<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                        
                               ------------------
                                        
   
                                 FORM 10-K/A
    
   
                              (Amendment No. 1)*
    

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

                     For the fiscal year ended June 30, 1998

                         Commission File Number: 0-22423

                              HCB BANCSHARES, INC.
                        ---------------------------------
        (Exact name of small business issuer as specified in its charter)

                  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)

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

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

       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: $19,928,491 (1,944,243 shares at
the last sale price on December 31, 1998 ($10.25 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: 2,640,000 shares of common
stock as of December 31, 1998.

                       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:

None.

   
* This Amendment No. 1 reflects a revised opinion of Miller, England & Company 
contained in Item 8 and a revised Exhibit 23.2, consent of Miller, England 
& Company.
    

<PAGE>   2

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                       51
<PAGE>   3
                       [DELOITTE & TOUCHE LLP LETTERHEAD]


INDEPENDENT AUDITORS' REPORT

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

We have audited the consolidated statement of financial condition of HCB
Bancshares, Inc. and subsidiary (the "Company") as of June 30, 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of HCB Bancshares, Inc. and its
subsidiary at June 30, 1998, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.


/s/ DELOITTE & TOUCHE LLP

Little Rock, Arkansas
February 3, 1999



                                       52
<PAGE>   4
                     [MILLER, ENGLAND & COMPANY LETTERHEAD]



                          INDEPENDENT AUDITORS' REPORT



Board of Directors
HCB Bancshares, Inc. and Subsidiaries
Camden, Arkansas

We have audited the accompanying consolidated statements of financial condition 
of HCB Bancshares, Inc. and its subsidiaries as of June 30, 1997 and the 
related consolidated statements of income, stockholders' equity and cash flows 
for the year then ended. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these 
financial statements based on our audit. The consolidated financial statements 
for the year ended June 30, 1996 were audited by another auditor and their 
report is attached hereto.

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

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of HCB Bancshares, 
Inc. and its subsidiaries as of June 30, 1997 and the results of their 
consolidated operations and cash flows for the years ended in conformity with 
generally accepted accounting principles.

   
As discussed in Note 1, the consolidated financial statements referred to above
have been restated.
    


/s/ MILLER, ENGLAND & COMPANY

Little Rock, Arkansas
   
September 5, 1997 (February 3, 1999, as to the effect of the restatement
described in Note 1)
    


                                       53
<PAGE>   5
                      [LETTERHEAD OF GAUNT & COMPANY, LTD.]

                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Heartland Community Bank and Subsidiaries
(formerly First Federal Savings and Loan Association of Camden)
Camden, Arkansas

             We have audited the accompanying consolidated statements of
financial condition of Heartland Community Bank (formerly First Federal Savings
and Loan Association of Camden) and its subsidiary as of June 30, 1996 and 1995
and the related consolidated statements of income, equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

             In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Heartland Community Bank (formerly First Federal Savings and Loan Association of
Camden) and its subsidiary as of June 30, 1996 and 1995 and the results of their
consolidated operations and cash flows for the years ended in conformity with
generally accepted accounting principles.

             As discussed in note 18, the financial statements for the year
ended June 30, 1996, are consolidated as a result of the acquisition of the
wholly owned-subsidiary on May 3, 1996. Also discussed in note 1c, as of July
1, 1994 the Bank changed its method of accounting for certain investments in
debt and equity securities.

/s/ Gaunt & Company, Ltd.

Little Rock, Arkansas

August 28, 1996
(Except for Note 27, as to
which the date is February 4, 1997)


                                       54






<PAGE>   6

HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND 1997                                                          
----------------------------------------------------------------------------------------------------------------------------
ASSETS                                                                                          1998                1997
                                                                                                               As Restated,
                                                                                                                see Note 1
<S>                                                                                       <C>                 <C>        
Cash and due from banks                                                                   $   1,531,363       $   1,057,943
Interest bearing deposits with banks                                                          2,291,035          18,273,882
                                                                                           ------------        ------------
            Cash and cash equivalents                                                         3,822,398          19,331,825
Other interest bearing deposits with banks                                                    2,782,000
Investment securities:
  Available for sale, at fair value (amortized cost at June 30, 1998
    and 1997, of $99,385,263 and $35,680,502, respectively)                                  99,472,916          35,622,370
  Held to maturity, at amortized cost (fair value at June 30, 1998
    and 1997, of $27,476,304 and $36,194,353, respectively)                                  27,503,257          36,493,086
Loans receivable, net of allowance at June 30, 1998 and 1997,
  of $1,468,546 and $1,492,473, respectively                                                104,580,165          98,642,635
Accrued interest receivable                                                                   1,839,326           1,305,952
Federal Home Loan Bank stock                                                                  3,448,900           1,246,500
Premises and equipment, net                                                                   5,601,767           4,621,444
Goodwill, net                                                                                   431,250           1,415,223
Real estate held for sale                                                                       461,190             480,368
Other assets                                                                                  1,010,601           1,339,113
                                                                                           ------------        ------------
TOTAL                                                                                     $ 250,953,770       $ 200,498,516
                                                                                           ============        ============
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Deposits                                                                                $ 141,931,330       $ 151,192,591
  Federal Home Loan Bank advances                                                            68,121,068          10,000,000
  Liability to purchase shares for management retention plan                                    846,400
  Advance payments by borrowers for
     taxes and insurance                                                                        209,242             209,140
  Accrued interest payable                                                                      643,887             410,477
  Note payable                                                                                  320,000             400,000
  Other liabilities                                                                           1,202,919             355,456
                                                                                           ------------        ------------
            Total liabilities                                                               213,274,846         162,567,664
                                                                                           ------------        ------------

COMMITMENTS AND CONTINGENCIES (Note 14)

STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value, 10,000,000 shares authorized,
    2,645,000 shares issued and outstanding                                                      26,450              26,450
  Additional paid-in capital                                                                 25,861,230          25,775,523
  Unearned ESOP shares                                                                       (1,692,800)         (1,990,320)
  Unearned MRP shares                                                                          (578,528)
  Unrealized gain (loss) on investment securities
    available for sale, net of tax                                                               53,907             (33,353)
  Retained earnings                                                                          14,008,665          14,152,552
                                                                                           ------------        ------------
            Total stockholders' equity                                                       37,678,924          37,930,852
                                                                                           ------------        ------------
TOTAL                                                                                     $ 250,953,770       $ 200,498,516
                                                                                           ============        ============
</TABLE>

See notes to consolidated financial statements.



                                       55
<PAGE>   7


HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
--------------------------------------------------------------------------------------------------------------------------
                                                                                1998             1997             1996
                                                                                            As Restated,
                                                                                             see Note 1
<S>                                                                        <C>              <C>               <C>        
INTEREST INCOME:
  Interest and fees on loans                                               $ 9,057,860      $ 7,958,458       $ 5,352,338
  Investment securities:
    Taxable                                                                  5,175,119        4,436,436         4,467,685
    Nontaxable                                                                 445,122
  Other                                                                        641,204          592,954           513,158
                                                                          ------------     ------------       -----------
            Total interest income                                           15,319,305       12,987,848        10,333,181

INTEREST EXPENSE:
  Deposits                                                                   7,272,554        7,534,445         6,314,641
  Federal Home Loan Bank advances                                            1,644,595          636,337           451,957
  Note payable                                                                  25,000           25,000
                                                                          ------------     ------------       -----------
            Total interest expense                                           8,942,149        8,195,782         6,766,598
                                                                          ------------     ------------       -----------
NET INTEREST INCOME                                                          6,377,156        4,792,066         3,566,583

PROVISION FOR LOAN LOSSES                                                       24,000          221,671            42,483
                                                                          ------------     ------------       -----------
NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                                            6,353,156        4,570,395         3,524,100

