EXHIBIT 13










                              HCB BANCSHARES, INC.

                               2003 ANNUAL REPORT




<PAGE>



To our Shareholders:

As a community bank, we value our contributions to the communities and customers
that we  serve.  Our  commitment  is to build  long-term  relationships  through
periods both  prosperous  and  difficult.  In light of a weakening  economy,  we
continue our focus on operating a well-capitalized bank to benefit those that we
serve.

Although the Bank's  performance  and earnings  were not equal to our peers,  we
have achieved major success in changing the direction of your company during the
fiscal year ended June 30, 2003.

Beginning with the sale of our Monticello  Branch in July 2002 and the selection
of a new  management  team in May 2003,  your Board of Directors has given a new
vision to your company.  This vision  includes a desire to bring  excellent core
banking  services  to the  markets  that we serve and  reviewing  all avenues to
enhance shareholder value.

Executive  Management  and the Board of Directors  have  identified key areas of
concern and have begun to concentrate on making necessary  changes.  Those areas
include, but are not limited to, expense reduction for an immediate  improvement
in  profits,  improving  asset  quality to reduce  future loan  losses,  and the
restructure  of the  balance  sheet in an attempt to  improve  the net  interest
margin.

From our home  office in Camden to our banks in Fordyce,  Sheridan,  and Bryant,
our staff  understands  the needs of our  customers  and has the ability to meet
those  needs.  You can be assured  that we will  continue  to strive to maximize
shareholder value and maintain our market positions.

As HEARTLAND  continues its evolution,  we continue to assess everything that we
do or not do by a major test of  measurement:  Is it in the best interest of our
shareholders,  customers, and staff? If it is in the best interest of all three,
it is in the best interest of each one and each will benefit from it.

The Board of Directors and  Executive  Management  thank you for your  continued
support  and give a special  thanks to the Bank staff,  a group of hard  working
dedicated bankers that know their customers and know how to achieve results.  We
look forward to serving you during the next year.

Sincerely,

/s/ Charles T. Black

Charles T. Black
President and Chief Executive Officer

<PAGE>



                                TABLE OF CONTENTS

HCB Bancshares, Inc.........................................................  3
Market for Common Stock and Related Stockholder Matters.....................  4
Selected Consolidated Financial and Other Data..............................  5
Quarterly Financial Data....................................................  7
Management's Discussion and Analysis of Financial
 Condition and Results of Operations........................................  8
Consolidated Financial Statements:
   Independent Auditors' Report - BKD, LLP.................................. 19
   Independent Auditors' Report - Deloitte & Touche, LLP.................... 20
   Consolidated Statements of Financial Condition........................... 21
   Consolidated Statements of Income and Comprehensive Income............... 22
   Consolidated Statements of Stockholders' Equity.......................... 24
   Consolidated Statements of Cash Flows.................................... 25
   Notes to Consolidated Financial Statements............................... 27
Corporate Information....................................................... 46

                              HCB BANCSHARES, INC.


     HCB Bancshares,  Inc. ("Bancshares") was incorporated under the laws of the
State of Oklahoma in December 1996 at the direction of the Board of Directors of
HEARTLAND  Community  Bank (the  "Bank") for the purpose of serving as a savings
institution  holding  company of the Bank,  upon the conversion of the Bank from
mutual to stock form, which was completed on April 30, 1997 (the  "Conversion").
The  accompanying  consolidated  financial  statements  include the  accounts of
Bancshares and the Bank and are collectively  referred to as the "Company".  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

     Prior  to the  Conversion,  Bancshares  did  not  engage  in  any  material
operations.  Bancshares  has no  significant  assets other than the  outstanding
capital stock of the Bank, a portion of the net proceeds of the  Conversion  and
notes  receivable,  one of which  is from  the  Employee  Stock  Ownership  Plan
("ESOP").  Bancshares'  principal  business is the business of the Bank. At June
30,  2003,  the Company had total assets of $251.0  million,  deposits of $152.0
million, and stockholders' equity of $28.5 million, or 11.3% of total assets.

     As of June 30, 2003,  the Bank operated  through five full  service-banking
offices located in Camden (2), Fordyce, Bryant, and Sheridan,  Arkansas.  During
July 2002 the Bank sold its Monticello branch.

     As a  federally  chartered  savings  institution,  the Bank is  subject  to
extensive  regulation  by the OTS.  The  Bank's  lending  activities  and  other
investments must comply with various federal  regulatory  requirements,  and the
OTS  periodically  examines  the Bank for  compliance.  The Bank's  deposits are
insured up to the  maximum  limits by the  Savings  Association  Insurance  Fund
("SAIF") administered by the Federal Deposit Insurance Corporation ("FDIC"). The
FDIC also has the authority to conduct special examinations.  The Bank must file
reports with OTS describing  its activities and financial  condition and is also
subject to certain  reserve  requirements  promulgated  by the  Federal  Reserve
Board.

                                       3
<PAGE>

                             MARKET FOR COMMON STOCK
                         AND RELATED STOCKHOLDER MATTERS

     Bancshares  common stock began trading on the Nasdaq National Market on May
7, 1997,  under the symbol  "HCBB."  Effective  February 2, 1999, the Bancshares
common  stock was  delisted and ceased  trading on the Nasdaq  National  Market.
Bancshares  common  stock  began  trading on the OTC  Bulletin  Board  effective
September  16,  1999 and was listed on the  Nasdaq  Small-Cap  Market  effective
November 22, 1999. At June 30, 2003,  there were 1,461,199  shares of the common
stock outstanding. For the purpose of this disclosure,  shares held in the Stock
Option Trust are considered to be outstanding,  however, for financial reporting
purposes,  such shares are reported as treasury shares.  At June 30, 2003, there
were 520  stockholders  of record  according  to the  Company's  transfer  agent
listing.  Following  are the high and low bid  prices,  by  fiscal  quarter,  as
reported on the Nasdaq  Small-Cap  Market July 1, 2001 to June 30, 2003, as well
as the dividends paid during such quarters.


                                     High           Low    Dividends Per Share
                                     ----           ---    -------------------
              Fiscal 2003
                 First Quarter     $ 15.59        $ 14.00        $ 0.08
                 Second Quarter      16.51          15.05          0.09
                 Third Quarter       17.25          15.93          0.09
                 Fourth Quarter      18.35          16.50          0.09

              Fiscal 2002
                 First Quarter     $ 13.00        $ 11.90        $ 0.06
                 Second Quarter      12.95          12.00          0.07
                 Third Quarter       15.00          12.61          0.07
                 Fourth Quarter      16.70          14.27          0.08


     The stated high and low bid prices  reflect  inter-dealer  prices,  without
retail  mark-up,   markdown  or  commission,   and  may  not  represent   actual
transactions.

     The payment of dividends on common  stock is subject to  determination  and
declaration  by the Board of  Directors  of  Bancshares.  The  payment of future
dividends  will  be  subject  to the  requirements  of  applicable  law  and the
determination  by the Board of  Directors  of  Bancshares  that the net  income,
capital and financial  condition of  Bancshares  and the Bank,  thrift  industry
trends and general  economic  conditions  justify the payment of dividends,  and
there can be no assurance that dividends will continue to be paid in the future.

     Since  Bancshares has no significant  source of income other than dividends
from the Bank,  the payment of dividends  by  Bancshares  can be dependent  upon
receipt of  dividends  from the Bank.  Payment of cash  dividends by the Bank is
limited by certain federal  regulations  under which the Bank may not declare or
pay a cash  dividend  on or  repurchase  any of its  common  stock if the effect
thereof  would cause its  regulatory  capital to be reduced below (1) the amount
required for the liquidation  account  established in connection with the Bank's
conversion to stock form or (2) the regulatory capital  requirements  imposed by
the OTS. In certain circumstances earnings appropriated to bad debt reserves and
deducted  for  federal  income tax  purposes  may not be  available  to pay cash
dividends  without the payment of federal income taxes by the Bank on the amount
of such earnings removed from the reserves for such purposes at the then current
income tax rate.

     Federal regulations impose certain additional limitations on the payment of
dividends and other capital distributions  (including stock repurchases and cash
mergers) by the Bank. Under OTS regulations,  savings  institutions  must submit
notice to the OTS prior to making a capital  distribution  if (a) they would not
be well capitalized after the distribution, (b) the distribution would result in
the  retirement of any of the  institution's  common or preferred  stock or debt
counted as its regulatory  capital,  or (c) the institution is a subsidiary of a
holding company. A savings institution must make application to the OTS to pay a
capital distribution if (x) the institution would not be adequately  capitalized
following the distribution,  (y) the institution's  total  distributions for the
calendar year exceeds the institution's net income for the calendar year to date
plus its net income (less distributions) for the preceding two years, or (z) the
distribution  would  otherwise  violate  applicable  law  or  regulation  or  an
agreement with or condition imposed by the OTS.

                                       4
<PAGE>

                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

<TABLE>
<CAPTION>
                                                                            AT JUNE 30,
                                             ------------------------------------------------------------------------
                                                  2003           2002           2001           2000          1999
                                             -------------   ------------  ------------   ------------   ------------
<S>                                          <C>             <C>           <C>            <C>            <C>
Total assets..............................   $ 251,024,783   $276,425,294  $287,598,650    $291,192,175  $285,396,885
Loans receivable, net.....................     100,779,545    124,176,898   131,651,421     135,626,505   115,162,883
Allowance for loan losses.................       1,605,677      1,628,515     1,446,114       1,231,709     1,329,201
Cash and due from banks...................       3,003,656      3,492,257     3,302,540       3,211,802     3,560,884
Interest-earning savings deposits.........       4,203,320     14,404,572    15,107,481         236,846     1,693,330
Investment securities.....................     129,960,346    118,198,564   120,082,177     132,543,065   147,119,689
Deposits..................................     151,956,504    165,005,183   161,285,179     144,873,071   146,296,598
FHLB advances.............................      69,068,534     82,263,936    91,915,694     115,609,029   104,523,419
Note payable..............................              --             --        80,000         160,000       240,000
Stockholders' equity......................      28,454,987     26,736,288    31,934,334      28,240,550    32,117,560
Number of:
   Real estate loans outstanding..........           1,195          1,517         1,730           1,820         1,709
   Deposit accounts.......................          15,694         18,090        18,538          17,980        18,526
   Offices open...........................               5              6             6               6             6
</TABLE>


<TABLE>
<CAPTION>
                                                                            YEAR ENDED JUNE 30,
                                             ------------------------------------------------------------------------
                                                  2003           2002           2001           2000          1999
                                             -------------   ------------  ------------   ------------   ------------
<S>                                          <C>            <C>           <C>             <C>            <C>
Interest income ..........................   $ 14,416,171   $ 17,916,113   $ 20,078,400    $ 19,808,899    $ 18,274,647
Interest expense .........................      8,229,096     10,823,701     14,079,466      13,099,656      12,093,603
                                             ------------   ------------   ------------    ------------    ------------
Net interest income ......................      6,187,075      7,092,412      5,998,934       6,709,243       6,181,044
Provision for loan and investment losses .        533,000        359,000        296,000              --              --
                                             ------------   ------------   ------------    ------------    ------------
Net interest income after provision
  for loan and investment losses .........      5,654,075      6,733,412      5,702,934       6,709,243       6,181,044
Noninterest income .......................      2,386,685      1,606,460      1,378,612       1,039,622       1,018,654
Noninterest expense ......................      6,890,845      7,113,145      6,929,118       7,304,110       6,847,715
                                             ------------   ------------   ------------    ------------    ------------
Income before income taxes ...............      1,149,915      1,226,727        152,428         444,755         351,983
Income tax provision (benefit) ...........         88,750         61,027       (467,888)       (341,147)        (63,658)
                                             ------------   ------------   ------------    ------------    ------------

Net income ...............................   $  1,061,165   $  1,165,700   $    620,316    $    785,902    $    415,641
                                             ============   ============   ============    ============    ============

Earnings per share:
  Basic...................................   $       0.78    $      0.71   $      0.33     $       0.40    $       0.18
  Diluted.................................           0.73           0.68          0.33             0.40            0.18
Cash dividends declared...................           0.35           0.28          0.24             0.24            0.24

</TABLE>

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                        YEAR ENDED JUNE 30,
                                                         ----------------------------------------------
                                                          2003      2002      2001      2000      1999
                                                         ------    ------    ------    ------    ------
<S>                                                        <C>       <C>       <C>       <C>       <C>
PERFORMANCE RATIOS:
   Return on assets (net income divided
      by average total assets) ....................        0.41%     0.41%     0.21%     0.27%     0.15%
   Return on average equity (net income
      divided by average equity) ..................        3.75      3.82      2.02      2.76      1.14
   Interest rate spread (combined weighted
      average interest rate earned less combined
      weighted average interest rate cost) ........        2.14      2.25      1.72      2.12      1.81
   Net interest margin (net interest income
      divided by average interest-earning assets)..        2.54      2.66      2.19      2.49      2.34
   Ratio of average interest-earning assets
      to average interest-bearing liabilities .....      111.83    110.06    108.91    107.68    111.55
   Ratio of noninterest expense to average
      total assets ................................        2.69      2.52      2.38      2.55      2.48

ASSET QUALITY RATIOS:
   Nonperforming assets to total assets
      at end of period ............................        1.50      0.92      0.48      0.33      0.21
   Nonperforming loans to total loans
      at end of period ............................        3.18      1.44      0.81      0.64      0.46
   Allowance for loan losses to total
      loans at end of period ......................        1.46      1.22      0.99      0.85      1.08
   Allowance for loan losses to nonperforming
      loans at end of period ......................       45.84     84.91    121.48    133.95    234.84
   Provision for loan losses to total loans
      at end of period ............................        0.48      0.25      0.20        --        --
   Net charge-offs to average loans outstanding ...        0.51      0.11      0.06      0.08      0.13

CAPITAL RATIOS:
   Equity to total assets at end of period ........       11.34      9.67     11.10      9.70     11.25
   Average equity to average assets ...............       11.07     10.81     10.55      9.95     13.19
   Dividend payout ratio/1/ .........................     44.66     40.52     76.46     64.50    142.58
</TABLE>


----------
/1/  Dividend  payout  ratio is the  total  dividends  declared  divided  by net
     income.

                                       6
<PAGE>

                            QUARTERLY FINANCIAL DATA

     The  following  tables  represent  summarized  data  for  each of the  four
quarters in the years ended June 30, 2003 and June 30, 2002.

<TABLE>
<CAPTION>
                                                                       2003
                                                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                             ------------------------------------------------------
                                              FOURTH          THIRD         SECOND          FIRST
                                              QUARTER        QUARTER        QUARTER        QUARTER
<S>                                          <C>           <C>            <C>            <C>
Interest income                              $     3,383   $     3,348    $     3,713    $     3,972
Interest expense                                   1,892         1,945          2,131          2,261
                                             -----------   -----------    -----------    -----------

Net interest income                                1,491         1,403          1,582          1,711
Provision for loan and investment losses             120           120            203             90
                                             -----------   -----------    -----------    -----------

Net interest income after provision
  for loan and investment losses                   1,371         1,283          1,379          1,621
Noninterest income                                   469           386            404          1,128
Noninterest expense                                1,592         1,882          1,664          1,753
                                             -----------   -----------    -----------    -----------

Income (loss) before income taxes                    248          (213)           119            996
Income tax provision (benefit)                        81          (196)           (67)           271
                                             -----------   -----------    -----------    -----------

Net income (loss)                            $       167   $       (17)   $       186    $       725
                                             ===========   ===========    ===========    ===========

Basic earnings (loss) per common share       $      0.11   $     (0.01)   $      0.14    $      0.54

Diluted earnings (loss) per common share            0.10         (0.01)          0.13           0.51

Cash dividends declared per common share            0.09          0.09           0.09           0.08
Weighted average common shares outstanding
  Basic                                        1,387,613     1,366,342      1,356,781      1,343,943
  Diluted                                      1,459,054     1,456,922      1,445,945      1,427,939

</TABLE>

<TABLE>
<CAPTION>
                                                                     2002
                                                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                             --------------------------------------------------------
                                                FOURTH          THIRD        SECOND         FIRST
                                                QUARTER        QUARTER      QUARTER        QUARTER
<S>                                          <C>            <C>           <C>            <C>
Interest income                              $     4,248    $     4,458   $     4,509    $     4,701
Interest expense                                   2,430          2,559         2,796          3,039
                                             -----------    -----------   -----------    -----------

Net interest income                                1,818          1,899         1,713          1,662
Provision for loan and investment losses             140             60            99             60
                                             -----------    -----------   -----------    -----------

Net interest income after provision
  for loan and investment losses                   1,678          1,839         1,614          1,602
Noninterest income                                   401            402           429            375
Noninterest expense                                1,949          1,650         1,799          1,715
                                             -----------    -----------   -----------    -----------

Income before income taxes                           130            591           244            262
Income tax provision (benefit)                       (16)           110            (9)           (24)
                                             -----------    -----------   -----------    -----------

Net income                                   $       146    $       481   $       253    $       286
                                             ===========    ===========   ===========    ===========

Basic earnings per common share              $      0.12    $      0.28   $      0.15    $      0.16

Diluted earnings per common share                   0.12           0.27          0.14           0.15

Cash dividends declared per common share            0.08           0.07          0.07           0.06
Weighted average common shares outstanding
  Basic                                        1,391,685      1,689,348     1,691,522      1,768,494
  Diluted                                      1,489,017      1,774,003     1,762,565      1,843,429

</TABLE>

                                       7
<PAGE>

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

FORWARD-LOOKING STATEMENTS

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

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

SIGNIFICANT ACCOUNTING POLICIES

     The Company's  significant  accounting  policies are set forth in note 1 of
the  consolidated  financial  statements  as of June 30, 2003 which was filed on
Form 10-K. Of these significant  accounting policies,  the Company considers its
policy  regarding  the  allowance  for  loan  losses  to be  its  most  critical
accounting policy,  because it requires management's most subjective and complex
judgments.  In addition,  changes in economic  conditions can have a significant
impact on the  allowance  for loan losses and  therefore  the provision for loan
losses and results of operations. The Company has developed appropriate policies
and  procedures  for  assessing  the adequacy of the  allowance for loan losses,
recognizing  that this process  requires a number of  assumptions  and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future  periods by  changes in  economic  conditions,  the impact of  regulatory
examinations,  and the discovery of information  with respect to borrowers which
is not  known to  management  at the time of the  issuance  of the  consolidated
financial statements.

