<PAGE>
 
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

      For the Fiscal Year Ended December 31, 1998

                                       OR

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                         Commission File Number: 0-26556

                               CNS BANCORP, INC.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

                                                                 
                 Delaware                                43-1738315             
---------------------------------------------        -----------------
(State or other jurisdiction of incorporation        (I.R.S. Employer
or organization)                                       I.D. Number)

427 Monroe Street, Jefferson City, Missouri                65101       
---------------------------------------------        -----------------
(Address of principal executive offices)                (Zip Code)

Issuer's telephone number:                             (573) 634-3336       
                                                     -----------------

Securities registered under 
Section 12(b) of the Exchange Act:                          None              
                                                     -----------------

Securities registered under 
Section 12(g) of the Exchange Act:       Common Stock, par value $.01 per share
                                         --------------------------------------
                                                    (Title of Class)

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

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  X
                                      --- 

      The Registrant's revenues for the fiscal year under report were
$7,450,820.

      As of March 1, 1999, there were issued and outstanding 1,443,046 shares of
the Registrant's Common Stock. The Common Stock is listed for trading on the
Nasdaq SmallCap Market under the symbol "CNSB." Based on the closing price per
share, the aggregate market value of the Common Stock outstanding held by the
nonaffiliates of the Registrant on March 1, 1999 was $13,338,022 (1,185,602
shares at $11.25 per share).

                       DOCUMENTS INCORPORATED BY REFERENCE

      1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
December 31, 1998 ("Annual Report") (Parts I and II).

      2. Portions of Definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders (Part III).
<PAGE>
 
                                     PART I

Item 1.  Business
-----------------

General

         CNS Bancorp, Inc. ("Company"), a Delaware corporation, was organized in
January 1996 for the purpose of becoming the holding company for City National
Savings Bank, FSB ("Savings Bank") upon its conversion from a federal mutual
savings bank to a federal stock savings bank ("Conversion"). The Conversion was
completed on June 11, 1996 through the issuance of 1,653,125 shares of common
stock by the Company at a price of $10.00 per share.

         The Savings Bank, founded in 1921, is a federally chartered savings
bank located in Jefferson City, Missouri. The Savings Bank is regulated by the
Office of Thrift Supervision ("OTS"), its primary federal regulator, and the
Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits. The
Savings Bank's deposits are federally insured by the FDIC under the Savings
Association Insurance Fund ("SAIF"). The Savings Bank is a member of the Federal
Home Loan Bank ("FHLB") System. The Savings Bank is a community oriented
financial institution that engages primarily in the business of attracting
deposits from the general public and using these funds to originate one- to
four-family residential mortgage loans within the Savings Bank's market area. To
a lesser extent, the Savings Bank's lending activities include the origination
and purchase of multi-family, commercial real estate, construction, land,
commercial and consumer and other loans.

Market Area

         The Company conducts operations in central Missouri through its main
office in Jefferson City, Missouri (Cole County) and branch offices located in
the cities of Jefferson City (Cole County), California (Moniteau County), Tipton
(Moniteau County) and St. Robert (Pulaski County). Jefferson City is the state
capital of Missouri, resulting in a significant concentration of government
employment and an historically stable economy for the region. Moniteau County is
a more rural county with a much lower population base and overall smaller
economy. The Company's St. Robert branch is strategically located near Fort
Leonard Wood, a major military installation in south-central Missouri. The
counties of Cole, Moniteau and Pulaski represent the Company's market area for
deposit generation and lending activity as most of its depositors live in these
areas and the majority of the Company's loans are secured by property in these
counties. Approximately two-thirds of the Company's deposits are located in
Jefferson City.

         In general, the Company serves a limited growth market area with a
relatively small population base. The Cole County economy is based primarily on
the presence of the state capital and government, which has resulted in a high
level of state government employees. Manufacturing and services also constitute
a significant portion of the Cole County economy, with wholesale/retail trade,
finance, insurance, real estate and agriculture also contributing. Conversely,
Moniteau County is a much more rural county containing a number of small towns
with an agriculture base, although a large percentage of residents also commute
into Jefferson City or nearby Columbia or Sedalia for employment. Pulaski
County's economy is dominated by the operations of Fort Leonard Wood, a major
military installation and training center for all branches of the military. In
general, the economy of the Company's market area has been relatively stable
over the past decade.

Lending Activities

         General. The principal lending activity of the Company is the
origination and purchase of conventional mortgage loans for the purpose of
purchasing, constructing or refinancing owner-occupied, one- to four-family
residential property. To a lesser extent, the Company also originates and
purchases multi-family, commercial real estate, construction, land, commercial
and consumer and other loans. The Company's net loans receivable totaled $61.7
million at December 31, 1998, representing 64.7% of total assets.

                                       1
<PAGE>
 
         Loan Portfolio Analysis. The following table sets forth the composition
of the Company's loan portfolio by type of loan at the dates indicated. The
Company had no concentration of loans exceeding 10% of total loans other than as
disclosed below.

<TABLE>
<CAPTION>
                                                       At December 31,
                                  --------------------------------------------------------
                                          1998               1997              1996
                                  ------------------  -----------------  -----------------
                                            Percent             Percent           Percent
                                  Amount    of Total  Amount   of Total   Amount  of Total
                                 ---------- --------  -------- --------  -------  --------
                                                          (Dollars in Thousands)
<S>                                <C>       <C>      <C>       <C>      <C>      <C>
Mortgage loans:                                                          
 One- to four-family............   $45,495     70.68% $52,266     76.63% $48,318   76.57%
 Multi-family...................     5,460      8.48    5,234      7.68    3,617    5.73
 Commercial real estate.........     7,548     11.73    7,034     10.31    5,642    8.94
 Construction...................     3,087      4.80    1,620      2.38    2,685    4.26
 Land...........................        69      0.11      109      0.16      135    0.21
                                   -------    ------  -------   -------  -------  ------
  Total mortgage loans..........    61,659     95.80   66,263     97.16   60,397   95.71
                                                                                  
Commercial loans................     1,157      1.80      425      0.62    1,206    1.91
Consumer and other loans........     1,543      2.60    1,513      2.22    1,498    2.38
                                   -------    ------  -------    ------  -------  ------
  Total loans...................    64,359    100.00%  68,201    100.00%  63,101  100.00%
                                   -------    ======  -------    ======  -------  ======
                                                                         
Less:                                                                    
 Loans in process...............     2,239              1,287              1,728
 Deferred loan fees and                                                  
   discounts....................        10                 14                 10 
 Allowance for loan losses......       410                388                382
                                   -------            -------            -------
  Total loans receivable, net...   $61,700            $66,512            $60,981 
                                   =======            =======            ======= 
</TABLE>

         The following table sets forth certain information at December 31, 1998
regarding the dollar amount of principal repayments becoming due during the
periods indicated. Demand loans, loans having no stated schedule of repayments
and no stated maturity, and overdrafts are reported as becoming due within one
year. The table does not include any estimate of prepayments which significantly
shorten the average life of all loans and may cause the Company's actual
repayment experience to differ from that shown below.

<TABLE>
<CAPTION>
                                                        After       After        After      
                                                       1 Year      3 Years      5 Years     
                                          Within       Through     Through      Through       Beyond               
                                         One Year      3 Years     5 Years      10 Years     10 Years       Total  
                                        ------------ ------------ -----------  ----------- ------------ ------------
                                                                      (In Thousands)
<S>                                          <C>          <C>         <C>          <C>         <C>          <C>
Mortgage loans:
 One- to four-family..................       $1,039        $ 743      $1,918       $6,115      $35,680      $45,495
 Multi-family.........................        1,622           78          --           91        3,669        5,460
 Commercial...........................          500          405         874        1,545        4,224        7,548
 Construction.........................        1,627          278          --           --        1,182        3,087
 Land.................................           --           23          46           --           --           69
Commercial loans......................           54          756         117          217           13        1,157
Consumer and other loans..............          891          276         267           74           35        1,543
                                             ------       ------      ------       ------      -------      ------- 
  Total loans.........................       $5,733       $2,559      $3,222       $8,042      $44,803      $64,359 
                                             ======       ======      ======       ======      =======      ======= 
</TABLE>

                                       2
<PAGE>
 
         Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Company the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.

         The following table sets forth the dollar amount of all loans due after
December 31, 1999, which have fixed interest rates and which have floating or
adjustable interest rates.

<TABLE>
<CAPTION>
                                             Fixed-          Floating or
                                              Rates        Adjustable-Rates
                                         ----------------  -----------------
                                                   (In Thousands)
<S>                                              <C>               <C>
Mortgage loans:
    One- to four-family.............              $8,273            $36,183
    Multi-family....................                 556              3,282
    Commercial......................               2,194              4,854
    Construction....................               1,460                 --
    Land............................                   7                 62
Commercial loans....................               1,103                 --
Consumer and other loans............                 616                 36
                                                 -------            -------
    Total loans.....................             $14,209            $44,417
                                                 =======            =======
</TABLE>

         Residential Real Estate Lending. The primary lending activity of the
Company is the origination of mortgage loans to enable borrowers to purchase
existing one- to four-family homes. The Company also originates home equity
loans and second mortgages secured by one- to four-family homes. At December 31,
1998, $45.5 million, or 70.7% of the Company's total loan portfolio, consisted
of loans secured by one- to four-family residences. Of this amount, $4.1 million
were home equity or second mortgage loans.

