39,839
  Proceeds from stock offering                                          34,788,225     (2,856,600)
  Cumulative effect of adoption
    of SFAS 133                                                                                                      $ 2,944,822
  Net change in unrealized gain (loss) on
    available-for-sale securities, net of tax                                                                         (1,139,177)
  Net income
  Dividends
                                               ---------   --------    -----------    -----------    ------------  -------------

BALANCE, SEPTEMBER 30, 1998                    6,685,283     66,853     50,094,461     (2,856,600)                     1,805,645
                                               ---------   --------    -----------    -----------    ------------  -------------

  Repayment of ESOP loan and related
    increase in share value                                                               413,075
  Options exercised                              154,416      1,544        382,146
  RRP shares granted                             142,830      1,428      1,284,042                   $(1,285,470)
  RRP shares forfeited                           (35,707)      (357)      (321,006)                      321,363
  RRP shares earned                                                                                      439,631
  Net change in unrealized gain (loss) on
    available-for-sale securities, net of tax                                                                         (1,397,695)
  Treasury stock purchased
  Net income
  Dividends
                                               ---------   --------    -----------    -----------   ------------   -------------

BALANCE, SEPTEMBER 30, 1999                    6,946,822    $69,468    $51,439,643    $(2,443,525)   $  (524,476)    $   407,950
                                               =========    =======    ===========    ===========   ============   =============

<CAPTION>
                                                                  Treasury Stock
                                                              ------------------------        Total
                                                 Retained                                 Stockholders'
                                                 Earnings      Shares        Amount          Equity
<S>                                            <C>            <C>        <C>             <C>
BALANCE, OCTOBER 1, 1996                       $ 7,965,473                               $ 22,689,201

  Repayment of ESOP loan and related
    increase in share value                                                                   171,061
  Options exercised                                                                            78,300
  Net income                                     2,375,517                                  2,375,517
  Dividends                                     (1,067,810)                                (1,067,810)
                                               -----------   ---------  ------------     ------------

BALANCE, SEPTEMBER 30, 1997                      9,273,180                                 24,246,269

  Repayment of ESOP loan and related
    increase in share value                                                                   360,000
  Options exercised                                                                            40,000
  Proceeds from stock offering                     449,424                                 32,381,049
  Cumulative effect of adoption
    of SFAS 133                                                                             2,944,822
  Net change in unrealized gain (loss) on
    available-for-sale securities, net of tax                                              (1,139,177)
  Net income                                     2,887,331                                  2,887,331
  Dividends                                     (1,153,496)                                (1,153,496)
                                               -----------   ---------  ------------     ------------

BALANCE, SEPTEMBER 30, 1998                     11,456,439                                 60,566,798
                                               -----------   ---------  ------------     ------------

  Repayment of ESOP loan and related
    increase in share value                                                                   413,075
  Options exercised                                                                           383,690
  RRP shares granted
  RRP shares forfeited
  RRP shares earned                                                                           439,631
  Net change in unrealized gain (loss) on
    available-for-sale securities, net of tax                                              (1,397,695)
  Treasury stock purchased                                  1,428,208   $(11,882,222)     (11,882,222)
  Net income                                      952,237                                     952,237
  Dividends                                    (1,443,076)                                 (1,443,076)
                                               -----------   ---------   ------------    ------------

BALANCE, SEPTEMBER 30, 1999                    $10,965,600   1,428,208   $(11,882,222)   $ 48,032,438
                                               ===========   =========   ============    ============
</TABLE>

See notes to consolidated financial statements.

                                       44
<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                    1999                  1998                  1997
<S>                                                            <C>                   <C>                   <C>
OPERATING ACTIVITIES:
  Net income                                                   $    952,237          $  2,887,331          $  2,375,517
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation of premises and equipment                          472,633               298,725               199,576
    Deferred income tax provision (benefit)                      (1,281,899)              (59,617)              414,295
    Amortization of deferred loan fees                             (115,677)             (103,001)             (183,648)
    Amortization of premiums and discounts, net                    (280,855)             (269,489)             (116,045)
    Amortization of core deposit premium                            136,721               126,228                     -
    Adjustment of ESOP shares and release of
      shares under recognition and retention plan                   852,706               256,356                65,405
    Provision for loan losses                                             -                     -                60,000
    Net gains on sales of assets                                    (30,821)              (60,597)              (47,600)
    Increase in cash surrender value of life
      insurance policies                                           (142,788)             (182,639)             (200,301)
    Changes in operating assets and liabilities:
      Trading securities                                            159,339            (1,588,535)                    -
      Accrued interest receivable                                  (758,154)             (177,742)               48,053
      Other assets                                                   95,951               132,014               253,596
      Deferred compensation                                       2,640,164              (229,460)               87,186
      Special SAIF assessment payable                                     -                     -              (937,000)
      Accrued expenses and other liabilities                       (712,478)              (53,819)              217,310
                                                               ------------          ------------          ------------

            Net cash provided by operating activities             1,987,079               975,755             2,236,344

INVESTING ACTIVITIES:
  Purchases of investment securities held-to-maturity           (91,852,663)           (4,571,962)           (8,460,626)
  Proceeds from sale of securities available-for-sale            13,318,453                     -                     -
  Proceeds from maturities and principal repayments
    of investment securities                                     33,572,759            25,157,038            29,268,937
  Increase in loans, net                                        (23,835,771)          (34,002,694)          (22,251,466)
  Core deposit premium paid                                               -            (2,703,136)                    -
  Purchases of premises and equipment                            (1,163,714)           (1,820,969)              (81,161)
                                                               ------------          ------------          ------------

            Net cash used in investing activities               (69,960,936)          (17,941,723)           (1,524,316)
                                                                                                                (Continued)
</TABLE>

                                       45
<PAGE>

POCAHONTAS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                          1999                    1998                     1997
<S>                                                    <C>                     <C>                     <C>
FINANCING ACTIVITIES:
  Net increase (decrease) in deposits other
    than in acquisitions                               $    16,354,083         $    (4,351,344)        $    27,071,488
  Deposits assumed in acquisitions                                   -              56,533,956                       -
  Federal Home Loan Bank advances                        1,551,084,601           1,580,034,000           2,037,150,900
  Repayment of Federal Home Loan Bank
    advances                                            (1,481,649,601)         (1,626,965,038)         (2,073,770,768)
  Net increase (decrease) in repurchase
    agreements                                                 (32,645)            (18,577,355)             10,585,000
  Proceeds from stock offering                                       -              32,381,049                       -
  Exercise of stock options                                    383,690                  40,000                  78,300
  Purchase of treasury shares                              (11,882,222)                      -                       -
  Dividends paid                                            (1,443,076)             (1,153,496)             (1,067,810)
                                                       ---------------         ---------------         ---------------

            Net cash provided by financing
              activities                                    72,814,830              17,941,772                  47,110

NET INCREASE IN CASH AND
  DUE FROM BANKS                                             4,840,973                 975,804                 759,138

CASH AND DUE FROM BANKS,
  BEGINNING OF YEAR                                          3,781,077               2,805,273               2,046,135
                                                       ---------------         ---------------         ---------------

CASH AND DUE FROM BANKS,
  END OF YEAR                                          $     8,622,050         $     3,781,077         $     2,805,273
                                                       ===============         ===============         ===============

SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest                                           $    16,923,600         $    18,832,896         $    18,426,591
                                                       ===============         ===============         ===============

    Income taxes                                       $     1,175,000         $     1,201,232         $       825,000
                                                       ===============         ===============         ===============

SUPPLEMENTAL DISCLOSURES OF
  NONCASH INVESTMENT ACTIVITIES:
  Transfers from loans to real estate acquired,
    or deemed acquired, through foreclosure            $       943,789         $       128,829         $       294,241
                                                       ===============         ===============         ===============

  Loans originated to finance the sale of real
    estate acquired through foreclosure                $       513,150         $             -         $       349,446
                                                       ===============         ===============         ===============
                                                                                                                (Concluded)
</TABLE>
See notes to consolidated financial statements.

