<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
          For the fiscal year ended June 30, 1999
                                       OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from _______________to __________________________
     Commission File Number 0-21163

                              CBES BANCORP, INC.
--------------------------------------------------------------------------------
                (Name of small business issuer in its charter)

          Delaware                                      43-1753244
------------------------------                   -----------------------
(State or other jurisdiction of
 incorporation or organization)           (I.R.S. Employer Identification No.)

     1001 North Jesse James Road, Excelsior Springs, Missouri           64024
--------------------------------------------------------------------------------
      (Address of principal executive offices)                       (Zip Code)


Registrant's telephone number, including area code:       (816) 630-6711
                                                   -----------------------------

          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)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  YES  X . NO ___.
           ---

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB.  [_]

     The Registrant's revenues for the fiscal year ended June 30, 1999 were
$13.5 million.

     As of September 17, 1999, there were 1,031,851 shares issued and 921,127
shares outstanding of the Registrant's Common Stock.  The aggregate market value
of the voting stock held by non-affiliates of the registrant, computed by
reference to the closing bid price of such stock on the Nasdaq Small Cap Market
as of September 17, 1999, was $14.3 million.  (The exclusion from such amount of
the market value of the shares owned by any person shall not be deemed an
admission by the registrant that such person is an affiliate of the registrant.)
<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE

     Parts II and III of Form 10-KSB - Portions of Annual Report to Stockholders
for the fiscal year ended June 30, 1999.

     Part III of Form 10-KSB - Portions of Proxy Statement for 1999 Annual
Meeting of Stockholders.

                                       2
<PAGE>

                                    PART I

Item 1.  Description of Business
--------------------------------

General
-------

     CBES Bancorp, Inc. ("CBES Bancorp" and, with its subsidiaries, the
"Company") was formed in June 1996 at the direction of Community Bank of
Excelsior Springs, a Savings Bank ("Community Bank" or the "Bank") for the
purpose of owning all of the outstanding stock of the Bank issued upon the
conversion of the Bank from the mutual to stock form (the "Conversion").  On
September 27, 1996, CBES Bancorp acquired all of the shares of the Bank in
connection with the completion of the Conversion.  All references to the
Company, unless otherwise indicated, at or before September 27, 1996 refer to
the Bank.  The Company's common stock is quoted on the NASDAQ SmallCap Market
under the symbol "CBES".

     Community Bank is a federally chartered savings bank headquartered in
Excelsior Springs, Missouri. Community Bank was originally chartered  as a
Missouri savings and loan association in 1931 under the name Excelsior Springs
Savings and Loan Association.  In 1991, the Bank changed its name to its current
form, and in 1995 the Bank amended its charter to become a federal mutual
savings bank.  Its deposits are insured up to the maximum allowable amount by
the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC").  Through its main office in Excelsior Springs and its
branch offices in Kearney and Liberty, Community Bank primarily serves
communities located in Clay and Ray Counties and to a lesser extent in
surrounding counties in the State of Missouri.  The Liberty office commenced
operations in March 1998.  This office gives the Bank visibility in the Kansas
City northland area, which is experiencing good growth which we expect to
continue for the next few years.  At June 30, 1999, Community Bank had total
assets of $150.4 million, deposits of $101.4 million and stockholders' equity of
$16.9 million.

     Community Bank has been, and intends to continue to be, a community-
oriented financial institution offering selected financial services to meet the
needs of the communities it serves.  The Bank attracts deposits from the general
public and historically has used such deposits, together with other funds,
primarily to originate one- to four-family residential mortgage loans,
construction and land loans for single-family residential properties, and
consumer loans consisting primarily of loans secured by automobiles.  While the
Bank's primary business has been that of a traditional thrift institution,
originating loans in its primary market area for retention in its portfolio, the
Bank also has been an active participant in the secondary market, originating
residential mortgage loans for sale.  At June 30, 1999, the Bank's total loan
portfolio was $163.1 million, of which 43.7% were one- to four-family
residential mortgage loans, 42.8% were construction and land loans (the vast
majority of which related to single-family residential properties), and 8.9%
were consumer loans.  During the fiscal year ended June 30, 1999, the Bank
originated $51.0 million of fixed-rate one- to four-family residential mortgage
loans, of which $40.4 million, or 79.2%, were sold in the secondary market.  See
"Lending Activities."  To a substantially lesser extent, the Bank invests in
various investment securities, including mortgage-backed securities.

     The executive office of the Company and the Bank is located at 1001 North
Jesse James Road, Excelsior Springs, Missouri 64024 and their telephone number
is (816) 630-6711.

Market Area and Competition
---------------------------

     Community Bank serves communities located in Clay and Ray Counties and in
surrounding counties in Missouri from its main office in Excelsior Springs and
its branch offices in Kearney and Liberty.  Excelsior Springs, Kearney and
Liberty are located in Clay County, which is part of the Kansas City
Metropolitan Statistical Area. Excelsior Springs, Kearney and Liberty are small
towns with 1990 populations estimated at 11,000, 2,000 and 20,000, respectively.
Clay County has a relatively large population (estimated at 166,000 as of 1995),
and the northern portion of Clay County is a combination of suburban and rural
areas containing a number of small towns, including Excelsior Springs and
Kearney. Southern Clay County is a rapidly developing suburban market, and is
home to a large number of people who commute to jobs in areas closer to Kansas
City.

                                       3
<PAGE>

     Most of the employment in Clay County is provided by light manufacturing,
services and retail trade. Included among the largest employers in Clay County
are a number of hospitals (Liberty Hospital, Excelsior Springs Medical Center,
North Kansas City Hospital, and St. Luke's Northland Hospital), local school
districts and two community colleges.  Employers in the manufacturing sector
include Ford Motor Company, Farmland Industries and Wilcox Electric. In the
immediate Excelsior Springs area, the largest employers are American Italian
Pasta, Precise Technology Incorporated, Douglas & Lomason and Gilmour
Manufacturing.

     The Bank's business and operating results are significantly affected by the
general economic conditions present in the Bank's market area. As of June 30,
1998, the twelve-month average unemployment rate in Clay County was 2.9% and the
twelve-month average unemployment rate in Ray County was 9.7%.

     The Bank faces significant competition in attracting deposits from
commercial banks, other savings institutions and credit unions.  The Bank faces
additional competition for deposits from short-term money market funds, from
other corporate and government securities funds and from brokerage funds and
insurance companies.  The Bank also faces significant competition in the
origination of loans from savings institutions, mortgage banking companies,
credit unions and commercial banks.  In Clay County alone, where the Bank's
three offices are located, there are 36 commercial banks, 44 credit unions, and
10 savings institutions.

Lending Activities
------------------

     General.  The Bank has emphasized and will continue to emphasize the
origination of one- to four-family residential mortgage loans. In recent years,
subject to market conditions, the Bank has emphasized the origination for
portfolio of ARM loans and the origination and sale of fixed-rate and ARM
residential mortgage loans. Due to the high level of construction activity in
southern Clay County in recent years, and in an effort to improve the yield on
overall interest-earning assets, the Bank has increased its portfolio of
residential construction loans. The Bank also originates land loans secured by
vacant land or building lots for which the borrower intends to ultimately
construct a residential property.  The Bank also originates commercial real
estate and multi-family residential loans, which are generally offered on a
case-by-case basis as an accommodation to existing Bank customers. The Bank's
non-mortgage loans consist primarily of automobile loans, which are originated
on a direct and on an indirect basis.

     Under OTS regulations, a thrift institution's loans-to-one borrower limit
is generally limited to the greater of 15% of unimpaired capital and surplus or
$500,000.  See "Regulation - Federal Regulation of Savings Associations."  At
June 30, 1999, the maximum amount which the Bank could have lent under this
limit to any one borrower and the borrower's related entities was approximately
$4.6 million.  At June 30, 1999, the Bank had no loans or groups of loans to
related borrowers with outstanding balances in excess of this amount.  The
Bank's largest lending relationship at June 30, 1999 was approximately $3.2
million in loans to a residential builder primarily for the construction of
single-family residences and was secured by real estate located in Clay County,
Missouri.  At June 30, 1999, all of these loans were performing in accordance
with their terms.

     Loan Portfolio Composition. Set forth below is data relating to the
composition of the Bank's loan portfolio by type of loan as of the dates
indicated.

                                       4
<PAGE>

<TABLE>
<CAPTION>

                                                                      At June 30,
                                        --------------------------------------------------------------
                                              1999                  1998                  1997
                                        -----------------   ----------------------  ----------------
                                         Amount   Percent    Amount     Percent      Amount   Percent
                                        --------  --------  --------  ------------  --------  --------
                                                            (Dollars in Thousands)
<S>                                     <C>       <C>       <C>       <C>           <C>       <C>
Real estate loans:
  One- to four-family residential.....  $ 71,353    43.74%  $ 65,502        48.65%  $ 57,260    54.98%
  Multi-family........................     1,951     1.20      1,602         1.19        748     0.72
  Commercial..........................     5,496     3.37      2,768         2.06      1,520     1.46
  Land................................     6,485     3.98      4,243         3.15      3,393     3.26
  Construction........................    63,319    38.81     48,641        36.12     30,332    29.12
                                        --------   ------   --------       ------   --------   ------
 Total real estate loans..............   148,604    91.10    122,756        91.17     93,253    89.54
                                        --------   ------   --------       ------   --------   ------

Consumer loans:
  Direct automobile loans.............     9,174     5.62      7,166         5.32      6,585     6.32
  Indirect automobile loans...........     2,460     1.51      2,348         1.75      2,034     1.95
  Deposit accounts....................       448     0.27        616         0.46        548     0.53
  Home improvement....................         6       --         19         0.01         69     0.07
  Commercial loans....................       257     0.16        286         0.21        213     0.20
  Other...............................     2,194     1.34      1,455         1.08      1,451     1.39
                                        --------   ------   --------       ------   --------   ------
     Total consumer loans.............    14,539     8.90     11,890         8.83     10,900    10.46
                                        --------   ------   --------       ------   --------   ------

     Total loan portfolio.............   163,143   100.00%   134,646       100.00%   104,153   100.00%
                                                   ======                  ======              ======

Less:
  Loans in process....................    27,153              18,661                  12,350
  Deferred loan origination fees and
    discounts on loans, net...........       604                 494                     350
  Allowance for loan losses...........       927                 669                     436
                                        --------            --------                --------
    Total loans receivable, net.......   134,459            $114,822                $ 91,017
                                        ========            ========                ========
</TABLE>

                                       5
<PAGE>

     The following table shows the composition of the Bank's loan portfolio by
fixed- and adjustable-rates at the dates indicated.
<TABLE>
<CAPTION>

                                                                   At June 30,
                                    ---------------------------------------------------------------
                                           1999                 1998                   1997
                                    -------------------  ----------------------  ------------------
                                     Amount    Percent    Amount     Percent      Amount   Percent
                                    --------  ---------  --------  ------------  --------  --------
                                                        (Dollars in Thousands)
<S>                                 <C>       <C>        <C>       <C>           <C>       <C>
Fixed Rate Loans:
 Real estate:
  One- to four-family.............  $ 21,614     13.25%  $ 15,634        11.61%  $ 10,263     9.85%
  Multi-family....................        --        --         --           --         --       --
  Commercial......................     2,834      1.74      1,630         1.21        509     0.49
  Land............................     2,839      1.74        800         0.59        180     0.17
  Construction....................    63,319     38.81     48,641        36.13     27,898    26.79
                                    --------  --------   --------       ------   --------   ------
 Total real estate loans..........    90,606     55.54     66,705        49.54     38,850    37.30
                                    --------  --------   --------       ------   --------   ------

