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                              1999 ANNUAL REPORT

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             THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY
                                 BRYAN, TEXAS

<PAGE>




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                              TABLE OF CONTENTS
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President's Message.........................................................  1

Selected Consolidated Financial Data........................................  4

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

Consolidated Financial Statements........................................... 26

Corporate Information....................................................... 56



<PAGE>



                     [THE BRYAN-COLLEGE STATION FINANCIAL
                         HOLDING COMPANY'S LETTERHEAD]








                                                            December 22, 1999


Dear Friend and Stockholder:

      We wish to take this opportunity to express our gratitude and appreciation
for the moral and  financial  support you have given THE  BRYAN-COLLEGE  STATION
FINANCIAL  HOLDING COMPANY (the "Holding  Company") and its principal  operating
subsidiary,  FIRST FEDERAL SAVINGS BANK ("First  Federal").  As we completed our
first full year of operations  with the new holding  company,  we thank each and
every one of you for your  personal  encouragement  and  involvement  over these
eight years while we transitioned  this financial  institution into full-service
banking with  multiple  branches and offices,  converted it into a federal stock
financial institution in the early '90's , and organized our new holding company
in 1998.  Your trust and  confidence has been  invaluable  during this period of
time -- and we intend to continue to honor that trust.

      Thanks  to you,  First  Federal  is the only  publicly-traded  independent
financial  institution  in this area.  It has  enjoyed an  excellent  growth and
community  acceptance over these past eight years,  and has loaned to the people
in the community  more of its deposits than any other  financial  institution in
this  immediate  area -- with  relatively  low loan  losses  over the past three
fiscal years.

      The stockholders of the Holding Company (parent of its principal operating
subsidiary,  First  Federal)  will be  pleased to know that  during the  Holding
Company's  first full year of  operations,  and after paying the interest on its
$3.6  million of  debentures,  amortizing  its  initial  organization  costs and
deducting  the  normal   operating   expenses,   the  Combined   Company  earned
(after-taxes) $245,000.

     First  Federal  had grown very fast in 1997 and 1998.  In 1999,  management
pursued  a  strategy  to  control  its  growth in order to  emphasize  increased
profitability  and  gradually  increase its capital  ratios.  This  strategy was
successfully accomplished as First Federal's net profits increased 30% from last
year,  to $815,000 this year.  In addition,  we increased the capital  ratios of
First Federal.


<PAGE>

     First Federal  began its  transition  to  full-service  banking in 1994 and
1995,  and  incurred  the  expenses  associated  therewith  (such  as  new  data
processing,  tellers,  and  drive-in  facilities).  As a result,  net income was
$193,000  in 1994 and  $211,000  in 1995.  In 1996,  net income rose to $454,000
before a one-time  charge of $220,000 to  recapitalize  the Savings  Association
Insurance Fund. In 1997, net income rose to $605,000 and to $628,000 in 1998. In
the fiscal year 1999, net income increased to $815,000.

      Our beautiful new permanent  north Bryan banking  facility,  strategically
located at the intersection of the two major highways in our community, has just
been  completed and opened for business on December 20, 1999.  This new facility
has everyone  excited and  enthusiastic  about First Federal's  opportunities in
that large  portion of  Bryan-College  Station.  For the first time,  we are now
offering safe deposit service at our principal offices -- with over 700 new safe
deposit boxes recently  installed.  Plus, we have also completed  expansion of a
larger  customer-service  area, new Note Department offices and a large vault to
accommodate the growth in our principal offices.

      To provide for continued  profitable growth in the  Bryan-College  Station
area,  and also to  implement  our new three year  strategic  plan to  carefully
expand  into  the  growing  "Texas  Triangle"  generally  bordered  by  Houston,
Austin-San  Antonio,  and  Dallas-Ft.  Worth,  we have  just  hired  the  former
President  of a  successful  automobile  lending  firm to manage  and expand our
profitable  Second Chance Auto Loan Program with  selected auto dealers  located
throughout this "Texas  Triangle." In addition,  in 1999 we hired an experienced
and seasoned Small Business  Administration  ("SBA") loan specialist in order to
expand our SBA  guaranteed  loan program  throughout  the "Texas  Triangle,"  by
utilizing our recent designation as a Certified SBA Lender. Our mortgage lending
offices have also just begun their  expansion into this same general area.  This
strategy is designed to diversify First Federal's  business  opportunities  over
the next three years into what we believe to be one of the fastest-growing areas
of the  State of  Texas,  in order to  enhance  our  franchise  value  and thus,
increased value for you, the stockholders of our Holding Company.

      We have  expended  much time,  energy and expense to prepare First Federal
for the Year 2000 issue.  We believe that we are truly ready for any eventuality
(including  any  unexpected  loss of  electricity).  In order to  protect  First
Federal  against  anticipated  increases  in interest  rates this next year,  at
September 30, 1999, our loan portfolio and deposits were  positioned to absorb a
2% additional increase in interest rates without any change in our net portfolio
value,  and if interest  rates were to increase by 3%, then we would have only a
2% decrease in our net portfolio value.  Thus, we believe First Federal to be in
an  enviable  position  to meet any  unanticipated  changes,  and we  intend  to
maintain that same management discipline in the years ahead.

      During  this past  year,  we lost a true  friend and  wonderful  director,
Arthur Davila.  Recently,  we welcomed Helen Chavarria to the Board of Directors
of the Holding  Company and First  Federal.  Helen is a well-known and respected
former member of the Bryan City Council, where she served for several terms. She
is also active in numerous community affairs.

      The unique and valuable  corporate charter of our Holding Company gives us
an ability to enter into any type of safe,  sound, and lawful business  (subject
to regulatory  oversight),  whether or not related to financial services such as
banking (unlike bank holding companies).  To benefit from this valuable charter,
our plans are to carefully diversify our Holding Company into different types of
safe, sound, lawful and profitable  businesses  throughout this "Texas Triangle"
-- so that we can

                                      2

<PAGE>

further enhance our franchise value. This is truly an exciting opportunity,  and
we are very enthusiastic about the future of our Holding Company, as well as the
future of First Federal.

      We are  most  fortunate  to  have  a  committed  and  dedicated  Board  of
Directors, and a highly motivated staff who work many hours "over and above" the
normal  call of duty in order to  accomplish  our goals.  We could not exist and
prosper without them, and without you, our owners and stockholders.  Our genuine
appreciation  to each of you for your confidence by your investment in our stock
and in our future.

      We pledge to each of you our untiring efforts, and a commitment to use our
very best  efforts  in order to  maximize  the return on your  investment  as we
implement our strategic plan over these next three years.

                                    Sincerely,



                                    Stan Stephen
                                    President/CEO




BOARD OF DIRECTORS:

Richard L. Peacock, Chairman of the Board/Retired/ Owner/Office Supply Business
Ernest  Wentrcek,  Vice  Chairman  of the  Board/Retired  Texas A&M and  Realtor
Charles Neelley,  Secretary-Treasurer of the Board/ Retired Texas A&M and former
 owner of Travel Business
Helen Chavarria,  Housing Management Specialist for the Brazos  Valley   Council
 of  Government,  and area  recruiter  for  Amnesty  and Instructional Assistant
 for Region IV  Educational  Service  Center  located in Huntsville, Texas
J. Stanley Stephen, President/CEO,  First Federal Savings Bank
Ken Hays, Owner, Aggieland Travel
Roland Ruffino, Co-Owner/Readfield Wholesale Meats & Readfield Retail Meats
Robert Conaway, Owner/Progress Supply
George Koenig, Executive Vice President & Manager/Construction Lending & Bank
 Facilities
Joseph W. Krolczyk, Owner/President, KESCO Restaurant Equipment Supply Inc.
Gary A. Snoe, Owner/President, Snoe Inc. Specialty Tool & Die



                                      3

<PAGE>

                     SELECTED CONSOLIDATED FINANCIAL DATA

      The following tables present selected consolidated  financial data for The
Bryan-College   Station  Financial  Holding  Company  (the  "Holding  Company"),
organized  as  of  April  1,  1998  and  its  principal  operating  wholly-owned
subsidiary,  First Federal  Savings Bank ("First  Federal" or the "Bank") at the
dates and for the periods  indicated.  This information is derived in part from,
and should be read in conjunction with, the Consolidated Financial Statements of
the Holding Company included elsewhere in this 1999 Annual Report.


                                               At September 30,
                           ----------------------------------------------------

                              1999       1998      1997       1996      1995
                           ----------------------------------------------------
                                               (In Thousands)
Selected Financial
Condition Data:
Total assets(1)............    $81,869   $82,634    $75,089   $57,597    $61,432
Loans receivable, net(2)..      70,438    71,994     65,237    49,579     48,605
Mortgage-backed securities.        692       954      1,150     1,292      2,278
Investment securities......        ---       ---        ---     1,000      1,000
Deposits...................     73,240    73,554     58,808    51,677     54,939
Debentures.................      3,629     3,629        ---       ---        ---
Other borrowings...........        ---       800     10,000       ---      1,088
Stockholders' equity.......      2,115     1,870      4,834     4,316      4,170

(1)  After two years of fast  growth  (averaging  20% in deposits a year in 1997
     and 1998),  management  planned a strategy of "no  growth" in deposits  for
     1999, in order to gradually  increase ratios of capital to total assets and
     increase emphasis on  profitability.  Both goals were accomplished by First
     Federal.
(2)  Including  loans  held  for sale at month  end of $2.5  million,  $328,000,
     $204,000, $419,000 and $1.8 million at September 30, 1999, 1998, 1997, 1996
     and 1995, respectively.

<TABLE>
<CAPTION>
                                                         Year Ended September 30,
                                              --------------------------------------------

                                                1999    1998     1997     1996    1995
                                              --------------------------------------------
<S>                                               <C>    <C>    <C>       <C>    <C>
                                                                (In Thousands)
Selected Operations Data:
Total interest income........................   $7,543 $6,891    $5,597   $4,828   $4,698

Total interest expense.......................    3,558  3,417     2,659    2,363    2,294
                                                ------ ------   -------   ------   ------
 Net interest income.........................    3,985  3,474     2,938    2,465    2,404
Provision for loan losses....................      104     79        25      (52)      27
                                                ------ ------   -------   ------   ------
Net interest income after provision for
 loan losses.................................    3,881  3,395     2,913    2,517    2,377

Service charges..............................      744    602       585      527      355
Gain on sales of loans, mortgage servicing
 rights, mortgage-backed securities and
 investment securities.......................      787    229       148      343      213
Income from operation of foreclosed real
 estate......................................      (17)   (20)      (20)      (9)      (2)
Other noninterest income.....................      269    120        62       12       26
SAIF Special Assessment......................      ---    ---       ---      333      ---
Other noninterest expenses (operating expenses)  5,220  3,870     2,771    2,715    2,648
                                                ------ ------   -------   ------   ------
Income before income taxes...................      444    456       917      342      321
Income tax expense ..........................      199    164       312      108      110
                                                ------ ------   -------   ------   ------
Net income...................................   $  245 $  292   $   605   $  234   $  211
                                                ====== ======   =======   ======   ======
Dividends on bank preferred stock............   $  --- $  (44)  $   (87)  $  (88)  $  (88)
                                                ====== ======   =======   ======   ======
Net income available to common stockholders..   $  245 $  248   $   518   $  146   $  123
                                                ====== ======   =======   ======   ======

</TABLE>

                                           4

<PAGE>

                                                 At or for the
                                            Year Ended September 30,
                                 ---------------------------------------------

                                   1999     1998     1997      1996     1995
                                 ---------------------------------------------
Other Data:
Interest rate spread information:
  Average during period(1).......    4.84%    4.49%   4.47%     4.11%    3.97%
  End of period(2)...............    5.94     5.10    4.56      4.67     4.17
Net interest margin for the
 period(3).......................    5.10     4.80    4.85      4.45     4.29

Average interest-earning assets
 as a percentage of average
 interest-bearing liabilities....  105.67   106.51  108.61    108.01   107.95

Non-performing assets to total
 assets at end of period(4).......   3.31     1.62    1.71      1.50      .62
Total equity to total assets
 (end of period)..................   2.58     2.26    6.44      7.49     6.79
Total equity to assets ratio
 (ratio of average equity to average
 total assets).....................  2.48     4.54    7.23      7.26     6.91
Return on assets (ratio of net
 income to average total assets)...   .29      .38     .94       .40      .36
Return on assets, excluding
 special SAIF assessment...........   ---      ---     ---       .77      ---
Return on total equity (ratio of
 net income to average equity).....  11.73     8.40   13.03     5.46     5.15
Return on total equity,
 excluding special SAIF assessment.    ---      ---     ---    10.60      ---
Non-interest expenses to average
 total assets......................   6.19     5.05    4.32     5.17     4.47
Non-interest expense to average
 total assets excluding special
 SAIF assessment...................    ---      ---     ---     4.60      ---
Ratio of earnings to fixed
 charges including interest on
 deposits(5).......................   1.12     1.12    1.30     1.10     1.10
Ratio of earnings to fixed
 charges excluding interest
 on deposits(5)....................   2.03     1.86    4.25     3.73     1.99
Earnings per share.................    .57(6)   .46(7)  .79(7)   .22(7)   .19(7)
Number of deposit accounts......... 11,087   10,203   8,783    7,903    7,266
Number of full-service offices(8)..      4        3       2        2        2

(1)   Represents   the   difference   between  the  average  yield  received  on
      interest-earning  assets  (primarily  loans) and the average  rate paid on
      interest-bearing liabilities (primarily deposits).
(2)   Represents  the  weighted   average  yield  on   interest-earning   assets
      (primarily loans) at the end of the period minus the weighted average cost
      of liabilities (primarily deposits) at the end of the period.
(3)   Net interest income divided by average  interest-earning assets (primarily
      loans).
(4)   Non-performing  assets include loans that are 90 days or more delinquent
      as well as repossessed assets.
(5)   The ratio of  earnings to fixed  charges is  computed  by  dividing  fixed
      charges into earnings from continuing  operations  before income taxes and
      extraordinary  items plus fixed charges.  Fixed charges  include  interest
      expensed and Bank preferred stock dividends.
(6)   Adjusted  to  reflect  one  10%  stock  dividend  previously  paid  to the
      stockholders in fiscal year ending September 30, 1999.
(7)   Adjusted  to  reflect  one  10%  stock  dividend  previously  paid  to the
      stockholders,  and to reflect the 2.5  exchange  ratio of Holding  Company
      common stock for Bank common stock.
(8)   Includes full-service mortgage lending offices.


                                      5

<PAGE>

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

General

      The Bryan-College Station Financial Holding Company (the "Holding Company"
and, with its subsidiary the "Combined Company"),  a Delaware  corporation,  was
formed to act as the holding  company for First  Federal  Savings  Bank,  Bryan,
Texas  ("First  Federal" or the "Bank") by acquiring  100% of the stock of First
Federal through the exchange of approximately  32% of First Federal common stock
for Holding Company common stock and the purchase of approximately  68% of First
Federal common stock for cash (the "Acquisition").  The Holding Company received
approval from the Office of Thrift Supervision (the "OTS") to acquire all of the
common stock of the Bank  outstanding  upon completion of the  Acquisition.  The
Acquisition  was  completed  on April 1, 1998.  All  references  to the Combined
Company,  unless otherwise  indicated,  at or before April 1, 1998, refer to the
Bank.