NONINTEREST INCOME (LOSS):
  Service charges on deposit accounts                                          291,684          203,023            79,245
  Gain (loss) on sales of investment securities
    available for sale                                                          22,257          (21,215)         (926,947)
  Other                                                                        195,356          123,259            74,050
                                                                          ------------     ------------       -----------
            Net noninterest income (loss)                                      509,297          305,067          (773,652)
                                                                          ------------     ------------       -----------
NONINTEREST EXPENSES:
  Salaries and employee benefits                                             3,305,582        2,458,403         1,239,769
  Net occupancy expense                                                        760,906          393,969           172,278
  Federal insurance premiums                                                    91,448        1,084,547           268,370
  Real estate related costs                                                      2,135           32,857            43,439
  Data processing                                                              297,077          269,067           114,171
  Professional fees                                                            497,519          487,492           109,986
  Loss on impaired investment security                                         150,356
  Amortization of goodwill                                                     123,133          160,073            25,436
  Other                                                                      1,269,889          879,462           377,209
                                                                          ------------     ------------       -----------
            Total noninterest expenses                                       6,498,045        5,765,870         2,350,658
                                                                          ------------     ------------       -----------
INCOME (LOSS) BEFORE INCOME TAXES                                              364,408         (890,408)          399,790

INCOME TAX PROVISION (BENEFIT)                                                 (20,705)        (280,935)          174,801
                                                                          ------------     ------------       -----------
NET INCOME (LOSS)                                                          $   385,113      $  (609,473)      $   224,989
                                                                          ============     ============       ===========
EARNINGS PER SHARE:
  Basic                                                                    $      0.16      $     (0.25)          N/A
                                                                          ============     ============
  Diluted                                                                  $      0.16      $     (0.25)          N/A
                                                                          ============     ============
</TABLE>


See notes to consolidated financial statements.



                                       56
<PAGE>   8

HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
---------------------------------------------------------------------------------------------------------------------------
                                                                     ISSUED                
                                                                   COMMON STOCK             ADDITIONAL       UNEARNED
                                                          -----------------------------      PAID-IN           ESOP  
                                                              SHARES        AMOUNT           CAPITAL          SHARES
<S>                                                           <C>           <C>           <C>             <C>
BALANCE, JULY 1, 1995, AS PREVIOUSLY
  REPORTED

  Effect of restatement (Note 1)
                                                              ----------    ---------      ------------    ------------
BALANCE, JULY 1, 1995, AS RESTATED

  Net income
  Net change in unrealized gain (loss) on
    securities available for sale, net of tax
                                                              ----------    ---------      ------------    ------------
BALANCE, JUNE 30, 1996

  Net loss (as restated, see note 1)
  Issuance of common stock, net of costs (as 
    restated, see note 1)                                      2,645,000     $ 26,450      $ 23,623,393
  Purchase of common stock
    by ESOP                                                                                   2,116,000    $ (2,116,000)
  Common stock committed to be
    released for ESOP (as restated, see note 1)                                                  36,130         125,680
  Net change in unrealized gain (loss) on
    securities available for sale, net of tax
                                                              ----------    ---------      ------------    ------------
BALANCE, JUNE 30, 1997                                         2,645,000       26,450        25,775,523      (1,990,320)

  Net income
  Common stock committed to be
    released for ESOP                                                                            85,707         297,520
  Liability to purchase MRP shares
  MRP shares earned
  Net change in unrealized gain (loss) on
    securities available for sale, net of tax
  Dividends paid
                                                              ----------    ---------      ------------    ------------
BALANCE, JUNE 30, 1998                                         2,645,000     $ 26,450      $ 25,861,230    $ (1,692,800)
                                                              ==========    =========      ============    ============
</TABLE>



<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                        UNREALIZED
                                                                      GAIN (LOSS) ON
                                                                        INVESTMENT
                                                          UNEARNED      SECURITIES                               TOTAL
                                                            MRP        AVAILABLE FOR        RETAINED          STOCKHOLDERS'
                                                           SHARES        SALE, NET          EARNINGS            EQUITY
<S>                                                       <C>            <C>             <C>                  <C>         
BALANCE, JULY 1, 1995, AS PREVIOUSLY
  REPORTED                                                               $ (18,788)      $ 14,289,760         $ 14,270,972

  Effect of restatement (Note 1)                                                              247,276              247,276
                                                          ----------    ----------       ------------        -------------
BALANCE, JULY 1, 1995, AS RESTATED                                         (18,788)        14,537,036           14,518,248

  Net income                                                                                  224,989              224,989
  Net change in unrealized gain (loss) on
    securities available for sale, net of tax                             (267,525)                               (267,525)
                                                          ----------    ----------       ------------        -------------
BALANCE, JUNE 30, 1996                                                    (286,313)        14,762,025           14,475,712

  Net loss (as restated, see note 1)                                                         (609,473)            (609,473)
  Issuance of common stock, net of costs (as 
    restated, see note 1)                                                                                       23,649,843
  Purchase of common stock
    by ESOP
  Common stock committed to be
    released for ESOP (as restated, see note 1)                                                                    161,810
  Net change in unrealized gain (loss) on
    securities available for sale, net of tax                              252,960                                 252,960
                                                          ----------    ----------       ------------        -------------
BALANCE, JUNE 30, 1997                                                     (33,353)        14,152,552           37,930,852

  Net income                                                                                  385,113              385,113
  Common stock committed to be
    released for ESOP                                                                                              383,227
  Liability to purchase MRP shares                          (846,400)                                             (846,400)
  MRP shares earned                                          267,872                                               267,872
  Net change in unrealized gain (loss) on
    securities available for sale, net of tax                               87,260                                  87,260
  Dividends paid                                                                             (529,000)            (529,000)
                                                          ----------    ----------       ------------        -------------
BALANCE, JUNE 30, 1998                                    $ (578,528)     $ 53,907       $ 14,008,665         $ 37,678,924
                                                          ==========    ==========       ============        =============
</TABLE>

See notes to consolidated financial statements.



                                       57
<PAGE>   9


HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
----------------------------------------------------------------------------------------------------------------------------------

                                                                                   1998                 1997               1996
                                                                                                    As Restated,
                                                                                                     see Note 1
<S>                                                                            <C>                 <C>                 <C>      
OPERATING ACTIVITIES:
  Net income (loss)                                                            $ 385,113           $ (609,473)         $ 224,989
  Adjustments to reconcile net income (loss) to net
    cash provided (used) by operating activities:
    Depreciation                                                                 407,850              187,098             66,005
    Amortization (accretion) of:
      Deferred loan origination fees                                             (26,757)             (26,698)             6,258
      Goodwill                                                                   123,133              160,073             25,436
      Premiums and discounts on loans, net                                        (5,454)             (27,627)               309
      Premiums and discounts on investment securities, net                       213,806              (24,428)           125,952
    Provision for loan loss                                                       24,000              221,671             42,483
    Provision for loss on foreclosed real estate                                                       13,528             30,000
    Deferred income taxes                                                         27,027             (110,374)           (57,986)
    Net (gain) loss on sale of investment securities
      available for sale                                                         (22,257)              21,215            926,947
    Loss on impaired investment security                                         150,356
    (Gain) loss on disposal of assets, net                                        20,395                2,558             (5,732)
    Stock compensation expense                                                   695,271              161,810
    Change in accrued interest receivable                                       (533,374)            (363,939)             4,742
    Change in accrued interest payable                                           233,410               14,538             29,818
    Change in other assets                                                       245,682             (121,167)          (742,480)
    Change in other liabilities                                                  503,764              (12,203)           442,156
                                                                             -----------         ------------        -----------
            Net cash provided (used) by operating activities                   2,441,965             (513,418)         1,118,897
                                                                             -----------         ------------        -----------
INVESTING ACTIVITIES:
  Purchases of investment securities - held to maturity                                                              (20,475,412)
  Purchases of investment securities available for sale                      (88,941,413)         (28,986,589)        (1,995,000)
  Purchases of other interest bearing deposits                                (2,782,000)
  Purchases of loans                                                          (8,257,199)          (1,305,000)        (4,555,000)
  Purchases of Federal Home Loan Bank stock                                   (2,202,400)
  Proceeds from sales of loans                                                 4,952,961            1,084,100            244,230
  Proceeds from sales of investment securities - available
    for sale                                                                  20,794,327            7,754,176         18,151,851
  Loan originations, net of repayments                                        (2,667,081)         (15,855,647)        (5,283,509)
  Investment in subsidiary                                                                                            (1,492,782)
  Principal payments on investment securities                                 13,087,527           11,627,182         10,506,353
  Proceeds from sales of real estate                                              71,132
  Proceeds from sales of premises and equipment                                  605,641
  Proceeds from sales of other assets                                                                  62,550             19,723
  Purchases of premises and equipment                                         (1,680,464)          (3,118,319)          (762,178)
                                                                             -----------         ------------        -----------
            Net cash used by investing activities                            (67,018,969)         (28,737,547)        (5,641,724)
                                                                             -----------         ------------        -----------
</TABLE>