                                       46
<PAGE>

POCAHONTAS BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
--------------------------------------------------------------------------------

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, Pocahontas Federal Savings and Loan
   Association (the "Bank"), as well as the Bank's subsidiaries, P.F. Service,
   Inc. and Sun Realty, Inc. which provide real estate services (collectively
   referred to as the "Company").  All significant intercompany transactions
   have been eliminated in consolidation.  The Bank operates 14 branches in
   northern and eastern Arkansas as a federally chartered savings and loan.

   On March 31, 1998, the Bank and Pocahontas Federal Mutual Holding Company
   (the "Mutual Holding Company") completed a second step conversion (the
   "Reorganization").  As part of the Reorganization, Bancorp was formed as a
   first-tier wholly owned subsidiary of the Bank.  The Mutual Holding Company
   was converted to an interim federal stock savings association and
   simultaneously merged with and into the Bank, at which point the Mutual
   Holding Company ceased to exist and 862,500 shares or 54% of the outstanding
   Bank common stock held by the Mutual Holding Company was canceled.  A second
   interim savings and loan association ("Interim") formed by Bancorp solely for
   the Reorganization was then merged with and into the Bank.  As a result of
   the merger of Interim with and into the Bank, the Bank became a wholly owned
   subsidiary of Bancorp.  Pursuant to an exchange ratio of 4.0245 Bancorp
   shares for each share of Bank stock, which maintained for the public
   shareholders of the Bank their 46% ownership interest, the 769,924
   outstanding shares held by the public shareholders of the Bank were exchanged
   for approximately 3,100,000 shares of Bancorp.  Concurrent with the
   Reorganization, Bancorp sold 3,570,750 (essentially the equivalent of shares
   held by the Mutual Holding Company in the Bank) additional shares to members
   of the Mutual Holding Company, employees of the Bank and the public at a
   price of $10.00 per share.  Reorganization and stock offering costs of
   approximately $919,000 resulted in net proceeds from the offering of
   approximately $34,800,000.

   Each depositor of the Bank as of the effective date of the Reorganization
   will have, in the event of liquidation of the Bank, a right to his pro rata
   interest in a liquidation account established for the benefit of such
   depositors.  The Reorganization was accounted for as a change in corporate
   form with the historic basis of accounting for the Bank unchanged.

   Use of Estimates - The preparation of financial statements in conformity with
   generally accepted accounting principles 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 Equivalents - For the purpose of presentation in the consolidated
   statements of cash flows, cash, and cash equivalents are defined as those
   amounts included in the statement of financial condition caption "cash and
   due from banks."  Principally this includes cash on hand and amounts due from
   depository institutions and investments having a maturity at acquisition of
   three months or less.

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

                                       47
<PAGE>

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

   Securities Available-for-Sale - Available-for-sale securities consist of
   bonds, notes and debentures.  Unrealized holding gains and losses, net of
   tax, on available-for-sale securities are reported as a net amount in 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
   held-for-maturity and available-for-sale securities below their cost that are
   other than temporary would result in write-downs of the individual securities
   to their fair value.  The related write-downs would be included in earnings
   as realized losses.  As of September 30, 1999, no securities were determined
   to have other than a temporary decline in fair value below cost.

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

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

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

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

                                       48
<PAGE>

   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.

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

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

                                       49
<PAGE>

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

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

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

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

   Impact of New Accounting Standards - During the year ended September 30,
   1999, the Company adopted Financial Accounting Standards Board ("FASB")
   Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
   Comprehensive Income.  SFAS No. 130 establishes standards for reporting and
   display of comprehensive income and its components.  The Company classifies
   items of other comprehensive income by their nature in a financial statement
   and displays the accumulated balance of other comprehensive income separately
   from retained earnings and additional paid-in capital in the equity section
   of the statements of financial condition.  Also during the year ended
   September 30, 1999, the Company adopted SFAS No. 131, Disclosures about
   Segments of an Enterprise and Related Information, which establishes
   standards for the way public enterprises report information about operating
   segments in annual financial statements and interim financial reports issued
   to shareholders.  It also establishes standards for related disclosures about
   products and services, geographic areas, and major customers.  Because the
   adoption of SFAS Nos. 130 and 131 require only additional disclosures, they
   have not had a material effect on the Company's consolidated financial
   statements.

   In February 1998, the FASB issued Statement No. 132, Employer's Disclosures
   about Pensions and Other Postretirement Benefits, an amendment of FASB
   Statements No. 87, 88, and 106 ("SFAS 132").  The statement revises
   employers' disclosures about pensions and other postretirement benefits.  It
   does not change the measurement or recognition of those plans.  It
   standardizes the disclosure requirements for pensions and other
   postretirement benefits to the extent practicable, requires additional
   information on changes in the benefit obligations and fair values of plan
   assets that will facilitate financial analysis, and eliminates certain
   disclosures that are no longer as useful as they were when FASB Statements
   No. 87, 88, and 106 were issued.  The Statement suggests combined formats for
   presentation of pension and other postretirement benefit disclosures.  This
   Statement was effective for fiscal years beginning after December 15, 1997.
   The adoption of SFAS 132 did not have a material effect on the Company's
   consolidated financial statements.

   The Company adopted Statement of Financial Accounting Standards No. 133,
   Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133")
   on July 1, 1998.  As permitted by SFAS No. 133, on July 1, 1998, the Company
   transferred securities previously classified as held-to-

                                       50
<PAGE>

   maturity with a carrying value of approximately $177,800,000 and a fair value
   of approximately $182,400,000 into the available-for-sale category, where
   their carrying value became their fair value.  This transfer resulted in an
   unrealized gain, net of tax of approximately $2,900,000 at July 1, 1998.  The
   other provisions of SFAS No. 133 had no significant effect on the Company at
   July 1 or September 30, 1998, or for the year ended September 30, 1998.

   Reclassifications - Certain 1998 and 1997 amounts have been reclassified to
   conform to the 1999 presentation.

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, 1999 and 1998, were as
   follows (items which are not financial instruments are not included):

<TABLE>
<CAPTION>
                                                    1999                                    1998
                                         Carrying           Estimated            Carrying           Estimated
                                         Amounts            Fair Value           Amounts            Fair Value
<S>                                      <C>                <C>                  <C>                <C>
Financial assets and liabilities:
  Cash and due from banks                 $  8,622,050        $  8,622,050        $  3,781,077        $  3,781,077
  Cash surrender value of
    life insurance                           5,964,588           5,964,588           5,821,800           5,821,800
  Securities held-to-maturity                9,482,122           9,020,480           9,425,080           9,568,105
  Securities-available-for sale            216,492,192         216,492,192         173,626,023         173,626,023
  Securities-trading                         1,429,196           1,429,196           1,588,535           1,588,535
  Loans receivable, net                    217,709,933         216,702,000         193,727,664         198,673,095
  Accrued interest receivable                3,165,427           3,165,427           2,407,273           2,407,273
  Federal Home Loan Bank stock              10,981,300          10,981,300          10,059,900          10,059,900
  Demand and savings deposits               61,403,521          61,403,521          58,324,117          58,324,117
  Time deposits                            150,487,270         150,024,000         137,212,591         142,484,562
  Federal Home Loan Bank advances          213,105,000         212,602,000         143,670,000         143,670,000
  Securities sold under
    agreements to repurchase                 2,075,000           2,075,000           2,107,645           2,107,645
</TABLE>

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

                                       51
<PAGE>

    deposits and borrowed funds at the applicable date, applied for the time
    period until maturity.  The estimated fair values for other financial
    instruments and off-balance sheet loan commitments approximate cost and are
    not considered significant to this presentation.

3. INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                 1999
                                                      Gross              Gross             Estimated
                                   Amortized        Unrealized         Unrealized             Fair
       Held-to-maturity              Cost             Gains              Losses              Value
<S>                              <C>                <C>               <C>                 <C>
U.S. Government agencies         $     36,363       $        -        $         -         $     36,363
State and municipal securities      9,445,759           32,008           (493,650)           8,984,117
                                 ------------       ----------        -----------         ------------
              Total              $  9,482,122       $   32,008        $  (493,650)        $  9,020,480
                                 ============       ==========        ===========         ============

                                                                 1999
                                                      Gross              Gross             Estimated
                                   Amortized        Unrealized         Unrealized             Fair
     Available-for-sale              Cost             Gains              Losses              Value
U.S. Government agencies         $ 26,000,000       $   34,375        $  (667,500)        $ 25,366,875
Mortgage backed securities        189,874,086        2,274,571         (1,023,340)         191,125,317
                                 ------------       ----------        -----------         ------------
           Total                 $215,874,086       $2,308,946        $(1,690,840)        $216,492,192
                                 ============       ==========        ===========         ============

                                                                 1998
                                                       Gross             Gross             Estimated
                                   Amortized        Unrealized        Unrealized              Fair
      Held-to-maturity                Cost             Gains             Losses              Value
U.S. Government agencies         $          -       $        -        $         -         $          -
State and municipal
 securities                         9,425,080          143,025                               9,568,105
Mortgage backed securities                  -                -                  -                    -
                                 ------------       ----------        -----------         ------------
             Total               $  9,425,080       $  143,025        $         -         $  9,568,105
                                 ============       ==========        ===========         ============

                                                                 1998
                                                       Gross             Gross             Estimated
                                   Amortized        Unrealized        Unrealized              Fair
     Available-for-sale               Cost             Gains             Losses              Value
U.S. Government agencies         $ 21,308,638       $  347,809        $         -         $ 21,656,447
Mortgage backed securities        149,496,062        2,582,802           (109,288)         151,969,576
                                 ------------       ----------        -----------         ------------
           Total                 $170,804,700       $2,930,611        $  (109,288)        $173,626,023
                                 ============       ==========        ===========         ============
</TABLE>

                                       52
<PAGE>

   The amortized cost and estimated fair value of debt securities at September
   30, 1999, by contractual maturity, are shown below.  Expected maturities will
   differ from contractual maturities because borrowers may have the right to
   call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                   Held-to-maturity                      Available-for-sale
                                           ----------------------------            --------------------------------
                                                              Estimated                                   Estimated
                                              Amortized          Fair                Amortized               Fair
                                                 Cost           Value                   Cost                Value
     <S>                                   <C>              <C>                    <C>
     Due in one year or less               $     41,369     $     41,424           $          -        $          -
     Due from one year to five years             20,008           20,181                      -                   -
     Due from five years to ten years           401,387          402,580              9,000,000           8,770,625
     Due after ten years                      9,019,358        8,556,295             17,000,000          16,596,250
     Mortgage backed securities                       -                -            189,874,086         191,125,317
                                           ------------     ------------           ------------        ------------

                 Total                     $  9,482,122     $  9,020,480           $215,874,086        $216,492,192
                                           ============     ============           ============        ============
</TABLE>

   Securities with a carrying value of $5,584,953 and $5,558,024 and a fair
   value of $5,584,953 and $5,570,874, respectively, at September 30, 1999 and
   1998, were pledged to collateralize public and trust deposits.

4.  LOANS RECEIVABLE

   Loans receivable at September 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                             1999                1998
     <S>                                                                 <C>                 <C>
     Real estate loans:
       Single-family residential                                         $173,621,025        $163,895,025
       Multifamily residential                                              1,024,020           3,124,076
       Agricultural                                                         6,877,745           6,531,649
       Commercial                                                          23,296,263          10,268,000
                                                                         ------------        ------------

                 Total real estate loans                                  204,819,053         183,818,750

     Other loans:
       Savings account loans                                                1,528,578           1,160,744
       Commercial business                                                 10,932,200           8,568,416
       Other                                                                8,112,081           5,943,307
                                                                         ------------        ------------

                 Total other loans                                         20,572,859          15,672,467
                                                                         ------------        ------------

                 Total loans receivable                                   225,391,912         199,491,217

     Less:
       Undisbursed loan proceeds                                            5,753,098           3,656,283
       Unearned fees, net                                                     285,542             422,829
       Allowance for loan losses                                            1,643,339           1,684,441
                                                                         ------------        ------------

                 Loans receivable, net                                   $217,709,933        $193,727,664
                                                                         ============        ============
</TABLE>

   The Company originates adjustable rate mortgage loans to hold for investment.
   The Company also originates 15 year and 30 year fixed rate mortgage loans and
   sells substantially all new originations of such loans to outside investors.
   Loans held for sale at September 30, 1999 and 1998, are considered by
   management to be immaterial.  Such loans generally have market rates of
   interest.

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

                                       53
<PAGE>

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

5.  ACCRUED INTEREST RECEIVABLE

   Accrued interest receivable at September 30 is summarized as follows:

                                                           1999          1998

     Securities                                         $1,465,470    $  819,490
     Loans receivable                                    1,699,957     1,587,783
                                                        ----------    ----------

     TOTAL                                              $3,165,427    $2,407,273
                                                        ==========    ==========

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, 1999, 1998, and 1997, is as follows:

                                                                     Foreclosed
                                                           Loans     Real Estate

     BALANCE, OCTOBER 1, 1996                           $1,733,980    $  48,527

       Provision for losses                                 60,000            -
       Charge-offs, net of recoveries                     (102,973)      (5,240)
                                                        ----------    ---------

     BALANCE, SEPTEMBER 30, 1997                         1,691,007       43,287

       Charge-offs, net of recoveries                       (6,566)      (1,195)
                                                        ----------    ---------

     BALANCE, SEPTEMBER 30, 1998                         1,684,441       42,092

       Charge-offs, net of recoveries                      (41,102)     (42,092)
                                                        ----------    ---------

     BALANCE, SEPTEMBER 30, 1999                        $1,643,339    $       -
                                                        ==========    =========

   Gross charge-offs and recoveries are not material.

                                       54
<PAGE>

7.  PREMISES AND EQUIPMENT

   Premises and equipment at September 30 are summarized as follows:

                                                         1999          1998

     Cost:
       Land                                           $   573,490   $   455,976
       Buildings and improvements                       3,684,512     3,053,658
       Furniture, fixtures, and equipment               1,560,996     1,151,634
                                                      -----------   -----------

                                                        5,818,998     4,661,268

     Less accumulated depreciation                     (1,800,841)   (1,334,192)
                                                      -----------   -----------

     TOTAL                                            $ 4,018,157   $ 3,327,076
                                                      ===========   ===========

8.  DEPOSITS

   Deposits at September 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                             1999               1998
     <S>                                                                 <C>                 <C>
     Checking accounts, including noninterest-bearing deposits of
       $8,200,683 and $5,934,688 in 1999 and 1998, respectively          $ 48,385,973        $ 45,407,816
     Passbook savings                                                      13,017,548          12,916,301
     Certificates of deposit                                              150,487,270         137,212,591
                                                                         ------------        ------------

     TOTAL                                                               $211,890,791        $195,536,708
                                                                         ============        ============
</TABLE>

   The aggregate amount of short-term jumbo certificates of deposit with a
   minimum denomination of $100,000 was $26,779,134 and $20,835,427 at September
   30, 1999 and 1998.