      The Combined Company is headquartered in Bryan, Texas and operates through
its principal  operating  subsidiary First Federal.  First Federal's major goals
are to provide high quality  full-service "niche" retail banking on a profitable
basis to primarily  the  middle-class  and  blue-collar  population  through its
offices  located  in  Bryan/College  Station,  Texas.  The  Combined  Company is
currently in the process of expanding its products and services into the general
trade area bordered by the "Texas  Triangle" of Houston,  Austin -- San Antonio,
and Dallas.  First  Federal  intends to continue  to focus  primarily  on one-to
four-family  residential  loans,  indirect  consumer  lending through its Second
Chance Auto Loan Program from  selected auto dealers  generally  from the "Texas
Triangle"  (and partially  insured  against loss by  credit-default  insurance),
Small Business  Administration  ("SBA") guaranteed loans in the "Texas Triangle"
through its new  designation  as a Certified SBA Lender,  and to a lesser degree
through direct consumer  automobile and personal loans, home improvement  loans,
residential  construction  loans,  and small to medium size commercial  business
loans.  In addition,  First Federal seeks to continue  maintaining and improving
its asset  quality  and  continuing  to  minimize  to the extent  possible,  its
vulnerability  to changes in interest  rates in order to continue to maintain an
attractive  spread  between its average  yield on loans and  securities  and its
average cost of interest paid on deposits and borrowings.

     First Federal's net interest income has historically been dependent largely
upon the  difference  ("spread")  between the average yield earned  primarily on
loans,  and  to a  much  lesser  extent  mortgage-backed  securities  and  other
securities  ("interest-earning  assets") and the average  interest  rate paid on
savings and other deposits and borrowings ("interest-bearing  liabilities"),  as
well as the relative amounts of such assets and  liabilities.  The interest rate
spread  between  interest-earning  assets and  interest-bearing  liabilities  is
impacted by several factors,  including economic and competitive conditions that
influence interest rates, loan demand,  deposit flows,  regulatory  developments
and the types of assets and  liabilities on its balance sheet.  At September 30,
1997,  1998,  and 1999, the Combined  Company's  interest rate spread was 4.56%,
5.10%, and 5.94%,  respectively,  as compared to our peer group of similar sized
savings  institutions  in the  nation  which  had an  average  3.35%  spread  at
September 30, 1999, and 3.76% for all similar sized savings  institutions in the
State of Texas.


                                      6

<PAGE>

      Like all financial institutions,  First Federal has always been subject to
interest rate risk because its interest-bearing liabilities (primarily deposits)
mature  or  reprice  at  different  times,  or on a  different  basis  than  its
interest-earning  assets (primarily  loans).  First Federal's net income is also
affected  by gains and losses on the sale of loans,  loan  servicing  rights and
investments,  provisions  expensed  for loan and  other  losses  on  repossessed
assets,  service charge fees,  loan servicing  income,  fees for other financial
services  rendered,  operating expenses and income taxes. First Federal believes
that building its earnings from net interest income and noninterest income, such
as the profitable sale of long-term, fixed rate loans to the secondary market by
utilizing a  fully-staffed  residential  loan  department  and SBA business loan
staff, and generally profitable sale of loan participations in its Second Chance
Auto Loan portfolio, along with income from service charges and fees on checking
accounts  from its recent  transition  to  full-service  retail  banking,  while
continuing to manage  operating  expenses  necessarily  incurred in this type of
lending, can provide a stable foundation for successful operations.  Noninterest
income can provide an excellent  source of secondary income through fees charged
to customers  for services  rendered  and the sale of loans,  without  requiring
additional capital.

     During this past fiscal year,  management has transitioned First Federal to
prepare  for  future  growth  and in order to provide  more  convenient  banking
services to its  customers,  by (i)  continuing  to upgrade its entire  staff by
hiring a new, experienced Chief Financial Officer and also upgrading its tellers
and supervisors with more experienced,  full-time professionals; (ii) building a
new permanent full-service branch in north Bryan, adjacent to a key intersection
of two major highways and in the heart of a large,  expanding area where many of
First Federal's targeted middle class and blue-collar  customers live, and in an
area not presently served by a permanent banking facility; (iii) adding space to
its principal  offices to expand  customer  service and installing  over 700 new
safe  deposit  boxes;  (iv)  increasing  the size of its staff and hiring a new,
experienced  manager for its  growing,  profitable  Second  Chance Auto  Lending
Program (which loans are also secured by  credit-default  insurance up to $6,000
per loan for losses due to the borrower's loan default); (v) adding to the staff
of its active residential lending  department,  in its new and larger offices on
the main east-west  artery in College  Station,  in order to enable it to expand
throughout the "Texas  Triangle" over the next three years;  (vi) addressing all
of the  challenges of the Year 2000 issue  ("Y2K"),  by expending  much time and
expense;  and (vii)  hiring a  seasoned  SBA loan  specialist,  to expand  First
Federal's  SBA  loan  program  throughout  the  "Texas  Triangle"  with  its new
designation  as a "Certified  SBA Lender." As a result,  the Combined  Company's
noninterest  expenses  increased  slightly from 5.05% of average  assets for the
year ended  September 30, 1998 to 6.19% for the year ending  September 30, 1999.
Management  believes  that this  strategy  will enable the  Combined  Company to
continue  enhancing  profitability  in the  future  and  meet  the  needs of its
customers  in a  highly  competitive  market.  Despite  all the  above-described
expansion,  new staffing,  Y2K, and other expenses,  the Combined Company earned
during its full year of  operations  net income of $245,000 and First  Federal's
net income (after tax)  increased 30% to $815,000),  from $628,000 last year. In
addition,  ratios of capital to total assets gradually  increased over this past
year.

      First Federal's  restructuring and expansion, as described above, in order
to provide additional  full-service  banking and convenience to its customers in
fiscal 1999 and to provide for further growth, has caused some increase in First
Federal's  operating  expense levels which,  despite the recent  increase in net
interest income,  resulted in First Federal's  operating  expenses exceeding its
net interest income for the fiscal year ending September 30, 1999.

                                      7

<PAGE>

      Since 1991, First Federal has relied  primarily on its noninterest  income
for net income.  While First Federal's  noninterest income has been a relatively
steady  source of  income,  it is highly  dependent  upon the  ability  of First
Federal to  originate  loans and realize  profits on the sale of these loans and
related  servicing rights to the secondary  market and the generally  profitable
sale of Second  Chance Auto Loan  participations,  and to  increase  its service
charges,  and fee income from additional  checking  accounts  resulting from its
transition to full-service  banking.  Total  noninterest  income  increased from
$931,000 in 1998 to $1.8 million in 1999, while  noninterest  expense  increased
from $3.9  million in 1998 to $5.2 million in 1999  primarily  due to all of the
reasons described above. Noninterest expense (operating expenses,  including Y2K
expenses and all other expenses of the Combined Company other than interest paid
on deposit  accounts and borrowings)  increased from 5.05% of average assets for
the year ended  September  30,  1998 to 6.19% for the year ended  September  30,
1999. However,  net income of the Combined Company during its first full year of
operations was $245,000 and net income of the Bank increased $187,000 (30%) over
last year to  $815,000.

Asset/Liability Management

      First  Federal,  like all financial  institutions,  is subject to interest
rate risk to the degree that its interest-bearing  liabilities mature or reprice
more rapidly, or on a different basis, than its interest-earning assets, some of
which may be longer term or fixed  interest  rate.  Loans  maturing  within five
years total $56.8  million or 78.8% of total loans,  while loans  maturing  over
five years total $15.3 million or 21.2% of total loans.  As a continuing part of
its financial strategy,  First Federal continually considers methods of managing
any such asset/liability mismatch, consistent with maintaining acceptable levels
of net interest  income.  At September 30, 1999,  First Federal's loan portfolio
enabled it to have a favorable  interest  rate risk,  so that if interest  rates
were to increase 200 basis points (2%) the Bank would not have any change in its
net portfolio  value.  If interest rates were to have increased 300 basis points
(3%), First Federal would have only a 2% change in its net portfolio value.

     In order to monitor and manage interest rate  sensitivity and interest rate
spread, First Federal created an Asset/Liability Committee ("ALCO"), composed of
its President,  Executive Vice  President/Chief  Financial Officer,  Senior Vice
President/Accounting  and three outside directors.  The  responsibilities of the
ALCO are to assess First Federal's  asset/liability mix and recommend strategies
that will enhance income while managing First Federal's vulnerability to changes
in interest rates.

      First Federal's asset/liability  management strategy has two goals. First,
First  Federal  seeks to build its net interest  income and  noninterest  income
while adhering to its  underwriting  and lending  guidelines.  Second,  and to a
lesser extent,  First Federal seeks to increase the interest rate sensitivity of
its assets and decrease the interest  rate  sensitivity  of its  liabilities  in
order to reduce  First  Federal's  overall  sensitivity  to changes in  interest
rates.  First Federal  places its primary  emphasis on  maximizing  net interest
margin,  while  striving to better match the interest  rate  sensitivity  of its
assets  and  liabilities.  There can be no  assurance  that this  strategy  will
achieve the desired  results  and will not result in  substantial  losses in the
event of an increase in interest rate risk.

      As part of this strategy,  management has continued to emphasize growth in
noninterest-bearing deposits such as checking accounts or lower interest-bearing
savings deposits

                                      8

<PAGE>



by offering  full-service  retail  banking.  In order to minimize  the  possible
adverse  impact that a rise in interest  rates may have on net interest  income,
First Federal has developed several strategies to manage its interest rate risk.
Primarily,  First  Federal is  currently  selling  all  newly-originated  one-to
four-family  residential  mortgage  loans,  which are saleable in the  secondary
market and most of which are  long-term  fixed-rate  loans.  In addition,  First
Federal   currently  offers  three-year  fixed  rate  balloon  loans  and  other
adjustable  rate loans,  and has implemented an active,  diversified  short-term
consumer  lending  program,  giving First Federal an  opportunity to reprice its
loans on a more frequent  basis.  Management  has also recently  implemented  an
additional strategy of generally  profitable sales of loan participations in its
Second Chance Auto Loans.

Net Portfolio Value

      The OTS, First Federal's primary regulator, has issued a proposed rule for
the  calculation  of an interest  rate risk  component for  institutions  with a
greater  than  "normal"  (i.e.,  greater  than 2%) level of  interest  rate risk
exposure  ("NPV").  The OTS has not yet  implemented  the capital  deduction for
interest  rate  risk.  NPV is  the  difference  between  incoming  and  outgoing
discounted cash flows from assets,  liabilities and off-balance sheet contracts.
This approach  calculates the  difference  between the present value of expected
cash  flows  from  assets  and the  present  value of  expected  cash flows from
liabilities,  as well as cash flows from off-balance sheet contracts.  Under OTS
regulations,  an institution's "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an amount not  exceeding  2% of the present  value of its assets.  The amount of
that  deduction  is one-half  of the  difference  between (a) the  institution's
actual  calculated  exposure  to a 200 basis  point  interest  rate  increase or
decrease  (whichever  results in the greater pro forma  decrease in NPV) and (b)
its "normal"  level of exposure  which is 2% of the present value of its assets.
If a capital  deduction was required for the September,  1999 reporting  period,
the deduction for  risk-based  capital  purposes  would not be material to First
Federal.

      It has been, and continues to be, an objective of First Federal's Board of
Directors  and  management  to  manage  interest  rate  risk.   First  Federal's
asset/liability  policy,  established  by  the  Board  of  Directors,   dictates
acceptable  limits on the  amount of change  in NPV  given  certain  changes  in
interest rates. See "-- Asset/Liability Management."

      Presented  below,  as of  September  30,  1999,  is an  analysis  of First
Federal's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments,  up
and down 300 basis points in accordance with OTS regulations.  As illustrated in
the table,  NPV is more  sensitive to rising rates than  declining  rates.  This
occurs principally  because, as rates rise, the market value of fixed-rate loans
declines  due to both the rate  increase  and  slowing  prepayments.  When rates
decline,  First Federal does not  experience a significant  rise in market value
for  these  loans  because  borrowers  prepay  at  relatively  high  rates.  OTS
assumptions are used in calculating the amounts in this table.

                                      9

<PAGE>




    Change in
  Interest Rate                 At September 30,
    Change in                         1999
  Interest Rate     Estimated  ------------------
  (Basis Points)       NPV     $ Change % Change
-------------------------------------------------
             (Dollars in Thousands)

     +300            $8,322   $(152)       (2)%
     +200             8,474     ---       ---
     +100             8,539      65         1
        0             8,474
     -100             8,319    (155)       (2)
     -200             8,289    (186)       (2)
     -300             8,516      42       ---

     In  evaluating  First  Federal's  exposure to interest  rate risk,  certain
shortcomings  inherent  in the method of  analysis  presented  in the  foregoing
tables must be considered.  For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and  liabilities  may  fluctuate in advance of changes in market
interest  rates,  while  interest rates on other types may lag behind changes in
market rates.  Further,  in the event of a change in interest rates,  prepayment
and early  withdrawal  levels  would  likely  deviate  significantly  from those
assumed in calculating the table. For example,  projected passbook, money market
and checking  account  maturities may also  materially  change if interest rates
change.  Finally,  the  ability  of many  borrowers  to  service  their debt may
decrease in the event of an interest rate increase.  First Federal considers all
of these factors in monitoring its exposure to interest rate risk.

      Management  reviews the OTS measurements on a quarterly basis. In addition
to monitoring  selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates.  This measure is
used in conjunction with NPV measures to identify  excessive interest rate risk.
In the event of a 300 basis point change in interest rates,  First Federal would
experience no change in NPV in a declining rate environment and a 2% decrease in
a rising rate  environment.  As of September  30, 1999,  an increase in interest
rates of 200 basis  points  would have  resulted  in no change in the  portfolio
value  of  First  Federal's  assets,  while a change  in the  interest  rates of
negative 200 basis points  would have  resulted in 2% decrease in the  portfolio
value of First Federal's assets.


                                      10

<PAGE>

Average Balances, Interest Rates and Yields

      The following  table  presents for the periods  indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing  liabilities
and the interest rates, expressed both in dollars and rates and the net interest
margin.  No tax  equivalent  adjustments  were made.  Average  balances  are the
beginning balance for the year plus the ending balance for each month divided by
thirteen,  and include the balances of  non-accruing  loans.  The yield includes
fees which are considered adjustments to yields.

<TABLE>
<CAPTION>

                                                    For the Fiscal Year Ended September 30,
                             -----------------------------------------------------------------------------------------

                                           1999                         1998                          1997
                             -----------------------------------------------------------------------------------------
                              Average                       Average                       Average
                            Outstanding  Interest         Outstanding  Interest         Outstanding  Interest
                              Balance     Earned   Yield    Balance     Earned   Yield    Balance     Earned   Yield
                             -----------------------------------------------------------------------------------------
<S>                           <C>             <C>    <C>         <C>    <C>       <C>     <C>           <C>      <C>
                                                               (Dollars in Thousands)
Interest-earning assets:
  Loans receivable, net...... $72,826    $7,334    10.07%  $68,050      $6,686    9.83%   $56,090     $5,351    9.54%
  Mortgage-backed securities.     842        45     5.34     1,053          63    5.98      1,221         73    5.98
  Interest bearing deposits
   with Federal Home Loan
   Bank.......................  3,838       134     3.49     2,613          96    3.67      2,402         115    4.79
  Other interest-earning
   assets.....................    610        30     4.92       640          46    7.19        864         58    6.71
                              -------    ------            -------      ------            -------     ------
  Total interest-earning
   assets..................... 78,116     7,543     9.66    72,356       6,891    9.52     60,577      5,597    9.24

 Noninterest-earning assets..   6,226                        4,248                          3,620
                              -------                      -------                        -------

  Total assets............... $84,342                      $76,604                        $64,197
                              =======                      =======                        =======

</TABLE>








                                      11

<PAGE>

<TABLE>
<CAPTION>

                                                For the Fiscal Year Ended September 30,
                             -----------------------------------------------------------------------------------------

                                           1999                         1998                          1997
                             -----------------------------------------------------------------------------------------
                              Average                       Average                       Average
                            Outstanding  Interest         Outstanding  Interest         Outstanding  Interest
                              Balance     Earned   Yield    Balance     Earned   Yield    Balance     Earned   Yield
                             -----------------------------------------------------------------------------------------
<S>                           <C>             <C>    <C>         <C>    <C>       <C>     <C>           <C>      <C>
                                                         (Dollars in Thousands)
Interest-bearing liabilities:
 Deposits.................... $70,118     $3,125    4.46%   $62,133    $ 2,981    4.80     $52,707     $2,491    4.73%
 FHLB advances...............     176          8    4.55      3,984        226    5.67       3,067        168    5.48
 Notes payable...............   3,629        425   11.71      1,815        210   11.57         ---        ---     ---
                              -------     ------            -------    -------             -------     ------
   Total interest-bearing
    liabilities..............  73,923      3,558    4.81     67,932      3,417    5.03      55,774      2,659    4.77
                                          ------                       -------                         ------
 Other liabilities(2)........   8,330                         5,195                          3,780
                              -------                       -------                        -------
 Total liabilities ..........  82,253                        73,127                         59,554
 Stockholders' equity........   2,089                         3,477                          4,643
                              -------                       -------                        -------
 Total liabilities and
  stockholders' equity....... $84,342                       $76,604                        $64,197
                              =======                       =======                        =======

Net interest income;
 interest rate spread.........             $3,985   4.84%              $ 3,474    4.49%                $2,938    4.47%
                                           ======  =====               =======   =====                 ======   =====

Net interest margin(1).......                       5.10%                         4.80%                          4.85
                                                   =====                         =====                          =====
Average interest-earning
 assets to average
 interest-bearing
 liabilities..................  105.67%                       106.51%                       108.61%
                               =======                        ======                        ======
</TABLE>


(1)  Net   interest   margin  is  net   interest   income   divided  by  average
     interest-earning assets (primarily loans).
(2)  Including noninterest-bearing deposits.