GENERAL

     The Bank's principal  business consists of attracting savings deposits from
the general public and investing those funds in loans secured by first mortgages
on existing owner-occupied single-family residences in the Bank's primary market
area, commercial and multi-family real estate loans, and consumer and commercial
business loans.  The Bank also maintains a substantial  investment  portfolio of
mortgage-related securities, and nontaxable municipal securities.

     The Bank's net income is dependent  primarily  on its net interest  income,
which  is  the  difference   between   interest  income  earned  on  its  loans,
mortgage-backed  securities and municipal securities portfolio and interest paid
on  customers'  deposits  and other  borrowings.  The  Bank's net income is also
affected  by the  level  of  noninterest  income,  such as  service  charges  on
customers'  deposit  accounts,  net  gains or  losses  on the sale of loans  and
securities  and other fees. In addition,  net income is affected by the level of
noninterest expense, which primarily consists of employee compensation expenses,
occupancy expenses, and other expenses.

     The  financial  condition  and  results of  operations  of the Bank and the
thrift  and  banking  industries  as  a  whole  are  significantly  affected  by
prevailing  economic  conditions,  competition,  and  the  monetary  and  fiscal
policies of governmental  agencies.  Lending activities are influenced by demand
for and supply of credit,  competition  among  lenders and the level of interest
rates in the Bank's market area. The Bank's deposit flows and costs of funds are

                                       8
<PAGE>

influenced  by  prevailing  market  rates of  interest,  primarily  on competing
investments, as well as account maturities and the levels of personal income and
savings in the Bank's market area.

ASSET/LIABILITY MANAGEMENT

     Net interest  income,  the primary  component of the Bank's net income,  is
determined by the difference or "spread"  between the yield earned on the Bank's
interest-earning  assets and the rates paid on its interest-bearing  liabilities
and the relative  amounts of such assets and  liabilities.  Key  components of a
successful  asset/liability strategy are the monitoring and managing of interest
rate  sensitivity  on both  the  interest-earning  assets  and  interest-bearing
liabilities.  It has been the Bank's  historical policy to mitigate the interest
rate risk inherent in the historical savings institution business of originating
long-term  single-family mortgage loans funded by short-term savings deposits by
maintaining  substantial  liquidity and capital levels to withstand  unfavorable
movements in market  interest rates,  by purchasing  investment  securities with
adjustable-rates  and/or short terms to maturity and by  originating  relatively
shorter term consumer  loans.  The matching of the Bank's assets and liabilities
may be analyzed by examining the extent to which its assets and  liabilities are
interest rate  sensitive and by  monitoring  both its interest rate  sensitivity
"gap" and the expected  effects of interest  rate  changes on its net  portfolio
value.

     For the fiscal  year  ending  June 30,  2003,  the Bank's  strategy  was to
continue to use cash flows from  investment  securities and loan  prepayments to
reduce Federal Home Loan Bank  borrowings,  fund new loans,  and reinvest excess
cash in shorter expected life  mortgage-backed  securities with little extension
risk if interest rates rise.

     Interest  Rate  Sensitivity  Gap. An asset or  liability  is interest  rate
sensitive within a specific time period if it will mature or reprice within that
time period.  The interest  rate  sensitivity  gap is defined as the  difference
between the amount of  interest-earning  assets  maturing or repricing  within a
specific time period and the amount of interest-bearing  liabilities maturing or
repricing within that time period. A gap is considered  positive when the amount
of interest rate sensitive  assets exceeds the amount of interest rate sensitive
liabilities.  A gap is  considered  negative  when the amount of  interest  rate
sensitive  liabilities  exceeds the amount of interest  rate  sensitive  assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income while a positive gap would tend to positively  affect
net interest  income.  Similarly,  during a period of falling  interest rates, a
negative  gap would  tend to  positively  affect  net  interest  income  while a
positive gap would tend to adversely affect net interest income.

     At June 30, 2003, the Bank's total estimated  interest-bearing  liabilities
maturing  or   repricing   within  one  year   exceeded   its  total   estimated
interest-earning assets maturing or repricing in the same period, and the Bank's
cumulative one-year gap ratio totaled a negative 18.0%. In addition,  the Bank's
total estimated  interest-earning assets maturing or repricing within five years
were  slightly  less  than  its  total  estimated  interest-bearing  liabilities
maturing or repricing in the same period,  and the Bank's  cumulative  five-year
gap ratio  totaled a negative  0.2%.  The Bank's gap measures  indicate that net
interest  income would be exposed to  increases  in interest  rates in the short
term,  but would be much less exposed to  increases  in interest  rates over the
longer term.

MARKET RISK

     Market risk  reflects  the risk of economic  loss  resulting  from  adverse
changes in market prices and interest  rates.  The risk of loss can be reflected
in diminished current market values and/or reduced potential net interest income
in future periods. The Company's market risk arises primarily from interest rate
risk  inherent in lending and  deposit-taking  activities.  The Company does not
maintain a trading  account for any class of  financial  instrument  nor does it
engage in hedging  activities  or  purchase  high risk  derivative  instruments.
Furthermore,  the Company is not subject to foreign currency  exchange rate risk
or commodity price risk.

     The OTS currently  requires  savings  institutions  to measure and evaluate
interest rate risk on a quarterly basis. A savings  institution's  interest rate
risk is measured in terms of the sensitivity of its net portfolio value (NPV) to
changes in interest  rates.  Net portfolio value is defined,  generally,  as the
present  value of expected  cash inflows from  existing  assets and  off-balance
sheet  contracts  less the present value of expected cash outflows from existing
liabilities and off-balance  sheet  contracts.  The Bank presently  monitors and
evaluates the potential impact of interest

                                       9
<PAGE>

rate changes upon the market value of the Bank's NPV on a quarterly basis. These
computations  estimate the effect on the Bank's NPV of sudden and  sustained 100
Basis Points (BP) to 300 BP increases  and a 100 BP decrease in market  interest
rates.  The Bank's Board of Directors  has adopted an interest  rate risk policy
which in the event of an assumed  immediate and sustained 100 BP, 200 BP, or 300
BP, increase or decrease in market interest rates,  the board has set as minimum
post shock NPV ratio of 4.66%, 4.33%, and 4.00% respectively.

     The following  tables present the Bank's projected change in NPV as of June
30, 2003 and June 30, 2002, as calculated by OTS, based on information  provided
to the OTS by the Bank.  Based on such  information,  from June 30, 2002 to June
30, 2003,  the Bank's  interest  rate risk has become  slightly  less  liability
sensitive over the period.

<TABLE>
<CAPTION>
                                                   JUNE 30, 2003
         -----------------------------------------------------------------------------------------------------
           CHANGE IN                                                      NPV
         INTEREST RATES            NET PORTFOLIO VALUE                 RATIO (1)      BP CHANGE IN NPV RATIO
             IN BP         --------------------------------------      ---------      ------------------------
         (RATE SHOCK)      AMOUNT         $ CHANGE     % CHANGE
         ------------      ------         --------     --------
          <S>              <C>            <C>             <C>            <C>                  <C>
            +300           $ 16,425       $ (8,104)       (33) %         6.90 %               (260)
            +200             20,039         (4,489)       (18)           8.16                 (133)
            +100             23,210         (1,318)        (5)           9.19                  (31)
              +0             24,528                                      9.50
            -100             23,596           (932)        (4)           9.01                  (49)

</TABLE>

<TABLE>
<CAPTION>
                                                   JUNE 30, 2002
         -----------------------------------------------------------------------------------------------------
           CHANGE IN                                                      NPV
         INTEREST RATES            NET PORTFOLIO VALUE                 RATIO (1)      BP CHANGE IN NPV RATIO
             IN BP         --------------------------------------      ---------      ------------------------
         (RATE SHOCK)      AMOUNT         $ CHANGE     % CHANGE
         ------------      ------         --------     --------
        <S>                <C>            <C>             <C>            <C>                  <C>
            +300           $ 16,344       $ (9,884)       (38) %         6.33 %               (298)
            +200             19,671         (6,556)       (25)           7.40                 (191)
            +100             22,968         (3,260)       (12)           8.39                  (92)
              +0             26,228                                      9.31
            -100             28,115          1,888          7            9.73                   43
</TABLE>

----------
(1)   NPV Ratio is defined as the NPV divided by the portfolio value of assets.

     At June 30, 2003, it was estimated  that the Bank's NPV could  decrease 5%,
18%, and 33% in the event of 100 BP, 200 BP, and 300 BP respective  increases in
market interest rates, and could decrease 4%, if market interest rates decreased
by 100 BP. These  calculations  indicate  that the Bank's NPV could be adversely
affected by significant increases in interest rates and has decreased moderately
compared to June 30, 2002.

     Changes in interest  rates also may affect the Bank's net interest  income.
In a declining rate  environment,  more borrowers would be expected to refinance
fixed rate  loans at lower  rates.  This  would  have the effect of cutting  the
Bank's  yield on fixed  rate  assets at a time when its  liability  costs  would
decline more  slowly.  In a rising rate  environment  fewer  borrowers  would be
expected to refinance while more depositors would be expected to liquidate their
certificates  of  deposit  and  reinvest  them in higher  rate  certificates  of
deposit. Depositors would tend to exhibit this behavior once rates had increased
sufficiently to offset early withdrawal penalties. This would have the effect of
maintaining the asset yield at a time when liability costs would tend to rise.

     The Bank's Board of Directors is responsible for reviewing the Bank's asset
and  liability  policies.  On at least a  quarterly  basis,  the  Board  reviews
interest rate risk, as well as liquidity  and capital  ratios and  requirements.
The  Bank's  management  is  responsible  for  administering  the  policies  and
determinations  of the Board of  Directors  with respect to the Bank's asset and
liability goals and strategies.  At June 30, 2003, the Bank's estimated  changes
in net interest income and NPV were within the targets  established by the Board
of Directors.

                                       10
<PAGE>

     Computations of prospective effects of hypothetical  interest rate changes,
such as the above  computations,  are based on numerous  assumptions,  including
relative levels of market interest  rates,  loan  prepayments and deposit decay,
and should not be relied upon as  indicative  of actual  results.  Further,  the
computations  do not  contemplate any actions the Bank may undertake in response
to changes in interest rates.

     At June 30, 2003,  the Company had $69.1  million of FHLB  advances,  which
represented 31.0 percent of total liabilities at that date. All of the Company's
FHLB advances carry prepayment  penalties.  These advances  generally are longer
term and carry rates of interest that are higher than the interest  rates on the
Company's  deposits.  While the Company initially utilized FHLB advances to fund
loans and purchase  investment  securities,  thereby  leveraging  its equity and
producing a positive interest rate spread, a significant portion of those assets
have since  repriced or paid off as interest rates have  decreased.  The Company
anticipated  replacing  maturing  investment  securities  with loan growth,  and
maturing FHLB  advances with deposit  growth.  Excluding the  Monticello  branch
sale, the Company has experienced some deposit growth,  but the anticipated loan
growth has not occurred.  As of June 30, 2003,  the Company's FHLB advances were
costing  an  average  rate  of  5.96  percent  and had an  average  maturity  of
approximately 6 years.

     As a result, the higher interest rates on FHLB advances paid by the Company
contribute to a lower interest rate spread than the Company might otherwise have
if it were able to fund all its assets with  deposits or lower rate  borrowings.
Moreover,  interest  rates on FHLB advances are fixed for longer periods of time
than are the interest rates on deposits. As a result, in the event of a decrease
in  interest  rates,  the Company  will be unable to reprice  its FHLB  advances
without  incurring a  substantial  prepayment  penalty,  which would result in a
significant  charge to income or a further  reduction in the Company's  interest
rate spread.  Conversely,  in the event of increases in interest rates, the FHLB
advances will not reprice and the  prepayment  penalty  decreases  eventually to
zero.

                                       11
<PAGE>

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES

     The following table sets forth information  regarding the Company's average
interest-earning  assets  and  interest-bearing  liabilities  and  reflects  the
average   yield   of   interest-earning   assets   and  the   average   cost  of
interest-bearing  liabilities for the periods  indicated.  Average  balances are
derived from daily balances. The table also presents information for the periods
indicated  with respect to the  difference  between the weighted  average  yield
earned  on  interest-earning  assets  and  the  weighted  average  rate  paid on
interest-bearing   liabilities,   or  "interest   rate  spread,"  which  savings
institutions have traditionally  used as an indicator of profitability.  Another
indicator  of an  institution's  net  interest  income  is  its  "net  yield  on
interest-earning  assets,"  which  is its net  interest  income  divided  by the
average balance of  interest-earning  assets. Net interest income is affected by
the interest rate spread and by the relative amounts of interest-earning  assets
and interest-bearing  liabilities.  The yield on non-taxable  securities has not
been adjusted to a tax equivalent basis.  Yield on available for sale securities
is based on  market  value.  Loans on a  nonaccrual  basis are  included  in the
computation of the average balance of loans  receivable.  Loan fees deferred and
accreted into income are included in interest earned. Whenever  interest-earning
assets equal or exceed interest-bearing  liabilities, any positive interest rate
spread will generate net interest income.