                                                                     (Continued)



                                       58
<PAGE>   10


HCB BANCSHARES, INC.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998, 1997 AND 1996
-------------------------------------------------------------------------------------------------------------------------------

                                                                                  1998              1997             1996
                                                                                              As Restated,
                                                                                               see Note 1
<S>                                                                        <C>               <C>               <C>         
FINANCING ACTIVITIES:
  Net increase in deposits                                                 $     141,326     $   5,273,340     $  8,806,600
  Deposits assumed by others, net                                             (8,541,747)
  Advances from Federal Home Loan Bank                                        76,607,000                         10,000,000
  Repayment of Federal Home Loan Bank advances                               (18,485,932)
  Net increase (decrease) in advance payments by
    borrowers for taxes and insurance                                                102           (22,594)        (117,491)
  Issuance of common stock, net of related expenses                                             25,640,162
  Proceeds from note payable                                                                       400,000
  Repayment of note payable                                                      (80,000)
  Dividends paid                                                                (529,000)
  Other                                                                          (44,172)
                                                                            ------------     -------------     ------------

            Net cash provided by financing activities                         49,067,577        31,290,908       18,689,109
                                                                            ------------     -------------     ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                           (15,509,427)        2,039,943       14,166,283

CASH AND CASH EQUIVALENTS:
  Beginning of year                                                           19,331,825        17,291,882        3,125,599
                                                                            ------------     -------------     ------------
  End of year                                                              $   3,822,398     $  19,331,825     $ 17,291,882
                                                                            ============     =============     ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
  Cash paid for:
    Interest                                                               $   8,708,739     $   8,181,244     $  6,775,124
                                                                            ============     =============     ============
    Income taxes                                                           $     220,000     $     419,961     $    786,845
                                                                            ============     =============     ============
SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING ACTIVITIES:
  Stock issued in exchange for note
    receivable from ESOP                                                   $         -       $   2,116,000     $        -
                                                                            ============     =============     ============
</TABLE>


                                                                     (Concluded)

See notes to consolidated financial statements.



                                       59
<PAGE>   11


HCB BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998, 1997 (AS RESTATED, SEE NOTE 1) AND 1996
--------------------------------------------------------------------------------

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION - HCB Bancshares,
      Inc. (the "Company") was incorporated in December 1996 by Heartland
      Community Bank (the "Bank") in connection with the conversion of the Bank
      from a federally chartered mutual savings and loan association to a
      federally chartered stock savings bank and the offer and sale of the
      Company's common stock by the Company (the "Conversion"). A portion of the
      net proceeds from the Conversion was used to acquire 100% of the common
      stock of the Bank. The remaining net proceeds from the Conversion were
      retained by the Company. The Conversion was accounted for at historical
      cost in a manner similar to that in pooling of interests accounting. Upon
      consummation of the Conversion on April 30, 1997, the Company became a
      holding company for the Bank. The Bank owned 100% of Heritage Bank
      Holding, Inc. ("Heritage"), parent of its subsidiary bank, Heartland
      Community Bank, FSB ("FSB").

      During the year ended June 30, 1998, the Bank sold its Little Rock,
      Arkansas, branch operating facility and deposits to an unrelated party.
      The form of the sale permitted the Bank to dispose of its stock in
      Heritage to facilitate conveyance of the branch operations. Goodwill of
      approximately $860,000 attributable to the Little Rock branch was removed
      as a part of this sale.

      The Bank provides a broad line of financial products to individuals and
      small to medium-sized businesses through full service banking offices
      located in Camden, Fordyce, Sheridan, and Monticello, Arkansas, as well as
      a loan production office in Bryant, Arkansas.

      The consolidated financial statements include the accounts of the Company,
      the Bank, and the Bank's subsidiary, HCB Properties ("Properties").
      Properties' financial condition and operations are insignificant to the
      consolidated financial statements. The financial statements for the year
      ended June 30, 1996, are those of the Bank prior to the Conversion. All
      material intercompany accounts and transactions are eliminated in
      consolidation.



                                       60
<PAGE>   12


RESTATEMENT OF 1997 FINANCIAL STATEMENTS - During December 1998, the Company
determined that the consolidated financial statements as of and for the year
ended June 30, 1997, should be restated to correct errors contained in those
financial statements. Consequently, the consolidated statement of financial
condition as of June 30, 1997, and the consolidated statement of operations for
the year ended June 30, 1997, have been restated to reflect the corrections as
follows:

<TABLE>
<CAPTION>
                                                           AS                                                              AS
                                                       PREVIOUSLY                                                       REPORTED
                                                        REPORTED            INCREASE, NET         DECREASE, NET          HEREIN
STATEMENT OF FINANCIAL CONDITION
<S>                                                  <C>                    <C>                    <C>               <C>         
Cash and cash equivalents                            $ 19,456,092                                  $ 124,267         $ 19,331,825
Investment securities:
  Available for sale                                   36,246,161                                    623,791           35,622,370
  Held to maturity                                     35,869,295           $ 623,791                                  36,493,086
Accrued interest receivable                             1,339,455                                     33,503            1,305,952
Premises and equipment, net                             4,613,006               8,438                                   4,621,444
Real estate held for sale                                 516,179                                     35,811              480,368
Other assets                                            1,021,232             317,881                                   1,339,113
Deposits                                              151,208,763                                     16,172          151,192,591
Other liabilities                                         397,885                                     42,429              355,456
Retained earnings                                      14,091,750              60,802                                  14,152,552
Other stockholders' equity                             23,647,763             130,537                                  23,778,300

STATEMENT OF OPERATIONS

Interest income                                        13,101,676                                    113,828           12,987,848
Noninterest expense                                     5,578,934             186,936                                   5,765,870
Income tax benefit                                        166,645             114,290                                     280,935
</TABLE>

As a result of the corrections, net loss was restated from $422,999 as
previously reported to $609,473 and net loss per share was restated from $0.17
as previously reported to $0.25 for both basic and diluted loss per share.

RESTATEMENT OF JULY 1, 1995, RETAINED EARNINGS - During December 1998, the
Company determined that the deferred tax asset was understated at June 30, 1995.
Consequently, retained earnings as of July 1, 1995, as presented in the
statements of stockholders' equity, has been restated to correct this error.

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

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

OTHER INTEREST BEARING DEPOSITS WITH BANKS - Other interest bearing deposits
with banks represents certificates of deposit in other banks held by the Company
not meeting the definition of a cash equivalent.


                                       61
<PAGE>   13


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

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

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

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

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

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

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



                                       62
<PAGE>   14


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

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

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

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

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

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

GOODWILL AND LONG LIVED ASSETS - Goodwill is being amortized over six years
using the straight-line method. Goodwill and other long lived assets are
reviewed for recoverability whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.



                                       63
<PAGE>   15


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

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

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

RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components.
The Company will be required to classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
Also in June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, establishing standards for the way public
enterprises report information about operating segments in annual financial
statements and interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997, with reclassification of earlier
periods. Because the adoption of SFAS Nos. 130 and 131 require only additional
disclosures, they will not have a material effect on the Company's consolidated
financial statements.

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



                                       64
<PAGE>   16


The Company early-adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities as of October 1, 1998. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Concurrent with adoption,
the Company transferred all of its investment securities classified as held to
maturity to available for sale.

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

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

EARNINGS PER SHARE - Earnings per share ("EPS") of common stock has been
computed on the basis of the weighted-average number of shares of common stock
outstanding, assuming the Company was a public company since July 1, 1996. Basic
and diluted earnings per share were both calculated with 2,462,084 and 2,434,971
weighted-average common shares outstanding for the years ended June 30, 1998 and
1997, respectively. Weighted-average common shares outstanding was the same for
basic and diluted in those years. Potential common shares include the Stock
Option Plan shares and the Management Recognition Plan shares, all of which were
granted May 1, 1998. Due to stock prices during the period and the existence of
a net loss from operations, these potential common shares had no dilutive effect
for the year ended June 30, 1998. In future periods, the Stock Option Plan
shares or the Management Recognition Plan shares could become dilutive. See Note
11 for information regarding those plans.