         The Company presently originates both adjustable rate mortgage ("ARM")
loans and fixed-rate mortgage loans. The Company's loans are generally
underwritten and documented in accordance with the guidelines established by
Freddie Mac. The Company generally retains in its portfolio all of the ARM loans
that it originates and may sell to Freddie Mac the fixed-rate mortgage loans
that it originates. Generally, the Company sells whole loans on a
servicing-retained basis. All loans are sold without recourse. The Company's
decision to hold or sell loans is based on its asset/liability management
policies and goals and the market conditions for mortgages. Currently,
fixed-rate residential loans with yields greater than 7.25% and terms of 30
years or less are retained in the Company's loan portfolio to meet the Company's
asset/liability management objectives. See "-- Lending Activities -- Loan
Originations, Sales and Purchases." At December 31, 1998, $47.5 million, or
77.1%, of the Company's total loans were subject to periodic interest rate
adjustments.

         The Company offers ARM loans at rates and terms competitive with market
conditions. Substantially all of the ARM loans originated by the Company meet
the underwriting standards of Freddie Mac even though the Company originates ARM
loans primarily for its own portfolio. The Company offers several ARM products
that adjust annually after an initial period ranging from one to five years.
Certain ARM loans are originated with an option to convert the loan to a 30-year
fixed-rate loan at the then prevailing market interest rate. These ARM products
utilize the weekly average yield on one-year or three-year U.S. Treasury
securities adjusted to a constant maturity ("CMT") of one or three years plus a
margin of 2.75% to 3.0%. ARM loans held in the Company's portfolio do not permit
negative amortization 

                                       3
<PAGE>
 
of principal and carry no prepayment restrictions. Prior to March 1, 1995, when
the Savings Bank switched from a state mutual charter to a federal mutual
charter, the Savings Bank offered ARM loans that were based on the Savings
Bank's cost of funds. The Company currently offers ARM loans with initial rates
below those which would prevail under the foregoing computations, determined by
the Company based on market factors and competitive rates for loans having
similar features offered by other lenders for such initial periods. The periodic
interest rate cap (the maximum amount by which the interest rate may be
increased or decreased in a given period) on the Company's ARM loans is
generally 1.0% to 2.0% per adjustment period and the lifetime interest rate cap
is generally 5.0% to 6.0% over the initial interest rate of the loan. Borrower
demand for ARM loans versus fixed-rate mortgage loans is a function of the level
of interest rates, the expectations of changes in the level of interest rates
and the difference between the initial interest rates and fees charged for each
type of loan. The relative amount of fixed-rate mortgage loans and ARM loans
that can be originated at any time is largely determined by the demand for each
in a competitive environment.

         The Company also offers ARM loans for non-owner-occupied one- to
four-family homes. The rates on such loans are generally 25 to 125 basis points
higher than for a comparable loan for an owner-occupied residence and adjust to
a rate equal to 2.875% to 3.125% above the one-year or three-year CMT index.
Loans secured by non-owner-occupied residences generally involve greater risks
than loans secured by owner-occupied residences. Payments on loans secured by
such properties are often dependent on successful operation or management of the
properties. In addition, repayment of such loans may be subject to a greater
extent to adverse conditions in the real estate market or the economy. The
Company requires that borrowers with loans secured by non-owner-occupied homes
submit annual financial statements.

         The terms and conditions of the ARM loans offered by the Company,
including the index for interest rates, may vary from time to time. The Company
believes that the adjustment features of its ARM loans provide flexibility to
meet competitive conditions as to initial rate concessions while preserving the
Company's objectives by limiting the duration of the initial rate concession.

         The retention of ARM loans in the Company's loan portfolio helps reduce
the Company's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that during periods
of rising interest rates the risk of default on ARM loans may increase as a
result of repricing and the increased payments required by the borrower.
Furthermore, because the ARM loans originated by the Company currently provide,
as a marketing incentive, for initial rates of interest below the rates which
would apply were the adjustment index used for pricing initially (discounting),
these loans are subject to increased risks of default or delinquency. To lessen
this risk, borrowers are approved based on the lower of the fully indexed rate
or 2.0% above the initial rate. Another consideration is that although ARM loans
allow the Company to increase the sensitivity of its asset base to changes in
the interest rates, the extent of this interest sensitivity is limited by the
periodic and lifetime interest rate adjustment limits. Because of these
considerations, the Company has no assurance that yields on ARM loans will be
sufficient to offset increases in the Company's cost of funds.

         While single-family residential real estate loans are normally
originated with 15 to 30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the
Company's loan portfolio contain due-on-sale clauses providing that the Company
may declare the unpaid amount due and payable upon the sale of the property
securing the loan. Typically, the Company enforces these due-on-sale clauses to
the extent permitted by law and as business judgment dictates. Thus, average
loan maturity is a function of, among other factors, the level of purchase and
sale activity in the real estate market, prevailing interest rates and the
interest rates payable on outstanding loans.

         The Company generally requires title insurance insuring the status of
its lien or a title abstract and acceptable attorney's opinion on all loans
where real estate is the primary source of security. The Company also requires
that fire and casualty insurance (and, if appropriate, flood insurance) be
maintained in an amount at least equal to the outstanding loan balance.

                                       4
<PAGE>
 
         The Company's lending policies generally limit the maximum
loan-to-value ratio on mortgage loans secured by owner-occupied properties to
95% of the lesser of the appraised value or the purchase price, with the
condition that private mortgage insurance is generally required on loans with
loan-to-value ratios greater than 80%. The maximum loan-to-value ratio on
mortgage loans secured by non-owner-occupied properties is generally 80%.

         Multi-Family Residential and Commercial Real Estate Lending. The
Company engages in a moderate amount of multi-family residential and commercial
real estate lending primarily in the local Jefferson City market area. As market
conditions permit, the Company intends to sell participation interests in the
larger multi-family loans that it originates. The Company also participates in
multi-family and commercial real estate loans with other Missouri financial
institutions on in-state properties. At December 31, 1998, the Company's loan
portfolio included $5.5 million in multi-family real estate loans and $7.5
million in commercial real estate loans.

         Multi-family and commercial real estate loans originated by the Company
have either fixed or adjustable interest rates and are generally for terms of 15
years. The maximum loan-to-value ratio for multi-family and commercial real
estate loans is generally 75%. Multi-family loans generally are secured by small
to medium sized projects. The Company's commercial real estate loan portfolio
generally consists of loans secured by small office buildings and small
commercial properties, most of which are located in central Missouri. Appraisals
on properties which secure multi-family and commercial real estate loans are
performed by an independent appraiser engaged by the Company before the loan is
made. Underwriting of multi-family and commercial real estate loans includes a
thorough analysis of the cash flows generated by the real estate to support the
debt service and the financial resources, experience, and income level of the
borrowers. Annual operating statements on each multi-family and commercial real
estate loan are required and reviewed by management. Multi-family and commercial
real estate loans and loan participations that are purchased by the Company are
underwritten to the Company's standards.

         Multi-family and commercial real estate lending affords the Company an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by such
properties usually are greater in amount, more difficult to evaluate and monitor
and, therefore, involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
and commercial properties are often dependent on the successful operation and
management of the properties, repayment of such loans may be affected by adverse
conditions in the real estate market or the economy. The Company seeks to
minimize these risks by limiting the maximum loan-to-value ratio to 75% and
strictly scrutinizing the financial condition of the borrower, the quality of
the collateral and the management of the property securing the loan. The Company
also obtains loan guarantees from financially capable parties based on a review
of personal financial statements.

         Construction Lending. The Company originates residential construction
loans to individuals and, occasionally, to builders, to construct one- to
four-family homes. In addition, from time to time the Company originates or
participates in construction loans for multi-family or commercial properties. At
December 31, 1998, the Company's construction loan portfolio totaled $3.1
million, or 4.8% of total loans. At such date, the Company's construction loan
portfolio consisted of 22 residential construction loans totaling $2.2 million
and 2 commercial construction loans totaling $850,000.

         Construction loans are generally made in connection with permanent
financing. Construction loans that are not made in connection with the granting
of permanent financing on the property are for terms of six to 12 months.

         Construction lending is considered to involve a higher level of risk as
compared to one- to four-family residential lending because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. The nature of these loans is such that
they are more difficult to evaluate and monitor. If the estimate of value proves
to be inaccurate, the Company may be confronted at, or prior to, the maturity of
the loan, with a project the value of which is insufficient to assure full
repayment. The Company attempts to minimize these risks by limiting the maximum
loan-to-value ratio on construction loans to 85% for residential construction
loans and 80% for non-residential construction loans and by conditioning
disbursements on the presentation 

                                       5
<PAGE>
 
of itemized bills and an inspection of the construction site. For
non-residential construction loans, the Company generally obtains personal
guarantees and requires borrowers to submit annual financial statements.

         Land Lending. The Company occasionally originates loans for the
acquisition of land upon which the purchaser can then build or upon which the
purchaser makes improvements necessary to build upon or to sell as improved
lots. At December 31, 1998, the Company's land loan portfolio totaled $69,000
and consisted of 5 loans. Land loans originated by the Company have a term to
maturity of up to three years and are based on a ten-year amortization schedule.

         Loans secured by undeveloped land or improved lots involve greater
risks than one- to four-family residential mortgage loans because such loans are
more difficult to evaluate. If the estimate of value proves to be inaccurate, in
the event of default and foreclosure the Company may be confronted with a
property the value of which is insufficient to assure full repayment. The
Company attempts to minimize this risk by limiting the maximum loan-to-value
ratio on loans secured by undeveloped land to 65% and by improved lots to 85%.

         Commercial Lending. The Company engages in a small amount of commercial
business lending. At December 31, 1998, the Company's loan portfolio included
$1.2 million in commercial loans.

