<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   ----------
                                   FORM 10-K

   FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 1999

                         Commission File Number: 0-22423

                              HCB BANCSHARES, INC.
                    ---------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S>                                                       <C>
               Oklahoma                                           62-1670792
 --------------------------------------------                -------------------
(State or Other Jurisdiction of Incorporation                  (I.R.S. Employer
or Organization)                                             Identification No.)

  237 Jackson Street, Camden, Arkansas                            71701-3941
----------------------------------------                     -------------------
(Address of Principal Executive Offices)                          (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (870) 836-6841
                                                           --------------

         Securities registered pursuant to Section (b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

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

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

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, as of a
specified date within the past 60 days: $12,587,729 (1,307,816 shares at the
last sale price on August 31, 1999 ($9.625 per share); for this purpose,
directors, executive officers and 5% stockholders have not been deemed to be
non-affiliates).

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,294,821 shares of common
stock as of August 31, 1999.



<PAGE>   2

                       DOCUMENTS INCORPORATED BY REFERENCE

     The following lists the documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated:

1. Portions of Annual Report to Stockholders for the Fiscal Year Ended June 30,
1999. (Part II)

     2. Portions of Proxy Statement for the 1999 Annual Meeting of Stockholders.
     (Part III)

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

     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
acquisition of all of the capital stock issued by the Bank upon its conversion
from mutual to stock form, which was completed on April 30, 1997 (the
"Conversion"). The 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. Since the Conversion, Bancshares has had 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, 1999, the Company had consolidated total assets of $285.4
million, savings deposits of $146.3 million and stockholders' equity of $32.1
million, or 11.3% of total assets.

     The holding company structure permits Bancshares to expand the financial
services currently offered through the Bank. As a holding company, Bancshares
has greater flexibility than the Bank to diversify its business activities
through existing or newly formed subsidiaries or through acquisition or merger
with other financial institutions. Bancshares is classified as a unitary savings
institution holding company and is subject to regulation by the Office of Thrift
Supervision ("OTS"). As long as Bancshares remains a unitary savings institution
holding company, under current law it can diversify its activities in such a
manner as to include any activities allowed by law or regulation to a unitary
savings institution holding company. See "Regulation -- Regulation of Bancshares
-- Activities Restrictions."

     The Company's executive offices are located at 237 Jackson Street, Camden,
Arkansas 71701-3941, and its telephone number is (870) 836-6841.

     HEARTLAND COMMUNITY BANK. HEARTLAND Community Bank was organized as a
federally chartered mutual savings and loan association named "First Federal
Savings and Loan Association of Camden" ("First Federal") in 1933, and in 1934
it became a member of the FHLB system and obtained federal deposit insurance. In
May 1996, First Federal acquired the former Heritage Bank, FSB, which retained
its separate federal savings bank charter and deposit insurance as a wholly
owned subsidiary of First Federal (in order to facilitate possible future branch
expansion, in the event the Bank ever becomes subject to Arkansas branching
restrictions, which at that time were based on the home office location of each
separately chartered banking institution), but whose business operations were
fully integrated with those of First Federal. In September 1996, First Federal
and Heritage changed their names to HEARTLAND Community Bank and HEARTLAND
Community Bank, F.S.B., respectively.



                                        2

<PAGE>   3

     On February 23, 1998 the Bank sold all of the shares of stock of Heritage
Banc Holding, Inc., parent of its subsidiary savings bank, HEARTLAND Community
Bank, FSB ("FSB"), pursuant to an agreement between the Bank and the Bank of the
Ozarks, Inc. ("BOO"). Upon completion of the transaction and pursuant to the
terms of the agreement, the Bank acquired the loans and certain other assets and
non-deposit liabilities of the Little Rock, Arkansas branch of FSB and all
assets and liabilities of the Monticello, Arkansas branch and the Bryant,
Arkansas loan production office of FSB and BOO acquired the savings deposits and
premises and equipment of the Little Rock, Arkansas branch of FSB, as well as
FSB's holding company charter and stock. This transaction was substantively a
branch sale. Also at such time, Bancshares became a unitary rather than a
multiple savings institution holding company.

     The Bank itself currently operates through five full service banking
offices located in Camden (2), Fordyce, Sheridan, and Monticello, Arkansas and a
loan production office in Bryant, Arkansas. Historically, the principal business
strategy of the Bank, like most other savings institutions in Arkansas and
elsewhere, has been to accept savings deposits from residents of the communities
served by the Bank's branch offices and to invest those funds in single-family
mortgage loans to those and other local residents. In this manner, the Bank and
countless other independent community-oriented savings institutions operated
safely and soundly for generations. In recent years, however, as the banking
business nationwide and in the Bank's primary market area in particular has
become more competitive, smaller savings institutions like the Bank have come
under increasing market pressure either to grow and increase their profitability
or to be acquired by a larger institution. Moreover, during this period the
Bank's market area experienced only limited economic growth.

     On a going forward basis, the Bank's current business strategy, as
developed and adopted by all of the Bank's directors, officers and employees,
incorporates the following key elements: (i) remaining an independent
community-oriented financial institution by continuing to provide the quality
service that only a locally based institution and its dedicated staff can
deliver, including the possible retention of additional executive officers in
the future as the Bank's growth and other needs may warrant; (ii) strengthening
the Bank's core deposit base and decreasing interest costs and increasing fee
income by expanding the Bank's deposit facilities and products, including the
addition and expansion of branch offices, the installation of ATMs, the
introduction of debit cards and an emphasis on attracting consumer demand
deposits; (iii) increasing loan yields and fee income while maintaining asset
quality by emphasizing the origination of higher yielding and shorter term
loans, especially commercial and multi-family real estate loans and consumer and
commercial business loans, for the Bank's portfolio while increasingly
originating lower yielding longer term single-family residential loans
principally for resale to investors; (iv) using the capital raised in the
Conversion to support the Bank's future growth; and, (v) complementing the
Bank's internally generated growth, by potentially acquiring one or more banking
institutions or other financial companies if attractive opportunities arise.
While it is expected that the Bank may experience especially high deposit and
loan growth in the relatively high income and growth segments of the Bank's
primary market area, particularly in the Sheridan, Monticello and Bryant areas,
management expects to find significant deposit growth and lending opportunities
throughout central and southern Arkansas.

     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 with various regulatory
requirements. The Federal Deposit Insurance Corporation ("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 Board of Governors of the Federal
Reserve System ("Federal Reserve Board"). See "Proposed Regulatory Changes"
below.



                                        3

<PAGE>   4

PROPOSED LEGISLATIVE AND REGULATORY CHANGES

     Both the U.S. House of Representatives and Senate have passed legislation
which calls for the modernization of the banking system and which would
significantly affect the operations and regulatory structure of the financial
services industry, including savings institutions like the Bank. At this time,
management does not know what form the final legislation might take, or if
enacted into law, how the legislation would affect the Company's business and
competitive environment. For additional information on the provisions of this
legislation, see "Regulation of the Bank -- Proposed Legislative and Regulatory
Changes."

MARKET AREA

     Management considers the Bank's primary market area to comprise the
following counties in Arkansas: Calhoun, Cleveland, Dallas, Drew, Grant, Saline
and Ouachita. To a lesser extent, the Bank accepts savings deposits and offers
loans throughout the remainder of central and southern Arkansas.

     In recent years, population has experienced low to moderate growth in Drew
and Grant Counties, while population has declined somewhat in Calhoun,
Cleveland, Dallas and Ouachita Counties. Household income has increased
substantially throughout the Bank's primary market area in recent years.
Household income has been well above the Arkansas average in Grant County and
somewhat above the Arkansas average in Ouachita County, but somewhat below the
Arkansas average in Calhoun, Cleveland and Drew Counties and well below the
Arkansas average in Dallas County, though the Arkansas average is below the
national average. With respect to unemployment rates, while the Arkansas average
has tended to fall somewhat below the national average, and unemployment rates
have been well below the Arkansas average in Grant County, unemployment rates
have been well above the Arkansas and national averages in Calhoun, Cleveland,
Dallas, Drew and Ouachita Counties.

     The economies in the Bank's primary market area include a variety of
industries, including manufacturing, government, services and retail trade.
Important employers include International Paper and Georgia Pacific in the
timber industry and Lockheed Martin and Atlantic Research in the defense
industry, SAU Tech and UA-Monticello.

COMPETITION

     The Bank experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans.

     Direct competition for savings deposits comes from other savings
institutions, credit unions, and both regional and local commercial banks.
Significant competition for the Bank's other deposit products and services comes
from money market mutual funds and brokerage firms. The primary factors in
competing for loans are loan products, interest rates and the quality of
personal service. Competition for origination of real estate loans normally
comes from other savings institutions, commercial banks, credit unions and
mortgage companies.

     The Bank's primary competition comes from institutions headquartered in the
Bank's primary market area and from various non-local commercial banks that have
branch offices located in the Bank's primary market area. Competing financial
institutions offer a wide variety of deposit and loan products. Management's
principal competitive strategy has been to emphasize quality customer service.

LENDING ACTIVITIES

     The Bank's principal lending activity consists of the origination of loans
secured by mortgages on existing single-family residences in the Bank's primary
market area. The Bank also makes commercial and multi-family real estate loans
and a variety of consumer and commercial business loans. Management expects to
continue and to expand on these types of lending.



                                        4

<PAGE>   5

     With certain limited exceptions, the maximum amount that a savings
institution may lend to any borrower (including certain related entities of the
borrower) at one time may not exceed 15% of the unimpaired capital and surplus
of the institution, plus an additional 10% of unimpaired capital and surplus for
loans fully secured by readily marketable collateral. Savings institutions are
additionally authorized to make loans to one borrower, for any purpose, in an
amount not to exceed $500,000 or, by order of the Director of the OTS, in an
amount not to exceed the lesser of $30,000,000 or 30% of unimpaired capital and
surplus to develop residential housing, provided: (i) the purchase price of each
single-family dwelling in the development does not exceed $500,000; (ii) the
institution is in compliance with its fully phased-in capital requirements;
(iii) the loans comply with applicable loan-to-value requirements, and; (iv) the
aggregate amount of loans made under this authority does not exceed 150% of
unimpaired capital and surplus. At June 30, 1999, the maximum aggregate amount
that the Bank could have lent to any one borrower under the 15% limit was $4.6
million. At such date, the largest aggregate amount of loans that the Bank had
outstanding to any one borrower was $3.8 million. However, Bancshares may
participate in loans to one borrower thereby permitting loans to one borrower to
be made by the Bank and Bancshares lending together that exceed the Bank's
regulatory loan limit. At June 30, 1999, the Bank's and Bancshares' loans to the
borrower referred to above totaled approximately $6.2 million with Bancshares
carrying $2.4 million of the loan.



                                        5

<PAGE>   6

     LOAN PORTFOLIO COMPOSITION. The following table sets forth information
regarding the composition of the Bank's loan portfolio by type of loan at the
dates indicated. At June 30, 1999, the Bank had no concentrations of loans
exceeding 10% of gross loans other than as disclosed below.

<TABLE>
<CAPTION>
                                                                          At June 30,
                                          ------------------------------------------------------------------------
                                                    1999                     1998                    1997
                                           ---------------------     -------------------      -----------------
                                           Amount            %       Amount          %        Amount        %
                                           ------          -----     ------        -----      ------      -----
<S>                                      <C>            <C>       <C>            <C>       <C>           <C>
Type of Loan
------------
Real estate loans:
  One- to four-family residential         $ 53,622,417    43.74%   $ 49,267,399    44.75%   $ 62,340,601   60.90%
  Multi-family loans                         9,226,426     7.53      12,577,034    11.43       8,873,156    8.67
  Non-residential                           41,907,368    34.18      35,321,040    32.08      18,814,701   18.38
  Loans to facilitate sale of
    foreclosed real estate                          --       --         473,476     0.43         616,660    0.60
  Land and other mortgage loans              3,547,514     2.89         598,860     0.54         483,236    0.47
Consumer loans:
  Loans secured by savings deposits          2,021,141     1.65       2,215,441     2.01       2,434,621    2.38
  Home improvement                             125,990     0.10       1,291,174     1.17       1,665,244    1.63
  Auto                                       4,269,898     3.48       4,070,750     3.70       2,399,648    2.34
  Other consumer                             2,517,190     2.05       1,569,076     1.43       2,629,442    2.58
Commercial                                   5,367,611     4.38       2,708,927     2.46       2,101,963    2.05
                                          ------------  -------    ------------   ------    ------------  ------
    Total                                 $122,605,555   100.00%   $110,093,177   100.00%   $102,359,272  100.00%
                                          ------------  -------    ------------   ------    ------------  ------

Less:
  Loans in process                        $  6,150,810             $  3,921,787              $ 2,057,095
  Deferred loan fees and discounts            (37,339)                  122,679                  167,069
  Allowance for loan losses                  1,329,201                1,468,546                1,492,473
                                          ------------             ------------              -----------
  Total                                   $115,162,883             $104,580,165              $98,642,635
                                          ============             ============              ===========

<CAPTION>


                                                            At June 30,
                                       -----------------------------------------------------
                                                   1996                       1995
                                       ------------------------     ------------------------
                                       Amount                %      Amount               %
                                       ------               ---     ------              ---
<S>                                   <C>               <C>        <C>               <C>
Type of Loan
------------
Real estate loans:
  One- to four-family residential      $  61,650,286      70.79%    $ 36,844,183       65.23%
  Multi-family loans                       6,819,212       7.83        4,928,219        8.73
  Non-residential                         13,746,549      15.78       11,367,097       20.12
  Loans to facilitate sale of
    foreclosed real estate                   720,749       0.83        1,144,993        2.03
  Land and other mortgage loans               36,944       0.04           53,044        0.09
Consumer loans:
  Loans secured by savings deposits        1,832,180       2.10        1,623,155        2.87
  Home improvement                           204,776       0.24            5,340        0.01
  Auto                                       786,656       0.90           42,070        0.07
  Other consumer                             418,027       0.48          344,452        0.61
Commercial                                   880,311       1.01          132,877        0.24
                                       -------------     ------     ------------      ------
    Total                              $  87,095,690     100.00%    $ 56,485,430      100.00%
                                       -------------     ------     ------------      ------

Less:
  Loans in process                     $   1,544,097                $    529,862
  Deferred loan fees and discounts           137,335                     114,097
  Allowance for loan losses                1,283,234                     728,491
                                       -------------                ------------
  Total                                $  84,131,024                $ 55,112,980
                                       =============                ============
</TABLE>



                                        6

<PAGE>   7
z
     LOAN MATURITY SCHEDULES. The following table sets forth information
regarding dollar amounts of loans maturing in the Bank's portfolio based on
their contractual terms to maturity, at June 30, 1999. Demand loans, loans
having no stated schedule of repayments and no stated maturity and overdrafts
are reported as due in one year or less. The table does not include any estimate
of prepayments, which significantly shorten the average life of all mortgage
loans and may cause the Bank's repayment experience to differ from that shown
below.