                                      12

<PAGE>

      The  following  table  sets  forth the  yields  on loans,  mortgage-backed
securities,  securities and other interest-earning  assets, the rates on savings
deposits and borrowings and the resultant interest rate spreads at the dates and
for the periods indicated.


                                                         At September 30,
                                                    -------------------------


                                                     1999     1998     1997
                                                     -----    -----    ----
Weighted average yield on:
Loans receivable................................... 10.95%   10.55%    9.75%

Mortgage-backed securities.........................  6.12     6.63     6.63
Other interest-earning assets......................  5.48     5.37     6.13

Combined weighted average yield on
 interest-earning assets........................... 10.78    10.23     9.48

Weighted average rate paid on:
Deposits...........................................  4.48     4.81     4.80
Borrowings.........................................   ---     5.43     5.55

Notes payable...................................... 11.50    11.50      ---

Combined weighted average rate paid on
 interest-bearing liabilities......................  4.84     5.13     4.92

Spread.............................................  5.94%    5.10%    4.56%


<TABLE>
<CAPTION>
                                                        For the Fiscal Year Ended
                                                               September 30,
                                                        -------------------------


                                                             1999   1998     1997
                                                             ----   ----     ----
<S>                                                          <C>    <C>      <C>
Weighted average yield on:
 Loans receivable....................................       10.07%   9.83%    9.54%
 Mortgage-backed securities..........................        5.34    5.98     5.98
 Other interest-earning assets.......................        3.69    4.37     5.30

  Combined weighted average yield on
   interest-earning assets...........................        9.66    9.52     9.24

Weighted average rate paid on:
 Deposits............................................        4.46    4.80     4.73
 FHLB advances.......................................        4.55    5.67     5.48
 Notes payable.......................................       11.71   11.57      ---


  Combined weighted average rate paid on
   interest-bearing liabilities......................        4.81    5.03     4.77

Spread...............................................        4.84    4.49     4.47

Net interest margin (net interest-earnings divided
 by average interest-earning assets, with net
 interest-earnings equaling the difference
 between the dollar amount of interest-earned on
 assets and interest paid on deposits and FHLB
 advances)...........................................        5.10%   4.80%    4.85%

</TABLE>


                                      13

<PAGE>



      The following  schedule  presents the dollar amount of changes in interest
income and interest  expense for major  components  of  interest-earning  assets
(primarily loans) and interest-bearing  liabilities (primarily deposits) for the
periods  shown.  It  distinguishes  between the increase in interest  income and
interest  expense related to higher  outstanding  balances and to the levels and
volatility of interest rates. For each category of  interest-earning  assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in rate (i.e.,  changes in rate  multiplied  by old volume) and (ii)
changes in volume (i.e., changes in volume multiplied by old rate). For purposes
of this table,  changes attributable to both rate and volume have been allocated
proportionately to the change due to volume and rate.
<TABLE>
<CAPTION>


                                      For the Fiscal Year Ended September 30,
                              --------------------------------------------------------------

                                     1999 vs. 1998               1998 vs. 1997
                              --------------------------------------------------------------

                                   Increase       Total        Increase       Total
                                  (Decrease)    Increase      (Decrease)    Increase
                                    Due To      (Decrease)      Due To      (Decrease)
                              --------------------------------------------------------------
                               Volume    Rate              Volume    Rate
                              -----------------           ----------------
<S>                                <C>    <C>     <C>       <C>    <C>          <C>
                                              (Dollars in Thousands)
Interest-earning assets:
 Loans........................    $ 469    $ 179    $ 648   $1,171      $164   $1,335
 Mortgage-backed securities...      (13)      (5)     (18)     (11)      ---      (11)
 Interest bearing deposits
  with FHLB...................       45       (7)      38        9       (28)     (19)
 Other interest-earning assets       (2)     (14)     (16)     (16)        5      (11)
                                   ----    -----    -----   ------      ----   ------

  Total interest-earning assets     499      153      652    1,153       141    1,294

Interest-bearing liabilities:
 Deposits.....................      383     (239)     144      444        46      490
 FHLB advances ...............     (216)      (2)    (218)      52         6       58
 Notes payable................      210        5      215      210       ---      210
                                  -----    -----    -----   ------      ----   ------

   Total interest-bearing
    liabilities...............      377     (236)     141      706        52      758
                                  -----    -----    -----   ------      ----   ------
Net interest income...........    $ 122    $ 389            $  447      $ 89
                                  =====    =====            ======      ====

Net increase in net interest
 income.......................                      $ 511                      $  536
                                                    =====                      ======

</TABLE>

Results of Operations

      The Combined  Company's  results of operations are primarily  dependent on
its net  interest  income which is the  difference  between  interest  income on
interest-earning    assets   (primarily   loans)   and   interest   expense   on
interest-bearing liabilities (primarily deposits). Interest income is a function
of the average balances of interest-earning assets (primarily loans) outstanding
during the period and the average yields earned on such assets. Interest expense
is a function of the average amount of interest-bearing  liabilities outstanding
(primarily  deposits)  during  the  period  and the  average  rates paid on such
liabilities.  The Combined Company also generates  noninterest  income,  such as
income from service  charges and fees on checking  accounts,  loan servicing and
other fees and charges, and gains on sales of residential mortgages and sales of
loan  participations  of Second  Chance  Auto loans and  servicing  rights.  The
Combined  Company's net income is also affected by the level of its  noninterest
expenses,  such as employee  salaries  and  benefits,  occupancy  and  equipment
expenses, and federal deposit insurance premiums.


                                      14

<PAGE>



Comparison of Fiscal Year Ended September 30, 1999 to September 30, 1998

      The Combined Company reported  consolidated net income of $245,000 for its
first full year of operations ended  September 30, 1999, as compared to $292,000
for the year ended  September  30,  1998,  a decrease  of $47,000,  or 16%.  The
decrease  in  net  income  was  primarily  due  to  costs  associated  with  the
termination  of the  defined  benefit  pension  plan at the  Bank  level  and an
increase  in the  professional  staff  of the Bank in  order  to  increase  loan
originations and service its customers as the Bank expands in the  Bryan-College
Station  area and  begins its  expansion  generally  into the  "Texas  Triangle"
bordered by Houston,  Austin -San Antonio,  and Dallas, in order to increase its
franchise  value and thus  stockholder  value.  The terminated plan was replaced
with a less expensive 401(k) profit-sharing plan.

      Net  interest  income  increased  by $511,000 to $4.0 million for the year
ended  September  30, 1999 from $3.5  million for the year ended  September  30,
1998. This increase primarily resulted from increases in the average balance and
average yield of the loan  portfolio,  offset in part by increases in the volume
of deposits and other  borrowings.  The average yield on First  Federal's  loans
increased  24  basis  points  as a  result  of an  increase  in  the  volume  of
credit-default  insured consumer automobile loans which yield a higher rate than
traditional  residential  mortgage loans. The average balance of loans increased
as a result of a  concerted  effort to  increase  the  consumer  loan  portfolio
through  building  additional  relationships  with  automobile  dealerships  and
promoting the innovative and profitable  Second Chance Auto Loan Program.  These
increases  were partially  offset by an increase in the cost of funds  resulting
from a $8.0  million  increase  in the average  balance of  deposits  and a $1.8
million  increase in the average  balance of notes  payable.  In  addition,  the
average  cost of funds  decreased  22 basis  points  as a  result  of  increased
emphasis on transactional  deposit accounts. As a result, the Combined Company's
interest  margin  increased to 5.10% for the year ended  September 30, 1999 from
4.80% for the year  ended  September  30,  1998.  The ratio of  interest-earning
assets to interest-bearing liabilities declined to 105.67% at September 30, 1999
from 106.51% at  September  30,  1998.  The average net interest  spread for the
fiscal year ending  September  30,  1999,  increased to 4.84% from 4.49% for the
same periods.

      The Combined  Company  recorded a $104,000  provision  (expense)  for loan
losses for the year ended September 30, 1999 as compared to a $79,000  provision
for loan  losses for the year ended  September  30,  1998.  The  increase in the
provision  for loan  losses was  largely a result of an  increase in gross loans
during  the  year.  The  Combined  Company  continued  to  have  low  levels  of
charge-offs   relative  to  the  allowance  for  loan  losses  and  the  use  of
credit-default  insurance  coverage for Second Chance  automobile loans to limit
the Combined Company's loan loss exposure.

      Noninterest  income  increased  $852,000 to $1,783,000  for the year ended
September 30, 1999 from $931,000 for the year ended September 30, 1998. This was
primarily a result of increased  profits on sales of loans and servicing  rights
of $558,000 combined with an increase in service charges of $142,000 as a result
of an increase in  transactional  deposit  accounts.  In addition,  other income
increased $83,000 primarily as a result of insurance reimbursements for casualty
losses.

                                      15

<PAGE>



     Noninterest  expense  increased $1.3 million from $3.9 million for the year
ended  September 30, 1998 to $5.2 million for the year ended September 30, 1999.
The increase  primarily  resulted  from the  restructuring  and expansion of the
Combined Company.  Compensation and benefits increased $689,000 as a result of a
curtailment  loss of $172,000  relative to the termination of the Bank's pension
plan,  increases in compensation to hire the former President of an auto finance
company as the new manager of Second  Chance auto  lending in order to gradually
expand this loan program with  selected  auto  dealers  throughout  the State of
Texas, the hiring of five new loan collection and servicing officers in order to
significantly  strengthen  the long-term  loan  collection  and servicing of the
Second  Chance Auto Loan Program,  and the hiring of a marketing  representative
for  this  loan  program.  Also,  First  Federal  hired  a  new  Executive  Vice
President/Chief  Financial Officer with over 20 years experience in banking,  in
order to provide  this  expertise  for the Bank and the  Holding  Company and to
provide for succession in senior  management in the future.  In addition,  First
Federal  strengthened  the  staff of its  mortgage  lending  department  with an
experienced  secondary market  residential  loan specialist,  along with two new
support  personnel.  Also,  a  highly-qualified  new  manager of the Bank's Note
Department was hired in 1999, along with a seasoned specialist in SBA lending in
order to expand  First  Federal's  SBA  lending  program  throughout  the "Texas
Triangle"  with its new  designation  as a  Certified  SBA  Lender.  These  new,
important additions,  have significantly  strengthened the professional staff of
the Bank and the Holding Company.  Occupancy expense increased $76,000 primarily
as a result of the opening of an additional branch in north Bryan, the expansion
of the principal office of First Federal to provide new safe deposit box service
with over 700 new safe  deposit  boxes and  expanded  customer  service and Note
Department areas, and the expansion of the credit-default  insured Second Chance
Automobile Lending Program.  Professional fees increased $172,000 as a result of
legal fees relating to the  organization  and initial full year of the operation
of the Holding Company.  Data processing costs increased  $68,000 as a result of
increased loan  origination  production,  an increased number of items processed
for the Bank and the costs  associated  the Y2K issue.  Other expense  increased
$302,000, which consisted of various items, including $75,000 of amortization of
debt  issue  costs and  organizational  costs  related to the  formation  of the
Holding Company.  The Combined Company had increased expenses of $80,000 related
to valuation  adjustments and losses for non-interest  bearing assets (primarily
repossessed vehicles).  It is anticipated that these same expenses will increase
as the Second  Chance Auto Loan  Program  expands in the future.  Various  other
expenses  also  increased  primarily  as a result of the  overall  growth of the
Combined Company's  infrastructure and increased loan origination  production of
the Combined Company during fiscal 1999.

      Income tax expense  increased  $35,000  from  $164,000  for the year ended
September 30, 1998 to $199,000 for the year ended September 30, 1999. Income tax
expense  reflected  a tax rate of 45% for the year ended  September  30, 1999 as
compared to 36% for the year ended  September  30, 1998.  The effective tax rate
increased as a result of an increase in nondeductible expenses.

Comparison of Fiscal Year Ended September 30, 1998 to September 30, 1997

      The Combined Company reported  consolidated net income of $292,000 for the
year ending  September  30, 1998.  This  compares to $605,000 for the year ended
September 30, 1997, for First Federal (prior to the Holding Company's formation)
a decrease of $313,000, or 51.7%.

                                      16

<PAGE>



The decrease in net income was  primarily  due to costs and expenses  related to
the initial formation of the Holding Company, in addition to interest expense of
$138,000 on the Holding Company  debentures,  amortization  of costs  associated
with the original  issuance of the debentures,  Holding  Company  organizational
costs of $50,000, and franchise taxes of $21,000, all of which are after tax. In
addition,  compensation  and benefits at the Bank level increased as a result of
an increase in the professional  staff of First Federal in order to increase its
loans and services to its customers as the Bank expands in Bryan-College Station
and  begins  its  expansion  generally  into the "Texas  Triangle"  bordered  by
Houston,  Austin - San Antonio,  and Dallas,  in order to increase its franchise
value.

     Net  interest  income  increased  by $536,000 to $3.5  million for the year
ended  September  30, 1998 from $2.9  million for the year ended  September  30,
1997. This increase primarily resulted from increases in the average balance and
average yield of the loan  portfolio,  offset in part by increases in the volume
and cost of deposits and  advances  from the FHLB of Dallas.  In  addition,  the
Holding  Company issued  debentures in April of 1998,  resulting in an increased
volume of notes payable. The average yield on First Federal's loans increased 29
basis  points as a result of an  increase  in the  volume  of  insured  consumer
automobile  loans and  direct  consumer  loans  which  yield a higher  rate than
traditional  residential  mortgage  loans.  The  average  balance  of loans also
increased  as a result of a  concerted  effort to  increase  the  consumer  loan
portfolio through building  additional  relationships  with auto dealerships and
promoting  First  Federal's  innovative and  profitable  Second Chance Auto Loan
Program.  These  increases were  partially  offset by an increase in the cost of
funds resulting from a $9.4 million  increase in the average balance of deposits
and a $2.7 million  increase in the average  balance of FHLB  advances and notes
payable.  In addition,  the average cost of funds increased 26 basis points as a
result of increased  interest  rates in order to remain  competitive on savings,
certificates of deposit and other  interest-bearing  accounts, and due to the 11
1/2%  debentures  due March 2003  ("Debentures")  issued in connection  with the
acquisition  of the Bank by the  Holding  Company.  As a  result,  the  Combined
Company's  interest  margin  slightly  decreased  to 4.80%  for the  year  ended
September 30, 1998 from 4.85% for the year ended  September 30, 1997.  The ratio
of interest-earning  assets to interest-bearing  liabilities declined to 106.51%
at  September  30, 1998 from 108.61% at  September  30,  1997.  The net interest
spread increased slightly to 4.49% from 4.47% for the same periods.

