SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 _______________

                                    FORM 10-K

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


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

                     For the fiscal year ended June 30, 2000

                         Commission File Number: 0-22423

                              HCB BANCSHARES, INC.
             ------------------------------------------------------
             (Exact Name of Registrant 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 (b) of the Act: None

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

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

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

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

     State the aggregate market value of the voting stock held by non-affiliates
computed  by  reference  to the  price at which  the  stock  was  sold,  as of a
specified date within the past 60 days: $9,525,366 (1,494,175 shares at the last
sale price on August 31, 1999 ($6.375 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:  2,046,580 shares of common
stock as of August 31, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

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

1.   Portions of Annual  Report to  Stockholders  for the Fiscal Year Ended June
     30, 2000. (Parts II and IV)

2.   Portions of Proxy  Statement for the 2000 Annual  Meeting of  Stockholders.
     (Part III)


<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

GENERAL

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

         Prior to the  Conversion,  Bancshares  did not  engage in any  material
operations. Since the Conversion, Bancshares has had no significant assets other
than the outstanding capital stock of the Bank, a portion of the net proceeds of
the  Conversion  and notes  receivable,  one of which is from the Employee Stock
Ownership Plan ("ESOP").  Bancshares  principal  business is the business of the
Bank.  At June 30,  2000,  the Company had  consolidated  total assets of $291.2
million,  deposits of $144.9 million and stockholders'  equity of $28.2 million,
or 9.7% of total assets.

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

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

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


                                       1
<PAGE>

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

         The Bank currently  operates through five full-service  banking offices
located in Camden (2), Fordyce,  Sheridan,  and Monticello,  Arkansas and a loan
production office in Bryant,  Arkansas.  On February 16, 2000, the bank received
approval from OTS to convert its loan production office in Bryant, Arkansas to a
full service  branch.  Construction is in progress with an expected open date of
October 30, 2000.  Historically,  the principal  business  strategy of the Bank,
like most other  savings  institutions  in Arkansas and  elsewhere,  has been to
accept savings  deposits from residents of the communities  served by the Bank's
branch  offices and to invest  those funds in  single-family  mortgage  loans to
those and other local  residents.  In this manner,  the Bank and countless other
independent  community-oriented savings institutions operated safely and soundly
for generations.  In recent years,  however,  as the banking business nationwide
and in the Bank's primary market area in particular has become more competitive,
smaller savings  institutions  like the Bank have come under  increasing  market
pressure either to grow and increase their  profitability or to be acquired by a
larger  institution.  Moreover,  during  this  period  the  Bank's  market  area
experienced only limited economic growth.

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

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



                                       2
<PAGE>

MARKET AREA

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

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

         The  economies in the Bank's  primary  market area include a variety of
industries,  including  manufacturing,  government,  services and retail  trade.
Important  employers  include  International  Paper and  Georgia  Pacific in the
timber  industry  and  Lockheed  Martin and  Atlantic  Research  in the  defense
industry, SAU Tech and UA-Monticello. In addition, industries in the Bryant area
include  Bryant  School  District  as the  largest  employer,  with Alcoa as the
largest  industrial  business,  and  United  Auto  Group as the  second  largest
employer.

COMPETITION

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

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

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

LENDING ACTIVITIES

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


                                       3
<PAGE>

         With  certain  limited  exceptions,  the maximum  amount that a savings
institution may lend to any borrower  (including certain related entities of the
borrower) at one time may not exceed 15% of the  unimpaired  capital and surplus
of the institution, plus an additional 10% of unimpaired capital and surplus for
loans  fully   collateralized   by  readily   marketable   collateral.   Savings
institutions are additionally  authorized to make loans to one borrower, for any
purpose, in an amount not to exceed $500,000 or, by order of the Director of the
OTS, in an amount not to exceed the lesser of  $30,000,000  or 30% of unimpaired
capital and surplus to develop residential housing,  provided:  (i) the purchase
price  of  each  single-family  dwelling  in the  development  does  not  exceed
$500,000;  (ii) the  institution is in compliance  with its  regulatory  capital
requirements; (iii) the loans comply with applicable loan-to-value requirements,
and;  (iv) the  aggregate  amount of loans made under  this  authority  does not
exceed 150% of  unimpaired  capital and surplus.  At June 30, 2000,  the maximum
aggregate amount that the Bank could have lent to any one borrower under the 15%
limit was $4.7 million. At such date, the largest aggregate amount of loans that
the  Bank  had  outstanding  to any one  borrower  was  $4.3  million.  However,
Bancshares may participate in loans to one borrower thereby  permitting loans to
one borrower to be made by the Bank and Bancshares  lending together that exceed
the Bank's  regulatory  loan limit.  At June 30, 2000, the Bank and  Bancshares'
loans to the borrower referred to above totaled  approximately $5.0 million with
Bancshares carrying $0.7 million of the loans.

                                       4
<PAGE>

         Loan Portfolio Composition.  The following table sets forth information
regarding the  composition  of the Bank's loan  portfolio by type of loan at the
dates  indicated.  At June 30,  2000,  the Bank had no  concentrations  of loans
exceeding 10% of gross loans other than as disclosed below.
<TABLE>
<CAPTION>
                                                                  At June 30,
                                    --------------------------------------------------------------------
                                             2000                     1999                   1998
                                    -------------------         -----------------     ------------------
                                    Amount          %           Amount        %       Amount        %
                                    ------        -----         ------      -----     ------      -----

<S>                              <C>              <C>        <C>            <C>       <C>           <C>
Type of Loan
------------
 Real estate loans:
  One-to-four family
    residential                $  61,198,180     42.26%     $ 53,622,417   43.74%    $ 49,267,399  44.75%
  Multi-family loans               9,220,931      6.37         9,226,426    7.53       12,577,034  11.43
  Non-residential                 48,756,744     33.67        41,907,368   34.18       35,321,040  32.08
  Loans to facilitate sale of
    foreclosed real estate                --        --                --      --          473,476   0.43
  Land and other mortgage loans    5,644,050      3.90         3,547,514    2.89          598,860   0.54
Consumer loans:
  Loans secured by savings
    deposits                       2,320,915      1.60         2,021,141    1.65        2,215,441   2.01
  Home improvement                    40,851      0.03           125,990    0.10        1,291,174   1.17
  Auto                             6,589,480      4.55         4,269,898    3.48        4,070,750   3.70
  Other consumer                   2,260,697      1.56         2,517,190    2.05        1,569,076   1.43
Commercial                         8,769,131      6.06         5,367,611    4.38        2,708,927   2.46
                               -------------    ------      ------------  ------     ------------ ------
    Total                      $ 144,800,979    100.00%     $122,605,555  100.00%    $110,093,177 100.00%
                               -------------    ------      ------------  ------     ------------ ------

Less:
  Loans in process             $   8,100,982                $  6,150,810             $  3,921,787        $
  Deferred loan fees and
    discounts                       (158,217)                    (37,339)                 122,679
  Allowance for loan losses        1,231,709                   1,329,201                1,468,546
                               -------------                ------------             ------------
  Total                        $ 135,626,505                $115,162,883             $104,580,165
                               =============                ============             ============
<CAPTION>
                                                     At June 30,
                                    ---------------------------------------------
                                             1997                     1996
                                    -------------------         -----------------
                                    Amount          %           Amount        %
                                    ------        -----         ------      -----

<S>                              <C>              <C>        <C>            <C>
Type of Loan
------------
 Real estate loans:
  One-to-four family
    residential                   $  62,340,601   60.90%    $ 61,650,286    70.79%
  Multi-family loans                  8,873,156    8.67        6,819,212     7.83
  Non-residential                    18,814,701   18.38       13,746,549    15.78
  Loans to facilitate sale of
    foreclosed real estate              616,660    0.60          720,749     0.83
  Land and other mortgage loans         483,236    0.47           36,944     0.04
Consumer loans:
  Loans secured by savings
    deposits                          2,434,621    2.38        1,832,180     2.10
  Home improvement                    1,665,244    1.63          204,776     0.24
  Auto                                2,399,648    2.34          786,656     0.90
  Other consumer                      2,629,442    2.58          418,027     0.48
Commercial                            2,101,963    2.05          880,311     1.01
                                  -------------  ------     ------------   ------
    Total                         $ 102,359,272  100.00%    $ 87,095,690   100.00%
                                  -------------  ------     ------------   ------

Less:
  Loans in process                $   2,057,095             $   1,544,097
  Deferred loan fees and                167,069                   137,335
  Allowance for loan losses           1,492,473                 1,283,234
                                  -------------              ------------
  Total                           $  98,642,635              $ 84,131,024
                                  =============              ============
</TABLE>