<TABLE>
<CAPTION>
                                                                       Due After
                                                    Due Within        One Through         Due After
                                                     One Year         Five Years         Five Years       Total
                                                    ----------        -----------        ----------       -----
                                                                      (In thousands)
<S>                                               <C>             <C>                 <C>             <C>
Real estate loans:
  One- to four-family mortgage  loans..........    $      4,745    $        7,998      $      40,879   $    53,622
  Other mortgage loans.........................          10,417            17,975             26,290        54,682
Commercial loans...............................           2,901             1,075              1,392         5,368
Consumer loans:
  Loans secured by savings deposits............           1,617               362                 42         2,021
  Other.......................................              932             5,070                911         6,913
                                                   ------------    --------------      -------------   -----------
     Total.....................................    $     20,612    $       32,480      $      69,514   $   122,606
                                                   ============    ==============      =============   ===========
</TABLE>


     The following table sets forth dollar amounts of loans due one year or more
after June 30, 1999 that had predetermined interest rates and that had
adjustable interest rates at that date.


<TABLE>
<CAPTION>
                                                                    Predetermined        Floating or
                                                                        Rates          Adjustable Rates     Total
                                                                    -------------      ----------------    -------
                                                                                        (In thousands)
<S>                                                               <C>                  <C>              <C>
        Real estate loans:
          One- to four-family mortgage loans.................      $      39,693        $       9,184    $    48,877
          Other mortgage loans...............................             21,107               23,158         44,265
        Commercial loans.....................................              2,432                   35          2,467
        Consumer loans:
          Loans secured by savings deposits..................                404                   --            404
          Other consumer loans...............................              5,981                   --          5,981
                                                                   -------------        -------------    -----------
            Total............................................      $      69,617        $      32,377    $   101,994
                                                                   =============        =============    ===========
</TABLE>

     Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans generally give the Bank the right to declare a loan immediately due and
payable in the event, among other things, that the borrower sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage loans tends to increase when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
decrease when current mortgage loan market rates are substantially lower than
rates on existing mortgage loans.



                                        7

<PAGE>   8

     LOAN ORIGINATIONS, PURCHASES AND SALES. The following table sets forth
information regarding the Bank's loan originations, purchases and sales during
the periods indicated.

<TABLE>
<CAPTION>
                                                                                 Year Ended June 30,
                                                      ------------------------------------------------------------------
                                                             1999                       1998                 1997
                                                         -----------               ------------            ---------
<S>                                                 <C>                        <C>                   <C>
Loans originated:
  Real estate loans:
    One- to four-family residential..............     $       24,486,365        $      9,242,608      $        9,175,000
    Other mortgage loans.........................             18,804,077              19,404,722              11,579,200
  Commercial loans...............................              7,350,903               3,098,085
  Consumer loans.................................              5,380,714               5,437,188               4,276,008
                                                      ------------------        ----------------      ------------------
     Total loans originated......................     $       56,022,059        $     37,182,603      $       25,030,208
                                                      ==================        ================      ==================
Loans purchased:
  Real estate loans..............................     $               --        $      8,257,199      $        1,305,000
                                                      ==================        ================      ==================

Loans sold.......................................     $       13,140,464        $      4,952,961      $        1,084,100
                                                      ==================        ================      ==================
</TABLE>


     The Bank has increased both its scope of loan products offered and its loan
origination efforts, including the addition of new consumer and commercial
business loan offerings with an increased emphasis on the origination of such
loans and commercial and multi-family real estate loans.

     The Bank has purchased loans from established and reputable loan
originators from time to time to supplement the Bank's internally generated
originations. Historically, substantially all of the Bank's loan purchases have
been from one large homebuilder with which the Bank has a long-standing
relationship. The Bank's experience with its purchased loans has been
successful. In light of the Bank's increased loan originations, management has
reduced the Bank's loan purchasing activities.

     The Bank originates long term, fixed-rate, single-family loans and sells
them to investors in the secondary market. Management expects the Bank to
increase its origination of selected types of loans that do not meet the Bank's
loan portfolio needs, such as long-term fixed-rate residential mortgage loans
for sale to investors.

     ONE- TO FOUR-FAMILY RESIDENTIAL LENDING. Historically, the Bank's principal
lending activity has been the origination of fifteen-year fixed-rate first
mortgage loans in the Bank's primary market area. The purchase price or
appraised value of most of such residences generally has been between $50,000
and $200,000, with the Bank's loan amounts averaging approximately $44,000. At
June 30, 1999, $53.7 million, or 43.7%, of the Bank's total loans were secured
by one- to four-family residences, substantially all of which were existing,
owner-occupied, single-family residences in the Bank's primary market area.

     While the Bank offers a variety of one- to four-family residential mortgage
loans with fixed or adjustable interest rates and terms of up to 30 years,
substantially all of the fixed-rate loans retained in the Bank's portfolio have
terms of 15 years or less. Despite the relatively low credit risks associated
with the Bank's one- to four-family portfolio loans, due to the unfavorable
yield and interest rate risks associated with such loans, management has
approved shifting the Bank's one- to four-family residential lending emphasis in
the future away from the origination of such loans for the Bank's portfolio and
toward the origination of such loans for sale. Currently, it is the Bank's
policy to originate all 30-year term one- to four-family residential loans in
accordance with the investor's underwriting guidelines and to sell all such
originations promptly to investors, servicing released. Such loan originations
and sales have become significant. One-to-four-family residential loans
originated during the year totaled $24.5 million with $14.8 million or 60% of
originations sold or to be sold in the secondary market. The Bank will continue
to make non-conforming loans to be held in the Bank's portfolio. Management
expects to continue these policies in the future.



                                        8

<PAGE>   9

     With respect to one- to four-family residential loans originated for
retention in the Bank's portfolio, the Bank's lending policies generally limit
the maximum loan-to-value ratio to 90% for owner-occupied properties and 80% for
non-owner-occupied properties. Loans originated expressly for sale are
originated in accordance with the lending policies and underwriting guidelines
of the investor.

     From time to time, the Bank makes loans to individuals for construction of
one- to four-family owner-occupied residences located in the Bank's primary
market area, with such loans usually converting to permanent financing upon
completion of construction. At June 30, 1999, the Bank's loan portfolio included
$3,204,704 of loans secured by one-to four-family properties under construction,
some of which were construction/permanent loans structured to become permanent
loans upon the completion of construction and some of which were interim
construction loans structured to be repaid in full upon completion of
construction and receipt of permanent financing. The Bank also offers loans to
qualified builders for the construction of one- to four-family residences
located in the Bank's primary market area. Because such homes are intended for
resale, such loans are generally not covered by permanent financing commitments
by the Bank. All construction loans are secured by a first lien on the property
under construction. Loan proceeds are disbursed in increments as construction
progresses and as inspections warrant. Construction/permanent loans are
underwritten in accordance with the same requirements as the Bank's permanent
mortgages, except the loans generally provide for disbursement in stages during
a construction period of up to nine months, during which period the borrower may
be required to make monthly interest payments. Borrowers must satisfy all credit
requirements that would apply to the Bank's permanent mortgage loan financing
prior to receiving construction financing for the subject property. Construction
financing generally is considered to involve a higher degree of risk of loss
than financing on existing properties. The Bank has sought to minimize this risk
by limiting construction lending to qualified borrowers in the Bank's primary
market area, and by requiring the involvement of qualified builders.

     COMMERCIAL AND MULTI-FAMILY REAL ESTATE LENDING. The Bank offers commercial
and multi-family real estate loans in order to benefit from the higher interest
rates than could be obtained from investment securities. The Bank has offered
commercial and multi-family loans for years with many of such loans having been
indirectly originated and underwritten by the Bank through a broker in the
Memphis, Tennessee area with whom the Bank has had a long and successful
relationship. During the year ended June 30, 1999, the Bank formed a
relationship with a Little Rock broker who referred several commercial real
estate loans to the Bank. It is anticipated that the Bank will continue to make
loans through these brokers as opportunities arise, but management also has
increased the Bank's emphasis on the direct origination of commercial and
multi-family real estate loans, particularly in central Arkansas.

     Most of the Bank's commercial and multi-family real estate loans are
secured by properties located in communities within central Arkansas that have
experienced significant growth in recent years, particularly communities in or
near the greater Little Rock area. The Bank's emphasis on increasing this
portfolio resulted in the addition to the Bank's staff of a commercial and
multi-family real estate loan origination specialist who works closely with
borrowers and various members of the commercial real estate industry throughout
central Arkansas. As opportunities for increased originations of such loans have
increased, the Bank has been expanding its loan underwriting and servicing
staff. All commercial and multi-family loans above loan officers' approved
lending authorities, generally $150,000, are reviewed and approved by the Bank's
lending committees at the headquarters in Camden prior to any funding or the
issuance of any binding commitment by the Bank.

     The Bank's commercial real estate loans may be secured by offices,
warehouses, shopping centers, nursing homes, single-family subdivision
developments and other income-producing and commercial properties. Multi-family
real estate loans are collateralized by greater than one- to four- family
residential properties. At June 30, 1999, the Bank had 178 of commercial and
multi-family loans, with an average loan balance of approximately $266,000. At
that date, 53 of these loans totaling approximately $12,499,604 were secured by
properties outside Arkansas, and none of these out-of-market loans were
classified by management as substandard, doubtful or loss or designated by
management as special mention. Management expects the Bank to continue making
these out-of-market loans from time to time as opportunities arise.



                                        9

<PAGE>   10

     The Bank's commercial and multi-family real estate loans generally are
limited to loans not exceeding $2,500,000 on properties located either in
Central Arkansas or other areas selected by management and approved by the Board
of Directors, with terms of up to 20 years and loan-to-value ratios of up to
80%. Interest rates may be fixed for up to 20 years.

     Commercial and multi-family real estate lending entails significant
additional risks compared with one- to four-family residential lending. For
example, commercial and multi-family real estate loans typically involve large
loan balances to single borrowers or groups of related borrowers, the payment
experience on such loans typically is dependent on the successful operation of
the real estate project, and these risks can be significantly impacted by supply
and demand conditions in the market for multi-family residential units and
commercial office, retail and warehouse space. These risks may be higher with
respect to loans secured by properties outside the Bank's primary market area or
outside the Bank's most historically active lending areas. The Bank's recent and
planned increases in commercial and multi-family lending also introduce
additional risk as demands on the Bank's loan origination and administration
increase and as the Bank's aggregate exposure to these types of loans increases.

     The aggregate amount of loans which federally chartered savings
institutions may make on the security of liens on commercial real estate
generally may not exceed 400% of the institution's capital.

     CONSUMER LENDING. The Bank's consumer loans primarily consist of loans
secured by savings deposits at the Bank and automobiles. These loans totaled
$2,021,141 and $4,269,898, respectively, at June 30, 1999. Management plans to
continue the expansion of the Bank's consumer lending activities in the future
as part of management's plan to provide a wider range of financial services
while increasing the Bank's portfolio yields and improving its asset/liability
management.

     The Bank makes certificate of deposit loans for up to 100% of the balance
of the account. The interest rate on these loans typically is fixed at least two
percentage points above the rate paid on a deposit at the Bank or four
percentage points above the rate paid on a deposit at another institution, with
the maturity and payment frequency matched to the terms of the deposit. The
account must be pledged as collateral to secure the loan.

     The Bank makes home improvement loans secured by the borrower's residence.
These loans, combined with any higher priority mortgage loan, which usually is
from the Bank, generally are limited to 90% of the appraised value of the
residence. Home improvement loans generally have fixed interest rates and terms
of up to ten years.

     The Bank's new and used automobile loans generally are underwritten in
amounts up to 90% of the purchase price, dealer cost or the loan value as
published by the National Automobile Dealers Association. The terms of such
loans generally do not exceed 60 months, with loans for older used cars
underwritten for shorter terms. The Bank requires that the vehicles be insured
and that the Bank be listed as loss payee on the insurance policy.

     Consumer loans generally involve more risk than first mortgage loans.
Repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance as a result of damage, loss or
depreciation, and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered. These loans may also give rise to claims and defenses by
a borrower against the Bank, and a borrower may be able to assert against the
Bank claims and defenses which it has against the seller of the underlying
collateral. In underwriting consumer loans, the Bank considers the borrower's
credit history, an analysis of the borrower's income, expenses and ability to
repay the loan and the value of the collateral. The Bank's recent and planned
increases in consumer lending also introduce additional risk as demands



                                       10

<PAGE>   11

on the Bank's loan origination and administration increase and as the Bank's
aggregate exposure to these types of loans increases.

     COMMERCIAL BUSINESS LENDING. The Bank currently offers working capital
loans, floor plan loans to dealers of automobiles and recreational vehicles, and
business equipment loans. At June 30, 1999, the Bank's commercial business loans
totaled $5,367,611 and primarily consisted of recreational vehicle floor plan
loans and equipment loans. At that date, the Bank had one commercial business
loan with an outstanding balance or loan commitment exceeding $500,000. The loan
is secured by new recreational vehicles at a RV dealership in Little Rock. The
loan requires regular payments of interest monthly, and the Bank requires
principal paydowns as vehicles are sold and periodically in accordance with
specified curtailment schedules. At June 30, 1999, the Bank had committed to
lend up to $1,000,000, the outstanding balance was $970,944, the loan was fully
performing in accordance with its terms, and the loan was not adversely
classified or designated by management.

     Commercial business loans generally involve more risk than single family
residential loans. In underwriting commercial business loans, the Bank considers
the obligor's credit history, an analysis of the obligor's income, expenses and
ability to repay the obligation and the value of the collateral.