The Company adopted SFAS No. 128, Earnings Per Share during the year ended June
30, 1998. The previous presentation of primary EPS is replaced with a
presentation of basic EPS. Dual presentation of basic and diluted EPS is
required on the face of the statements of operations. Presentation within the
financial statements includes reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed considering outstanding and
potential common shares. The Company restated EPS for the year ended June 30,
1997.

RECLASSIFICATIONS - Certain amounts in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to the classifications adopted for
reporting in 1998.


                                       65
<PAGE>   17



2.    INVESTMENT SECURITIES

      Investment securities consisted of the following at June 30:

<TABLE>
<CAPTION>
                                                                                 1998
                                             ----------------------------------------------------------------------------
                                                                       GROSS             GROSS
                                                  AMORTIZED          UNREALIZED        UNREALIZED             FAIR
AVAILABLE FOR SALE                                  COST               GAINS             LOSSES               VALUE
<S>                                             <C>                   <C>               <C>                 <C>         
U.S. Government and agencies                    $ 22,466,239          $  42,964         $  17,273           $ 22,491,930
Municipal securities                              18,404,701             83,793           204,617             18,283,877
Mortgage-backed securities                        48,804,919            258,101            39,354             49,023,666
Collateralized mortgage obligations                9,709,404              7,462            43,423              9,673,443
                                                ------------          ---------         ---------           ------------
            Total                               $ 99,385,263          $ 392,320         $ 304,667           $ 99,472,916
                                                ============          =========         =========           ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                 1998
                                             ----------------------------------------------------------------------------
                                                                         GROSS             GROSS
                                                 AMORTIZED            UNREALIZED        UNREALIZED             FAIR
HELD TO MATURITY                                   COST                  GAINS            LOSSES               VALUE
<S>                                             <C>                    <C>              <C>                 <C>         
Mortgage-backed securities                      $ 23,518,573           $ 76,295         $  97,374           $ 23,497,494
Collateralized mortgage obligations                3,984,684              1,220             7,094              3,978,810
                                                ------------          ---------         ---------           ------------
            Total                               $ 27,503,257           $ 77,515         $ 104,468           $ 27,476,304
                                                ============          =========         =========           ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                 1997
                                             ----------------------------------------------------------------------------
                                                                       GROSS             GROSS
                                                  AMORTIZED          UNREALIZED        UNREALIZED              FAIR
AVAILABLE FOR SALE                                  COST               GAINS             LOSSES                VALUE
<S>                                             <C>                   <C>               <C>                 <C>         
U.S. Government and agencies                    $ 17,263,664          $  29,854         $  33,135           $ 17,260,383
Mortgage-backed securities                        12,145,839             79,090            24,721             12,200,208
Collateralized mortgage obligations                6,270,999              6,162           115,382              6,161,779
                                                ------------          ---------         ---------           ------------
            Total                               $ 35,680,502          $ 115,106         $ 173,238           $ 35,622,370
                                                ============          =========         =========           ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                 1997
                                             ----------------------------------------------------------------------------
                                                                       GROSS             GROSS
                                                  AMORTIZED          UNREALIZED        UNREALIZED              FAIR
HELD TO MATURITY                                    COST               GAINS             LOSSES                VALUE
<S>                                             <C>                   <C>               <C>                 <C>         
Mortgage-backed securities                      $ 30,656,584          $ 184,136         $ 423,516           $ 30,417,204
Collateralized mortgage obligations                5,836,502                 -             59,353              5,777,149
                                                ------------          ---------         ---------           ------------
            Total                               $ 36,493,086          $ 184,136         $ 482,869           $ 36,194,353
                                                ============          =========         =========           ============
</TABLE>

      Effective October 1, 1998, the Company adopted SFAS No. 133. Concurrent
      with this adoption, investment securities with an amortized cost of
      $27,503,257 and a market value of $27,476,304 at June 30, 1998, and
      categorized in the statement of financial condition at June 30, 1998, as
      held to maturity were transferred to available for sale. This transfer
      from the held to maturity category at the date of the initial adoption of
      SFAS No. 133 does not call into question the Company's intent to hold
      other debt securities to maturity in the future.



                                       66
<PAGE>   18

Such investment securities are categorized as held to maturity as of June 30,
1998, because it was management's intent at that date to hold such securities
until maturity and the subsequent change in that intent and the recategorization
of such securities to available for sale occurred only upon the adoption of SFAS
No. 133. SFAS No. 133 prohibits the presentation of any change due to its
adoption in any period prior to the period of adoption.

During the year ended June 30, 1998, the Company determined that a
mortgage-backed security ("MBS") was declining in value and judged that decline
to be other than temporary. As a result of this determination, the carrying
value of the MBS was adjusted downward at June 30, 1998, by approximately
$150,000 to reflect this decline. The loss for the other than temporary decline
in the MBS's estimated value is included in noninterest expenses in the
statement of operations for the year ended June 30, 1998. There is no current
active market for this MBS.

Gross realized gains on sales of available for sale securities were
approximately $22,000 in the year ended June 30, 1998. There were no significant
gross realized losses in the year ended June 30, 1998 aside from the other than
temporary decline in the value of a MBS described above. Gross realized losses
on sales of available for sale securities were approximately $21,000 in the year
ended June 30, 1997. Gross gains of approximately $4,000 and gross losses of
approximately $931,000 were realized on sales of available for sale securities
during the year ended June 30, 1996.

The scheduled maturities of debt securities at June 30, 1998, by contractual
maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                                  AMORTIZED                       FAIR
                                                                                    COST                          VALUE
<S>                                                                           <C>                           <C>          
Due in one year or less                                                       $   2,492,606                 $   2,501,285
Due from one year to five years                                                   8,493,900                     8,502,200
Due from five years to ten years                                                  9,927,091                     9,941,603
Due after ten years                                                              19,957,343                    19,830,719
                                                                             --------------                 -------------
                                                                                 40,870,940                    40,775,807

Mortgage-backed securities                                                       72,323,492                    72,521,160
Collateralized mortgage obligations                                              13,694,088                    13,652,253
                                                                             --------------                 -------------
            Total                                                             $ 126,888,520                 $ 126,949,220
                                                                             ==============                 =============
</TABLE>

All securities above are available for sale except for mortgage-backed
securities and collateralized mortgage obligations with an amortized cost of
$27,503,257 and a fair value of $27,476,304.



                                       67
<PAGE>   19


3.    LOANS RECEIVABLE

      Loans receivable consisted of the following at June 30:

<TABLE>
<CAPTION>
                                                                             1998                                   1997
<S>                                                                     <C>                                     <C>         
First mortgage loans:
  One- to four- family residences                                       $  49,267,399                           $ 62,340,601
  Multi-family and commercial                                              48,496,934                             28,171,093
  Loans to facilitate sales of foreclosed real estate                         473,476                                616,660
    Less undisbursed loan funds                                            (3,921,787)                            (2,057,095)
                                                                         ------------                           ------------
            Total first mortgage loans                                     94,316,022                             89,071,259
                                                                         ------------                           ------------
Consumer and other loans:
  Commercial loans                                                          2,708,927                              2,101,963
  Automobile                                                                4,070,750                              2,399,648
  Consumer and home improvement loans                                       2,860,250                              4,294,686
  Loans collateralized by deposits                                          2,215,441                              2,434,621
                                                                         ------------                           ------------
            Total consumer and other loans                                 11,855,368                             11,230,918
                                                                         ------------                           ------------
Allowance for loan losses                                                  (1,468,546)                            (1,492,473)
Deferred loan fees                                                           (122,679)                              (167,069)
                                                                         ------------                           ------------
            Loans receivable, net                                       $ 104,580,165                           $ 98,642,635
                                                                         ============                           ============
</TABLE>

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

      The Company has made loans to its directors, officers, and their related
      business interests. The aggregate dollar amount of loans outstanding to
      directors, officers and their related business interests totaled
      approximately $435,886 and $548,179 at June 30, 1998 and 1997,
      respectively.