      The  Combined  Company  recorded a $75,000  provision  (expense)  for loan
losses for the year ended September 30, 1998 compared to a $25,000 provision for
loan losses for the year ended September 30, 1997. The increase in the provision
for loan losses was largely a result of a $5.1  million  increase in gross loans
during  the  year.  The  Combined  Company  continued  to  have  low  levels  of
charge-offs   relative  to  the  allowance  for  loan  losses  and  the  use  of
credit-default  insurance  coverage  for certain  automobile  loans to limit the
Combined Company's loan loss exposure.

      Noninterest  income  increased  $156,000  to  $931,000  for the year ended
September 30, 1998 from $775,000 for the year ended September 30, 1997. This was
primarily a result of increased profits on sales of loans and mortgage servicing
rights of $81,000  combined with an increase in service  charges of $17,000 as a
result of an increase in  transactional  deposit  accounts.  In addition,  other
income  increased  $58,000  primarily as a result of the  recognition  of excess
dealer reserves  maintained on older insured automobile loans that were paid off
during the year.

                                      17

<PAGE>

     Noninterest expense including Y2K expenses increased $1.1 million from $2.8
million for the year ended September 30, 1997 to $3.9 million for the year ended
September 30, 1998. The increase  primarily  resulted from the restructuring and
expansion of the Combined Company.  Compensation and benefits increased $438,000
as a result of an  increase  in the number of  employees  due  primarily  to the
opening of a new branch and increased  expenses  related to the expansion of the
mortgage  lending and Second  Chance  Automobile  Lending  Program  departments.
Occupancy expense increased $115,000 primarily as a result of the opening of the
new branch.  Office  supplies  increased  $48,000 and data  processing fees also
increased  $21,000 as a result of increased  production and increased  number of
transactions.  The  increase  in the volume of  consumer  loans has  resulted in
additional   telephone  and  postage  costs  of  $62,000,   related  largely  to
collections. Other expense increased $334,000, which consisted of various items,
including $67,000 of amortization of debt issue costs and  organizational  costs
related to the  formation of the Holding  Company and  franchise  tax expense of
$32,000 for the Holding Company.  The Combined Company had increased expenses of
$86,000 related to the establishment of a $59,000 reserve for repossessed assets
and the remainder for losses on repossessed assets.  Various other expenses also
increased  primarily  as a result  of the  overall  growth  and  increased  loan
production of the Combined Company during fiscal 1998.

      Income tax expense  decreased  $148,000  from  $312,000 for the year ended
September 30, 1997 to $164,000 for the year ended  September 30, 1998  primarily
as a result of the  $461,000  decrease  in pretax  income.  Income  tax  expense
reflected a tax rate of 35.9% for the year ended  September 30, 1998 compared to
34.0% for the year ended September 30, 1997.

Financial Condition

      After two years of fast  growth in 1997 and 1998  (averaging  20%  deposit
growth a year),  management  pursued a strategy  to control  growth in 1999,  in
order to increase  emphasis on  profitability  and  gradually  increase  capital
ratios to total  assets -- both goals were  successful  were  successfully  met.
Thus, the Combined Company's total assets decreased  $765,000,  or .1%, to $81.9
million at September 30, 1999 from $82.6 million at September 30, 1998.

      Net  loans  receivable  (excluding  loans  held for sale)  decreased  $3.7
million to $68.0  million at September  30, 1999 from $71.7 million at September
30, 1998.  The decrease  resulted  primarily from an increase in the category of
loans held for sale in the Bank's generally  profitable  Second Chance Auto Loan
Program as a result of profitable sales of loan  participations  in that program
and from a strategy to control growth in 1999.

      Deposits  decreased  $314,000,  or.4%.  The  decrease  was a  result  of a
strategy to control the Bank's  growth in 1999,  in order to gradually  increase
capital ratios to total assets and emphasize increased profitability.

Liquidity and Capital Resources

      The Bank's  primary  sources  of funds are  deposits,  checking  accounts,
principal  and  interest  payments  on loans  and  mortgage-related  securities,
proceeds  from  sales  of long  term,  fixed-rate  residential  mortgage  loans,
proceeds from sales of credit-default insured consumer

                                      18

<PAGE>



automobile  loans and other funds provided from  operations.  Additionally,  the
Bank has borrowed funds from the FHLB of Dallas or utilized  particular  sources
of funds based on need, comparative costs and availability at the time.

      While scheduled loan and mortgage-backed securities repayments, short-term
investments, and FHLB borrowings are relatively stable sources of funds, deposit
flows  are  unpredictable  and are a  function  of  external  factors  including
competition,   the  general  level  of  interest  rates,  and  general  economic
conditions.

      The Bank  maintains  investments  in liquid  assets based on  management's
assessment of cash needs, expected deposit flows,  availability of advances from
the FHLB,  available yield on liquid assets (both  short-term and long-term) and
the objectives of its asset/liability  management  program.  Several options are
available  to  increase   liquidity,   including   reducing  loan  originations,
increasing  deposit  marketing  activities,  and increasing  borrowings from the
FHLB.

      Federal  regulations  require  insured  institutions  to maintain  minimum
levels of liquid  assets.  At September  30, 1999,  First  Federal's  regulatory
liquidity  ratio was 6.18% or 2.18% above the 4% regulatory  requirement.  First
Federal uses its capital resources  principally to meet its ongoing  commitments
to fund  maturing  certificates  of  deposits  and  deposit  withdrawals,  repay
borrowings,  fund  existing  and  continuing  loan  commitments,   maintain  its
liquidity and meet  operating  expenses.  First  Federal's  core and  risk-based
capital ratios were 7.16% and 9.08%, which exceeded the minimum required capital
ratios of 4.0% and 8.0%, respectively.

      At  September  30, 1999,  the Bank had  commitments  to  originate  loans,
including loans in process, totaling $5.9 million. The Bank also had $701,000 of
outstanding  unused lines of credit and $452,000 of letters of credit.  The Bank
considers  its  liquidity  and  capital  resources  to be  adequate  to meet its
foreseeable  short and long-term  needs.  The Bank expects to be able to fund or
refinance,   on  a  timely  basis,   its  material   commitments  and  long-term
liabilities. First Federal intends to expand its Second Chance Auto Loan Program
with  additional  select  automobile  dealers  throughout  the  State of  Texas,
retaining a portion of these  loans for its own  portfolio,  and selling  excess
loan  originations  on a profitable  basis in order to maintain First  Federal's
capital compliance and liquidity  requirements.  At September 30, 1999, the Bank
had no advances outstanding from the FHLB.

      The Bank's liquidity, represented by cash equivalents, is a product of its
operating,  investing and financing activities.  These activities are summarized
below for the periods indicated.

                                      19

<PAGE>


                                                      Year Ended
                                                     September 30,
                                                 --------------------

                                                    1999      1998
                                                 --------------------

                                                    (In Thousands)
Operating Activities:
 Net income......................................   $   245     $  292
 Adjustment to reconcile net income or loss to net
  cash provided by operating activities..........    (2,564)       836
                                                    -------     ------
 Net cash (used in) provided by operating
  activities......................................   (2,319)     1,128
 Net cash provided by (used in) investing
  activities......................................    2,856     (6,524)
 Net cash provided by (used in) financing
  activities......................................   (1,159)     6,292
                                                    -------     ------
 Net increase (decrease) in cash and cash
  equivalents.....................................     (622)       896
 Cash and cash equivalents at beginning of period     5,327      4,431
                                                    -------     ------
 Cash and cash equivalents at end of period......   $ 4,705     $5,327
                                                    =======     ======

      The primary  investing  activity of the Bank is lending.  Loans originated
net of repayments and sales  provided  (used) $3.3 million and $(6.6) million in
cash  for  the  years  ended   September   30,  1999  and  September  30,  1998,
respectively.  Deposits  decreased  $314,000 during the year ended September 30,
1999 as compared to a $14.7 million increase during the year ended September 30,
1998, as a result of a "no-growth"  policy  established by management for fiscal
year 1999.  FHLB  advances  decreased  in 1999 by  $800,000  as  compared  to  a
decrease of $9.2 million in 1998.

Year 2000 Issue

      General.  The year 2000 ("Y2K") issue confronting the Combined Company and
its suppliers,  customers,  customers'  suppliers and competitors centers on the
inability of computer systems to recognize the year 2000. Many existing computer
programs  and  systems  originally  were  programmed  with six digit  dates that
provided only two digits to identify the calendar  year in the date field.  With
the impending new  millennium,  these programs and computers will recognize "00"
as the year 1900 rather than the year 2000.

      Financial institution  regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance  concerning the  responsibilities
of  senior  management  and  directors.   The  Federal  Financial   Institutions
Examination  Council has issued  several  interagency  statements on Y2K project
management awareness.  These statements require financial institutions to, among
other things, examine the Y2K implications of their reliance on vendors and with
respect to the data exchange and the potential  impact of the Y2K issue on their
customers,   suppliers,  and  borrowers.  These  statements  also  require  each
federally  regulated  institution  to survey its exposure,  measure its risk and
prepare a plan to address  the Y2K  issue.  In  addition,  the  federal  banking
regulators have issued safety and soundness guidelines to be followed by insured
depository  institutions,  such as the  Bank,  to assure  resolution  of any Y2K
problems.  The  federal  banking  agencies  have  assessed  that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
exams and thus, that an institution's  failure to address  appropriately the Y2K
issue  could  result  in  supervisory   action,   including   reduction  of  the
institution's  supervisory  ratings,  the denial of applications for approval of
mergers or acquisitions or the imposition of civil money penalties.


                                      20

<PAGE>



      Risks. Like most financial service providers, the Combined Company and its
operations  may be  significantly  affected by the Y2K issue due to the Combined
Company's  dependence on technology and date-sensitive  data.  Computer software
and hardware and other equipment, both within and outside the Combined Company's
direct control, and third parties with whom the Combined Company  electronically
or operationally interface (including without limitation its customers and third
party vendors) are likely to be affected.  If computer  systems are not modified
in order to be able to identify the year 2000, many computer  applications could
fail or create erroneous results. As a result, many calculations,  which rely on
date field information such as interest, payment on due dates, and all operating
functions,  could generate results which are  significantly  misstated,  and the
Combined Company could experience an inability to process transactions,  prepare
statements or engage in similar  normal  business  activities.  Likewise,  under
certain  circumstances,  a failure to  adequately  address  the Y2K issue  could
adversely affect the viability of the Combined Company's suppliers and creditors
and the  creditworthiness of its borrowers.  Thus, if not adequately  addressed,
the Y2K issue  could  result in a  significant  adverse  impact on the  Combined
Company's  operations  and,  in turn,  its  financial  condition  and results of
operations.

     State of Readiness.  During October 1997, the Combined  Company  formulated
its plan to address the Y2K issue. Since that time and with significant time and
expense, the Combined Company has taken the following steps:

     o    Established senior management advisory and review responsibilities;
     o    Completed  a  company-wide   inventory  of  applications   and  system
          software;
     o    Built an  internal  tracking  database  for  applications  and  system
          software;
     o    Developed compliance plans and schedules for all lines of business;
     o    Completed a computer network, hardware, and software upgrade;
     o    Completed in-house testing of all systems;
     o    Obtained data processor vendor compliance certification;
     o    Completed data processor vendor testing;
     o    Established awareness and educational activities for employees through
          existing internal communication channels; and
     o    Developed a process to respond to customer  inquiries  as well as help
          educate customers on the Y2K issue.

      The following  paragraphs  summarize the phases of the Combined  Company's
Y2K plan:

      Awareness Phase. The Combined Company formally established a Y2K plan that
is headed by a senior  manager,  and a project team was assembled for management
of the Y2K  project.  The project  team  created a plan of action that  includes
milestones, budget estimates,  strategies, and methodologies to track and report
the status of the project. Members of the project team also attended conferences
and  information  sharing  sessions to gain more  insight into the Y2K issue and
potential strategies for addressing it. This phase is complete.

      Assessment Phase. The Combined Company's strategies were further developed
with respect to how the objectives of the Y2K plan would be achieved,  and a Y2K
business  risk  assessment  was conducted to quantify the extent of the Combined
Company's Y2K exposure.  A corporate inventory (which is periodically updated as
new technology is acquired and as systems

                                      21

<PAGE>

progress  through  subsequent  phases) was developed to identify and monitor Y2K
readiness for information systems (hardware,  software,  vendors, and utilities)
as well as environmental systems (security systems,  facilities,  etc.). Systems
were prioritized based on business impacts and available  alternatives.  Mission
critical systems supplied by vendors were researched to determine Y2K readiness.
If Y2K ready  versions  were not  available,  the  Combined  Company  identified
functional  replacements which were either upgradable or Y2K ready, and a formal
plan was developed to repair,  upgrade or replace all mission critical  systems.
This phase is complete.

      The Combined Company  completed Y2K discussions with its larger borrowers.
All  credits  greater  than  $50,000  were  evaluated  for  Y2K  exposure  by  a
relationship  account  officer using a  questionnaire  developed by the Combined
Company's  credit  administration  staff. As part of the current credit approval
process, all new and renewed loans are evaluated for Y2K risk. During the course
of these  evaluations,  Combined  Company  personnel met with each of its larger
borrowers to discuss and obtain information regarding each borrower's dependence
on information  technology and third party vendors and the nature of steps being
taken by the borrowers to address their own Y2K issues.

     Renovation Phase. The Combined Company's  corporate inventory revealed that
Y2K upgrades were available for all vendor supplied  mission  critical  systems,
and all these Y2K ready versions have been delivered and placed into  production
and have been validated.

      Validation  Phase. The validation phase is designed to test the ability of
hardware and software to accurately  process  date-sensitive  data. The Combined
Company has completed the validation  testing of each mission  critical  system.
The Combined Company hired two outside firms to perform this phase.  These firms
tested  independent  of each  other  verifying  the  other's  validation  of all
systems. During the validation testing process, no significant Y2K problems were
identified relating to any modified or upgraded mission critical systems.

      Implementation  Phase.  Y2K ready modified or upgraded  versions have been
installed  and placed  into  production  with  respect to all  mission  critical
systems.

      Company Resources  Invested.  The Combined  Company's Y2K project team was
assigned the task of ensuring that all systems across the Combined  Company were
identified,  analyzed for Y2K compliance,  corrected if necessary,  tested,  and
have the changes into service by the end of 1999. This has been  completed.  The
Y2K project team members represent all functional areas of the Combined Company,
including  branches,  data processing,  loan  administration,  accounting,  item
processing and operations,  compliance,  internal audit,  human  resources,  and
marketing.  An executive vice president who reports  directly to a member of the
Combined  Company's  senior  management  heads the team. The Combined  Company's
Board of Directors oversees the Y2K plan and provides guidance and resources to,
and receives monthly updates from, the Y2K team.

      The  Combined  Company is expensing  all costs  associated  with  required
system  changes as those  costs are  incurred,  and such costs are being  funded
through operating cash flows. The total cost of the Y2K conversion project since
commencement in October 1997 for the Combined Company is estimated to be no less
than $220,000.  The Combined  Company does not expect  significant  increases in
future data processing costs related to Y2K compliance.

                                      22

<PAGE>

      Contingency  Plans.  During the  assessment  phase,  the Combined  Company
developed back-up or contingency plans for each of its mission critical systems.
Virtually all of the Combined  Company's  mission critical systems are dependent
upon third party vendors or service providers.  In each case,  realistic trigger
dates have been established to allow for orderly and successful conversions,  if
necessary.  For some systems,  contingency  plans  consist of using  spreadsheet
software or reverting to manual systems until system problems can be corrected.

      The majority of the Combined  Company's mission critical system falls into
the categories of its core-banking software and its proof of deposit system. The
Combined  Company has  received  warranties  from vendors to the effect that the
proof of deposit and core-banking system is Y2K ready.