         Commercial loans originated by the Company have both fixed and
adjustable rates and are generally for terms of five to 10 years. These loans
are typically secured by equipment, inventory or other available assets.
Commercial loans generally have shorter terms and higher interest rates than
mortgage loans. The security on these loans is usually more difficult to
evaluate and monitor and often depreciates rapidly. Because the repayment on
these loans is often dependent on successful operation and management of a
business, repayment may be adversely affected by changes in the economy or the
specific industry of the business. The Company attempts to minimize risks by
scrutinizing the financial condition and creditworthiness of the borrower and
the quality of the collateral. The Company also obtains personal guarantees on
commercial loans from financially capable parties based on a review of personal
financial statements.

         Consumer and Other Lending. Consumer lending traditionally has been a
small part of the Company's business. Consumer loans generally have shorter
terms to maturity and higher interest rates than mortgage loans. The Company's
consumer and other loans consist primarily of deposit account loans, unsecured
loans and automobile loans. At December 31, 1998, the Company's consumer and
other loans totaled approximately $1.5 million, or 2.4%, of the Company's total
gross loans. The Company makes deposit account loans with the account pledged as
collateral to secure the loan. Loans may be made up to 90% of the account
balance. Deposit account loans are payable in monthly payments of principal and
interest or in a single payment. At December 31, 1998, total loans on deposit
accounts amounted to $614,000. The Company makes unsecured loans to individuals
for personal, family or household purposes. Generally, unsecured loans are made
to current customers with an established relationship with the Company. Such
loans may be for a term of up to 24 months. At December 31, 1998, unsecured
loans totaled $347,000.

         Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount that can
be recovered on such loans. At December 31, 1998, the Company had no material
delinquencies in its consumer loan portfolio.

                                       6
<PAGE>
 
         Loan Solicitation and Processing. Loan applicants come primarily
through existing customers, referrals by realtors, previous and present
customers of the Company and business acquaintances, and walk-ins. The Company
also uses radio and newspaper advertising to create awareness of its loan
products. Upon receipt of a loan application from a prospective borrower, a
credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate offered as collateral generally is undertaken by an
independent fee appraiser certified by the State of Missouri.

         Mortgage loans up to $100,000 for owner-occupied residential properties
must be approved by the Savings Bank's Loan Committee, which consists of the
Chief Executive Officer and two officers, or by the Board of Directors' Loan
Committee, which consists of the Chief Executive Officer and three directors.
Loans of $100,000 to $250,000 must be approved by the Board of Director's Loan
Committee, and loans exceeding $250,000 must be approved by the Board of
Directors. Interest rates are subject to change if the approved loan is not
closed within the time of the commitment. The Company's loan approval process
allows mortgage loans to be approved in approximately 21 days and closed in 30
days.

         Loan Originations, Sales and Purchases. While the Company originates
both adjustable-rate and fixed-rate loans, its ability to generate each type of
loan is dependent upon relative customer demand for loans in its market. Of the
$36.4 million of loans originated and purchased during 1998, 13.7% were
adjustable-rate loans and 86.3% were fixed-rate loans.

         In recent periods, the Company has sold its 30-year and 20-year and a
portion of its 15-year fixed-rate single-family residential mortgage loans to
Freddie Mac. Currently, the Company is selling most of its fixed-rate mortgage
loans. Sales are made on a non-recourse basis. Sales of loans for the years
ended December 31, 1998, 1997, and 1996 totaled $18.9 million, $1.5 million and
$4.1 million, respectively. The Company generally sells loans on a
servicing-retained basis. See "-- Lending Activities -- Loan Servicing." At
December 31, 1998, the Company had $1.8 million in net loans held for sale.

         The Company also purchases whole loans and loan participation
interests, primarily during periods of reduced loan demand in its market area.
It has been the practice of the Company in recent years only to purchase loans
secured by real estate located in Missouri. All purchases are made in
conformance with the Company's underwriting standards.

                                       7
<PAGE>
 
         The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                        -------------------------------------
                                                           1998         1997         1996
                                                        ------------ -----------  -----------
                                                                   (In Thousands)
<S>                                                        <C>          <C>          <C>
Loans originated:
Mortgage loans:
 One- to four-family..................................      $21,527     $14,555      $11,900
 Multi-family.........................................          650          --           --
 Commercial...........................................          612       1,315        2,622
 Construction.........................................        2,627       1,148        2,861
 Land.................................................           16          49           30
Commercial loans......................................        1,133         415        1,237
Consumer and other loans..............................        1,558       1,894        1,734
                                                            -------     -------      -------
  Total loans originated..............................       28,123      19,376       20,384
                                                            -------     -------      -------
                                                                                     
Loans purchased:                                                                     
Mortgage loans:                                                                      
 One- to four-family..................................        5,035       3,140        1,547
 Multi-family.........................................          518         551        2,604
 Commercial...........................................        2,700         625        1,439
                                                           --------    --------     --------
  Total loans purchased...............................        8,253       4,316        5,590
                                                           --------    --------     --------
                                                                                    
Loans sold:                                                                         
  Total loans sold....................................       18,900       1,524        4,081
                                                            -------     -------      -------
                                                                                     
Mortgage loan principal repayments....................       22,289      16,636       13,524
                                                            -------     -------      -------
                                                                                     
Net increase in loans receivable, net.................      $(4,813)     $5,532       $8,369
                                                            =======     =======      =======
</TABLE> 

         Loan Commitments. The Company issues commitments to originate loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and are honored for up to 45 days from
the date of loan approval. The Company had outstanding net loan commitments of
approximately $2.6 million, including $336,000 in fixed rate loan commitments in
first mortgage loans, $31,000 in variable rate loan commitments in first
mortgage loans, and $2.2 million in unfunded portions of construction loans and
lines of credit of $784,000 at December 31, 1998.

         Loan Origination and Other Fees. The Company, in some instances,
receives loan origination fees. Loan fees are a fixed dollar amount or a
percentage of the principal amount of the mortgage loan which is charged to the
borrower for funding the loan. The amount of fees charged by the Company is
currently $300 for loans secured by single-family homes. Current accounting
standards require fees received (net of certain loan origination costs) for
originating loans to be deferred and amortized into interest income over the
contractual life of the loan. Net deferred fees or costs associated with loans
that are prepaid are recognized as income at the time of prepayment. The Company
had $10,000 of net deferred mortgage loan fees at December 31, 1998.

         Loan Servicing. The Company sells loans to Freddie Mac and private
investors on a servicing retained basis and receives fees in return for
performing the traditional services of collecting individual payments and
managing the loans. At December 31, 1998, the Company was servicing $30.3
million of loans for Freddie Mac and $2.8 million of 

                                       8
<PAGE>
 
loans for private investors. Loan servicing includes processing payments,
accounting for loan funds and collecting and paying real estate taxes, hazard
insurance and other loan-related items such as private mortgage insurance. When
the Company receives the gross mortgage payment from individual borrowers, it
remits to the investor in the mortgage a predetermined net amount based on the
yield on that mortgage. The difference between the coupon on the underlying
mortgage and the predetermined net amount paid to the investor is the gross loan
servicing fee. For the year ended December 31, 1998, loan servicing fees totaled
$54,000. In addition, the Company retains certain amounts in escrow for the
benefit of Freddie Mac for which the Company incurs no interest expense but is
able to invest. At December 31, 1998, the Savings Bank held $29,000 in escrow
for its portfolio of loans serviced for Freddie Mac.

         Nonperforming Assets and Delinquencies. When a mortgage loan borrower
fails to make a required payment when due, the Company institutes collection
procedures. The first notice is mailed to the borrower approximately ten days
after the payment is due in order to permit the borrower to make the payment
before the imposition of a late fee. A second notice is generated when a payment
becomes 30 days past due. Attempts to contact the borrower by telephone or
letter generally begin soon after the first notice is mailed to the borrower. If
a satisfactory response is not obtained, continuous follow-up contacts are
attempted until the loan has been brought current. Before the 90th day of
delinquency, attempts to interview the borrower, preferably in person, are made
to establish (i) the cause of the delinquency, (ii) whether the cause is
temporary, (iii) the attitude of the borrower toward the debt, and (iv) a
mutually satisfactory arrangement for curing the default.

         In most cases, delinquencies are cured promptly; however, if by the
91st day of delinquency, or sooner if the borrower is chronically delinquent and
all reasonable means of obtaining payment on time have been exhausted,
foreclosure, according to the terms of the security instrument and applicable
law, is initiated. Interest income on loans is reduced by the full amount of
accrued and uncollected interest.

         The Board of Directors is informed on a monthly basis as to the status
of all loans that are delinquent more than 30 days, the status on all loans
currently in foreclosure, and the status of all foreclosed and repossessed
property owned by the Company.

                                       9
<PAGE>
 
         The following table sets forth information with respect to the
Company's nonperforming assets and restructured loans within the meaning of
Statement of Financial Accounting Standards ("SFAS") No. 15 at the dates
indicated. It is the policy of the Company to cease accruing interest on loans
90 days or more past due.