Consumer loans....................    14,232      8.72     11,609         8.62     10,670    10.25
                                    --------  --------   --------       ------   --------   ------

     Total fixed-rate loans.......   104,838     64.26     78,314        58.16     49,520    47.55
                                    --------  --------   --------       ------   --------   ------

Adjustable Rate Loans:
 Real estate:
  One- to four-family.............    49,739     30.49   $ 49,868        37.04%  $ 46,997    45.12%
  Multi-family....................     1,951      1.20      1,602         1.19        748     0.72
  Commercial......................     2,662      1.63      1,138         0.84      1,011     0.97
  Land............................     3,646      2.23      3,443         2.56      3,213     3.08
  Construction....................        --        --         --           --      2,434     2.34
                                    --------  --------   --------       ------   --------   ------
 Total real estate loans..........    57,998     35.55     56,051        41.63     54,403    52.23
                                    --------  --------   --------       ------   --------   ------

Consumer loans....................       307      0.19        281         0.21        230     0.22
                                    --------  --------   --------       ------   --------   ------

     Total adjustable-rate loans..    58,305     35.74     56,332        41.84     54,633    52.45
                                    --------  --------   --------       ------   --------   ------

     Total loan portfolio.........   163,143    100.00%   134,646       100.00%   104,153   100.00%
                                              ========                  ======              ======

Less:
  Loans in process................    27,153               18,661                  12,350
  Deferred fees and discounts.....       604                  494                     350
  Allowance for losses............       927                  669                     436
                                    --------             --------                --------
    Total loans receivable, net...  $134,459             $114,822                $ 91,017
                                    ========             ========                ========

</TABLE>

     One- to Four-Family Mortgage Loans.  The Bank's primary lending activity is
the origination of one- to four-family, owner-occupied, residential mortgage
loans secured by property located in the Bank's market area.  Loans are
generated through the Bank's marketing efforts, its existing customers and
referrals, real estate brokers, builders and local businesses.  The Bank also
employs its Chairman of the Board as a full-time loan originator to solicit
loans. The Bank generally has limited its real estate loan originations to the
financing of properties located within its market area and will not make out-of-
state loans.  At June 30, 1999, the Bank had $71.4 million, or 43.7% of its loan
portfolio, invested in mortgage loans secured by one- to four-family residences.

     The Bank originates fixed-rate residential one- to four-family loans with
terms of 15 and 30 years.  Such loans may either be retained in portfolio or
sold in the secondary mortgage market depending on the yield on such loans and
the Bank's asset/liability management objectives.  Currently, the Bank's policy
is to sell into the secondary market longer-term fixed-rate residential real
estate loans.  During fiscal 1998 and 1999, the Bank retained in portfolio
certain fixed-rate mortgage loan originations which provided for a 30-year
amortization schedule with a 5-year balloon payment feature and certain second
mortgage loans with terms to maturity from two to 15 years.  As of June 30,
1999, $21.6 million, or 13.2% of the Bank's loan portfolio, consisted of fixed-
rate residential one- to four-family loans.  The Bank's fixed-rate mortgage
loans amortize monthly with principal and interest due each month.  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.

                                       6
<PAGE>

     Fixed-rate residential one- to four-family loans originated for sale in the
secondary mortgage market are underwritten in conformity with the criteria
established by the Federal Home Loan Mortgage Corporation ("FHLMC") for sale
primarily to FHLMC.  Such loans are sold on a non-recourse basis.  The Bank
retains servicing rights on a portion of such loans, depending upon customer
preferences and competitive conditions.  For the fiscal year ended June 30,
1999, of the $51.0 million in fixed-rate residential one- to four-family loans
originated by the Bank, $40.4 million of such loans, or 79.2%, were sold in the
secondary mortgage market.

     The Bank also offers ARM loans for terms ranging up to 30 years.  The Bank
currently offers ARM loans that adjust every year, with interest rate adjustment
limitations up to two percentage points per year and with a cap of up to six
percentage points on total interest rate increases over the life of the loan,
although a majority of the ARM loans in the Bank's portfolio have adjustment
limitations of one percentage point and five percentage point interest rate
caps.  In a rising interest rate environment, such rate limitations may prevent
ARM loans from repricing to market interest rates, which would have an adverse
effect on net interest income.  The Bank has used different interest indices for
ARM loans in the past, and currently uses the one year U.S. Treasury Index
adjusted to a constant maturity, with margins of 275 basis points for agency-
conforming ARM loans and 300 basis points for non-conforming ARM loans. ARM
loans secured by residential one- to four-family real estate totaled $49.7
million, or 30.5% of the Bank's total loan portfolio at June 30, 1999.  The
origination of fixed-rate mortgage loans versus ARM loans is monitored on an
ongoing basis and is 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.
During the fiscal year ended June 30, 1999, the Bank originated $51.0 million in
fixed-rate residential mortgage loans and $33.3 million of ARM loans.  Normally,
the Bank's policy is to originate ARM loans for portfolio.  However, during
fiscal 1999, the Bank sold three pools of ARM loans totaling $17.5 million as a
part of the Bank's asset/liability and capital strategies.

     The primary purpose of offering ARM loans is to make the Bank's loan
portfolio more interest rate sensitive. However, as the interest income earned
on ARM loans varies with prevailing interest rates, such loans do not offer the
Bank predictable cash flows as would long-term, fixed-rate loans.  ARM loans
carry increased credit risk associated with potentially higher monthly payments
by borrowers as general market interest rates increase.  It is possible,
therefore, during periods of rising interest rates, that the risk of
delinquencies and defaults on ARM loans may increase due to the upward
adjustment of interest costs to the borrower, resulting in increased loan
losses.

     The Bank's 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 a means of imposing assumption fees and
increasing the interest rate on the Bank's mortgage portfolio during periods of
rising interest rates.

     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.  The Bank's lending policies
generally limit the maximum LTV ratio on fixed-rate and ARM loans to 80% of the
lesser of the appraised value or the purchase price of the property securing the
loan in the case of loans secured by one- to four-family owner-occupied
properties.  On conventional one- to four-family loans, the Bank will lend up to
a 95% LTV ratio; however, any loans with LTV ratios in excess of 80% require
private mortgage insurance.  The maximum LTV ratio on other types of real estate
loans is generally the lesser of 80% of the appraisal value or the purchase
price of the property.

     When underwriting residential real estate loans, the Bank reviews and
verifies each loan applicant's employment, income and credit history. The Bank's
policy is to obtain credit reports and financial statements on all borrowers and
guarantors, and to verify references.  Properties securing real estate loans are
appraised by Bank-approved independent appraisers. Appraisals are subsequently
reviewed by the Bank's Loan Committee, as applicable. Management believes that
stability of income, past credit history and adequacy of the proposed security
are integral parts in the underwriting process.  Generally, the applicant's
total monthly mortgage payment, including all escrow amounts, is limited to 28%
of the applicant's total monthly income.  In addition, total monthly obligations
of the applicant, including mortgage payments, should not generally exceed 36%
of total monthly income.  Written appraisals are always required on real estate
property offered to secure an applicant's loan.  The Bank requires fire and
casualty insurance on all properties securing real estate loans, as well as
title insurance.

                                       7
<PAGE>

     Construction and Land Lending. The Bank invests a significant proportion of
its loan portfolio in construction and land loans.  Prompted by increased
residential development in Clay County in recent years, such lending has been a
growing part of the Bank's loan portfolio.  Construction lending has been very
strong, particularly since the opening of the branch office in Liberty, Missouri
in March 1998.  Through the Liberty office, the Bank has received construction
loan requests from several new builders active in the Liberty area.
Substantially all of the Bank's construction and land loans are secured by
residential properties located in Clay County.

     The Bank originates four basic types of construction and land loans:

     1. "Speculative" construction loans are made to home builders for the
        construction principally of one- to four-family residences and
        residential development projects and, to a lesser extent, multi-family
        residences (primarily duplexes). Speculative construction loans
        generally do not have a sale contract or permanent loan in place for the
        finished home, and the purchasers for the finished homes may be
        identified either during or following the construction period.

     2. "Contract" construction loans are made to builders who have a signed
        contract to build a new home.

     3. "Construction" loans are made to individuals who have contracted with a
        builder to construct their personal residence.

     4. "Land development and acquisition" loans ("land loans") are made by the
        Bank to individuals and builders for the acquisition of land upon which
        the borrower can then build.

     The table below presents information on the Bank's construction and land
loans at June 30, 1999 and 1998:


                                 At June 30, 1999          At June 30, 1998
                             ------------------------  ------------------------
                             Outstanding     Percent    Outstanding    Percent
                                Loan            of        Loan            of
                              Balance/(1)/    Total     Balance/(1)/     Total
                             -------------  ---------  -------------  ---------
                                           (Dollars in Thousands)

     Speculative - 1-4
      family...............        $51,461      66.6%        $37,039      70.1%
     Speculative -
      Multifamily..........          2,261       2.9           1,600       3.0
     Contract..............          1,718       2.2           2,275       4.3
     Construction -
      commercial...........          4,129       5.3             704       1.3
     Construction - 1-4
      family...............          3,750       4.9           4,526       8.6
                                   -------     -----         -------     -----
       Total construction..         63,319      81.9          46,144      87.3
     Land development and
      acquisition..........          7,503       9.7           2,496       4.7
     Land..................          6,485       8.4           4,243       8.0
                                   -------     -----         -------     -----
         Total construction
          and land.........        $77,307     100.0%        $52,883     100.0%
                                   =======     =====         =======     =====
     ----------------------
     (1)Includes loans in process.


     At June 30, 1999, the Bank's $63.3 million of construction loans and $14.0
million of land and land development loans represented 47.1% and 10.4%,
respectively, of total loans receivable.  At the same time, the Bank's $53.7
million of speculative construction loans represented 40.0% of total loans
receivable.  Speculative 1-4 family loans increased $14.4 million from $37.0
million at June 30, 1998 to $51.5 million at June 30, 1999.

     Construction and land lending affords the Bank the opportunity to achieve
higher interest rates and fees with shorter terms to maturity than does its
single-family permanent mortgage lending.  Construction and land lending,
however, is generally considered to involve a higher degree of risk than single-
family permanent mortgage lending due to (i) the concentration of principal
among relatively few borrowers and development projects, (ii) the increased
difficulty at the time the loan is made of estimating building costs and the
selling price of the residence to be built, (iii) the increased difficulty and
costs of monitoring the loan, (iv) the higher degree of risk associated with
residential sales activity in changing real estate market conditions, and (v)
the increased difficulty of working out problem loans. Speculative construction
loans have the added risk associated with identifying an end-purchaser for the
finished home.

                                       8
<PAGE>

The Bank has sought to address these risks by developing and adhering to
underwriting policies, disbursement procedures, and monitoring practices.

     The Bank seeks to make construction loans to those builders with which it
has a long-standing history of satisfactory performance.  New builders typically
borrow from the Bank in limited amounts and may borrow additional amounts based
on proven experience with the Bank.  The Bank's process when reviewing a loan
request from a new builder is to evaluate the builder's financial strength,
verify the number of years he has been building, analyze the subdivision that
the houses will be built in, review the appraisal value against the loan amount,
verify that the building cost estimates are reasonable, determine the reputation
of the builder and verify that the builder pays its subcontractors promptly for
the work they have performed.  At June 30, 1999, the Bank had 19 borrowers for
which speculative construction loans outstanding totaled more than $1.0 million.

     While substantially all of the Bank's construction and land loans are
secured by properties located in southern Clay County, the Bank also seeks to
diversify its construction and land lending risks among several subdivisions.
At June 30, 1999, the Bank had speculative construction loans secured by
properties in 129 subdivisions of which 18 represented an exposure to a single
subdivision of more than $1.0 million.