      Loans identified by management as impaired at June 30, 1998, were not
      significant. The Company is not committed to lend additional funds to
      debtors whose loans have been modified.

4.    ACCRUED INTEREST RECEIVABLE

      Accrued interest receivable consisted of the following at June 30:

<TABLE>
<CAPTION>
                                                                             1998                                    1997
<S>                                                                      <C>                                     <C>      
Investment securities                                                    $ 1,220,964                             $   657,484
Loans                                                                        618,362                                 648,468
                                                                        ------------                             ------------
            Total                                                        $ 1,839,326                             $ 1,305,952
                                                                        ============                             ============
</TABLE>




                                       68
<PAGE>   20


5.    ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES

      A summary of the activity in the allowances for loan and real estate
      losses is as follows for the years ended June 30:

<TABLE>
<CAPTION>
                                                     1998                              1997                          1996
                                         ----------------------------     ---------------------------   --------------------------
                                                            REAL                               REAL                          REAL
                                            LOANS          ESTATE            LOANS            ESTATE        LOANS           ESTATE
<S>                                      <C>              <C>             <C>               <C>         <C>               <C>     
Balance, beginning of year               $ 1,492,473      $ 28,825        $ 1,283,234       $ 58,587    $   728,491       $ 28,587

  Acquisition of subsidiary                                                                                 524,140
  Provision                                   24,000                          221,671         13,527         42,483         30,000
  Net (charge-offs) and recoveries           (47,927)      (28,825)           (12,432)       (43,289)       (11,880)
                                        ------------    ----------       ------------      ---------   ------------      ---------
Balance, end of year                     $ 1,468,546      $    -          $ 1,492,473       $ 28,825    $ 1,283,234       $ 58,587
                                        ============    ==========       ============      =========   ============      =========
</TABLE>

6.    FEDERAL HOME LOAN BANK STOCK

      The Bank is a member of the Federal Home Loan Bank System. As a member of
      this system, it is required to maintain an investment in capital stock of
      the Federal Home Loan Bank ("FHLB") in an amount equal to the greater of
      1% of its outstanding home loans or .3% of its total assets. No ready
      market exists for such stock and it has no quoted market value but may be
      redeemed at par. The carrying value of the stock is its cost.

7.    PREMISES AND EQUIPMENT

      Premises and equipment consisted of the following at June 30:

<TABLE>
<CAPTION>
                                                          1998                                 1997
<S>                                                   <C>                                 <C>        
Land and buildings                                    $ 4,641,036                         $ 4,288,410
Furniture and equipment                                 2,037,876                           1,074,129
Leasehold improvements                                                                         32,548
                                                     ------------                       -------------
            Total                                       6,678,912                           5,395,087
Accumulated depreciation                               (1,077,145)                           (773,643)
                                                     ------------                       -------------
            Premises and equipment, net               $ 5,601,767                         $ 4,621,444
                                                     ============                       =============
</TABLE>


8.    DEPOSITS

      Deposits are summarized as follows at June 30:

<TABLE>
<CAPTION>
                                                                             1998                                      1997
<S>                                                                    <C>                                       <C>          
Demand and NOW accounts, including noninterest-bearing
  deposits of $4,332,481 and $2,689,637 in 1998 and
  1997, respectively                                                   $  10,664,546                             $   9,390,225
Money market                                                              18,384,835                                17,807,493
Passbook savings                                                           7,512,607                                 8,441,845
Certificates of deposit                                                  105,369,342                               115,553,028
                                                                     ---------------                            --------------

            Total                                                      $ 141,931,330                             $ 151,192,591
                                                                     ===============                            ==============
</TABLE>




                                       69
<PAGE>   21


        The aggregate amount of short-term jumbo certificates of deposit with a
        minimum denomination of $100,000 was approximately $10,012,676 and
        $9,373,751 at June 30, 1998 and 1997, respectively.

        At June 30, 1998, scheduled maturities of certificates of deposit are as
        follows:

<TABLE>
<S>                                                         <C>
  Years ending June 30:
    1999                                                      $  81,511,781
    2000                                                         18,402,045
    2001                                                          5,396,765
    2002                                                             58,751
                                                             --------------
              Total                                           $ 105,369,342
                                                             ==============
</TABLE>

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

      Legislation was signed into law by the President on September 30, 1996, to
      recapitalize the SAIF. As a result of such legislation, the Bank was
      required to pay a one-time special assessment of $889,011 which had an
      approximate $551,187 after-tax effect on the results of operations for the
      year ended June 30, 1997. The legislation also mandated that the deposit
      insurance premiums charged SAIF-insured institutions (such as the Bank)
      decline effective January 1, 1997.

9.    FEDERAL HOME LOAN BANK ADVANCES AND NOTE PAYABLE

      The Bank pledges as collateral for FHLB advances its FHLB stock and has
      entered into blanket collateral agreements with the FHLB whereby the Bank
      agrees to maintain, free of other encumbrances, qualifying single family
      first mortgage loans with unpaid principal balances, when discounted to
      75% of such balances, of at least 100% of total outstanding advances.
      Additionally the Bank has pledged mortgage-backed securities with a
      carrying value of approximately $28,048,000 at June 30, 1998, as
      additional collateral. Advances at June 30, 1998 and 1997, have maturity
      dates as follows:

<TABLE>
<CAPTION>
                                                   1998                                     1997
                                     ----------------------------------       -----------------------------------

                                         WEIGHTED                               WEIGHTED
                                          AVERAGE                               AVERAGE
                                           RATE              AMOUNT               RATE                  AMOUNT
<S>                                        <C>          <C>                     <C>                 <C>
Years ending June 30:
  1999                                     5.647 %      $ 5,289,500
  2000                                     5.807          3,000,000
  2001                                     6.308          6,125,000              6.407 %            $ 5,000,000
  2002                                     5.863          4,500,000
  2003                                     5.876          9,055,000              6.000                5,000,000
  Thereafter                               5.897         40,151,568
                                                      -------------                                ------------
            Total                          5.905 %     $ 68,121,068              6.204 %           $ 10,000,000
                                                      =============                                ============
</TABLE>

      The note payable is due in annual installments of $80,000 plus interest
      through September 2001. The note bears interest at 7.50% and is
      collateralized by real estate held for sale and office premises with a
      combined carrying value at June 30, 1998, of approximately $500,000.



                                       70
<PAGE>   22


10.   INCOME TAXES

      The provisions for income taxes are summarized as follows:

<TABLE>
<CAPTION>
                                                                   YEARS ENDED
                                                                    JUNE 30,
                                                -------------------------------------------------
                                                     1998             1997               1996
<S>                                              <C>             <C>                  <C>      
Income tax provision (benefit):
  Current                                        $ (47,732)      $ (170,561)          $ 232,787
  Deferred                                          27,027         (110,374)            (57,986)
                                                ----------      -----------          ----------
            Total                                $ (20,705)      $ (280,935)          $ 174,801
                                                ==========      ===========          ==========
</TABLE>



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

<TABLE>
<CAPTION>
                                                                              YEARS ENDED
                                                                                JUNE 30,
                               -------------------------------------------------------------------------------------------------
                                              1998                                1997                           1996
<S>                               <C>                  <C>           <C>                 <C>          <C>                <C>   
Taxes at statutory rate           $ 123,899            34.0 %        $ (302,739)         (34.0)%      $ 135,929          34.0 %
Increase (decrease)
  resulting from:
  Tax exempt income                (135,853)          (37.3)%
  Goodwill                           41,865            11.5 %            54,425            6.1 %
  Compensation                      (68,347)          (18.8)%                                             9,687           2.4 %
  Other, net                         17,731             4.9 %           (32,621)          (3.7)%         29,185           7.3 %
                                 ----------         -------          ----------         ------       ----------        ------
              Total               $ (20,705)           (5.7)%        $ (280,935)         (31.6)%      $ 174,801          43.7 %
                                 ==========         =======          ==========         ======       ==========        ======
</TABLE>