   At September 30, 1999, scheduled maturities of certificates of deposit were
   as follows:

     Years ending September 30:                                        Total

       2000                                                        $131,988,935
       2001                                                          11,981,251
       2002                                                           3,583,228
       2003                                                           1,053,846
       2004                                                           1,741,683
       Over 5 years                                                     138,327
                                                                   ------------

     TOTAL                                                         $150,487,270
                                                                   ============

   Interest expense on deposits for the years ended September 30, 1999, 1998,
   and 1997, is summarized as follows:

                                         1999           1998             1997

     Checking                       $  1,206,611    $    743,244    $    611,594
     Passbook savings                    361,103         312,143         247,173
     Certificates of deposit           7,328,110       6,796,947       5,080,331
                                    ------------    ------------    ------------

     TOTAL                          $  8,895,824    $  7,852,334    $  5,939,098
                                    ============    ============    ============

                                       55
<PAGE>

9.  FEDERAL HOME LOAN BANK ADVANCES

   The Company is required to purchase stock in the FHLB.  Such stock may be
   redeemed at par but is not readily marketable.  At September 30, 1999 and
   1998, the Company had stock of $10,981,300 and $10,059,900, respectively.
   Pursuant to collateral agreements with the FHLB, advances are collateralized
   by all of the Company's stock in the FHLB and by 75% of qualifying single-
   family first mortgage loans with a carrying value at September 30, 1999 and
   1998, of approximately $127,000,000 and $105,000,000, respectively, and
   investment securities having a carrying value of $85,239,671 and $36,990,641
   at September 30, 1999 and 1998, respectively.  Advances at September 30, 1999
   and 1998, have a maturity dates as follows:

<TABLE>
<CAPTION>
                                                  1999                              1998
                                    ---------------------------------     ----------------------------
                                     Weighted                              Weighted
                                      Average                              Average
                                       Rate              Amount             Rate             Amount
     <S>                           <C>               <C>                  <C>             <C>
     September 30:
       1999                                -%        $          -            5.54%        $105,670,000
       2000                             5.31%         131,105,000               -                    -
       2001                                -                    -               -                    -
       2002                             6.42%           4,000,000               -                    -
       2003                                -                    -               -                    -
       2004                                -                    -               -                    -
       Greater than 5 years             4.72%          78,000,000            4.94%          38,000,000
                                                     ------------                         ------------

     TOTAL                                           $213,105,000                         $143,670,000
                                                     ============                         ============
</TABLE>

   Interest expense on FHLB advances was $7,966,406, $9,987,640, and $11,732,367
   for the years ended September 30, 1999, 1998, and 1997, respectively.

   The advances with maturities greater than five years as of September 30,
   1999, are callable quarterly at FHLB's option and may not be prepaid without
   penalty.

10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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

<TABLE>
<CAPTION>
                                                            1999              1998
     <S>                                                  <C>             <C>
     Balance outstanding at September 30                  $2,075,000      $ 2,107,645

     Average balance during the year                       2,273,133        6,215,266

     Average interest rate during the year                      5.16%            4.97%

     Maximum month-end balance during the year             3,241,800       21,850,000

     Investment securities underlying the
       agreements at year-end:
       Carrying value                                      3,420,158        2,203,840
       Estimated market value                              3,420,158        2,232,782
</TABLE>

   Interest expense on Reverse Repurchase Agreements was $118,962, $309,048, and
   $1,027,337 for the years ended September 30, 1999, 1998, and 1997,
   respectively.

                                       56
<PAGE>

11. 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,
   1999, 1998, and 1997, was approximately $277,000, $179,000, and $190,000,
   respectively.

   On March 2, 1999, the Company, the Bank and an executive entered into an
   Employment Separation Agreement and Release (the "Agreement"). The Agreement
   provides, among other things, for the payment by the Company to the executive
   of $2,750,000, in installments of not less than $150,000 annually, with the
   entire unpaid amount due upon the executive's death. The unpaid balance earns
   interest at the Federal Funds rate, as determined each month, compounded
   monthly, until distributed. The unpaid balance, including accrued interest,
   was approximately $2,073,000 at September 30, 1999. The Agreement provides
   that the executive will be entitled to an additional payout equal to $550,000
   should there be a change in control of the Company or the Bank on or before
   April 30, 2003. Pursuant to the Agreement, the executive forfeited all shares
   of restricted stock awarded to him under the Company's current Recognition
   and Retention Plan and forfeited any additional benefits accruals or
   contributions under the Company's Restated Supplemental Executive Retirement
   Agreement. Pursuant to the Agreement, the executive's employment agreement
   was terminated (except for certain specified provisions) and no further
   payouts under the Employment Agreement are due to him.

12. RETIREMENT PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN

   The Bank has a defined contribution retirement plan. The plan covers all
   employees who have accumulated two years with 1,000 hours of service in each
   year. A flat percentage rate, selected by discretion of the Board of
   Directors is applied to the base salary of each eligible employee. The
   retirement plan expense for the years ended September 30, 1999, 1998, and
   1997, was $0, $170,000, and $125,000, respectively.

   The Bank established an Employee Stock Ownership Plan ("ESOP") on October 1,
   1993. During 1994, the ESOP borrowed $523,250 which is collateralized by
   common stock of the Company and a guaranty of the Company. The note payable
   is guaranteed by the Company and was paid off during the year ended September
   30, 1998. In connection with the Reorganization on March 31, 1998, the
   Company established a new ESOP. During 1998, the ESOP borrowed approximately
   $2.9 million from the Company to purchase shares of Company stock. The loan
   is collateralized by the shares that were purchased with the proceeds of the
   loan. As the loan is repaid, ESOP shares will be allocated to participants of
   the ESOP and are available for release to the participants subject to the
   vesting provisions of the ESOP. The Company contributed $302,425, $104,650
   and $104,650, respectively to the ESOP in years ended September 30, 1999,
   1998, and 1997.

   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 $402,000, $402,000, and
   $235,000 for the years ended September 30, 1999, 1998, and 1997,
   respectively. In the event of change in control, the plans will be fully
   funded.

13. INCOME TAXES

   The Company and subsidiaries file consolidated federal income tax returns on
   a fiscal year basis. During the year ended September 30, 1997, new
   legislation was enacted which provides for the recapture into taxable income
   of certain amounts previously deducted as additions to the bad debt reserves
   for income tax purposes. The Company began changing its method of determining
   bad debt

                                      57
<PAGE>

   reserves for tax purposes following the year ended September 30, 1996.  The
   amounts to be recaptured for income tax reporting purposes are considered by
   the Company in the determination of the net deferred tax liability.