                                       5
<PAGE>
         LOAN MATURITY  SCHEDULES.  The following  table sets forth  information
regarding  dollar  amounts of loans  maturing in the Bank's  portfolio  based on
their  contractual  terms to maturity,  at June 30, 2000.  Demand  loans,  loans
having no stated  schedule of repayments  and no stated  maturity and overdrafts
are reported as due in one year or less. The table does not include any estimate
of  prepayments,  which  significantly  shorten the average life of all mortgage
loans and may cause the Bank's  repayment  experience  to differ from that shown
below.
<TABLE>
<CAPTION>
                                                          Due After
                                     Due Within           One Through             Due After
                                      One Year            Five Years              Five Years            Total
                                      --------            ----------              ----------            -----
                                                              (In thousands)
<S>                                  <C>                  <C>                      <C>                 <C>
Real estate loans:
  One-to-four family mortgage
    loans.........................   $   11,244           $    13,066              $   36,888          $  61,198
  Other mortgage loans............       10,522                13,439                  39,661             63,622
Commercial loans..................        5,216                 2,863                     690              8,769
Consumer loans:
  Loans secured by savings
    deposits.....................         1,727                   594                      --              2,321
  Other..........................         1,094                 7,274                     523              8,891
                                     ----------           -----------               ---------          ---------
     Total........................   $   29,803           $    37,236               $  77,762          $ 144,801
                                     ==========           ===========               =========          =========
</TABLE>

         The following  table sets forth as of June 30, 2000,  dollar amounts of
loans due one year or more after June 30, 2000 that had  predetermined  interest
rates and that had adjustable interest rates at that date.
<TABLE>
<CAPTION>

                                                  Predetermined          Floating or
                                                      Rates            Adjustable Rates          Total
                                                  -------------        ----------------        ---------
                                                                       (In thousands)
      <S>                                          <C>                    <C>                  <C>
      Real estate loans:
        One-to-four family mortgage loans....      $   31,186             $   18,768           $   49,954
        Other mortgage loans.................          42,182                 10,918               53,100
      Commercial loans.......................           3,488                     65                3,553
      Consumer loans:
        Loans secured by savings deposits....             594                     --                  594
        Other consumer loans.................           7,797                     --                7,797
                                                   ----------             ----------           ----------
          Total..............................      $   85,247             $   29,751           $  114,998
                                                   ==========             ==========           ==========
</TABLE>


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


                                       6
<PAGE>

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

                                                                                Year Ended June 30,
                                                                 -----------------------------------------------
                                                                    2000               1999             1998
                                                                 -----------       ------------    -------------
<S>                                                             <C>                <C>             <C>
Loans originated:
  Real estate loans:
    One-to-four family residential............................  $  46,925,450      $ 24,486,365    $   9,242,608
    Other mortgage loans......................................     29,145,079        18,804,077       19,404,722
  Commercial loans............................................      7,973,954         7,350,903        3,098,085
  Consumer loans..............................................     13,515,847         5,380,714        5,437,188
                                                                -------------      ------------    -------------
     Total loans originated...................................  $  97,560,330      $ 56,022,059    $  37,182,603
                                                                =============      ============    =============

Loans purchased:
  Real estate loans...........................................  $      82,547      $         --    $   8,257,199
                                                                =============      ============    =============

Loans sold....................................................  $  10,160,826      $ 13,140,464    $   4,952,961
                                                                =============      ============    =============
</TABLE>

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

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

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

         ONE-TO-FOUR  FAMILY  RESIDENTIAL  LENDING.   Historically,  the  Bank's
principal  lending activity has been the origination of fifteen-year  fixed-rate
first  mortgage  loans in the Bank's  primary market area. The purchase price or
appraised  value of most of such  residences  generally has been between $50,000
and $200,000,  with the Bank's loan amounts averaging  approximately $67,500. At
June 30,  2000,  $61.2  million,  or  42.3%,  of the  Bank's  total  loans  were
collateralized by one-to-four family residences, substantially all of which were
existing, owner-occupied,  single-family residences in the Bank's primary market
area.

         While  the Bank  offers a variety  of  one-to-four  family  residential
mortgage  loans with fixed or  adjustable  interest  rates and terms of up to 30
years,  substantially  all of  the  fixed-rate  loans  retained  in  the  Bank's
portfolio  have terms of 15 years or less.  Despite  the  relatively  low credit
risks associated with the Bank's 30-year one-to-four family portfolio loans, due
to the interest rate risks  associated  with such longer term loans,  management
has approved shifting the Bank's one-to-four family residential lending emphasis
in the future away from the  origination of such loans for the Bank's  portfolio
and toward the origination of such loans for sale.  Currently,  it is the Bank's
policy to originate all 30-year term  one-to-four  family  residential  loans in
accordance  with the  investor's  underwriting  guidelines  and to sell all such
originations promptly to investors,  servicing released.  Such loan originations
and  sales  have  become  significant.   One-to-four-family   residential  loans
originated  during the year totaled  $46.9  million with $10.9 million or 23% of
originations sold or to be sold in the secondary market.  The Bank will continue
to make  non-conforming  loans to be held in the  Bank's  portfolio.  Management
expects to continue these policies in the future.


                                       7
<PAGE>

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

         From time to time, the Bank makes loans to individuals for construction
of one-to-four  family  owner-occupied  residences located in the Bank's primary
market area,  with such loans  usually  converting to permanent  financing  upon
completion of construction. At June 30, 2000, the Bank's loan portfolio included
$5.0 million of loans  collateralized  by one-to  four-family  properties  under
construction,  some of which were  construction/permanent  loans  structured  to
become  permanent  loans upon the completion of  construction  and some of which
were interim  construction loans structured to be repaid in full upon completion
of construction and receipt of permanent  financing.  The Bank also offers loans
to qualified  builders for the  construction  of one-to-four  family  residences
located in the Bank's primary  market area.  Because such homes are intended for
resale, such loans are generally not covered by permanent financing  commitments
by the Bank. All construction  loans are  collateralized  by a first lien on the
property  under  construction.  Loan  proceeds are  disbursed in  increments  as
construction progresses and as inspections warrant. Construction/permanent loans
are  underwritten  in  accordance  with  the  same  requirements  as the  Bank's
permanent  mortgages,  except the loans  generally  provide for  disbursement in
stages during a  construction  period of up to nine months,  during which period
the borrower may be required to make monthly interest  payments.  Borrowers must
satisfy  all  credit  requirements  that  would  apply to the  Bank's  permanent
mortgage  loan  financing  prior to  receiving  construction  financing  for the
subject property.  Construction  financing  generally is considered to involve a
higher degree of risk of loss than  financing on existing  properties.  The Bank
has sought to minimize this risk by limiting  construction  lending to qualified
borrowers in the Bank's primary market area, and by requiring the involvement of
qualified builders.

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

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

         The  Bank's  commercial  real  estate  loans may be  collateralized  by
offices, warehouses,  shopping centers, nursing homes, single-family subdivision
developments and other income-producing and commercial properties.  Multi-family
real  estate  loans  are  collateralized  by  greater  than  one-to-four  family
residential  properties.  At June 30,  2000,  the Bank  had 178  commercial  and
multi-family loans, with an average loan balance of approximately  $289,000.  At
that  date,  48  of  these  loans  totaling  approximately  $10.2  million  were
collateralized by properties outside Arkansas,  and none of these  out-of-market
loans  were  classified  by  management  as  substandard,  doubtful  or  loss or
designated  by  management as special  mention.  Management  expects the Bank to
continue  making these  out-of-market  loans from time to time as  opportunities
arise.

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



                                       8
<PAGE>
fixed for up to 20 years. Under certain  circumstances,  these longer-term loans
may be match  funded with  similar term FHLB  advances to reduce  interest  rate
risk.

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

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

         CONSUMER LENDING.  The Bank's consumer loans primarily consist of loans
collateralized  by savings  deposits  at the Bank and  automobiles.  These loans
totaled  $2.3  million  and  $6.6  million,  respectively,  at  June  30,  2000.
Management  plans to  continue  the  expansion  of the Bank's  consumer  lending
activities in the future as part of  management's  plan to provide a wider range
of financial services while increasing the Bank's portfolio yields and improving
its asset/liability management.

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

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

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

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

         COMMERCIAL BUSINESS LENDING.  The Bank currently offers working capital
loans, floor plan loans to dealers of automobiles and recreational vehicles, and
business equipment loans. At June 30, 2000, the Bank's commercial business loans
totaled $8.8 million and primarily consisted of recreational  vehicle floor plan
loans,

                                       9
<PAGE>
inventory  loans, and equipment loans. At that date, the Bank had two commercial
business loans with outstanding commitments exceeding $500,000.

         One loan is collateralized by new recreational vehicles for an in-state
RV dealership.  The loan requires  regular  payments of interest  monthly,  with
principal  payments  as  vehicles  are  sold.  At June  30,  2000,  the Bank had
committed to lend up to $1,300,000,  and the outstanding balance was $1,241,036.
The loan had  experienced  some  problems and while the loan was  designated  as
special mention by management, no loss is anticipated.