<TABLE>
<CAPTION>
                                                                  At December 31,
                                                        -------------------------------------
                                                           1998         1997         1996
                                                        ------------ -----------  -----------
                                                               (Dollars in Thousands)
<S>                                                           <C>         <C>          <C>
Loans accounted for on a nonaccrual basis:
 Mortgage loans:
  One- to four-family..................................        $ --        $132         $145
  Commercial real estate...............................         156          --          165
                                                               ----        ----         ----
   Total...............................................         156         132          310
                                                               ----        ----         ----
Accruing loans which are                                          
   contractually past due
   90 days or more.....................................         --           --           --
Total nonaccrual and                                                                         
   90 days past due loans..............................         156         132          310
                                                               ----        ----         ---- 
Real estate owned, net.................................          46          --           --
                                                               ----        ----         ----
                           Total nonperforming assets..        $202        $132         $310
                                                               ====        ====         ====
Restructured loans.....................................        $ 18        $ 85         $228

Nonaccrual and 90 days or more                               
   past due loans as a percentage
   of loans receivable, net............................        0.25%       0.19%        0.51% 
                                                             
Nonaccrual and 90 days or more                                
   past due loans as a percentage
   of total assets.....................................        0.16        0.13         0.32  
                                                             
Nonperforming assets as a                                      
   percentage of total assets..........................        0.21        0.13         0.32  
</TABLE>

         Interest income that would have been recorded for the year ended
December 31, 1998 had nonaccruing loans been current in accordance with their
original terms amounted to approximately $9,000. The amount of interest included
in interest income on such loans for the year ended December 31, 1998 amounted
to approximately $11,000.

         Real Estate Owned and Held for Investment. Real estate acquired by the
Company as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate owned ("REO") until it is sold. When property is
acquired it is recorded at the lower of its cost, which is the unpaid principal
balance of the related loan plus foreclosure costs, or fair market value.
Subsequent to foreclosure, REO held for sale is carried at the lower of the
carrying amount or fair value, less estimated selling costs. At December 31,
1998, REO consisted of one single family residence valued at $51,000.

         In June 1997, the Company invested in a real estate joint venture in
Waynesville, Missouri, known as Briar Pointe Development Co., LLC. At December
31, 1998, the Company's investment was $664,000. Briar Pointe, LLC will develop
and sell 125 building lots for single family homes in a new subdivision known as
Briar Pointe located in the city of Waynesville, Missouri. The project is
expected to be completed within the next two years. The Company

                                       10
<PAGE>
 
will provide the financing and the other joint venture party will provide the
management for the project. When all lots have been sold any net profit will be
shared, with the Company to receive 55% and other joint venture party to receive
45%. Through December 31, 1998, 14 lots have been sold at an average price of
$18,800.

         Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are placed on a "watch list" and monitored by the Company.

         The following table sets forth the composition of the Company's
classified assets at December 31, 1998:


<TABLE>
<CAPTION>
                                                  Loss                   Doubtful                Substandard
                                        ------------------------- ------------------------ -------------------------
                                          Number       Amount       Number       Amount      Number       Amount
                                        ------------ ------------ -----------  ----------- ------------ ------------
                                                                      (In Thousands)
<S>                                       <C>          <C>          <C>      <C>             <C>          <C>         
Mortgage loans:
 One- to four-family..............          --           $--         --      $    --            1           $ 18
 Multi-family.....................          --            --         --           --            1            156
 Commercial.......................          --            --         --           --           --            --
 Construction.....................          --            --         --           --           --            --
 Land.............................          --            --         --           --           --            --
Commercial loans..................          --            --         --           --           --            --
Consumer and other loans..........           1             1         --           --           --            --
</TABLE>

         Allowance for Loan Losses. The Company has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.

         In originating loans, the Company recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Company increases its allowance for
loan losses by charging provisions for loan losses against the Company's income.

         The general valuation allowance is maintained to cover losses inherent
in the portfolio of performing loans. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions. Specific valuation allowances are

                                       11
<PAGE>
 
established to absorb losses on loans for which full collectibility may not be
reasonably assured. The amount of the allowance is based on the estimated value
of the collateral securing the loan and other analyses pertinent to each
situation. Generally, a provision for losses is charged against income on a
quarterly basis to maintain the allowances.

         At December 31, 1998, the Company had an allowance for loan losses of
$410,000. Management believes that the amount maintained in the allowances will
be adequate to absorb losses inherent in the portfolio. Although management
believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.

         While the Company believes it has established its existing allowance
for loan losses in accordance with generally accepted accounting principles,
there can be no assurance that regulators, in reviewing the Company's loan
portfolio, will not request the Company to increase significantly its allowance
for loan losses. In addition, because future events affecting borrowers and
collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that substantial increases
will not be necessary should the quality of any loans deteriorate as a result of
the factors discussed above. Any material increase in the allowance for loan
losses may adversely affect the Company's financial condition and results of
operations.

         The following table sets forth an analysis of the Company's allowance
for loan losses for the periods indicated. Where specific loan loss reserves
have been established, any differences between the loss allowances and the
amount of loss realized has been charged or credited to current income.

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                        -------------------------------------
                                                           1998         1997         1996
                                                        ------------ -----------  -----------
                                                               (Dollars in Thousands)
<S>                                                          <C>         <C>          <C>
Allowance at beginning of period......................         $388        $383         $319
                                                               ----        ----         ----
Provision for loan losses.............................           63           5           64
                                                               ----        ----         ----

Total recoveries......................................           --          --           --
                                                               ----        ----         ----

Total charge-offs.....................................           41          --           --
                                                               ----        ----         ----

Net charge-offs.......................................           41          --           --
                                                               ----        ----         ----

Balance at end of period..............................         $410        $388         $383
                                                               ====        ====         ====

Allowance for loan losses as a percentage                  
   of total loans outstanding at the end
   of the period......................................        0.67%       0.58%        0.62% 
                                                                                             
Net charge-offs as a percentage of average                                                    
   loans outstanding during the period................        0.06%          --           -- 
                                                                                             
Allowance for loan losses as a percentage                                                    
   of nonperforming loans at end of period............       198.07      293.94       123.50 
</TABLE>

                                       12
<PAGE>
 
         The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.

<TABLE>
<CAPTION>
                                                                      At December 31,
                                        ----------------------------------------------------------------------------
                                                  1998                     1997                      1996
                                        ------------------------- ------------------------ -------------------------
                                                        % of                      % of                     % of
                                                        Loans                    Loans                     Loans
                                                       in Each                  in Each                   in Each
                                                      Category                  Category                 Category
                                                      to Total                  to Total                 to Total
                                           Amount       Loans       Amount       Loans        Amount       Loans
                                        ------------ ------------ -----------  ----------- ------------ ------------
                                                                  (Dollars in Thousands)
<S>                                           <C>        <C>          <C>         <C>            <C>        <C>
Mortgage loans:
  One- to four-family.................         $219        70.79%       $204        76.63%        $180        76.57%
  Multi-family........................           55         8.50          52         7.68           48         5.73
  Commercial..........................           76        11.74         103        10.31          109         8.94
  Construction........................           21         4.66           3         2.38           18         4.26
  Land................................            1         0.11           1         0.16            1         0.21
Commercial loans......................           27         1.80           4         0.62           12         1.91
Consumer and other loans..............           11         2.40          13         2.21           15         2.38
Unallocated...........................           --          N/A           8          N/A           --          N/A
                                              ------     --------       -----     --------        -----     --------
  Total allowance for                                                                                       
     loan losses......................         $410       100.00%       $388       100.00%        $383       100.00% 
                                              ======     ========       =====     ========        =====     ========
</TABLE>

Investment Activities

         The Company is permitted under federal and state law to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies and of state and municipal governments, deposits at
the FHLB-Des Moines, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various restrictions,
the Company may also invest a portion of its assets in commercial paper and
corporate debt securities. The Company is also required to maintain an
investment in FHLB-Des Moines stock. The Company is required under federal
regulations to maintain a minimum amount of liquid assets. See "REGULATION."

         It is the intention of management to classify all securities in the
Company's investment portfolio as available for sale. SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," requires the investments
be categorized as "held to maturity," "trading securities" or "available for
sale," based on management's intent as to the ultimate disposition of each
security. SFAS No. 115 allows debt securities to be classified as "held to
maturity" and reported in financial statements at amortized cost only if the
reporting entity has the positive intent and ability to hold those securities to
maturity. Securities that might be sold in response to changes in market
interest rates, changes in the security's prepayment risk, increases in loan
demand, or other similar factors cannot be classified as "held to maturity."
Debt and equity securities held for current resale are classified as "trading
securities." Such securities are reported at fair value, and unrealized gains
and losses on such securities would be included in earnings. Debt and equity
securities not classified as either "held to maturity" or "trading securities"
are classified as "available for sale." Such securities are reported at fair
value, and unrealized gains and losses on such securities are excluded from
earnings and reported as a net amount in a separate component of equity.

                                       13
<PAGE>
 
         A committee consisting of the Chief Executive Officer, the Chief
Financial Officer and three outside Directors determines appropriate investments
in accordance with the Board of Directors' approved investment policies and
procedures. The Company's investment policies generally limit investments to
U.S. Government and agency securities, municipal bonds, certificates of
deposits, marketable corporate debt obligations, mortgage-backed securities and
certain types of mutual funds. The Company's investment policy does not permit
engaging directly in hedging activities or purchasing high risk mortgage
derivative products or corporate bonds rated less than BBB. Mutual funds held by
the Company may from time to time engage in hedging activities and invest in
derivative securities. Investments are made based on certain considerations,
which include the interest rate, yield, settlement date and maturity of the
investment, the Company's liquidity position, and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments). The effect
that the proposed investment would have on the Company's credit and interest
rate risk, and risk-based capital is also given consideration during the
evaluation.

         The following table sets forth the composition of the Company's
investment and mortgage-backed securities portfolios at the dates indicated, all
of which were classified as available for sale.