     LOAN SOLICITATION AND PROCESSING. The Bank's loan originations are derived
from a number of sources, including referrals by realtors, builders, depositors,
borrowers and mortgage brokers as well as walk-in customers. The Bank's
solicitation programs consist of calls by the Bank's officers, branch managers
and other responsible employees to local realtors and builders and
advertisements in local newspapers and billboards and radio broadcasts. The
Bank's loan officers as well as branch presidents originate loans. Loan
applications are accepted at each of the Bank's offices and, depending on the
loan type and amount, may be processed and underwritten at the originating
office or forwarded to the main office.

     Upon receipt of a loan application from a prospective borrower, the Bank's
staff preliminarily reviews the information provided and makes an initial
determination regarding the qualification of the borrower. If not disapproved,
the application then is placed in processing, and a credit report and
verifications are ordered to verify specific information relating to the loan
applicant's employment, income and credit standing. It is the Bank's policy to
obtain an appraisal of the real estate intended to secure a proposed mortgage
loan from independent fee appraisers. It is the Bank's policy to obtain personal
guarantees from the principals on all loans. Except when the Bank becomes aware
of a particular risk of environmental contamination, the Bank generally does not
obtain a formal environmental report on the real estate at the time a loan is
made. The Bank attempts to determine the impact, if any, of year 2000 computer
issues on the borrower's business.

     It is the Bank's policy to record a lien on the real estate securing the
loan and to obtain a title insurance policy that insures the property is free of
prior encumbrances. Borrowers must also obtain hazard insurance policies prior
to closing and, when the property is in a designated flood plain, paid flood
insurance policies.

     The Board of Directors has the overall responsibility and authority for
general supervision of the Bank's loan policies. The Board has established
written lending policies for the Bank. The Bank's officers and loan committees
approve loans up to specified limits above which the approval of the Board may
be required. Loan applicants are promptly notified of the decision of the Bank.
It has been management's experience that substantially all approved loans are
funded.

     INTEREST RATES AND LOAN FEES. Interest rates charged by the Bank on
mortgage loans are primarily determined by competitive loan rates offered in its
primary market area and the Bank's minimum yield requirements. Mortgage loan
rates reflect factors such as prevailing market interest rate levels, the supply
of money available to the savings industry and the demand for such loans. These
factors are in turn affected by general economic conditions, the monetary
policies of the federal government, including the Federal Reserve Board, the
general supply of money in the economy, tax policies and governmental budget
matters.



                                       11

<PAGE>   12

     The Bank receives fees in connection with loan commitments and
originations, loan modifications, late payments and changes of property
ownership and for miscellaneous services related to its loans. Loan origination
fees are calculated as a percentage of the loan principal. The excess, if any,
of loan origination fees over direct loan origination expenses is deferred and
accreted into income over the contractual life of the loan using the level yield
method. If expenses exceed fees, the excess is deferred and amortized to expense
over the loan's contractual life using the level yield method. If a loan is
prepaid, refinanced or sold, all remaining deferred fees/costs with respect to
such loan are taken into income or recognized in expense at such time.

     COLLECTION POLICIES. When a borrower fails to make a payment on a loan, the
Bank generally takes prompt steps to have the delinquency cured and the loan
restored to current status. Once the payment grace period has expired (in most
instances 15 days after the due date), a late notice is mailed to the borrower,
and a late charge is imposed, if applicable. If payment is not promptly
received, a second notice is sent 15 days after the expiration of the grace
period. If the loan becomes 30 days delinquent, the borrower is contacted, and
efforts are made to formulate an affirmative plan to cure the delinquency. If a
loan becomes 60 days delinquent, the loan is reviewed by the Bank's management,
and if payment is not made, management may pursue foreclosure or other
appropriate action. If a loan remains delinquent 90 days or more, the Bank
generally initiates foreclosure proceedings.

     ASSET CLASSIFICATION; ALLOWANCES FOR LOSSES AND NONPERFORMING ASSETS.
Federal regulations require savings institutions to classify their assets on the
basis of quality on a regular basis. An asset is classified as substandard if it
is determined to be inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. An asset is
classified as doubtful if full collection is highly questionable or improbable.
An asset is classified as loss if it is considered uncollectible, even if a
partial recovery could be expected in the future. The regulations also provide
for a special mention designation, described as assets which do not currently
expose an institution to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving
management's close attention. Assets classified as substandard or doubtful
require an institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, an institution must either
establish a specific allowance for loss in the amount of the portion of the
asset classified loss, or charge off such amount. Federal examiners may disagree
with an institution's classifications. If an institution does not agree with an
examiner's classification of an asset, it may appeal this determination to the
OTS Regional Director.

     Management regularly reviews the Bank's assets to determine whether assets
require classification or re-classification, and the Board of Directors reviews
and approves all classifications. The Bank contracts with a third-party
professional to perform loan reviews generally on a semi-annual basis, including
classification of assets and an assessment of the adequacy of the loan loss
reserve. As of June 30, 1999, the Bank had no assets classified as loss or
doubtful, $2.4 million of assets classified as substandard, and $0.7 million of
assets designated as special mention. The Bank's total adversely classified or
designated assets represented approximately 1.09% of the Bank's total assets and
10.3% of the Bank's tangible regulatory capital at June 30, 1999. At that date,
substantially all of the Bank's adversely classified or designated assets were
one- to four-family residences in the Bank's primary market area. At June 30,
1999, management did not expect the Bank to incur any loss in excess of
attributable existing reserves on any of the Bank's adversely classified or
designated assets.

     Management also reviews the loss factors to determine whether they are
current and relevant. Differences between estimated and actual losses have been
insignificant for several years. However, if the losses experienced change
significantly, a determination is made as to which factors utilized should be
adjusted prospectively.

     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



                                       12

<PAGE>   13

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.

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

     In extending credit, the Bank recognizes that losses will occur and that
the risk of loss will vary with, among other things, the type of credit being
extended, the creditworthiness of the obligor over the term of the obligation,
general economic conditions and, in the case of a secured obligation, the
quality of the security. It is management's policy to maintain adequate
allowances for losses based on management's assessment of the Bank's loan
portfolio. The Bank increases its allowance for losses by charging provisions
for losses against the Bank's income. Federal examiners may disagree with an
institution's allowance for losses and may require adjustment. However, no
adjustment has been requested by regulators.

     The Bank's methodology for establishing the allowance for losses takes into
consideration probable losses that have been identified in connection with
specific assets as well as losses that have not been identified but can be
expected to occur. Management conducts regular reviews of the Bank's assets and
evaluates the need to establish allowances on the basis of this review.
Allowances are established by the Board of Directors on a regular basis based on
an assessment of risk in the Bank's assets taking into consideration the
composition and quality of the portfolio, delinquency trends, current charge-off
and loss experience, the state of the real estate market, regulatory reviews
conducted in the regulatory examination process and economic conditions
generally.

     At the date of foreclosure or other repossession, the Bank records the
property at fair value, less estimated costs to sell. Fair value is defined as
the amount in cash or cash-equivalent value of other consideration that a
property would yield in a current sale between a willing buyer and a willing
seller. Fair value is measured by market transactions. If a market does not
exist, fair value of the property is estimated based on selling prices of
similar properties in active markets or, if there are no active markets for
similar properties, by discounting a forecast of expected cash flows at a rate
commensurate with the risk involved. Fair value generally is determined through
an appraisal at the time of foreclosure. At June 30, 1999, the Bank held no
properties acquired in settlement of loans for which market values were
unavailable. Any amount of cost in excess of fair value at foreclosure is
charged-off against the allowance for loan losses. Subsequent to acquisition,
the property is periodically evaluated by management and an allowance is
established if the estimated fair value of the property, less estimated costs to
sell, declines. If, upon ultimate disposition of the property, net sales
proceeds differ from the net carrying value of the property, a gain or loss on
sale of real estate is recorded.

     The banking regulatory agencies, including the OTS, have adopted a policy
statement regarding maintenance of an adequate allowance for loan and lease
losses and an effective loan review system. This policy includes an arithmetic
formula for checking the reasonableness of an institution's allowance for loan
loss estimate compared to the average loss experience of the industry as a
whole.

     Management actively monitors the Bank's asset quality and charges off loans
and properties acquired in settlement of loans against the allowances for losses
on such loans and such properties when appropriate and provides specific loss
allowances when necessary. Although management believes it uses the best
information available to make determinations with respect to the allowances for
losses, future adjustments may be necessary if economic conditions differ
substantially from the economic conditions in the assumptions used in making the
initial determinations as to the appropriateness of the allowance.



                                       13

<PAGE>   14

     During the year ended June 30, 1999, in light of the Bank's loan portfolio
review, the Bank made no additional provisions for loan losses bringing the
total reserve for losses after net charged-off loans to $1.3 million, or 1.08%
of gross loans. The following table sets forth an analysis of the Bank's
allowance for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                                Year Ended June 30,
                                                    --------------------------------------------------------------------
                                                          1999           1998          1997          1996         1995
                                                       ---------       --------      --------      --------      ------
<S>                                                  <C>            <C>           <C>           <C>          <C>
Balance at beginning of period....................    $ 1,468,546    $ 1,492,473   $ 1,283,234   $   728,491  $  728,491
                                                      -----------    -----------   -----------   -----------  ----------
Loans charged-off:
  Real estate mortgage:
    One- to four-family residential...............         26,883          5,466        11,317        12,130          --
    Other mortgage loans..........................             --             --            --            --          --
Commercial........................................         37,742             --            --            --          --
Consumer..........................................         79,632         43,100        11,668            --          --
                                                      -----------    -----------   -----------   -----------  ----------
Total charge-offs.................................        144,257         48,566        22,985        12,130          --
                                                      -----------    -----------   -----------   -----------  ----------

Recoveries:
  Real estate mortgage:
    One- to four-family residential...............            865             --         6,333           250          --
    Other mortgage loans..........................             --             --            --            --          --
  Commercial......................................             --             --            --            --          --
  Consumer........................................          4,047            639         4,220            --          --
                                                      -----------    -----------   -----------   -----------  ----------
Total recoveries..................................          4,912            639        10,553           250          --
                                                      -----------    -----------   -----------   -----------  ----------

Net loans charged-off.............................        139,345         47,927        12,432        11,880          --
                                                      -----------    -----------   -----------   -----------  ----------

Acquisition of subsidiary.........................             --             --            --       524,140          --
Provision for loan losses.........................             --         24,000       221,671        42,483          --
                                                      -----------    -----------   -----------   -----------  ----------

Balance at end of period..........................    $ 1,329,201    $ 1,468,546   $ 1,492,473   $ 1,283,234  $  728,491
                                                      ===========    ===========   ===========   ===========  ==========

Ratio of net charge-offs to average
  loans outstanding during the period.............           .13%           .05%         .013%        0.018%         --%
                                                      ==========     ==========    ==========    ==========   =========
</TABLE>

     The increase in consumer loans from June 30, 1996 to June 30, 1999 has
resulted in increased charge-offs during the year ended June 30, 1999. Allowance
for loan losses allocated to consumer loans has increased generally in
proportion to the level of such lending.



                                       14

<PAGE>   15

     The following table allocates the allowance for loan losses by asset
category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>
                                                                          At June 30,
                                           ---------------------------------------------------------------------------
                                                  1999                       1998                     1997
                                           ----------------------   -----------------------    -----------------------
                                                       Percent of                Percent of                 Percent of
                                                        Loans in                  Loans in                   Loans in
                                                      Category to               Category to                Category to
                                           Amount     Total Loans     Amount    Total Loans    Amount      Total Loans
                                           ------     -----------     ------    -----------    ------      -----------
<S>                                      <C>            <C>       <C>             <C>         <C>          <C>
Allocated to:
  Real estate loans:
    One- to four-family residential.....  $   422,000      43.7%   $    504,000     45.18%     $  954,093    61.50%
    Multi-family and non-residential
      loans.............................      603,000      44.6         557,000     44.05         296,018    27.52
  Consumer loans........................      101,000       7.3         123,000      8.31          67,700     8.93
  Commercial............................       82,000       4.4          72,000      2.46          81,250     2.05
  Unallocated...........................      121,201                   212,546        --          93,412       --
                                          -----------    ------    ------------    ------      ----------   ------
         Total..........................  $ 1,329,201    100.00%   $  1,468,546    100.00%     $1,492,473   100.00%
                                          ===========    ======    ============    ======      ==========   ======

<CAPTION>

                                                                At June 30,
                                          ----------------------------------------------------
                                                    1996                         1995
                                          ------------------------      ---------------------
                                                       Percent of                 Percent of
                                                       Loans in                   Loans in
                                                       Category to                Category to
                                           Amount      Total Loans      Amount    Total Loans
                                           ------      -----------      ------    -----------
<S>                                       <C>           <C>            <C>          <C>
Allocated to:
  Real estate loans:
    One- to four-family residential.....   $  935,354     71.62%        $ 600,856     67.26%
    Multi-family and non-residential
      loans.............................      278,650     23.65           125,000     28.94
  Consumer loans........................       17,635      3.72             2,635      3.56
  Commercial............................           --      1.01                --      0.24
  Unallocated...........................       51,595        --                --        --
                                           ----------    ------         ---------    ------
         Total..........................   $1,283,234    100.00%        $ 728,491    100.00%
                                           ==========    ======         =========    ======
</TABLE>



                                       15

<PAGE>   16

     The Bank's increasing emphasis on the origination of commercial and
multi-family loans and consumer and commercial business loans may increase the
Bank's risk of corresponding increases in loan loss provisions and charge-offs.
While management believes the Bank has established its existing loss allowances
in accordance with generally accepted accounting principles, there can be no
guarantee or assurance that such allowances are, or in the future will be,
adequate to absorb all loan losses or that regulators, in reviewing the Bank's
assets, will not require the Bank to increase its loss allowance, thereby
negatively affecting the Bank's reported financial condition and results of
operations.

     The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated. For information regarding the
Bank's interest accrual practices, see the Notes to Consolidated Financial
Statements set forth in Item 8 herein.