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

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


<TABLE>
<CAPTION>
                                                                    1998                             1997
<S>                                                              <C>                             <C>      
Deferred tax assets:
  Allowance for loan losses                                      $ 225,376                       $ 244,623
  Unrealized loss on investments                                                                    24,779
  Deferred compensation                                            213,828                         181,808
  Loan fees                                                         31,283                          45,475
  Other                                                                                             10,205
                                                                ----------                       ---------
            Total deferred tax assets                              470,487                         506,890

Deferred tax liabilities:
  Premises and equipment                                            94,677                          88,134
  Investment premiums and discount                                  16,325                          36,769
  Loan discounts                                                    17,219                          38,783
  Unrealized gain on investments                                    33,746
  Other                                                             58,590
                                                                ----------                       ---------
            Total deferred tax liabilities                         220,557                         163,686
                                                                ----------                       ---------
            Net deferred tax asset                               $ 249,930                       $ 343,204
                                                                ==========                       =========
</TABLE>


                                       71
<PAGE>   23


      A deferred tax liability has not been recognized for the bad debt reserves
      of the Bank created in the tax years which began prior to December 31,
      1987 (the base year). At June 30, 1998, the amount of these reserves
      totaled approximately $3,462,860 with an unrecognized deferred tax
      liability approximating $1,177,372. Such unrecognized deferred tax
      liability could be recognized in the future, in whole or in part, if (i)
      there is a change in federal tax law, (ii) the Bank fails to meet certain
      definitional tests and other conditions in the federal tax law, (iii)
      certain distributions are made with respect to the stock of the Bank, or
      (iv) the bad debt reserves are used for any purpose other than absorbing
      bad debt losses.

11.   BENEFIT PLANS

      EMPLOYEE STOCK OWNERSHIP PLAN - The Company has established an employee
      stock ownership plan ("ESOP") to benefit substantially all employees. The
      ESOP originally purchased 211,600 shares of common stock in the Conversion
      with proceeds received from a loan from the Company.

      The Company's note receivable, presented in the statements of
      stockholders' equity as unearned ESOP shares, is to be repaid in
      installments of $211,600 on June 30th each year through 2006. Interest is
      based upon the prime rate, which is to be adjusted and paid quarterly. The
      note may be prepaid without penalty. The ESOP is funded by contributions
      made by the Bank in amounts sufficient to retire the debt. Compensation
      expense of $427,399 and $161,813 was recognized during the years ended
      June 30, 1998 and 1997, respectively.

      Shares no longer required to be held to collateralize the debt and
      earnings from the common stock held by the ESOP are allocated among
      participants on the basis of compensation in the year of allocation.
      Benefits become 100% vested after five years of credited service.
      Forfeitures of nonvested benefits will be reallocated among remaining
      participating employees in the same proportion as contributions. At June
      30, 1998 and 1997, 29,752 and 12,568 shares, respectively, were committed
      to be released by the ESOP to participant accounts. At June 30, 1998,
      there were 42,320 shares allocated to participant accounts and 169,280
      unallocated shares. The fair value of the unallocated shares amounted to
      approximately $2,539,200 at June 30, 1998.

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

      Under the SOP, options have been granted to directors and key employees to
      purchase common stock of the Company. The exercise price in each case
      equals the fair market value of the Company's stock at the date of grant.
      Options granted in the current year have an exercise price of $16.00, and
      a weighted average remaining contract life of 9.8 years at June 30, 1998.



                                       72
<PAGE>   24


A summary of the status of the Company's stock option plan as of June 30,
1998, and changes during the year ending on that date is presented below:

<TABLE>
<CAPTION>
                                                                              WEIGHTED
                                                                               AVERAGE
                                                                              EXERCISE
OPTIONS                                                        SHARES           PRICE
<S>                                                            <C>               <C> 
Outstanding at beginning of year
Granted                                                        304,300           $ 16
Exercised
Forfeited                                                         (128)            16
                                                              --------           ----
Outstanding at June 30, 1998                                   304,172           $ 16
                                                              ========           ====
Options exercisable at June 30, 1998                            71,969           $ 16
                                                              ========           ====
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           1998
                                                          ----------------------------------------
                                                            AS REPORTED                  PRO FORMA
<S>                                                           <C>                        <C>     
Net income (in thousands)                                     $  385                     $    157
Earnings per share:
  Basic                                                       $ 0.16                     $    .06

  Diluted                                                     $ 0.16                     $    .06
</TABLE>

In determining the above pro forma disclosure, the fair value of options granted
during the year was estimated on the date of grant using the binomial
option-pricing model with the following weighted average assumptions: expected
volatility - 15%, expected life of options - 7.5 years, risk-free interest rate
- 5.7%, and expected dividend rate - 1.25%. The weighted average fair value of
options granted during the fiscal year ended June 30, 1998, was $4.81 per share.

MANAGEMENT RECOGNITION PLAN - The Management Recognition Plan ("MRP"), approved
by the Company's stockholders during the year ended June 30, 1998, provides for
a committee of the Company's Board of Directors to award restricted stock to key
officers as well as non-employee directors. The MRP authorizes the Company to
grant up to 52,900 shares of Company stock, all of which were granted during
1998. Compensation expense will be recognized based on the fair market value of
the shares on the grant date of $16.00 over the vesting period. Shares granted
to directors (43,372) vest 25% at the grant date and 25% each May 1 afterward.
Shares granted to non-directors (9,528) vest 20% at the grant date and 20% each
May 1 afterward. Shares granted will be deemed vested in the event of
retirement, disability, or death. At June 30, 1998, no shares awarded under this
plan have been purchased. A liability has been established, based on the grant
price, for the shares to be purchased. Differences between the price at the date
of grant and the actual purchase price will be recorded as an adjustment to
stockholders' equity. Approximately $268,000 in compensation expense was
recognized during the year ended June 30, 1998.



                                       73
<PAGE>   25


DEFINED BENEFIT PLAN - The Bank had a qualified, noncontributory defined benefit
retirement plan (the "Plan") covering all of its eligible employees. Employees
were eligible when they had attained at least twenty-one years of age and six
months of service with the Bank. A resolution was initially adopted by the Board
of Directors on July 1, 1996, to terminate the Plan as of September 16, 1996,
and to freeze benefit accruals as of July 31, 1996. The Company experienced
delays in terminating the Plan and on June 18, 1998, a resolution was adopted to
terminate the Plan as of September 1, 1998, with benefit accruals remaining
frozen as of July 31, 1996. Settlement of the related pension obligation is
anticipated within the next plan year.

All active participants will become fully vested for their accrued benefits. The
Plan provides that any excess assets will be allocated to participants. As such,
based on the funded status of the Plan, no gain or loss is expected upon
settlement.

<TABLE>
<CAPTION>
                                                                             1998              1997
<S>                                                                      <C>               <C>       
Reconciliation of funded status:

  Actuarial present value of accumulated benefit obligations:
    Vested portion                                                       $  417,651        $  441,321
    Vested part of excess assets                                            141,752            42,262
    Non-vested portion
                                                                         ----------       -----------
Accumulated benefit obligation                                              559,403           483,583
Effect of estimated future pay growth
                                                                         ----------       -----------
Projected benefit obligation                                                559,403           483,583
Plan assets at fair value                                                   559,403           483,583
                                                                         ----------       -----------
Funded status

Unrecognized net (gain) or loss
Unrecognized prior service cost
Unrecognized net transition obligation
                                                                         ----------       -----------
            (Accrued) prepaid pension cost                               $      -          $      -
                                                                         ==========       ===========
Determination of pension cost:
  Service cost
  Interest cost                                                          $   33,099       $    30,790
  Actual return on assets                                                   (75,820)          (60,011)
  Net amortization and deferral                                              42,721            29,221
                                                                         ----------       -----------
            Net periodic pension cost                                    $      -         $       -
                                                                         ==========       ===========
</TABLE>

The weighted average interest rate used in determining the projected benefit
obligation was 6.0% in 1998 and 7.5% in 1997. The expected long-term rate of
return on assets was 7.5% for 1998 and 1997.