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

<TABLE>
<CAPTION>
                                                               1999              1998             1997
     <S>                                                 <C>               <C>               <C>
     Current                                                 $ 1,748,077        $1,353,856        $  930,195
     Deferred                                                 (1,281,899)          (59,617)          414,295
                                                             -----------        ----------        ----------

     TOTAL                                                   $   466,178        $1,294,239        $1,344,490
                                                             ===========        ==========        ==========
</TABLE>

   The net deferred tax amount, which is included in other assets at September
   30, 1999, and other liabilities at September 30, 1998, consisted of the
   following:

<TABLE>
<CAPTION>
                                                                                 1999                 1998
     <S>                                                                      <C>                <C>
     Deferred tax assets:
       Deferred compensation                                                  $1,358,084         $   472,452
       Allowance for loan losses                                                 305,219             184,945
       Unrealized loss on securities - trading                                   170,411             163,541
       Core deposit premium amortization                                          50,866                   -
       Other                                                                     196,871                   -
                                                                              ----------         -----------

               Total deferred tax assets                                       2,081,451             820,938

     Deferred tax liabilities:
       Unrealized gain on available-for-sale securities                         (236,735)         (1,015,678)
       FHLB stock dividends                                                     (665,158)           (677,893)
       Other                                                                      (8,560)            (17,211)
                                                                              ----------         -----------

                 Total deferred tax liabilities                                 (910,453)         (1,710,782)
                                                                              ----------         -----------

     Net deferred tax asset (liability)                                       $1,170,998         $  (889,844)
                                                                              ==========         ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                     1999                            1998                           1997
                                          ----------------------------    ----------------------------    --------------------------
     <S>                                  <C>           <C>               <C>          <C>                <C>         <C>
     Expected income tax expense             34.0%       $ 482,261           34.0%      $1,421,734          34.0%      $1,264,802
     Exempt income                          (10.2)        (144,679)          (2.6)        (107,103)         (1.5)         (54,618)
     Cash surrender value of life
       insurance                             (6.4)         (90,565)          (1.5)         (62,098)         (2.0)         (73,096)
     State tax, net of federal benefit       11.2          158,669            4.3          179,389           4.0          147,312
     ESOP contribution                       (1.8)         (25,343)           2.1           87,161             -                -
     Change in estimate                         -                -           (4.3)        (179,892)         (0.3)         (12,688)
     Other                                    6.1           85,835           (1.1)         (44,952)          1.9           72,778
                                            -----        ---------          -----       ----------         -----       ----------

     TOTAL                                   32.9%       $ 466,178           30.9%      $1,294,239          36.1%      $1,344,490
                                            =====        =========          =====       ==========         =====       ==========
</TABLE>

The Company and the Bank provide for the recognition of a deferred tax asset
or liability for the future tax consequences of differences in carrying
amounts and tax bases of assets and liabilities.  Specifically exempted from
this provision are bad debt reserves for tax purposes of U.S. savings and
loan associations in the association's base year, as defined.  Base year
reserves total approximately

                                       58
<PAGE>

   $2,979,000 at September 30, 1999.  Consequently, a deferred tax liability of
   approximately $1,141,000 related to such reserves is not provided for in the
   statement of financial condition at September 30, 1999.

14. 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).  As of September 30, 1999, the Bank met all
   capital requirements to which it is subject.

   As of September 30, 1999 and 1998, the most recent notification from the OTS
   categorized the Bank as well capitalized under the regulatory framework for
   prompt corrective action.  To be categorized as well capitalized the Bank
   must maintain minimum total, tangible, and core capital ratios as set forth
   in the table below.  There are no conditions or events since that
   notification that management believes have changed the institution's
   category.

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

<TABLE>
<CAPTION>
                                                                                                          Required
                                                                                                     To Be Categorized As
                                                                                 Required            Well Capitalized Under
                                                                                For Capital             Prompt Corrective
                                                           Actual            Adequacy Purposes          Action Provisions
                                                       ------------------   --------------------   --------------------------
                                                        Amount     Ratio     Amount       Ratio      Amount        Ratio
     <S>                                               <C>        <C>       <C>           <C>      <C>             <C>
     As of September 30, 1999:

       Tangible capital to tangible assets              $44,555    9.35%       $ 7,151    1.50%          N/A         N/A

       Core capital to adjusted tangible assets          44,555    9.35         19,068    4.00       $23,835        5.00

       Total capital to risk weighted assets             46,167   20.28         18,212    8.00        22,764       10.00

       Tier I capital to risk weighted assests           44,555   19.57          9,106    4.00        13,659        6.00

     As of September 30, 1998:

       Tangible capital to tangible assets              $41,082   10.24%       $ 6,019    1.50%          N/A         N/A

       Core capital to adjusted tangible assets          41,082   10.24         16,052    4.00       $20,060        5.00

       Total capital to risk weighted assets             42,739   22.62         15,118    8.00        18,894       10.00

       Tier I capital to risk weighted assests           41,082   21.74          7,559    4.00        11,338        6.00
</TABLE>

15. RETAINED EARNINGS

   Upon the conversion, the Company established a special liquidation account
   for the benefit of eligible account holders and the supplemental eligible
   account holders in an amount equal to the net worth of

                                       59
<PAGE>

   the Bank as of the date of its latest statement of financial condition
   contained in the final offering circular used in connection with the
   conversion.  The liquidation account will be maintained for the benefit of
   eligible account holders and supplemental eligible account holders who
   continue to maintain their accounts in the Bank after conversion.  In the
   event of a complete liquidation (and only in such event), each eligible and
   supplemental eligible account holder will be entitled to receive a
   liquidation distribution from the liquidation account in an amount
   proportionate to the current adjusted qualifying balances for accounts then
   held.

   The Bank may not declare or pay cash dividends on its shares of common stock
   if the effect thereof would cause the Bank's stockholders' equity to be
   reduced below applicable regulatory capital maintenance requirements for
   insured institutions or below the special liquidation account referred to
   above.  This requirement effectively limits the dividend paying ability of
   the Company in that the Company must maintain an investment in equity of the
   Bank sufficient to enable the Bank to meet its requirements as noted above.
   Required capital amounts are shown in Note 14 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.

16. EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                          Year Ended September 30
                                                            ---------------------------------------------------
     <S>                                                    <C>                  <C>              <C>
                                                                   1999             1998             1997

     Basic EPS weighted average shares                          5,802,860        6,388,906        6,327,798
     Add dilutive effect of unexercised options                    34,759          146,162          158,260
                                                                ---------        ---------        ---------

                 Dilutive EPS weighted average shares           5,837,619        6,535,068        6,486,058
                                                                =========        =========        =========
</TABLE>

17. COMMITMENTS AND CONTINGENCIES

   In the ordinary course of business, the Company and subsidiaries have various
   outstanding commitments and contingent liabilities that are not reflected in
   the accompanying consolidated financial statements.  In addition, 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.

18. FINANCIAL INSTRUMENTS

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

                                       60
<PAGE>

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

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

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

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

   At September 30, 1999, the Company had the following outstanding commitments
   to extend credit:

     Undisbursed loans in process                                   $ 5,753,098
     Unfunded lines of credit                                         1,434,104
     Outstanding loan commitments                                     3,044,315
                                                                    -----------

                 Total outstanding commitments                      $10,231,517
                                                                    ===========

   The Company has not incurred any losses on its commitments in any of the
   three years in the period ended September 30, 1999.

19.  RELATED PARTY TRANSACTIONS

     In the normal course of business, the Company has made loans to its
     directors, officers, and their related business interests. In the opinion
     of management, related party loans are made on substantially the same
     terms, including interest rates and collateral, as those prevailing at the
     time for comparable transactions with unrelated persons and do not involve
     more than the normal risk of collectibility. The aggregate dollar amount of
     loans outstanding to directors, officers, and their related business
     interests total $978,921 and $755,909 at September 30, 1999 and 1998,
     respectively.