     One- to Four-Family Construction Loans.  Loans for the construction of one-
to four-family residences are generally made for terms of 12 months.  The Bank's
loan policy includes maximum loan-to-value ratios of up to 85% for speculative
construction loans and up to 80% for construction loans.  Prior to preliminary
approval of a construction loan application, Bank personnel inspect the site,
review the existing or proposed improvements, identify the market for the
proposed project, analyze the pro forma data and assumptions on the project, and
satisfy themselves with the experience and expertise of the builder.  After
preliminary approval has been given, the application is processed.  Processing
includes obtaining credit reports, financial statements and tax returns on the
borrowers and guarantors, if any, an independent appraisal of the project, and
any other expert reports necessary to evaluate the proposed project.

     The Bank requires that construction loan proceeds be disbursed in
increments as construction progresses based upon inspections by Bank personnel.
To control the disbursement process, the Bank requires that builders and their
subcontractors and vendors submit invoices to the Bank for payment.  In the
event of cost overruns, depending on the circumstances (i.e., whether due to
"add-ons" not included in the original plans or due to unanticipated changes in
building costs) the Bank may seek to require the borrower to deposit funds with
the Bank for additional disbursements, increase the loan amount on the basis of
an increased appraisal and disburse additional loan proceeds consistent with the
original loan-to-value ratio, or become more active in the monitoring and
progress of the project.

     The Bank regularly monitors the accuracy of assumptions made in its
construction loan business over time. In particular, the Bank tracks the
accuracy of its independent appraisers by comparing actual selling prices with
the appraised value estimated in connection with the loan approval.
Additionally, the Bank tracks the performance of its builder customers by
comparing actual costs with those estimated in the loan application.  The Bank
monitors each subdivision where the Bank has speculative loans each month to see
that houses are selling promptly and to assure that the Bank does not get too
much of a loan concentration in any one subdivision.  The Bank also adheres to a
very strict policy of inspecting each construction site prior to payment of
construction bills to reduce the Bank's risk during the construction process.

     Commercial and Multi-family Construction Loans.  Occasionally, the Bank
originates loans for the construction of commercial buildings and multi-family
residences on terms similar to those on one- to four-family construction loans.
At June 30, 1999, the Bank had $2.3 million of speculative construction loans
secured by multi-family properties.

     Land Loans.  At June 30, 1999, the Bank had total land loans of $6.5
million and land development loans of $7.5 million.  In making land loans and
land development loans, the Bank follows similar underwriting policies as for
construction loans.  The Bank originates land loans and land development loans
with similar terms and at similar rates as construction loans, except that the
initial term on conventional land loans is typically five to ten years (not to
exceed 30 years) as opposed to the term of up to 12 months that is typical of
construction loans.

                                       9
<PAGE>

     Multi-Family and Commercial Real Estate Lending.  The Bank also originates
loans secured by multi-family and commercial real estate.  At June 30, 1999,
$7.4 million, or 4.6%, of the Bank's loan portfolio consisted of multi-family
loans and commercial real estate loans.

     Multi-family and commercial real estate loans originated by the Bank may be
either fixed- or adjustable-rate loans with terms to maturity and amortization
schedules of up to 30 years.  Rates on such ARM loans generally adjust annually
to specified spreads over the one-year U.S. Treasury securities index adjusted
to a constant maturity of one year, subject to annual and life-of-loan interest
rate caps.  Multi-family and commercial real estate loans are written in amounts
of up to 80% of the lesser of the appraised value of the property or the sales
price.

     The Bank's commercial real estate portfolio consists primarily of loans on
small office buildings located in the Bank's primary market area. Multi-family
loans generally are secured by duplexes.  Appraisals on properties which secure
multi-family and commercial real estate loans are performed by an independent
appraiser designated by the Bank before the loan is made.  All appraisals on
multi-family and commercial real estate loans are reviewed by the Bank's
management.  In underwriting such loans, the Bank primarily considers the cash
flows generated by the real estate to support the debt service, the financial
resources and income level of the borrower and the Bank's experience with the
borrower.  In addition, the Bank's underwriting procedures require verification
of the borrower's credit history, an analysis of the borrower's income,
financial statements and banking relationships, a review of the borrower's
property management experience and references, and a review of the property,
including cash flow projections and historical operating results.  The Bank
seeks to ensure that the property securing the loans will generate sufficient
cash flow to adequately cover operating expenses and debt service payments.

     Multi-family and commercial real estate lending affords the Bank an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending.  Nevertheless, loans secured by
such properties are generally larger, more difficult to evaluate and monitor
and, therefore generally, involve a greater degree of risk than one- to four-
family residential mortgage loans.  Because payments on loans secured by
commercial real estate and multi-family properties are often dependent on the
successful operation or management of the properties, repayment of such loans
may be subject to adverse conditions in the real estate market or the economy.
If the cash flow from the project is reduced, the borrower's ability to repay
the loan might be impaired.  The Bank has attempted to minimize these risks by
lending primarily to the ultimate user of the property or on existing income-
producing properties.

     Consumer Lending.  Community Bank offers a variety of consumer loans,
including automobile and home improvement loans, second mortgage home equity
loans, lines of credit secured by first or second mortgage loans, and loans
secured by deposits.  The Bank currently originates substantially all of its
consumer loans in its primary market area generally to its existing customers.
At June 30, 1999, the Bank's consumer loan portfolio totaled $14.5 million, or
8.9% of its loan portfolio.

     The primary component of the Bank's consumer loan portfolio consists of
automobile loans secured by both new and used cars and light trucks.   The Bank
originates automobile loans on a direct basis, where the Bank extends credit
directly to the borrower, and on an indirect basis through automobile
dealerships.  Although applications for indirect automobile loans are taken by
employees of the dealer, the loans are made pursuant to the Bank's underwriting
standards using the Bank's documentation.  All such indirect automobile loans
must be approved by a Bank loan officer before disbursement of loan proceeds.
The Bank seeks to limit the credit risk of indirect automobile lending by doing
business with local dealers with which it has had a satisfactory prior
relationship, and through strict adherence to its underwriting standards.

     The Bank's automobile loans generally have terms that do not exceed five
years and carry a fixed-rate of interest.  Generally, loans on new vehicles are
made in amounts up to 80% of dealer cost and loans on used vehicles are made in
amounts up to 80% of the vehicle's published NADA value. Collision and
comprehensive insurance and vendor single-interest coverage is required on all
automobile loans.  At June 30, 1999, the Bank's indirect automobile loans
totaled $2.5 million, or 1.5% of the Bank's loan portfolio and direct automobile
loans totaled $9.2 million, or 5.6% of the Bank's loan portfolio.

                                       10
<PAGE>

     Community Bank also originates Federal Housing Administration ("FHA") Title
I home improvement loans. Generally, such loans have a maximum term of ten
years, have fixed rates and may be originated up to a 100% loan-to-value ratio.
While the Bank retains a portion of such loans in portfolio, the majority of its
FHA Title I home improvement loans are originated for sale in the secondary
market. At June 30, 1999, the Bank's FHA Title I home improvement loans totaled
$52,000, or 0.03% of the Bank's loan portfolio.

     The Bank also originates for portfolio second mortgage/home equity loans.
These loans are generally limited to 80% or less of the appraised value of the
property securing the loan.  These loans are originated as fixed-rate loans and
generally have maximum terms of 15 years. At June 30, 1999, the Bank's second
mortgage/home equity loans totaled $2.2 million, or 1.3% of the Bank's loan
portfolio.

     The Bank also originates for portfolio lines of credit secured by first or
second mortgages. These loans are primarily adjustable-rate loans, adjust
annually, and may be originated up to an 80% loan-to-value ratio, with a maximum
term of five years. At June 30, 1999, the Bank's lines of credit secured by
first or second mortgages totaled $2.9 million, or 1.8% of the Bank's loan
portfolio.

     Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower.  The underwriting
standards employed by the Bank for consumer loans include an application, a
determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan.  Although creditworthiness of the applicant is a primary consideration,
the underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount.

     Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, such as automobiles.  Further, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation.  In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans.  At June 30, 1999, $45,000 in consumer loans were non-performing.
See "Asset Quality--Delinquent Loans and Non-performing Assets."  There can be
no assurances, however, that delinquencies will not increase in the future.

                                       11
<PAGE>

Loan Maturity Schedule

     The following schedule illustrates the contractual maturity and weighted
average rates of the Bank's total loan portfolio at June 30, 1999.  Mortgages
which have adjustable or renegotiable interest rates are shown as maturing in
the period during which the contract is due.  The schedule does not reflect the
effects of scheduled payments, possible prepayments or enforcement of due-on-
sale clauses.  The total amount of loans due after June 30, 1999 that have
predetermined interest rates is $104.8 million, and that have floating or
adjustable rates is $58.3 million.
<TABLE>
<CAPTION>
                                                          Real Estate
                          ---------------------------------------------------------------------------------
                                                         Multi-Family
                                                             and
                             One- to Four-Family          Commercial          Land             Construction        Consumer
                         ---------------------------      ----------         -------           ------------        ---------

                                        Weighted                Weighted          Weighted             Weighted          Weighted
                                        Average                 Average           Average              Average           Average
                               Amount    Rate         Amount     Rate      Amount  Rate     Amount     Amount     Rate   Amount
                               ------    ----         ------     ----      ------  ----     -------    ------     ----   ------
                                                        (Dollars in Thousands)
<S>                            <C>      <C>           <C>       <C>        <C>    <C>       <C>        <C>      <C>      <C>
Due During Years Ending
 June 30,
---------------------------
2000.......................     $ 3,223    8.14%        $    1      7.13%  $1,430    8.18%   $58,909    7.93%   $ 4,038    8.78%
2001.......................         378    8.60            179        --      791    8.42      4,410    7.92      1,706    9.74
2002.......................         823    9.29            312      8.40      945    7.50         --      --      2,642   10.15
2003 and 2004..............       3,395    9.12            869      7.89       18    8.50         --      --      1,789    9.84
2005 to 2009...............       2,255    8.40            575      8.12      187    7.89         --      --      4,242    9.26
2010 to 2024...............       9,915    8.12          1,488      8.47      829    8.15         --      --        122    8.55
2025 and following.........      51,364    7.57          4,023      8.23    2,285    8.14         --      --         --      --
                                -------    ----         ------      ----   ------    ----   --------  ------    -------   -----
                                $71,353    7.80%        $7,447      8.35%  $6,485    8.04%   $63,319    7.93%   $14,539    9.41%
</TABLE>



                                  Total
                             ----------------------

                                          Weighted
                                           Average
                              Amount        Rate
                             --------     --------

Due During Years Ending
 June 30,
---------------------------
2000.......................$  67,601        8.00%
2001.......................    7,464        8.44
2002.......................    4,722        9.35
2003 and 2004..............    6,071        9.28
2005 to 2009...............    7,259        8.87
2010 to 2024...............   12,354        8.17
2025 and following.........   57,672        8.12
                            --------        ----
                            $163,143        8.20%

                                       12
<PAGE>

Origination of Loans

     Loan originations are developed from continuing business with depositors
and borrowers, soliciting realtors, builders, walk-in customers and third-party
sources.  The Bank also employs its Chairman of the Board as a full-time loan
originator to solicit loans.  The Board of Directors of the Bank has authorized
certain officers to originate loans within specified underwriting limits.  Two
senior Mortgage Lending Officers have authority to make secured real estate
loans up to $227,400 and secured installment loans up to $30,000.  Unsecured
installment loans may be approved by the Chief Executive Officer up to $15,000
and by the Mortgage Lending Officer up to $10,000.  All loans in excess of these
limitations must be approved by the Board of Directors.  The Bank has
established a Loan Audit Committee which reviews loans made or denied by
officers of the Bank.  The Loan Audit Committee meets monthly and consists of
the Chief Executive Officer as well as three members of the Board of Directors.