Impact of Inflation and Changing Prices

      The Consolidated Financial Statements and related financial data presented
herein have been  prepared in  accordance  with  generally  accepted  accounting
principles  ("GAAP"),  which require the  measurement of financial  position and
results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time because of inflation.

      Unlike  industrial  companies,  virtually  all of the  Combined  Company's
assets and  liabilities  are  monetary in nature.  As a result,  interest  rates
generally  have  a  more  significant   impact  on  a  financial   institution's
performance  than  the  effects  of  general  inflation.  Interest  rates do not
necessarily move in the same direction or in the same magnitude as the prices of
goods and services.  In the current  interest rate  environment,  the liquidity,
maturity  structure and quality of the Combined Company's assets and liabilities
are critical to the maintenance of acceptable performance levels.

Effect of New Accounting Standards

     In June 1997, the FASB issued Statement of Financial  Accounting  Standards
No.  130 ("SFAS No.  130")  "Reporting  Comprehensive  Income".  This  statement
establishes  standards for reporting and display of comprehensive income and its
components   (revenues,   expenses,   gains  and   losses)  in  a  full  set  of
general-purpose  financial  statements.  This statement  requires that all items
that are required to be recognized under  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.  Income tax effects must also
be shown.  This statement is effective for fiscal years beginning after December
15,  1997.  The  adoption of SFAS No. 130 did not have a material  impact on the
results of operations or financial condition of the Combined Company.

      In June 1997, the FASB issued Statement of Financial  Accounting Standards
No. 131 ("SFAS No.  131")  "Disclosures  about  Segments  of an  Enterprise  and
Related Information". SFAS No. 131 establishes standards for the way that public
business  enterprises  report  information  about  operating  segments in annual
financial  statements  and  requires  that  those  enterprises  report  selected
information  about  operating  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and

                                      23

<PAGE>

services, geographic areas, and major customers. This statement is effective for
financial  statements for periods beginning after December 15, 1997.  Management
does not believe that the  provisions of this  Statement  are  applicable to the
Combined Company,  since substantially all of the Combined Company's  operations
are banking services.

     In June 1999, the FASB issued Statement of Financial  Accounting  Standards
No. 133  ("SFAS  133"),  "Accounting  for  Derivative  Instruments  and  Hedging
Activities."   SFAS  No.  133   standardizes   the   accounting  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts.  Under the  standard,  entities are required to carry all  derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e. gains or losses) of a derivative  instrument
depends on whether it has been  designated  and  qualifies  as part of a hedging
relationship and, if so, on the reason for holding it. If certain conditions are
met,  entities  may elect to  designate a  derivative  instrument  as a hedge of
exposures to changes in fair value,  cash flows, or foreign  currencies.  If the
hedged  exposure is a fair value  exposure,  the gain or loss on the  derivative
instrument is  recognized in earnings in the period of change  together with the
offsetting  loss or gain on the  hedged  item  attributable  to the  risk  being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the  gain  or loss on the  derivative  instrument  is  reported  initially  as a
component of other  comprehensive  income  (outside  earnings) and  subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amount  excluded  from  the  assessment  of hedge  effectiveness  as well as the
ineffective  portion of the gain or loss is reported  in  earnings  immediately.
Accounting for foreign  currency  hedges is similar to accounting for fair value
and cash flow hedges. If the derivative instrument is not designated as a hedge,
the gain or loss is  recognized  in  earnings  in the  period  of  change.  This
statement is effective  for fiscal years  beginning  after June 15, 2000.  Early
adoption is permitted as of the beginning of an entities  fiscal  quarter.  This
statement will have no effect on the Combined Company,  as it owns no derivative
instruments and engages in no hedging activities.

      Statement  of  Financial  Accounting  Standards  No. 134  ("SFAS  134") on
mortgage  banking allows mortgage loans that are securitized to be classified as
trading,  available  for sale,  or in certain  circumstances,  held to maturity.
Previously  these were classified as trading.  SFAS 134 became  effective in the
first quarter of 1999.  Since the Combined  Company has not  securitized  loans,
SFAS 134 will not impact the Combined Company.

     AICPA-Statement  of Position 98-5,  effective in fiscal 2000,  requires all
start-up,  pre-opening,  and organization costs to be expensed as incurred.  Any
such costs  previously  capitalized  for  financial  reporting  purposes must be
charged to income in the first  quarter of fiscal 2000.  Although  this $100,300
charge  occurred  during the month of  October,  1999 (the first month of fiscal
year ending September 30, 2000), the Combined Company does not believe this will
have a material  impact on the results of operations  or financial  condition of
the Combined Company.

Forward-Looking Statements

      When used in this Annual Report to  shareholders  or future filings by the
Combined Company with the Securities and Exchange Commission (the "Commission"),
in the  Combined  Company's  press  releases  or  other  public  or  shareholder
communications,  or in oral  statements  made with the approval of an authorized
executive officer, the words or phrases "will likely result", "are expected to",
"will continue", "is anticipated", "estimated", "project", "believe" or

                                      24

<PAGE>

similar expressions are intended to identify "forward-looking statements" within
the  meaning  of the  Private  Securities  Litigation  Reform  Act of 1995.  The
Combined  Company  wishes to caution  readers not to place undue reliance on any
such  forward-looking  statements,  which speak only as of the date made, and to
advise readers that various  factors  including  regional and national  economic
conditions,  changes in levels of market interest rates, credit risks of lending
activities,  acceptance of new products,  and competitive and regulatory factors
could affect the Combined  Company's  financial  performance and could cause the
Combined  Company's actual results for future periods to differ  materially from
those  anticipated or projected.  Additional risks and factors are detailed from
time to time in the  Combined  Company's  reports  filed  with  the  Commission,
including  the Annual  Report on Form  10-KSB for the year ended  September  30,
1999.

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


                                      25

<PAGE>
                         REPORT OF INDEPENDENT AUDITORS



The Board of Directors
The Bryan-College Station Financial Holding Company
Bryan, Texas


We have audited the accompanying  consolidated statements of financial condition
of The  Bryan-College  Station  Financial  Holding Company and its  wholly-owned
subsidiaries, First Federal Savings Bank of Bryan and Best of Texas, Inc., as of
September 30, 1999 and 1998 and the related  consolidated  statements of income,
stockholders'  equity,  and cash flows for each of the three years in the period
ended September 30, 1999. These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of The Bryan-College
Station  Financial  Holding  Company and its  wholly-owned  subsidiaries,  as of
September  30,  1999 and 1998,  and the results of its  operations  and its cash
flows for each of the three  years in the period  ended  September  30,  1999 in
conformity with generally accepted accounting principles.




                                          Crowe, Chizek and Company LLP

Oak Brook, Illinois
November 12, 1999






                                       26

<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES


                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                         September 30, 1999 and 1998
               (In thousands, except share and per share data)



                                                            1999       1998
                                                         ---------  ---------
ASSETS
Cash and due from banks                                  $  3,086   $ 1,435
Interest-bearing deposits in other financial
 institutions                                               1,619     3,892
                                                         --------   -------
   Total cash and cash equivalents                          4,705     5,327

Securities available-for-sale                                   5         5
Securities held-to-maturity, at cost (fair value: 1999
 - $667; 1998 - $945)                                         692       954
Loans held for sale                                         2,464       328
Loans receivable, net                                      67,974    71,666
Federal Home Loan Bank stock                                  404       382
Servicing rights                                              545         -
Foreclosed real estate (net of allowance for losses:
  1999 - $25; 1998 - $0)                                      548       282
Repossessed assets (net of allowance for losses:
  1999 - $21; 1998 - $60)                                     937       419
Premises and equipment                                      2,099     1,636
Accrued interest receivable                                   613       608
Other assets                                                  883     1,027
                                                         --------   -------
                                                         $ 81,869   $82,634
                                                         ========   =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
   Deposits                                              $ 73,240   $73,554
   Advance payments by borrowers for insurance and
    taxes                                                     818       863
   Advances from Federal Home Loan Bank                         -       800
   Debentures                                               3,629     3,629
   Deferred income taxes                                      175       198
   Accrued interest payable and other liabilities           1,019       847
                                                         --------   -------
                                                           78,881    79,891

   Minority interest                                          873       873

Stockholders' equity
   Common stock - par value $.01 per share;
    authorized 1,500,000 shares, issued 428,409
    shares at September 30, 1999 and 1998                       4         4
   Additional paid-in capital                               2,060     1,849
   Retained earnings, substantially restricted                 51        17
                                                         --------   -------
                                                            2,115     1,870
                                                         --------   -------
                                                         $ 81,869   $82,634
                                                         ========   =======


         See accompanying notes to consolidated financial statements.


                                       27
<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF INCOME
                Years ended September 30, 1999, 1998, and 1997
               (In thousands, except share and per share data)



                                                     1999     1998     1997
                                                     ----     ----     ----
Interest income
   Loans                                           $ 7,334  $ 6,686  $ 5,351
   Mortgage-backed securities                           45       63       73
   Other                                               164      142      173
                                                   -------  -------  -------
     Total interest income                           7,543    6,891    5,597

Interest expense
   Deposits                                          3,125    2,981    2,491
   Debentures                                          425      210        -
   FHLB advances                                         8      226      168
                                                   -------  -------  -------
     Total interest expense                          3,558    3,417    2,659
                                                   -------  -------  -------


NET INTEREST INCOME                                  3,985    3,474    2,938

Provision for loan losses                              104       79       25
                                                   -------  -------  -------


NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  3,881    3,395    2,913

Noninterest income
   Service charges                                     744      602      585
   Gain on sale of mortgage loans                      167      116       54
   Gain on sale of consumer loans                      478        -        -
   Gain on sale of mortgage servicing rights           142      113       94
   Servicing fee income, net of amortization            66        -        -
   Operation of foreclosed real estate                 (17)     (20)     (20)
   Other                                               203      120       62
                                                   -------  -------  -------
     Total noninterest income                        1,783      931      775

Noninterest expense
   Compensation and benefits                         2,495    1,806    1,368
   Occupancy and equipment expense                     547      471      356
   Federal insurance premiums                           65       43       45
   Net (gain) loss on real estate owned,
     including provision for losses                     26       27      (12)
   Loan expense                                         44       56       24
   Office supplies                                     142      122       74
   Professional fees                                   313      141      134
   Advertising                                          77       83       78
   Data processing                                     260      192      171
   Telephone                                           121       99       61
   Postage                                             106      108       84
   Other                                             1,024      722      388
                                                   -------  -------  -------
     Total noninterest expense                       5,220    3,870    2,771
                                                   -------  -------  -------


                                  (Continued)

                                       28



<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF INCOME
                Years ended September 30, 1999, 1998, and 1997
                (In thousands, except share and per share data)


                                                     1999     1998     1997
                                                     ----     ----     ----

INCOME BEFORE INCOME TAX EXPENSE                   $   444  $   456  $   917

Income tax expense                                     199      164      312
                                                   -------  -------  -------


NET INCOME                                             245      292      605

Dividends on Bank preferred stock                        -      (44)     (87)
                                                   -------  -------  -------

Net income available to common stockholders        $   245  $   248  $   518
                                                   =======  =======  =======

Earnings per share basic and diluted               $   .57  $   .46  $   .79
                                                   =======  =======  =======




     See accompanying notes to consolidated financial statements.

                                       29
<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES


               CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  EQUITY
                 Years ended September 30, 1999, 1998, and 1997
                 (In thousands, except share and per share data)


                                               Additional
                             Preferred Common    Paid-In  Retained
                               Stock    Stock    Capital  Earnings    Total
                             --------- ------  ---------- ---------  -------

Balance at October 1, 1996    $    1   $     2   $ 2,743   $ 1,570   $4,316

Net income                         -         -         -       605      605

Dividends ($1.00 per preferred
  share)                           -         -         -       (87)     (87)
                              ------    ------    ------    ------   ------


Balance at September 30, 1997      1         2     2,743     2,088    4,834

Issuance of 200,000 shares of
   Company common stock, net
   of stock issue cost of $276     -         2     1,722         -    1,724

Purchase of fractional shares
  of Bank stock and stock of
   dissenting stockholders         -         -    (1,744)   (2,199)  (3,943)

 Minority interest                (1)        -      (872)        -     (873)

 Cash dividends paid by Bank
   ($.50 per common share,
   $.50 per preferred share)       -         -         -      (164)    (164)

 Net income                        -         -         -       292      292
                              ------    ------    ------    ------   ------
Balance at September 30, 1998      -         4     1,849        17    1,870

Issuance of 10% stock dividend     -         -       211      (211)       -

 Net income                        -         -         -       245      245
                              ------    ------    ------    ------   ------
Balance at September 30, 1999 $    -    $    4    $2,060    $   51   $2,115
                              ======    ======    ======    ======   ======


           See accompanying notes to consolidted financial statements.

                                       30
<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended September 30, 1999, 1998, and 1997
                                 (In thousands)


                                                     1999     1998     1997
                                                     ----     ----     ----

CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                      $   245  $   292  $   605
   Adjustments to reconcile net income to net
     cash provided by
     (used in) operating activities
     Depreciation                                      324      232      166
     Amortization of premiums and discounts
       on mortgage-
       backed securities, net                            5        4        4
     Amortization of debt issue costs                  100       67        -
     Net change in loans held for sale              (1,491)      (8)     269
     Origination of loan servicing rights             (642)       -        -
     Amortization of loan servicing rights              97        -        -
     Change in net deferred loan origination fees       52      124       39
     Change in deferred income taxes                   (23)     (21)     133
     Net (gains) losses on sales of
       Foreclosed real estate                            1       27      (12)
       Mortgage loans                                 (167)    (116)     (54)
       Mortgage servicing rights                      (142)    (113)     (94)
       Consumer loans                                 (478)       -        -
     Provision for loan losses and foreclosed real
      estate                                           129       79       25
     Federal Home Loan Bank stock dividend             (22)     (38)     (51)
     Change in
       Accrued interest receivable                      (5)     (71)    (208)
       Other assets                                   (474)     190     (956)
       Accrued interest payable and other
        liabilities                                    172      480     (369)
                                                     -----  -------  -------
         Net cash (used in) provided by operating
          activities                                (2,319)   1,128     (503)

CASH FLOWS FROM INVESTING ACTIVITIES
   Net decrease (increase) in loans receivable       3,291   (6,613) (15,960)
   Purchase of securities available-for-sale             -       (5)       -
   Principal payments on mortgage-backed securities    257      192      138
   Proceeds from maturities of securities held-to
    -maturity                                            -        -    1,000
   Proceeds from sale of mortgage servicing rights     142      113       94
   Proceeds from redemption of Federal Home Loan
    Bank stock                                           -      552        -
   Capital expenditures on premises and equipment
    , net                                             (787)    (751)    (359)
   Capital expenditures on foreclosed real estate      (77)     (40)     (67)
   Proceeds from sale of foreclosed real estate         30       28      159
                                                     -----  -------  -------
     Net cash provided by (used in) investing
      activities                                     2,856   (6,524) (14,995)

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase (decrease) in deposits                (314)  14,746    7,131
   Net increase (decrease) in advance payments
    by borrowers for insurance                         (45)       1       79
   Net increase (decrease) in Federal Home Loan
    Bank Advances                                     (800)  (9,200)  10,000
   Net proceeds from issuance of debentures              -    3,128        -
   Net proceeds from issuance of common stock            -    1,724        -
   Purchase and retirement of Bank stock                 -   (3,943)       -
   Dividends paid on preferred and common stock          -     (164)     (87)
                                                     -----  -------  -------
     Net cash (used in) provided by financing
      activities                                    (1,159)   6,292   17,123
                                                     -----  -------  -------


                                  (Continued)

                                       31
<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                    CONSOLIDATED  STATEMENTS OF CASH FLOWS
                 Years ended September 30, 1999, 1998, and 1997
                                 (In thousands)



                                                     1999     1998     1997
                                                     ----     ----     ----

Change in cash and cash equivalents                $  (622) $   896  $ 1,625

Cash and cash equivalents at beginning of year       5,327    4,431    2,806
                                                   -------  -------  -------
CASH AND CASH EQUIVALENTS AT END OF YEAR           $ 4,705  $ 5,327  $ 4,431
                                                   =======  =======  =======

Supplemental disclosures of cash flow information
   Cash paid during the year for
     Interest                                      $ 3,550  $ 3,305  $ 2,628
     Income taxes                                      254      156      165

Supplemental disclosure of noncash investing
 activities
   Net transfer between loans and foreclosed
    real estate                                         245     223       23





          See accompanying notes to consolidated financial statements.
                                       32
<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION:  The accompanying  consolidated  financial statements for
the year ended  September  30, 1999  include the  accounts of The  Bryan-College
Station   Financial   Holding  Company  (the  "Company")  and  its  wholly-owned
subsidiaries  First  Federal  Savings Bank (the "Bank") and Best of Texas,  Inc.
(the  "Dealership").  On April 1, 1998, the Company was capitalized  through the
issuance  of  200,000  shares  of  common  stock  at $10  per  share.  The  Bank
concurrently   became  a   wholly-owned   subsidiary   of  the   Company   in  a
stock-for-stock   exchange   with  bank   stockholders.   Stock  of   dissenting
stockholders and fractional  shares were purchased by the Company for $24.07 per
share. Since the transaction was an internal reorganization, the historical cost
basis of  accounting  is  continued  for the  Bank.  On  August  30,  1999,  the
Dealership was capitalized through the issuance of 500 shares of common stock at
$.01 per share.