<TABLE>
<CAPTION>
                                                                                         At June 30
                                                   ---------------------------------------------------------------------------------
                                                         1999              1998             1997              1996         1995
                                                       --------          --------         -------           --------      ------
<S>                                               <C>               <C>            <C>                 <C>              <C>
Loans accounted for on a nonaccrual basis: (1)
  Real estate:
    One- to four-family residential..............  $     462,205     $    648,012    $      133,386     $     166,228   $   165,009
    Other mortgage loans.........................         22,139               --                --                --            --
  Consumer.......................................         81,648          138,747                --                --            --
                                                   -------------     ------------    --------------     -------------   -----------
    Total........................................  $     565,992     $    786,759    $      133,386     $     166,228   $   165,009
                                                   =============     ============    ==============     =============   ===========

Accruing loans which are contractually past due
  90 days or more:
  Real estate:
    One- to four-family residential..............  $          --     $     41,770    $      323,478     $     725,487   $   502,064
    Other mortgage loans.........................             --               --                --                --            --
  Consumer loans.................................             --               --            56,904           127,142         5,525
                                                   -------------     ------------    --------------     -------------   -----------
    Total........................................  $          --     $     41,770    $      380,382     $     852,629   $   507,589
                                                   =============     ============    ==============     =============   ===========

    Total nonperforming loans....................  $     565,992     $    828,529    $      513,768     $   1,018,857   $   672,598
                                                   =============     ============    ==============     =============   ===========

Percentage of total loans........................          0.46%            0.75%             0.50%             1.17%         1.19%
                                                           ====             ====              ====              ====          ====
Other nonperforming assets (2)...................  $      20,289     $     17,001    $       65,005     $     168,206   $   659,917
                                                   =============     ============    ==============     =============   ===========
Loans modified in troubled debt restructurings...  $          --     $    392,000    $      281,441     $     298,195   $   313,970
                                                   =============     ============    ==============     =============   ===========
</TABLE>

--------------------------------------------------------------------------------
(1)  Designated nonaccrual loan payments received applied first to contractual
     principal; interest income recognized when contractually current.

(2)  Other nonperforming assets includes foreclosed real estate.

     During the years ended June 30, 1999 and 1998, gross interest income of
$48,032 and $18,012, respectively, would have been recorded on loans accounted
for on a nonaccrual basis if the loans had been current throughout the
respective periods. Interest on such loans included in income during such
respective periods amounted to $14,237 and $14,292, respectively.

     At June 30, 1999, management had identified approximately $2.0 million of
loans which amount is not reflected in the preceding table but as to which known
information about possible credit problems of borrowers caused management to
provide for increased monitoring of the ability of the borrowers to comply with
present loan repayment terms, all of which was included in the Bank's adversely
classified or designated asset amounts at that date. Of this aggregate amount,
$757,555 was attributable to 19 one- to four-family residential loans, and
$904,000



                                       16

<PAGE>   17

was attributable to 11 commercial or multi-family real estate loans. At June 30,
1999, management did not expect the Bank to incur any loss in excess of
attributable existing reserves on any of the Bank's assets.

INVESTMENT ACTIVITIES

     GENERAL. The Bank is permitted under federal law to make certain
investments, including investments in securities issued by various federal
agencies and state and municipal governments, savings deposits at the FHLB of
Dallas, certificates of deposit in federally insured institutions, certain
bankers' acceptances and federal funds. It may also invest, subject to certain
limitations, in commercial paper rated in one of the two highest investment
rating categories of a nationally recognized credit rating agency, and certain
other types of corporate debt securities and mutual funds. Federal regulations
require the Bank to maintain an investment in FHLB stock and a minimum amount of
liquid assets which may be invested in cash and specified securities. From time
to time, the OTS adjusts the percentage of liquid assets which savings banks are
required to maintain. See "Regulation -- Regulation of the Bank -- Liquidity
Requirements" below.

     The Bank makes investments in order to maintain the levels of liquid assets
required by regulatory authorities and manage cash flow, diversify its assets,
obtain yield and, under prior federal income tax law, satisfy certain
requirements for favorable tax treatment. The investment activities of the Bank
consist primarily of investments in mortgage-backed securities and other
investment securities, consisting primarily of securities issued or guaranteed
by the U.S. government or agencies thereof. Typical investments include
federally sponsored agency mortgage pass-through and federally sponsored agency
and mortgage-related securities. Investment and aggregate investment limitations
and credit quality parameters of each class of investment are prescribed in the
Bank's investment policy. The Bank performs analyses on mortgage-related
securities prior to purchase and on an ongoing basis to determine the impact on
earnings and market value under various interest rate and prepayment conditions.
Securities purchases are approved by the Bank's Investment Committee, and the
Board of Directors reviews all securities transactions on a monthly basis.

     Securities designated as "held to maturity" are those assets which the Bank
has the ability and intent to hold to maturity. The held to maturity investment
portfolio is carried at amortized cost. Securities designated as "available for
sale" are those assets which the Bank might not hold to maturity and thus are
carried at market value with unrealized gains or losses, net of tax effect,
recognized in stockholders' equity. Subsequent to June 30, 1998, the Bank
adopted FAS 133. The rules for adopting this accounting standard allow a
one-time reclassification of securities designated as "held to maturity." In
order to provide greater flexibility in asset/liability and portfolio
management, the Bank reclassified all of its held to maturity securities into
the "available for sale" designation upon adoption of FAS 133.

     Mortgage-backed securities typically represent an interest in a pool of
fixed-rate or adjustable-rate mortgage loans, the principal and interest
payments on which are passed from the mortgage borrowers to investors such as
the Bank. Mortgage-backed security sponsors may be private companies or
quasi-governmental agencies such as FHLMC, FNMA and GNMA, which guarantee the
payment of principal and interest to investors. Mortgage-backed securities can
represent a proportionate participation interest in a pool of loans or,
alternatively, an obligation to repay a specified amount secured by a pool of
loans (commonly referred to as a "collateralized mortgage obligation," or
"CMO"). Mortgage-backed securities generally increase the quality of the Bank's
assets by virtue of the credit enhancements that back them, are more liquid than
individual mortgage loans and may be used to collateralize borrowings or other
obligations of the Bank. The Bank's mortgage-backed securities portfolio
primarily consists of seasoned securities either issued by a one of the
quasi-governmental agencies or rated in one of the top two categories by a
recognized rating organization.



                                       17

<PAGE>   18

     All of the Bank's privately issued securities were rated "AA" or higher by
a nationally recognized credit rating agency at the time of purchase. Management
regularly monitors the ratings of the Bank's privately issued holdings by
reference to nationally published rating media and by communication with the
issuer when necessary. At June 30, 1999, no privately issued securities were
rated below AA except as follows:

          A Citicorp Mortgage, Inc. REMIC Pass-Through Class A Certificate was
     rated "CC" by S&P. The downgrade reflected deterioration in the performance
     of the mortgage pools underlying the security. At June 30, 1999, the Bank
     estimated the value of the security at approximately $149,121 less than its
     face value. The Bank's carrying value for this security at that date was
     approximately $306,281 after recognition of impairment loss.

          A Western Federal Savings and Loan Association Mortgage Pass-Through
     Class 89-1 A Certificate was rated "A2" by Moody. The downgrade reflected a
     deterioration of the mortgage pools underlying the security and weak
     servicing. As of June 30, 1999, the deterioration affected the credit
     support and not the principal or interest of the security itself. The
     security's rating is still considered investment grade and management
     anticipates no loss of principal or interest on this security. The Bank's
     carrying value for this security as of June 30, 1999 was $252,285.

          A DLJ Mortgage Acceptance Corp. Pass-Through Class A-3 Certificate was
     rated "BAA3" by Moody. The downgrade reflected deterioration in the
     performance of the mortgage pools underlying the security. As of June 30,
     1999, the deterioration affected the credit support and not the principal
     or interest of the security itself. The security's current rating is still
     considered investment grade and management anticipates no loss of principal
     or interest on this security. The Bank's carrying value for this security
     at that date was $595,695.

     The Bank's privately issued securities consist of collateralized mortgage
obligations (CMOs) and mortgage pass-through securities. At June 30, 1999, all
of the privately issued securities had adjustable interest rates with a weighted
average yield of 6.29% and a weighted average term to maturity of 22.3 years.
The carrying value of the privately issued securities was $9,685,831, or 8.5% of
the mortgage-backed securities and CMOs at that date. None of the privately
issued securities are insured or guaranteed by FHLMC or FNMA.

     The actual maturity of a mortgage-backed security varies, depending on when
the mortgagors prepay or repay the underlying mortgages. Prepayments of the
underlying mortgages may shorten the life of the investment, thereby adversely
affecting its yield to maturity and the related market value of the
mortgage-backed security. The yield is based upon the interest income and the
amortization of the premium or accretion of the discount related to the
mortgage-backed security. Premiums and discounts on mortgage-backed securities
are amortized or accreted over the estimated term of the securities using a
level yield method. The prepayment assumptions used to determine the
amortization period for premiums and discounts can significantly affect the
yield of the mortgage-backed security, and these assumptions are reviewed
periodically to reflect the actual prepayment. The actual prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon rate, the age of the mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates. The difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates is an important
determinant in the rate of prepayments. During periods of falling mortgage
interest rates, prepayments generally increase, and, conversely, during periods
of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying mortgage significantly exceeds the prevailing market
interest rates offered for mortgage loans, refinancing generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience is
more difficult to estimate for adjustable-rate mortgage-backed securities.



                                       18

<PAGE>   19

     The following table sets forth information regarding carrying values of the
Company's investment securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                         At June 30,
                                             --------------------------------------------------------------------
                                                  1999                       1998                       1997
                                               -----------               ------------                ---------
<S>                                         <C>                     <C>                       <C>
Securities available for sale:
   U.S. government and agencies............  $        6,368,125      $       22,491,930        $       17,260,383
   Municipal securities....................          26,704,416              18,283,877                        --
   Collateralized mortgage obligations.....          12,346,191               9,673,443                 6,161,779
   Other mortgage-backed securities........         101,640,582              49,023,666                12,200,208
   Equity securities.......................              60,375                      --                        --
                                             ------------------      ------------------        ------------------
                                             $      147,119,689      $       99,472,916        $       35,622,370
                                             ==================      ==================        ==================

Securities held to maturity:
   U.S. government and agencies............  $               --      $               --        $               --
   Collateralized mortgage obligations.....                  --               3,984,684                 5,836,502
   Other mortgage-backed securities........                  --              23,518,573                30,656,584
                                             ------------------      ------------------        ------------------
                                             $               --      $       27,503,257        $       36,493,086
                                             ==================      ==================        ==================

      Total................................  $      147,119,689      $      126,976,173        $       72,115,456
                                             ==================      ==================        ==================
</TABLE>



                                       19

<PAGE>   20

     The following table sets forth information regarding scheduled maturities
of the Company's investment portfolio at June 30, 1999. Yields on municipal
securities are not tax-effected.

<TABLE>
<CAPTION>
                                       One Year or Less         One to Five Years         Five to Ten Years
                                    ---------------------     ---------------------     ---------------------
                                      Carrying   Average       Carrying    Average       Carrying    Average
                                       Value      Yield         Value       Yield         Value       Yield
                                      -------    -------       -------    ---------      -------    ---------
<S>                                <C>           <C>         <C>          <C>          <C>           <C>
U.S. government and agencies.....   $       --      -- %      $3,451,875    6.25%       $ 2,916,250    6.46%
Municipal securities.............           --      --                --                    450,925    4.80
Collateralized mortgage
   obligations...................           --      --                --                         --
Other mortgage-backed securities.      573,494    7.10           386,887    9.32         11,764,429    6.64
                                    ----------                ----------                -----------
   Total.........................   $  573,494    7.10%       $3,838,762    6.56%       $15,131,604    6.55%
                                    ==========    ====        ==========    ====        ===========    ====
Equity securities................


<CAPTION>
                                          More than Ten Years          Total Investment Portfolio
                                      ------------------------      ------------------------------------
                                       Carrying       Average        Carrying        Market     Average
                                        Value          Yield           Value          Value      Yield
                                      ---------      ---------       ---------       -------    --------
<S>                                <C>               <C>         <C>            <C>             <C>
U.S. government and agencies.....   $         --      --   %      $  6,368,125   $   6,368,125    6.34%
Municipal securities.............     26,253,491       4.95         26,704,416      26,704,416    4.95
Collateralized mortgage
   obligations...................     12,346,191       6.29         12,346,191      12,346,191    6.29
Other mortgage-backed securities.     88,915,772       6.28        101,640,582     101,640,582    6.34
                                    ------------                   -----------     -----------
   Total.........................   $127,515,454       6.01%       147,059,314     147,059,314    6.08%
                                    ============       ====                                       =====
Equity securities................                                       60,375          60,375
                                                                   -----------    ------------
                                                                  $147,119,689   $ 147,119,689
                                                                  ============   =============
</TABLE>



                                       20

<PAGE>   21

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     GENERAL. Deposits are the primary source of the Bank's funds for lending,
investment activities and general operational purposes. While the Bank, like
most independent savings institutions, historically has relied on certificates
of deposit for a substantial portion of its deposit base, management has
recently shifted the Bank's deposit gathering emphasis away from certificates of
deposit and toward transaction accounts with more favorable interest costs,
interest rate risk characteristics and opportunities for the Bank to perform
valued customer services that generate additional fee income, and it is expected
that management will continue this trend in the future. In addition to deposits,
the Bank derives funds from loan principal and interest repayments, maturities
of investment securities and interest payments thereon. Although loan repayments
are a relatively stable source of funds, deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used to compensate for reductions in the availability of
funds, or for general operational purposes. The Bank has access to advances from
the FHLB of Dallas.

     DEPOSITS. The Bank attracts deposits principally from within its primary
market area by offering competitive rates on its deposit instruments, including
money market accounts, passbook savings accounts, Individual Retirement Accounts
and certificates of deposit which range in maturity from 90 days to three years.
Deposit terms vary according to the minimum balance required, the length of time
the funds must remain on deposit and the interest rate. The Bank on a periodic
basis establishes maturities, terms, service fees and withdrawal penalties for
its deposit accounts. In determining the characteristics of its deposit
accounts, the Bank considers the rates offered by competing institutions,
lending and liquidity requirements, growth goals and federal regulations. The
Bank does not accept brokered deposits or pay negotiated rates for jumbo
certificates of deposits.

     The Bank attempts to compete for deposits with other institutions in its
market area by offering competitively priced deposit instruments that are
tailored to the needs of its customers. Additionally, the Bank seeks to meet
customers' needs by providing convenient customer service to the community,
efficient staff and convenient hours of service. Substantially all of the Bank's
depositors are Arkansas residents who reside in the Bank's primary market area.