     While the Bank originates both adjustable-rate and fixed-rate loans, its
ability to originate loans to a certain extent is dependent upon the relative
customer demand for loans in its market, which is affected by the interest rate
environment, among other factors.  For the fiscal year ended June 30, 1999 the
Bank originated $128.8 million in fixed-rate loans and $37.5 million in
adjustable-rate loans.  For the year ended June 30, 1998 the Bank originated
$87.8 million in fixed-rate loans and $19.5 million in adjustable-rate loans.

     In recent years, the Bank has not purchased loans.  For the fiscal years
ended June 30, 1999, 1998 and 1997, the Bank purchased no loans.  The Bank has
expanded its mortgage banking operations during the past year.  As currently
structured, longer term, fixed rate loans which don't meet the Bank's asset and
liability requirements are sold to investors on either a servicing released or
servicing retained basis.  Such  loans are preapproved by investors with
interest rates locked prior to loan funding.  The Bank originates both
conforming and non-conforming (subprime) loans for sale to investors.  The
expansion of the mortgage banking operations has contributed significantly to
the growth of the bank's non-interest income, and it is expected that this
growth will continue in 2000  For the year ended June 30, 1999, the Bank sold
$57.9 million in conforming residential one- to four-family loans (including
$40.4 million of fixed rate loans and three pools of ARM loans totaling $17.5
million), compared to $22.8 million and $1.2 million for the years ended June
30, 1998 and 1997, respectively.  Primarily all of the residential loans sold by
the Bank are fixed-rate residential loans with maturities of 15 and 30 years,
though the Bank sold some one- to four family ARM loans.

                                       13
<PAGE>

     Set forth below is a table showing the Bank's loan originations, sales and
repayments for the periods indicated.

                                                Year Ended June 30,
                                           -----------------------------
                                             1999      1998       1997
                                           --------  ---------  --------
Originations by type:                             (In Thousands)
 Adjustable rate:
  Real estate -
   One- to four-family residential.......  $ 33,341  $ 16,390   $11,103
   Multi-family..........................       443       765       488
   Commercial............................     1,222       202       243
   Land..................................     1,914     1,491     1,257
  Consumer...............................       546       626       751
                                           --------  --------   -------
 Total adjustable rate...................    37,466    19,474    13,842
                                           --------  --------   -------

 Fixed rate:
  Real estate -
   One- to four-family residential.......    51,038    31,195    15,370
   Multifamily...........................       120        --        --
   Commercial............................     2,126     1,148       366
   Land..................................     2,765       655       244
   Construction..........................    59,564    44,627    30,596
  Consumer...............................    13,208    10,186     9,329
                                           --------  --------   -------
 Commercial Business.....................        --        --       213
 Total fixed rate........................   128,821    87,811    56,118
                                           --------  --------   -------
 Total loans originated..................   166,827   107,285    69,960
Sales and Repayments:
  Real Estate -
  One- to four-family residential........    57,949    22,758    11,201
                                           --------  --------   -------
  Total loans sold.......................    57,949    22,758    11,201
 Principal repayments....................    97,631    67,410    48,407
                                           --------  --------   -------
  Total sales and repayments.............   155,580    90,168    59,608
Decrease (increase) in other items, net..     8,895    (6,688)   (1,449)
                                           --------  --------   -------
  Net (decrease) increase................  $ 19,602  $ 10,429   $ 8,903
                                           ========  ========   =======
Asset Quality

     The Bank's collection procedures provide that when a loan is past due, a
first notice is sent to the borrower requesting payment ten days (for consumer
loans) and 16 days (for real estate loans) after the due date.  A second notice
is sent 16 days (for consumer loans) and 30 days (for real estate) after the due
date.  At the time of the second notice, phone calls are made by the Bank with
personal letter backups.  If the loan remains delinquent for 30 days, a
telephone contact is made.  If the loan becomes 60 days delinquent, a right-to-
cure letter generally is sent and the borrower is notified of the availability
of financial or counseling aid.  If consumer loans are not resolved by 90 days,
the account is put on non-accrual status and repossession and/or legal action is
normally initiated.  If a real estate loan is past due 60 days or more, the loan
is presented to the Board of Directors for future disposition.  In most cases,
the Board of Directors authorizes the initiation of foreclosure proceedings.  At
June 30, 1999, 1998 and 1997, the percentage of total loans delinquent 90 days
or more to net loans receivable were 0.41%, 0.33% and 0.54%, respectively.

     Delinquent Loans and Non-performing Assets.  Loans are reviewed on a
regular basis and are placed on a non-accrual status when, in the opinion of
management, the collection of additional interest is doubtful.  Mortgage loans
are placed on non-accrual status when principal or interest is 90 days or more
past due.  Interest accrued and unpaid at the time a loan is placed on non-
accrual status is charged against interest income.  The loan will remain on non-
accrual status until the loan is brought current.

     Real estate acquired through foreclosure or by deed-in-lieu of foreclosure
is classified as real estate owned until such time as it is sold.  When real
estate owned is acquired, it is recorded at the lower of the unpaid principal
balance of the related loan, or its fair value, less estimated selling expenses.
Any further write-down of real estate

                                       14
<PAGE>

owned is charged against earnings. At June 30, 1999, the Bank has $153,000 in
property classified as real estate owned.

     The following table sets forth information with respect to the Bank's
delinquent loans at June 30, 1999.

<TABLE>
<CAPTION>
                                                         Loans Delinquent For
                                                         --------------------
                                    60-89 Days              90 Days and Over       Total Delinquent Loans
                                  --------------            ----------------      ------------------------
                                              Percent                    Percent                    Percent
                                              of Loan                    of Loan                    of Loan
                              Number  Amount  Category   Number  Amount  Category   Number  Amount  Category
                              ------  ------  --------   ------  ------  --------   ------  ------  --------
                                                            (Dollars in Thousands)
<S>                           <C>     <C>     <C>        <C>     <C>     <C>        <C>     <C>     <C>
Real Estate:
   One- to four-family.......     1    $ 36      0.05%       6    $173     0.25%       7    $209      0.30%
   Multi-family                  --      --        --       --      --       --       --      --        --
   Consumer..................     7     174      0.98       10      45     0.25       17     219      1.24
   Construction or
      Development............    --      --        --        3     336     0.53        3     336        --
                              -----    ----      ----       --    ----     ----       --    ----      ----
      Total..................     8    $210      0.16%      19    $554     0.41%      27    $764      0.57%
                                       ====      ====             ====     ====             ====      ====
</TABLE>

    The following table sets forth information regarding non-performing loans
and real estate owned by the Bank at the dates indicated.  As of the dates
indicated, the Bank had no material restructured loans within the meaning of
SFAS No. 15.  Non-accruing loans include loans with principal or interest
currently delinquent 90 days or more, plus loans previously delinquent for 90
days or more which have not been brought current.

                                                            At June 30,
                                                     -------------------------
                                                      1999     1998     1997
                                                     -------  ------  --------
                                                      (Dollars In Thousands)
Non-accruing loans:
    One- to four-family............................   $ 173   $ 465    $  806
    Construction or development....................     336      --        --
    Consumer.......................................      45     120       110
                                                      -----   -----    ------

       Total.......................................     554     678       916
                                                      -----   -----    ------

Accruing loans delinquent more than 90 days:/(1)/
    One- to four-family............................      --      --        --
    Consumer.......................................      --      --        --
                                                      -----   -----    ------

       Total.......................................      --      --        --
                                                      -----   -----    ------

Foreclosed assets:
    One- to four-family............................      95      10       168
    Commercial real estate.........................      58      39
    Land...........................................      --      --        --
    Consumer.......................................       7       5        73
                                                      -----   -----    ------

       Total.......................................     160      54       241
                                                      -----   -----    ------

Total non-performing assets........................   $ 714   $ 732    $1,157
                                                      =====   =====    ======

Total loans delinquent 90 days or more
  to net loans receivable..........................    0.41%   0.33%     0.54%
                                                      =====   =====    ======
-----------------

/(1)/These loans are not currently delinquent 90 days or more with respect to
principal, but are delinquent with respect to late fees or interest.

                                       15
<PAGE>

     For the fiscal year ended June 30, 1999, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $36,000.  The amount that was included in
interest income on such loans was $22,000 for the fiscal year ended June 30,
1999.

     Classified 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."  An asset
is considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured 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.

     When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for losses in an amount deemed
prudent by management.  General allowances represent loss allowances which have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets.  When an insured institution classifies problem
assets as "loss," it is required either to establish a specific allowance for
losses equal to 100% of that portion of the asset so classified or to charge-off
such amount.  An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
regulatory authorities, who may order the establishment of additional general or
specific loss allowances.

     In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank reviews loans in
its portfolio monthly to determine whether such assets require classification in
accordance with applicable regulations.  On the basis of management's review of
its assets, at June 30, 1999, the Bank had classified a total of $902,975 of its
assets as substandard.  At June 30, 1999, the Bank had $1,000 of its assets
classified as doubtful and had no assets classified as loss.  At June 30, 1999,
total classified assets comprised $903,975, or 5.33% of the Bank's capital and
0.60% of the Bank's total assets.

     Other Loans of Concern.  In addition to the non-performing loans set forth
in the tables above, as of June 30, 1999, there were no loans classified by the
Bank with respect to which known information about the possible credit problems
of the borrowers or the cash flows of the security properties have caused
management to have some doubts as to the ability of the borrowers to comply with
present loan repayment terms and which may result in the future inclusion of
such items in the non-performing asset categories.

     Allowance for Loan Losses.  The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity, including those loans which are being specifically monitored by
management.  Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
loan classifications discussed above, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, the amount of
loans outstanding and other factors that warrant recognition in providing for an
adequate loan loss allowance.

     Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value minus estimated cost to sell.  If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer.  Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations.  At June 30, 1999, the Bank had $153,000 in properties
which were acquired through foreclosure.


                                      16

<PAGE>

     Although management believes that it uses the best information available to
determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination.  Future additions to the Bank's allowance for loan losses will be
the result of periodic loan, property and collateral reviews and thus cannot be
predicted in advance.  In addition, federal regulatory agencies, as an integral
part of the examination process, periodically review the Bank's allowance for
loan losses.  Such agencies may require the Bank to increase the allowance based
upon their judgment of the information available to them at the time of their
examination.  At June 30, 1999, the Bank had a total allowance for loan losses
of $927,000, representing 123.6% of total non-performing loans and 0.7% of the
Bank's loans receivable, net.