<TABLE>
<CAPTION>
                                                                             Year Ended June 30,
                                              -----------------------------------------------------------------------------
                                                                2003                                    2002
                                              -------------------------------------  --------------------------------------
                                                                           Average                                 Average
                                                 Average       Interest    Yield/       Average        Interest    Yield/
                                                 Balance      Earned/Paid   Rate        Balance       Earned/Paid   Rate
                                                 -------      -----------   ----        -------       -----------   ----
<S>                                            <C>           <C>           <C>        <C>            <C>            <C>
Interest-earning assets:
  Loans receivable.........................    $108,676,087  $  8,168,887  7.52%      $131,434,245   $10,735,729    8.17%
  Investment and mortgage-backed securities
    Taxable................................      96,371,438     4,737,709  4.92         91,762,885     5,418,567    5.90
    Nontaxable.............................      25,844,269     1,268,696  4.91         26,709,166     1,344,478    5.03
  FHLB stock...............................       4,675,512       125,727  2.69          4,680,945       148,101    3.16
  FHLB DDA.................................       8,149,607       112,334  1.38         12,254,561       264,337    2.16
Other interest-earning assets..............         188,168         2,818  1.50            153,854         4,901    3.19
                                               ------------    ----------  ----       ------------   -----------    ----
    Total interest-earning assets .........     243,905,081    14,416,171  5.91        266,995,656    17,916,113    6.71
                                                               ----------                            -----------
Noninterest-earning assets                       11,984,455                             15,411,663
                                               ------------                           ------------
    Total assets...........................    $255,889,536                           $282,407,319
                                               ============                           ============

Interest-bearing liabilities:
  NOW, MMDA, statement savings.............    $ 42,743,460       579,286  1.36       $ 43,566,756       792,670    1.82
  Time deposits............................     100,545,473     3,194,740  3.18        112,568,794     4,913,494    4.36
  FHLB advances............................      74,823,968     4,455,070  5.95         86,442,890     5,116,537    5.92
  Note payable.............................              --            --    --             14,685         1,000    6.81
                                               ------------    ----------  ----        -----------    ----------    ----
    Total interest-bearing liabilities.....     218,112,901     8,229,096  3.77        242,593,125    10,823,701    4.46
                                                               ----------                             ----------
Noninterest-bearing liabilities............       9,455,175                              9,290,121
                                               ------------                            -----------
    Total liabilities......................     227,568,076                            251,883,246
Equity.....................................      28,321,460                             30,524,073
                                               ------------                            -----------
    Total liabilities and equity...........    $255,889,536                           $282,407,319
                                               ============                           ============
Net interest income                                           $ 6,187,075                            $ 7,092,412
                                                              ===========                            ===========

Net interest rate spread...................                                2.14%                                    2.25%
                                                                           ====                                     ====
Net yield on interest-earning assets.......                                2.54%                                    2.66%
                                                                           ====                                     ====
Ratio of average interest-earning assets
  to average interest-bearing liabilities..                              111.83%                                  110.06%
                                                                         ======                                   ======

<CAPTION>

                                                          Year Ended June 30,
                                                 -----------------------------------
                                                                   2001
                                                 -----------------------------------
                                                                             Average
                                                    Average     Interest      Yield/
                                                    Balance    Earned/Paid    Rate
                                                    -------    -----------    ----
<S>                                              <C>            <C>           <C>
Interest-earning assets:
  Loans receivable.........................      $136,107,616   $11,622,492   8.54%
  Investment and mortgage-backed securities
    Taxable................................        99,455,695     6,401,378   6.44
    Nontaxable.............................        29,246,420     1,529,550   5.23
  FHLB stock...............................         6,138,292       355,715   5.80
  FHLB DDA.................................         3,466,854       161,693   4.66
Other interest-earning assets..............           115,486         7,572   6.56
                                                 ------------   -----------   ----
    Total interest-earning assets .........       274,530,363    20,078,400   7.31
                                                                -----------
Noninterest-earning assets                         16,144,665
                                                 ------------
    Total assets...........................      $290,675,028
                                                 ============

Interest-bearing liabilities:
  NOW, MMDA, statement savings.............      $ 39,540,714     1,543,181   3.90
  Time deposits............................       106,806,416     6,156,303   5.76
  FHLB advances............................       105,619,861     6,372,982   6.03
  Note payable.............................            94,685         7,000   7.39
                                                  -----------   -----------   ----
    Total interest-bearing liabilities.....       252,061,676    14,079,466   5.59
                                                                -----------
Noninterest-bearing liabilities............         7,948,247
                                                  -----------
    Total liabilities......................       260,009,923
Equity.....................................        30,665,105
                                                  -----------
    Total liabilities and equity...........      $290,675,028
                                                 ============
Net interest income                                             $ 5,998,934
                                                                ===========

Net interest rate spread...................                                   1.72%
                                                                              ====
Net yield on interest-earning assets.......                                   2.19%
                                                                              ====
Ratio of average interest-earning assets
  to average interest-bearing liabilities..                                 108.91%
                                                                            ======
</TABLE>

                                       12
<PAGE>

RATE/VOLUME ANALYSIS

     The following  table analyzes  dollar amounts of changes in interest income
and expense for major components of interest-earning assets and interest-bearing
liabilities.  The table distinguishes between (i) changes attributable to volume
(changes in volume  multiplied  by the prior  period's  rate),  and (ii) changes
attributable  to  rate  (changes  in rate  multiplied  by the  current  period's
volume).

<TABLE>
<CAPTION>
                                                      Year Ended June 30,
                             -----------------------------------------------------------------
                                2003     vs.    2002             2002      vs.        2001
                             ------------------------------   ------------------------------
                                 Increase (Decrease)               Increase (Decrease)
                                        Due to                          Due to
                             ------------------------------   ------------------------------
                               Volume      Rate      Total      Volume     Rate       Total
                              -------    -------    -------    -------    -------    -------
                                                        (In thousands)
<S>                           <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
   Loans receivable           $(1,859)   $  (708)   $(2,567)   $  (399)   $  (488)   $  (887)
   Investment and mortgage-
     backed securities
       Taxable                    272       (953)      (681)      (495)      (487)      (982)
       Nontaxable                 (44)       (32)       (76)      (133)       (53)      (186)
   FHLB stock                      --        (22)       (22)       (84)      (124)      (208)
   FHLB DDA                       (89)       (63)      (152)       410       (307)       103
   Other interest-earning
     assets                         1         (3)        (2)         3         (5)        (2)
                              -------    -------    -------    -------    -------    -------
   Total interest-earning
     assets                    (1,719)    (1,781)    (3,500)      (698)    (1,464)    (2,162)
                              -------    -------    -------    -------    -------    -------

Interest expense:
   NOW, MMDA,
     statement savings            (15)      (198)      (213)       157       (908)      (751)
   Time deposits                 (525)    (1,194)    (1,719)       332     (1,575)    (1,243)
   FHLB advances                 (688)        26       (662)    (1,157)       (98)    (1,255)
   Note payable                    (1)        --         (1)        (6)        --         (6)
                              -------    -------    -------    -------    -------    -------
   Total interest-bearing
      liabilities              (1,229)    (1,366)    (2,595)      (674)    (2,581)    (3,255)
                              -------    -------    -------    -------    -------    -------
   Change in net interest
     income                   $  (490)   $  (415)   $  (905)   $   (24)   $ 1,117    $ 1,093
                              =======    =======    =======    =======    =======    =======
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2003 AND 2002

     The  Company had  consolidated  total  assets of $251.0  million and $276.4
million at June 30, 2003, and 2002, respectively. During the twelve-month period
ended June 30, 2003 the Company  experienced a decrease in its net  consolidated
loan  portfolio  from $124.2 million at June 30, 2002, to $100.8 million at June
30, 2003.  A majority of the decrease in loans was due to increased  competition
in a low rate  environment  during the period.  Specifically,  mortgage loans on
one-to-four family residences and commercial real estate decreased due to a very
competitive interest rate environment.  During this same period, investments and
mortgage-backed   securities  and  other  short-term   interest-earning   assets
increased  slightly  from $132.6  million at June 30, 2002 to $134.2  million at
June 30, 2003.

     On July 19, 2002, the Bank sold its Monticello branch to Simmons First Bank
of South Arkansas.  The sale included  approximately $8.3 million in loans, $1.5
million in fixed  assets,  $0.2 million in other  assets,  and $13.2  million in
deposits.  The Bank recognized a premium on the deposits of  approximately  $0.9
million and the difference was paid in cash to the buyer.

                                       13
<PAGE>

     Deposits  decreased from $165.0 million at June 30, 2002, to $152.0 million
at June 30, 2003. The outstanding balances of FHLB borrowings were $82.3 million
and $69.1 million at June 30, 2002 and June 30, 2003, respectively. The decrease
in FHLB  borrowings  was  primarily due to high loan  prepayments  combined with
investment  securities  prepayments  and  the  Bank's  desire  to  retire  these
borrowings as they mature.

     Stockholders'  equity amounted to $28.5 million at June 30, 2003, and $26.7
million at June 30,  2002.  The  increases  in equity were  primarily  due to an
increase in the unrealized gain on investment  securities available for sale and
the Company's net income earned for the fiscal year ended June 30, 2003.  During
the year ended June 30, 2003, the Company  purchased 42,237 shares of its common
stock at a cost of  approximately  $700,000,  or $16.59 per share.  In  addition
75,163 stock option shares were exercised at an average price of $9.14.  At June
30, 2003,  the Bank's  regulatory  capital  exceeded all  applicable  regulatory
capital  requirements and meets the definition of "well"  capitalized  under the
Prompt Corrective Action provisions.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2003 AND 2002

     Net Income.  Net income for the year ended June 30, 2003, was approximately
$1,061,000  compared  to net  income of  $1,166,000  for the year ended June 30,
2002. The changes resulted  primarily from an increase in noninterest  income of
$780,000, a decrease in noninterest expense of $222,000, offset by a decrease in
net  interest  income of  $905,000,  an increase in the  provision  for loan and
investment loss of $174,000, and an increase in income tax of $28,000.

     Interest  Income.  Interest  income for the year ended June 30,  2003,  was
$14.4 million, or $3.5 million less than interest income for the year ended June
30, 2002. The total average  interest-earning  assets  decreased  $23.1 million,
while the yield decreased from 6.71% to 5.91%,  primarily due to rate and volume
decreases on loans and rate decreases on investment securities.

     The average balance of loans receivable decreased $22.8 million, total loan
interest income decreased $2.6 million, and the average yield on loans decreased
65 basis  points.  As noted above,  these  decreases are the result of sustained
lower interest rates combined with increased competition in both the one-to-four
family residential lending area and the commercial real estate lending area. The
average  balance  of  investments  and  mortgage-backed   securities  receivable
increased $3.7 million, but interest income decreased $757,000,  and the average
yield decreased 79 basis points.  The average balance of other  interest-earning
assets  (primarily FHLB DDA's and FHLB stock)  decreased $4.1 million,  interest
income decreased $176,000, and the average yield decreased 59 basis points.

     Interest  Expense.  Total average  interest-bearing  liabilities  decreased
$24.5 million,  while the interest rate on such liabilities decreased from 4.46%
to 3.77%.  The average  balance of  interest-bearing  deposits  decreased  $12.8
million,  deposit interest expense decreased $1.9 million,  and the average cost
decreased 102 basis points. The average balance of FHLB advances decreased $11.6
million,  FHLB  interest  expense  decreased  $662,000,  and  the  average  cost
increased 3 basis points.

     Net Interest Income.  Net interest income for the year ended June 30, 2003,
was $6.2 million,  or $905,000 less than net interest  income for the year ended
June 30, 2002. As noted above, the decrease in net interest income from June 30,
2002 to 2003 was the  result of  decreases  in both net  volumes  and net rates.
During the year ended June 30,  2003,  the Federal  Reserve  dropped  both their
target fed funds rate and discount rate twice totaling 75 basis points,  and the
prime  interest  rate  decreased  75 basis points from 4.75% on June 30, 2002 to
4.00% on June 30, 2003. Since both long and short-term  interest rates have been
very low over the past two years,  most of the Bank's deposit  liabilities  have
repriced.  Over time, if both long and short term interest rates remain low, the
Bank's  interest  earning  assets will continue to reprice at lower rates,  thus
lowering the Bank's net interest income.

     Provision for Loan and  Investment  Losses.  During the year ended June 30,
2003, the Bank's management  continued its review of the  appropriateness of the
amount of the allowance for loan and investment losses.  Based on these reviews,
management made a $533,000 provision for loan losses for the year ended June 30,
2003.  The  allowance  for  loan  losses  of  $1.6  million  at June  30,  2003,
represented  1.46% of gross outstanding loans which compares to 1.22% as of June
30, 2002. The provision was made in consideration of reviews of individual loans
and

                                       14
<PAGE>

the fact that  nonperforming  loans as of June 30,  2003 as a  percent  of total
loans  increased  to 3.18% from 1.44% as of June 30, 2002.  In  addition,  total
classified assets as a percent of the Bank's tangible capital plus allowance for
loan loss was 39.8% as of June 30, 2003,  which compares to 31.0% as of June 30,
2002.  As of June 30,  2003,  the Bank had $9.8  million  in  assets  classified
substandard or doubtful as compared to $7.1 million as of June 30, 2002.

     Management evaluates the carrying value of the loan portfolio  periodically
and  provisions  are  made,  if  necessary.   While  management  uses  the  best
information  available to make  evaluations,  future provisions to the allowance
may be necessary if conditions differ substantially from the assumptions used in
making the evaluations. In addition, various regulatory agencies, as an integral
part of their examination process,  periodically review the Bank's allowance for
loan losses.  Such  agencies  may require the Bank to  recognize  changes to the
allowance based upon their  judgments and the  information  available to them at
the time of their examination.

     There were no  significant  changes in loan terms during the year, nor were
there  significant   changes  in  the  estimation   methodologies   employed  or
assumptions utilized. Nonperforming loan and loss trends did not indicate a need
to substantially modify loss experience factors during the year.

     Noninterest Income.  Noninterest income is typically comprised primarily of
gains on the sales of loans and service charges on deposit accounts. Noninterest
income for the year ended June 30, 2003, was approximately  $2,387,000  compared
to $1,606,000 for the year ended June 30, 2002. This increase of $781,000 is the
result of the $743,000 gain on sale of the Monticello branch, an increase in the
net gain on sales of loans,  offset by lower service charges on deposit accounts
due to the sale of the Monticello  branch. It should be noted, that the increase
in the net gain on sales of loans was  primarily  due to sustained  low mortgage
interest rates, and if these rates were to rise substantially, this income would
be expected to drop substantially.

     Noninterest  Expense.  The major  components  of  noninterest  expense  are
salaries and employee  benefits paid to or on behalf of the Company's  employees
and  directors,   professional   fees  paid  to  consultants,   attorneys,   and
accountants,  occupancy  expense for ownership and  maintenance of the Company's
buildings,  furniture,  and  equipment,  and  data  processing  expenses.  Total
noninterest  expense for the year ended June 30, 2003, was $6.9 million compared
to $7.1 million for the year ended June 30, 2002.  Significant components of the
decrease  in  noninterest  expense  were a $149,000  decrease  in  salaries  and
employee  benefits,  a $198,000  decrease in net  occupancy  expense,  a $32,000
decrease in professional  fees, a $75,000  decrease in amortization of goodwill,
offset by a $23,000 increase in data processing expense, and a $213,000 increase
in other expenses.

     The sale of the Monticello branch certainly  contributed to the decrease in
salaries and employee benefits,  net occupancy expense,  and the amortization of
goodwill.  However, during the quarter ended March 31, 2003, the Company stepped
up its efforts to reduce noninterest expenses.  All outside consultant contracts
were  reviewed and those that were not  considered  critical to the Company were
cancelled for an estimated future annualized cost savings of $250,000. From June
30, 2002 to June 30, 2003, the Company reduced its full time equivalent employee
number from 93 to 79 primarily  through  attrition (this number does not include
the  employees  of the  Monticello  branch  sold in July 2002) for an  estimated
future annualized cost savings of $300,000.

     In addition,  the increase in other expenses includes a $407,000 write down
of land held for investment in Camden,  Arkansas which  previously was to be the
site of a new home office facility. These two parcels were purchased in 1996 and
1999 and  significant  costs were  necessary to make the land  suitable to build
upon. The Board of Directors  decided that in the near future it would not be in
the best  interests of the Company to expend the resources  necessary to build a
new home  office  facility.  Since  the land  will not be  utilized  in the near
future, appraisals were obtained in March 2003, and the land was written down to
fair market  value  during that  quarter.  While the Company  does not intend to
build on this land in the near future,  it  currently  does plan to utilize this
land at some undetermined future date.

     Income Taxes. The effective income tax rates for the Company for the fiscal
years  ended  June 30,  2003 and 2002  were  7.7% and  5.0%,  respectively.  The
variance in the effective rate from the expected statutory rate is due primarily
to tax exempt interest.

                                       15
<PAGE>

     The Company had a deferred tax asset totaling approximately $2.0 million as
of June 30, 2003,  and $1.7 million as of June 30, 2002. The  recoverability  of
this asset is entirely  contingent  upon the  production  of taxable  income for
income tax  reporting  purposes.  Management  anticipates  that the Company will
produce such income in the near future based on management's  current  forecasts
of earnings and if necessary,  management's tax and interest-rate  risk planning
strategy of selling available for sale tax exempt securities and reinvesting the
proceeds  into  taxable  income  producing  securities.  The  strategy  does not
anticipate  significant taxable gains on the sale of the tax-exempt  securities,
but rather a shift of nontaxable interest income to taxable interest income. See
Note 10 to the Consolidated Financial Statements.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2002 AND 2001

     The  Company had  consolidated  total  assets of $276.4  million and $287.6
million at June 30, 2002, and 2001, respectively. During the twelve-month period
ended June 30, 2002, the Company  experienced a decrease in its net consolidated
loan  portfolio  from $131.7 million at June 30, 2001, to $124.2 million at June
30, 2002. During this same period,  investments and  mortgage-backed  securities
and other  short-term  interest-earning  assets  decreased  slightly from $135.2
million at June 30, 2001, to $132.6 million at June 30, 2002.