         A second loan is  collateralized  by inventory and accounts  receivable
for an in-state retail  furniture  store.  The loan requires regular payments of
principal and interest  monthly.  At June 30, 2000, the outstanding  balance for
this  fully  funded  loan  was  $1,660,000,  the loan was  fully  performing  in
accordance with its terms, and was not adversely classified by management.

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

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

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

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

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

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

         The  Bank  receives  fees  in  connection  with  loan  commitments  and
originations,  loan  modifications,   late  payments  and  changes  of  property
ownership and for miscellaneous  services related to its loans. Loan origination
fees are calculated as a percentage of the loan principal.  The excess,  if any,
of loan origination  fees over direct loan


                                       10
<PAGE>

origination  expenses is deferred and accreted into income over the  contractual
life of the loan using the level yield  method.  If expenses  exceed  fees,  the
excess is deferred and  amortized to expense  over the loan's  contractual  life
using the level yield method.  If a loan is prepaid,  refinanced,  or sold,  all
remaining deferred fees/costs with respect to such loan are taken into income or
recognized in expense at such time.

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

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

         Management  regularly  reviews the Bank's  assets to determine  whether
assets require  classification or re-classification,  and the Board of Directors
reviews and approves all classifications.  The Bank contracts with a third-party
professional to perform loan reviews generally on a semi-annual basis, including
classification  of assets and an  assessment  of the  adequacy  of the loan loss
reserve.  As of June 30, 2000, the Bank had $27,100  assets  classified as loss,
$10,213 classified doubtful,  $1,534,794 assets classified substandard, and $2.4
million of assets  designated  as special  mention.  The Bank's total  adversely
classified assets represented  approximately 0.5% of the Bank's total assets and
5.0% of the Bank's tangible  regulatory  capital plus allowance for loan loss at
June 30,  2000.  At that date,  a majority  of the Bank's  adversely  classified
assets were one-to-four  family residences in the Bank's primary market area. At
June 30, 2000, management did not expect the Bank to incur any loss in excess of
attributable  existing  reserves on any of the Bank's  adversely  classified  or
designated assets.

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

         Homogeneous  loans  are  those  that  are  considered  to  have  common
characteristics  that provide for evaluation on an aggregate or pool basis.  The
Company  considers the  characteristics  of (1) one-to-four  family  residential
first  mortgage  loans;  (2)  automobile   loans;  and  (3)  consumer  and  home
improvement  loans  to  permit  consideration  of  the  appropriateness  of  the
allowance  for  losses  of each  group  of loans on a pool  basis.  The  primary
methodology  used to determine the  appropriateness  of the allowance for losses
includes  segregating  certain specific,  poorly performing loans based on their
performance characteristics from the pools of loans as to type and then 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.


                                       11
<PAGE>

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

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

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

         At the date of foreclosure or other repossession,  the Bank records the
property at fair value,  less estimated  costs to sell. Fair value is defined as
the  amount  in cash or  cash-equivalent  value  of other  consideration  that a
property  would yield in a current  sale  between a willing  buyer and a willing
seller.  Fair value is  measured  by market  transactions.  If a market does not
exist,  fair value of the  property  is  estimated  based on  selling  prices of
similar  properties  in active  markets  or, if there are no active  markets for
similar  properties,  by discounting a forecast of expected cash flows at a rate
commensurate with the risk involved.  Fair value generally is determined through
an appraisal  at the time of  foreclosure.  At June 30,  2000,  the Bank held no
properties  acquired in  settlement of loans for which  estimated  market values
were  unavailable.  Any amount of cost in excess of fair value at foreclosure is
charged-off  against the allowance for loan losses.  Subsequent to  acquisition,
the  property is  periodically  evaluated  by  management  and an  allowance  is
established if the estimated fair value of the property, less estimated costs to
sell,  declines.  If,  upon  ultimate  disposition  of the  property,  net sales
proceeds  differ from the net carrying value of the property,  a gain or loss on
sale of real estate is recorded.

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

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


                                       12
<PAGE>

         During  the year  ended  June 30,  2000,  in light of the  Bank's  loan
portfolio  review,  the Bank  made no  additional  provisions  for  loan  losses
bringing  the total  reserve  for  losses  after net  charged-off  loans to $1.2
million,  or 0.85% of gross loans. The following table sets forth an analysis of
the Bank's allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                             Year Ended June 30,
                                                 ------------------------------------------------------------------------
                                                    2000          1999            1998           1997            1996
                                                 ---------      --------        --------       --------        --------

<S>                                              <C>            <C>             <C>            <C>            <C>
Balance at beginning of period.................  $ 1,329,201    $1,468,546      $1,492,473     $ 1,283,234    $   728,491
                                                  ----------    -----------     ----------     -----------    -----------

Loans charged-off:
  Real estate mortgage:
    One-to-four family residential.............        4,960         26,883          5,466          11,317         12,130
    Other mortgage loans.......................           --             --             --              --             --
Commercial.....................................       50,047         37,742             --              --             --
Consumer.......................................       44,791         79,632         43,100          11,668             --
                                                 -----------    -----------     ----------     -----------    -----------
Total charge-offs..............................       99,798        144,257         48,566          22,985         12,130
                                                 -----------    -----------     ----------     -----------    -----------

Recoveries:
  Real estate mortgage:
    One-to-four family residential.............           --            865             --           6,333            250
    Other mortgage loans.......................           --             --             --              --             --
  Commercial...................................           --             --             --              --             --
  Consumer.....................................        2,306          4,047            639           4,220             --
                                                 -----------    -----------     ----------     -----------    -----------
Total recoveries...............................        2,306          4,912            639          10,553            250
                                                 -----------    -----------     ----------     -----------    -----------

Net loans charged-off..........................       97,492        139,345         47,927          12,432         11,880
                                                 -----------    -----------     ----------     -----------    -----------

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

Balance at end of period.......................  $ 1,231,709    $ 1,329,201     $1,468,546     $ 1,492,473    $ 1,283,234
                                                 ===========    ===========     ==========     ===========    ===========

Ratio of net charge-offs to average
  loans outstanding during the period..........       0.08%            0.13%          0.05%           0.013%          0.018%
                                                 =========      ===========     ==========     ============   =============
</TABLE>



                                       13
<PAGE>

         The  following  table  allocates the allowance for loan losses by asset
category  at the  dates  indicated.  The  allocation  of the  allowance  to each
category is not  necessarily  indicative  of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                       At June 30,
                                          --------------------------------------------------------------------------
                                                  2000                       1999                    1998
                                         ----------------------     -----------------------   ----------------------
                                                    Percent of                 Percent of               Percent of
                                                    Loans in                   Loans in                 Loans in
                                                    Category to                Category to              Category to
                                          Amount    Total Loans     Amount     Total Loans    Amount     Total Loans
                                          ------    -----------     ------     -----------    ------    -----------
<S>                                       <C>            <C>      <C>             <C>        <C>          <C>
Allocated to:
  Real estate loans:
    One-to-four family residential......  $ 440,709      42.3%    $  422,000      43.7%      $  504,000  45.18%
    Multi-family, non-residential, and
      land..............................    551,000      43.9        603,000      44.6          557,000  44.05
  Consumer loans........................     91,000       7.7        101,000       7.3          123,000   8.31
  Commercial loans......................    149,000       6.1         82,000       4.4           72,000   2.46
  Unallocated...........................         --       --         121,201       --           212,546     --
                                                        -----                    -----                   ------
         Total.......................... $1,231,709     100.0%    $1,329,201     100.0%      $1,468,546  100.00%
                                         ==========     =====     ==========     =====       ==========  ======
<CAPTION>
                                                               At June 30,
                                          ---------------------------------------------------
                                                  1997                       1996
                                         ----------------------     -------------------------
                                                      Percent of                  Percent of
                                                       Loans in                     Loans in
                                                      Category to                 Category to
                                            Amount    Total Loans     Amount      Total Loans
                                            ------    -----------     ------      -----------
<S>                                       <C>          <C>     <C>              <C>
Allocated to:
  Real estate loans:
    One-to-four family residential...... $  954,093    61.50%        $  935,354      71.62%
    Multi-family, non-residential, and
      land..............................    296,018    27.52            278,650      23.65
  Consumer loans........................     67,700     8.93             17,635       3.72
  Commercial loans......................     81,250     2.05                 --       1.01
  Unallocated...........................     93,412       --             51,595         --
                                                      ------                        ------
         Total.......................... $1,492,473   100.00%        $1,283,234     100.00%
                                         ==========   ======         ==========     ======
</TABLE>