     The following table sets forth information regarding interest-bearing
average deposit balances and rates during the periods presented.

<TABLE>
<CAPTION>
                                                                   Year Ended June 30,
                                    --------------------------------------------------------------------------------
                                              1999                        1998                        1997
                                    -----------------------    -----------------------    --------------------------
                                    Average        Average       Average      Average       Average         Average
                                    Balance          Rate        Balance        Rate        Balance           Rate
                                    -------        -------       -------      -------       -------         -------
<S>                              <C>               <C>        <C>              <C>       <C>                <C>
NOW accounts....................  $ 10,505,515      1.46%      $  6,101,535     2.73%     $   5,858,963      3.07%
Money market savings deposits...    20,474,110      3.57         17,937,404     4.13         18,333,058      4.23
Savings deposits - passbook.....     7,325,746      2.81          8,136,269     2.95          7,792,066      3.02
Certificates of deposit.........   103,414,235      5.35        112,427,056     5.41        116,980,504      5.42
                                   -----------      ----       ------------     ----      -------------      ----
    Total.......................  $141,719,606      4.67       $144,602,264     5.03      $ 148,964,591      5.06
                                  ============      ====       ============     ====      =============      ====
</TABLE>



                                       21

<PAGE>   22

     The following table sets forth information regarding changes in dollar
amounts of deposits in various types of accounts offered by the Bank between the
dates indicated.

<TABLE>
<CAPTION>
                                     Balance at                                Balance at
                                       June 30,      % of        Increase       June 30,     % of      Increase
                                        1999       Deposits     (Decrease)        1998      Deposits   (Decrease)
                                   -------------   --------     ----------   ------------   --------   ----------
<S>                               <C>             <C>        <C>            <C>             <C>       <C>
NOW accounts....................   $ 12,411,932      8.49%    $  1,747,386   $ 10,664,546      7.51%   $ 1,274,321
Money market savings deposits...     17,619,341     12.04         (765,494)    18,384,835     12.95        577,342
Savings deposits - passbook.....      7,971,447      5.45          458,840      7,512,607      5.29       (929,238)
Certificates of deposit.........    108,293,878     74.02        2,924,536    105,369,342     74.25    (10,183,686)
                                   -------------   ------       ----------   ------------     -----    -----------
                                   $146,296,598    100.00%    $  4,365,268   $141,931,330    100.00%   $(9,261,261)
                                   ============    ======     ============   ============    ======    ===========

<CAPTION>

                                     Balance at
                                      June 30,       % of
                                        1997        Deposits
                                    ------------    --------
<S>                               <C>              <C>
NOW accounts....................   $  9,390,225       6.21%
Money market savings deposits...     17,807,493      11.78
Savings deposits - passbook.....      8,441,845       5.58
Certificates of deposit.........    115,553,028      76.43
                                   ------------     ------
                                   $151,192,591     100.00%
                                   ============     ======
</TABLE>



                                       22

<PAGE>   23

     The following table sets forth information regarding certificates of
deposits classified by rates at the dates indicated.

<TABLE>
<CAPTION>
                                                           At June 30,
                                        ----------------------------------------------
                                           1999               1998            1997
                                          --------           -------         -------
<S>                                    <C>              <C>             <C>
4.00 -  5.99%.........................  $  107,158,894   $  96,276,980   $ 99,606,159
6.00 -  7.99%.........................       1,134,984       9,092,362     15,946,869
                                        --------------   -------------   ------------
                                        $  108,293,878   $ 105,369,342   $115,553,028
                                        ==============   =============   ============
</TABLE>

     The following table sets forth information regarding amounts and maturities
of certificates of deposits at June 30, 1999.

<TABLE>
<CAPTION>
                                                   Amount Due
                      ---------------------------------------------------------------------
                       Less Than                                                  After
Rate                   One Year          1-2 Years             2-3 Years          3 Years              Total
----                   --------          ---------             ---------          -------              -----
<S>                 <C>               <C>                 <C>                <C>               <C>
4.00 -  5.99%.....   $    78,633,549   $     22,202,622    $      6,241,142   $       81,581    $      107,158,894
6.00 -  7.99%.....           906,715            200,198              20,301            7,770             1,134,984
                     ---------------   ----------------    ----------------   --------------    ------------------
                     $    79,540,264   $     22,402,820    $      6,261,443   $       89,351    $      108,293,878
                     ===============   ================    ================   ==============    ==================
</TABLE>

     The following table sets forth information regarding amounts of
certificates of deposit of $100,000 or more by time remaining until maturity at
June 30, 1999.

<TABLE>
<CAPTION>
                                                                             Certificates
                Maturity Period                                               of Deposit
                ---------------                                               ----------
<S>                                                                         <C>
                Three months or less.......................................  $  2,136,246
                Over three through six months..............................     2,225,519
                Over six through 12 months.................................     4,340,324
                Over 12 months.............................................     2,747,867
                                                                             ------------
                    Total..................................................  $ 11,449,956
                                                                             ============
</TABLE>

     The following table sets forth information regarding savings activities of
the Bank for the periods indicated.

<TABLE>
<CAPTION>
                                                           Year Ended June 30,
                                          -----------------------------------------------------
                                               1999                1998                1997
                                             --------            --------             -------
<S>                                      <C>                <C>                  <C>
Net decrease before
  interest credited....................   $  (2,521,766)     $   (5,923,685)      $  (2,261,105)
Deposits divested......................              --          (8,541,747)                 --
Interest credited......................       6,887,034           5,204,171           7,534,445
                                          -------------      --------------       -------------
    Net increase (decrease) in
      savings deposits.................   $   4,365,268      $   (9,261,261)      $   5,273,340
                                          =============      ==============       =============
</TABLE>

     BORROWINGS. Deposits historically have been the primary source of funds for
the Bank's lending, investments and general operating activities. The Bank is
authorized, however, to use advances from the FHLB of



                                       23

<PAGE>   24

Dallas to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB of Dallas functions as a central reserve bank providing
credit for savings institutions and certain other member financial institutions.
As a member of the FHLB System, the Bank is required to own stock in the FHLB of
Dallas and is authorized to apply for advances. Advances are pursuant to several
different programs, each with its own interest rate and range of maturities.
Advances from the FHLB of Dallas are secured by the Bank's stock in the FHLB of
Dallas, first mortgage loans and mortgage-backed investment securities. During
the past year, the Bank has significantly increased its level of FHLB advances,
and used such advances to invest in investment securities. For further
information, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset/Liability Management."

     The following tables set forth certain information regarding borrowings by
the Bank for the periods indicated. Averages are based on monthly balances.

<TABLE>
<CAPTION>
                                                                       Year Ended June 30,
                                                        --------------------------------------------------
                                                            1999                 1998            1997
                                                          --------             --------         ------
<S>                                                   <C>                <C>              <C>
Amounts outstanding at end of period:
  FHLB advances......................................  $   104,523,419    $  68,121,068    $   10,000,000
  Weighted average rate..............................            5.63%           5.89%            6.20%

Maximum amount of borrowings outstanding
  at any month end:
  FHLB advances......................................  $   104,523,419    $  68,121,068    $   12,500,000

Approximate average borrowings during the year
  outstanding with respect to:
  FHLB advances......................................  $    95,124,165    $  27,108,184    $   10,208,333
  Weighted average rate..............................            5.73%           6.07%            6.23%
</TABLE>

SUBSIDIARY ACTIVITIES

     As a federally chartered savings bank, the Bank is permitted to invest an
amount equal to 2% of its assets in non-savings institution service corporation
subsidiaries, with an additional investment of 1% of assets where such
investment serves primarily community, inner-city and community development
purposes. Under such limitations, as of June 30, 1999 on a consolidated basis
the Bank was authorized to invest up to approximately $5.7 million in the stock
of or loans to such subsidiaries, including the additional 1% investment for
community inner-city and community development purposes. The Bank has one
subsidiary service corporation, HCB Properties, Inc., which was formed in August
1996 to hold certain properties acquired by the Bank for possible future
expansion, because the properties are larger than the Bank's anticipated
expansion needs, and it is expected that portions of the properties eventually
will be sold. At June 30, 1999, the Bank's aggregate investment in, and loans
to, the subsidiary service corporation totaled $570,928.



                                       24

<PAGE>   25

REGULATION OF THE BANK

     GENERAL. As a federally chartered savings institution the Bank is subject
to extensive regulation by the OTS and the FDIC and to OTS regulations governing
such matters as capital standards, mergers, establishment of branch offices,
subsidiary investments and activities and general investment authority. The OTS
periodically examines the Bank for compliance with various regulatory
requirements. The FDIC also has the authority to conduct special examinations of
the Bank because its savings deposits are insured by the SAIF. The Bank must
file reports with the OTS describing its activities and financial condition and
also is subject to certain reserve requirements promulgated by the Federal
Reserve Board. This supervision and regulation is intended primarily for the
protection of depositors. See also "Proposed Legislative and Regulatory
Changes".

     PROPOSED LEGISLATIVE AND REGULATORY CHANGES. The U.S. Congress has been in
the process of drafting legislation that may have a profound effect on the
financial services industry for the past several years. In January 1999
legislation restructuring the activities and regulations oversight of the
financial services industry was reintroduced in both houses of the U.S.
Congress. The stated purposes of the legislation are to enhance consumer choice
in the financial services marketplace, level the playing field among providers
of financial services and increase competition and permit affiliations between
commercial banks, securities firms, insurance companies and, subject to certain
limitations, other commercial enterprises allowing holding companies to offer
new services and products. In particular, the legislation repeals the
Glass-Steagall Act prohibitions on banks affiliating with securities firms and
thereby allows holding companies to engage in securities underwriting and
dealing without limits and to sponsor and act as distributor for mutual funds.
The legislation also removes the Bank Holding Company Act's prohibitions on
insurance underwriting allowing holding companies to underwrite and broker any
type of insurance product, calls for a new regulatory framework for financial
institutions and their holding companies and preserves the thrift charter and
all existing thrift powers. Both the House and Senate passed separate versions
of this legislation. The Senate bill differs from the House's principally with
respect to the powers of operating subsidiaries, permissible activities of
well-managed holding companies and restrictions on nonfinancial activities of
unitary thrift holding companies. At this time, it is unknown how the
legislation will be modified, or if enacted, what form the final version of the
legislation might take and how it will affect Bancshares' and the Bank's
business and operations and competitive environment.

     FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB System,
which consists of 12 district FHLBs subject to supervision and regulation by the
Federal Housing Finance Board ("FHFB"). The FHLBs provide a central credit
facility primarily for member institutions. As a member of the FHLB of Dallas,
the Bank is required to acquire and hold shares of capital stock in the FHLB of
Dallas in an amount at least equal to 1% of the aggregate unpaid principal of
its home mortgage loans, home purchase contracts and similar obligations at the
beginning of each year, or 1/20 of its advances (borrowings) from the FHLB of
Dallas, whichever is greater.

     The FHLB of Dallas serves as a reserve or central bank for its member
institutions within its assigned district. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHLB and the Board of Directors of the FHLB of Dallas. Long-term advances
may only be made for the purpose of providing funds for residential housing
finance. At June 30, 1999, the Bank had $104.5 million in advances outstanding
with the FHLB of Dallas. See " -- Deposit Activity and Other Sources of Funds --
Borrowings."

     LIQUIDITY REQUIREMENTS. The Bank is required to maintain average daily
balances of liquid assets (cash, savings deposits maintained pursuant to Federal
Reserve Board requirements, time and savings deposits in certain institutions,
obligations of the United States and states and political subdivisions thereof,
shares in mutual funds with certain restricted investment policies, highly rated
corporate debt and mortgage loans and mortgage-related securities with less than
one year to maturity or subject to pre-arranged sale within one year) equal to
the monthly average of not less than a specified percentage (currently 4%) of
their net withdrawable deposits plus short-term



                                       25

<PAGE>   26

borrowings. Monetary penalties may be imposed for failure to meet liquidity
requirements. The average regulatory ratio of liquid assets for the Bank on June
30, 1999 was 33.9%.

     QUALIFIED THRIFT LENDER TEST. The Bank is subject to OTS regulations that
use the concept of a Qualified Thrift Lender to determine eligibility for
Federal Home Loan Bank advances and for certain other purposes. To qualify as a
Qualified Thrift Lender, a savings institution must either qualify as a
"domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio" assets in Qualified Thrift Investments.
Portfolio assets are defined to include total assets less intangibles, property
used by a savings institution in its business and liquidity investments in an
amount not exceeding 20% of assets. Qualified Thrift Investments consist of (i)
loans, equity positions or securities related to domestic, residential real
estate or manufactured housing, and educational, small business and credit card
loans, (ii) 50% of the dollar amount of residential mortgage loans subject to
sale under certain conditions, and (iii) stock issued by a Federal Home Loan
Bank. Subject to a 20% of portfolio assets limit, savings institutions are able
to treat as Qualified Thrift Investments 200% of their investments in loans to
finance "starter homes" and loans for construction, development or improvement
of housing and community service facilities or for financing small businesses in
"credit-needy" areas. To be qualified as a Qualified Thrift Lender, a savings
institution must maintain its status as a Qualified Thrift Lender for nine out
of every 12 months. Failure to qualify as a Qualified Thrift Lender results in a
number of sanctions, including the imposition of certain operating restrictions
imposed on national banks and a restriction on obtaining additional advances
from the Federal Home Loan Bank System. Upon failure to qualify as a Qualified
Thrift Lender for two years, a savings institution must convert to a commercial
bank.

     REGULATORY CAPITAL REQUIREMENTS. Under OTS capital standards, savings
institutions must maintain "tangible" capital equal to at least 1.5% of tangible
assets, "core" capital equal to at least 4% of adjusted total assets and "total"
capital (a combination of core and "supplementary" capital) equal to at least 8%
of "risk-weighted" assets. In addition, the OTS has adopted regulations which
impose certain restrictions on institutions that have a total risk-based capital
ratio that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets
of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less
than 4.0% (or 3.0% if the institution is rated CAMELS 1 under the OTS
examination rating system). For purposes of these regulations, Tier 1 capital
has the same definition as core capital. See " -- Prompt Corrective Regulatory
Action." Core capital is defined as common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
minority interests in the equity accounts of fully consolidated subsidiaries,
certain nonwithdrawable accounts and pledged savings deposits and "qualifying
supervisory goodwill." Core capital is generally reduced by the amount of an
institution's intangible assets for which no market exists. Limited exceptions
to the deduction of intangible assets are provided for purchased mortgage
servicing rights and qualifying supervisory goodwill. Tangible capital is given
the same definition as core capital but does not include an exception for
qualifying supervisory goodwill and is reduced by the amount of all the savings
institution's intangible assets with only a limited exception for purchased
mortgage servicing rights.