     Deposits  increased from $161.3 million at June 30, 2001, to $165.0 million
at June 30, 2002. The outstanding balances of FHLB borrowings were $91.9 million
and $82.3 million at June 30, 2001 and June 30, 2002, respectively. The decrease
in FHLB  borrowings  was  primarily  due to slower  loan  demand  combined  with
increases in deposits and investment securities paydowns.

     Stockholders'  equity amounted to $26.7 million at June 30, 2002, and $31.9
million at June 30, 2001.  The decreases in equity were  primarily due to the to
the purchase of treasury stock,  offset by a reduction of the unrealized loss on
investment securities available for sale and the Company's net income earned for
the fiscal year ended June 30, 2002.  During the year ended June 30,  2002,  the
Company purchased 510,389 shares (net of options  exercised) of its common stock
at a cost of approximately $7.6 million,  or $14.82 per share. At June 30, 2002,
the  Bank's  regulatory  capital  exceeded  all  applicable  regulatory  capital
requirements  and meets the  definition of "well"  capitalized  under the Prompt
Corrective Action provisions.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2002 AND 2001

     Net Income.  Net income for the year ended June 30, 2002, was approximately
$1,166,000  compared to net income of $620,000 for the year ended June 30, 2001.
The  changes  resulted  primarily  from an increase  in net  interest  income of
$1,093,000, an increase in noninterest income of $228,000, offset by an increase
in the  provision  for loan and  investment  loss of $63,000,  a decrease in the
income  tax  benefit  of  $529,000,  and a increase  in  noninterest  expense of
$184,000.

     Interest  Income.  Interest  income for the year ended June 30,  2002,  was
$17.9 million, or $2.2 million less than interest income for the year ended June
30, 2001.  The total average  interest-earning  assets  decreased  $7.5 million,
while the yield decreased from 7.31% to 6.71%,  due to rate and volume decreases
on loans and investment securities.

     The average balance of loans receivable decreased $4.7 million,  total loan
interest income decreased $0.9 million, and the average yield on loans decreased
37  basis  points.  The  average  balance  of  investments  and  mortgage-backed
securities  receivable  decreased $10.2 million,  interest income decreased $1.2
million, and the average yield decreased 45 basis points. The average balance of
other  interest-earning  assets  (primarily FHLB DDA's and FHLB stock) increased
$7.4  million,  interest  income  decreased  $108,000,  and  the  average  yield
decreased 296 basis points.

     Interest Expense. Total average interest-bearing liabilities decreased $9.5
million,  while the interest rate on such  liabilities  decreased  from 5.59% to
4.46%. The average balance of interest-bearing  deposits increased $9.8 million,
deposit interest expense decreased $2.0 million,  and the average cost decreased
161 basis points.  The

                                       16
<PAGE>

average balance of FHLB advances decreased $19.2 million,  FHLB interest expense
decreased $1.3 million, and the average cost decreased 11 basis points.

     Net Interest Income.  Net interest income for the year ended June 30, 2002,
was $7.1  million,  or $1.1 million  more than net interest  income for the year
ended June 30, 2001. The increase in net interest  income from June 30, 2001, to
2002 was the  result of an  increase  in our  interest  rate  spread of 53 basis
points.  During  the year ended  June 30,  2002,  the  Federal  Reserve  dropped
interest  rates 5 times  totaling 200 basis points,  and the prime interest rate
decreased  225 basis  points  from  7.00% on June 30,  2001 to 4.75% on June 30,
2002.  These interest rate decreases  caused a greater  reduction in the average
rates we paid on deposits  and  borrowed  money than the average  yield which we
earned on loans, investments, and interest-bearing deposits. This trend reflects
the liability  sensitive  nature of the Company  which would,  keeping all other
things  equal,  typically  show  improved  net  interest  income in a decreasing
interest rate environment.

     Provision for Loan and  Investment  Losses.  During the year ended June 30,
2002, the Bank's management  continued its review of the  appropriateness of the
amount of the allowance for loan and investment losses.  Based on these reviews,
management made a $330,000 provision for loan losses and a $29,000 provision for
investment  losses for the year  ended June 30,  2002.  The  allowance  for loan
losses of $1.6 million at June 30, 2002,  represented 1.22% of gross outstanding
loans which  compares to 0.99% as of June 30, 2001.  The  provision  was made in
consideration  of reviews of  individual  loans and the fact that  nonperforming
loans as of June 30, 2002,  as a percent of total loans  increased to 1.44% from
0.81% as of June 30, 2001. In addition,  total classified assets as a percent of
the Bank's  tangible  capital plus  allowance for loan loss was 31.0% as of June
30, 2002,  which compares to 8.1% as of June 30, 2001.  Part of this increase is
due to an  increase  in  classified  assets  and part is due to the Bank  paying
Bancshares $9.0 million in dividends,  thus reducing  capital at the Bank. As of
June 30, 2002,  the Bank had $7.1 million in assets  classified  substandard  or
doubtful as compared to $2.5 million as of June 30, 2001.

     Management evaluates the carrying value of the loan portfolio  periodically
and  provisions  are  made,  if  necessary.   While  management  uses  the  best
information  available to make  evaluations,  future provisions to the allowance
may be necessary if conditions differ substantially from the assumptions used in
making the evaluations. In addition, various regulatory agencies, as an integral
part of their examination process,  periodically review the Bank's allowance for
loan losses.  Such  agencies  may require the Bank to  recognize  changes to the
allowance based upon their  judgments and the  information  available to them at
the time of their examination.

     There were no  significant  changes in loan terms during the year, nor were
there  significant   changes  in  the  estimation   methodologies   employed  or
assumptions utilized. Nonperforming loan and loss trends did not indicate a need
to substantially modify loss experience factors during the year.

     Noninterest  Income.  Noninterest income is comprised primarily of gains on
the sales of loans and service charges on deposit accounts.  Noninterest  income
for the year ended June 30,  2002,  was  approximately  $1,606,000  compared  to
approximately  $1,378,000  for the year ended June 30,  2001.  This  increase of
approximately  $228,000 is the result of loan fee  income,  growth of the Bank's
checking  and savings  accounts  resulting  in increased  service  charges,  and
increases in the deposit account fee structure.

     Noninterest  Expense.  The major  components  of  noninterest  expense  are
salaries and employee  benefits paid to or on behalf of the Company's  employees
and  directors,   professional   fees  paid  to  consultants,   attorneys,   and
accountants,  occupancy  expense for ownership and  maintenance of the Company's
buildings,  furniture,  and  equipment,  and  data  processing  expenses.  Total
noninterest  expense for the year ended June 30, 2002, was $7.1 million compared
to $6.9 million for the year ended June 30, 2001.  Significant components of the
increase in noninterest expense are an $86,000 increase in salaries and employee
benefits,  a $52,000  increase in net occupancy  expense,  a $56,000 increase in
data processing  expense,  a $146,000 increase in other expenses,  offset with a
$136,000  decrease in  professional  fees as a result of improved  internal  and
accounting controls.

                                       17
<PAGE>

     Income Taxes. The effective income tax rates for the Company for the fiscal
years ended June 30,  2002 and 2001 were 5.0% and  (307.0)%,  respectively.  The
variance in the effective rate from the expected statutory rate is due primarily
to tax exempt interest.

     The negative rate for fiscal year ended June 30, 2001, is a net tax benefit
and  increases  net income.  The net tax benefit is primarily  due to tax exempt
income. The corresponding  deferred tax asset totals  approximately $1.7 million
as of June 30, 2002, and $1.5 million as of June 30, 2001. The recoverability of
this asset is entirely  contingent  upon the  production  of taxable  income for
income tax  reporting  purposes.  Management  anticipates  that the Company will
produce such income in the near future based on management's  current  forecasts
of earnings and management's  tax and  interest-rate  risk planning  strategy of
selling  available for sale tax exempt  securities and  reinvesting the proceeds
into taxable  income  producing  securities.  The strategy  does not  anticipate
significant taxable gains on the sale of the tax-exempt securities, but rather a
shift of nontaxable  interest income to taxable interest income.  See Note 10 to
the Consolidated Financial Statements.

SOURCES OF CAPITAL AND LIQUIDITY

     The  Company  has no  business  other  than that of the  Bank.  Bancshares'
primary  sources of liquidity are cash,  dividends paid by the Bank and earnings
on  investments  and loans.  In  addition,  the Bank is  subject  to  regulatory
limitations with respect to the payment of dividends to Bancshares.

     The Bank has historically  maintained  substantial  levels of capital.  The
assessment of capital  adequacy is dependent on several factors  including asset
quality,  earnings  trends,  liquidity and economic  conditions.  Maintenance of
adequate  capital levels is integral to provide  stability to the Bank. The Bank
seeks to maintain  substantial  levels of regulatory  capital to give it maximum
flexibility in the changing regulatory  environment and to respond to changes in
the market and economic conditions.

     The Bank's primary  sources of funds are customer  deposits,  proceeds from
principal  and  interest  payments  on  loans  and  mortgage-backed  securities,
interest payments and maturities of investment securities,  and earnings.  While
scheduled  principal  repayments  on loans and  mortgage-backed  securities  and
interest payments on investment  securities are a relatively  predictable source
of funds,  deposit flows and loan and  mortgage-backed  prepayments  are greatly
influenced by general interest rates, economic conditions, competition and other
factors.  The Bank does not solicit customer deposits outside of its market area
through brokers or other financial institutions.

     At June 30, 2003, the Bank had designated  securities  with a fair value of
approximately  $130.0  million as  available  for sale.  In addition to internal
sources of funding,  the Bank as a member of the FHLB has substantial  borrowing
authority with the FHLB. The Bank's use of a particular source of funds is based
on need, comparative total costs and availability.

     At June 30, 2003, the Bank had  outstanding  approximately  $5.9 million in
commitments to originate  loans  (including  unfunded  portions of  construction
loans) and $2.1 million in unused lines of credit.  At the same date,  the total
amount of  certificates of deposit which were scheduled to mature in one year or
less was $76.4 million.  Management anticipates that the Bank will have adequate
resources  to meet its current  commitments  through  internal  funding  sources
described  above.  Historically,  the Bank has been able to retain a significant
amount of its savings deposits as they mature.

     Management is not aware of any current  recommendations  by its  regulatory
authorities,  legislation, competition, trends in interest rate sensitivity, new
accounting guidance or other material events and uncertainties that would have a
material effect on the Bank's ability to meet its liquidity demands.

                                       18
<PAGE>

INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
HCB Bancshares, Inc.
Camden, Arkansas

We have audited the accompanying  consolidated statements of financial condition
of HCB  Bancshares,  Inc.  as of  June  30,  2003  and  2002,  and  the  related
consolidated  statements  of  income  and  comprehensive  income,  stockholders'
equity,  and cash flows for each of the two years in the  period  ended June 30,
2003.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of HCB Bancshares, Inc.
as of June 30,  2003 and 2002,  and the results of its  operations  and its cash
flows for each of the two years in the period ended June 30, 2003 in  conformity
with accounting principles generally accepted in the United States of America.



/s/ BKD, LLP

Little Rock, Arkansas
July 31, 2003

                                       19
<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
HCB Bancshares, Inc.
Camden, Arkansas

We  have  audited  the  accompanying   consolidated  statements  of  income  and
comprehensive  income,  shareholders'  equity, and cash flows of HCB Bancshares,
Inc. and its subsidiary (the "Company") for the year ended June 30, 2001.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the results of operations and cash flows of HCB Bancshares,
Inc.  and its  subsidiary  for the year ended June 30, 2001 in  conformity  with
accounting principles generally accepted in the United States of America.



/s/ Deloitte & Touche LLP

September 21, 2001


                                       20
<PAGE>

HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2003 AND 2002
------------------------------------------------------------------------------------------------------
ASSETS                                                                      2003              2002
<S>                                                                    <C>              <C>
Cash and due from banks                                                $   3,003,656    $   3,492,257
Interest-bearing deposits with banks                                       4,203,320       14,404,572
                                                                       -------------    -------------

  Cash and cash equivalents                                                7,206,976       17,896,829
Investment securities:
  Available for sale, at fair value (amortized cost at June 30, 2003
    and 2002, of $126,360,791 and $115,796,195, respectively)            129,960,346      118,198,564
Loans receivable, net of allowance at June 30, 2003 and 2002,
    of $1,605,677 and $1,628,515, respectively                           100,779,545      124,176,898
Accrued interest receivable                                                1,456,372        1,721,612
Federal Home Loan Bank stock                                               4,704,100        4,709,900
Premises and equipment, net                                                5,113,645        7,112,211
Goodwill, net                                                                     --          131,250
Real estate held for sale                                                    246,160          910,587
Other assets                                                               1,557,639        1,567,443
                                                                       -------------    -------------
TOTAL                                                                  $ 251,024,783    $ 276,425,294
                                                                       =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Deposits                                                             $ 151,956,504    $ 165,005,183
  Federal Home Loan Bank advances                                         69,068,534       82,263,936
  Advance payments by borrowers for
      taxes and insurance                                                     83,879          110,446
  Accrued interest payable                                                   563,620          740,008
  Other liabilities                                                          897,259        1,569,433
                                                                       -------------    -------------

                                    Total liabilities                    222,569,796      249,689,006
                                                                       -------------    -------------

COMMITMENTS AND CONTINGENCIES (Notes 12 and 14)
STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value, 10,000,000
     shares authorized, 2,645,000 shares
     issued, 1,457,982 and 1,425,056 shares
     outstanding at June 30, 2003 and 2002, respectively                      26,450           26,450
  Additional paid-in capital                                              25,781,908       25,832,641
  Unearned ESOP shares                                                      (634,800)        (846,400)
  Unearned MRP shares                                                        (82,625)        (116,169)
  Accumulated other comprehensive income                                   2,221,285        1,441,942
  Retained earnings                                                       15,537,315       14,950,088
                                                                       -------------    -------------

                                                                          42,849,533       41,288,552
                                                                       -------------    -------------
Treasury stock, at cost, 1,187,018 and 1,219,944
  shares at June 30, 2003 and 2002, respectively                         (14,394,546)     (14,552,264)
                                                                       -------------    -------------

                                    Total stockholders' equity            28,454,987       26,736,288
                                                                       -------------    -------------

TOTAL                                                                  $ 251,024,783    $ 276,425,294
                                                                       =============    =============
</TABLE>

See notes to consolidated financial statements.