     The following table sets forth the allocation for loan losses by category
for the periods indicated.
<TABLE>
<CAPTION>

                                                                       At June 30,
                               -------------------------------------------------------------------------------------------------
                                           1999                             1998                           1997
                               ------------------------------  ------------------------------  ---------------------------------
                                                     Percent                         Percent                          Percent
                                                    of Loans                        of Loans                          of Loans
                                            Loan     in Each                Loan     in Each                Loan      in Each
                               Amount of  Amounts   Category   Amount of  Amounts   Category   Amount of  Amounts     Category
                               Loan Loss     by     to Total   Loan Loss     by     to Total   Loan Loss     by       to Total
                               Allowance  Category    Loans    Allowance  Category    Loans    Allowance  Category     Loans
                               ---------  --------  ---------  ---------  --------  ---------  ---------  --------  ------------
                                                                    (Dollars in Thousands)
<S>                            <C>        <C>       <C>        <C>        <C>       <C>        <C>        <C>       <C>
One- to four-family..........      $  69  $ 71,353     43.74%       $ 63  $ 65,502     48.65%       $ 41  $ 57,260        54.98%
Multi-family.................         10     1,951      1.20           8     1,602      1.19           3       748         0.72
Commercial real estate.......         31     5,496      3.37          16     2,768      2.06           9     1,520         1.46
Land.........................         42     6,485      3.98          42     4,243      3.15          30     3,393         3.26
Construction or development..        547    63,319     38.81         372    48,641     36.12         208    30,332        29.12
Consumer.....................        228    14,539      8.90         168    11,890      8.83         145    10,900        10.46
                                   -----  --------    ------        ----  --------    ------        ----  --------       ------
     Total...................      $ 927  $163,143    100.00%       $669  $134,646    100.00%       $436  $104,153       100.00%
                                   =====  ========    ======        ====  ========    ======        ====  ========       ======
</TABLE>

                                       17
<PAGE>

     The following table sets forth information with respect to the Bank's
allowance for loan losses for the periods indicated.


                                                    Years Ended June 30,
                                                 --------------------------
                                                   1999     1998     1997
                                                 --------  -------  -------
                                                       (In thousands)

Balance at beginning of period..........         $   669   $  436   $  388
                                                 -------   ------   ------
Charge-offs:
  One- to four-family...................               8       --       --
  Consumer..............................              74       83       53
                                                 -------   ------   ------
                                                      82       83       53

Recoveries:
  Consumer..............................              42       50       41
                                                 -------   ------   ------
                                                      42       50       41
                                                 -------   ------   ------

Net charge-offs.........................              40       33       12
Provision for loan losses...............             298      266       60
                                                 -------   ------   ------

Balance at end of period................         $   927   $  669   $  436
                                                 =======   ======   ======

Ratio of net charge-offs during the
 period to average loans outstanding
 during the period......................            0.00%    0.03%    0.01%
                                                 =======   ======   ======

Ratio of allowance for loan loss to
 ending loans receivable, net...........            0.69%    0.58%    0.48%
                                                 =======   ======   ======

Ratio of allowance for loan loss to non-
  performing assets at end of period....          129.83%   91.39%   37.68%
                                                 =======   ======   ======

                                       18
<PAGE>

Investment Activities

     General. Community Bank must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Bank has
generally maintained liquid assets at levels above the minimum requirements
imposed by the OTS regulations and at levels believed adequate to meet the
requirements of normal operations, including repayments of maturing debt and
potential deposit outflows. Cash flows projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At June 30, 1999, the
Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits and current borrowings) was 7.69%. See "Regulation -Liquidity."

     Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, certain bankers' acceptances, repurchase agreements
and federal funds.  Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly.

     Generally, the investment policy of the Bank, as established by the Board
of Directors, is to invest funds among various categories of investments and
maturities based upon the Bank's liquidity needs, asset/liability management
policies, investment quality, marketability and performance objectives.

     Mortgage-backed Securities.  The Bank purchases mortgage-backed securities
to supplement residential loan production and as part of its asset/liability
strategy.  The type of securities purchased is based upon the Bank's
asset/liability management strategy and balance sheet objectives.  The Bank has
invested primarily in federal agency securities, principally Freddie Mac and
Government National Mortgage Association ("GNMA") obligations.  At June 30,
1999, the Bank's investment in mortgage-backed securities totaled $57,275, or
0.04% of its total assets.  At June 30, 1999 and 1998, all of the Bank's
mortgage-backed securities were classified as held-to-maturity.

     The Freddie Mac and GNMA certificates are modified pass-through mortgage-
backed securities that represent undivided interests in underlying pools of
fixed-rate, or certain types of adjustable-rate, single-family residential
mortgages issued by these government-sponsored entities.  As a result, the
interest rate risk characteristics of the underlying pool of mortgages, i.e.,
fixed rate or adjustable rate, as well as prepayment risk, are passed on to the
certificate holder.  Freddie Mac provides the certificate holder a guarantee of
timely payments of interest and ultimate collection of principal, whether or not
they have been collected.  GNMA's guarantee to the holder of timely payments of
principal and interest is backed by the full faith and credit of the U.S.
Government.

     While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value, of such
securities.

     Set forth below is a table showing the Bank's purchases, sales and
repayments of mortgage-backed securities for the periods indicated.

                            Year Ended June 30,
                           ----------------------
                            1999    1998    1997
                           ------  ------  ------
                               (In Thousands)

Purchases................  $  --   $  --   $  --
Sales....................     --      --      --
Repayments...............    (24)    (73)   (246)
                           -----   -----   -----
Net increase (decrease)..  $ (24)  $ (73)  $(246)
                           =====   =====   =====

                                       19
<PAGE>

     Other Investments.  At June 30, 1999, the Bank's investment securities
other than mortgage-backed securities consisted of municipal bonds, FHLB stock
and other FHLB interest-earning assets.

     OTS regulations restrict investments in corporate debt and equity
securities by the Bank. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% of the
Bank's unimpaired capital and unimpaired surplus as defined by federal
regulations, plus an additional 10% if the investments are fully secured by
readily marketable collateral. At June 30, 1999, the Bank was in compliance with
this regulation. See "Regulation - Federal Regulation of Savings Associations"
for a discussion of additional restrictions on the Bank's investment activities.

     The following table sets forth the composition of the Bank's investment
securities, net of premiums and discounts, at the dates indicated.


                                                  June 30,
                             --------------------------------------------------
                                  1999             1998              1997
                             ---------------  ---------------  ----------------
                              Book    % of     Book    % of     Book     % of
                             Value    Total   Value    Total   Value    Total
                             ------  -------  ------  -------  ------  --------
                                           (Dollars in Thousands)
Investment securities
 available-for-sale:
  Federal agency
   obligations.............  $   --      --%  $   --      --%  $  996    18.27%
                             ------  ------   ------  ------   ------   ------
Subtotal...................      --      --       --      --      996    18.27

Investment securities
 held-to-maturity..........  $   93    1.08%  $   98    2.77%  $  100     1.83%
                             ------  ------   ------  ------   ------   ------
Subtotal...................      93    1.08%  $   98    2.77%  $  100     1.83%

FHLB stock.................   2,173   25.22    1,025   28.94      811    14.88
                             ------  ------   ------  ------   ------   ------
Total investment securities
  and FHLB stock...........   2,266   26.30    1,123   31.71    1,907    34.98
                             ------  ------   ------  ------   ------   ------

Other interest-earning
 assets:
  FHLB checking............   3,351   38.89    2,419   68.29    3,544    65.02
   FHLB Daily Time.........   3,000   34.81       --      --       --       --
                             ------  ------   ------  ------   ------   ------
   Total other
    interest-earnings
    assets.................   6,351   73.70    2.419   68.29    3,544    65.02
                             ------  ------   ------  ------   ------   ------

Total investment portfolio.  $8,617  100.00%  $3,542  100.00%  $5,451   100.00%
                             ======  ======   ======  ======   ======   ======

Average remaining life of
 investment securities
 available for sale........      --               --           0.50 years

                                       20
<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 excluding FHLB stock at June 30, 1999.
<TABLE>
<CAPTION>

                                                        June 30, 1999
                               ---------------------------------------------------------------------
                               Less than   1 to 5   5 to 10     Over
                                 1 Year     Years    Years    10 Years   Total Investment Securities
                               ----------  -------  --------  ---------  ----------------------------
                                  Book      Book      Book      Book        Book       Market
                                 Value      Value    Value      Value      Value        Value
                               ----------  -------  --------  ---------  ---------     -------
<S>                            <C>         <C>      <C>       <C>        <C>            <C>
                                                   (Dollars in Thousands)

Investment Securities........  $      --    $  12     $  19      $  62     $  93       $  93
                               ---------    -----     -----      -----     -----       -----
Federal agency obligations...  $      --    $  --     $  --      $  --     $  --       $  --
                               ---------    -----     -----      -----     -----       -----
Total investment securities..  $      --    $  12     $  19      $  62     $  93       $  93
                               =========    =====     =====      =====     =====       =====
Weighted average yield.......         --%    6.50%     6.50%      6.50%     6.50%       6.50%
</TABLE>

Sources of Funds

     General.  The Bank's primary sources of funds are deposits, receipt of
principal and interest on loans and securities, FHLB advances, and other funds
provided from operations.

     FHLB advances are used to support lending activities and to assist in the
Bank's asset/liability management strategy.  Typically, the Bank does not use
other forms of borrowings.  At June 30, 1999, the Bank had $29.5 million in FHLB
advances.

     Deposits.  Community Bank offers a variety of deposit accounts having a
wide range of interest rates and terms.  The Bank's deposits consist of
passbook, demand, NOW, money market deposit and certificate accounts.  The
certificate accounts currently range in terms from 91 days to seven years.

     The Bank relies primarily on advertising, competitive pricing policies and
customer service to attract and retain these deposits.  Currently, Community
Bank solicits deposits from its market area only, and does not use brokers to
obtain deposits.  The flow of deposits is influenced significantly by general
economic conditions, changes in money market and prevailing interest rates and
competition.

     The Bank has become more susceptible to short-term fluctuations in deposit
flows as customers have become more interest-rate conscious.  The Bank endeavors
to manage the pricing of its deposits in keeping with its profitability
objectives giving consideration to its asset/liability management.
Notwithstanding the foregoing, a significant percentage of the Bank's deposits
are for terms of less than one year.  At June 30, 1999, $56.5 million, or 72.0%
of the Bank's certificates of deposit were in certificates of deposit with terms
of 12 months or less.  The Bank believes that upon maturity most of these
deposits will remain at the Bank.  The ability of the Bank to attract and
maintain savings accounts and certificates of deposit, and the rates paid on
these deposits, has been and will continue to be significantly affected by
market conditions.

     The Bank's total deposits increased from $85.8 million at June 30, 1998, to
$101.4 million at June 30, 1999. This increase resulted from the Bank's
concerted efforts during the year to market selected term certificates of
deposit to fund the Bank's lending programs.

                                       21
<PAGE>

Savings Portfolio

     The following table sets forth the dollar amount of savings deposits with
various types of deposit programs offered by the Bank at the periods indicated.
<TABLE>
<CAPTION>

                                                                 At June 30,
                                         ------------------------------------------------------------
                                                 1999              1998                 1997
                                         ------------------  -----------------  ---------------------
                                         Balance   Percent   Balance  Percent   Balance    Percent
                                         --------  --------  -------  --------  -------  ------------
                                                           (Dollars  in  Thousands)
<S>                                      <C>       <C>       <C>      <C>       <C>      <C>
Transactions and Savings
 Deposits:
  Passbook savings.....................  $  4,079     4.02%  $ 3,680     4.29%  $ 3,726         5.27%
  NOW accounts.........................     8,988     8.86     8,853    10.32     8,328        11.78
  Money market accounts................     5,776     5.69     5,709     6.66     5,394         7.63
  Noninterest-bearing demand accounts..     3,953     3.90     2,392     2.79     1,658         2.35
                                         --------   ------   -------   ------   -------       ------
    Total non-certificates.............    22,796    22.48    20,634    24.06%   19,106        27.03%
                                         --------   ------   -------   ------   -------       ------

Certificates:
  2.00 - 3.99%.........................         1       --         1     0.00         2         0.00
  4.00 - 5.99%.........................    60,954    60.10    36,237    42.25    34,331        48.56
  6.00 - 7.99%.........................    17,673    17.42    28,905    33.70    17,254        24.41
  8.00 - 9.99%.........................        --       --        --       --        --           --
  10.00% & over........................        --       --        --       --        --           --
                                         --------   ------   -------   ------   -------       ------
    Total certificates.................    78,628    77.52%   65,143    75.94%   51,587        72.97%
                                         --------   ------   -------   ------   -------       ------
         Total.........................  $101,424   100.00%  $85,777   100.00%  $70,693       100.00%
                                         ========   ======   =======   ======   =======       ======
</TABLE>

Deposit Activity

    The following table sets forth the deposit activities of the Bank for the
periods indicated:


                                    Years Ended June 30,
                               -------------------------------
                                 1999       1998       1997
                               ---------  ---------  ---------
                                   (Dollars in Thousands)

Opening balance..............  $ 85,777   $ 70,693   $ 68,170
Deposits(1)..................   250,886    221,802    225,732
Withdrawals..................   238,780    210,450    225,691
Interest credited............     3,541      3,732      2,482
                               --------   --------   --------

Ending balance...............  $101,424   $ 85,777   $ 70,693
                               ========   ========   ========
Net (decrease) increase......  $ 15,647   $ 15,084   $  2,523
                               ========   ========   ========

Percent (decrease) increase..     18.24%     21.34%      3.70%
                               ========   ========   ========
------------------
(1) Does not reflect the rollover of certificates of deposit.