                                       14
<PAGE>

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

         The following table sets forth  information  with respect to the Bank's
nonperforming  assets at the dates  indicated.  For  information  regarding  the
Bank's  interest  accrual  practices,  see the Notes to  Consolidated  Financial
Statements set forth in Item 8 herein.
<TABLE>
<CAPTION>
                                                                        At June 30,
                                                -------------------------------------------------------------
                                                  2000         1999         1998         1997        1996
                                                --------     --------     -------      --------    --------
<S>                                             <C>          <C>         <C>           <C>         <C>
Loans accounted for on a nonaccrual basis: 1
  Real estate:
    One-to-four family residential...........   $  655,988   $ 462,205   $  648,012    $ 133,386   $ 166,228
    Other mortgage loans.....................           --      22,139           --           --          --
  Consumer...................................      102,003      81,648      138,747           --          --
                                                ----------   ---------   ----------    ---------   ---------
    Total....................................   $  757,991   $ 565,992   $  786,759    $ 133,386   $ 166,228
                                                 =========   =========   ==========    =========   =========

Accruing loans which are contractually past
  due 90 days or more:
   Real estate:
    One-to-four family residential...........   $  140,000   $      --   $   41,770    $ 323,478   $ 725,487
    Other mortgage loans.....................           --          --           --           --          --
  Consumer loans.............................       21,524          --           --       56,904     127,142
                                                ----------   ---------   ----------    ---------   ---------
    Total....................................   $  161,524   $      --   $   41,770    $ 380,382   $ 852,629
                                                ==========   =========   ==========    =========   =========

    Total nonperforming loans................   $  919,515   $ 565,992   $  828,529    $ 513,768   $1,018,857
                                                ==========   =========   ==========    =========   ==========

Percentage of total loans....................       0.64%       0.46%        0.75%         0.50%    1.17%
                                                    ====        ====         ====          ====     ====
Other nonperforming assets 2.................   $   52,919   $  20,289   $   17,001    $  65,005   $ 168,206
                                                ==========   =========   ==========    =========   =========
Loans modified in troubled debt restructurings  $       --   $      --   $  392,000    $ 281,441   $ 298,195
                                                ==========   =========   ==========    =========   =========
<FN>
____________
1        Designated   nonaccrual  loan  payments   received   applied  first  to
         contractual  principal;  interest income recognized when  contractually
         current.
2        Other nonperforming assets includes foreclosed real estate.
</FN>
</TABLE>

         During the years ended June 30, 2000 and 1999, gross interest income of
$70,933 and $48,032,  respectively,  would have been recorded on loans accounted
for  on a  nonaccrual  basis  if the  loans  had  been  current  throughout  the
respective  periods.  Interest  on such loans  included  in income  during  such
respective periods amounted to $20,045 and $14,237, respectively.

         At June 30, 2000, management had identified  approximately $0.8 million
of loans which amount is not  reflected in the  preceding  table but as to which
known  information about possible credit problems of borrowers caused management
to provide for  increased  monitoring  of the ability of the borrowers to comply
with  present  loan  repayment  terms,  all of which was  included in the Bank's
adversely  classified  asset  amounts at that date.  Of this  aggregate  amount,
approximately  $417,000 was  attributable to 13 one-to-four  family  residential
loans,  $283,000 was attributable to four commercial or multi-family real estate
loans,  and $121,000 was  attributable  to 17 consumer



                                       15
<PAGE>

loans. At June 30, 2000, management did not expect the Bank to incur any loss in
excess of attributable existing reserves on any of the Bank's assets.

INVESTMENT ACTIVITIES

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

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

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

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

         All of the Bank's privately issued securities were rated "AA" or higher
by a  nationally  recognized  credit  rating  agency  at the  time of  purchase.
Management  regularly  monitors  the  ratings  of the  Bank's  privately  issued
holdings by reference to nationally  published rating media and by communication
with the issuer when necessary. At June 30, 2000, no privately issued securities
were rated below AA except as follows:


                                       16
<PAGE>

                  A  Citicorp   Mortgage,   Inc.  REMIC   Pass-Through  Class  A
         Certificate   was  rated   "CC"  by  S&P.   The   downgrade   reflected
         deterioration  in the performance of the mortgage pools  underlying the
         security.  At June  30,  2000,  the  Bank  estimated  the  value of the
         security at approximately  $54,000 less than its face value. The Bank's
         carrying  value  for  this  security  at that  date  was  approximately
         $249,862 after recognition of impairment loss.

                  A  DLJ  Mortgage  Acceptance  Corp.   Pass-Through  Class  A-3
         Certificate  was  rated  "CAA2"  by  Moody.  The  downgrade   reflected
         deterioration  in the performance of the mortgage pools  underlying the
         security.  As of June 30, 2000, the  deterioration  affected the credit
         support  and not the  principal  or interest  of the  security  itself.
         Management  had not  identified  any  expected  losses on  principal or
         interest on the security as of that date. The Bank's carrying value for
         this security at that date was $486,120.

                  A  Western  Federal  Savings  and  Loan  Association  Mortgage
         Pass-Through  Class 89-1 A  Certificate  was rated  "A2" by Moody.  The
         downgrade  reflected a deterioration  of the mortgage pools  underlying
         the security and weak servicing. As of June 30, 2000, the deterioration
         affected  the credit  support and not the  principal or interest of the
         security itself.  The security's rating is still considered  investment
         grade and  management  anticipates  no loss of principal or interest on
         this security.  The Bank's  carrying value for this security as of June
         30, 2000 was $112,522.

         The  Bank's  privately  issued  securities  consist  of  collateralized
mortgage obligations (CMOs) and mortgage  pass-through  securities.  At June 30,
2000, all of the privately issued securities had adjustable  interest rates with
a weighted  average  yield of 6.18% and a weighted  average  term to maturity of
21.3 years. The carrying value of the privately issued securities was $6,477,701
or 6.3% of the  mortgage-backed  securities  and CMOs at that date.  None of the
privately issued securities are insured or guaranteed by FHLMC or FNMA.

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


                                       17
<PAGE>


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

                                                                                   At June  30,
                                                                 ------------------------------------------------
                                                                    2000                1999             1998
                                                                 -----------        ------------    -------------
<S>                                                             <C>               <C>               <C>
Securities available for sale:
   U.S. government and agencies...............................  $   5,880,903     $   6,368,125     $   22,491,930
   Municipal securities.......................................     28,201,198        26,704,416         18,283,877
   Collateralized mortgage obligations........................     11,805,058        12,346,191          9,673,443
   Other mortgage-backed securities...........................     86,602,281       101,640,582         49,023,666
   Equity securities..........................................         53,625            60,375                 --
                                                                -------------     -------------     --------------
                                                                $ 132,543,065     $ 147,119,689     $   99,472,916
                                                                =============     =============     ==============

Securities held to maturity:
   U.S. government and agencies...............................  $          --     $          --     $           --
   Collateralized mortgage obligations........................             --                --          3,984,684
   Other mortgage-backed securities...........................             --                --         23,518,573
                                                                -------------     -------------     --------------
                                                                $          --     $          --     $   27,503,257
                                                                =============     =============     ==============

Total.........................................................  $ 132,543,065     $ 147,119,689     $  126,976,173
                                                                =============     =============     ==============
</TABLE>

                                       18
<PAGE>


         The  following  table  sets  forth  information   regarding   scheduled
maturities of the  Company's  investment  portfolio at June 30, 2000.  Yields on
municipal securities are not tax-effected.

<TABLE>
<CAPTION>
                                       One Year or Less     One to Five Years       Five to Ten Years       More than Ten Years
                                    --------------------  ----------------------  ----------------------    -------------------
                                    Carrying   Average    Carrying      Average   Carrying     Average      Carrying    Average
                                     Value     Yield      Value          Yield      Value       Yield        Value       Yield
                                    --------   -------    --------      -------   --------     -------      --------    -------


   <S>                               <C>       <C>           <C>           <C>      <C>           <C>     <C>            <C>
   U.S. government and agencies     $     --     -- %       $3,997,504    6.25%    $ 1,883,399   6.56%   $         --     --%
   Municipal securities                   --     --                 --      --       1,085,089   5.17      27,116,109    5.00
   Collateralized mortgage
      obligations                         --     --                 --      --         479,855   7.26      11,325,203    6.49
   Other mortgage-backed securities   22,914   9.25          2,323,178    6.87       7,728,715   6.53      76,527,474    6.33
                                    --------   ----         ----------    ----     -----------   ----    ------------    ----
      Total                         $ 22,914   9.25%        $6,320,682    6.48%    $11,177,058   6.43%   $114,968,786    6.03%
                                    ========   ====         ==========    ====     ===========   ====    ============    ====
   Equity securities

<CAPTION>
                                            Total Investment Portfolio
                                        --------------------------------
                                        Carrying     Market     Average
                                         Value       Yield       Yield
                                        --------     ------     -------