The 1999 and 1998  consolidated  financial  statements  include the accounts and
results of  operations  of the Company,  the Bank,  and the Bank's  wholly-owned
subsidiary First Service  Corporation of Bryan. The 1999 consolidated  financial
statements also include the accounts of the  Dealership.  The September 30, 1997
consolidated  financial  statements  include  the  accounts  of the Bank and its
wholly-owned subsidiary.  All significant intercompany transactions and balances
have been eliminated in consolidation.

NATURE OF  OPERATIONS:  The only business of the Company is the ownership of the
Bank and the  Dealership.  The Bank is a federally  chartered stock savings bank
and a member of the  Federal  Home  Loan  Bank  (FHLB)  system  which  maintains
insurance on deposit accounts with the Savings Association Insurance Fund (SAIF)
of the  Federal  Deposit  Insurance  Corporation.  The Bank  makes  residential,
commercial  real estate,  and consumer  loans  primarily in Brazos County Texas.
Substantially  all loans are secured by specific items of collateral,  including
real estate, residences, and consumer assets. The Dealership was capitalized but
had not begun operations as of September 30, 1999.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:  The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
income and expenses  during the reporting  period.  Actual  results could differ
from those  estimates.  The  collectibility  of loans,  fair value of  financial
instruments, and status of contingencies are particularly subject to change.

SECURITIES:  Securities are classified as  held-to-maturity  when management has
the intent and the Company has the ability to hold those securities to maturity.
All other securities are classified as available-for-sale  since the Company may
decide to sell those securities in response to changes in market interest rates,
liquidity needs, changes in yields or alternative



                                  (Continued)
                                       33
<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

investments,  and for other reasons.  These securities are carried at fair value
with unrealized gains and losses charged or credited,  net of income taxes, to a
valuation  allowance included as a separate  component of stockholders'  equity.
Premiums and  discounts  are  recognized  in interest  income using methods that
approximate the level-yield method. Realized gains and losses on disposition are
based on the net proceeds and the adjusted  carrying  amounts of the  securities
sold, using the specific identification method.

LOANS  RECEIVABLE:  Loans receivable are stated at unpaid principal  balances,
less the  allowance  for loan losses and deferred  loan  origination  fees and
discounts.

ALLOWANCE  FOR LOAN LOSSES:  Because  some loans may not be repaid in full,  the
Company has established an allowance for loan losses. Increases to the allowance
are recorded by a provision for loan losses  charged to expense.  Estimating the
risk of the loss and the amount of loss on any loan is  necessarily  subjective.
Accordingly,  the allowance is  maintained  by management at a level  considered
adequate to cover possible losses that are currently  anticipated  based on past
loss  experience,  general  economic  conditions,   information  about  specific
borrower  situations  including their financial  position and collateral values,
and other  factors and  estimates  which are subject to change over time.  While
management  may  periodically  allocate  portions of the  allowance for specific
problem  loan  situations,  the  whole  allowance  is  available  for  any  loan
charge-offs  that  occur.  A  loan  is  charged-off  against  the  allowance  by
management  as a loss when deemed  uncollectible,  although  collection  efforts
continue and future recoveries may occur.

The Company measures  impaired loans based on the present value of expected cash
flows  discounted  at the  loan's  effective  interest  rate or, as a  practical
expedient, at the loan's observable market price or the fair value of collateral
if the loan is collateral dependent. Loans considered to be impaired are reduced
to the  present  value of  expected  future  cash  flows or to the fair value of
collateral,  by  allocating a portion of the  allowance  for loan losses to such
loans. If these allocations cause the allowance for loan losses to be increased,
such increase is reported as a provision for loan losses.

Smaller  balance  homogeneous  loans are defined as  residential  first mortgage
loans secured by one-to-four-family residences,  residential construction loans,
and consumer loans and are evaluated  collectively  for  impairment.  Commercial
real  estate  loans are  evaluated  individually  for  impairment.  Normal  loan
evaluation procedures,  as described in the second preceding paragraph, are used
to identify loans which must be evaluated for impairment.
 In general,  loans  classified as "doubtful" or "loss" are considered  impaired
while  loans  classified  as  "substandard"   are  individually   evaluated  for
impairment.  Depending on the relative size of the credit relationship,  late or
insufficient payments of 30 to 90 days will cause management to




                                  (Continued)
                                       34

<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

reevaluate  the credit under its normal loan  evaluation  procedures.  While the
factors which identify a credit for consideration for measurement of impairment,
or nonaccrual,  are similar,  the measurement  considerations  differ. A loan is
impaired when the economic value estimated to be received is less than the value
implied in the original  credit  agreement.  A loan is placed in nonaccrual when
payments  are  more  than  90 days  past  due  unless  the  loan  is  adequately
collateralized  and in the process of  collection.  Although  impaired  loan and
nonaccrual loan balances are measured differently,  impaired loan disclosures do
not differ significantly from nonaccrual and renegotiated loan disclosures.

RECOGNITION  OF INCOME ON LOANS:  Interest on loans is accrued  over the term of
the loans based on the principal balance outstanding. Where serious doubt exists
as to the collectibility of a loan, the accrual of interest is discontinued.

LOAN FEES AND COSTS:  The Company defers loan  origination  fees, net of certain
direct loan  origination  costs. The net amount deferred is netted against loans
in the balance sheet and is recognized in interest income as a yield  adjustment
over the contractual term of the loan, adjusted for prepayments.

LOAN SALES:  The Company sells a portion of its mortgage loan  production in the
secondary market with servicing released.  The Company obtains sales commitments
on these  loans  immediately  prior to making the  origination  commitment.  The
Company  also  sells a portion of its  consumer  indirect  loans with  servicing
retained on these loans.  Loans  classified  as held for sale are carried at the
lower of cost or  market  value in the  aggregate.  Net  unrealized  losses  are
recognized by charges to income.

SERVICING RIGHTS: The Bank originates  mortgage and consumer loans for sale to
the  secondary  market.  When  servicing on sold loans is  retained,  the Bank
capitalizes the cost of servicing rights.

The consumer  loans are sold at a rate less than the original  coupon rate.  The
servicing asset is recorded at the present value of the remaining payment stream
to the Bank with  assumptions such as estimated life,  delinquencies,  and other
risks factored into the discount rate.  The  capitalized  cost of loan servicing
rights is amortized in proportion to and over the period of estimated net future
revenue.

PREMISES AND EQUIPMENT:  The Company's premises and equipment are stated at cost
less accumulated depreciation.  The Company's premises and related furniture and
equipment are depreciated  using the  straight-line  method over their estimated
useful lives.  Maintenance and repairs are charged to expense,  and improvements
are capitalized.



                                  (Continued)
                                       35

<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

FORECLOSED  REAL ESTATE:  Real estate acquired  through  foreclosure and similar
proceedings is carried at the lower of cost (fair value of the asset at the date
of  foreclosure)  or  fair  value  less  estimated  costs  to  sell.  Losses  on
disposition, including expenses incurred in connection with the disposition, are
charged to operations.  Valuation  allowances are recognized when the fair value
less  selling  expenses  is less  than the  cost of the  asset.  Changes  in the
valuation allowance are charged or credited to income.

STATEMENT OF CASH FLOWS:  Cash and cash  equivalents  are defined to include the
Company's  cash  on  hand,  demand  balances,   interest-bearing  deposits  with
financial institutions, and investments in certificates of deposit with original
maturities of less than three months.

INCOME  TAXES:  The Company  records  income tax expense  based on the amount of
taxes due on its tax return plus deferred taxes computed on the expected  future
tax consequences of temporary  differences  between the carrying amounts and tax
bases of assets and liabilities, using enacted tax rates.

EARNINGS  PER COMMON  SHARE:  Amounts  reported as earnings per common share for
each of the three years ended September 30, 1999 reflect  earnings  available to
common  stockholders  for the year  divided by the  weighted  average  number of
common shares outstanding during the year. Earnings per share for the year ended
September  30,  1997 has been  restated  to reflect  the 2.5  exchange  ratio of
Company common stock for Bank common stock.  Weighted average common shares were
428,409,  543,656, and 658,933 for the years ended September 30, 1999, 1998, and
1997  adjusted for a 10% stock  dividend in 1999.  The warrants  attached to the
3,629 units  issued by the  Company on April 1, 1998 have an  exercise  price of
$12.50 per share and the stock options  granted on May 25, 1999 have an exercise
price of $8.00 per share.  The  warrants  and stock  options are not included in
diluted  earnings per share since the exercise price exceeds the market price of
the stock.

In future years,  outstanding  stock options and warrants may be exercised which
would increase the weighted  average  common shares  outstanding  and,  thereby,
dilute earnings per share.  In addition,  if the average common stock price were
to exceed the  exercise  price of  outstanding  options and warrants in a future
year,  the assumed  exercise of the options and  warrants  would have a dilutive
effect on earnings per share for that future year. However,  previously reported
earnings  per share and diluted  earnings  per share are not restated to reflect
change in the status of changes in the relationship  between exercise prices and
average stock prices.


                                  (Continued)
                                       36


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 2 - SECURITIES

The amortized cost and fair values of securities at September 30 are as follows:

                                    ..................1 9 9 9..............
                                                 Gross      Gross
                                   Amortized  Unrealized Unrealized   Fair
                                       COST      GAINS     LOSSES     VALUE
AVAILABLE-FOR-SALE
   Equity stock                     $      5   $     -   $      -   $     5
                                    ========   =======   ========   =======

HELD-TO-MATURITY
   FHLMC certificates               $    447   $     -   $    (22)  $   425
   FNMA certificates                     245         2         (5)      242
                                    --------   -------   --------   -------
                                    $    692   $     2   $    (27)  $   667
                                    ========   =======   ========   =======

                                    ..................1 9 9 8..............
                                                 Gross      Gross
                                    Amortized Unrealized Unrealized   Fair
                                       COST      GAINS     LOSSES     VALUE
AVAILABLE-FOR-SALE
   Equity stock                     $      5   $     -   $      -   $     5
                                    ========   =======   ========   =======

HELD-TO-MATURITY
   FHLMC certificates               $    655   $     2   $    (14)  $   643
   FNMA certificates                     299         4         (1)      302
                                    --------   -------   --------   -------
                                    $    954   $     6   $    (15)  $   945
                                    ========   =======   ========   =======

Mortgage-backed  securities  have varying  maturities.  Expected  maturities may
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.



                                  (Continued)
                                       37


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 3 - LOANS

Loans receivable at September 30 are summarized as follows:

                                                           1999       1998
   First mortgage loans
    Principal balances:
         Secured by one-to-four-family residences        $ 33,436   $32,846
         Secured by other properties                        5,865     4,616
         Construction loans                                 4,800     6,166
                                                         --------   -------
                                                           44,101    43,628

      Less:
         Undisbursed portion of loans                      (1,669)   (2,089)
         Net deferred loan origination fees                  (159)     (140)
         Deferred gain                                         (3)       (3)
                                                         --------   -------
            Total first mortgage loans                     42,270    41,396

   Consumer and other loans
    Principal balances:
         Automobile loans                                  18,529    24,636
         Home equity and second mortgage                       12        37
         Loans secured by deposit accounts                  1,080       951
         Commercial loans                                   2,988     3,024
         Other consumer loans                               2,961     1,199
                                                         --------   -------
                                                           25,570    29,847
         Net deferred loan origination costs                   77       110
         Net premiums on indirect loans                       383       620
                                                         --------   -------
            Total consumer and other loans                 26,030    30,577

   Less allowance for loan losses                            (326)     (307)
                                                         --------   -------
                                                         $ 67,974   $71,666
                                                         ========   =======


                                  (Continued)
                                       38


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 3 - LOANS (Continued)

A summary of the activity in the allowance for loan losses follows:

                                                 1999       1998      1997
                                                 ----       ----      ----

   Balance at beginning of year                $   307   $    273   $   247
   Provision charged to operations                 104         79        25
   Charge-offs                                     (92)       (75)       (5)
   Recoveries                                        7         30         6
                                               -------   --------   -------
      Balance at end of year                   $   326   $    307   $   273
                                               =======   ========   =======

There were no impaired  loans during the three years ended  September  30, 1999.
 Nonaccrual loans totaled approximately $32,000 and $8,000 at September 30,
1999 and 1997,  respectively.  The  approximate  amounts of interest income that
would have been recorded under the original terms of such loans and the interest
income  actually  recognized for the years ended  September 30 are not material.
There were no nonaccrual loans at September 30, 1998.

The largest  portion of the Company's  loans are  originated  for the purpose of
enabling borrowers to purchase residential real estate property secured by first
liens  on  such  property.  At  September  30,  1999,  approximately  49% of the
Company's loans were secured by owner-occupied,  one-to-four-family  residential
property.  The Company requires  collateral on all loans and generally maintains
loan-to-value  ratios of 80% or less. The Company also  originates a significant
amount of  automobile  loans which  totaled  approximately  27% of the Company's
loans at September 30, 1999. Approximately 69% of the automobile loans are those
originated under the Company's Second Chance Loan program.  These loans are made
to  individuals  with a less than perfect  credit  history,  which  results in a
higher interest rate to the Company.  These loans are insured for credit default
as a means of reducing the risk of loss to the Company.

The Company has granted loans to certain  officers and directors of the Bank and
Company.  Related-party  loans  are  made on  substantially  the  same  terms as
comparable transactions with unrelated persons.