<TABLE>
<CAPTION>
                                                                     At December 31,
                                       -----------------------------------------------------------------------------
                                                 1998                      1997                      1996
                                       ------------------------- ------------------------- -------------------------
                                        Carrying    Percent of    Carrying    Percent of    Carrying    Percent of
                                         Value      Portfolio      Value       Portfolio     Value       Portfolio
                                       ----------- ------------- -----------  ------------ -----------  ------------
                                                                  (Dollars in Thousands)
<S>                                        <C>         <C>          <C>           <C>          <C>          <C>
Investment securities:
 U.S. Government and federal            
    agency obligations................     $ 3,869       21.84%      $ 5,806       26.79%      $10,112         36.67% 
 Mutual funds.........................       5,310       29.97         5,376       24.81         5,452         19.77
                                           -------      ------       -------      ------       -------        ------
  Total investment securities.........       9,179       51.81        11,182       51.60        15,564         56.44
Mortgage-backed securities............       8,536       48.19        10,489       48.40        12,010         43.56
                                           -------      ------       -------      ------       -------        ------
  Total available-for-sale............     $17,715      100.00%      $21,671      100.00%      $27,574        100.00%
                                           =======      ======       =======      ======       =======        ======
</TABLE>


         The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of the
Company's investment and mortgage-backed securities at December 31, 1998.

<TABLE>
<CAPTION>
                                                 At December 31, 1998
                        -------------------------------------------------------------------------
                                            Amount Due or Repricing Within:
                        One Year or Less      Over One to      Over Five to     Over Ten Years        Totals
                                              Five Years         Ten Years
                        ------------------ ----------------- ----------------- ----------------- ------------------
                                 Weighted           Weighted          Weighted          Weighted          Weighted
                        Carrying Average   Carrying Average  Carrying Average  Carrying Average  Carrying Average
                         Value    Yield     Value    Yield    Value    Yield    Value    Yield    Value    Yield
                        -------- --------- -------- -------- -------- -------- -------- -------- -------- ---------
                                                          (Dollars in Thousands)
<S>                     <C>       <C>       <C>      <C>      <C>      <C>      <C>      <C>      <C>        <C>
U.S. Government and       
   federal agency
   obligations.......     $1,809     5.85%  $2,060      5.51%    $ --       --%     $--       --% $ 3,869     5.67%
Mutual funds.........      5,310     5.35       --        --       --       --       --       --    5,310     5.35
Mortgage-backed                                                                                                    
   securities........      8,129     5.70      133      6.72      189     7.40       85     9.00    8,536     5.79 
                        --------           --------              ----               ---           -------           
       Total.........    $15,248     5.60   $2,193      5.58     $189     7.40      $85     9.00  $17,715     5.63
                        ========           ========              ====               ===           =======           
</TABLE>

                                       14
<PAGE>
 
         Mutual Funds. The Company's portfolio of mutual funds consists of two
funds, both of which invest in adjustable-rate mortgage-backed securities. One
fund had a fair value of $960,000 ($990,000 at amortized cost) and yielded 4.86%
at December 31, 1998, and the other fund had a fair value of $4.4 million ($4.9
million at amortized cost) and yielded 5.24% at December 31, 1998.

        U.S. Government and Federal Agency Obligations. The Company's portfolio 
of U.S. Government and federal agency obligations had a fair value of $3.9 
million ($3.9 million at amortized cost) at December 31, 1998. The portfolio 
consisted of short-term securities due within two years of December 31, 1998.

         Mortgage-Backed Securities. At December 31, 1998, the Company's net
mortgage-backed securities totaled $8.6 million at fair value ($8.7 million at
amortized cost) and had a weighted average yield of 5.79%. At December 31, 1998,
96.89% of the mortgage-backed securities were adjustable-rate and 3.11% were
fixed-rate. The Company purchased most of its mortgage-backed securities in 1991
through 1993 and has not purchased any mortgage-backed securities since that
time. The Company currently intends to use available funds to invest in higher
yielding loans and does not intend to increase its mortgage-backed securities
portfolio.

         Mortgage-backed securities (which also are known as mortgage
participation certificates or pass-through certificates) typically represent a
participation interest in a pool of single-family or multi-family mortgages. The
principal and interest payments on these mortgages are passed from the mortgage
originators, through intermediaries (generally U.S. Government agencies and
government sponsored enterprises) that pool and resell the participation
interests in the form of securities, to investors such as the Company. Such U.S.
Government agencies and government sponsored enterprises, which guarantee the
payment of principal and interest to investors, primarily include Freddie Mac,
Fannie Mae and the Government National Mortgage Association. Mortgage-backed
securities typically are issued with stated principal amounts, and the
securities are backed by pools of mortgages that have loans with interest rates
that fall within a specific range and have varying maturities. Mortgage-backed
securities generally yield less than the loans that underlie such securities
because of the cost of payment guarantees and credit enhancements. In addition,
mortgage-backed securities are usually more liquid than individual mortgage
loans and may be used to collateralize certain liabilities and obligations of
the Company. These types of securities also permit the Company to optimize its
regulatory capital because they have low risk weighting.

         At December 31, 1998, $189,000 of the Company's mortgage-backed
securities had contractual maturities under ten years and the remainder had
contractual maturities over ten years. However, the actual maturity of a
mortgage-backed security may be less than its stated maturity due to prepayments
of the underlying mortgages. Prepayments that are faster than anticipated may
shorten the life of the security and may result in a loss of any premiums paid
and thereby reduce the net yield on such securities. Although prepayments of
underlying mortgages depend on many factors, including the type of mortgages,
the coupon rate, the age of mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, if the coupon rate of the underlying
mortgages exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, the
Company may be subject to reinvestment risk because, to the extent that the
Company's mortgage-backed securities amortize or prepay faster than anticipated,
the Company may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate.

Deposit Activities and Other Sources of Funds

         General. Deposits and loan repayments are the major sources of the
Company's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. 

                                       15
<PAGE>
 
Borrowings through the FHLB-Des Moines may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources.
Presently, the Company has no other borrowing arrangements.

         Deposit Accounts. Substantially all of the Company's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Company's market area through the offering of a broad selection of deposit
instruments, including negotiable order of withdrawal ("NOW") accounts, money
market deposit accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary, according to the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate, among other factors. In determining the terms of its deposit
accounts, the Company considers current market interest rates, profitability to
the Company, matching deposit and loan products and its customer preferences and
concerns. The Company reviews its deposit mix and pricing weekly. The Company
does not accept brokered deposits, nor has it aggressively sought jumbo
certificates of deposit.

         The Company currently offers certificates of deposit for terms not
exceeding 48 months. As a result, the Company believes that it is better able to
match the repricing of its liabilities to the repricing of its loan portfolio.

         The following table indicates the amount of the Company's jumbo
certificates of deposit by time remaining until maturity as of December 31,
1998. Jumbo certificates of deposit are certificates in amounts of $100,000 or
more.

<TABLE>
<CAPTION>
                 Maturity Period                             Amount
                 ---------------                         --------------  
 
                                                         (In Thousands)
<S>                                                       <C>
Three months or less.................................       $ 944
Over three through six months........................       1,064
Over six through 12 months...........................         214
Over 12 months.......................................         533
                                                           ------
         Total jumbo certificates of deposit.........      $2,755
                                                           ======
</TABLE>

         The following table sets forth the balances (inclusive of interest
credited) and changes in dollar amounts of deposits in the various types of
accounts offered by the Company between the dates indicated.

<TABLE>
<CAPTION>
                                                                    At December 31,
                                    --------------------------------------------------------------------------------
                                                1998                          1997                     1996
                                    ----------------------------- --------------------------------------------------
                                              Percent                       Percent                        Percent
                                                 of      Increase              of     Increase               of
                                     Amount    Total    (Decrease) Amount    Total    (Decrease) Amount     Total
                                    --------- --------- --------- --------- --------- ---------- ------- -----------
                                                                (Dollars in Thousands)
<S>                                  <C>        <C>       <C>      <C>       <C>      <C>         <C>      <C>
Noninterest-bearing...............   $   981      1.35%   $  501   $   480      0.66%  $   (168)  $   648      0.89%
NOW checking......................     4,419      6.08       404     4,015      5.51        560     3,455      4.74
Regular savings accounts..........     6,372      8.77      (366)    6,738      9.25         25     6,713      9.21
Money market deposit accounts                                                                                       
   ("MMDAs")......................     6,266      8.62       926     5,340      7.33        434     4,906      6.73 
Fixed-rate certificates which       
mature:                             
   Within 1 year..................    39,706     54.62      (683    40,389     55.41     (1,068)   41,457     56.88
   After 1 year, but within                                                                                         
      2 years.....................    13,211     18.17     4,482     8,729     11.97     (1,725)   10,454     14.35 
   After 2 years, but                 
      within 5 years..............     1,734      2.39    (5,458)    7,192      9.87      1,945     5,247      7.20 
                                    --------- --------- --------- --------- --------- ----------  ------- ----------
            Total deposits........   $72,689   100.00%   $  (194)  $72,883    100.00%   $     3   $72,880    100.00%
                                    ========= ========= ========= ========= ========= ==========  ======= ==========
</TABLE>

                                       16
<PAGE>
 
         The following table sets forth the Company's time deposits categorized
by rates at the dates indicated.