                                       21
<PAGE>

HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
----------------------------------------------------------------------------------------------
                                                        2003          2002            2001
INTEREST INCOME:
<S>                                                 <C>            <C>            <C>
   Interest and fees on loans                       $  8,168,887   $ 10,735,729   $ 11,622,492
   Investment securities:
     Taxable                                           4,737,709      5,418,567      6,401,378
     Nontaxable                                        1,268,696      1,344,478      1,529,550
   Other                                                 240,879        417,339        524,980
                                                    ------------   ------------   ------------

        Total interest income                         14,416,171     17,916,113     20,078,400
                                                    ------------   ------------   ------------

INTEREST EXPENSE:
   Deposits                                            3,774,026      5,706,164      7,699,484
   Federal Home Loan Bank advances                     4,455,070      5,116,537      6,372,982
   Note payable                                               --          1,000          7,000
                                                    ------------   ------------   ------------

        Total interest expense                         8,229,096     10,823,701     14,079,466
                                                    ------------   ------------   ------------

NET INTEREST INCOME                                    6,187,075      7,092,412      5,998,934

PROVISION FOR LOAN AND INVESTMENT LOSSES                 533,000        359,000        296,000
                                                    ------------   ------------   ------------

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN AND INVESTMENT LOSSES                      5,654,075      6,733,412      5,702,934
                                                    ------------   ------------   ------------

NONINTEREST INCOME:
   Service charges on deposit accounts                   886,951        984,089        765,532
   Gain on sales of investment securities
     available for sale                                       --          1,518             --
   Gain on sales of loans available for sale, net        584,768        381,733        223,906
   Gain on sale of branch                                742,942             --             --
   Other                                                 172,024        239,120        389,174
                                                    ------------   ------------   ------------

        Total noninterest income                       2,386,685      1,606,460      1,378,612
                                                    ------------   ------------   ------------

NONINTEREST EXPENSE:
   Salaries and employee benefits                      3,812,522      3,961,413      3,875,094
   Net occupancy expense                                 887,119      1,085,602      1,033,684
   Federal insurance premiums                             25,953         29,439         50,330
   Data processing                                       390,896        368,176        312,551
   Professional fees                                     457,446        489,360        624,622
   Amortization of goodwill                                   --         75,000         75,000
   Other                                               1,316,909      1,104,155        957,837
                                                    ------------   ------------   ------------

        Total noninterest expenses                     6,890,845      7,113,145      6,929,118
                                                    ------------   ------------   ------------

INCOME BEFORE INCOME TAXES                             1,149,915      1,226,727        152,428

INCOME TAX PROVISION (BENEFIT)                            88,750         61,027       (467,888)
                                                    ------------   ------------   ------------

NET INCOME                                          $  1,061,165   $  1,165,700   $    620,316
                                                    ------------   ------------   ------------
</TABLE>
                                                                     (Continued)


                                       22
<PAGE>

HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
------------------------------------------------------------------------------------------
                                                   2003           2002           2001
<S>                                            <C>             <C>            <C>
OTHER COMPREHENSIVE INCOME,
   NET OF TAX
     Unrealized holding gain on securities
       arising during period                   $     779,343   $ 1,503,060    $ 4,342,068
     Reclassification adjustment for
       gains included in net income                       --        (1,518)            --
                                               -------------   -----------    -----------

                  Other comprehensive income         779,343     1,501,542      4,342,068
                                               -------------   -----------    -----------

COMPREHENSIVE INCOME                           $   1,840,508   $ 2,667,242    $ 4,962,384
                                               =============   ===========    ===========

WEIGHTED AVERAGE COMMON SHARES
   OUTSTANDING
     BASIC                                         1,363,626     1,635,669      1,866,387
                                               =============   ===========    ===========
     DILUTED                                       1,448,146     1,719,903      1,866,387
                                               =============   ===========    ===========

EARNINGS PER SHARE:
   Basic                                       $        0.78   $      0.71    $      0.33
                                               =============   ===========    ===========

   Diluted                                     $        0.73   $      0.68    $      0.33
                                               =============   ===========    ===========

DIVIDENDS PER SHARE                            $        0.35   $      0.28    $      0.24
                                               =============   ===========    ===========
</TABLE>

                                                                     (Concluded)
See notes to consolidated financial statements.

                                       23
<PAGE>

HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Accumulated
                                        Issued            Additional    Unearned      Unearned         Other
                                     Common Stock          Paid-In       ESOP           MRP         Comprehensive    Retained
                                 Shares      Amount        Capital       Shares        Shares          Income        Earnings
                               --------------------------------------------------------------------------------------------------
<S>                             <C>         <C>        <C>            <C>             <C>           <C>             <C>
BALANCE JULY 1, 2000            2,645,000   $ 26,450   $ 25,945,850   $ (1,269,600)   $ (220,104)   $ (4,401,668)   $ 14,110,667

Net income                                                                                                               620,316
Common stock committed
   to be released for ESOP                                  (31,718)       211,600
MRP shares earned                                                                         64,503
Net change in unrealized
   loss on securities available
   for sale, net of tax                                                                                4,342,068
Treasury stock purchased
Dividends paid                                                                                                          (474,299)
                                ---------   --------     ------------  ----------     ---------     -----------     ------------
BALANCE JUNE 30, 2001           2,645,000     26,450     25,914,132     (1,058,000)     (155,601)        (59,600)     14,256,684

Net income                                                                                                             1,165,700
Common stock committed
   to be released for ESOP                                   77,065        211,600
MRP shares earned                                                                         39,432
Net change in unrealized
   gain (loss) on securities
   available for sale, net of tax                                                                      1,501,542
Stock options exercised                                    (158,556)
Treasury stock purchased
Dividends paid                                                                                                          (472,296)
                                ---------   --------     ------------  ----------     ---------     -----------     ------------
BALANCE JUNE 30, 2002           2,645,000     26,450     25,832,641     (846,400)       (116,169)      1,441,942      14,950,088

Net income                                                                                                             1,061,165
Common stock committed
   to be released for ESOP                                  129,615      211,600
MRP shares earned                                            (9,044)                      33,544
Net change in unrealized
   gain on securities available
   for sale, net of tax                                                                                  779,343
Stock options exercised                                    (171,304)
Treasury stock purchased
Dividends paid                                                                                                          (473,938)
                                ---------   --------     ------------  ----------     ---------     -----------     ------------
BALANCE JUNE 30, 2003           2,645,000   $ 26,450     $ 25,781,908  $ (634,800)    $ (82,625)    $ 2,221,285     $ 15,537,315
                                =========   ========     ============  ==========     =========     ===========     ============


<CAPTION>

                                 Treasury     Treasury       Total
                                  Stock        Stock       Stockholders'
                                  Shares      Amount          Equity
                               ----------------------------------------
<S>                               <C>      <C>            <C>
BALANCE JULY 1, 2000              598,420  $ (5,951,045)  $ 28,240,550

Net income                                                     620,316
Common stock committed
   to be released for ESOP                                     179,882
MRP shares earned                                               64,503
Net change in unrealized
   loss on securities available
   for sale, net of tax                                       4,342,068
Treasury stock purchased          111,135    (1,038,686)     (1,038,686)
Dividends paid                                                 (474,299)
                                --------- -------------    ------------
BALANCE JUNE 30, 2001             709,555    (6,989,731)     31,934,334

Net income                                                    1,165,700
Common stock committed
   to be released for ESOP                                      288,665
MRP shares earned                                                39,432
Net change in unrealized
   gain (loss) on securities
   available for sale, net of tax                             1,501,542
Stock options exercised           (50,473)      619,821         461,265
Treasury stock purchased          560,862    (8,182,354)     (8,182,354)
Dividends paid                                                 (472,296)
                                --------- -------------    ------------
BALANCE JUNE 30, 2002           1,219,944   (14,552,264)     26,736,288

Net income                                                    1,061,165
Common stock committed
   to be released for ESOP                                      341,215
MRP shares earned                                                24,500
Net change in unrealized
   gain on securities available
   for sale, net of tax                                         779,343
Stock options exercised           (75,163)      858,417         687,113
Treasury stock purchased           42,237      (700,699)       (700,699)
Dividends paid                                                 (473,938)
                                --------- -------------    ------------
BALANCE JUNE 30, 2003           1,187,018 $ (14,394,546)   $ 28,454,987
                                ========= =============    ============

</TABLE>

See notes to consolidated financial statements.

                                       24
<PAGE>

HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
----------------------------------------------------------------------------------------------------------------
                                                                      2003           2002              2001
OPERATING ACTIVITIES:
<S>                                                              <C>             <C>             <C>
   Net income                                                    $  1,061,165    $  1,165,700    $    620,316
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation                                                     587,557         743,412         730,212
     Amortization (accretion) of:
       Deferred loan origination fees                                  67,245         117,153         116,232
       Goodwill                                                            --          75,000          75,000
       Premiums and discounts on loans, net                            (4,412)        (14,412)         (4,487)
       Premiums and discounts on investment securities, net           526,094          49,942          68,487
     Net gain on sale of investment securities                             --          (1,518)             --
     Provision for loan and investment loss                           533,000         359,000         296,000
     Gain on sale of branch                                          (742,942)             --              --
   Deferred income taxes                                              (88,750)       (269,037)       (403,424)
   Origination of loans held for sale                             (35,107,251)    (26,675,718)    (13,502,308)
   Proceeds from sales of loans                                    33,795,154      27,117,741      12,732,692
   Stock compensation expense                                         194,411         169,541         244,385
   Change in accrued interest receivable                              214,962         295,576        (164,301)
   Change in accrued interest payable                                (141,700)       (232,892)         55,485
   Write down of land held for investment                             407,149              --              --
   Change in other assets                                            (321,565)        192,983        (720,084)
   Change in other liabilities                                       (667,300)        358,360         (41,483)
                                                                 ------------    ------------    ------------

         Net cash provided by operating activities                    312,817       3,450,831         102,722
                                                                 ------------    ------------    ------------

INVESTING ACTIVITIES:

   Purchases of investment securities - available for sale        (58,735,889)    (23,053,591)             --
   Proceeds from sales of investment securities                            --       4,995,347              --
   Principal payments on investment securities                     47,645,199      22,407,566      19,629,225
   Redemption of Federal Home Loan Bank stock                           5,800          25,900       1,487,700
   Purchases of premises and equipment                               (234,596)       (290,942)     (1,742,409)
   Net change due to branch sale                                   (2,523,471)             --              --
   Loan repayments, net of originations                            15,885,458       6,599,759       4,336,955
   Proceeds from maturities of other interest-bearing deposits             --              --          99,000
   Net decrease (increase) in real estate held for resale             350,238        (512,455)        (38,524)
                                                                 ------------    ------------    ------------

Net cash provided by investing activities                           2,392,739      10,171,584      23,771,947
                                                                 ------------    ------------    ------------
</TABLE>

                                                                     (Continued)
                                       25
<PAGE>

HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
---------------------------------------------------------------------------------------------------
                                                         2003               2002          2001

FINANCING ACTIVITIES:
<S>                                                 <C>              <C>              <C>
   Net increase in deposits                         $     142,780    $   3,720,004    $  16,412,108
   Advances from Federal Home Loan Bank                        --        6,464,838      213,740,000
   Repayment of Federal Home Loan Bank advances       (13,195,402)     (16,116,596)    (237,433,335)
   Net (decrease) increase in advance payments by
     borrowers for taxes and insurance                    (26,567)         (89,024)          59,916
   Repayment of note payable                                   --          (80,000)         (80,000)
   Purchase of treasury stock                            (700,699)      (8,182,354)      (1,038,686)
   Payment for treasury stock options exercised           858,417          619,821               --
   Dividends paid                                        (473,938)        (472,296)        (474,299)
                                                    -------------    -------------    -------------

            Net cash used by financing activities     (13,395,409)     (14,135,607)      (8,814,296)
                                                    -------------    -------------    -------------

NET (DECREASE) INCREASE IN CASH AND
   CASH EQUIVALENTS                                   (10,689,853)        (513,192)      15,060,373

CASH AND CASH EQUIVALENTS:
   Beginning of year                                   17,896,829       18,410,021        3,349,648
                                                    -------------    -------------    -------------

   End of year                                      $   7,206,976    $  17,896,829    $  18,410,021
                                                    =============    =============    =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
   INFORMATION:
   Cash paid for:
     Interest                                       $   8,405,484    $  11,056,593    $  14,023,981
                                                    =============    =============    =============

     Income taxes (received) paid                   $     773,855    $     (94,698)   $     150,000
                                                    =============    =============    =============
</TABLE>

See notes to consolidated financial statements.
                                                                     (Concluded)

                                       26
<PAGE>

HCB BANCSHARES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
--------------------------------------------------------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION - HCB Bancshares, Inc.
("Bancshares"),  a bank holding company, owns 100 percent of HEARTLAND Community
Bank and its  subsidiary  (collectively  the  "Bank").  Bancshares'  business is
primarily that of owning the Bank and  participating  in the Bank's  activities.
The Bank provides a broad line of financial products to individuals and small to
medium-sized  businesses  through banking  offices  located in Camden,  Fordyce,
Sheridan, and Bryant, Arkansas.

     The accompanying  consolidated financial statements include the accounts of
Bancshares and the Bank and are collectively  referred to as the "Company".  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

     USE OF ESTIMATES - The  preparation  of financial  statements in conformity
with accounting  principles  generally  accepted in the United States of America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities  at the  date  of the  consolidated  financial  statements  and  the
reported  amounts of revenues and expenses during the reporting  period.  Actual
results  could  differ  from  those  estimates.   Material  estimates  that  are
particularly  susceptible to  significant  change in the near term relate to the
determination of the allowance for loan losses and the valuation of the deferred
tax asset.

     CASH  AND  CASH   EQUIVALENTS  -  For  purposes  of   presentation  in  the
consolidated statements of cash flows, "cash and cash equivalents" includes cash
on  hand  and  amounts  due  from   depository   institutions,   which  includes
interest-bearing amounts available upon demand.

     INVESTMENT  SECURITIES - The Company classifies  investment securities into
one of two categories:  held to maturity or available for sale. The Company does
not engage in trading  activities.  Debt  securities  that the  Company  has the
positive  intent  and  ability to hold to  maturity  are  classified  as held to
maturity and recorded at cost, adjusted for the amortization of premiums and the
accretion of discounts.

     Investment  securities  that the  Company  intends  to hold for  indefinite
periods of time are  classified  as available  for sale and are recorded at fair
value.  Unrealized  holding  gains and losses are  excluded  from  earnings  and
reported  net of tax as a  separate  component  of  stockholders'  equity  until
realized.  Investment securities in the available for sale portfolio may be used
as part of the  Company's  asset and liability  management  practices and may be
sold in  response  to changes in interest  rate risk,  prepayment  risk or other
economic factors.

     Premiums are amortized  into interest  income using the interest  method to
the earlier of maturity  or call date.  Discounts  are  accreted  into  interest
income  using the  interest  method over the period to  maturity.  The  specific
identification  method of  accounting  is used to compute gains or losses on the
sales of investment securities.

     If the fair value of an investment security declines for reasons other than
temporary  market  conditions,  the carrying value of such a security is written
down to fair value by a charge to operations.

     LOANS  RECEIVABLE - Loans  receivable  that  management  has the intent and
ability to hold for the  foreseeable  future or until  maturity  or pay-off  are
stated at unpaid principal balances adjusted for any charge-offs,  the allowance
for loan  losses,  deferred  loan fees or costs,  and  unamortized  premiums  or
discounts.  Interest income is recognized on the interest method.  Deferred loan
fees or costs and premiums and  discounts on loans are  amortized or accreted to
income using the  level-yield  method over the remaining  period to  contractual
maturity.

                                       27
<PAGE>

     The accrual of interest on impaired loans is generally  discontinued  when,
in  management's  opinion,  the borrower may be unable to meet  payments as they
become  due or when the loan  becomes  ninety  days past due,  whichever  occurs
first.  When interest  accrual is  discontinued,  all unpaid accrued interest is
reversed.  Interest  income is  subsequently  recognized only to the extent cash
payments  in excess  of  principal  due are  received,  until  such time that in
management's  opinion, the borrower will be able to meet payments as they become
due.

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

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

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

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

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

     REAL ESTATE HELD FOR SALE - Real estate  acquired in settlement of loans is
initially  recorded at estimated fair value less estimated  costs to sell and is
subsequently  carried  at the  lower  of  carrying  amount  or fair  value  less
estimated disposal costs.  Management  periodically performs valuations,  and an
allowance for losses is established by a charge to operations to the extent that
the  carrying  value of a property  exceeds  its  estimated  fair  value.  Costs
relating to the  development  and  improvement of the property are  capitalized,
whereas  those  relating  to holding  the  property  are  expensed.  Real estate
acquired  for sale is  carried  of the lower of cost or fair value less costs to
sell.

                                       28
<PAGE>

     PREMISES AND  EQUIPMENT - Office  premises and equipment are stated at cost
less   accumulated   depreciation   and   amortization.   The  Company  computes
depreciation of premises and equipment using the  straight-line  method over the
estimated  useful lives of the individual  assets which range from 5 to 50 years
for  buildings  and  improvements  and  from 3 to 10  years  for  furniture  and
equipment.

     GOODWILL AND INTANGIBLE  ASSETS - Goodwill and other long-lived  assets are
tested  periodically  for  impairment  and  written  down to their fair value as
necessary.

     TREASURY  STOCK - Treasury stock is stated at cost and is determined by the
first-in, first-out method.

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

                                                         2003
                                        AS REPORTED                PRO FORMA

   Net income (in thousands)              $ 1,061                   $ 1,048
   Earnings per share:
      Basic                               $ 0.78                     $ 0.77
      Diluted                             $ 0.73                     $ 0.72

                                                          2002
                                         AS REPORTED                PRO FORMA

   Net income (in thousands)              $ 1,166                   $ 1,146
   Earnings per share:
      Basic                               $ 0.71                     $ 0.70
      Diluted                             $ 0.68                     $ 0.67

                                                          2001
                                         AS REPORTED                PRO FORMA

   Net income (in thousands)                $ 620                     $ 529
   Earnings per share:
      Basic                                $ 0.33                    $ 0.28
      Diluted                              $ 0.33                    $ 0.28


     LOAN  ORIGINATION  FEES - Loan  origination  fees and  certain  direct loan
origination  costs  are  deferred  and the net fee or cost is  recognized  as an
adjustment to interest income using the level-yield  method over the contractual
life  of the  loans.  When a loan  is  fully  repaid  or  sold,  the  amount  of
unamortized fee or cost is recorded in income.