   <S>                                <C>          <C>            <C>
   U.S. government and agencies      $  5,880,903 $  5,880,903   6.35%
   Municipal securities                28,201,198   28,201,198   5.01
   Collateralized mortgage
      obligations                      11,805,058   11,805,059   6.52
   Other mortgage-backed securities    86,602,281   86,602,280   6.37
                                     ------------ ------------   ----
      Total                          $132,489,440 $132,489,440   6.09%
                                     ============ ============   ====
   Equity securities                       53,625       53,625
                                     ------------ ------------
                                     $132,543,065 $132,543,065
                                     ============ ============
</TABLE>


                                       19
<PAGE>

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

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

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

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

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

                                                                     Year Ended June 30,
                                          -----------------------------------------------------------------------
                                                2000                        1999                    1998
                                          ------------------        -----------------         -------------------
                                          Average    Average        Average    Average        Average    Average
                                          Balance      Rate         Balance      Rate         Balance      Rate
                                          -------    --------       -------    --------       -------    --------
<S>                                     <C>            <C>         <C>            <C>       <C>             <C>
NOW accounts..........................  $ 14,170,075   1.73%       $ 10,505,515   1.46 %    $  6,101,535    2.73%
Money market savings deposits.........    16,093,630   3.84          20,474,110   3.57        17,937,404    4.13
Savings deposits - statement..........     7,955,898   2.58           7,325,746   2.81         8,136,269    2.95
Certificates of deposit...............   104,443,704   5.21         103,414,235   5.35       112,427,056    5.41
                                        ------------   ----         -----------   ----       -----------    ----
    Total.............................  $142,663,307   4.56%       $141,719,606   4.67%     $144,602,264    5.03%
                                         ===========   ====         ===========   ====       ===========    ====
</TABLE>

                                       20
<PAGE>

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

                                           Balance at                                 Balance at
                                            June 30,         % of       Increase       June 30,        % of      Increase
                                              2000         Deposits    (Decrease)        1999         Deposits  (Decrease)
                                           ----------      --------    ---------      ---------       --------  ---------
<S>                                      <C>                <C>      <C>             <C>                 <C>     <C>
NOW accounts............................ $  23,553,466      16.26%   $  11,141,534   $ 12,411,932        8.49%   $1,747,386
Money market savings deposits...........     9,360,191       6.46       (8,259,150)    17,619,341       12.04      (765,494)
Savings deposits - statement............     7,530,432       5.20         (441,015)     7,971,447        5.45       458,840
Certificates of deposit................    104,428,982      72.08       (3,864,896)   108,293,878       74.02     2,924,536
                                         -------------     ------    -------------   ------------      ------    ----------
                                         $144,873,071      100.00%   $  (1,423,527)  $146,296,598      100.00%   $4,365,268
                                         ============      ======     ============   ============      ======    ==========
<CAPTION>

                                         Balance at
                                            June 30,      % of
                                              1998       Deposits
                                         -----------     --------
<S>                                        <C>              <C>
NOW accounts............................   $10,664,546      7.51%
Money market savings deposits...........    18,384,835     12.95
Savings deposits - statement............     7,512,607      5.29
Certificates of deposit................     105,369,342    74.25
                                           ------------   ------
                                           $141,931,330   100.00%
                                           ============   ======

</TABLE>


                                       21
<PAGE>

         The following table sets forth  information  regarding  certificates of
deposits classified by rates at the dates indicated.
<TABLE>
<CAPTION>
                                                                                  At June 30,
                                                                 -------------------------------------------------
                                                                   2000               1999                1998
                                                                 --------           -------            ----------

<S>                                                             <C>                <C>                <C>
 4.00 -5.99%.............................................       $ 68,258,761       $107,158,894       $ 96,276,980
 6.00 -7.99%.............................................         36,170,221          1,134,984          9,092,362
                                                                ------------       ------------       ------------
                                                                $104,428,982       $108,293,878       $105,369,342
                                                                ============       ============       ============
</TABLE>

         The  following  table  sets forth  information  regarding  amounts  and
maturities of certificates of deposits at June 30, 2000.

<TABLE>
<CAPTION>
                                                                    Amount Due
                                  ---------------------------------------------------------------------------------
                                  Less Than                                        After
Rate                              One Year        1-2 Years        2-3 Years       3 Years         Total
----                              --------        ---------        ---------       -------         -----

<S>                               <C>             <C>             <C>              <C>           <C>
 4.00 - 5.99%.................... $50,479,581     $16,116,804     $1,653,371       $9,005        $ 68,258,761
 6.00 - 7.99%....................  27,446,730       7,626,323      1,097,168           --          36,170,221
                                  -----------     -----------     ----------       ------        ------------
                                  $77,926,311     $23,743,127     $2,750,539       $9,005        $104,428,982
                                  ===========     ===========     ==========       ======        ============
</TABLE>

         The  following  table  sets  forth  information  regarding  amounts  of
certificates  of deposit of $100,000 or more by time remaining until maturity at
June 30, 2000.


                                                                    Certificates
             Maturity Period                                         of Deposit
             ---------------                                        ------------

Three months or less ....................................            $ 3,097,646
Over three through six months ...........................              2,160,247
Over six through 12 months ..............................              4,686,429
Over 12 months ..........................................              1,617,452
                                                                     -----------
    Total ...............................................            $11,561,774
                                                                     ===========

         The following table sets forth information regarding savings activities
of the Bank for the periods indicated.
<TABLE>
<CAPTION>
                                                                              Year Ended June 30,
                                                                 -------------------------------------------------
                                                                   2000               1999                1998
                                                                 --------           -------            ----------
<S>                                                             <C>                <C>                <C>
Net decrease before
  interest credited.........................................   $   (8,032,919)    $   (2,521,766)    $   (5,923,685)
Deposits divested...........................................               --                 --         (8,541,747)
Interest credited...........................................        6,609,392          6,887,034          5,204,171
                                                               --------------     --------------     --------------
    Net increase (decrease) in
      savings deposits......................................   $   (1,423,527)    $    4,365,268     $   (9,261,261)
                                                                ==============    ==============     ==============
</TABLE>


         BORROWINGS. Deposits historically have been the primary source of funds
for the Bank's lending,  investments and general operating activities.  The Bank
is  authorized,  however,  to use advances from the FHLB of Dallas to supplement
its supply of lendable funds and to meet deposit  withdrawal  requirements.  The
FHLB of Dallas  functions as a central reserve bank providing credit for savings
institutions and certain other member financial


                                       22
<PAGE>

institutions.  As a member of the FHLB System, the Bank is required to own stock
in the FHLB of Dallas and is  authorized  to apply for  advances.  Advances  are
pursuant to several  different  programs,  each with its own  interest  rate and
range of maturities.  Advances from the FHLB of Dallas are collateralized by the
Bank's  stock  in the  FHLB of  Dallas,  qualifying  first  mortgage  loans  and
mortgage-backed investment securities.

     The following table sets forth certain information  regarding borrowings by
the Bank for the periods indicated. Averages are based on monthly balances.
<TABLE>
<CAPTION>
                                                                              Year Ended June 30,
                                                                 -------------------------------------------------
                                                                   2000               1999                1998
                                                                 --------           -------            ----------
<S>                                                             <C>                <C>                <C>
Amounts outstanding at end of period:
  FHLB advances...............................................  $ 115,609,029   $ 104,523,419      $ 68,121,068
  Weighted average rate.......................................          6.07%          5.63%              5.89%

Maximum amount of borrowings outstanding at any month end:
  FHLB advances...............................................  $ 117,040,406   $ 104,523,419      $ 68,121,068

Approximate average borrowings during the year outstanding
 with respect to:
  FHLB advances...............................................  $ 112,554,831   $  95,124,165      $ 27,108,184
  Weighted average rate.......................................          5.85%          5.73%              6.07%
</TABLE>

SUBSIDIARY ACTIVITIES

         As a federally  chartered savings bank, the Bank is permitted to invest
an  amount  equal  to  2% of  its  assets  in  non-savings  institution  service
corporation  subsidiaries,  with an additional  investment of 1% of assets where
such investment serves primarily community, inner-city and community development
purposes.  Under such limitations,  as of June 30, 2000 on a consolidated  basis
the Bank was authorized to invest up to approximately  $5.7 million in the stock
of or loans to such  subsidiaries,  including the  additional 1% investment  for
community  inner-city  and  community  development  purposes.  The  Bank has one
subsidiary service corporation, HCB Properties, Inc., which was formed in August
1996 to hold  certain  properties  acquired  by the  Bank  for  possible  future
expansion,  because  the  properties  are  larger  than the  Bank's  anticipated
expansion needs,  and it is expected that portions of the properties  eventually
will be sold. At June 30, 2000,  the Bank's  aggregate  investment in, and loans
to, the subsidiary service corporation totaled $575,928.