<TABLE>
<CAPTION>
                                                                  At December 31,
                                                        -------------------------------------
                                                           1998         1997         1996
                                                        ------------ -----------  -----------
                                                                   (In Thousands)
<S>                                                       <C>         <C>          <C>
0.00 - 3.99%........................................        $    13     $    13      $    13
4.00 - 4.99%........................................         11,051         471        4,103
5.00 - 5.99%........................................         39,523      49,273       42,919
6.00 - 6.99%........................................          3,981       6,474       10,050
7.00 - 7.99%........................................             83          78           73     
                                                            -------     -------      -------
     Total..........................................        $54,651     $56,309      $57,158
                                                            =======     =======      =======
</TABLE>

         The following table sets forth the amount and maturities of time
deposits at December 31, 1998.

<TABLE>
<CAPTION>
                                                                                Amount Due
                                                        ------------------------------------------------------------
                                                         Less Than      1 - 2       2 - 3    3 Years       Total
                                                         One Year       Years       Years   and After
                                                        ------------ ------------  -------- ----------- ------------
                                                                              (In Thousands)
<S>                                                        <C>           <C>            <C>      <C>        <C>  
0.00 - 3.99%..........................................      $    13      $    --        $--     $   --      $    13
4.00 - 4.99%..........................................        9,466        1,379         --        206       11,051
5.00 - 5.99%..........................................       26,656       11,339         --      1,528       39,523
6.00 - 6.99%..........................................        3,488          493         --         --        3,981
7.00 - 7.99%..........................................           83           --         --         --           83
                                                            -------      -------        ----    ------      -------
     Total............................................      $39,706      $13,211        $--     $1,734      $54,651
                                                            =======      =======        ====    ======      =======
</TABLE>

         The following table sets forth the deposit activities of the Company
for the periods indicated.

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                        -------------------------------------
                                                           1998         1997         1996
                                                        ------------ -----------  -----------
                                                                   (In Thousands)
<S>                                                         <C>         <C>          <C>
Beginning balance....................................       $72,883     $72,880      $75,931
Net deposits (withdrawals)                                                           
   before interest credited..........................        (3,101)     (2,905)      (6,058)
Interest credited....................................         2,907       2,908        3,007
                                                            -------     --------     -------
Net increase (decrease) in deposits..................          (194)          3       (3,051)
                                                            -------     --------     ------
Ending balance.......................................       $72,689     $72,883      $72,880
                                                            =======     =======      =======
</TABLE>

         Borrowings. Savings deposits are the primary source of funds for the
Company's lending and investment activities and for its general business
purposes. The Company has the ability to use advances from the FHLB-Des Moines
to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings associations and certain other member financial institutions.
As a member of the FHLB-Des Moines, the Company is required to own capital stock
in the FHLB-Des Moines and is authorized to apply for advances on the security
of such stock and certain of its mortgage loans and other 

                                       17
<PAGE>
 
assets (principally securities that are obligations of, or guaranteed by, the
U.S. Government) provided certain creditworthiness standards have been met.
Advances are made pursuant to several different credit programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit. At December 31, 1998, the Company had $571,000 borrowed from
the FHLB-Des Moines. The Company borrowed $600,000 on a mortgage match advance
in October 1997 to fund a loan on commercial property with a yield to the
Company of 8.50%.

         The following table sets forth certain information regarding short-term
borrowings by the Company at the dates and for the periods indicated:

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                               -------------------------------------
                                                                                  1998        1997         1996
                                                                               ----------- ------------ ------------
                                                                                      (Dollars in Thousands)
<S>                                                                             <C>         <C>           <C>
Amount of FHLB advances outstanding at end of period........................         $571         $596          $--
Maximum amount of FHLB advances outstanding                                           
   at any month end.........................................................          594          600           --
Approximate average FHLB advances outstanding                                                                       
   during the period........................................................          584          164            4 
Approximate weighted average rate paid on                                                                           
   FHLB advances during the period..........................................         6.51%        6.10%        5.40% 
Weighted average rate paid on FHLB advances at end of period................         6.35         6.35           --
</TABLE>

Competition

         The Company operates in a competitive market for the attraction of
savings deposits (its primary source of lendable funds) and in the origination
of loans. Its most direct competition for savings deposits has historically come
from local commercial banks, credit unions and other thrifts operating in its
market area. As of December 31, 1998, there were ten commercial banks and one
other thrift operating in Cole County, Missouri. Most of these financial
institutions are locally-owned community oriented banks and thrifts, however,
there are two subsidiaries of larger regional holding companies. As a result of
this competition, the Company at times has suffered deposit declines and loss of
market share. The Company's branches in California, Tipton and St. Robert,
Missouri also face competition from other financial institutions. Particularly
in times of high interest rates, the Company has faced additional significant
competition for investors' funds from short-term money market securities and
other corporate and government securities. The Company's competition for loans
also comes from mortgage bankers. Such competition for deposits and the
origination of loans may limit the Company's growth in the future.

Personnel

         As of December 31, 1998, the Company had 26 full-time and 4 part-time
employees. The employees are not represented by a collective bargaining unit.
The Company believes its relationship with its employees is good.

Subsidiary Activities

         Federal savings associations generally may invest up to 3% of their
assets in service corporations, provided that at least one-half of any amount in
excess of 2% is used primarily for community, inner-city and community
development projects. The Savings Bank's investment in its service corporation,
Parity Insurance Agency, Inc. ("Parity"), did not exceed these limits at
December 31, 1998.

                                       18
<PAGE>
 
         Parity is a wholly owned subsidiary of the Savings Bank. Parity
previously sold mortgage life and disability insurance to the Savings Bank's
borrowers and continues to collect commissions. Parity also owns City National
Real Estate, Inc., which is inactive. At December 31, 1998, the Savings Bank's
investment in its subsidiaries was $107,000.

Joint Venture

      In 1997, the Company invested in Bales Brothers, Inc. J.V., a joint
venture which will be building single family homes for sale in the Briar Pointe
subdivision in Waynesville, Missouri. Under the terms of the joint venture, the
Company provides the funds and Bales Brothers, Inc. provides the labor and
management for the construction projects. When a house is sold, any net profit
will be shared with the Company to receive 50% and Bales Brothers, Inc. to
receive 50%. At December 31, 1998, Bales Brothers, Inc. J.V. had two houses
under construction in the Briar Pointe subdivision. The Company's interest in
the joint venture at December 31, 1998 was $220,000. See Note 8 of the Notes to
Consolidated Financial Statements.


                           REGULATION AND SUPERVISION

General

         As a savings and loan holding company, the Company is required by
federal law to file reports with, and otherwise comply with, the rules and
regulations of the OTS. The Savings Bank is subject to extensive regulation,
examination and supervision by the OTS, as its primary federal regulator, and
the FDIC, as the deposit insurer. The Savings Bank is a member of the Federal
Home Loan Bank System and its deposit accounts are insured up to applicable
limits by the SAIF managed by the FDIC. The Savings Bank must file reports with
the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other savings
institutions. The OTS and/or the FDIC conduct periodic examinations to test the
Savings Bank's safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the OTS, the
FDIC or the Congress, could have a material adverse impact on the Company, the
Savings Bank and their operations. Certain of the regulatory requirements
applicable to the Savings Bank and to the Company are referred to below or
elsewhere herein. The description of statutory provisions and regulations
applicable to savings institutions and their holding companies set forth in this
Form 10-KSB does not purport to be a complete description of such statutes and
regulations and their effects on the Savings Bank and the Company.

Holding Company Regulation

         The Company is a nondiversified unitary savings and loan holding
company within the meaning of federal law. As a unitary savings and loan holding
company, the Company generally is not restricted under existing laws as to the
types of business activities in which it may engage, provided that the Savings
Bank continues to be a qualified thrift lender. See "Federal Savings Institution
Regulation - QTL Test." Upon any non-supervisory acquisition by the Company of
another savings institution or savings bank that meets the qualified thrift
lender test and is deemed to be a savings institution by the OTS, the Company
would become a multiple savings and loan holding company (if the acquired
institution is held as a separate subsidiary) and would generally be limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the OTS, and certain
activities authorized by OTS regulation.

                                       19
<PAGE>
 
         A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the OTS and from acquiring or retaining control of a depository institution
that is not insured by the FDIC. In evaluating applications by holding companies
to acquire savings institutions, the OTS considers the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the deposit insurance funds, the
convenience and needs of the community and competitive factors.

         The OTS may not approve any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies and (ii) the acquisition of a
savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.

         Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. The Savings Bank must
notify the OTS 30 days before declaring any dividend to the Company. In
addition, the financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS and the agency has
authority to order cessation of activities or divestiture of subsidiaries deemed
to pose a threat to the safety and soundness of the institution.

Federal Savings Institution Regulation

         Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.

         Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage ratio and an 8% risk-based capital ratio. In addition, the
prompt corrective action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions
receiving the highest rating on the CAMEL financial institution rating system),
and, together with the risk-based capital standard itself, a 4% Tier 1
risk-based capital standard. The OTS regulations also require that, in meeting
the tangible, leverage and risk-based capital standards, institutions must
generally deduct investments in and loans to subsidiaries engaged in activities
as principal that are not permissible for a national bank.

         The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier 1) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.

         The capital regulations also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. For the present time, the OTS has deferred
implementation of the interest rate risk component. At December 31, 1998, the
Savings Bank met each of its capital requirements.