     INCOME TAXES - The Company  recognizes  deferred tax assets and liabilities
for the expected future tax  consequences of temporary  differences  between the
carrying  amounts  and the tax bases of assets  and  liabilities.  Deferred  tax
assets and  liabilities  are  reflected  at currently  enacted  income tax rates
applicable  to the period in which the  deferred tax assets or  liabilities  are
expected to be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and  liabilities  are  adjusted  through the  provision  for
income taxes. The Company considers the need for a valuation allowance if, based
on available evidence, deferred tax assets are not expected to be realized.

     INTEREST RATE RISK - The Bank's asset base is exposed to risk including the
risk  resulting from changes in interest rates and changes in the timing of cash
flows. The Bank monitors the effect of such risks by considering the mismatch of
the  maturities  of its assets and  liabilities  in the  current  interest  rate
environment and the sensitivity of assets and liabilities to changes in interest
rates. The Bank's management has considered the effect of significant

                                       29
<PAGE>

increases  and decreases in interest  rates and believes  such changes,  if they
occurred,  would be  manageable  and would not affect the ability of the Bank to
hold its assets as planned.  However,  the Bank is exposed to significant market
risk in the event of significant and prolonged interest rate changes.

     EMPLOYEE STOCK OWNERSHIP PLAN - Compensation expense for the Employee Stock
Ownership Plan ("ESOP") is determined  based on the average fair value of shares
committed to be released  during the period and is  recognized as the shares are
committed  to be released.  For the purposes of earnings per share,  ESOP shares
are included in  weighted-average  common shares  outstanding  as the shares are
committed to be released.

     MANAGEMENT  RECOGNITION PLAN - Compensation for Management Recognition Plan
shares granted is based on the fair value of the shares at the date of grant and
is recognized ratably over the vesting period.

     EARNINGS  PER SHARE - Earnings  per share  ("EPS") of common stock has been
computed on the basis of the  weighted-average  number of shares of common stock
outstanding.  Basic and diluted  earnings  per share were both  calculated  with
1,866,387 weighted-average common shares outstanding for the year ended June 30,
2001.  Weighted-average  common  shares  outstanding  was the same for basic and
diluted in that year. For the year ended June 30, 2002, basic earnings per share
was  calculated  using  1,635,669  shares and  dilutive  earnings  per share was
calculated  using  1,719,903  shares.  For the year ended June 30,  2003,  basic
earnings per share was calculated using 1,363,626  shares and dilutive  earnings
per share was calculated  using  1,448,146  shares.  Potential  dilutive  common
shares include the Stock Option Plan shares and the Management  Recognition Plan
shares.  These potential common shares had no dilutive effect for the year ended
June 30,  2001.  However,  for the  years  ended  June 30,  2003 and  2002,  the
Management  Recognition  Plan was  antidilutive,  but the Stock  Option Plan was
dilutive by 84,520 and 84,234 shares, respectively.

     STOCK PURCHASED FOR OPTION BENEFIT TRUST - As of June 30, 2003, the Company
has a total of 3,217  shares of its common stock in its stock option plan trust.
These shares are  included in treasury  stock on the  accompanying  consolidated
statement of financial condition, are available for sale, and are managed by the
trustees  specifically  for  funding  stock  option  benefits  provided  to  key
employees.

     RECLASSIFICATIONS  -  Certain  amounts  in the 2002  and 2001  consolidated
financial  statements have been  reclassified to conform to the  classifications
adopted for  reporting  in 2003.  These  reclassifications  had no effect on net
earnings.

     RECENTLY  ISSUED  ACCOUNTING  PRONOUNCEMENTS  -  The  Financial  Accounting
Standards  Board  recently  issued  Statement  No. 150  "Accounting  for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement  establishes  standards  for how an  issuer  classifies  and  measures
certain  financial  instruments  with  characteristics  of both  liabilities and
equity. This statement is effective at the beginning of the first interim period
beginning  after June 15, 2003.  The Company does  anticipate  that the adoption
SFAS No. 150 will have a material impact on the financial condition or operating
results of the Company.

                                       30
<PAGE>


2.   INVESTMENT SECURITIES

     Investment securities consisted of the following at June 30:

<TABLE>
<CAPTION>
                                                                 2003
                                      --------------------------------------------------------
                                                        GROSS          GROSS
                                       AMORTIZED      UNREALIZED     UNREALIZED         FAIR
AVAILABLE FOR SALE                        COST           GAINS         LOSSES           VALUE
<S>                                   <C>            <C>            <C>            <C>
Municipal securities                  $ 25,115,797   $  1,348,125   $         --   $ 26,463,922
Equity securities                           39,750         68,820             --        108,570
Other securities                         2,000,000             --         20,000      1,980,000
Mortgage-backed securities              74,393,710      1,787,407         20,872     76,160,245
Collateralized mortgage obligations     24,811,534        436,469            394     25,247,609
                                      ------------   ------------   ------------   ------------

      Total                           $126,360,791   $  3,640,821   $     41,266   $129,960,346
                                      ============   ============   ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                2002
                                      --------------------------------------------------------
                                                         GROSS           GROSS
                                         AMORTIZED     UNREALIZED    UNREALIZED       FAIR
AVAILABLE FOR SALE                         COST          GAINS          LOSSES        VALUE
<S>                                   <C>            <C>            <C>            <C>
U.S. Government and agencies          $  1,500,000   $     30,945   $         --   $  1,530,945
Municipal securities                    25,520,671        323,090        154,570     25,689,191
Equity securities                           39,750         30,490             --         70,240
Other securities                         2,000,000             --          5,000      1,995,000
Mortgage-backed securities              75,820,993      1,820,096         38,053     77,603,036
Collateralized mortgage obligations     10,914,781        395,371             --     11,310,152
                                      ------------   ------------   ------------   ------------

      Total                           $115,796,195   $  2,599,992   $    197,623   $118,198,564
                                      ============   ============   ============   ============
</TABLE>

     For the year ended June 30,  2003 and 2001,  the  Company  did not have any
realized  gains or losses on sales of  investments  available for sale.  For the
year ended June 30, 2002, the Company  realized  $11,659 in gains and $10,141 in
losses on sales of investment securities available for sale.

     At  June  30,  2003,   municipal   securities  with  a  carrying  value  of
approximately $454,000 were pledged to collateralize public deposits. As of June
30, 2002, no securities were pledged as collateral for public deposits.  At June
30,  2003  and  2002,  mortgage-backed  securities  with  a  carrying  value  of
approximately  $15.4 million and $16.7  million,  respectively,  were pledged as
collateral for Federal Home Loan Bank advances.

                                       31
<PAGE>

     The scheduled maturities of available for sale securities at June 30, 2003,
by  contractual  maturity are shown below.  Expected  maturities may differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

                                       AMORTIZED         FAIR
                                          COST           VALUE

Due in one year or less               $         --   $         --
Due from one year to five years                 --             --
Due from five years to ten years                --             --
Due after ten years                     27,115,797     28,443,922
                                      ------------   ------------
                                        27,115,797     28,443,922

Equity securities                           39,750        108,570
Mortgage-backed securities              74,393,710     76,160,245
Collateralized mortgage obligations     24,811,534     25,247,609
                                      ------------   ------------
      Total                           $126,360,791   $129,960,346
                                      ============   ============

3.    LOANS RECEIVABLE

          Loans receivable consisted of the following at June 30:

                                               2003             2002
First mortgage loans:
   One- to four- family residences        $  33,550,184    $  41,724,098
   Multi-family and commercial               42,560,230       50,626,236
   Real estate construction loans             9,726,671       12,449,965
     Less undisbursed loan funds             (5,772,941)      (5,945,029)
                                          -------------    -------------
         Total first mortgage loans          80,064,144       98,855,270
                                          -------------    -------------

 Consumer and other loans:
   Commercial loans                          13,207,629       14,406,499
   Automobile                                 4,102,692        6,836,399
   Consumer and home improvement loans        5,029,886        4,807,218
   Loans collateralized by deposits           2,034,110        2,469,033
     Less undisbursed loan funds             (2,137,580)      (1,718,669)
                                          -------------    -------------

         Total consumer and other loans      22,236,737       26,800,480
                                          -------------    -------------

         Outstanding loans                  102,300,881      125,655,750

 Allowance for loan losses                   (1,605,677)      (1,628,515)
 Net deferred loan costs and discounts           84,341          149,663
                                          -------------    -------------

           Loans receivable, net          $ 100,779,545    $ 124,176,898
                                          =============    =============


     The  Company   originates  and  maintains   loans   receivable   which  are
substantially   concentrated  in  its  lending  territory   (primarily  Southern
Arkansas)  but also  originates  commercial  real estate loans in other areas of
Arkansas.  The Company's policy calls for collateral or other forms of repayment
assurance to be received from the borrower at the time of loan origination. Such
collateral  or other  form of  repayment  assurance  is  subject  to  changes in
economic value due to various factors beyond the control of the Company.

     At June 30, 2003, impaired loans totaled approximately $6.0 million and all
had designated reserves for possible loan losses.  Reserves relative to impaired
loans at June 30, 2003, were approximately  $550,000.

                                       32
<PAGE>

Approximately  $480,000 in interest  income was  recognized on average  impaired
loans of  approximately  $5.95 million for the year ended June 30, 2003. At June
30,  2002,  impaired  loans  totaled  approximately  $4.9  million  and  all had
designated  reserves for possible  loan  losses.  Reserves  relative to impaired
loans at June 30, 2002, were approximately  $426,000.  Approximately $173,000 in
interest income was recognized on average impaired loans of  approximately  $2.2
million for the year ended June 30, 2002.  Interest recognized on impaired loans
on a cash  basis  during  2003 and  2002  was  immaterial.  The  Company  is not
committed to lend additional funds to debtors whose loans have been modified.

     At June 30, 2003 and 2002,  the  Company had zero and  $396,000 in accruing
loans over 90 days delinquent, respectively.  Nonaccruing loans at June 30, 2003
and 2002, totaled $3.5 million and $1.5 million, respectively.

     The  subsidiary  Bank had  extensions  of  credit  to  executive  officers,
directors and to companies in which the Banks' directors were principal  owners,
in the amount of  approximately  $67,000 as of June 30, 2003 and $1.8 million as
of June 30, 2002.

Balance, June 30, 2002     $ 1,759,829
New extensions of credit            --
Repayments                  (1,692,431)
                           -----------
Balance, June 30, 2003     $    67,398
                           ===========

     In  management's  opinion,  such loans were made in the ordinary  course of
business and were made on substantially the same terms (including interest rates
and collateral) as those prevailing at the time for comparable transactions with
other persons.  Further, in management's opinion, these extensions of credit did
not  involve  more than the  normal  risk of  collectability  or  present  other
unfavorable features.

     Certain loans are originated  for sale.  These loans are typically held for
sale only a short time, and do not represent a material  amount in the aggregate
prior to their sale.  Normally the short time between  origination and sale does
not provide for significant differences between cost and market values.

4.   ACCRUED INTEREST RECEIVABLE

     Accrued interest receivable consisted of the following at June 30:

                                           2003         2002

                Investment securities   $  828,294   $  839,287
                Loans                      628,078      882,325
                                        ----------   ----------
                    Total               $1,456,372   $1,721,612
                                        ==========   ==========


5.   ALLOWANCE FOR LOAN LOSSES

     A summary of the  activity in the  allowance  for loan losses is as follows
for the years ended June 30:

                                     2003           2002          2001

    Balance, beginning of year   $ 1,628,515    $ 1,446,114    $ 1,231,709
    Provision                        533,000        330,000        296,000
    Charge-offs                     (652,968)      (234,382)      (101,761)
    Recoveries                        97,130         86,783         20,166
                                 -----------    -----------    -----------
    Balance, end of year         $ 1,605,677    $ 1,628,515    $ 1,446,114
                                 ===========    ===========    ===========

6.   FEDERAL HOME LOAN BANK STOCK

     The Bank is a member of the Federal Home Loan Bank  System.  As a member of
this system,  it is required to maintain an  investment  in capital stock of the
Federal  Home Loan Bank  ("FHLB") in an amount equal to the greater of 1% of its
outstanding  home loans or 1/20 of its advances  (borrowings)  from the FHLB. No
ready market

                                       33
<PAGE>

exists for such stock and it has no quoted  market  value but may be redeemed at
par. The carrying value of the stock is its cost.

     The  Gramm-Leach-Bliley  Act of 1999  required  each  FHLB to  replace  its
existing  capital stock with a new class or classes of capital stock,  establish
new minimum investment requirements for its members, and comply with new minimum
leverage and risk-based capital requirements. The Bank is a member of the Dallas
FHLB,  which  currently  plans to implement its new capital plan on September 2,
2003.

     The new  minimum  investment  requirement  states  that  each  member  must
maintain an  investment  in new Class B Stock  equal to the sum of a  membership
investment  requirement  (0.20% of the member's  total assets as of the previous
December 31), and an activity-based  investment  requirement (4.25% of currently
outstanding  advances  and  certain new  Mortgage  Partnership  Finance  ("MPF")
Program  loans.  As of June 30,  2003,  the Bank is  estimated to have a capital
stock requirement of $3.4 million,  well below its capital stock balance of $4.7
million as of the same date.

7.   PREMISES AND EQUIPMENT

          Premises and equipment consisted of the following at June 30:

                                                2003            2002

        Land and buildings                 $  5,521,876    $  7,153,233
        Furniture and equipment               3,580,334       3,667,962
                                           ------------    ------------
              Total                           9,102,210      10,821,195
        Accumulated depreciation             (3,988,565)     (3,708,984)
                                           ------------    ------------

             Premises and equipment, net   $  5,113,645    $  7,112,211
                                           ============    ============

     The decrease in premises and  equipment  includes a $407,000  write down of
land held for investment in Camden, Arkansas which previously was to be the site
of a new home office facility. These two parcels were purchased in 1996 and 1999
and  significant  costs were  necessary to make the land suitable to build upon.
The Board of  Directors  decided  that in the near future it would not be in the
best  interests of the Company to expend the resources  necessary to build a new
home office  facility.  Since the land will not be utilized in the near  future,
appraisals  were  obtained in March 2003,  and the land was written down to fair
market value during that quarter.  This amount was included in other noninterest
expense.

8.    DEPOSITS

     Deposits are summarized as follows at June 30:

                                                   2003           2002
     Demand and NOW accounts, including
       noninterest-bearing deposits of
       $9,447,561 and $8,889,867 in 2003 and
       2002, respectively                      $ 42,807,702   $ 39,092,410
     Money market                                 4,751,127      5,911,715
     Statement savings                            7,927,966      8,010,973
     Certificates of deposit                     96,469,709    111,990,085
                                               ------------   ------------

           Total                               $151,956,504   $165,005,183
                                               ============   ============


                                       34
<PAGE>

     The aggregate  amount of short-term  jumbo  certificates  of deposit with a
minimum  denomination  of $100,000  was  approximately  $17.2  million and $19.3
million at June 30, 2003 and 2002, respectively.

     At June 30, 2003,  scheduled  maturities of  certificates of deposit are as
follows:

                      Years ending June 30:
                            2004              $76,372,882
                            2005               17,025,525
                            2006                3,071,302
                            Thereafter                 --
                                              -----------
                                 Total        $96,469,709
                                              ===========

     Eligible  deposits  of the Bank are  insured up to  $100,000 by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC").

     Deposits  from  related  parties  held by the  Company at June 30, 2003 and
2002, totaled $1,133,132 and $1,296,863, respectively.

     In management's  opinion, such deposits were made in the ordinary course of
business  and were made on  substantially  the same  terms  (including  interest
rates) as those  prevailing at the time for comparable  transactions  with other
persons.