                                  (Continued)
                                       39


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 3 - LOANS (Continued)

Activity in the loan accounts of executive  officers,  directors,  and principal
stockholders is as follows:
                                                           1999       1998

   Balance at beginning of year                          $    649   $   678
   Loans disbursed                                            381       379
   Principal repayments                                      (241)     (251)
   Change in persons classified as related parties            (61)     (157)
                                                         --------   -------
      Balance at end of year                             $    728   $   649
                                                         ========   =======

NOTE 4 - SECONDARY MARKET OPERATIONS

The following summarizes the Company's secondary market activities:


                                                 1999      1998      1997
                                                 ----      ----      ----
MORTGAGE
   Proceeds from sale of mortgage loans        $16,980   $ 11,526   $ 7,821
                                               =======   ========   =======
   Gain on sale of mortgage loans              $   167   $    116   $    54

   Gain on sale of mortgage servicing rights       142        113        94
                                               -------   --------   -------

                                               $   309   $    229   $   148
                                               =======   ========   =======

   Loans serviced for others                   $ 1,819   $  1,966   $ 1,588
                                               =======   ========   =======

CONSUMER
   Proceeds from sale of consumer loans        $ 5,693   $      -   $     -
                                               =======   ========   =======

   Gain on sale of consumer loans              $   478   $      -   $     -
                                               =======   ========   =======

   Loans serviced for others                   $ 4,959   $      -   $     -
                                               =======   ========   =======



                                  (Continued)
                                       40

<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 4 - SECONDARY MARKET OPERATIONS (Continued)

Following  is an analysis of the change in  servicing  rights for the year ended
September 30, 1999:

                Balance, September 30, 1998         $      -
                Additions                                642
                Amortization                             (97)
                                                    --------
               Balance, September 30, 1999         $     545
                                                    ========


NOTE 5 - PREMISES AND EQUIPMENT

A summary of premises and equipment at September 30 is as follows:

                                                            1999      1998
                                                            ----      ----

   Land                                                  $    441   $   423
   Buildings and improvements                               1,394       987
   Furniture and equipment                                  1,915     1,730
   Construction in process                                    162         -
                                                         --------   -------
      Total cost                                            3,912     3,140
   Accumulated depreciation                                (1,813)   (1,504)
                                                         --------   -------
                                                         $  2,099   $ 1,636
                                                         ========   =======

The Bank is in the process of  constructing  a full-service  branch  facility in
north Bryan,  Texas.  At September  30, 1999,  the Bank was committed to pay the
remaining cost of $234,000 for completion of the building.


NOTE 6 - DEPOSITS

Certificate of deposit accounts with a minimum  denomination of $100,000 or more
totaled $8,236,000 and $9,109,000 at September 30, 1999 and 1998, respectively.

At September 30, 1999,  scheduled  maturities of  certificates of deposit are as
follows:

               Year Ending
               -----------
                  2000                          $ 39,526
                  2001                             5,784
                  2002                               922
                  2003                               254
                  2004                               546
                                                --------
                                                $ 47,032
                                                ========

                                  (Continued)
                                       41


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 7 - ADVANCES FROM FEDERAL HOME LOAN BANK AND DEBENTURES

At September  30, 1998 secured  advances from the Federal Home Loan Bank were as
follows:

            Interest Rate     Maturity Date              Balance
            -------------     -------------              -------
               5.52%             10/2/98                 $  500
               5.29              10/5/98                    300
                                                         ------
                                                         $  800
                                                         ======
The  maximum  amount of credit  available,  secured  by a blanket  lien on first
mortgages,  is the lesser of 75% of qualifying collateral or 35% of total assets
of the Bank.  At September  30, 1999,  the Bank had the ability,  if needed,  to
borrow up to $28.5 million from the Federal Home Loan Bank of Dallas.

The Bank  maintains a collateral  pledge  agreement  covering  secured  advances
whereby  the Bank has  agreed  to at all times  keep on hand,  free of all other
pledges,  liens, and encumbrances,  first mortgage loans on residential property
(not  more  than 90 days  delinquent),  aggregating  no  less  than  133% of the
outstanding secured advances from the Federal Home Loan Bank of Dallas.

Debentures  consist of 3,629 units,  each unit consisting of a $1,000  debenture
and nine  detachable  warrants  exercisable  at an exercise  price of $12.50 per
share. At September 30, 1999 and 1998, notes payable total  $3,629,000,  bear an
interest rate of 11.5%, and mature on March 31, 2003.




                                  (Continued)
                                       42


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 8 - BENEFIT PLANS

During  1999,  the  Company's  Board of  Directors  adopted a stock  option  and
incentive plan (the Plan) under the terms of which 40,000 shares of common stock
were reserved for issuance. The options become exercisable immediately upon date
of grant and  expiration  terms will be no greater than ten years for  incentive
stock  options,  and no  greater  than  fifteen  years for  non-qualified  stock
options.

A summary of the  status of the  Corporation's  stock  option  plan and  changes
during the year are presented below:
                                                                   Weighted-
                                                                    Average
                                                        1999       Exercise
                                                       Shares        Price
                                                     ----------    ---------
   Outstanding at beginning of year                           -    $     -
   Granted                                               27,250       8.00
   Exercised                                                  -          -
   Forfeited                                                  -          -
                                                      ---------    -------
      Outstanding at end of year                         27,250    $  8.00
                                                      =========    =======
   Options exercisable at end of year                    27,250
   Weighted-average fair value of
     options granted during year                       $    .97
   Average remaining option term                     11.9 years

The Corporation applies APB Opinion 25 and related Interpretations in accounting
for its stock option plan. Accordingly, no compensation cost has been recognized
at the date of grant.  Had  compensation  cost been determined based on the fair
value at the grant dates for awards under the plan consistent with the method of
SFAS No. 123,  "Accounting for Stock-Based  Compensation," the Corporation's net
income and earnings  per share would have been reduced to the pro forma  amounts
in the table below.  For purposes of pro forma  disclosure,  the estimated  fair
value of the options is amortized to expense over the options' vesting period.


                                  (Continued)
                                       43


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 8 - BENEFIT PLANS (Continued)

                                                  September 30,
                                                      1999
                                                      ----
      Net income as reported                       $  245
      Pro forma net income                            225
      Earnings per share as reported
         Basic and diluted                            .57
      Pro forma earnings per share
         Basic and diluted                            .53

The  Black-Scholes  option  pricing  valuation  model was  developed  for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because changes in the subjective input  assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.

                                                       Incentive Non-Qualified
                                                         Stock      Stock
                                                        Options    Options
                                                       --------- -------------
      Date of grant                                     5/25/99   5/25/99
      Options granted                                    15,250    12,000
      Estimated fair value stock of options granted:   $    .48   $  1.60
      Assumptions used:
         Risk-free interest rate                           5.61%     5.61%
         Expected option life                           10 years  15 years
         Expected stock price volatility                    N/A      N/A
         Expected dividend yield                            N/A      N/A

In 1999, the Company curtailed and initiated  termination of its defined benefit
pension plan which covers  substantially  all employees.  A curtailment  loss of
approximately $172,000 was recognized in 1999.

The Bank's plan covers  substantially  all of the  employees.  The  benefits are
based on years of service and an employee's compensation during the highest five
years out of the last ten years of  employment.  The Bank's funding policy is to
contribute each year an amount which satisfies the regulatory funding standards.
The  contributions  are invested in a Lincoln  National Group  Variable  Annuity
Contract.


                                  (Continued)
                                       44


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 8 - BENEFIT PLANS (Continued)

The funded status of the plan at September 30 is as follows:
                                                           1999       1998
                                                           ----       ----
   Change in benefit obligation:
      Beginning benefit obligation                       $    676   $   595
      Service cost                                             69        82
      Interest cost                                            47        41
      Actuarial (gain) loss                                    20        (6)
      Benefits paid                                           (57)      (36)
                                                         --------   -------
         Ending benefit obligation                       $    755   $   676
                                                         ========   =======

   Change in plan assets:
      Beginning fair value                               $    542   $   437
      Actual return                                            32        21
      Employer contribution                                    62       120
      Benefits paid                                           (57)      (36)
                                                         --------   -------
         Ending fair value                               $    579   $   542
                                                         ========   =======

   Funded status                                         $   (176)  $  (134)
   Unrecognized net actuarial loss                              -        55
   Unrecognized net transition obligation                       -       104
                                                         --------   -------
      Prepaid (accrued) benefit cost                     $   (176)  $    25
                                                         ========   =======

                                               ..YEAR ENDED SEPTEMBER 30,..
                                                 1999      1998       1997
                                                 ----      ----       ----
Net pension cost includes the following
 components:
   Service cost earned during the period       $    69   $     82   $    69
   Interest cost                                    47         42        35
   Expected return on plan assets                  (38)       (31)      (23)
   Net amortization and deferral                    13         16         9
   Curtailment loss                                172          -         -
                                               -------   --------   -------
      Net periodic pension cost                $   263   $    109   $    90
                                               =======   ========   =======



                                  (Continued)
                                       45

<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 8 - BENEFIT PLANS (Continued)

The assumptions used to develop the net periodic pension cost were:

                                               ..YEAR ENDED SEPTEMBER 30,..
                                                 1999      1998       1997
                                                ------    ------     ------
   Discount rate                                 7%        7%         7%
   Expected long-term rate of return on assets   7%        7%         7%
   Rate of increase in compensation levels       5%        5%         5%

An employee  401(k)  profit  sharing plan was approved by the Board of Directors
effective  January 1, 1999. The plan covers  employees  having  completed  three
months  of  service  and who are at least 21  years  of age.  Discretionary  and
matching  contributions  to the profit  sharing plan are determined and approved
annually by the Company's Board of Directors.  There were no  contributions  for
the year ended September 30, 1999.

The Bank entered into an employment,  consulting,  and  supplemental  retirement
agreement on July 1, 1997 with the President and Chief Executive  Officer of the
Bank. The  employment  and consulting  portions of the agreement have a combined
term of five years from the  commencement  date of July 1, 1997.  The consulting
portion commences upon completion of the three-year  employment period and calls
for  annual   consulting   fees  equal  to  $58,200  payable  in  equal  monthly
installments.  The supplemental  retirement  agreement commences on the later of
the retirement date or July 1, 2002 and is based on services  commencing on July
1,  1997.  The  President's  salary  is  reduced  by 50% of  the  amount  of the
retirement expense incurred each month by the Bank.


NOTE 9 - REGULATORY AND CAPITAL MATTERS

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


                                  (Continued)
                                       46


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 9 - REGULATORY AND CAPITAL MATTERS (Continued)

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and ratios of total and Tier I
capital as defined in the regulations to risk-weighted  assets as defined and of
Tier I capital to average assets as defined.  As of September 30, 1999, the most
recent  notification from the Office of Thrift Supervision  categorized the Bank
as adequately  capitalized under the regulatory  framework for prompt corrective
action.  To be categorized as well  capitalized,  the Bank must maintain minimum
total  risk-based,  Tier I risk-based,  and Tier I leverage ratios. At September
30,  1999 and 1998,  the Bank did not meet the  minimum  requirement  to be well
capitalized under prompt corrective action regulations.

At year end, actual capital levels of the Bank and minimum required levels were:

<TABLE>
<CAPTION>
                                                                            Minimum Required
                                                                               to Be Well
                                                         Minimum Required   Capitalized Under
                                                            for Capital     Prompt Corrective
                                              Actual     Adequacy Purposes Action Regulations
                                              ------     ----------------- ------------------
                                          Amount   Ratio  Amount   Ratio   Amount     Ratio
                                          ------   -----  ------   -----   ------     -----
<S>                                        <C>        <C>    <C>    <C>    <C>          <C>

1999
----
Total capital (to risk-weighted assets)  $6,154     9.08%  $5,419  8.00%   $6,774      10.00%
Tier 1 (core) capital (to risk-weighted
  assets)                                 5,828     8.62    2,709  4.00     4,064       6.00
Tier 1 (core) capital (to adjusted total
 assets)                                  5,828     7.16    3,257  4.00     4,071       5.00

1998
----
Total capital (to risk-weighted assets)  $5,563     8.52%  $5,226  8.00%   $6,533      10.00%
Tier 1 (core) capital (to risk-weighted
  assets)                                 5,256     8.04    2,615  4.00     3,922       6.00
Tier 1 (core) capital (to adjusted total
 assets)                                  5,256     6.43    3,269  4.00     4,088       5.00
</TABLE>

Accordingly,  management  considers the capital  requirements  to have been met.
Regulations also include restrictions on loans to one borrower; certain types of
investments and loans; loans to officers, directors, and principal stockholders;
brokered deposits; and transactions with affiliates.

Federal  regulations  require the Bank to comply with a Qualified  Thrift Lender
(QTL) test which  requires that 65% of assets be  maintained in  housing-related
finance  and other  specified  assets.  If the QTL test is not met,  limits  are
placed on growth,  branching,  new investments,  FHLB advances, and dividends or
the institution must convert to a commercial bank charter.  Management considers
the QTL test to have been met.



                                  (Continued)
                                       47

<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 9 - REGULATORY AND CAPITAL MATTERS (Continued)

Bank Series A preferred stock has a $ .01 par value, is nonvoting,  and entitles
the  holder  to  a  $10  per  share  liquidation  preference.  The  stock  bears
non-cumulative  quarterly  dividends  at an annual  rate of 10%.  At the  Bank's
option,  the stock can be redeemed after two years.  The Bank preferred stock is
reflected  as minority  interest in the  consolidated  statements  of  financial
condition.


NOTE 10 - COMMITMENTS, CONTINGENT LIABILITIES, AND CONCENTRATIONS

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These financial  instruments consist of commitments to make loans and fund lines
of credit and  loans-in-process.  The  Company's  exposure to credit loss in the
event of  nonperformance  by the other party to these  financial  instruments is
represented by the contractual amount of these instruments.  The Company follows
the same credit policy to make such commitments as it uses for  on-balance-sheet
items.

At September 30, these financial instruments are summarized as follows:

                                                               Contract
                                                                Amount
                                                                ------
                                                           1999       1998
                                                           ----       ----
Financial instruments whose contract amounts
 represent credit risk:
      Commitments to make loans                          $  4,244   $ 3,197
      Loans-in-process                                      1,669     2,089
      Lines of credit                                         701       974
      Letters of credit                                       452        73

The Company had $4,244,000 of fixed rate commitments to originate loans, ranging
from 7.375% to 10% at September 30, 1999. The commitments have terms of 75 days.
Since many commitments to make loans expire without being used, the amount above
does not  necessarily  represent  future  cash  commitments.  Collateral  may be
obtained upon  exercise of a commitment.  The amount of collateral is determined
by management and may include  commercial and residential  real estate and other
business and consumer assets.

Financial instruments which potentially subject the Company to concentrations of
credit  risk  include  interest-bearing  deposit  accounts  in  other  financial
institutions  and loans. At September 30, 1999, the Company had deposit accounts
with balances totaling  approximately $1.6 million at the Federal Home Loan Bank
of Dallas. Concentrations of loans are described in Note 3.


                                  (Continued)
                                       48


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 10 - COMMITMENTS, CONTINGENT LIABILITIES, AND CONCENTRATIONS
  (Continued)

The Company is, from time to time,  a party to certain  lawsuits  arising in the
ordinary  course of its business.  The Bank believes that none of these lawsuits
would, if adversely determined,  have a material adverse effect on its financial
condition, results of operations, or capital.

During September 1996, the Company entered into a noncancelable  operating lease
for office space relating to mortgage  operations.  The lease expired August 31,
1998 and the  Company is leasing the space  month to month  until  December  31,
1999.  The Company  has entered  into a new  noncancelable  operating  lease for
office space for the mortgage  operations  effective January 1, 1999 with a term
of three  years and one  option  to renew for an  additional  three  years.  The
Company  also entered into a  noncancelable  operating  lease for premises to be
used for the purpose of automobile  sales related to the  Dealership.  The lease
became effective August 1, 1999 with a term to expire on May 14, 2001. The lease
provides for  continual  options to renew for two-year  terms until the death of
the lessor. In addition,  the Company paid $10,000 for an option to purchase the
property upon the death of the lessor for a minimum  price of $110,000  adjusted
by any increase in the Consumer Price Index.  Rental  expense was  approximately
$25,000  and  $29,000  for  the  years  ended   September  30,  1999  and  1998,
respectively.  Projected  minimum  payments  under the terms of the leases,  not
including insurance and maintenance, are as follows:

                  2000                                $   45
                  2001                                    37
                  2002                                     5
                  2003                                     -
                                                      ------
                                                      $   87
                                                      ======

NOTE 11 - INCOME TAX EXPENSE

The provision for income tax expense consists of the following:

                                               ...YEAR ENDED SEPTEMBER 30,..
                                                 1999       1998      1997
                                                 ----       ----      ----
   Current income tax expense                  $   222   $    185   $   179
   Deferred income tax expense (benefit)           (23)       (21)      133
                                               -------   --------   -------
                                               $   199   $    164   $   312
                                               =======   ========   =======


                                  (Continued)
                                       49



<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 11 - INCOME TAX EXPENSE (Continued)

The  provision  for income  tax  differs  from that  computed  at the  statutory
corporate tax rate as follows:
                                               ...YEAR ENDED SEPTEMBER 30,..
                                                 1999       1998      1997
                                                 ----       ----      ----
   Tax expense at statutory rate (34%)         $   151   $    155   $   312
   Nondeductible reorganization costs               17          6         -
   Preferred stock dividends                        29         15         -
   Other tax effects                                 2        (12)        -
                                               -------   --------   -------
                                               $   199   $    164   $   312
                                               =======   ========   =======

The Bank has  qualified  under  provisions  of the  Internal  Revenue Code which
permit it to deduct from taxable  income a provision for bad debts which differs
from the  provision  charged  to income in the  financial  statements.  Retained
earnings at September 30, 1999 include approximately $643,000,  representing tax
bad debt  provisions  through  1987,  for which no deferred  federal  income tax
liability has been recorded.