OFFICERS' AND DIRECTORS RETIREMENT PLAN - During the year ended June 30, 1996,
the Bank adopted a "non-qualified" retirement plan for its officers and
directors in recognition of their years of service to the Bank. The plan is an
annuity contract plan whereby funds are to be set aside annually in a grantor
trust, with the Bank acting as trustee of the Trust. Distributions are scheduled
to be paid upon completion of six to ten years of service to the Bank. No tax
deduction for the Plan is claimed until funds are paid to the beneficiaries.
Future funding is dependent on continued service to the Bank and therefore is
expensed as the plan is funded each year. For the years ended June 30, 1998,
1997 and 1996, contributions to the plan totaled $154,088, $232,308, and
$242,511, respectively.



                                       74
<PAGE>   26


      401(k) PLAN - Effective July 1, 1993, employees of the Bank may
      participate in a 401(k) savings plan, whereby the employees may elect to
      make contributions pursuant to a salary reduction agreement upon reaching
      age 21 and completing one year of service. At its discretion, the Bank may
      make matching contributions to the plan. Employer contributions vest 20%
      each year beginning in the third year of service and become 100% vested in
      seven years. No matching contribution was made by the Bank during the year
      ended June 30, 1998. Matching contributions to the plan were $25,997 and
      $1,188 for the years ended June 30, 1997 and 1996, respectively.

      EMPLOYMENT AGREEMENTS - Certain executive officers of the Bank and the
      Company have employment agreements with three year renewable terms. Such
      agreements provide for termination pay and other benefits under certain
      circumstances. Aggregate termination pay is approximately $800,000.

12.   FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

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

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

      The Company had the following outstanding commitments at June 30, 1998:

<TABLE>
<S>                                                                        <C>        
Undisbursed construction loans                                             $ 3,921,787
Commitments to originate mortgage loans                                      1,172,421
Letters of credit                                                               81,000
Unused lines of credit                                                         948,786
                                                                           -----------
            Total                                                          $ 6,123,994
                                                                           ===========
</TABLE>

      The funding period for construction loans is generally less than nine
      months and commitments to originate mortgage loans are generally
      outstanding for 60 days or less. At June 30, 1998, interest rates on
      commitments are believed by management to approximate market rates.

13.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The estimated fair value amounts have been determined by the Company using
      available market information and appropriate valuation methodologies.
      However, considerable judgment is required to interpret market data to
      develop the estimates of fair value. Accordingly, the estimates presented
      herein



                                       75
<PAGE>   27


are not necessarily indicative of the amounts the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts. The estimated fair values of financial instruments are as
follows:

<TABLE>
<CAPTION>
                                                                JUNE 30, 1998                       JUNE 30, 1997
                                                     ---------------------------------     ------------------------------
                                                                          ESTIMATED                          ESTIMATED
                                                        CARRYING             FAIR            CARRYING           FAIR
                                                         VALUE              VALUE             VALUE            VALUE
<S>                                                   <C>                <C>               <C>              <C>        
ASSETS:
  Cash and due from banks                             $ 1,531,363        $ 1,531,363       $ 1,057,943      $ 1,057,943
  Interest bearing deposits with banks                  2,291,035          2,291,035        18,273,882       18,273,882
  Other interest bearing deposits with banks            2,782,000          2,782,000
  Investment securities:
    Available for sale                                 99,472,916         99,472,916        35,622,370       35,622,370
    Held to maturity                                   27,503,257         27,476,304        36,493,086       36,194,353
  Federal Home Loan Bank stock                          3,448,900          3,448,900         1,246,500        1,246,500
  Loans receivable, net                               104,580,165        104,737,165        98,642,635       99,131,271
  Accrued interest receivable                           1,839,326          1,839,326         1,305,952        1,305,952

LIABILITIES:
  Deposits:
    Demand, NOW, money
      market and regular savings                       36,561,988         36,561,988        35,639,563       35,639,563
    Certificates of deposit                           105,369,342        105,492,342       115,553,028      116,362,078
  Federal Home Loan Bank advances                      68,121,068         68,435,068        10,000,000       10,000,000
  Liability to purchase MRP shares                        846,400            793,500
  Accrued interest payable                                643,887            643,887           410,477          410,477
  Advance payments by
    borrowers for taxes and insurance                     209,242            209,242           209,140          209,140
  Note payable                                            320,000            320,000           400,000          400,000
</TABLE>

For cash and due from banks, interest bearing deposits with banks, other
interest bearing deposits with banks, Federal Home Loan Bank stock and accrued
interest receivable, the carrying value is a reasonable estimate of fair value
primarily because of the short-term nature of instruments or, as to Federal Home
Loan Bank stock, the ability to sell the stock back to the Federal Home Loan
Bank at cost. The fair value of investment securities is based on quoted market
prices, dealer quotes and prices obtained from independent pricing services. The
fair value of loans receivable is estimated based on present values using
applicable risk-adjusted spreads to the U.S. Treasury curve to approximate
current entry-value interest rates considering anticipated prepayment speeds,
maturity and credit risks.

The fair value of demand deposit accounts, NOW accounts, savings accounts and
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit, Federal Home Loan Bank
advances, and notes payable is estimated using the rates currently offered for
deposits and borrowings of similar remaining maturities at the reporting date.
The fair value of the liability for MRP shares is determined by the product of
the number of shares to be purchased and their market value at June 30, 1998.
For advance payments by borrowers for taxes and insurance and accrued interest
payable the carrying value is a reasonable estimate of fair value, primarily
because of the short-term nature of instruments. Commitments are generally made
at prevailing interest rates at the time of funding and, therefore, there is no
difference between the contract amount and fair value.


                                       76
<PAGE>   28

      The fair value estimates presented herein are based on pertinent
      information available to management as of June 30, 1998 and 1997. Although
      management is not aware of any factors that would significantly affect the
      estimated fair value amounts, such amounts have not been comprehensively
      revalued for purposes of these financial statements since the reporting
      date and, therefore, current estimates of fair value may differ
      significantly from the amounts presented herein.

14.   COMMITMENTS AND CONTINGENCIES

      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 Company has appealed the judgment
      to the court of appeals. The Company and its counsel believe there is a
      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, 1998.

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

15.   RETAINED EARNINGS

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

      The Company may not declare or pay cash dividends on its shares of common
      stock if the effect thereof would cause the Company's stockholders' equity
      to be reduced below applicable regulatory capital maintenance requirements
      for insured institutions or below the special liquidation account referred
      to above.

16.   REGULATORY MATTERS

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


                                       77
<PAGE>   29


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

As of June 30, 1998 and 1997, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum core (Tier I core), Tier I risk-based, and total
risk-based ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Bank's
category.

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

<TABLE>
<CAPTION>
                                                                                                          FOR CAPITAL
                                                                       ACTUAL                          ADEQUACY PURPOSES
                                                          ----------------------------------- ------------------------------------
                                                              AMOUNT            RATIO               AMOUNT               RATIO
<S>                                                        <C>                  <C>              <C>                    <C>   
As of June 30, 1998:

  Tier I (Core) Capital to Adjusted Total Assets           $ 29,224             11.64 %          $ 10,027                4.00 %

  Total Risk-Based Capital to Risk-weighted Assets           31,021             29.09 %             8,531                8.00 %

  Tier I (Core) Capital to Risk-weighted Assets              29,224             27.04 %             N/A                   N/A

  Tangible Capital to Tangible Assets                        29,261             11.67 %             3,759                1.50 %
</TABLE>

<TABLE>
<CAPTION>
                                                                         TO BE CATEGORIZED
                                                                              AS WELL
                                                                         CAPITALIZED UNDER
                                                                         PROMPT CORRECTIVE
                                                                         ACTION PROVISIONS
                                                            --------------------------------------
                                                                    AMOUNT                  RATIO
<S>                                                               <C>                      <C>   
As of June 30, 1998:

  Tier I (Core) Capital to Adjusted Total Assets                  $ 12,526                  5.00 %

  Total Risk-Based Capital to Risk-weighted Assets                  10,664                 10.00 %

  Tier I (Core) Capital to Risk-weighted Assets                      6,466                  6.00 %

  Tangible Capital to Tangible Assets                               N/A                    N/A
</TABLE>

<TABLE>
<CAPTION>
                                                                                                           FOR CAPITAL
                                                                             ACTUAL                     ADEQUACY PURPOSES
                                                                --------------------------------- --------------------------------
                                                                    AMOUNT          RATIO             AMOUNT               RATIO
<S>                                                               <C>                <C>            <C>                   <C>   
As of June 30, 1997:

  Tier I (Core) Capital to Adjusted Tangible Assets               $ 26,373           13.16 %        $ 8,018               3.00 %

  Total Risk-Based Capital to Risk-weighted Assets                  27,865           30.07 %          7,415               8.00 %

  Tier I (Core) Capital to Risk-weighted Assets                     26,373           28.46 %         N/A                   N/A

  Tangible Capital to Tangible Assets                               27,153           13.67 %         2,980                1.50 %
</TABLE>

<TABLE>
<CAPTION>
                                                                  TO BE CATEGORIZED
                                                                       AS WELL
                                                                  CAPITALIZED UNDER
                                                                  PROMPT CORRECTIVE
                                                                  ACTION PROVISIONS
                                                              ---------------------------
                                                                 AMOUNT           RATIO
<S>                                                            <C>                 <C>   
As of June 30, 1997:

  Tier I (Core) Capital to Adjusted Tangible Assets            $ 10,023            5.00 %

  Total Risk-Based Capital to Risk-weighted Assets                9,269           10.00 %

  Tier I (Core) Capital to Risk-weighted Assets                   5,561            6.00 %

  Tangible Capital to Tangible Assets                            N/A              N/A
</TABLE>

The Company is restricted by state law as to the amount of dividends it may pay
and by other factors including the assets available to pay dividends. The Bank
is subject to regulatory restrictions as to the payment of dividends to the
Company.



                                       78
<PAGE>   30


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

17.   PARENT COMPANY ONLY FINANCIAL INFORMATION

      The following condensed statement of financial condition as of June 30,
      1998, and condensed statements of income and cash flows for the year ended
      June 30, 1998, for HCB Bancshares, Inc. should be read in conjunction with
      the consolidated financial statements and the notes herein.

<TABLE>
<CAPTION>
HCB BANCSHARES, INC.
(PARENT COMPANY ONLY)

CONDENSED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1998
------------------------------------------------------------------------------------

<S>                                                                     <C>        
ASSETS

Deposit in Bank                                                         $ 8,030,275
Investment in Bank                                                       29,709,482
Other assets                                                                 11,714
                                                                        -----------
TOTAL ASSETS                                                             37,751,471
                                                                        ===========
LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued expenses and other liabilities                                  $    72,547
Stockholders' equity                                                     37,678,924
                                                                        -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               37,751,471
                                                                        ===========
</TABLE>


<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1998
------------------------------------------------------------------------------------

<S>                                                                      <C> 
EXPENSES:
  Operating expenses                                                      $  83,974
                                                                        -----------
LOSS BEFORE INCOME TAXES AND EQUITY IN
  UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY                                 (83,974)

INCOME TAX PROVISION                                                        (45,725)
                                                                        -----------
LOSS BEFORE EQUITY IN UNDISTRIBUTED
  EARNINGS OF BANK SUBSIDARY                                               (129,699)

EQUITY IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY                         514,812
                                                                        -----------
NET INCOME                                                                $ 385,113
                                                                        ===========
</TABLE>



                                       79
<PAGE>   31

HCB BANCSHARES, INC.
(PARENT COMPANY ONLY)

<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1998
----------------------------------------------------------------------------------------------------

<S>                                                                                     <C>        
OPERATING ACTIVITIES:
  Net income                                                                            $   385,113
  Adjustments to reconcile net income to net cash used
    by operating activities:
    Equity in undistributed earnings of Bank subsidiary                                    (514,812)
    Changes in operating assets and liabilities:
      Other assets                                                                           15,048
      Accrued expenses and other liabilities                                                 29,409
                                                                                         ----------

            Net cash used by operating activities                                           (85,242)
                                                                                         ----------
FINANCING ACTIVITIES:
  Dividends paid                                                                           (529,000)
                                                                                         ----------

            Net cash used by financing activities                                          (529,000)
                                                                                         ----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                  (614,242)

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                                     8,644,517
                                                                                         ----------

  End of period                                                                         $ 8,030,275
                                                                                         ==========
</TABLE>




                                       80
<PAGE>   32

18.   QUARTERLY FINANCIAL DATA (UNAUDITED)

      The following tables represent summarized data for each of the four
      quarters in the year ended June 30, 1998. Information for the quarters in
      the year ended June 30, 1997, are not presented because the Company's
      initial issuance of securities was not completed until during the quarter
      ended June 30, 1997.

<TABLE>
<CAPTION>
                                                                                              1998
                                                                                 (IN THOUSANDS, EXCEPT SHARE DATA)

                                                                    FOURTH            THIRD           SECOND          FIRST
                                                                   QUARTER           QUARTER          QUARTER        QUARTER
<S>                                                               <C>              <C>             <C>              <C>       
Interest income                                                   $    4,339       $    3,808      $    3,547       $    3,625
Interest expense                                                       2,608            2,256           2,046            2,032
                                                                 -----------      -----------     -----------      -----------
Net interest income                                                    1,731            1,552           1,501            1,593
Provision for loan losses                                                                                   4               20
                                                                 -----------      -----------     -----------      -----------
Net interest income after provision
  for loan losses                                                      1,731            1,552           1,497            1,573
Noninterest income (loss)                                                (66)             236             185              154
Noninterest expense                                                    2,019            1,785           1,467            1,227
                                                                 -----------      -----------     -----------      -----------
Income (loss) before income taxes                                       (354)               3             215              500
Income tax provision (benefit)                                          (248)             (19)             74              172
                                                                 -----------      -----------     -----------      -----------
Net income (loss)                                                 $     (106)      $       22      $      141       $      328
                                                                 ===========      ===========     ===========      ===========
Basic income (loss) per common share                              $    (0.04)      $     0.01      $     0.06       $     0.13
                                                                 ===========      ===========     ===========      ===========
Diluted income (loss) per common share                            $    (0.04)      $     0.01      $     0.06       $     0.13
                                                                 ===========      ===========     ===========      ===========
Cash dividends declared per
  common share                                                    $     0.05       $     0.05      $     0.05       $     0.05
                                                                 ===========      ===========     ===========      ===========
Average common shares and
  common stock equivalents
  outstanding                                                      2,471,997        2,464,560       2,457,123        2,449,686
</TABLE>

      Information above for the first, second, and third quarters is different
      from information previously reported by the Company. These amounts are
      different because of corrections made affecting these quarters. Such
      corrections were necessary because of information coming to the attention
      of management in December, 1998. The amounts reported above have been
      restated to reflect the corrections as follows:

<TABLE>
<CAPTION>
                                                                   THIRD          SECOND       FIRST
                                                                  QUARTER        QUARTER      QUARTER
<S>                                                               <C>              <C>          <C>   
Interest income
---------------
As previously reported for interim period                         $3,860           $3,599       $3,678
Adjustment                                                           (52)             (52)         (53)
                                                                 -------          -------      -------
As reported herein                                                $3,808           $3,547       $3,625
                                                                 =======          =======      =======
Noninterest expense
-------------------
As previously reported for interim period                         $1,591           $1,463       $1,313
Adjustment                                                           194                4          (86)
                                                                 -------          -------      -------
As reported herein                                                $1,785           $1,467       $1,227
                                                                 =======          =======      =======
Income tax provision (benefit)
------------------------------
As previously reported for interim period                         $   34           $  100       $  175
Adjustment                                                           (53)             (26)          (3)
                                                                 -------          -------      -------
As reported herein                                                $  (19)          $   74       $  172
                                                                 =======          =======      =======
</TABLE>

      Adjustments resulting in the above restatements derived principally from
      accounting for stock compensation plans, due from bank outages, other than
      temporary declines in market value of investment securities, leasehold
      improvements abandoned, and related income tax adjustments.

                                  * * * * * *


                                       81
<PAGE>   33

                                   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.

   
<TABLE>
<S>                                          <C>
                                             HCB BANCSHARES, INC.

Date: March 2,1999                           By: /s/ Vida H. Lampkin
                                                 ----------------------------------------
                                                 Vida H. Lampkin
                                                 Chairman of the Board, President and
                                                 Chief Executive Officer
                                                 (Duly Authorized Representative)
</TABLE>