9.   FEDERAL HOME LOAN BANK ADVANCES

     The Bank  pledges as  collateral  for FHLB  advances its FHLB stock and has
entered into blanket collateral agreements with the FHLB whereby the Bank agrees
to maintain, free of other encumbrances, qualifying single family first mortgage
loans with unpaid principal  balances,  when discounted to 75% of such balances,
of at  least  100% of  total  outstanding  advances.  Additionally  the Bank has
pledged mortgage-backed  securities with a carrying value of approximately $15.4
million at June 30, 2003,  as additional  collateral.  Advances at June 30, 2003
and 2002, had maturity dates as follows:

                                   2003                        2002
                       WEIGHTED                    WEIGHTED
                       AVERAGE                      AVERAGE
                        RATE            AMOUNT       RATE            AMOUNT
Years ending June 30:
   2003                    --%       $        --      5.70%       $12,007,051
   2004                  5.65          9,875,000      5.65          9,875,000
   2005                  5.95          7,055,998      5.95          7,141,929
   2006                  5.92          4,826,966      5.92          4,859,326
   2007                  5.91          6,454,197      5.91          6,477,709
   2008                  5.82         13,827,000      5.84         14,043,294
   Thereafter            6.17         27,029,373      6.17         27,859,627
                         ----        -----------      ----        -----------

      Total              5.96%       $69,068,534      5.93%       $82,263,936
                         ====        ===========      ====        ==========

10.  INCOME TAXES

     Income tax provisions (benefits) are summarized as follows:

                                             YEARS ENDED JUNE 30,
                                      -------------------------------------
                                          2003         2002         2001
     Income tax provision (benefit):
        Current                        $ 382,206    $ 330,065    $ (64,464)
        Deferred                        (293,456)    (269,038)    (403,424)
                                       ---------    ---------    ---------
            Total                      $  88,750    $  61,027    $(467,888)
                                       =========    =========    =========

                                       35
<PAGE>

         The reasons for the differences between the statutory federal income
tax rates and the effective tax rates are summarized as follows:

<TABLE>
<CAPTION>
                                                            YEARS ENDED JUNE 30,
                                  -----------------------------------------------------------
                                           2003                2002                2001
<S>                               <C>          <C>    <C>          <C>    <C>          <C>
Taxes at statutory rate           $ 390,971    34.0%  $ 417,087    34.0%  $  51,826    34.0%
Increase (decrease)
 resulting from:
    Tax exempt income              (431,357)  (37.51)  (457,123)  (37.26)  (520,047) (341.18)
    Disallowed interest expense      55,383     4.82     66,972     5.46     85,650    56.19
    State income taxes               38,681     3.36         --       --         --       --
   Change in estimate                    --       --         --       --    (67,000)  (43.95)
    Compensation                    (16,371)   (1.42)   (38,289)   (3.12)   (19,825)  (13.01)
    Other, net                       51,443     4.47     72,380     5.89      1,508     0.99
                                  ---------    -----  ---------    -----  ---------   ------

                Total             $  88,750     7.72% $  61,027     4.97% $(467,888) (306.96)%
                                  =========    =====  =========    =====  =========   ======
</TABLE>


     During the year ended December 31, 1996, new  legislation was enacted which
provides for the recapture  into taxable  income of certain  amounts  previously
deducted as additions to the bad debt reserves for income tax purposes. The Bank
changed its method of determining  bad debt reserves for tax purposes  following
the year ended  June 30,  1997.  The  amounts  to be  recaptured  for income tax
reporting  purposes are considered by the Bank in the  determination  of the net
deferred tax liability.

     The Company's  deferred tax asset account was comprised of the following at
June 30:

                                                          2003         2002
Deferred tax assets:
  Allowance for loan losses                            $  585,425   $  543,084
 Write-down on land held for investment                   178,797           --
  Deferred compensation                                   370,410      388,868
  Net operating loss carryforward                         624,590      801,281
  AMT credit carryforward                                 800,410      445,313
  Other                                                    50,523      140,367
                                                       ----------   ----------
            Total deferred tax assets                   2,610,155    2,318,913
                                                       ----------   ----------
Deferred tax liabilities:
  Premises and equipment                                   70,883      106,624
  Unrealized gains on available for sale investments    1,378,270      960,427
  Loan fees                                                    --        1,200
  FHLB dividends                                          500,402      465,675
                                                       ----------   ----------
       Total deferred tax liabilities                   1,949,555    1,533,926
                                                       ----------   ----------
       Net deferred tax asset                          $  660,600   $  784,987
                                                       ==========   ==========

     A deferred tax liability has not been  recognized for the bad debt reserves
of the Bank created in the tax years which began prior to December 31, 1987 (the
base year). At June 30, 2003, the amount of these reserves totaled approximately
$3,462,590  with an  unrecognized  deferred tax  liability of  $1,177,281.  Such
unrecognized  deferred tax liability could be recognized in the future, in whole
or in part,  if (i) there is a change in federal tax law, (ii) the Bank fails to
meet certain  definitional  tests and other  conditions  in the federal tax law,
(iii) certain  distributions  are made with respect to the stock of the Bank, or
(iv) the bad debt  reserves are used for any purpose  other than  absorbing  bad
debt losses.

     As of June 30, 2003 the Company has a net operating  loss  carryforward  of
$1,882,908,  of which $207,222,  $1,120,698,  and $554,988 expire in 2019, 2020,
and 2021,  respectively.  The Company's AMT credit carryforward of $800,410 does
not have an expiration date.

                                       36
<PAGE>

     The portion of the net deferred tax asset resulting from net operating loss
carryforward and AMT credit  carryforward totals $1,425,000 as of June 30, 2003.
The  recoverability of this asset is entirely  contingent upon the production of
taxable income for income tax reporting  purposes.  Management  anticipates that
the Company will  produce  such income in the near future based on  management's
current   forecasts  of  earnings  and  if  necessary,   management's   tax  and
interest-rate  risk planning  strategy of selling  available for sale tax exempt
securities  and   reinvesting   the  proceeds  into  taxable  income   producing
securities.  The strategy does not anticipate  significant  taxable gains on the
sale of the  tax-exempt  securities,  but rather a shift of nontaxable  interest
income  to  taxable  interest  income.  Should  this  strategy  not  result in a
sufficient amount of net taxable income, the Company will determine the need for
a valuation  allowance  for the potion of the net deferred  tax asset  resulting
from the carryforwards.

11.  BENEFIT PLANS

     EMPLOYEE  STOCK  OWNERSHIP  PLAN - The Company has  established an employee
stock ownership plan ("ESOP") to benefit  substantially all employees.  The ESOP
has a note payable to Bancshares,  the proceeds from which were used to purchase
shares of common stock of Bancshares.

     The note receivable, presented in the statements of stockholders' equity as
unearned ESOP shares,  is to be repaid in  installments of $211,600 on June 30th
each year through  2006.  Interest is based upon the prime rate,  which is to be
adjusted and paid annually. The note may be prepaid without penalty. The ESOP is
funded by  contributions  made by the Bank in amounts  sufficient  to retire the
debt.  Compensation expense of $341,215,  $288,665,  and $179,882 was recognized
during the years ended June 30, 2003, 2002 and 2001, respectively.

     Benefits become 100% vested after three years of credited  service.  Shares
are released to participants proportionately as the loan is repaid. Dividends on
allocated  shares are  recorded as dividends  and charged to retained  earnings.
Dividends  on  unallocated  shares are used to repay the loan and are treated as
compensation  expense.  Forfeitures  of nonvested  benefits will be  reallocated
among remaining participating employees in the same proportion as contributions.
At both June 30, 2003 and 2002,  21,160 shares were  committed to be released by
the ESOP to participant  accounts.  At June 30, 2003,  there were 148,120 shares
allocated to participant  accounts and 63,480 unallocated shares. The fair value
of the unallocated  shares  amounted to $1,088,682  (63,480 shares at $17.15 per
share) at June 30, 2003.

     Participants  with vested account balances leaving  employment,  generally,
may  elect  to  have  their  allocated  shares  distributed.  In the  case  of a
distribution  of  shares,  which at the  time of  distribution  are not  readily
tradable on an established securities market, the Company is required to issue a
put option to the  participant.  The put option is priced  using the fair market
value as determined as of the most recent  valuation date (prior to the exercise
of such right) by an  independent  appraiser.  Any excess of the total  purchase
price at which the  participant  may put the shares to the Company over the fair
value of the shares at the date of the issuance of the option is  recognized  as
expense to the  Company  with the fair value of the shares  recorded as treasury
stock. During the years ended June 30, 2003, June 30, 2002, and June 20, 2001 no
put options were issued.

     STOCK  OPTION  PLAN  - The  Stock  Option  Plan  ("SOP"),  approved  by the
Company's  stockholders  during  the year ended June 30,  1998,  provides  for a
committee  of  the   Company's   Board  of  Directors  to  award   incentive  or
non-incentive stock options, representing up to 317,400 shares of Company stock.
Options granted to executive officers and directors vest 25% immediately and 25%
on each of the three subsequent  anniversary dates of the grant. Options granted
to employee's vest 20% immediately upon grant, with the balance vesting in equal
amounts on the four subsequent  anniversary dates of the grant.  Options granted
vest immediately in the event of disability or death.  Outstanding stock options
can be exercised over a ten-year  period from the date of grant.  Vested options
of terminated  participants expire one year after the participant's  termination
date.

     Under the SOP,  options have been granted to directors and key employees to
purchase common stock of the Company. The exercise price in each case equals the
fair market value of the Company's  stock at the date of grant.  During the year
ended June 30, 2003,  25,000 option shares were granted at a price of $18.10 per
option share.  No new options were granted  during the years ended June 30, 2002
or 2001.

                                       37
<PAGE>

     A summary of the status of the  Company's  stock option plan as of June 30,
2003,  and changes  during the years ending June 30, 2002 and 2001, is presented
below:

                                                          WEIGHTED
                                                          AVERAGE
                                                         EXERCISE
OPTIONS                                         SHARES     PRICE

Outstanding at June 30, 2000                    312,980   $ 9.14
Granted                                              --       --
Exercised                                            --       --
Forfeited                                        18,513     9.18
                                                -------   ------
Outstanding at June 30, 2001                    294,467     9.14
                                                -------   ------

Granted                                              --       --
Exercised                                        50,473     9.14
Forfeited                                        25,444     9.13
                                                -------   ------
Outstanding at June 30, 2002                    218,550     9.14
                                                -------   ------

Granted                                          25,000     8.10
Exercised                                        75,163     9.14
Forfeited                                            --       --
                                                -------   ------
Outstanding at June 30, 2003                    168,387   $10.47
                                                =======   ======

Options exercisable at June 30, 2003 (vested)   149,637   $ 9.51
                                                =======   ======


     Exercise prices for options outstanding at June 30, 2003, range from $9.125
to $18.10 per share.  The weighted  average  remaining  contractual life of such
shares was 5.6 years at June 30, 2003.

     The fair value of options  granted was estimated on the date of grant using
the  binomial   option-pricing   model  with  the  following   weighted  average
assumptions:

                                                            2003
                                                           GRANTS
         Volatility                                        10.00 %
         Life of options                                  10.0 years
         Risk-free interest rate                            3.53 %
         Dividend rate                                      1.93 %

     The weighted  average fair value of options  granted during the fiscal year
ended June 30, 2003, was $3.03 per share.

     MANAGEMENT  RECOGNITION  PLAN - The  Management  Recognition  Plan ("MRP"),
approved  by the  Company's  stockholders  during the year ended June 30,  1998,
provides for a committee of the Company's Board of Directors to award restricted
stock to key officers as well as non-employee directors.  The MRP authorizes the
Company to grant up to 52,900 shares of Company stock.  Compensation  expense is
recognized  based on the fair market  value of the shares on the grant date over
the vesting  period.  Under the original  plan,  shares granted to directors and
executive  officers  vest 25% at the  grant  date and 25% each May 1  afterward.
Shares granted to non-directors and non executive officers vest 20% at the grant
date and 20% each May 1 afterward.  Shares  granted will be deemed vested in the
event of disability,  or death.  At June 30, 2003, all shares have been acquired
that are necessary to meet the Plan's award requirements. The difference between
the price at the date of grant and the actual  purchase  price is recorded as an
adjustment to stockholders' equity as shares are vested.  Approximately $34,000,
$40,000 and $65,000 in  compensation  expense  was  recognized  during the years
ended  June 30,  2003,  2002,  and  2001,  respectively.  On May 17,  2000,  all
directors  voluntarily  elected to extend their vesting period three  additional
years to May 1, 2004. In addition,  certain officers also voluntarily elected to
adopt the  three-year  extension of their vesting  period.  On May 22, 2003, the
8,520 shares, which had been forfeited by former plan participants, were

                                       38
<PAGE>

granted at $18.10 per share.  Of these  shares,  8,210  shares  were  awarded to
directors or executive  officers and 310 shares were awarded to non-directors or
executive officers.

     OFFICERS'  AND DIRECTORS  RETIREMENT  PLAN - During the year ended June 30,
1996, the Bank adopted a  "non-qualified"  retirement  plan for its officers and
directors in  recognition  of their years of service to the Bank. The plan is an
annuity  contract plan whereby  funds are to be set aside  annually in a grantor
trust, with the Bank acting as trustee of the Trust. Distributions are scheduled
to be paid upon  completion  of six to ten years of service to the Bank.  No tax
deduction  for the Plan is claimed  until  funds are paid to the  beneficiaries.
Future  funding is dependent on continued  service to the Bank and  therefore is
expensed  as the plan is funded each year.  For the years  ended June 30,  2003,
2002  and  2001,  contributions  to  the  plan  totaled  approximately  $29,000,
$124,000, and $181,000, respectively.

     401(k) PLAN - Effective July 1, 1993, employees of the Bank may participate
in a 401(k) savings plan,  whereby the employees may elect to make contributions
pursuant to a salary reduction agreement upon reaching age 21 and completing one
year of service. At its discretion,  the Bank may make matching contributions to
the plan. Employer  contributions vest 20% each year beginning in the third year
of service  and become  100%  vested in seven  years.  The Bank made no matching
contribution during the years ended June 30, 2003, 2002 or 2001.

     EMPLOYMENT  AGREEMENTS  - Certain  executive  officers  of the Bank and the
Company have employment  agreements with one to three year renewable terms. Such
agreements  provide  for  termination  pay  and  other  benefits  under  certain
circumstances.  As of June 30, 2003, aggregate  termination pay is approximately
$0.70 million.

     CHANGE-IN-CONTROL AGREEMENTS - As of June 30, 2003, certain officers of the
Bank and the Company had change-in-control  agreements with three-year renewable
terms.   Such   agreements   provide  for  benefits   under   circumstances   of
changes-in-control  as defined in the  agreements.  The  benefits  provide for a
range of 25% to 299% of the  officers'  compensation.  As of June 30, 2003,  the
aggregate benefits total approximately $0.80 million.

12.  SALE OF BRANCH

     On July 19, 2002, the Bank sold its Monticello branch to Simmons First Bank
of South Arkansas.  The sale included  approximately $8.3 million in loans, $1.5
million in fixed  assets,  $0.2 million in other  assets,  and $13.2  million in
deposits.  The Bank recognized a premium on the deposits of  approximately  $0.9
million and the difference was paid in cash to the buyer.  The Bank recognized a
net gain on this sale of approximately $743,000.

13.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

     The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing  needs of its  customers.
These  financial  instruments  include  commitments to extend credit and standby
letters of credit.  Those instruments  involve, to varying degrees,  elements of
credit risk in excess of the amount recognized in the consolidated statements of
financial  condition.  The  Company  does  not use  financial  instruments  with
off-balance sheet risk as part of its asset/liability  management program or for
trading  purposes.  The  Company's  exposure  to  credit  loss in the  event  of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby  letters of credit is represented  by the  contractual
amounts of those  instruments.  The  Company  uses the same  credit  policies in
making  commitments and conditional  obligations as it does for on-balance sheet
instruments.

     Commitments  to extend credit are  agreements to lend to a customer as long
as  there  is no  violation  of  any  condition  established  in  the  contract.
Commitments  generally have fixed expiration dates or other termination clauses.
The Company evaluates each customer's  creditworthiness on a case-by-case basis.
The amount of  collateral  obtained,  if deemed  necessary  by the Company  upon
extension of credit,  is based on management's  credit  evaluation of the credit
applicant. Such collateral consists primarily of residential properties. Standby
letters of credit are conditional commitments issued by the Company to guarantee
the  performance  of a customer to a third  party.  The

                                       39
<PAGE>

credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending loan facilities to customers.

     The Company had the following outstanding commitments at June 30, 2003:

             Undisbursed construction loans              $4,783,023
             Commitments to originate mortgage loans        989,918
             Commitments to originate commercial loans       82,000
             Unused lines of credit                       2,055,580
                                                         ----------

                  Total                                  $7,910,521
                                                         ==========

     The  funding  period for  construction  loans is  generally  less than nine
months and commitments to originate mortgage loans are generally outstanding for
60 days or less. At June 30, 2003, interest rates on commitments are believed by
management to approximate market rates.