                                       20
<PAGE>
 
         Prompt Corrective Regulatory Action. The OTS is required to take
certain supervisory actions against undercapitalized institutions, the severity
of which depends upon the institution's degree of undercapitalization.
Generally, a savings institution that has a ratio of total capital to risk
weighted assets of less than 8%, a ratio of Tier 1 (core) capital to
risk-weighted assets of less than 4% or a ratio of core capital to total assets
of less than 4% (3% or less for institutions with the highest examination
rating) is considered to be "undercapitalized." A savings institution that has a
total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than
3% or a leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the OTS is required to appoint
a receiver or conservator for an institution that is "critically
undercapitalized." The regulation also provides that a capital restoration plan
must be filed with the OTS within 45 days of the date a savings institution
receives notice that it is "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." Compliance with the plan must be guaranteed by
any parent holding company. In addition, numerous mandatory supervisory actions
become immediately applicable to an undercapitalized institution, including, but
not limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The OTS could also take any one of a number
of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.

         Insurance of Deposit Accounts. Deposits of the Savings Bank are
presently insured by the SAIF. The FDIC maintains a risk-based assessment system
by which institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon the
categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.

         In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 1998,
FICO payments for SAIF members approximated 6.10 basis points, while Bank
Insurance Fund ("BIF") members paid 1.22 basis points. By law, there will be
equal sharing of FICO payments between SAIF and BIF members on the earlier of
January 1, 2000 or the date the SAIF and BIF are merged.

         The FDIC has authority to increase insurance assessments. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Savings Bank. Management
cannot predict what insurance assessment rates will be in the future.

         Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Savings Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

         Thrift Rechartering Legislation. Legislation enacted in 1996 provided
that the BIF and SAIF were to have merged on January 1, 1999 if there were no
more savings associations as of that date. Various proposals to eliminate the
federal savings association charter, create a uniform financial institutions
charter, abolish the OTS and restrict savings and loan holding company
activities have been introduced in Congress. The Savings Bank is unable to
predict whether such legislation will be enacted or the extent to which the
legislation would restrict or disrupt its operations.

         Loans to One Borrower. Federal law provides that savings institutions
are generally subject to the limits on loans to one borrower applicable to
national banks. A savings institution may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if secured by specified readily-marketable collateral. At
December 31, 1998, the Savings Bank's limit on loans to one borrower was $2.9
million, and the Savings Bank's largest aggregate outstanding balance of loans
to one borrower was $2.1 million.

                                       21
<PAGE>
 
         QTL Test. The HOLA requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.

         A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of December 31, 1998, the Savings Bank met the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments."

         Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, including cash
dividends, payments to repurchase its shares and payments to shareholders of
another institution in a cash-out merger. The rule effective in 1998 established
three tiers of institutions based primarily on an institution's capital level.
An institution that exceeded all capital requirements before and after a
proposed capital distribution ("Tier 1 Bank") and had not been advised by the
OTS that it was in need of more than normal supervision, could, after prior
notice but without obtaining approval of the OTS, make capital distributions
during the calendar year equal to the greater of (i) 100% of its net earnings to
date during the calendar year plus the amount that would reduce by one-half the
excess capital over its capital requirements at the beginning of the calendar
year or (ii) 75% of its net income for the previous four quarters. Any
additional capital distributions required prior regulatory approval. At December
31, 1998, the Savings Bank was a Tier 1 Bank. Effective April 1, 1999, the OTS's
capital distribution regulation will change. Under the new regulation, an
application to and the prior approval of the OTS will be required prior to any
capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under OTS regulations (i.e., generally,
examination ratings in the two top categories), the total capital distributions
for the calendar year exceed net income for that year plus the amount of
retained net income for the preceding two years, the institution would be
undercapitalized following the distribution or the distribution would otherwise
be contrary to a statute, regulation or agreement with OTS. If an application is
not required, the institution must still provide prior notice to OTS of the
capital distribution. In the event the Savings Bank's capital fell below its
regulatory requirements or the OTS notified it that it was in need of more than
normal supervision, the Savings Bank's ability to make capital distributions
could be restricted. In addition, the OTS could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.

         Liquidity. The Savings Bank is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the OTS to any amount within the range of 4% to 10%. Monetary
penalties may be imposed for failure to meet these liquidity requirements. The
Savings Bank's liquidity ratio at December 31, 1998 exceeded the applicable
requirements. The Savings Bank has never been subject to monetary penalties for
failure to meet its liquidity requirements.

         Assessments. Savings institutions are required to pay assessments to
the OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Savings Bank's latest
quarterly thrift financial report. The assessments paid by the Savings Bank for
the fiscal year ended December 31, 1998 totaled $30,000.

         Transactions with Related Parties. The Savings Bank's authority to
engage in transactions with "affiliates" (e.g., any company that controls or is
under common control with an institution, including the Company and its
non-savings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law.

                                       22
<PAGE>
 
The purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.

         The Savings Bank's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. Recent legislation created
an exception for loans made pursuant to a benefit or compensation program that
is widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans the Savings Bank may make to insiders based, in
part, on the Savings Bank's capital position and requires certain board approval
procedures to be followed.

         Enforcement. The OTS has primary enforcement responsibility over
savings institutions and has the authority to bring actions against the
institution and all institution-affiliated parties, including stockholders, and
any attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution. Formal enforcement action may range from the issuance of a capital
directive or cease and desist order to removal of officers and/or directors to
institution of receivership, conservatorship or termination of deposit
insurance. Civil penalties cover a wide range of violations and can amount to
$25,000 per day, or even $1 million per day in especially egregious cases. The
FDIC has the authority to recommend to the Director of the OTS that enforcement
action to be taken with respect to a particular savings institution. If action
is not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for
certain violations.

         Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.

Federal Reserve System

         The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $46.5 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.395
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $46.5
million. The first $4.9 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Savings Bank complies with the foregoing requirements.

                                       23
<PAGE>
 
                           FEDERAL AND STATE TAXATION

Federal Taxation

         General. The Company and the Savings Bank report their income on a
fiscal year, consolidated basis and the accrual method of accounting, and are
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Savings Bank's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Savings Bank or the Company. The Savings Bank has not been
audited by the IRS in the last five years. For its 1998 taxable year, the
Savings Bank is subject to a maximum federal income tax rate of 34%.

         Bad Debt Reserves. For fiscal years beginning prior to December 31,
1995, thrift institutions which qualified under certain definitional tests and
other conditions of the Internal Revenue Code were permitted to use certain
favorable provisions to calculate their deductions from taxable income for
annual additions to their bad debt reserve. A reserve could be established for
bad debts on qualifying real property loans (generally secured by interests in
real property improved or to be improved) under (i) the Percentage of Taxable
Income Method (the "PTI Method") or (ii) the Experience Method. The reserve for
nonqualifying loans was computed using the Experience Method.

         The Small Business Job Protection Act of 1996 (the "1996 Act"), which
was enacted on August 20, 1996, repeals the reserve method of accounting for bad
debts for tax years beginning after 1995 and requires savings institutions to
recapture (i.e., take into income) certain portions of their accumulated bad
debt reserves. Thrift institutions eligible to be treated as "small banks"
(assets of $500 million or less) are allowed to use the Experience Method
applicable to such institutions, while thrift institutions that are treated as
large banks (assets exceeding $500 million) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.

         A thrift institution required to change its method of computing
reserves for bad debts will treat such change as a change in method of
accounting, initiated by the taxpayer, and having been made with the consent of
the IRS. Any Section 481(a) adjustment required to be taken into income with
respect to such change generally will be taken into income ratably over a
six-taxable year period, beginning with the first taxable year beginning after
1995, subject to a 2-year suspension if the "residential loan requirement" is
satisfied.

         Under the residential loan requirement provision, the recapture
required by the 1996 Act will be suspended for each of two successive taxable
years, beginning with the Savings Bank's 1996 taxable year, in which the Savings
Bank originates a minimum of certain residential loans based upon the average of
the principal amounts of such loans made by the Savings Bank during its six
taxable years preceding its current taxable year.

         The Savings Bank is required to recapture (i.e., take into income) over
a six year period the excess of the balance of its tax bad debt reserves as of
December 31, 1995 over the balance of such reserves as of December 31, 1987. As
a result of such recapture, the Savings Bank will incur an additional tax
liability of approximately $76,000 which is generally expected to be taken into
income beginning in 1998 over a six year period.

         Distributions. Under the 1996 Act, if the Savings Bank makes
"non-dividend distributions" to the Company, such distributions will be
considered to have been made from the Savings Bank's unrecaptured tax bad debt
reserves (including the balance of its reserves as of December 31, 1987) to the
extent thereof, and then from the Savings Bank's supplemental reserve for losses
on loans, to the extent thereof, and an amount based on the amount distributed
(but not in excess of the amount of such reserves) will be included in the
Savings Bank's income. Non-dividend distributions include distributions in
excess of the Savings Bank's current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial or complete liquidation. Dividends paid out
of the Savings Bank's current or accumulated earnings and profits will not be so
included in the Savings Bank's income.

                                       24
<PAGE>
 
         The amount of additional taxable income triggered by a non-dividend is
an amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Thus, if the Savings Bank makes a non-dividend
distribution to the Company, approximately one and one-half times the amount of
such distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Savings Banks do not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.

         SAIF Recapitalization Assessment. The Funds Act levied a 65.7-cent fee
on every $100 of thrift deposits held on March 31, 1995. For financial statement
purposes, this assessment was reported as an expense for the quarter ended
September 30, 1996. The Funds Act includes a provision which states that the
amount of any special assessment paid to capitalize SAIF under this legislation
is deductible in the year of payment.