                                       22
<PAGE>

Time Deposit Maturity Schedule

  The following table shows weighted average rate and maturity information for
the Bank's certificates of deposit as of June 30, 1999.

Certificate accounts maturing in             Weighted
--------------------------------     Total    Average   Percent of
quarter ending:                     Balance    Rate        Total
---------------                     ------- ---------   -----------

                                        (Dollars in Thousands)

September 30, 1999................  $23,942      5.51%       30.45%
December 31, 1999.................   11,720      5.35        14.91
March 31, 2000....................   13,620      5.29        17.32
June 30, 2000.....................    7,169      5.27         9.12
September 30, 2000................    4,096      5.47         5.21
December 31, 2000.................    1,548      5.49         1.97
March 31, 2001....................    3,791      5.15         4.82
June 30, 2001.....................    1,794      5.71         2.28
September 30, 2001................    1,005      5.86         1.28
December 31, 2001.................    1,158      6.07         1.47
March 31, 2002....................      848      6.19         1.08
June 30, 2002.....................      947      6.18         1.20
Thereafter........................    6,990      5.84         8.89
                                    -------                 ------
    Total.........................   78,628                 100.00%


     The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of June 30, 1999.

                                             Maturity
                             ------------------------------------------
                             3 Months  Over 3 to   Over 6 to     Over
                             or Less    6 Months   12 Months  12 Months   Total
                             --------  ----------  ---------  ---------  -------
                                             (Dollars in Thousands)
Certificates of deposit
 less than $100,000........   $20,415     $11,186    $19,741    $20,414  $71,756
Certificates of deposit of
 $100,000 or more..........     3,527         534      1,048      1,763    6,872
                              -------     -------    -------    -------  -------
  Total certificates of
   deposit.................   $23,942     $11,720    $20,789    $22,177  $78,628
                              =======     =======    =======    =======  =======

                                       23
<PAGE>

     Borrowings.  Community Bank's borrowings historically have consisted of
advances from the FHLB of Des Moines.  Such advances may be made pursuant to
different credit programs, each of which has its own interest rate and range of
maturities.  Federal law limits an institution's borrowings from the FHLB to 20
times the amount paid for capital stock in the FHLB, subject to regulatory
collateral requirements.  At June 30, 1999, the Bank had $29.5 million in
advances from the FHLB.  The Bank has the ability to purchase additional capital
stock from the FHLB. For additional information regarding the term to maturity
on FHLB advances, see Note 6 of the Notes to Consolidated Financial Statements.

     The following tables set forth the maximum month-end balance and average
balance of FHLB advances for the periods indicated, as well as the amount of
such advances and the weighted average interest rate at the dates indicated.


                                           Years Ended June 30,
                                       ----------------------------
                                         1999      1998      1997
                                       --------  --------  --------
                                              (In Thousands)

Maximum Balance:
----------------
  FHLB advances...................      $43,450   $19,500   $10,750

Average Balance:
----------------
  FHLB advances...................      $33,837   $12,672   $ 9,154



                                                 At June 30,
                                        ---------------------------
                                          1999     1998      1997
                                        -------   -------   -------
                                              (In Thousands)

  FHLB advances...................      $29,450   $19,500   $10,750
                                        =======   =======   =======

  Weighted average interest rate..         5.43%     5.65%     5.75%

Service Corporation Activities

     As a federally chartered savings association, Community Bank is permitted
by OTS regulations to invest up to 2% of its assets, or approximately $3.0
million at June 30, 1999, in the stock of, or loans to, service corporation
subsidiaries.  Community may invest an additional 1% of its assets in service
corporations where such additional funds are used for inner-city or community
development purposes and up to 50% of its total capital in conforming loans to
service corporations in which it owns more than 10% of the capital stock.  In
addition to investments in service corporations, federal associations are
permitted to invest an unlimited amount in operating subsidiaries engaged solely
in activities in which a federal association may engage.  At June 30, 1999,
Community Bank had one subsidiary, CBES Service Corporation ("CBES").  CBES was
established in March 1993 for the purpose of offering credit life, health and
accident insurance to its customers.  At June 30, 1999, the Bank's investment in
CBES was $1,000.  Also, for the fiscal year ended June 30, 1999, CBES had no
pre-tax income.

                                   REGULATION

General

     Community Bank is a federally chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the U.S.
Government.  Accordingly, the Bank is subject to broad federal regulation and
oversight extending to all its operations.  The Bank is a member of the FHLB of
Des Moines and is subject to certain limited regulation by the Federal Reserve
Board.  As the savings and loan holding company of the Bank, the Company

                                       24
<PAGE>

also is subject to federal regulation and oversight. The purpose of the
regulation of the Company and other holding companies is to protect subsidiary
savings and loan associations. The Bank is a member of the SAIF. The deposits of
the Bank are insured by the SAIF of the FDIC. As a result, the FDIC has certain
regulatory and examination authority over the Bank.

     Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

Federal Regulation of Savings Associations

     The OTS has extensive authority over the operations of savings and loan
associations.  As part of this authority, the Bank is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS and the
FDIC.  The last regular OTS and FDIC examinations of the Bank were as of March
1998 and April 1991, respectively.  Such examinations did not result in any
material changes to the operations, personnel or finances of the Bank.  When
these examinations are conducted by the OTS and the FDIC, the examiners may
require the Bank to provide for higher general or specific loan loss reserves.

     All savings associations are subject to a semi-annual assessment, based
upon the savings and loan association's total assets.  The Bank's OTS assessment
for the fiscal year ended June 30, 1999, was approximately $37,991.

     The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the Holding
Company.  This enforcement authority includes, among other things, the ability
to assess civil money penalties, to issue cease-and-desist or removal orders and
to initiate injunctive actions.  In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices.  Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS.  Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.

     In addition, the investment, lending and branching authority of the Bank is
prescribed by federal laws, and regulations, and it is prohibited from engaging
in any activities not permitted by such laws and regulations.  For example, no
savings institution may invest in non-investment grade corporate debt
securities.  In addition, the permissible level of investment by federal
associations in loans secured by non-residential real property may not exceed
400% of total capital, except with approval of the OTS.  Federal savings and
loan associations are also generally authorized to branch nationwide.  The Bank
is in compliance with the noted restrictions.

     OTS regulations limit a thrift institution's loans to one borrower to the
greater of $500,000 or 15% of unimpaired capital and surplus (except for loans
fully secured by certain readily marketable collateral, in which case this limit
is increased to 25% of unimpaired capital and surplus).  At June 30, 1999, the
Bank's lending limit under this restriction was approximately $4.6  million.

     The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits.  Any
institution which fails to comply with these standards must submit a capital
compliance plan.  A failure to submit a plan or to comply with an approved plan
will subject the institution to further enforcement action.  The OTS and the
other federal banking agencies have also adopted additional guidelines on asset
quality and earnings standards, which are designed to enhance early
identification and resolution of problems and problem assets.

Insurance of Accounts and Regulation by the FDIC

     Deposit Insurance. The FDIC is an independent federal agency that insures
deposits of banks and thrift institutions up to certain specified limits and
regulates such institutions for safety and soundness.  The FDIC administers two
separate insurance funds, the Bank Insurance Fund ("BIF") for commercial banks
and state savings banks, and the SAIF for savings associations such as the Bank
and banks that have acquired deposits from savings associations. The FDIC is
required to maintain designated levels of reserves in each fund.

                                       25
<PAGE>

     Assessments. The FDIC is authorized to establish separate annual assessment
rates for deposit insurance for members of the BIF and members of the SAIF. The
FDIC may increase assessment rates for either fund if necessary to restore the
fund's ratio of reserves to insured deposits to the target level within a
reasonable time, and may decrease these rates if the target level has been met.
The FDIC has established a risk-based assessment system for both SAIF and BIF
members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital levels, and the FDIC's level of supervisory
concern about the institution.

     In 1996, federal legislation was enacted to recapitalize the SAIF and
eliminate the significant premium disparity between the BIF and the SAIF. Under
that law, the Bank and other institutions with SAIF-insured deposits were
charged a one-time special assessment equal to $0.657 per $100 of assessable
deposits at March 31,1995. The Bank recognized this special assessment as a
charge to noninterest expense of $441,000 (or $282,240 when adjusted for taxes)
during the three-month period ended September 30, 1996. The assessment was fully
deductible for both federal and state income tax purposes.  Assessment rates for
regular ongoing, deposit insurance premiums currently range from 0.0% of
deposits for an institution in the highest category (i.e., well-capitalized and
financially sound, with no more than a few minor weaknesses) to 0.27% of
deposits for an institution in the lowest category (i.e., undercapitalized and
substantial supervisory consent).  The Bank's assessment rate for deposit
insurance was reduced to 0.0% of deposits beginning on January 1, 1997.  The
FDIC is authorized to raise the assessment rates as necessary to maintain the
required reserve ratio of 1.25%, and both the BIF and the SAIF currently satisfy
the reserve ratio requirement.  The annual rate of assessments on SAIF-
assessable deposits for the payments on the FICO bonds was 0.0648% for the semi-
annual period beginning on January 1, 1997; 0.0630% for the semi-annual period
beginning on July 1, 1997; and 0.0622% currently.  The 1996 law also provides
for the merger of the SAIF and the BIF by 1999, but not until such time as bank
and thrift charters are combined; legislation combining such charters has not
yet been enacted. Until the charters are combined, savings associations with
SAIF deposits may not transfer deposits to the BIF without paying various exit
and entrance fees, and SAIF institutions will continue to pay higher FICO
assessments. Such exit and entrance fees need not be paid if a SAIF institution
converts to a bank charter or merges with a bank, as long as the resulting bank
continues to pay applicable insurance assessments to the SAIF, and as long as
certain other conditions are met.

     While the legislation has reduced the disparity between premiums paid on
BIF deposits and SAIF deposits, and has relieved the thrift industry of a
portion of the contingent liability represented by the FICO bonds, the premium
disparity between SAIF-insured institutions, such as the Bank, and BIF-insured
institutions may continue in the future.

Regulatory Capital Requirements

     Federally insured savings associations, such as the Bank, are required to
maintain a minimum level of regulatory capital.  The OTS has established capital
standards, including a tangible capital requirement, a leverage ratio (or core
capital) requirement and a risk-based capital requirement applicable to such
savings associations.  Generally, these capital requirements must be generally
as stringent as the comparable capital requirements for national banks. The OTS
is also authorized to impose capital requirements in excess of these standards
on individual associations on a case-by-case basis.