14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<TABLE>
<CAPTION>
                                                 JUNE 30, 2003                 JUNE 30, 2002
                                                           ESTIMATED                       ESTIMATED
                                           CARRYING         FAIR          CARRYING           FAIR
                                            VALUE          VALUE            VALUE           VALUE
ASSETS:
<S>                                      <C>            <C>            <C>            <C>
  Cash and due from banks                $  3,003,656   $  3,003,656   $  3,492,257   $  3,492,257
  Interest-bearing deposits with banks      4,203,320      4,203,320     14,404,572     14,404,572
  Investment securities:
    Available for sale                    129,960,346    129,960,346    118,198,564    118,198,564
  Loans receivable, net                   100,779,545    103,394,671    124,176,898    127,424,573
  Accrued interest receivable               1,456,372      1,456,372      1,721,612      1,721,612
  Federal Home Loan Bank stock              4,704,100      4,704,100      4,709,900      4,709,900

LIABILITIES:
  Deposits:
    Demand, NOW, money
      market and statement savings         55,486,795     55,486,795     53,015,098     53,015,098
    Certificates of deposit                96,469,709     96,867,264    111,990,085    112,396,949
  Federal Home Loan Bank advances          69,068,534     77,791,523     82,263,936     86,780,344
  Advance payments by
    borrowers for taxes and insurance          83,879         83,879        110,446        110,446
  Accrued interest payable                    563,620        563,620        740,008        740,008

</TABLE>

     For cash and due from banks,  interest-bearing deposits with banks, Federal
Home Loan Bank stock and accrued  interest  receivable,  the carrying value is a
reasonable  estimate of fair value primarily because of the short-term nature of
instruments  or, as to Federal  Home Loan Bank  stock,  the  ability to sell the
stock back to the Federal Home Loan Bank at cost.  The fair value of  investment
securities is based on quoted market prices,  dealer quotes and prices  obtained
from  independent  pricing  services.  The fair  value of  loans  receivable  is
estimated based on present values using the rates currently offered for loans of
similar remaining maturities at the reporting date.

                                       40
<PAGE>

     The fair value of demand deposit accounts,  NOW accounts,  savings accounts
and money market deposits is the amount payable on demand at the reporting date.
The fair value of  fixed-maturity  certificates of deposit and Federal Home Loan
Bank advances is estimated  using the rates  currently  offered for deposits and
borrowings of similar  remaining  maturities at the reporting  date. For advance
payments by borrowers for taxes and insurance and accrued  interest  payable the
carrying value is a reasonable estimate of fair value,  primarily because of the
short-term  nature  of these  instruments.  Commitments  are  generally  made at
prevailing  interest rates at the time of funding and are relatively short term.
Therefore, there is no difference between the contract amount and fair value.

     The  fair  value  estimates   presented   herein  are  based  on  pertinent
information  available  to  management  as of June 30,  2003 and 2002.  Although
management  is not aware of any  factors  that  would  significantly  affect the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued for purposes of these  financial  statements  since the reporting  date
and,  therefore,  current estimates of fair value may differ  significantly from
the amounts presented herein.

15.  COMMITMENTS AND CONTINGENCIES

     In the  ordinary  course of business,  the Company has various  outstanding
commitments   and  contingent   liabilities   that  are  not  reflected  in  the
accompanying  consolidated  financial statements.  In addition, the Company is a
defendant in certain claims and legal actions  arising in the ordinary course of
business.  In the opinion of management,  after consultation with legal counsel,
the  ultimate  disposition  of these  matters is not expected to have a material
adverse effect on the consolidated financial statements of the Company.

     In May, 1999, a shareholder filed a putative class action complaint against
the Company and several current and former officers alleging that the defendants
defrauded the  plaintiff and other  shareholder  class members  through  various
public  statements  and reports  that had the  supposed  effect of  artificially
inflating  the price the  plaintiff  and other  putative  class  members paid to
purchase the Company's common stock.

     The Company and the other  defendants  moved to dismiss the complaint.  The
federal  district  court  granted  the  motion on March 31,  2001,  but  allowed
plaintiffs  30 days from the date of the order to file an amended  class  action
complaint.  On August 28, 2001, the Company was informed by the federal district
court that the case was dismissed with prejudice on August 27, 2001.

16.  RETAINED EARNINGS

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

     The Bank may not  declare  or pay cash  dividends  on its  shares of common
stock if the effect  thereof would cause the Bank's  stockholders'  equity to be
reduced below applicable regulatory capital maintenance requirements for insured
institutions or below the amount of the special  liquidation account referred to
above.  This requirement  effectively  limits the dividend paying ability of the
Company in that the Company must  maintain an  investment  in equity of the Bank
sufficient to enable the Bank to meet its requirements as noted above.  Required
capital amounts are shown in Note 17 to the consolidated financial statements.

     Liquidation  account  balances  are not  maintained  because of the cost of
maintenance and the remote likelihood of complete liquidation. Additionally, the
Bank is limited to distributions it may make to Bancshares  without OTS approval
if the distribution would cause the total distributions to exceed the Bank's net
income for the year to date plus the Bank's net income (less  distributions) for
the preceding two years.  Bancshares may use assets other than its investment in
the Bank as a source of dividends.

                                       41
<PAGE>

17.  REGULATORY MATTERS

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

     Quantitative  measures established by regulation to ensure capital adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below) of tangible  capital (as defined in the  regulations)  to tangible assets
(as  defined)  and core  capital  (as  defined)  to  adjusted  total  assets (as
defined),  and of total risk-based capital (as defined) to risk-weighted  assets
(as defined).

     As of June 30, 2003 and 2002, the most recent  notification from the Office
of  Thrift  Supervision  categorized  the  Bank as well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized  the  Bank  must  maintain  minimum  core  (Tier  I  core),  Tier  I
risk-based,  and total risk-based ratios as set forth in the table. There are no
conditions  or events since that  notification  that  management  believes  have
changed the Bank's category.

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

<TABLE>
<CAPTION>
                                                                                        TO BE CATEGORIZED
                                                                                       AS WELL CAPITALIZED
                                                                                           UNDER PROMPT
                                                                         FOR CAPITAL         CORRECTIVE
                                                          ACTUAL      ADEQUACY PURPOSES  ACTION PROVISIONS
                                                    AMOUNT   RATIO     AMOUNT    RATIO     AMOUNT   RATIO
      AS OF JUNE 30, 2003:
<S>                                                <C>       <C>       <C>       <C>      <C>       <C>
Tier I (Core) Capital to Adjusted Total Assets     $23,056    9.39 %   $ 9,821   4.00 %   $12,276    5.00 %
Total Risk-Based Capital to Risk-weighted Assets    24,459   21.83 %     8,962   8.00 %    11,202   10.00 %
Tier I (Core) Capital to Risk-weighted Assets       23,056   20.58 %       N/A   N/A        6,721    6.00 %
Tangible Capital to Tangible Assets                 23,056    9.39 %     3,683   1.50 %      N/A      N/A

      AS OF JUNE 30, 2002:

Tier I (Core) Capital to Adjusted Total Assets     $21,396    7.88 %    $10,861   4.00 %   $13,576    5.00 %
Total Risk-Based Capital to Risk-weighted Assets    23,025   17.06 %     10,798   8.00 %    13,497   10.00 %
Tier I (Core) Capital to Risk-weighted Assets       21,396   15.85 %      N/A     N/A        8,098    6.00 %
Tangible Capital to Tangible Assets                 21,396    7.88 %      4,073   1.50 %      N/A      N/A

</TABLE>

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

                                       42
<PAGE>

18.  PARENT COMPANY ONLY FINANCIAL INFORMATION

     The following  condensed  statements of financial  condition as of June 30,
2003 and 2002,  and condensed  statements of income and cash flows for the years
ended June 30, 2003, 2002 and 2001, for HCB  Bancshares,  Inc. should be read in
conjunction with the consolidated financial statements and the notes herein.

HCB BANCSHARES, INC.
(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2003 AND 2002
ASSETS                                          2003            2002

Deposit in Bank                              $   922,508   $ 1,221,185
Cash equivalents                                 194,659       175,817
                                             -----------   -----------
    Cash and cash equivalents                  1,117,167     1,397,002

Investment in Bank                            22,992,902    21,927,797
Loans receivable                               1,027,166     1,060,298
Investment securities                            108,570        70,240
Other assets                                     845,806       821,076
                                             -----------   -----------
TOTAL ASSETS                                 $26,091,611   $25,276,413
                                             ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities       $   149,363   $   143,059
Stockholders' equity                          25,942,249    25,133,354
                                             -----------   -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $26,091,611   $25,276,413
                                             ===========   ===========

<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2003, 2002 AND 2001

INCOME:                                             2003           2002          2001
<S>                                                  <C>            <C>            <C>
   Dividend from Bank                            $        --    $ 9,000,000    $ 1,000,000
   Interest and dividend income                      116,018        205,248        230,421
                                                 -----------    -----------    -----------
     Total income                                    116,018      9,205,248      1,230,421
EXPENSES:
   Operating expenses                                122,404         48,944        191,509
                                                 -----------    -----------    -----------
INCOME BEFORE INCOME TAXES AND DISTRIBUTION IN
   (EXCESS) LESS THAN BANK SUBSIDIARY INCOME          (6,386)     9,156,304      1,038,912
INCOME TAX (BENEFIT) PROVISION                        (2,445)        59,849         13,000
                                                 -----------    -----------    -----------
INCOME BEFORE DISTRIBUTIONS IN (EXCESS) LESS
   THAN BANK SUBSIDIARY INCOME                        (3,941)     9,096,455      1,025,912
DISTRIBUTIONS IN (EXCESS) THAN BANK
   SUBSIDIARY INCOME                               1,065,106     (7,930,755)      (405,596)
                                                 -----------    -----------    -----------
NET INCOME                                       $ 1,061,165    $ 1,165,700    $   620,316
                                                 ===========    ===========    ===========

</TABLE>

                                       43
<PAGE>

HCB BANCSHARES, INC.
         (PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001

OPERATING ACTIVITIES                                                     2003            2002           2001
<S>                                                                  <C>            <C>            <C>
   Net income                                                        $ 1,061,165    $ 1,165,700    $   620,316
   Adjustments to reconcile net income to net cash provided
     by operating activities:
     Distributions (less than) in excess of bank subsidiary income    (1,065,106)     7,930,755        405,596
     Changes in operating assets and liabilities:
       Other assets                                                      (11,301)       239,824       (259,752)
       Accrued expenses and other liabilities                             18,494       (194,647)       228,425
                                                                     -----------    -----------    -----------
         Net cash provided by operating activities                         3,252      9,141,632        994,585
                                                                     -----------    -----------    -----------

INVESTING ACTIVITIES:
   Purchase loans, net of repayments                                      33,132       (360,298)            --
                                                                     -----------    -----------    -----------

         Net cash provided (used) by investing activities                 33,132       (360,298)            --
                                                                     -----------    -----------    -----------

FINANCING ACTIVITIES:
   Dividends paid                                                       (473,937)      (472,296)      (474,299)
   Purchase of treasury stock, net                                       157,718     (7,562,533)    (1,038,686)
                                                                     -----------    -----------    -----------
         Net cash used by financing activities                          (316,219)    (8,034,829)    (1,512,985)
                                                                     -----------    -----------    -----------

NET (DECREASE) INCREASE IN CASH AND CASH
   EQUIVALENTS                                                          (279,835)       746,505       (518,400)

CASH AND CASH EQUIVALENTS:

   Beginning of year                                                   1,397,002        650,497      1,168,897
                                                                     -----------    -----------    -----------

   End of year                                                       $ 1,117,167    $ 1,397,002    $   650,497
                                                                     ===========    ===========    ===========
</TABLE>

                                       44
<PAGE>

19.  OTHER COMPREHENSIVE INCOME

     The amount of income tax expense or benefit  allocated to each component of
comprehensive income, including reclassification adjustments, are shown below:

                                                    YEAR ENDED JUNE 30, 2003
                                            ------------------------------------
                                            BEFORE TAX   TAX EXPENSE  NET-OF-TAX
                                              AMOUNT       AMOUNT        AMOUNT
                                            ------------------------------------
UNREALIZED GAINS ON SECURITIES:
  Unrealized holding gain on securities
    arising during period                   $1,197,187   $  417,844   $  779,343
  Less reclassification adjustment for
    (gains) losses included in net income           --           --           --
                                            ----------   ----------   ----------
        Other comprehensive income          $1,197,187   $  417,844   $  779,343
                                            ==========   ==========   ==========

<TABLE>
<CAPTION>
                                                        YEAR ENDED JUNE 30, 2002
                                            ------------------------------------------
                                              BEFORE TAX     TAX EXPENSE    NET-OF-TAX
                                                AMOUNT          AMOUNT        AMOUNT
                                            ------------------------------------------
<S>                                         <C>            <C>           <C>
UNREALIZED GAINS ON SECURITIES:
  Unrealized holding gain on securities
    arising during period                   $ 2,544,652    $ 1,041,592   $ 1,503,060
  Less reclassification adjustment for
    (gains) losses included in net income        (1,518)            --        (1,518)
                                            -----------    -----------   -----------
        Other comprehensive income          $ 2,543,134    $ 1,041,592   $ 1,501,542
                                            ===========    ===========   ===========
</TABLE>

                                                   YEAR ENDED JUNE 30, 2001
                                           -------------------------------------
                                           BEFORE TAX   TAX EXPENSE   NET-OF-TAX
                                             AMOUNT       AMOUNT        AMOUNT
                                           -------------------------------------
UNREALIZED GAINS ON SECURITIES:
  Unrealized holding gain on securities
    arising during period                   $7,236,824   $2,894,756   $4,342,068
  Less reclassification adjustment for
    (gains) losses included in net income           --           --           --
                                            ----------   ----------   ----------
        Other comprehensive income          $7,236,824   $2,894,756   $4,342,068
                                            ==========   ==========   ==========


                                       45
<PAGE>

                              CORPORATE INFORMATION

DIRECTORS:                                      MAIN OFFICE:

Vida H. Lampkin                                     237 Jackson Street, S.W.
 Chairman of the Board                              Camden, Arkansas

Charles T. Black                                BRANCH OFFICES:
 President and Chief
    Executive Officer                               4937 Highway 5 North
                                                    Bryant, Arkansas
Bruce D. Murry
   Retired Owner, Bruce's                           1125 Fairview Road SW
   Camden, Arkansas                                 Camden, Arkansas

Carl E. Parker, Jr.                                 610 West 4th Street
   General Manager, Camden Monument Co.             Fordyce, Arkansas
   Camden, Arkansas
                                                    108 South Main Street
Clifford Steelman                                   Sheridan, Arkansas
   Retired Human Resource Administrator,
   Camden, Arkansas

F. Michael Akin
  President, CEO - Akin Industries               INDEPENDENT AUDITOR:
  Monticello, Arkansas
                                                    BKD, LLP
John G. Rich                                        400 West Capital
  Of Counsel, Eppenstein & Eppenstein               Suite 2500, P.O. Box 3667
  New York, New York                                Little Rock, AR  72203-3667

EXECUTIVE OFFICERS:                              GENERAL COUNSEL:

Paula J. Bergstrom                                  Robert S. Laney
   Senior Vice President, Chief                     P.O. Box 777
     Operations Officer and Secretary               Camden, Arkansas  71711-0777
Scott A. Swain
   Senior Vice President and Chief         SECURITIES AND REGULATORY
      Financial Officer                      COUNSEL:
Henry Pryor
   Senior Vice President                     Stradley Ronon Stevens & Young, LLP
    and Chief Lending Officer                1220 19th Street, N.W., Suite 600
                                             Washington, D.C.  20036

ANNUAL STOCKHOLDERS MEETING:

November 20, 2003 - 10:00 a.m.             STOCK REGISTRAR & TRANSFER
Camden Country Club                          AGENT:
1915 Washington Street SW
Camden, Arkansas 71701                       Registrar and Transfer Company
Record Date - October 6, 2003                Cranford, New Jersey  07016-3572

ANNUAL REPORT ON FORM 10-K:

A copy of the  Company's  Annual  Report on Form 10-K for the fiscal  year ended
June 30, 2003, as filed with the  Securities  and Exchange  Commission,  will be
furnished  without  charge to  stockholders  as of the record  date for the 2003
Annual Meeting upon written  request to:  Corporate  Secretary,  HCB Bancshares,
Inc., 237 Jackson Street, S.W, Camden, Arkansas 71701-3941.

                                       46