REGULATION OF THE BANK

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

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


                                       23
<PAGE>

         The FHLB of Dallas  serves as a reserve or central  bank for its member
institutions within its assigned district.  It is funded primarily from proceeds
derived from the sale of consolidated  obligations of the FHLB System.  It makes
advances to members in accordance  with policies and  procedures  established by
the FHLB and the Board of  Directors of the FHLB of Dallas.  Long-term  advances
may only be made for the  purpose of  providing  funds for  residential  housing
finance and small businesses, small farms and small agri-businesses. At June 30,
2000,  the Bank had $115.6  million  in  advances  outstanding  with the FHLB of
Dallas. See " -- Deposit Activity and Other Sources of Funds -- Borrowings."

         LIQUIDITY REQUIREMENTS.  The Bank is required to maintain average daily
balances of liquid assets (cash, savings deposits maintained pursuant to Federal
Reserve Board requirements,  time and savings deposits in certain  institutions,
obligations of the United States and states and political  subdivisions thereof,
shares in mutual funds with certain restricted investment policies, highly rated
corporate debt and mortgage loans and mortgage-related securities with less than
one year to maturity or subject to  pre-arranged  sale within one year) equal to
the monthly  average of not less than a specified  percentage  (currently 4%) of
their net withdrawable deposits plus short-term  borrowings.  Monetary penalties
may  be  imposed  for  failure  to  meet  liquidity  requirements.  The  average
regulatory ratio of liquid assets for the Bank on June 30, 2000 was 23.4%.

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

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

         Both core and tangible  capital are further  reduced by an amount equal
to a savings  institution's debt and equity investments in subsidiaries  engaged
in activities not permissible to national banks (other than subsidiaries



                                       24
<PAGE>

engaged in activities  undertaken as agent for customers or in mortgage  banking
activities and depository  institutions or their holding companies).  As of June
30, 2000,  the Bank had $575,928  investments  in, or  extensions  of credit to,
non-includable subsidiaries.

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

         In determining  compliance with the risk-based capital  requirement,  a
savings  institution  is  allowed  to use both core  capital  and  supplementary
capital  provided the amount of  supplementary  capital used does not exceed the
institution's core capital.  Supplementary capital is defined to include certain
preferred stock issues,  nonwithdrawable  accounts and pledged savings  deposits
that do not qualify as core capital, certain approved subordinated debt, certain
other  capital  instruments,  a portion of the  institution's  general loan loss
allowances and up to 45% of unrealized  gains on equity  securities.  Total core
and supplementary  capital are reduced by the amount of capital instruments held
by other  depository  institutions  pursuant  to  reciprocal  arrangements,  the
portion of the savings institution's land loans and non-residential construction
loans in excess of an 80% loan-to-value  ratio and equity investments other than
those  deducted from core and tangible  capital.  At June 30, 2000, the Bank had
one land or non-residential  construction loan in excess of an 80% loan-to-value
ratio for a deduction of $27,000,  and $576,000 equity investments for which OTS
regulations require a deduction from total capital.

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

         The table below  presents the capital  position of the Bank relative to
its various regulatory capital requirements at June 30, 2000.
<TABLE>
<CAPTION>

                                                                                    Percent of
                                                                Amount              Assets(1)
                                                                ------              ---------
                                                                  (Dollars in thousands)

             <S>                                                <C>                     <C>
             Tangible capital...............................    $  29,437               10.02%
             Tangible capital requirement...................        4,408                1.50
                                                                ---------              ------
                Excess......................................    $  25,029                8.52%
                                                                =========              ======

             Core capital...................................    $  29,437               10.02%
             Core capital requirement.......................       11,756                4.00
                                                                ---------              ------
                Excess......................................    $  17,681                6.02%
                                                                =========              ======

             Total capital..................................    $  30,669               21.79%
             Risk-based capital requirement.................       11,262                8.00
                                                                ---------              ------
                Excess.....................................     $  19,407               13.79%
                                                                =========              ======
         <FN>
         ____________
         (1)      Based on adjusted  total  assets for  purposes of the tangible
                  capital and core capital requirements and risk-weighted assets
                  for purpose of the risk-based capital requirement.
         </FN>
</TABLE>

                                       25
<PAGE>

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

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

         The SAIF deposit insurance  assessment rates set by the FDIC range from
zero for "well capitalized" institutions with the highest supervisory ratings to
0.27% of insured savings  deposits for  institutions  in the highest  risk-based
premium  category.  Until  December 31,  1999,  SAIF-insured  institutions  were
required to pay  assessments to the FDIC at the rate of 6.5 basis points to help
fund  interest  payments on certain  bonds issued by the  Financing  Corporation
("FICO"),  an agency of the federal government  established to finance takeovers
of insolvent  thrifts.  During this period,  BIF members were assessed for these
obligations at the rate of 1.3 basis points.  After December 31, 1999,  both BIF
and SAIF members are assessed at the same rate for FICO payments.

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

                                       26
<PAGE>

         FEDERAL RESERVE SYSTEM.  Pursuant to regulations of the Federal Reserve
Board,  all  FDIC-insured  depository  institutions  must maintain average daily
reserves equal to 3% on  transaction  accounts of between $4.9 million and $44.3
million plus 10% on the remainder.  This  percentage is subject to adjustment by
the Federal Reserve Board.  Because required  reserves must be maintained in the
form of vault  cash or in a  noninterest-bearing  account  at a Federal  Reserve
Bank,  the  effect of the  reserve  requirement  is to reduce  the amount of the
institution's interest-earning assets.

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

         OTS regulations require that savings  institutions submit notice to the
OTS  prior  to  making  a  capital   distribution  if  (a)  they  would  not  be
well-capitalized  after the distribution,  (b) the distribution  would result in
the  retirement of any of the  institution's  common or preferred  stock or debt
counted as its regulatory  capital,  or (c) the institution is a subsidiary of a
holding company. A savings institution must make application to the OTS to pay a
capital distribution if (x) the institution would not be adequately  capitalized
following the distribution,  (y) the institution's  total  distributions for the
calendar year exceeds the institution's net income for the calendar year to date
plus its net income (less distributions) for the preceding two years, or (z) the
distribution  would  otherwise  violate  applicable  law  or  regulation  or  an
agreement  with  or  condition  imposed  by the  OTS.  If  neither  the  savings
institution  nor the proposed  capital  distribution  meet any of the  foregoing
criteria,  then no notice or  application  is  required to be filed with the OTS
before making a capital  distribution.  The OTS may disapprove or deny a capital
distribution  if in  the  view  of  the  OTS,  the  capital  distribution  would
constitute an unsafe or unsound practice.

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

         In addition to the foregoing,  earnings of the Bank appropriated to bad
debt reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other  distributions to Bancshares  without payment
of taxes at the then current tax rate on the amount of earnings removed from the
reserves for such  distributions.  See  "Federal  Income  Taxation."  Bancshares
intends to make full use of this  favorable tax treatment  afforded to the Bank,
and does not  contemplate use of any  post-Conversion  earnings of the Bank in a
manner  which would limit the Bank's bad debt  deduction  or create  federal tax
liabilities.

         TRANSACTIONS  WITH  RELATED  PARTIES.   Transactions   between  savings
institutions  and any  affiliate  are  governed by  Sections  23A and 23B of the
Federal  Reserve Act. An affiliate  of a savings  institution  is any company or
entity which  controls,  is  controlled  by or is under common  control with the
institution.  In a holding  company  context,  the parent holding  company of an
institution  (such as Bancshares) and any companies which are controlled by such
parent  holding  company are affiliates of the savings  institution.  Generally,
Sections  23A and 23B (i) limit the extent to which the savings  institution  or
its subsidiaries may engage in "covered  transactions" with any one affiliate to
an amount equal to 10% of such  institution's  capital  stock and  surplus,  and
contain an aggregate  limit on all such  transactions  with all affiliates to an
amount equal to 20% of such capital stock and surplus, and (ii) require that all
such transactions be on terms  substantially the same, or at least as favorable,
to the institution or subsidiary as those provided to a non-affiliate.  The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee  and  similar  other  types of  transactions.  In addition to the
restrictions  imposed by Sections  23A and 23B, no savings  institution  may (i)
loan or otherwise extend credit to an affiliate,  except for any affiliate which
engages only in activities which are permissible for bank holding companies,  or
(ii)  purchase  or invest in any



                                       27
<PAGE>
stocks, bonds, debentures, notes or similar obligations of any affiliate, except
for affiliates which are subsidiaries of the savings institution. Section 106 of
the Bank Holding Company Act which applies to the Bank,  prohibits the Bank from
extending  credit to or offering  any other  services,  or fixing or varying the
consideration for such extension of credit or service, on the condition that the
customer obtain some  additional  service from the institution or certain of its
affiliates or not obtain services of a competitor of the institution, subject to
certain exceptions.