     The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation).  Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income.  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 unrealized
loss on investments and mortgage-backed securities is excluded from the
regulatory capital calculation.  At June 30, 1999, the Bank had no intangible
assets and no valuation allowance.

     The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries.  In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks 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.  For

                                       26
<PAGE>

excludable subsidiaries the debt and equity investments in such subsidiaries are
deducted from assets and capital. The Bank has one service corporation
subsidiary.

     At June 30, 1999, the Bank had tangible capital of $13.5 million, or 8.9%
of adjusted total assets, which is approximately $11.2 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date.

     The capital standards also require core capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally
consists of tangible capital plus certain intangible assets, including a limited
amount of purchased credit card relationships and purchased mortgage servicing
rights. As a result of the prompt corrective action provisions of FDICIA,
however, a savings association must maintain a core capital ratio of at least 4%
to be considered adequately capitalized unless its supervisory condition is such
to allow it to maintain a 3% ratio. At June 30, 1999, the Bank had no
intangibles which were subject to these tests.

     At June 30, 1999, the Bank had core capital equal to $13.5 million, or 8.9%
of adjusted total assets, which is $7.5 million above the minimum leverage ratio
requirement of 4% as in effect on that date.

      The OTS risk-based requirement requires savings associations to have total
capital 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 June 30, 1999, the Bank had
$927,000 of general loan valuation allowances, which was less than 1.25% of
risk-weighted assets.

     Certain exclusions from capital and assets are required to be made for the
purpose of calculating total 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 $46,000
excluded from capital and assets at June 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, ranging
from 0% to 100%, based on the risk inherent in the type of asset.  For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless the
loan amount in excess of such ratio is insured by an insurer approved by the
Fannie Mae or Freddie Mac.

     On June 30, 1999, the Bank had total risk based capital of $14.4 million
(including approximately $13.5 million in core capital and $927,000 in
qualifying supplementary capital) and risk-weighted assets of $110.4 million
(with no converted off-balance sheet assets); or total capital of 13.0% of risk-
weighted assets.  This amount was $5.6 million above the 8% requirement in
effect on that date.

     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 a 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.  Any
savings association with less than $300 million in assets and a total risk-based
capital ratio in excess of 12% is exempt from this requirement unless the OTS
determines otherwise.

                                       27
<PAGE>

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.

Prompt Corrective Regulatory Action

     Under the OTS Prompt Corrective Action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized.  A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 core risk-based capital ratio of
less than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized," and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized."  Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions.  The OTS may also take any
one of a number of discretionary supervisory actions, including the issuance of
a capital directive and the replacement of senior executive officers and
directors.

     At June 30, 1999, the Bank was categorized as "well capitalized," meaning
that the Bank's total risk-based capital ratio exceeded 10.0%, Tier I risk-based
capital ratio exceeded 6.0%,  leverage capital ratio exceeded 5.0%, and the Bank
was not subject to a regulatory order, agreement or directive to meet and
maintain a specific capital level for any capital measure.

Limitations on Dividends and Other Capital Distributions

     OTS regulations applicable to the Bank governed capital distributions by
savings institutions, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt and
other transactions charged to the capital account of a savings institution to
make capital distributions.  Generally, the regulations create a safe harbor for
specified levels of capital distributions for institutions meeting at least
their minimum capital requirements, so long as such institutions notify the OTS
and receive no objection to the distribution from the OTS.  Institutions and
distributions that do not qualify for the safe harbor are required to obtain
prior OTS approval before making any capital distributions.

     Pursuant to a recent revision to these regulations, effective April 1,
1999, a "well capitalized" savings association, such as the Bank, will be
permitted to make capital distributions during a calendar year in an amount up
to the savings association's net income for the year plus the savings
association's retained net income for the preceding two years, without filing an
application for approval of the capital distribution with the OTS.  However, a
"well capitalized" savings association must provide 30 days written notice to
the OTS prior to making the distribution as long as the savings association is a
subsidiary of a savings and loan holding company.

                                       28
<PAGE>

Liquidity

     All savings and loan associations, including the Bank, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less.  This liquid asset ratio requirement may
vary from time to time (between 4% and 10%) depending upon economic conditions
and savings flows of all savings and loan associations.  At the present time,
the minimum liquid asset ratio is 5%.

     In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term U.S. Treasury obligations) currently
must constitute at least 1% of the Bank's average daily balance of net
withdrawable deposit accounts and current borrowings.  Penalties may be imposed
upon associations for violations of either liquid assets ratio requirement.  At
June 30, 1999, the Bank was in compliance with both requirements, with an
overall liquid assets ratio of 7.69% and a short-term liquid assets ratio of
7.69%.

Accounting

     An OTS policy statement applicable to all savings and loan associations
clarifies and re-emphasizes that the investment activities of a savings and loan
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.  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 OTS has adopted an amendment to its accounting regulations, which may
be made more stringent than generally accepted accounting principles by the OTS,
to require that transactions be reported in a manner that best reflects their
underlying economic substance and inherent risk and that financial reports must
incorporate any other accounting regulations or orders prescribed by the OTS.
The Bank is in compliance with these amended rules.

Qualified Thrift Lender Test

     All savings and loan 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 and loan association to have at least
65% of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis.  Such assets primarily consist of residential housing related loans and
investments.  At June 30, 1999, the Bank met the test and has always met the
test since its effectiveness.

     Any savings and loan association that fails to meet the QTL test must
convert to a national bank charter, unless it requalifies as a QTL and
thereafter remains a QTL.  If an association does not requalify and converts to
a national bank charter, it must remain SAIF-insured until the FDIC permits it
to transfer to the BIF.  If such an association has not yet requalified or
converted to a national bank, its new investments and activities are limited to
those permissible for both a savings and loan association and a national bank,
and it is limited to national bank branching rights in its home state.  In
addition, the Bank is immediately ineligible to receive any new FHLB borrowings
and is subject to national bank limits for payment of dividends.  If such
association has not requalified or converted to a national bank within three
years after the failure, it must divest of all investments and cease all
activities not permissible for a national bank.  In addition, it must repay
promptly any outstanding FHLB borrowings, which may result in prepayment
penalties.  If any association that fails the QTL test is controlled by a
holding company, then within one year after the failure, the holding company
must register as a bank holding company and become subject to all restrictions
on bank holding companies.  See "- Holding Company Regulation."

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
the CRA.  The CRA

                                       29
<PAGE>

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.  Due to the heightened attention being given to the CRA in the
past few years, the Bank may be required to devote additional funds for
investment and lending in its local community.  The Bank was examined for CRA
compliance in March 1998 and received a rating of "outstanding."

Transactions with Affiliates

     Generally, transactions between a savings and loan association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
Bank as transactions with non-affiliates.  In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the Bank's capital.  Affiliates of the Bank include the Company and any company
which is under common control with the Bank.  In addition, a savings and loan
association may not lend to any affiliate engaged in activities not permissible
for a bank holding company or acquire the securities of most affiliates.

     Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS.  These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests.  Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.  However, recent regulations now permit executive officers and
directors to receive the same terms through benefit or compensation plans that
are widely available to other employees, as long as the director or executive
officer is not given preferential treatment compared to the other participating
employees.

Holding Company Regulation

     The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS.  As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS.  In addition, the OTS has enforcement authority over the Company and
its non-savings and loan association subsidiaries which also permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings and loan association.

     As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. If the Company acquires control of another
savings and loan association as a separate subsidiary, it would become a
multiple savings and loan holding company, and the activities of the Company and
any of its subsidiaries (other than the Bank or any other SAIF-insured savings
and loan association) would become subject to such restrictions unless such
other associations each qualify as a QTL and were acquired in a supervisory
acquisition.

     If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries.  In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies.  The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company.  See "-
Qualified Thrift Lender Test."

     The Company must obtain approval from the OTS before acquiring control of
any other SAIF-insured association.  Such acquisitions are generally prohibited
if they result in a multiple savings and loan holding company controlling
savings and loan associations in more than one state.  However, such interstate
acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing savings and loan association.

                                       30
<PAGE>

Federal Securities Law

     The stock of the Company will be registered with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").  The Company will be subject to the information,
proxy solicitation, insider trading restrictions and other requirements of the
SEC under the Exchange Act.

     Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.

Federal Reserve System

     The Federal Reserve Board requires all depository institutions to maintain
noninterest-bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At June 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 "- Liquidity."

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

Federal Home Loan Bank System

     The Bank is a member of the FHLB of Des Moines, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings and loan
associations.  Each FHLB serves as a reserve or central bank for its members
within its assigned region.  It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System.  It makes  loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB.  These policies and procedures are
subject to the regulation and oversight of the Federal Housing Finance Board.
All advances from the FHLB are required to be fully secured by sufficient
collateral as determined by the FHLB.  In addition, all long-term advances are
required to provide funds for residential home financing.

     As a member, the Bank is required to purchase and maintain stock in the
FHLB of Des Moines.  At June 30, 1999, the Bank had $2.2 million (at cost) of
FHLB stock, which was in compliance with this requirement.  In past years, the
Bank has received substantial dividends on its FHLB stock.  Over the past five
fiscal years such dividends have averaged 7.0% and were 6.2% for fiscal 1999.
For the fiscal year ended June 30, 1999, dividends paid by the FHLB of Des
Moines to the Bank totaled approximately $116,000, which constitutes a $60,371
increase over the amount of dividends received in fiscal year 1998.  No
assurance can be given that such dividends will continue in the future at such
levels.

     Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings and loan associations and to contribute to low-
and moderately priced housing programs through direct loans or interest
subsidies on advances targeted for community investment and low- and moderate-
income housing projects.  These contributions have affected adversely the level
of FHLB dividends paid and could continue to do so in the future.  These
contributions could also have an adverse effect on the value of FHLB stock in
the future.  A reduction in value of the Bank's FHLB stock may result in a
corresponding reduction in the Bank's capital.

                                       31
<PAGE>

Federal and State Taxation

     Federal Taxation.  Savings associations such as the Bank that meet certain
definitional tests relating to the composition of assets and other conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are
permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes.  The amount of the bad
debt reserve deduction for "non-qualifying loans" is computed under the
experience method.  For tax years beginning before December 31, 1995, the amount
of the bad debt reserve deduction for "qualifying real property loans"
(generally, loans secured by improved real estate) may be computed under either
the experience method or the percentage of taxable income method (based on an
annual election).  If a savings association elected the latter method, it could
claim, each year, a deduction based on a percentage of taxable income, without
regard to actual bad debt experience.

     Under the experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings association over a period of years.

     The percentage of taxable income method has been repealed for years
beginning after December 31, 1995, and "large" associations, i.e., the quarterly
average of the association's total assets or of 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 balance 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 June 30, 1999, the Bank's bad debt reserve subject to
recapture over a six-year period totaled approximately $81,000.

     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.

     In addition to the regular federal income tax, corporations, including
savings associations such as the Bank, generally are subject to a minimum tax.
An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption.  The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative minimum taxable income.  For taxable years
beginning after 1986 and before 1996, corporations, including savings
associations such as the Bank, are also subject to an environmental tax equal to
0.12% of the excess of alternative minimum taxable income for the taxable year
(determined without regard to net operating losses and the deduction for the
environmental tax) over $2 million.

     To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the Bank's supplemental reserves for
losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses).  As of June 30, 1999, the Bank's excess for tax purposes totaled
approximately $1,700,000.