20. RESTRICTED STOCK AWARD PROGRAMS AND STOCK OPTION PLANS

   1994 Incentive Stock Option Plan -

   The 1994 Incentive Stock Option Plan for senior executives and key employees
   granted options to purchase 49,833 shares of common stock.  The plan
   authorizes the grant of incentive stock options, non-statutory stock options,
   and limited rights.  Under the plan, options become exercisable 20% after

                                       61
<PAGE>

   each of the five years following the grant.  The exercise price for incentive
   stock options may not be less than the fair market value of the underlying
   shares on the date of grant.  The plan is administered by a committee of the
   Board of Directors.  The committee has the authority to determine the
   employees to whom awards will be made, the amount of the awards, and the
   other terms and conditions of the awards.

   1994 Stock Option Plan -

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

   1998 Stock Option Plan -

   The Company's stockholders adopted the 1998 Stock Option Plan ("SOP") on
   October 23, 1998.  The SOP provides for a committee of the Company's Board of
   Directors to award any one or a combination of incentive stock options, non-
   statutory or compensatory stock options, limited rights, dividend equivalent
   rights and reload options, representing up to 357,075 shares of Company
   common 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.  No options from the 1998 SOP are exercisable as of
   September 30, 1999.  The weighted average remaining contractual life of the
   options as of September 30, 1999, is 9.1 years.

   A summary of the status of the Company's 1998 Stock Option Plan as of
   September 30, 1999, and changes during the year ending on that date are
   presented below:

                                                                    Weighted
                                                                    Average
                                                                    Exercise
                                                      Shares         Price
   Outstanding at beginning of year                         -
   Granted                                            350,000         $9.00
   Exercised                                                -
   Forfeited                                                -
                                                   ----------

   Outstanding at September 30, 1999                  350,000         $9.00
                                                   ==========

   Options exercisable at September 30, 1999                -
                                                   ==========

                                       62
<PAGE>

   The Company applies the provisions of APB 25 in accounting for its stock
   options plans, as allowed under SFAS 123, Accounting for Stock-Based
   Compensation.  Accordingly, no compensation cost has been recognized for the
   options granted to employees or directors.  Had compensation cost for these
   plans been determined on the fair value at the grant dates for awards under
   those plans consistent with the methods of SFAS No. 123, the Company's pro
   forma net income and pro forma earnings per share would have been as follows:


                                                  Year Ended September 30, 1999
                                                 -------------------------------
                                                    As Reported       Pro Forma

     Net income in thousands                             $ 952            $ 816

     Earnings per share:
       Basic                                             $0.16            $0.14

       Diluted                                           $0.16            $0.14


   In determining the above pro forma disclosure, the fair value of options
   granted during the year was estimated on the date of grant using the Black-
   Scholes option pricing model with the following weighted average assumptions:
   expected volatility - 37%, expected life of grant - 6.5 years, risk free
   interest rate 5.25%, and expected dividend rate of 2.5%.  The weighted
   average fair value of options granted during the year ended September 30,
   1999, was $3.21.

   1998 Recognition Plan -

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

   Compensation expense is being recognized based on the fair market value of
   the shares on the grant date of $9.00 over the vesting period.  The Shares
   will vest equally over a five year period with the first vesting date of
   January 3, 2000.  Shares granted will be vested immediately in the event of
   disability or death.  Approximately $440,000 in compensation expense was
   recognized during the year ended September 30, 1999.

21. BRANCH ACQUISITIONS

   On January 22, 1998, the Bank consummated the purchase of deposits, premises,
   and equipment of three branches within its market area.  As a result of this
   transaction, deposits increased $27.9 million, fixed assets increased $0.9
   million, core deposit premium increased $1.8 million and cash increased $25.2
   million.  No loans were purchased.

   On September 18, 1998, the Bank consummated the purchase of deposits of three
   branches in markets contiguous to its existing market area.  As a result of
   this transaction deposits increased approximately $28.7 million, cash
   increased approximately $27.1 million, loans increased $0.2 million and core
   deposit premium increased approximately $0.9 million.  Loans purchased in
   this transaction were collateralized by deposits.

                                       63
<PAGE>

22. OTHER COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
                                                                   Year Ended September 30, 1999
                                                      -------------------------------------------------------
                                                           Before Tax        Tax Expense        Net-of-Tax
                                                             Amount           (Benefit)           Amount
     <S>                                              <C>                    <C>                <C>
     UNREALIZED GAINS (LOSSES) ON SECURITIES:
       Unrealized holding gain (loss) on securities
         arising during period                               $2,742,395         $ 932,414        $1,809,981
       Less reclassification adjustment for
         (gains) losses included in net income                   (6,569)           (2,233)           (4,336)
                                                             ----------         ---------        ----------
                 Other comprehensive income (loss)           $2,735,826         $(930,181)       $1,805,645
                                                             ==========         =========        ==========
</TABLE>

                                       64
<PAGE>

23. PARENT COMPANY ONLY FINANCIAL INFORMATION

     The following condensed statements of financial condition as of September
     30, 1999 and 1998, and condensed statements of income and cash flows for
     the years ended September 30, 1999 and 1998, for Pocahontas Bancorp, Inc.
     should be read in conjunction with the consolidated financial statements
     and the notes herein.

     POCAHONTAS BANCORP, INC.
     (PARENT COMPANY ONLY)

     CONDENSED STATEMENTS OF FINANCIAL CONDITION
     SEPTEMBER 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                               1999                1998
         <S>                                                               <C>                 <C>
         ASSETS

         Deposit in Bank                                                   $ 1,011,892         $13,602,949
         Investment in Bank                                                 47,552,329          45,684,935
         Loan                                                                2,443,525           2,856,600
         Investment securities                                               1,429,196           1,588,535
         Other assets                                                        1,401,115             139,939
                                                                           -----------         -----------

         TOTAL ASSETS                                                      $53,838,057         $63,872,958
                                                                           ===========         ===========

         LIABILITIES AND STOCKHOLDERS' EQUITY

         Accrued expenses and other liabilities                            $ 3,102,731         $ 3,306,160
         Deferred compensation                                               2,702,888
         Stockholders' equity                                               48,032,438          60,566,798
                                                                           -----------         -----------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $53,838,057         $63,872,958
                                                                           ===========         ===========

         CONDENSED STATEMENTS OF INCOME
         YEARS ENDED SEPTEMBER 30, 1999 AND 1998

         INCOME:
           Interest and dividend income                                    $   423,375         $   195,866

         EXPENSES:
           Operating expenses                                                3,709,582             587,640
                                                                           -----------         -----------
         LOSS BEFORE INCOME TAXES AND EQUITY IN
           UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY                        (3,286,207)           (391,774)

         INCOME TAX BENEFIT                                                   (957,778)           (139,939)
                                                                           -----------         -----------
         LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS
           OF BANK SUBSIDIARY                                               (2,328,429)           (251,835)

         EQUITY IN UNDISTRIBUTED EARNINGS OF BANK
           SUBSIDIARY                                                        3,280,666           3,139,166
                                                                           -----------         -----------

         NET INCOME                                                        $   952,237         $ 2,887,331
                                                                           ===========         ===========
</TABLE>