     Both core and tangible capital are further reduced by an amount equal to a
savings institution's debt and equity investments in subsidiaries engaged in
activities not permissible to national banks (other than subsidiaries engaged in
activities undertaken as agent for customers or in mortgage banking activities
and depository institutions or their holding companies). As of June 30, 1999,
the Bank had no investments in, or extensions of credit to, non-includable
subsidiaries.

     Adjusted total assets are a savings institution's total assets as
determined under generally accepted accounting principles, increased by certain
goodwill amounts and by a pro rated portion of the assets of unconsolidated
includable subsidiaries in which the institution holds a minority interest.
Adjusted total assets are reduced by the amount of assets that have been
deducted from capital, the savings institution's investments in unconsolidated
includable subsidiaries, and, for purposes of the core capital requirement,
qualifying supervisory goodwill.



                                       26

<PAGE>   27

     In determining compliance with the risk-based capital requirement, a
savings institution is allowed to use both core capital and supplementary
capital provided the amount of supplementary capital used does not exceed the
institution's core capital. Supplementary capital is defined to include certain
preferred stock issues, nonwithdrawable accounts and pledged savings deposits
that do not qualify as core capital, certain approved subordinated debt, certain
other capital instruments, a portion of the institution's general loan loss
allowances and up to 45% of unrealized gains on equity securities. Total core
and supplementary capital are reduced by the amount of capital instruments held
by other depository institutions pursuant to reciprocal arrangements, the
portion of the savings institution's land loans and non-residential construction
loans in excess of an 80% loan-to-value ratio and equity investments other than
those deducted from core and tangible capital. At June 30, 1999, the Bank had
three land or non-residential construction loans in excess of an 80%
loan-to-value ratio for a deduction of $107,000, and no equity investments for
which OTS regulations require a deduction from total capital.

     The risk-based capital requirement is measured against risk-weighted
assets, which equal the sum of each asset and the credit-equivalent amount of
each off-balance sheet item after being multiplied by an assigned risk weight.
Under the OTS risk-weighting system, one- to four-family first mortgages not
more than 90 days past due with loan-to-value ratios under 80% and average
annual occupancy rates of at least 80% and certain qualifying loans for the
construction of one- to four-family residences pre-sold to home purchasers are
assigned a risk weight of 50%. Consumer and residential construction loans are
assigned a risk weight of 100%. Mortgage-backed securities issued or fully
guaranteed as to principal and interest, by the FNMA or FHLMC are assigned a 20%
risk weight. Cash and U.S. Government securities backed by the full faith and
credit of the U.S. Government (such as mortgage-backed securities issued by
GNMA) are given a 0% risk weight.

     The table below presents the capital position of the Bank relative to its
various regulatory capital requirements at June 30, 1999.

<TABLE>
<CAPTION>
                                                                        Percent of
                                                   Amount                Assets(1)
                                                   ------               ----------
                                                     (Dollars in thousands)
<S>                                               <C>                   <C>
     Tangible capital...........................   $      30,063            10.50%
     Tangible capital requirement...............           4,293             1.50
                                                   -------------          -------
        Excess..................................   $      25,770             9.00%
                                                   =============          =======

     Core capital...............................   $      30,063            10.50%
     Core capital requirement...................          11,448             4.00
                                                   -------------          -------
        Excess..................................   $      18,615             6.50%
                                                   =============          =======

     Total capital..............................   $      31,285            25.44%
     Risk-based capital requirement.............           9,840             8.00
                                                   -------------          -------
        Excess..................................   $      21,445            17.44%
                                                   =============          =======
</TABLE>

     ------------

     (1)  Based on adjusted total assets for purposes of the tangible capital
          and core capital requirements and risk-weighted assets for purpose
          of the risk-based capital requirement.

     In addition to requiring generally applicable capital standards for savings
institutions, the Director of the OTS is authorized to establish the minimum
level of capital for a savings institution at such amount or at such ratio of
capital-to-assets as the Director determines to be necessary or appropriate for
such institution in light of the particular circumstances of the institution.
Such circumstances would include a high degree of exposure of interest rate
risk, prepayment risk, credit risk and concentration of credit risk and certain
risks arising from non-traditional activities. The Director may treat the
failure of any savings institution to maintain capital at or above such level as
an unsafe or unsound practice and may issue a directive requiring any savings
institution which fails to maintain



                                       27

<PAGE>   28

capital at or above the minimum level required by the Director to submit and
adhere to a plan for increasing capital. Such an order may be enforced in the
same manner as an order issued by the FDIC.

     DEPOSIT INSURANCE. The Bank is required to pay assessments based on a
percentage of its insured savings deposits to the FDIC for insurance of its
savings deposits by the SAIF. Under the Federal Deposit Insurance Act, the FDIC
is required to set semi-annual assessments for SAIF-insured institutions at a
level necessary to maintain the designated reserve ratio of the SAIF at 1.25% of
estimated insured savings deposits or at a higher percentage of estimated
insured savings deposits that the FDIC determines to be justified for that year
by circumstances indicating a significant risk of substantial future losses to
the SAIF. Under the FDIC's risk-based deposit insurance assessment system, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as in the prompt
corrective action regulations. See "-- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken.

     Historically, institutions with SAIF-assessable savings deposits, like the
Bank, paid higher deposit insurance premiums than institutions with savings
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC. In
order to recapitalize the SAIF and rectify the premium disparity, the Deposit
Insurance Funds Act of 1996 authorized the FDIC to impose a one-time special
assessment on institutions with SAIF-assessable savings deposits based on the
amount determined by the FDIC to be necessary to increase the reserve levels of
the SAIF to the designated reserve ratio of 1.25% of insured savings deposits.
Institutions were assessed at the rate of 65.7 basis points based on the amount
of their SAIF-assessable savings deposits as of March 31, 1995. As a result of
the special assessment the Bank incurred a pre-tax expense totaling
approximately $889,000 during the quarter ended September 30, 1996.

     The special assessment recapitalized the SAIF and as a result, the FDIC
lowered the SAIF deposit insurance assessment rates to zero for "well
capitalized" institutions with the highest supervisory ratings and 0.31% of
insured savings deposits for institutions in the highest risk-based premium
category. Until December 31, 1999, SAIF-insured institutions will be required to
pay assessments to the FDIC at the rate of 6.5 basis points to help fund
interest payments on certain bonds issued by the Financing Corporation ("FICO"),
an agency of the federal government established to finance takeovers of
insolvent thrifts. During this period, BIF members will be assessed for these
obligations at the rate of 1.3 basis points. After December 31, 1999, both BIF
and SAIF members will be assessed at the same rate for FICO payments.

     Since the SAIF now meets its designated reserve ratio as a result of the
special assessment, SAIF members are now permitted to convert to the status of
members of the BIF and may merge with or transfer assets to a BIF member.
Although the Bank would qualify for insurance of savings deposits of the BIF,
substantial entrance and exit fees apply to conversions from SAIF to BIF
insurance and such fees may make a SAIF to BIF conversion prohibitively
expensive. In the past, the substantial disparity existing between deposit
insurance premiums paid by BIF and SAIF members gave BIF-insured institutions a
competitive advantage over SAIF-insured institutions. The reduction of the SAIF
deposit insurance premiums effectively eliminated this disparity and could have
the effect of increasing the net income of the Bank and restoring the
competitive equality between BIF-insured and SAIF-insured institutions.



                                       28

<PAGE>   29

     The FDIC has adopted a regulation which provides that any insured
depository institution with a ratio of Tier 1 capital to total assets of less
than 2% will be deemed to be operating in an unsafe or unsound condition, which
would constitute grounds for the initiation of termination of deposit insurance
proceedings. The FDIC, however, would not initiate termination of insurance
proceedings if the depository institution has entered into and is in compliance
with a written agreement with its primary regulator, and the FDIC is a party to
the agreement, to increase its Tier 1 capital to such level as the FDIC deems
appropriate. Tier 1 capital is defined as the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
other than mortgage servicing rights and qualifying supervisory goodwill
eligible for inclusion in core capital under OTS regulations and minus
identified losses and investments in certain securities subsidiaries. Insured
depository institutions with Tier 1 capital equal to or greater than 2% of total
assets may also be deemed to be operating in an unsafe or unsound condition
notwithstanding such capital level. The regulation further provides that in
considering applications that must be submitted to it by savings institutions,
the FDIC will take into account whether the institution is meeting with the Tier
1 capital requirement for state non-member banks of 4% of total assets for all
but the most highly rated state non-member banks.

     FEDERAL RESERVE SYSTEM. Pursuant to regulations of the Federal Reserve
Board, all FDIC-insured depository institutions must maintain average daily
reserves equal to 3% on transaction accounts of between $4.9 million and $46.5
million plus 10% on the remainder. This percentage is subject to adjustment by
the Federal Reserve Board. Because required reserves must be maintained in the
form of vault cash or in a noninterest-bearing account at a Federal Reserve
Bank, the effect of the reserve requirement is to reduce the amount of the
institution's interest-earning assets.

     DIVIDEND RESTRICTIONS. Under OTS regulations, the Bank is not permitted to
pay dividends on its capital stock if its regulatory capital would thereby be
reduced below the amount then required for the liquidation account established
for the benefit of certain depositors of the Bank at the time of the Conversion.
In addition, the Bank is required by OTS regulations to give the OTS 30 days'
prior notice of any proposed declaration of dividends.

     OTS regulations require that savings institutions 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. If neither the savings
institution nor the proposed capital distribution meet any of the foregoing
criteria, then no notice or application is required to be filed with the OTS
before making a capital distribution. The OTS may disapprove or deny a capital
distribution if in the view of the OTS, the capital distribution would
constitute an unsafe or unsound practice.

     Under the OTS prompt corrective action regulations, the Bank would be
prohibited from making any capital distributions if, after making the
distribution, it would have: (i) a total risk-based capital ratio of less than
8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a Tier
1 (core) capital ratio of less than 4.0%. See " -- Prompt Corrective Regulatory
Action." The OTS, after consultation with the FDIC, however, may permit an
otherwise prohibited stock repurchase if made in connection with the issuance of
additional shares in an equivalent amount and the repurchase will reduce the
institution's financial obligations or otherwise improve the institution's
financial condition.

     In addition to the foregoing, earnings of the Bank appropriated to bad debt
reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to Bancshares without payment
of taxes at the then current tax rate on the amount of earnings removed from the
reserves for such



                                       29

<PAGE>   30

distributions. See "Federal Income Taxation." Bancshares intends to make full
use of this favorable tax treatment afforded to the Bank, and does not
contemplate use of any post-Conversion earnings of the Bank in a manner which
would limit the Bank's bad debt deduction or create federal tax liabilities.

     TRANSACTIONS WITH RELATED PARTIES. Transactions between savings
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
institution. In a holding company context, the parent holding company of an
institution (such as Bancshares) and any companies which are controlled by such
parent holding company are affiliates of the savings institution. Generally,
Sections 23A and 23B (i) limit the extent to which the savings institution or
its subsidiaries may engage in "covered transactions" with any one affiliate to
an amount equal to 10% of such institution's capital stock and surplus, and
contain an aggregate limit on all such transactions with all affiliates to an
amount equal to 20% of such capital stock and surplus, and (ii) require that all
such transactions be on terms substantially the same, or at least as favorable,
to the institution or subsidiary as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee and similar other types of transactions. In addition to the
restrictions imposed by Sections 23A and 23B, no savings institution may (i)
loan or otherwise extend credit to an affiliate, except for any affiliate which
engages only in activities which are permissible for bank holding companies, or
(ii) purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries of
the savings institution. Section 106 of the Bank Holding Company Act which
applies to the Bank, prohibits the Bank from extending credit to or offering any
other services, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or certain of its affiliates or not obtain services
of a competitor of the institution, subject to certain exceptions.

     LOANS TO DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS.
Depository institutions like the Bank are also subject to the restrictions
contained in Section 22(h) and Section 22(g) of the Federal Reserve Act on loans
to executive officers, directors and principal stockholders. Under Section
22(h), loans to a director, executive officer and to a greater than 10%
stockholder of a depository institution and certain affiliated interests of such
persons, may not exceed, together with all other outstanding loans to such
person and affiliated interests, the institution's loans-to-one-borrower limit
(generally equal to 15% of the institution's unimpaired capital and surplus plus
an additional 10% of such capital and surplus for loans fully secured by certain
readily marketable capital). Section 22(h) also prohibits the making of loans
above amounts prescribed by the appropriate federal banking agency, to
directors, executive officers and greater than 10% stockholders of an
institution, and their respective affiliates, unless such loan is approved in
advance by a majority of the board of directors of the institution with any
"interested" director not participating in the voting. The Federal Reserve Board
has prescribed the loan amount (which includes all other outstanding loans to
such person) as to which such prior board of director approval is required as
being the greater of $25,000 or 5% of capital and surplus (up to $500,000).
Further, Section 22(h) requires that loans to directors, executive officers and
principal stockholders be made on terms substantially the same as offered in
comparable transactions to other persons. Section 22(h) also generally prohibits
a depository institution from paying the overdrafts of any of its executive
officers or directors.

     Section 22(g) of the Federal Reserve Act requires that loans to executive
officers of depository institutions not be made on terms more favorable than
those afforded to other borrowers, requires approval for such extensions of
credit by the board of directors of a the institution, and imposes reporting
requirements for and additional restrictions on the type, amount and terms of
credits to such officers. In addition, Section 106 of the Bank Holding Company
Act prohibits extensions of credit to executive officers, directors, and greater
than 10% stockholders of a depository institution by any other institution which
has a correspondent banking relationship with the institution, unless such
extension of credit is on substantially the same terms as those prevailing at
the time for comparable transactions with other persons and does not involve
more than the normal risk of repayment or present other unfavorable features.