                                       32
<PAGE>

     The Company and its subsidiary file consolidated federal income tax returns
on a fiscal year basis using the accrual method of accounting.  Savings and loan
associations, such as the Bank, that file federal income tax returns as part of
a consolidated group are required by applicable Treasury regulations to reduce
their taxable income for purposes of computing the percentage bad debt deduction
for losses attributable to activities of the non-savings and loan association
members of the consolidated group that are functionally related to the
activities of the savings association member.

     The Bank has not been audited by the IRS recently with respect to federal
income tax returns.  In the opinion of management, any examination of still open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of the Bank.

     State Taxation. The Missouri Corporation Income Tax Act provides for an
exemption from the Missouri Corporation Income Tax for mutual savings banks and
for banking corporations, which includes stock associations (e.g., the Bank).
However, this exemption does not extend to non-banking entities such as the
Company.  The non-banking subsidiaries of the Bank (as well as the Company) are
subject to the Missouri Corporate Income Tax based on their Missouri taxable
income, as well as franchise taxes.  The Missouri Corporation Income Tax applies
at graduated rates from 4% upon the first $25,000 of Missouri taxable income to
8% on all Missouri taxable income in excess of $200,000.  For these purposes,
"Missouri taxable income" means net income which is earned within or derived
from sources within the State of Missouri, after adjustments permitted under
Missouri law including a federal income tax deduction and an allowance for net
operating losses, if any.  In addition, the Bank became subject to the Missouri
Shares Tax after the Conversion, which will be imposed on the assessed value of
the Bank's stock.  The formula for deriving the assessed value is to calculate
15% of the sum of (i) 20% of a corporation's capitalized earnings, plus (ii) 80%
of a corporation's taxable stockholders' equity, and to subtract from that
amount 50% of a corporation's real and personal property assessment.  Other
various items may also be subtracted in calculating a corporation's capitalized
earnings.

     Delaware Taxation.  As a Delaware holding company, the Company is exempted
from Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of Delaware.  The Company is also subject to
an annual franchise tax imposed by the State of Delaware.

Employees
---------

     At June 30, 1999, the Bank had a total of 69 full-time and 15 part-time
employees.  The Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be excellent.

Executive Officers of the Bank and the Company Who Are Not Directors
--------------------------------------------------------------------

     Dennis D. Hartman.  Mr. Hartman, age 45, has served as the Bank's Chief
Executive Officer since July 1, 1999.  In that capacity, he is responsible for
overseeing the day to day operations of the Bank.  Previously, Mr. Hartman was
the Chief Financial Officer and Manager of the Bank's Accounting Department.  In
that position, he was responsible for the supervision of the Accounting
Department and reporting to the regulatory authorities, and for overseeing the
Bank's asset/liability management program.  Mr. Hartman joined the Bank in 1978.

     Deryl R. Goettling.  Mr. Goettling, age 50, has served as the Bank's Chief
Lending Officer since July 1, 1999.  Previously, Mr. Goettling served as the
Manager of the Bank's Mortgage Loan Department.  In that capacity he was
responsible for the supervision of all mortgage lending operations of the Bank.
Mr. Goettling joined the Bank in 1986.

     Margaret E. Teegarden.  Ms. Teegarden, age 50, is the Manager of the Bank's
Savings Department, responsible for managing the Bank's savings department.  Ms.
Teegarden joined the Bank in 1978.

     James V. Alderson.  Mr. Alderson, age 53, has served as the Manager of the
Consumer Loan Department since June 1994, responsible for supervision of the
Bank's consumer lending operations.  Mr. Alderson has been with the Bank since
1990 and served as a loan officer until June 1994.

                                       33
<PAGE>

     Larry E. Hermreck.  Mr. Hermreck, age 59, served as the Bank's Chief
Executive Officer until June 30, 1999.  Mr. Hermreck is currently serving in an
advisory capacity.  Mr. Hermreck has been with the Bank for the past 26 years,
and served as Chief Executive Officer for 21 years.

     Robert F. Kirk.  Mr. Kirk, age 52, has served as the Chief Financial
Officer and Manager of the Bank's Accounting Department since July 1, 1999.  He
is responsible for the supervision of the Accounting Department and reporting to
regulatory authorities.  He is also responsible for overseeing the Bank's
asset/liability management program.  Previously Mr. Kirk served as the
Controller of the Bank.  Mr. Kirk joined the Bank in 1996.

Item 2.  Description of Property
--------------------------------

     The Bank conducts its business through its main office, located in
Excelsior Springs, Missouri and two branch offices, one located in Kearney,
Missouri and the other in Liberty, Missouri.  The Bank's Liberty branch office
is leased.  The following table sets forth information relating to the Bank's
offices as of June 30, 1999.  The total net book value of the Bank's premises
and equipment (including land, buildings and leasehold improvements and
furniture, fixtures and equipment) at June 30, 1999 was approximately $2.6
million.

                                                   Total
                                                Approximate
                                     Date         Square     Net Book Value at
       Location                    Acquired       Footage      June 30, 1999
------------------------------     --------     -----------  ------------------
                                                              (In thousands)

Main Office:                        1983          10,000             $1,137
1001 North Jesse James Road
Excelsior Springs, Missouri 64024

Branch Offices:                     1998           2,725             $1,104
601 N. Country
Kearney, Missouri  64020

913 Liberty Drive                 Leased           7,150                358
Liberty, Missouri 64020       (Expires March
                                   2003)

     Community Bank believes that its current facilities are adequate to meet
the present and foreseeable needs of the Bank and the Holding Company.

Item 3.  Legal Proceedings
--------------------------

     The Company is involved, from time to time, as plaintiff or defendant in
various legal actions arising in the normal course of their businesses.  While
the ultimate outcome of these proceedings cannot be predicted with certainty, it
is the opinion of management, after consultation with counsel representing the
Company in the proceedings, that the resolution of these proceedings should not
have a material effect on the Company's financial position or results of
operations on a consolidated basis.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1999.

                                    PART II
                                    -------

Item 5.  Market for the Registrant's Common Stock and Related Security Holder
-----------------------------------------------------------------------------
Matters
--------

     Page 41 of the attached 1999 Annual Report to Shareholders is herein
incorporated by reference.

                                       34
<PAGE>

Item 6.   Management's Discussion and Analysis of Financial Condition and
-------------------------------------------------------------------------
Results of Operations
---------------------

     Pages 5 to 14 of the attached 1999 Annual Report to Shareholders are herein
incorporated by reference.

Item 7.  Financial Statements
-----------------------------

     Pages 15 to 40 of the attached 1999 Annual Report to Shareholders are
herein incorporated by reference.

Item 8.   Changes in and Disagreements With Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure
--------------------

     There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.

                                    PART III
                                    --------

Item 9.  Directors and Executive Officers of the Registrant
-----------------------------------------------------------

     Information concerning Directors of the Registrant is incorporated herein
by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on October 28, 1999.

Item 10.  Executive Compensation
--------------------------------

     Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders scheduled to be held on October 28, 1999.

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

     Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
October 28, 1999.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

     Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders scheduled to be held on October 28, 1999.

Item 13.  Exhibits List and Reports on Form 8-K
------------------------------------------------

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

     The following information appearing in the Registrant's Annual Report to
Shareholders for the year ended June 30, 1999, is incorporated by reference in
this Form 10-KSB Annual Report as Exhibit 13.
<TABLE>
<CAPTION>
                                                                         Page in
                                                                         Annual
          Annual Report Section                                          Report
          ---------------------                                          -------
<S>                                                                      <C>
Report of Independent Auditors........................................        15

Consolidated Balance Sheets at June 30, 1999 and 1998.................        16

Consolidated Statements of Earnings for the Years ended June 30, 1999,
 1998 and 1997........................................................        17
</TABLE>

                                       35
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                      <C>
Consolidated Statements of Stockholders' Equity for the Years ended
   June 30, 1999, 1998 and 1997...........................................    18

Consolidated Statements of Cash Flows for the Years ended June 30,
 1999, 1998 and 1997......................................................    19

Notes to Consolidated Financial Statements................................    21
</TABLE>

     (a)(2)  Financial Statement Schedules - All financial statement schedules
             -----------------------------
have been omitted as the information is either inapplicable or not required
under the related instructions.

     (a)(3)  Exhibits - The following exhibits are either filed or attached as
             --------
part of this report or are incorporated herein by reference.


                                                                 Reference to
 Regulation                                                     Prior Filing or
 S-B Exhibit                                                    Exhibit Number
   Number                         Document                      Attached Hereto
-------------  -----------------------------------------------  ---------------

      2        Plan of acquisition, reorganization,                  None
               arrangement, liquidation or succession

     3.1       Certificate of Incorporation                            *

     3.2       Bylaws                                                  *

      4        Instruments defining the rights of                      *
               security holders, including indentures

      9        Voting trust agreement                                None

    10.1       Proposed Stock Option and Incentive Plan                *

    10.2       Proposed Recognition and Retention Plan                 *

    10.3       Employment Agreement with Larry E. Hermreck,            *
               Daryl R. Goettling, Margaret E. Teegarden and
               Dennis D. Hartman.

    10.4       Employee Stock Ownership Plan                           *

    10.5       Director Emeritus Agreements                            *

    10.6       Salary Continuation Agreement                           *

    10.7       Severance Agreements with Larry Hermreck,             10.7
               Deryl R. Goettling, Margaret E. Teegarden and
               Dennis D. Hartman

     11        Statement re: computation of per share earnings       None

     12        Statement re: computation or ratios               Not required

                                       36
<PAGE>

                                                                 Reference to
 Regulation                                                     Prior Filing or
 S-B Exhibit                                                    Exhibit Number
   Number                         Document                      Attached Hereto
-------------  -----------------------------------------------  ---------------
     13        Annual Report to Security Holders                      13

     16        Letter re: change in certifying accountant            None

     18        Letter re: change in accounting principles            None

     21        Subsidiaries of Registrant                             21

     22        Published report regarding matters                    None
               submitted to vote of security holders

     23        Consent of experts and counsel                         23

     24        Power of Attorney                                 Not Required

     27        Financial Data Schedule                                27

     28        Information from reports furnished to                 None
               State insurance regulatory authorities

     99        Additional exhibits                                   None

___________________

     *Filed on June 21, 1996, as exhibits to the Registrant's Form SB-2
registration statement (Registration No. 333-6649), pursuant to the Securities
Act of 1933.  All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.

     (b)  Reports on Form 8-K - No Form 8-K was filed during the last quarter of
          -------------------
the year covered by this Form 10-KSB.

                                       37
<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.

                                          CBES BANCORP, INC.


Date: September 24, 1999                  By: \s\ Dennis D. Hartman
                                              ----------------------
                                              Dennis D. Hartman, Chief Executive
                                               Officer

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



By: \s\ Dennis D. Hartman               By:   \s\ Cecil E. Lamb
    -----------------------------------       -------------------------------
    Dennis D. Hartman, Chief Executive        Cecil E. Lamb, Director
         Officer
      (Principal Executive Officer)

    Date: September 24, 1999            Date: September 24, 1999


By: \s\ Robert F. Kirk                  By:   \s\ Robert McCrorey
    -----------------------------------      --------------------------------
    Robert F. Kirk, Chief Financial          Robert McCrorey, Director
         Officer
      (Principal Accounting and
        Financial Officer)

    Date: September 24, 1999            Date: September 24, 1999


By: \s\ Richard Cox                     By:   \s\ Rodney Rounkles
    -----------------------------------      --------------------------------
    Richard Cox, Director                    Rodney Rounkles, Director

    Date: September 24, 1999            Date: September 24, 1999


By: \s\ Robert L. Lalumondier
    -----------------------------------
    Robert L. Lalumondier, Director

    Date: September 24, 1999

                                       38