                                       65
<PAGE>

POCAHONTAS BANCORP, INC.
(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                              1999                 1998
     <S>                                                                  <C>                  <C>
     OPERATING ACTIVITIES:
       Net income                                                         $    952,237         $  2,887,331
       Adjustments to reconcile net income to net cash provided
         (used) by operating activities:
         Equity in undistributed earnings of Bank subsidiary                (3,280,666)          (3,139,166)
         Stock compensation                                                    852,706              360,000
         Other                                                                  15,577                    -
         Changes in operating assets and liabilities:
           Trading securities                                                  159,339           (1,588,535)
           Other assets                                                     (1,261,176)            (139,939)
           Accrued expenses and other liabilities                              209,646              449,560
           Deferred compensation                                             2,702,888                    -
                                                                          ------------         ------------

                 Net cash provided (used) by operating activities              350,551           (1,170,749)

     INVESTING ACTIVITIES:
       Investment in subsidiary                                                                 (16,493,855)

     FINANCING ACTIVITIES:
       Options exercised                                                       383,690               40,000
       Dividends paid                                                       (1,443,076)          (1,153,496)
       Purchase of treasury stock                                          (11,882,222)
       Proceeds from stock offering                                                              32,381,049
                                                                          ------------         ------------

                 Net cash provided (used) by financing activities          (12,941,608)          31,267,553
                                                                          ------------         ------------

     NET INCREASE (DECREASE)
       IN CASH AND CASH EQUIVALENTS                                        (12,591,057)          13,602,949

     CASH AND CASH EQUIVALENTS:
       Beginning of period                                                  13,602,949                    -
                                                                          ------------         ------------

       End of period                                                      $  1,011,892         $ 13,602,949
                                                                          ============         ============
</TABLE>

                                       66
<PAGE>

24. QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following tables represent summarized data for each of the four
     quarters in the years ended September 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                           1999
                                                            (in thousands, except per share data)
                                                  Fourth          Third          Second          First
                                                  Quarter        Quarter        Quarter         Quarter
     <S>                                          <C>            <C>            <C>             <C>
     Interest income                                  $7,673         $6,780        $ 6,642          $6,865
     Interest expense                                  4,859          4,192          3,948           4,218
                                                      ------         ------        -------          ------

     Net interest income                               2,814          2,588          2,694           2,647
     Provision for loan losses                             -              -              -               -
                                                      ------         ------        -------          ------

     Net interest income after
       provision for loan losses                       2,814          2,588          2,694           2,647
     Non-interest income                                 466            564            322             575
     Non-interest expense                              2,129          2,078          4,992           2,053
                                                      ------         ------        -------          ------

     Income before income taxes                        1,151          1,074         (1,976)          1,169
     Income tax expense                                  375            372           (640)            359
                                                      ------         ------        -------          ------

     Net income                                       $  776         $  702        $(1,336)         $  810
                                                      ======         ======        =======          ======

     Basic earnings per share                         $ 0.13         $ 0.13        $ (0.23)         $ 0.13

     Diluted earnings per share                       $ 0.13         $ 0.12        $ (0.23)         $ 0.13

     Cash dividends declared per
       common share                                   $ 0.06         $ 0.06        $  0.06          $ 0.06

<CAPTION>
                                                                           1999
                                                            (in thousands, except per share data)
                                                  Fourth          Third          Second          First
                                                  Quarter        Quarter        Quarter         Quarter
     <S>                                          <C>            <C>            <C>             <C>
     Interest income                                  $6,977          $7,060         $7,002         $6,814
     Interest expense                                  4,418           4,267          4,790          4,926
                                                      ------          ------         ------         ------

     Net interest income                               2,559           2,793          2,212          1,888
     Provision for loan losses                             -               -              -              -
                                                      ------          ------         ------         ------

     Net interest income after
       provision for loan losses                       2,559           2,793          2,212          1,888
     Non-interest income                                 (23)            270            361            311
     Non-interest expense                              1,754           1,619          1,522          1,296
                                                      ------          ------         ------         ------

     Income before income taxes                          782           1,444          1,051            903
     Income tax expense                                   73             513            383            325
                                                      ------          ------         ------         ------

     Net income                                       $  709          $  931         $  668         $  578
                                                      ======          ======         ======         ======

     Basic earnings per share                         $ 0.11          $ 0.15         $ 0.10         $ 0.09

     Diluted earnings per share                       $ 0.11          $ 0.14         $ 0.10         $ 0.09

     Cash dividends declared per
       common share                                   $0.060          $0.060         $0.056         $0.056
</TABLE>

                               *  *  *  *  *  *

                                       67
<PAGE>

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

     Not applicable.

                                       68
<PAGE>

                                   PART III

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

     The table below sets forth certain information, as of September 30, 1999,
regarding members of the Company's Board of Directors, including the terms of
office of Board members.

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

Ralph B. Baltz      52  Chairman              1986           2000         133,702        2.4%

Marcus Van Camp     51  Director              1990           2000          35,952         *

N. Ray Campbell     49  Director              1992           2000          44,799         *

Directors Continuing in Office

Skip Martin         50  President, Chief      1988           2001         191,942        2.4%

Charles R. Ervin    62  Director              1988           2001          64,277        1.1%

James A. Edington   49  Executive Vice        1994           1999         183,168        3.3%
                        President and Director

Robert Rainwater    64  Director              1981           1999          36,124         *

Executive Officer
Dwayne Powell       35  Chief Financial
                        Officer                                            77,145        1.4%

Bill B. Stacy       57  SVP, Loan Officer                                  14,598         *

Richard Olvey       56  SVP, Loan Officer                                  29,410         *
</TABLE>

__________________________

*    Less than 1%
(1)  The mailing address for each person listed is 203 West Broadway,
     Pocahontas, Arkansas 72455. Each of the persons listed is also a director
     of Pocahontas Federal Savings and Loan Association (the "Bank"), the
     Company's wholly owned subsidiary.
(2)  Reflects initial appointment to the Board of Directors of the Bank's mutual
     predecessor.
(3)  See definition of "beneficial ownership" in the table "Beneficial Ownership
     of Common Stock."

                                       69
<PAGE>

     James A. Edington has been President and CEO since April 1999. 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.

     Skip Martin was the President and Chief Executive Officer of the Bank from
1990 through April 1999. He has been a member of the Board of Directors of the
Bank since 1988 and of the Company since its formation. Prior to his appointment
as President and Chief Executive Officer, Mr. Martin served as Vice President of
the Bank.

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

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

     Charles R. Ervin is retired. Prior to his retirement, Mr. Ervin was
President and owner of C.E.C., Inc., a construction company, since March 1992.
Prior to that, Mr. Ervin was President and part-owner of M.T.C., Inc., a general
contractor specializing in tenant construction in shopping centers nationally.

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

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

     Dwayne Powell, CPA, has served as Chief Financial Officer of the Bank since
October 1996 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.

                                       70
<PAGE>

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

     The following table sets forth for the years ended September 30, 1999,
1998, and 1997, certain information as to the total remuneration paid by the
Company to the Chief Executive Officer and all other executive officers whose
salary and bonuses exceeded $100,000 ("Named Executive Officers"). For the
period prior to formation of the Company in 1998, the remuneration information
relates to that paid by the Bank to the Named Executive Officers.