                                       30

<PAGE>   31

     PROMPT CORRECTIVE REGULATORY ACTION. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the federal banking regulators
are required to take prompt corrective action if an institution fails to satisfy
certain minimum capital requirements. All institutions, regardless of their
capital levels, are restricted from making any capital distribution or paying
any management fees that would cause the institution to become undercapitalized.
An institution that fails to meet the minimum level for any relevant capital
measure (an "undercapitalized institution") generally is: (i) subject to
increased monitoring by the appropriate federal banking regulator; (ii) required
to submit an acceptable capital restoration plan within 45 days; (iii) subject
to asset growth limits; and (iv) required to obtain prior regulatory approval
for acquisitions, branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company that the
institution will comply with the plan until it has been adequately capitalized
on average for four consecutive quarters, under which the holding company would
be liable up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the institution into capital compliance as of the date it
failed to comply with its capital restoration plan. A "significantly
undercapitalized" institution, as well as any undercapitalized institution that
does not submit an acceptable capital restoration plan, may be subject to
regulatory demands for recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid on savings
deposits, asset growth and other activities, possible replacement of directors
and officers, and restrictions on capital distributions by any bank holding
company controlling the institution. Any company controlling the institution may
also be required to divest the institution or the institution could be required
to divest subsidiaries. The senior executive officers of a significantly
undercapitalized institution may not receive bonuses or increases in
compensation without prior approval and the institution is prohibited from
making payments of principal or interest on its subordinated debt. In their
discretion, the federal banking regulators may also impose the foregoing
sanctions on an undercapitalized institution if the regulators determine that
such actions are necessary to carry out the purposes of the prompt corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls below the "critical capital level," the institution will be subject to
conservatorship or receivership within 90 days unless periodic determinations
are made that forbearance from such action would better protect the deposit
insurance fund. Unless appropriate findings and certifications are made by the
appropriate federal bank regulatory agencies, a critically undercapitalized
institution must be placed in receivership if it remains critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically undercapitalized.

     Under the OTS regulation implementing the prompt corrective action
provisions of FDICIA, the OTS measures an institution's capital adequacy for
purposes of the prompt corrective action rules on the basis of its total
risk-based capital ratio (the ratio of its total capital to risk-weighted
assets), Tier 1 risk-based capital ratio (the ratio of its core capital to
risk-weighted assets) and leverage ratio (the ratio of its core capital to
adjusted total assets). An institution that is not subject to an order or
written directive to meet or maintain a specific capital level is deemed "well
capitalized" if it also has: (i) a total risk-based capital ratio of 10% or
greater; (ii) a Tier 1 risk-based capital ratio of 6% or greater; and (iii) a
leverage ratio of 5% or greater. An "adequately capitalized" savings institution
is an institution that does not meet the definition of well capitalized and has:
(i) a total risk-based capital ratio of 8% or greater; (ii) a Tier 1 capital
risk-based ratio of 4% or greater; and (iii) a leverage ratio of 4% or greater
(or 3% or greater if the savings institution has a composite 1 CAMELS rating).
An "undercapitalized institution" is an institution that has (i) a total
risk-based capital ratio less than 8%; or (ii) a Tier 1 risk-based capital ratio
of less than 4%; or (iii) a leverage ratio of less than 4% (or 3% if the
institution has a composite 1 CAMELS rating). A "significantly undercapitalized"
institution is defined as an institution that has: (i) a total risk-based
capital ratio of less than 6%; or (ii) a Tier 1 risk-based capital ratio of less
than 3%; or (iii) a leverage ratio of less than 3%. A "critically
undercapitalized" savings institution is defined as an institution that has "
tangible equity" of less than 2%. Tangible equity is defined as core capital
plus cumulative perpetual preferred stock (and related surplus) less all
intangibles other than qualifying supervisory goodwill and certain purchased
mortgage servicing rights. The OTS may reclassify a well capitalized savings
institution as adequately capitalized and may require an adequately capitalized
or undercapitalized institution to comply with the supervisory actions
applicable to institutions in the next lower capital category (but may not
reclassify a significantly undercapitalized institution as
critically-undercapitalized) if the OTS determines, after notice and an
opportunity for a hearing, that the savings institution is in an unsafe or
unsound condition or that the institution has received and not corrected a
less-than-



                                       31

<PAGE>   32

satisfactory rating for any CAMELS rating category. As of June 30, 1999, the
Bank was classified as "well capitalized" under the prompt corrective action
regulations.

     SAFETY AND SOUNDNESS GUIDELINES. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each federal banking agency is required to establish safety and soundness
standards for institutions under its authority. On July 10, 1995, the federal
banking agencies, including the OTS and Federal Reserve Board, released
Interagency Guidelines Establishing Standards for Safety and Soundness and
published a final rule establishing deadlines for submission and review of
safety and soundness compliance plans. The final rule and the guidelines went
into effect on August 9, 1995. The guidelines require depository institutions to
maintain internal controls and information systems and internal audit systems
that are appropriate for the size, nature and scope of the institution's
business. The guidelines also establish certain basic standards for loan
documentation, credit underwriting, interest rate risk exposure, and asset
growth. The guidelines further provide that depository institutions should
maintain safeguards to prevent the payment of compensation, fees and benefits
that are excessive or that could lead to material financial loss, and should
take into account factors such as comparable compensation practices at
comparable institutions. If the appropriate federal banking agency determines
that a depository institution is not in compliance with the safety and soundness
guidelines, it may require the institution to submit an acceptable plan to
achieve compliance with the guidelines. A depository institution must submit an
acceptable compliance plan to its primary federal regulator within 30 days of
receipt of a request for such a plan. Failure to submit or implement a
compliance plan may subject the institution to regulatory sanctions. Management
believes that the Bank already meets substantially all the standards adopted in
the interagency guidelines, and therefore does not believe that implementation
of these regulatory standards will materially affect the Bank's operations.

     Additionally under FDICIA, as amended by the CDRI Act, the federal banking
agencies are required to establish standards relating to the asset quality and
earnings that the agencies determine to be appropriate. On July 10, 1995, the
federal banking agencies, including the OTS and Federal Reserve Board, issued
proposed guidelines relating to asset quality and earnings. Under the proposed
guidelines, an FDIC insured depository institution should maintain systems,
commensurate with its size and the nature and scope of its operations, to
identify problem assets and prevent deterioration in those assets as well as to
evaluate and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital and reserves. Management believes that the asset
quality and earnings standards, in the form proposed by the banking agencies,
would not have a material effect on the Bank's operations.

     The federal banking agencies have also established Year 2000 readiness
safety and soundness guidelines requiring all insured depository institutions to
implement procedures by specified key dates to ensure the institution can
continue business operations after January 1, 2000. Every institution must
identify its internal and external "mission-critical" systems (i.e., those
systems vital to the continuance of a core business activity) and develop a
written plan establishing priorities, oversight and reasonable deadlines to
complete the testing and renovation of mission-critical systems. In addition, an
institution must prepare a written business resumption contingency plan that (i)
defines scenarios where mission-critical systems might fail, (ii) evaluates
contingency options to keep business operations going, and (iii) provides for
testing of the contingency plan by an independent party. Every depository
institution must also identify among its customers those persons that represent
a material risk to the institution in the event the customer is not Year 2000
compliant and implement appropriate risks controls to manage and mitigate the
customer's Year 2000 risk to the institution. The federal banking agencies
continue to monitor the institution's overall progress in meeting the Year 2000
readiness guidelines. In the event an institution has failed to renovate its
mission-critical systems or is not on schedule with key dates, the institution
must draft a remediation contingency plan outlining alternative strategies to
comply with the guidelines and locate available third party providers. The
agencies, in their sole discretion, may take actions under the FDICIA, the
safety and soundness guidelines or any other action available to them, including
enforcement action, to ensure an institution's Year 2000 readiness. For
additional information, see "Year 2000 Readiness Disclosure" in the Annual
Report appearing in Item 7 herein.



                                       32

<PAGE>   33

REGULATION OF BANCSHARES

     GENERAL. Bancshares is a savings institution holding company as defined by
the Home Owners' Loan Act. As such, it is registered with the OTS and is subject
to OTS regulation, examination, supervision and reporting requirements. As a
subsidiary of a savings institution holding company, the Bank is subject to
certain restrictions in its dealings with Bancshares and affiliates thereof.
Bancshares also is required to file certain reports with, and otherwise comply
with the rules and regulations of, the Securities and Exchange Commission
("SEC") under the federal securities laws.

     ACTIVITIES RESTRICTIONS. The Board of Directors of Bancshares presently
intends to continue operating as a unitary savings institution holding company.
There are generally no restrictions on the activities of a unitary savings
institution holding company. However, if the Director of the OTS determines that
there is reasonable cause to believe that the continuation by an institution
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution, the
Director of the OTS may impose such restrictions as deemed necessary to address
such risk including limiting: (i) payment of dividends by the savings
institution; (ii) transactions between the savings institution and its
affiliates; and (iii) any activities of the savings institution that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution. Notwithstanding the above
rules as to permissible business activities of unitary savings institution
holding companies, if the savings institution subsidiary of such a holding
company fails to meet the QTL test, then such unitary holding company shall also
presently become subject to the activities restrictions applicable to multiple
holding companies and, unless the savings institution requalifies as a QTL
within one year thereafter, register as, and become subject to, the restrictions
applicable to a bank holding company. See "Regulation of the Bank -- Qualified
Thrift Lender Test." Legislative initiatives have been introduced in the U.S.
Congress which could result in the imposition of restrictions on the activities
of unitary savings institution holding companies in the future. See "Proposed
Legislative and Regulatory Changes."

     If Bancshares were to acquire control of another savings institution, other
than through merger or other business combination with the Bank, Bancshares
would thereupon become a multiple savings institution holding company. Except
where such acquisition is pursuant to the authority to approve emergency thrift
acquisitions and where each subsidiary savings institution meets the QTL test,
the activities of Bancshares and any of its subsidiaries (other than the Bank or
other subsidiary savings institutions) would thereafter be subject to further
restrictions. Among other things, no multiple savings institution holding
company or subsidiary thereof which is not an institution shall commence or
continue for a limited period of time after becoming a multiple savings
institution holding company or subsidiary thereof, any business activity, upon
prior notice to, and no objection by, the OTS, other than: (i) furnishing or
performing management services for a subsidiary savings institution; (ii)
conducting an insurance agency or escrow business; (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings institution;
(iv) holding or managing properties used or occupied by a subsidiary savings
institution; (v) acting as trustee under deeds of trust; (vi) those activities
authorized by regulation as of March 5, 1987 to be engaged in by multiple
holding companies; or (vii) unless the Director of the OTS by regulation
prohibits or limits such activities for savings institution holding companies,
those activities authorized by the Federal Reserve Board as permissible for bank
holding companies. A multiple savings institution holding company must obtain
the approval of the OTS prior to engaging in the activities described in (vii)
above.

     RESTRICTIONS ON ACQUISITIONS. Savings institution holding companies may not
acquire, without prior approval of the Director of the OTS, (i) control of any
other savings institution or savings institution holding company or
substantially all the assets thereof or (ii) more than 5% of the voting shares
of an institution or holding company thereof which is not a subsidiary. Under
certain circumstances, a registered savings institution holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the voting shares of an under-capitalized savings institution pursuant to a
"qualified stock issuance" without that savings institution being deemed
controlled by the holding company. In order for the shares acquired to
constitute a "qualified stock



                                       33

<PAGE>   34

issuance," the shares must consist of previously unissued stock or treasury
shares, the shares must be acquired for cash, the savings institution holding
company's other subsidiaries must have tangible capital of at least 6 1/2% of
total assets, there must not be more than one common director or officer between
the savings institution holding company and the issuing savings institution, and
transactions between the savings institution and the savings institution holding
company and any of its affiliates must conform to Sections 23A and 23B of the
Federal Reserve Act. Except with the prior approval of the Director of the OTS,
no director or officer of an institution holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock, may
also acquire control of any savings institution, other than a subsidiary savings
institution, or of any other savings institution holding company.

     The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings institution holding company which controls
savings institutions in more than one state if: (i) the multiple savings
institution holding company involved controls an institution which operated a
home or branch office in the state of the institution to be acquired as of March
5, 1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the FDIC Act; or
(iii) the statutes of the state in which the institution to be acquired is
located specifically permit institutions to be acquired by state-chartered
institutions or savings institution holding companies located in the state where
the acquiring entity is located (or by a holding company that controls such
state-chartered savings institutions).

     OTS regulations permit federal savings institutions to branch in any state
or states of the United States and its territories. Except in supervisory cases
or when interstate branching is otherwise permitted by state law or other
statutory provision, a federal institution may not establish an out-of-state
branch unless (i) the federal institution qualifies as a QTL or as a "domestic
building and loan association" under Section 7701(a)(19) of the Internal
Revenue Code and the total assets attributable to all branches of the
institution in the state would qualify such branches taken as a whole for
treatment as a QTL or as a domestic building and loan association and (ii) such
branch would not result in (a) formation of a prohibited multi-state multiple
savings holding company or (b) a violation of certain statutory restrictions on
branching by savings institution subsidiaries of banking holding companies.
Federal savings institutions generally may not establish new branches unless
the institution meets or exceeds minimum regulatory capital requirements. The
OTS will also consider the institution's record of compliance with the
Community Reinvestment Act of 1977 in connection with any branch application.

     FEDERAL SECURITIES LAW. Bancshares' Common Stock is registered with the SEC
under the Securities Exchange Act of 1934, as amended ("Securities Exchange
Act"), and, under OTS regulations, generally may not be deregistered for at
least three years after the Conversion. Bancshares is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the Securities Exchange Act.