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

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

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


                                       28
<PAGE>
their discretion,  the federal banking  regulators may also impose the foregoing
sanctions on an  undercapitalized  institution if the regulators  determine that
such actions are  necessary  to carry out the purposes of the prompt  corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls below the "critical  capital  level," the  institution  will be subject to
conservatorship  or receivership  within 90 days unless periodic  determinations
are made that  forbearance  from such action  would  better  protect the deposit
insurance fund. Unless  appropriate  findings and certifications are made by the
appropriate  federal bank  regulatory  agencies,  a critically  undercapitalized
institution   must  be  placed  in   receivership   if  it  remains   critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically undercapitalized.

         Under the OTS  regulation  implementing  the prompt  corrective  action
provisions of FDICIA,  the OTS measures an  institution's  capital  adequacy for
purposes  of the  prompt  corrective  action  rules on the  basis  of its  total
risk-based  capital  ratio  (the  ratio of its total  capital  to  risk-weighted
assets),  Tier 1  risk-based  capital  ratio (the  ratio of its core  capital to
risk-weighted  assets)  and  leverage  ratio (the  ratio of its core  capital to
adjusted  total  assets).  An  institution  that is not  subject  to an order or
written  directive to meet or maintain a specific  capital level is deemed "well
capitalized"  if it also has:  (i) a total  risk-based  capital  ratio of 10% or
greater;  (ii) a Tier 1 risk-based  capital ratio of 6% or greater;  and (iii) a
leverage ratio of 5% or greater. An "adequately capitalized" savings institution
is an institution that does not meet the definition of well capitalized and has:
(i) a total  risk-based  capital  ratio of 8% or greater;  (ii) a Tier 1 capital
risk-based  ratio of 4% or greater;  and (iii) a leverage ratio of 4% or greater
(or 3% or greater if the savings  institution  has a composite 1 CAMELS rating).
An  "undercapitalized  institution"  is an  institution  that  has  (i) a  total
risk-based capital ratio less than 8%; or (ii) a Tier 1 risk-based capital ratio
of less  than  4%;  or  (iii) a  leverage  ratio  of less  than 4% (or 3% if the
institution has a composite 1 CAMELS rating). A "significantly undercapitalized"
institution  is  defined  as an  institution  that has:  (i) a total  risk-based
capital ratio of less than 6%; or (ii) a Tier 1 risk-based capital ratio of less
than  3%;  or  (iii)  a   leverage   ratio  of  less  than  3%.  A   "critically
undercapitalized"  savings  institution is defined as an institution  that has "
tangible  equity" of less than 2%.  Tangible  equity is defined as core  capital
plus  cumulative  perpetual  preferred  stock  (and  related  surplus)  less all
intangibles  other than qualifying  supervisory  goodwill and certain  purchased
mortgage  servicing  rights.  The OTS may reclassify a well capitalized  savings
institution as adequately  capitalized and may require an adequately capitalized
or   undercapitalized   institution  to  comply  with  the  supervisory  actions
applicable  to  institutions  in the next lower  capital  category  (but may not
reclassify     a     significantly      undercapitalized      institution     as
critically-undercapitalized)   if  the  OTS  determines,  after  notice  and  an
opportunity  for a  hearing,  that the  savings  institution  is in an unsafe or
unsound  condition or that the  institution  has  received  and not  corrected a
less-than-satisfactory  rating for any CAMELS  rating  category.  As of June 30,
2000, the Bank was classified as "well  capitalized" under the prompt corrective
action regulations.

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

                                       29
<PAGE>
     Additionally  under FDICIA, as amended by the CDRI Act, the federal banking
agencies are required to establish  standards  relating to the asset quality and
earnings that the agencies  determine to be  appropriate.  On July 10, 1995, the
federal banking  agencies,  including the OTS and Federal Reserve Board,  issued
proposed guidelines  relating to asset quality and earnings.  Under the proposed
guidelines,  an FDIC insured  depository  institution  should maintain  systems,
commensurate  with its size  and the  nature  and  scope of its  operations,  to
identify problem assets and prevent  deterioration in those assets as well as to
evaluate  and  monitor  earnings  and ensure that  earnings  are  sufficient  to
maintain  adequate  capital and  reserves.  Management  believes  that the asset
quality and earnings  standards,  in the form proposed by the banking  agencies,
would not have a material effect on the Bank's operations.

     FINANCIAL  MODERNIZATION  LEGISLATION.  On  November  12,  1999,  President
Clinton  signed  legislation  which  could  have a  far-reaching  impact  on the
financial services  industry.  The  Gramm-Leach-Bliley  ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and authorizes bank
holding  companies  and national  banks to engage in a variety of new  financial
activities.  Among the new  activities  that will be  permitted  to bank holding
companies are  securities  and  insurance  brokerage,  securities  underwriting,
insurance  underwriting  and merchant  banking.  The Federal  Reserve Board,  in
consultation  with  the  Secretary  of  the  Treasury,  may  approve  additional
financial activities.  The G-L-B Act, however,  prohibits future acquisitions of
existing unitary savings and loan holding companies,  like the Company, by firms
which are engaged in commercial activities and limits the permissible activities
of unitary holding companies formed after May 4, 1999.

     The G-L-B Act imposes  new  requirements  on  financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third parties unless the customer has
been given the  opportunity  to object and has not objected to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers  annually.  Financial  institutions,  however,  will be required to
comply  with state law if it is more  protective  of customer  privacy  than the
G-L-B Act.  The G-L-B Act directs the federal  banking  agencies,  the  National
Credit Union Administration,  the Secretary of the Treasury,  the Securities and
Exchange  Commission and the Federal Trade Commission,  after  consultation with
the National Association of Insurance Commissioners,  to promulgate implementing
regulations  within six months of enactment.  The privacy provisions will become
effective in November 2000, with full compliance required by July 1, 2001.

     The G-L-B Act contains significant  revisions to the FHLB System. The G-L-B
Act imposes new capital  requirements  on the FHLBs and authorizes them to issue
two classes of stock with differing dividend rates and redemption  requirements.
The G-L-B Act deletes the current requirement that the FHLBs annually contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.  The G-L-B  Act  makes  membership  in the FHLB  voluntary  for
federal savings associations.

     The  G-L-B  Act  contains  a  variety  of  other  provisions   including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces  the
frequency of Community  Reinvestment Act  examinations for smaller  institutions
and imposes certain reporting requirements on depository  institutions that make
payments  to   non-governmental   entities  in  connection  with  the  Community
Reinvestment  Act.  The  G-L-B  Act  eliminates  the SAIF  special  reserve  and
authorizes a federal  savings  association  that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.

     The  Company  is  unable  to  predict  the  impact  of the G-L-B Act on its
operations  at this time.  Although the G-L-B Act reduces the range of companies
with which may acquire  control of the Company,  it may facilitate  affiliations
with companies in the financial services industry.

                                       30
<PAGE>

REGULATION OF BANCSHARES

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

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

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

         RESTRICTIONS ON  ACQUISITIONS.  Savings and loan holding  companies may
not acquire,  without prior  approval of the Director of the OTS, (i) control of
any  other  savings   institution  or  savings  and  loan  holding   company  or
substantially all the assets thereof,  or (ii) more than 5% of the voting shares
of an institution or holding  company  thereof which is not a subsidiary.  Under
certain  circumstances,  a  registered  savings  and  loan  holding  company  is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the voting  shares of an  under-capitalized  savings  institution  pursuant to a
"qualified  stock  issuance"  without  that  savings  institution  being  deemed
controlled  by the  holding  company.  In  order  for  the  shares  acquired  to
constitute a "qualified  stock  issuance," the shares must consist of previously
unissued  stock or treasury  shares,  the shares must be acquired for cash,  the
savings and loan holding company's other subsidiaries must have tangible capital
of at least 6 1/2% of total  assets,  there  must  not be more  than one  common
director or officer between the savings and loan holding company and the issuing
savings  institution,  and transactions  between the savings institution and the
savings and loan  holding  company  and any of its  affiliates  must  conform to
Sections 23A and 23B of the Federal  Reserve Act. Except with the prior


                                       31
<PAGE>

approval of the  Director  of the OTS, no director or officer of an  institution
holding  company or person owning or controlling by proxy or otherwise more than
25%  of  such  company's   stock,  may  also  acquire  control  of  any  savings
institution,  other  than a  subsidiary  savings  institution,  or of any  other
savings and loan holding company.

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

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

         FEDERAL SECURITIES LAW. Bancshares' Common Stock is registered with the
SEC under the Securities Exchange Act of 1934, as amended ("Securities  Exchange
Act").  Bancshares is subject to the information,  proxy  solicitation,  insider
trading restrictions and other requirements of the Securities Exchange Act.