<TABLE>
<CAPTION>
                                                                           Long-Term Compensation
                                                                      --------------------------------
                                          Annual Compensation              Awards           Payouts
                                     -------------------------------- --------------------------------
                             Year                             Other    Restricted   Options/                  All
Name and                    Ended                          Annual Com-    Stock       SARS      LTIP         Other
Principal Position        Sept. 30,   Salary (1)   Bonus    pensation  Awards (3)     (#)     Payouts  Compensation (2)
------------------        ---------  ------------  ------  ---------- -----------  ---------  -------  ----------------
<S>                       <C>        <C>           <C>     <C>        <C>          <C>        <C>      <C>
Skip Martin.............       1999     $142,418       --         --          --     80,000        --          $    --
  President and CEO(4)..       1998      196,000       --         --          --         --        --           20,161
     ...................       1997      166,100   10,200         --          --         --        --           18,957

James A. Edington.......       1999      196,565       --         --     321,354     80,000        --           30,637
  President and CEO(4)..       1998      171,000       --         --          --         --        --           20,161
     ...................       1997      140,000    9,700         --          --         --        --           19,778

Dwayne Powell...........       1999      150,175       --         --     321,354     80,000        --           29,387
  Chief Financial.......       1998      125,000       --         --          --         --        --           20,161
  Officer...............       1997      100,000       --         --      53,047         --        --               88
</TABLE>

____________________________________
(1) Includes Board of Director and committee fees.
(2) Consists of payments made pursuant to the Bank's Profit Sharing Plan.  See
    "--Benefits for Employees and Officers."  Also includes the Bank's
    contributions or allocations (but not earnings) pursuant to the Bank's
    Employee Stock Ownership Plan.  Does not include benefits pursuant to the
    Bank's Pension Plan.  See "--Benefits for Employees and Officers."  The
    Company also provides its Chief Executive Officer with use of a Company-
    owned automobile, the value of which use did not exceed the lesser of
    $50,000 or 10% of such officer's cash compensation.
(3) Represents awards made pursuant to the Company's Recognition and Retention
    Plan for Employees, which awards vest in five equal annual installments
    commencing on January 3, 2000. Dividends on such shares accrue and are paid
    to the recipient when the shares are granted. The value of such shares was
    determined by multiplying the number of shares awarded by the price at which
    the shares of common stock were sold. The 1997 amount represents shares
    awarded pursuant to the Bank's 1994 Recognition and Retention Plan which are
    fully vested.
(4) Mr. Edington was appointed President and Chief Executive Officer in April
    1999 upon retirement of Mr. Martin.

<TABLE>
<CAPTION>
==================================================================================================
                        AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                FISCAL YEAR-END OPTION VALUES
==================================================================================================
Name                    Shares      Value       Number of Unexercised      Value of Unexercised
                       Acquired    Realized          Options at           In-The-Money Options at
                         Upon                      Fiscal Year-End            Fiscal Year-End
                       Exercise
                                             -----------------------------------------------------
                                              Exercisable/Unexercisable  Exercisable/Unexercisable
==================================================================================================
<S>                    <C>         <C>       <C>                         <C>
Skip Martin               84,176    $396,301         $0/80,000                     $0/$0

James A. Edington         50,137    $254,727          0/80,000                     $0/$0

Dwayne Powell                 --          --          0/80,000                     $0/$0
==================================================================================================
</TABLE>

                                       71
<PAGE>

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

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

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

<TABLE>
<CAPTION>
                                         Amount of Shares
                                         Owned and Nature   Percent of Shares
                                           of Beneficial     of Common Stock
Holder                                     Ownership (1)     Outstanding (4)
-----                                    -----------------  ------------------
<S>                                      <C>                <C>
All Directors and Executive Officers
as a Group (8 persons)                        811,117               14.4

Pocahontas Federal Savings and Loan           475,400                8.6
401(k) Savings and Employee Stock
Ownership Plan. (2)(3)

Drake Associates, L.P. and affiliates         515,724                9.3
55 Brookville Road
Glen Head, New York  11545
</TABLE>

______________________
(1) Based solely upon the filings made pursuant to the Exchange Act and
    information furnished by the respective persons.  In accordance with Rule
    13d-3 under the Exchange Act, a person is deemed to be the beneficial owner
    for purposes of this table, of any shares of Common Stock if he has sole or
    shared voting or investment power with respect to such shares, or has a
    right to acquire beneficial ownership at any time within 60 days from the
    date as to which beneficial ownership is being determined.  As used herein,
    "voting power" is the power to vote or direct the voting of shares and
    "investment power" is the power to dispose or direct the disposition of
    shares.  Includes all shares held directly as well as shares owned by
    spouses and minor children, in trust and other indirect ownership, over
    which shares the named individuals effectively exercise sole or shared
    voting or investment power.
(2) Under the Pocahontas Federal Savings and Loan Association 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, 311,007 shares of Common Stock were allocated under the
    ESOP.
(3) Excludes 79,970 shares of Common Stock or 14.4% of the shares of Common
    Stock outstanding, owned by the ESOP for the benefit of the named Executive
    Officers of the Bank.
(4) Total Common Stock outstanding includes shares that may be acquired pursuant
    to presently exercisable options.

                                       72
<PAGE>

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

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

     All loans by the Bank to its directors and executive officers are subject
to OTS regulations restricting loan and other transactions with affiliated
persons of the Bank. Federal law generally requires that all loans to directors
and executive officers be made on terms and conditions comparable to those for
similar transactions with non-affiliates, subject to limited exceptions.
However, recent regulations now permit executive officers and directors to
receive the same terms on loans through plans that are widely available to other
employees, as long as the director or executive officer is not given
preferential treatment compared to the other participating employees. Loans to
all directors, executive officers, and their associates totaled $978,921 at
September 30, 1999, which was 2.0% 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 which in the aggregate exceeded
$60,000 during the three years ended September 30, 1999. All loans to directors
and officers were performing in accordance with their terms at September 30,
1999.


                                    PART IV

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

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

     Financial statements have been included in Item 8.

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

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

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

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

     3            Articles of Incorporation         None           Not Applicable
</TABLE>

                                       73
<PAGE>

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

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

       9             Voting trust agreement             None           Not Applicable

      10               Material contracts               None           Not Applicable

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

      12            Statement re: computation           Not            Not Applicable
                            of ratios                 Required

      13          Annual Report to Stockholders         None           Not Applicable


      16              Letter re: change in
                           certifying                   None           Not Applicable
                           accountants

      18              Letter re: change in
                      accounting principles             None           Not Applicable

      19               Previously unfiled
                            documents                   None           Not Applicable

      21           Subsidiaries of Registrant            21             Page 29
</TABLE>

                                       74
<PAGE>

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

       23            Consent of Experts and            Not             Not Applicable
                            Counsel                  Required

       24              Power of Attorney               None            Not Applicable

       27         EDGAR Financial Data Schedule        None            Not Applicable

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

       99             Additional Exhibits              None            Not Applicable
</TABLE>

     (b)  Reports on Form 8-K:

          None

                                       75
<PAGE>

                                  SIGNATURES

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

                           POCAHONTAS BANCORP, INC.


Date: December 20, 1999            By: /s/ James Edington
                                           ----------------------------------
                                           James Edington, 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/ James Edington                  By: /s/ Dwayne Powell
   -----------------------------------     -----------------------------------
   James Edington                          Dwayne Powell
   President, Chief Executive Officer,     Chief Financial Officer, Secretary
   and Director                            and Treasurer
   (Principal Executive Officer)           (Principal Financial Officer)


Date: December 20, 1999              Date: December 20, 1999


By: /s/ Ralph P. Baltz                  By: /s/ Skip Martin
   -----------------------------------     -----------------------------------
   Ralph P. Baltz                          Skip Martin
   Chairman of the Board and Director      Director


Date: December 20, 1999              Date: December 20, 1999


By: /s/ Charles R. Ervin                By: /s/ Marcus Van Camp
   -----------------------------------     -----------------------------------
   Charles R. Ervin                        Marcus Van Camp
   Director                                Director


Date: December 20, 1999              Date: December 20, 1999


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


Date: December 20, 1999              Date: December 20, 1999


                                       76