Deferred tax assets  (liabilities)  are  comprised of the following at September
30:

                                                           1999       1998
                                                           ----       ----
   Supplemental employee retirement agreement            $     61   $    34
   Pension liability                                           59         -
   Loans, principally due to allowance for losses              24         -
   Depreciation                                                12         8
                                                         --------   -------
      Total deferred tax assets                               156        42

   Federal Home Loan Bank stock dividends                     (69)     (141)
   Loans, principally due to allowance for losses               -       (99)
   Servicing rights                                          (262)        -
                                                         --------   -------
      Total deferred tax liabilities                         (331)     (240)
                                                         --------   -------
         Net deferred tax liabilities                    $   (175)  $  (198)
                                                         ========   =======


                                  (Continued)
                                       50


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The   approximate   carrying  amount  and  estimated  fair  value  of  financial
instruments at September 30 is as follows:

                                   ........1999.......   .......1998........
                                           ----                 ----
                                  Approximate            Approximate
                                   Carrying    Estimated  Carrying    Estimated
                                    AMOUNT    FAIR VALUE   AMOUNT     FAIR VALUE
                                  ----------- ---------- -----------  ----------
   Financial assets
      Cash and cash equivalents     $  4,705   $ 4,705   $  5,327   $ 5,327
      Securities                         697       672        959       950
      Loans, net of allowance for
       loan losses                    67,974    69,775     71,666    72,589
      Loans held for sale              2,464     2,464        328       328
      Federal Home Loan Bank stock       404       404        382       382
      Accrued interest receivable        613       613        608       608

   Financial liabilities
      Demand deposits                (21,079)  (21,079)   (18,797)  (18,797)
      Savings deposits                (5,129)   (5,129)    (5,199)   (5,199)
      Time deposits                  (47,032)  (47,132)   (49,558)  (49,719)
      Advance payments by borrowers
       for taxes and insurance          (818)     (818)      (863)     (863)
      Federal Home Loan Bank Advances      -         -       (800)     (800)
      Debentures                      (3,629)   (3,661)    (3,629)   (3,752)
      Accrued interest payable          (176)     (176)      (168)     (168)

For the purposes of above, the following assumptions were used:

CASH  AND  CASH  EQUIVALENTS:  The  estimated  fair  values  for  cash  and cash
equivalents are based on their carrying  values due to the short-term  nature of
these assets.

SECURITIES:  The fair  values of  securities  are based on the  quoted  market
value for the individual security or its equivalent.

LOANS: The estimated fair value for loans has been determined by calculating the
present  value of future cash flows based on the current rate the Company  would
charge for similar loans with similar maturities,  applied for an estimated time
period until the loan is assumed to be repriced or repaid.




                                  (Continued)
                                       51


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

FEDERAL  HOME LOAN BANK STOCK:  The fair value of Federal Home Loan Bank stock
is assumed to approximate its carrying value.

DEPOSIT  LIABILITIES:  The  estimated  fair  value  for time  deposits  has been
determined  by  calculating  the  present  value of future  cash flows  based on
estimates of rates the Company would pay on such deposits,  applied for the time
period until maturity. The estimated fair values of interest-bearing  demand and
savings deposits are assumed to approximate  their carrying values as management
establishes  rates on these  deposits  at a level  that  approximates  the local
market area. Additionally, these deposits can be withdrawn on demand.

ACCRUED INTEREST:  The fair values of accrued interest  receivable and payable
are assumed to equal their carrying values.

FEDERAL HOME LOAN BANK ADVANCES AND ADVANCE  PAYMENTS BY BORROWERS FOR TAXES AND
INSURANCE: The fair values are assumed to approximate the carrying values.

DEBENTURES:  The estimated fair value of debentures is based on calculating  the
present  value of  future  cash  flows  using the  current  rate for a note with
similar risk  characteristics  and similar length to maturity.  The current rate
was  obtained  from  inquiry  of  investment  bankers  familiar  with the thrift
industry and the risk  associated  with  debentures  based on recent issuance of
similar debentures.

OFF-BALANCE-SHEET  INSTRUMENTS:  Off-balance-sheet  items consist  principally
of  unfunded  loan  commitments.  The fair value of these  commitments  is not
material.

Other  assets  and   liabilities   of  the  Company  not  defined  as  financial
instruments,  such as  property  and  equipment,  are not  included in the above
disclosures.  Also not  included  are  nonfinancial  instruments  typically  not
recognized  in  financial  statements  such as the  value of core  deposits  and
similar items.

While  the  above  estimates  are  based on  management's  judgment  of the most
appropriate factors, there is no assurance that if the Company disposed of these
items on September 30, 1999,  the fair value would have been  achieved,  because
the market value may differ depending on the  circumstances.  The estimated fair
values at September  30, 1999 should not  necessarily  be considered to apply at
subsequent dates.



                                  (Continued)
                                       52



<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 13 - MERGER AND FORMATION OF HOLDING COMPANY

On April 1, 1998, First Federal Savings Bank became a wholly-owned subsidiary of
The  Bryan-College  Station  Financial  Holding Company through an agreement and
plan of merger.  The Company issued 200,000 shares of common stock at a price of
$10 per share and  3,629  units,  each  unit  consisting  of a $1,000  debenture
bearing  an  interest  rate of 11.5%  due  March  31,  2003 and nine  detachable
warrants. Each warrant entitles the unit holder to purchase one share of Company
common stock for $12.50 through March 31, 2003.  Existing  stockholders of First
Federal  Savings Bank exchanged one share of existing First Federal common stock
for two and one-half  shares of new holding  company  stock or sold their common
stock for cash of $24.07 per share. The Bank preferred stock was not affected by
the  reorganization  and is recorded as  minority  interest in the  consolidated
statements of financial condition.

Delaware law generally limits dividends of the Company to an amount equal to the
excess  of its net  assets  over its  paid-in  capital  or,  if there is no such
excess,  to its net profits for the current  and  immediately  preceding  fiscal
year.  In addition,  the Company is prohibited  from paying  dividends on junior
securities such as the Company's common stock unless all interest  payments with
respect to the debentures have been made.

Issuance costs  totaling  $276,000 were deducted from the proceeds of the shares
sold in the formation of the new holding company.


NOTE 14 - PARENT COMPANY ONLY FINANCIAL INFORMATION

                           CONDENSED BALANCE SHEET
                         September 30, 1999 and 1998

   ASSETS
   Cash                                         $       27        $     441
   Equity interest in bank subsidiary                5,828            5,256
   Other assets                                        860              764
                                                ----------        ---------
                                                $    6,715        $   6,461
                                                ==========        =========

   LIABILITIES AND STOCKHOLDERS' EQUITY
   Notes payable                                $    3,629        $   3,629
   Accrued interest and other liabilities               98               89
                                                ----------        ---------
      Total liabilities                              3,727            3,718

   Minority interest                                   873              873

   Stockholders' equity
      Common stock                                       4                4
      Additional paid-in capital                     2,060            1,849
      Retained earnings                                 51               17
                                                ----------        ---------
         Total stockholders' equity                  2,115            1,870
                                                ----------        ---------
                                                $    6,715        $   6,461
                                                ==========        =========

                                  (Continued)
                                       53



<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 14 - PARENT COMPANY ONLY FINANCIAL INFORMATION (Continued)

                        CONDENSED STATEMENT OF INCOME
                     For the year ending September 30, 1999
             and the period April 1, 1998 through September 30, 1998


                                                   1999             1998
                                                   ----             ----
   Income
      Interest income                           $        8        $       3
      Dividends from bank subsidiary                   156                -
      Other income                                       -               10
                                                ----------        ---------
         Total income                                  164               13

   Expenses
      Interest expense                                 425              210
      Other expenses                                   290              256
                                                ----------        ---------
         Total expenses                                715              466
                                                ----------        ---------

   LOSS BEFORE EQUITY IN UNDISTRIBUTED                (551)            (453)
     EARNINGS OF SUBSIDIARY

   Equity in undistributed earnings of Bank
    subsidiary                                         572              310
                                                ----------        ---------


   Income (loss) before income tax benefit              21             (143)

   Income tax benefit                                 (224)            (160)
                                                ----------        ---------
   Net income                                   $      245        $      17
                                                ==========        =========




                                  (Continued)
                                       54


<PAGE>


     THE BRYAN-COLLEGE STATION FINANCIAL HOLDING COMPANY AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                Years ended September 30, 1999, 1998, and 1997
                         (Table amounts in thousands)




NOTE 14 - PARENT COMPANY ONLY FINANCIAL INFORMATION (Continued)

                      CONDENSED STATEMENT OF CASH FLOWS
                    For the year ending September 30, 1999
           and the period April 1, 1998 through September 30, 1998


   CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                   $      245     $      17
      Adjustments to reconcile net income to
        net cash provided by operating activities:
         Equity in undistributed earnings of
          subsidiary                                     (572)         (310)
         Amortization of debt issuance and
           reorganization costs                           100            67
         Increase in other assets, net of
           liabilities                                   (187)         (242)
            Net cash used in operating activities        (414)         (468)

   CASH FLOWS FROM FINANCING ACTIVITIES
      Net proceeds from issuance of common stock            -         1,724
      Net proceeds from issuance of debentures              -         3,128
      Purchase and retirement of Bank stock                 -        (3,943)
                                                   ----------     ---------
         Net cash provided by financing activities          -           909
                                                   ----------     ---------

   Change in cash and cash equivalents                   (414)          441

   Cash and cash equivalents at beginning of period       441             -
                                                   ----------     ---------
   CASH AND CASH EQUIVALENTS AT END OF PERIOD      $       27     $     441
                                                   ==========     =========

   Supplemental disclosures of cash flow information
      Cash paid during the period for
         Interest                                  $      417     $     121




                                  (Continued)
                                       55


<PAGE>



                             CORPORATE INFORMATION

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

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


Annual Meeting

     The annual meeting of the Holding Company will be held on February 24, 2000
at 3:00 p.m.,  Bryan,  Texas time,  at the main  office of the  Holding  Company
located at 2900 Texas Avenue, Bryan, Texas.

Market Information

      The  Holding  Company's  common  stock  is  listed  on the OTC  Electronic
Bulletin Board under the symbol "BCSF."

      The following  table sets forth the high and low bid prices of the Holding
Company's common stock for the periods  indicated.  The information set forth in
the  table  below  was  provided  by the  OTC  Electronic  Bulletin  Board.  The
information reflects inter-dealer prices,  without retail mark-up,  mark-down or
commission and may not represent actual transactions.


                      Fiscal 1999              Fiscal 1998
               ----------------------------------------------------

                 High     Low  Dividends  High    Low   Dividends
               ----------------------------------------------------


First Quarter  $10.000   $8.000  $---    $   N/A     N/A   $---

Second Quarter   8.265    7.273   ---        N/A     N/A    ---
Third Quarter    7.159    7.159   ---        N/A     N/A    ---
Fourth Quarter   5.568    5.000   ---     10.375   8.000    ---


      At December  24, 1999 there were  595 holders  of the Holding  Company's
common  stock and  428,409  shares  of  common  stock  issued  and  outstanding.
At  December  29,  1999,  the last known  sales price of the Holding
Company's common stock was $9.25 per share.

      The Holding Company pays dividends upon the  determination of the Board of
Directors in its discretion  that such payment is consistent  with the long-term
interests of the Combined  Company.  The factors  affecting  this  determination
include the Combined Company's  consolidated  financial condition and results of
operations,  tax  considerations,   industry  standards,   economic  conditions,
regulatory restrictions,  general business practices and other relevant factors.
The Holding  Company did not declare  cash  dividends on its common stock during
fiscals 1998 and 1999.  However,  First Federal paid an aggregate of $ 88,000 in
quarterly  cash  dividends on its  preferred  stock in 1999.

      First Federal may not declare or pay a cash dividend or repurchase  shares
of its stock if the effect thereof would be to cause its  regulatory  capital to
be reduced  below the amount  required  for the  liquidation  account or to meet
applicable regulatory capital requirements. Federal regulations limit the Bank's
capital  distributions  such  that  the  proposed  distribution,  combined  with
dividends  already  paid for the year,  does not  exceed  its net income for the
calendar year- to- date plus retained net income for the previous two years.  In
addition, the Bank must give the OTS thirty days notice prior to the declaration
of a dividend.

                                      56

<PAGE>



Annual Report on Form 10-KSB and Other Investor Information

      The  Bryan-College  Station  Financial  Holding  Company will furnish upon
written  request at no charge to any  stockholder a copy of its Annual Report on
Form  10-KSB for the year ended  September  30,  1999 and the  exhibits  thereto
required to be filed with the SEC under the  Securities  Exchange Act of 1934 by
writing to:

            George Koenig
            Executive Vice President and
            Stockholder Relations Officer
            The Bryan-College Station Financial Holding Company
            2900 Texas Avenue
            Bryan, Texas  77802
            (409) 779-2900

     Please  provide  a copy  of the  written  request  to J.  Stanley  Stephen,
President and CEO of the Company at the address stated above.

Transfer Agent and  Registrar

            Harris Trust and Savings Bank
            700 Louisiana Street, Suite 3350
            Houston, Texas  77002
            (713) 546-9705



Auditors

            Crowe, Chizek and Company LLP
            One Mid America Plaza
            P.O. Box 3697
            Oak Brook, Illinois  60522-3697

Special Counsel

            Silver Freedman & Taff, L.L.P.
            (a partnership including professional corporations)
            1100 New York Avenue, N.W.
            Suite 700
            Washington, D.C.  20006



                                      57

<PAGE>


                           THE BRYAN-COLLEGE STATION
                           FINANCIAL HOLDING COMPANY




BOARD OF DIRECTORS:
Richard L. Peacock, Chairman of the Board/Retired
 Owner/Office Supply

Ernest Wentrcek, Vice Chairman of the
 Board/Retired Texas A&M and Owner/W&W Realty

Charles Neelley, Secretary-Treasurer of the Board of
 Directors for the Holding Company and the Bank/
 Retired Texas A&M and Travel/Business

J. Stanley Stephen, President/CEO, First Federal
 Savings Bank

Ken L. Hays, Owner, Aggieland Travel

Roland Ruffino, Co-Owner/Readfield Meats

Robert Conaway, Owner/Progress Supply

George Koenig, Executive Vice President,
 First Federal Savings Bank

Joseph W. Krolczyk, Owner/President, KESCO
 Restaurant Equipment Supply Inc.

Gary A. Snoe, Owner/President, Snoe Inc.  Specialty
 Tool and Die

Helen Chavarria, Housing Management Specialist for
 the Brazos Valley Council of Government, and area
 recruiter for Amnesty and Instructional, Assistant for
 Region IV Educational Service Center located in
 Huntsville, Texas

OFFICERS OF THE BRYAN-COLLEGE STATION FINANCIAL
HOLDING COMPANY

J. Stanley Stephen, President and Chief Executive
 Officer

William Wantuck, Chief Financial Officer










                                      58