State Taxation

         Missouri. Missouri-based thrift institutions, such as the Savings Bank,
are subject to a special financial institutions tax, based on net income without
regard to net operating loss carryforwards, at the rate of 7% of net income.
This tax is in lieu of certain other state taxes on thrift institutions, on
their property, capital or income, except taxes on tangible personal property
owned by the Savings Bank and held for lease or rental to others and on real
estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri, social security taxes, sales taxes and use taxes. In addition, the
Savings Bank is entitled to credit against this tax all paid to the State of
Missouri or any political subdivision, except taxes on tangible personal
property owned by the Savings Bank and held for lease or rental to others and on
real estate, contributions paid pursuant to the Unemployment Compensation Law of
Missouri, social security taxes, sales and use taxes, and taxes imposed by the
Missouri Financial Institutions Tax Law. Missouri thrift institutions are not
subject to the regular corporate income tax.

         Delaware. As a Delaware holding company not earning income in Delaware,
the Company is exempted from Delaware corporate income tax, but is required to
file an annual report with, and pay an annual franchise tax to, the State of
Delaware.

Item 2.  Description of Property
--------------------------------

         The Company operates five full service facilities in Jefferson City
(2), California, Tipton and St. Robert, Missouri, all of which it owns. At
December 31, 1998, the net book value of the property (including land and
building) and the Company's fixtures, furniture and equipment was $1.6 million.

Item 3.  Legal Proceedings
--------------------------

         Periodically, there have been various claims and lawsuits involving the
Savings Bank, such as claims to enforce liens, condemnation proceedings on
properties on which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Savings Bank's business. Neither the Company nor the Savings Bank is a party to
any pending legal proceedings that it believes would have a material adverse
effect on the financial condition or operations of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.

                                       25
<PAGE>
 
                                     PART II

Item 5.   Market for Common Equity and Related Stockholder Matters
------------------------------------------------------------------

         The information contained under the section captioned "Price Range of
Common Stock" on page 48 of the 1998 Annual Report to Stockholders ("Annual
Report") is incorporated herein by reference.

Item 6.  Management's Discussion and Analysis of Financial Condition and 
------------------------------------------------------------------------
         Results of Operations or Plan of Operations
         -------------------------------------------

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

Item 7.   Financial Statements
------------------------------

         (a)      Financial Statements
                  Independent Auditors' Report*
                  Consolidated Statements of Financial Condition as of December
                   31, 1997 and 1998* 
                  Consolidated Statements of Income for the
                   Years Ended December 31, 1996, 1997, and 1998
                  Consolidated Statements of Changes in Stockholders' Equity for
                   the Years Ended December 31, 1996, 1997 and 1998
                  Consolidated Statements of Cash Flows for the Years Ended
                   December 31, 1996, 1997 and 1998
                  Notes to the Consolidated Financial Statements*

         * Included in the Annual Report attached as Exhibit 13 hereto and
         incorporated herein by reference. All schedules have been omitted as
         the required information is either inapplicable or included in the
         Consolidated Financial Statements or related Notes contained in the
         Annual Report.

Item 8. Changes in and Disagreements with Accountants on Accounting and 
-----------------------------------------------------------------------
        Financial Disclosure
        --------------------

         Not applicable.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; 
---------------------------------------------------------------------
        Compliance with Section 16(a) of the Exchange Act
        -------------------------------------------------

Executive Officers

         The following table sets forth certain information regarding the
executive officers of the Company.

<TABLE>
<CAPTION>
Name                      Age(1)            Position
----                      ------            --------
<S>                       <C>               <C>
Richard E. Caplinger        65              Chairman of the Board

Robert E. Chiles            63              President and Chief Executive Officer

David L. Jobe               50              Treasurer and Secretary

Delphine E. Prenger         61              Vice President

Jason E. Schwartz           30              Vice President
</TABLE>

                                       26
<PAGE>
 
         The following table sets forth certain information regarding the
executive officers of the Savings Bank.

<TABLE>
<CAPTION>
Name                      Age(1)            Position
----                      ------            --------
<S>                       <C>               <C>
Richard E. Caplinger        65              Chairman of the Board

Robert E. Chiles            63              President and Chief Executive Officer

David L. Jobe               50              Secretary and Treasurer

Delphine E. Prenger         61              Vice President

Jason E. Schwartz           30              Vice President
</TABLE>
-----------------------------
(1)  As of December 31, 1998.

      Robert E. Chiles serves as President, Chief Executive Officer and Director
of the Savings Bank, positions he has held since 1974. Mr. Chiles has also
served as President, Chief Executive Officer and Director of the Company since
its formation in 1996. Mr. Chiles is currently a member of the Loan Review
Committee, the Planning Committee, the Investment Committee and the In-House
Loan Committee. Mr. Chiles served as a member of the FHLB-Des Moines Board from
1989 to 1994 and as Vice Chairman in 1994.

      David L. Jobe currently serves as the Treasurer and Secretary of the
Savings Bank, positions which he has held since 1984. Mr. Jobe also served as
the Treasurer of the Jefferson City Chamber of Commerce in 1996.

      Delphine E. Prenger has been associated with the Savings Bank since 1968
and has served as Vice-President since 1983. Ms. Prenger is also a member of the
Jefferson City Chamber of Commerce.

      Jason E. Schwartz has been with the Company since 1995 and served as
Vice-President since 1997. Mr. Schwartz is currently Treasurer-Elect of the
Jefferson City Chamber of Commerce.

         Richard E. Caplinger is co-owner of Caplinger's Inc., a mens' specialty
retailer, with which he has been associated since 1952. Mr. Caplinger has served
as a Director since 1975 and as Chairman of the Board of Directors of the
Company since 1996 and of the Savings Bank since 1993. He currently serves on
the Planning Committee, the Budget and Salary Committee and the Compliance
Committee. Mr. Caplinger is also chairman of the Jefferson City Community
Betterment Association and a member of the small business task force of the
Jefferson City Chamber of Commerce.

         The information contained under the section captioned "Proposal I -
Election of Directors" contained in the Company's Proxy Statement is
incorporated herein by reference. Reference is made to the cover page of this
report for information regarding compliance with Section 16(a) of the Exchange
Act.

Item 10.  Executive Compensation
--------------------------------

         The information contained under the sections captioned "Executive
Compensation" and "Proposal I - Election of Directors - Directors' Compensation"
in the Proxy Statement is incorporated herein by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

         (a)      Security Ownership of Certain Beneficial Owners

                                       27
<PAGE>
 
                  The information required by this item is incorporated herein
                  by reference to the section captioned "Stock Ownership" of the
                  Proxy Statement.

         (b)      Security Ownership of Management

                  The information required by this item is incorporated herein
                  by reference to the section captioned "Stock Ownership" of the
                  Proxy Statement.

         (c)      Changes in Control

                  The Company is not aware of any arrangements, including any
                  pledge by any person of securities of the Company, the
                  operation of which may at a subsequent date result in a change
                  in control of the Company.

Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

         The information set forth under the section captioned "Transactions
with Management" in the Proxy Statement is incorporated herein by reference.


                                     PART IV

Item 13.  Exhibits List and Reports on Form 8-K
-----------------------------------------------

         (a)      Exhibits


         3.1      Certificate of Incorporation of CNS Bancorp, Inc.
                  (incorporated by reference to Exhibit 3.1 to the Company's
                  Registration Statement on Form S-1 (File No. 333-01880))
         3.2      Amended and Restated Bylaws of CNS Bancorp, Inc.
         10.1     Employment Agreement with Robert E. Chiles (incorporated by
                  reference to Exhibit 10.1 to the Company's Annual Report on
                  Form 10-KSB for the year ended December 31, 1997)
         10.2     CNS Bancorp, Inc. 1997 Stock Option Plan (incorporated by
                  reference to Exhibit A to the Company's Proxy Statement dated
                  March 19, 1997)
         10.3     CNS Bancorp, Inc. 1997 Management Recognition and Development
                  Plan (incorporated by reference Exhibit B to the Company's
                  Proxy Statement dated March 19, 1997)
         13       Annual Report to Stockholders
         21       Subsidiaries of the Registrant
         23       Consent of Independent Auditors
         27       Financial Data Schedule

         (b)      Reports on Form 8-K

                  No Reports on Form 8-K were filed during the quarter ended
                  December 31, 1998.

                                       28
<PAGE>
 
                                   SIGNATURES

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

                                       CNS BANCORP, INC.


Date:  March 30, 1999                      By: /s/ Robert E. Chiles 
                                           --------------------------------
                                           Robert E. Chiles
                                           President and Chief Executive Officer

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

<TABLE>
<CAPTION>
SIGNATURES                       TITLE                       DATE
----------                       -----                       ----
<S>                              <C>                         <C>

/s/ Robert E. Chiles             President, Chief           March 30, 1999
------------------------------   Executive Officer and      
Robert E. Chiles                 Director (Principal        
                                 Executive Officer)         
                                                            
                                                            
/s/ David L. Jobe                Treasurer and Secretary    March 30, 1999
------------------------------   (Principal Financial       
David L. Jobe                    and Accounting Officer)    
                                                            
                                                            
                                                            
/s/ James F. McHenry             Director                   March 30, 1999
------------------------------                              
James F. McHenry                                            
                                                            
                                                            
                                                            
                                                            
/s/ Ronald D. Roberson           Director                   March 30, 1999
------------------------------                              
Ronald D. Roberson                                          
                                                            
                                                            
                                                            
/s/ Richard E. Caplinger         Chairman of the Board      March 30, 1999
------------------------------                              
Richard E. Caplinger                                        
                                                            
                                                            
                                                            
/s/ Michael A. Dallmeyer         Director                   March 30, 1999
------------------------------                              
Michael A. Dallmeyer                                        
                                                            
                                                            
                                                            
/s/ John C. Kolb                 Director                   March 30, 1999
------------------------------
John C. Kolb
</TABLE> 

                                       29