FEDERAL INCOME TAXATION

     Savings institutions such as the Bank are subject to the provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") in the
same general manner as other corporations. Through tax years beginning before
December 31, 1995, institutions such as the Bank which met certain definitional
tests and other conditions prescribed by the Internal Revenue Code benefited
from certain favorable provisions regarding their deductions from taxable income
for annual additions to their bad debt reserve. For purposes of the bad debt
reserve deduction, loans are separated into "qualifying real property loans,"
which generally are loans secured by interests in certain real property, and
"nonqualifying loans," which are all other loans. The bad debt reserve deduction
with respect to nonqualifying loans must be based on actual loss experience. The
amount of the bad debt reserve deduction with respect to qualifying real
property loans was based upon actual loss experience (the "experience method")
or a percentage of taxable income determined without regard to such deduction
(the "percentage of taxable income method"). Under the experience method, the
bad debt deduction for an addition to the reserve for qualifying real property
loans was an amount determined under a formula based generally on the bad debts
actually sustained by a savings institution over a period of years. Under the
percentage of taxable income method, the bad



                                       34

<PAGE>   35

debt reserve deduction for qualifying real property loans was computed as 8% of
a savings institution's taxable income, with certain adjustments. The Bank
generally elected to use the method which has resulted in the greatest
deductions for federal income tax purposes in any given year.

     Legislation that is effective for tax years beginning after December 31,
1995 requires institutions to recapture into taxable income over a six taxable
year period the portion of the tax loan reserve that exceeds the pre-1988 tax
loan loss reserve. The Bank will no longer be allowed to use the reserve method
for tax loan loss provisions, but would be allowed to use the experience method
of accounting for bad debts. There will be no future effect on net income from
the recapture because the taxes on these bad debt reserves have already been
accrued as a deferred tax liability. The regulatory authorities have not
examined the Bank's federal income tax returns in the past five years.

     For taxable years beginning after June 30, 1986, the Internal Revenue Code
imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax
generally applies to a base of regular taxable income plus certain tax
preferences ("alternative minimum taxable income" or "AMTI") and is payable to
the extent such AMTI exceeds an exemption amount. The other items of tax
preference that constitute AMTI include (a) tax-exempt interest on newly-issued
(generally, issued on or after August 8, 1986) private activity bonds other than
certain qualified bonds and (b) for taxable years including 1987 through 1989,
50% of the excess of (i) the taxpayer's pre-tax adjusted net book income over
(ii) AMTI (determined without regard to this latter preference and prior to
reduction by net operating losses). For taxable years beginning after 1989, this
latter preference has been replaced by 75% of the excess (if any) of (i)
adjusted current earnings as defined in the Internal Revenue Code, over (ii)
AMTI (determined without regard to this preference and prior to reduction by net
operating losses). For any taxable year beginning after 1986, net operating
losses can offset no more than 90% of AMTI. Certain payments of alternative
minimum taxes may be used as credits against regular tax liabilities in future
years. In addition, for taxable years after 1986 and before 1992, corporations,
including savings institutions, are also subject to an environmental tax equal
to 0.12% of the excess of AMTI for the taxable year (determined without regard
to net operating losses and the deduction for the environmental tax) over $2.0
million. The Bank is not currently paying any amount of alternative minimum tax
but may, depending on future results of operations, become subject to this tax.

STATE INCOME TAXATION

     The Bank is subject to Arkansas corporation income tax which is 6.5% of all
taxable earnings when income exceeds $100,000. Bancshares is incorporated under
Oklahoma law and qualified to do business in Arkansas as a foreign corporation,
and accordingly it incurs certain franchise and other taxes, which management
believes are not material.

EMPLOYEES

     As of June 30, 1999, the Bank had 82 full-time and 4 part-time employees,
none of whom was represented by a collective bargaining agreement. Management
considers the Bank's relationships with its employees to be good.



                                       35

<PAGE>   36

ITEM 2. PROPERTIES

     The following table sets forth information regarding the Bank's offices at
June 30, 1999.

<TABLE>
<CAPTION>
                                    YEAR        OWNED OR                           APPROXIMATE
                                   OPENED        LEASED          BOOK VALUE      SQUARE FOOTAGE
                                   ------        ------          ----------      --------------
<S>                                <C>          <C>            <C>                 <C>
Main Office:

237 Jackson Street, SW              1933          Owned         $  311,321           12,000
Camden, Arkansas

Branch Offices:

22461 Interstate 30, Suite 1100A    1996         Leased               --              1,800
Landers Corporate Plaza
Bryant, Arkansas

1100 Fairview Road,
Suite 208                           1981          Owned            158,126            1,200
Camden, Arkansas

610 West 4th Street                 1969          Owned            815,676            3,500
Fordyce, Arkansas

473 Highway 425 North               1996          Owned          1,286,038            7,400
Monticello, Arkansas

108 South Main                      1996          Owned          1,114,256            5,500
Sheridan, Arkansas
</TABLE>

     In addition to the offices described above, at June 30, 1999 the Bank held
five other properties located in various communities within the Bank's primary
market area. These properties were acquired for possible future construction of
additional offices and related facilities, though certain of the properties are
larger than the Bank's foreseeable needs, and therefore portions of those
properties may be sold by the Bank. At that date, the aggregate net book value
of these properties totaled $1,229,659 of which $443,189 was classified as held
for resale. It is anticipated that in the future management may determine to
expand the Bank's network of banking facilities by installing ATMs in existing
or new banking facilities, by building branches or other facilities on the
properties held by the Bank, by acquiring other facilities or sites and/or by
acquiring banks or other financial companies with their own facilities.

     The book value of the Bank's aggregate investment in properties, premises
and equipment totaled approximately $6.5 million at June 30, 1999. See Note 7 of
the Notes to Consolidated Financial Statements in the Annual Report to
Stockholders for June 30, 1999.




ITEM 3. LEGAL PROCEEDINGS

     From time to time, the Bank is a party to various legal proceedings
incident to its business. At June 30, 1999, except as set forth below, there
were no legal proceedings to which the Company was a party, or to which any of
its property was subject, which were expected by management to result in a
material loss to the Company. In



                                       36

<PAGE>   37

addition, there were no pending regulatory proceedings to which the Company or
any of its properties was a party, which were expected to result in a material
loss.

     During the year ended June 30, 1998, a circuit court entered a judgment
against the Bank in the amount of $78,000 for breach of contract regarding its
alleged failure to provide a party the right to purchase real estate formerly
used as a branch location. The Bank has appealed the judgment to the court of
appeals. The Bank and its counsel believe there is a reasonable likelihood that
the merits of the case will result in a reversal of the lower court's decision.
No accrual of this possible loss has been made in the Consolidated Financial
Statements as of June 30, 1999.

     In May, 1999, a shareholder filed a 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 thereby artificially inflating the price of the
Company's common stock and causing the plaintiff and other shareholder class
members to purchase the Company's common stock at inflated prices.

     The Company and its counsel have reviewed the complaint and intend to
contest the allegations vigorously. Management is unable to determine the
likelihood of an unfavorable outcome of the suit or the amount of damages that
the Company may have to pay, if any. The Company will incur costs through the
payment of legal fees and the related costs of litigation. The extent of these
costs is not determinable at this time.

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

     The Company's Annual Meeting of Stockholders was held on May 13, 1999.
2,258,573 shares of the Company's common stock were represented at the Annual
Meeting in person or by proxy.

     Stockholders voted in favor of the election of two nominees for director.
The voting results for each nominee were as follows:

<TABLE>
<CAPTION>
                                         VOTES IN FAVOR
            NOMINEE                        OF ELECTION                 VOTES WITHHELD
<S>                                       <C>                            <C>
        Vida H. Lampkin                     2,134,366                      124,207
       Clifford Steelman                    2,135,266                      123,307
</TABLE>

There were 63,625 broker nonvotes on the matter.



                                       37

<PAGE>   38

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The information contained under the section "Market for Common Stock
and Related Stockholder Matters" in the Annual Report is incorporated herein by
reference.

ITEM 6.  SELECTED FINANCIAL DATA

         The information contained in the table captioned "Selected
Consolidated Financial and Other Data" in the Annual Report is incorporated
herein by reference.

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

         The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The information contained in the section captioned "Market Risk" in
the Annual Report is incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements contained in the Annual Report, which are
listed under Item 14 herein, are incorporated herein by reference.



                                       38

<PAGE>   39

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

        Effective June 25, 1997, the Company dismissed Gaunt & Co., Little
Rock, Arkansas, and engaged Miller, England & Company, Little Rock, Arkansas, as
the Company's independent certified public accountants. Effective June 18, 1998,
the Company dismissed Miller, England & Company, as the Company's independent
accountants. Effective October 1, 1998, the Company engaged Deloitte & Touche
LLP, Little Rock, Arkansas, as the Company's independent auditors. For
additional information, see the Company's Current Reports on Form 8-K dated June
25, 1997, June 25, 1998 and October 7, 1998, each of which is incorporated
herein by reference (File No. 0-22423).

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         For information concerning the Board of Directors and executive
officers of the Company, the information contained under the section captioned
"Proposal I -- Election of Directors" in the Company's definitive proxy
statement for the Company's 1999 Annual Meeting of Stockholders (the "Proxy
Statement") which will be filed within 120 days of the Company's fiscal year end
and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

         The information contained under the sections captioned "Director
Compensation" and "Executive Compensation" in the Proxy Statement is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     (a)  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

          Information required by this item is incorporated herein by reference
          to the section captioned "Voting Securities and Beneficial Ownership"
          in the Proxy Statement.

     (b)  SECURITY OWNERSHIP OF MANAGEMENT

          Information required by this item is incorporated herein by reference
          to the sections captioned "Securities Ownership of Management" in the
          Proxy Statement.

     (c)  CHANGES IN CONTROL

          Management of the Company knows of no arrangements, including any
          pledge by any person of securities of the Company, the operation of
          which may at a subsequent date result in a change in control of the
          registrant.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated herein by reference
to the section captioned "Transactions with Management" in the Proxy Statement.



                                       39

<PAGE>   40

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

     (a)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

     (1)  Financial Statements. The following consolidated financial statements
               are incorporated by reference from Item 8 hereof:

               Independent Auditors' Reports

               Consolidated Statements of Financial Condition as of June 30,
               1999 and 1998

               Consolidated Statements of Operations for the years ended June
               30, 1999, 1998 and 1997

               Consolidated Statements of Stockholders' Equity for the years
               ended June 30, 1999, 1998 and 1997

               Consolidated Statements of Cash Flows for the years ended June
               30, 1999, 1998 and 1997

               Notes to Consolidated Financial Statements for the years ended
               June 30, 1999, 1998 and 1997

     (2) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the Securities and Exchange
Commission are omitted because of the absence of conditions under which they are
required or because the required information is included in the Consolidated
Financial Statements and related Notes thereto.

     (3) Exhibits. The following is a list of exhibits filed as part of this
Annual Report on Form 10-K and is also the Exhibit Index.

<TABLE>
<CAPTION>
   NO.                   DESCRIPTION
   --                    -----------
<S>            <C>
   3.1          Articles of Incorporation of HCB Bancshares, Inc. *

   3.2          Bylaws of HCB Bancshares, Inc. *

   4            Form of Common Stock Certificate of HCB Bancshares, Inc. *

   10.1         Form of HCB Bancshares, Inc. 1997 Stock Option and Incentive Plan *+

   10.2         Form of HCB Bancshares, Inc. Management Recognition Plan and Trust Agreement *+

   10.3(a)      Employment Agreements by and between Heartland Community Bank and Vida H. Lampkin and Cameron D. McKeel *+

   10.3(b)      Employment Agreements by and between HCB Bancshares, Inc. and Vida H. Lampkin and Cameron D. McKeel *+

   10.4(a)      Change-in-Control Protective Agreement between Heartland Community Bank and William C. Lyon *+

   10.4(b)      Change-in-Control Protective Agreement between HCB Bancshares, Inc. and William C. Lyon *+
</TABLE>



                                       40

<PAGE>   41

<TABLE>
<S>            <C>
   10.5         Heartland Community Bank Directors' Retirement Plan, as amended*+

   21           Subsidiaries

   23.1         Consent of Deloitte & Touche, LLP

   23.2         Consent of Miller, England & Company

   27           Financial Data Schedule
</TABLE>

----------
*    Incorporated by reference to the Company's Registration Statement on Form
     SB-2 (File No. 333-19093).

+    Management contract or compensatory plan or arrangement.

     (b) REPORTS ON FORM 8-K. During the last quarter of the period covered by
this report, the Registrant filed two Current Reports on Form 8-K. On May 14,
1999, the Company reported under Item 5 that a class action complaint had been
filed against it in the United States Court for the Eastern District of Texas.
On June 2, 1999, the Company reported under Item 5 that it had received
regulatory approval to acquire up to an additional 10% of its outstanding common
stock.

     (c) EXHIBITS. The exhibits required by Item 601 of Regulation S-K are
either filed as part of this Annual Report on Form 10-K or incorporated by
reference herein.

     (d) FINANCIAL STATEMENTS AND SCHEDULES EXCLUDED FROM ANNUAL REPORT. There
are no other financial statements and financial statement schedules which were
excluded from the Annual Report to Stockholders pursuant to Rule 14a-3(b) which
are required to be included herein.



                                       41

<PAGE>   42

                                   SIGNATURES

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

                                      HCB BANCSHARES, INC.

Date: September 23, 1999              By:    /s/ Vida H. Lampkin
                                          ------------------------------------
                                          Vida H. Lampkin
                                          Chairman of the Board, President and
                                          Chief Executive Officer
                                          (Duly Authorized Representative)

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

<TABLE>
<S>                                                                <C>
By:        /s/ Vida H. Lampkin                                       September 23, 1999
    ---------------------------------------------------
    Vida H. Lampkin
    Chairman of the Board, President and Chief
    Executive Officer
    (Principal Executive Officer)

By:       /s/ Scott A. Swain                                         September 23, 1999
    ---------------------------------------------------
    Scott A. Swain
    Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)

By:       /s/ Cameron D. McKeel                                      September 23, 1999
    ---------------------------------------------------
    Cameron D. McKeel
    Director and Vice President

By:       /s/ Roy Wayne Moseley                                      September 23, 1999
    ---------------------------------------------------
    Roy Wayne Moseley
    Director

By:          /s/ Bruce D. Murry                                      September 23, 1999
    ---------------------------------------------------
    Bruce D. Murry
    Director

By:      /s/ Carl E. Parker, Jr.                                     September 23, 1999
    ---------------------------------------------------
    Carl E. Parker, Jr.
    Director


By:       /s/ Lula Sue Silliman                                      September 23, 1999
    ---------------------------------------------------
    Lula Sue Silliman
    Director

By:      /s/ Clifford Steelman                                       September 23, 1999
    ---------------------------------------------------
    Clifford Steelman
    Director
</TABLE>