FEDERAL INCOME TAXATION

         Savings  institutions such as the Bank are subject to the provisions of
the Internal  Revenue Code of 1986, as amended (the "Internal  Revenue Code") in
the same  general  manner as other  corporations.  Through  tax years  beginning
before  December  31,  1995,  institutions  such as the Bank  which met  certain
definitional tests and other conditions  prescribed by the Internal Revenue Code
benefited from certain  favorable  provisions  regarding  their  deductions from
taxable income for annual  additions to their bad debt reserve.  For purposes of
the bad debt  reserve  deduction,  loans are  separated  into  "qualifying  real
property  loans,"  which  generally  are loans  collateralized  by  interests in
certain real property, and "nonqualifying loans," which are all other loans. The
bad debt reserve deduction with respect to nonqualifying  loans must be based on
actual  loss  experience.  The  amount of the bad debt  reserve  deduction  with
respect to qualifying  real property loans was based upon actual loss experience
(the "experience  method") or a percentage of taxable income determined  without
regard to such deduction (the "percentage of taxable income method").  Under the
experience  method,  the bad debt  deduction  for an addition to the reserve for
qualifying  real property loans was an amount  determined  under a formula based
generally on the bad debts actually  sustained by a savings  institution  over a
period of years.  Under the percentage of taxable  income  method,  the bad debt
reserve  deduction for  qualifying  real property  loans was computed as 8% of a
savings  institution's  taxable  income,  with  certain  adjustments.  The  Bank
generally  elected  to use  the  method  which  has  resulted  in  the  greatest
deductions for federal income tax purposes in any given year.

         Legislation  that is effective for tax years  beginning  after December
31, 1995  requires  institutions  to recapture  into  taxable  income over a six
taxable  year  period  the  portion of the tax loan  reserve  that  exceeds  the
pre-1988  tax loan loss  reserve.  The Bank will no longer be allowed to use the
reserve  method  for tax loan loss  provisions,  but would be allowed to use the
experience method of accounting for bad debts. There will be no future effect on
net income from the recapture  because the taxes on these bad debt reserves have
already been accrued as a


                                       32
<PAGE>
deferred tax liability.  The regulatory authorities have not examined the Bank's
federal income tax returns in the past five years.

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

STATE INCOME TAXATION

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

EMPLOYEES

         As of June 30, 2000,  the Bank had 94 full-time  equivalent  employees,
none of whom was represented by a collective  bargaining  agreement.  Management
considers the Bank's relationships with its employees to be good.

                                       33
<PAGE>

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

         The following table sets forth information regarding the Bank's offices
at June 30, 2000.
<TABLE>
<CAPTION>

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

237 Jackson Street, SW            1933             Owned         $  285,508             12,000
Camden, Arkansas

Branch Offices:

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

1125 Fairview Road, SW
Suite 208                         1981             Owned            219,948              1,200
Camden, Arkansas

610 West 4th Street               1969             Owned            727,506              3,500
Fordyce, Arkansas

473 Highway 425 North             1996             Owned          1,254,144              7,400
Monticello, Arkansas

108 South Main                    1996             Owned          1,084,515              5,500
Sheridan, Arkansas
</TABLE>

         At June 30, 2000,  the Bank had one  full-service  branch  office under
construction located at 4937 Highway 5 North, Bryant, Arkansas. This office will
replace the loan production  office  currently being leased at 22461  Interstate
30, Suite 1100A. The total project cost is currently  estimated to be $1,676,000
of which  $538,687 had been  disbursed  as of June 30, 2000.  The balance of the
project cost will be disbursed as work is completed on the project,  and the new
office is expected to be open for business on October 30, 2000.

         In addition to the offices  described  above, at June 30, 2000 the Bank
held four other  properties  located in  various  communities  within the Bank's
primary  market  area.  These  properties  were  acquired  for  possible  future
construction of additional offices and related facilities, though certain of the
properties are larger than the Bank's  foreseeable needs, and therefore portions
of those properties may be sold by the Bank. At June 30, 2000, the aggregate net
book  value  of these  properties  totaled  $1,209,077  of  which  $314,189  was
classified as held for resale.  It is anticipated that in the future  management
may determine to expand the Bank's  network of banking  facilities by installing
ATMs in  existing  or new  banking  facilities,  by  building  branches or other
facilities on the properties held by the Bank, by acquiring other  facilities or
sites  and/or by acquiring  banks or other  financial  companies  with their own
facilities.

         The book  value  of the  Bank's  aggregate  investment  in  properties,
premises and equipment totaled  approximately $6.6 million at June 30, 2000. See
Note 7 of the Notes to Consolidated Financial Statements in the Annual Report to
Stockholders for June 30, 2000.



                                       34
<PAGE>

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

         From time to time,  the Bank is a party to  various  legal  proceedings
incident to its  business.  At June 30, 2000,  except as set forth below,  there
were no legal  proceedings to which the Company was a party,  or to which any of
its property  was  subject,  which were  expected by  management  to result in a
material  loss to the  Company.  In addition,  there were no pending  regulatory
proceedings  to which the Company or any of its  properties  was a party,  which
were expected to result in a material loss.

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

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

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

         There  were no  matters  submitted  to a vote of the  security  holders
during the fourth quarter of the fiscal year ended June 30, 2000.

                                     PART II

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

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


ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

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

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
--------------------------------------------------------------------------------
         The  information  contained  in  the  section  captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
-------------------------------------------------------------------

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

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

                                       35
<PAGE>

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

         Effective  October 1, 1998, the Company engaged  Deloitte & Touche LLP,
Little Rock, Arkansas,  as the Company's  independent  auditors.  For additional
information, see the Company's Current Report on Form 8-K dated October 7, 1998,
which is incorporated herein by reference (File No. 0-22423).

                                    PART III

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

         For  information  concerning  the  Board  of  Directors  and  executive
officers of the Company,  the information  contained under the section captioned
"Proposal  I --  Election  of  Directors"  in  the  Company's  definitive  proxy
statement  for the Company's  2000 Annual  Meeting of  Stockholders  (the "Proxy
Statement") which will be filed within 120 days of the Company's fiscal year end
and is incorporated herein by reference.

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

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

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

         (a)      Security Ownership of Certain Beneficial Owners

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

         (b)      Security Ownership of Management

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

         (c)      Changes in Control

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

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


                                       36
<PAGE>


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

     (a)  List of Documents Filed as Part of this Report

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

          Independent Auditors' Report

          Consolidated Statements of Financial Condition as of June 30, 2000 and
          1999

          Consolidated  Statements  of Income and  Comprehensive  Income for the
          years ended June 30, 2000, 1999 and 1998

          Consolidated  Statements of  Stockholders'  Equity for the years ended
          June 30, 2000, 1999 and 1998

          Consolidated  Statements  of Cash  Flows for the years  ended June 30,
          2000, 1999 and 1998

          Notes to  Consolidated  Financial  Statements for the years ended June
          30, 2000, 1999 and 1998


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

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

      NO.                           DESCRIPTION
      ---                           -----------

      3.1       Articles of Incorporation of HCB Bancshares, Inc.*

      3.2       Bylaws of HCB Bancshares, Inc. *

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

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

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

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

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

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

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

                                       37
<PAGE>

      10.5      Heartland Community Bank Directors' Retirement Plan, as
                amended* +

      21        Subsidiaries

      23        Consent of Deloitte & Touche, LLP

      27        Financial Data Schedule

___________
*    Incorporated by reference to the Company's  Registration  Statement on Form
     SB-2 (File No. 333-19093).
+    Management contract or compensatory plan or arrangement.



     (b) REPORTS ON FORM 8-K.  During the last quarter of the period  covered by
         -------------------
this report, the Registrant did not file any Current Reports on Form 8-K

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

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


                                       38
<PAGE>

                                   SIGNATURES


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

                                        HCB BANCSHARES, INC.


Date: September 26, 2000               By: /s/ Cameron D. McKeel
                                           -------------------------------------
                                           Cameron D. McKeel
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

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

By: /s/ Cameron D. McKeel                                    September 26, 2000
    -------------------------------------------------
    Cameron D. McKeel
    Director, President and Chief Executive Officer
   (Principal Executive Officer)

By: /s/ Scott A. Swain                                       September 26, 2000
    -------------------------------------------------
    Scott A. Swain
    Senior Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)

By: /s/ Vida H. Lampkin                                      September 26, 2000
    -------------------------------------------------
    Vida H. Lampkin
    Chairman of the Board


By:
    -------------------------------------------------
    Roy Wayne Moseley
    Director

By:
    -------------------------------------------------
    Bruce D. Murry
    Director


By: /s/ Carl E. Parker, Jr.                                  September 26, 2000
    -------------------------------------------------
    Carl E. Parker, Jr.
    Director


By: /s/ Lula Sue Silliman                                    September 26, 2000
    -------------------------------------------------
    Lula Sue Silliman
    Director

By: /s/ Cameron D. McKeel                                    September 26, 2000
    -------------------------------------------------
    Clifford Steelman
    Director