SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2003
Commission File Number: 0-22423
HCB BANCSHARES, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Oklahoma 62-1670792
- ---------------------------- ----------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
237 Jackson Street, Camden, Arkansas 71701-3941
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (870) 836-6841
--------------
Securities registered pursuant to Section (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES NO X
--- ---
The aggregate market value of the voting stock held by non-affiliates of
the registrant at August 31, 2003 was approximately $18,991,000 based on the
closing sale price of the registrant's Common Stock as listed on the Nasdaq
SmallCap MarketSM as of December 31, 2002 ($16.00 per share). Solely for
purposes of this calculation, directors, executive officers and greater than 5%
stockholders are treated as affiliates.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 1,450,230 shares of common
stock as of August 31, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
The following lists the documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated:
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended June
30, 2003. (Parts II and IV)
2. Portions of Proxy Statement for the 2003 Annual Meeting of Stockholders.
(Part III)
EXPLANATORY NOTE
This Form 10-K/A is being filed to correct an inadvertent error in the last
sentence of the section entitled "Recently Issued Accounting Pronouncements" of
Note 1 to the Consolidated Financial Statements for the fiscal year ended June
30, 2003 appearing in Exhibit 13 to the Annual Report on Form 10-K of HCB
Bancshares, Inc. for the fiscal year ended June 30, 2003.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
HCB Bancshares, Inc.
Camden, Arkansas
We have audited the accompanying consolidated statements of financial condition
of HCB Bancshares, Inc. as of June 30, 2003 and 2002, and the related
consolidated statements of income and comprehensive income, stockholders'
equity, and cash flows for each of the two years in the period ended June 30,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HCB Bancshares, Inc.
as of June 30, 2003 and 2002, and the results of its operations and its cash
flows for each of the two years in the period ended June 30, 2003 in conformity
with accounting principles generally accepted in the United States of America.
/s/ BKD, LLP
Little Rock, Arkansas
July 31, 2003
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
HCB Bancshares, Inc.
Camden, Arkansas
We have audited the accompanying consolidated statements of income and
comprehensive income, shareholders' equity, and cash flows of HCB Bancshares,
Inc. and its subsidiary (the "Company") for the year ended June 30, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of HCB Bancshares,
Inc. and its subsidiary for the year ended June 30, 2001 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
September 21, 2001
3
HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2003 AND 2002
- ------------------------------------------------------------------------------------------------------
ASSETS 2003 2002
Cash and due from banks $ 3,003,656 $ 3,492,257
Interest-bearing deposits with banks 4,203,320 14,404,572
------------- -------------
Cash and cash equivalents 7,206,976 17,896,829
Investment securities:
Available for sale, at fair value (amortized cost at June 30, 2003
and 2002, of $126,360,791 and $115,796,195, respectively) 129,960,346 118,198,564
Loans receivable, net of allowance at June 30, 2003 and 2002,
of $1,605,677 and $1,628,515, respectively 100,779,545 124,176,898
Accrued interest receivable 1,456,372 1,721,612
Federal Home Loan Bank stock 4,704,100 4,709,900
Premises and equipment, net 5,113,645 7,112,211
Goodwill, net -- 131,250
Real estate held for sale 246,160 910,587
Other assets 1,557,639 1,567,443
------------- -------------
TOTAL $ 251,024,783 $ 276,425,294
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 151,956,504 $ 165,005,183
Federal Home Loan Bank advances 69,068,534 82,263,936
Advance payments by borrowers for
taxes and insurance 83,879 110,446
Accrued interest payable 563,620 740,008
Other liabilities 897,259 1,569,433
------------- -------------
Total liabilities 222,569,796 249,689,006
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 14)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000
shares authorized, 2,645,000 shares
issued, 1,457,982 and 1,425,056 shares
outstanding at June 30, 2003 and 2002, respectively 26,450 26,450
Additional paid-in capital 25,781,908 25,832,641
Unearned ESOP shares (634,800) (846,400)
Unearned MRP shares (82,625) (116,169)
Accumulated other comprehensive income 2,221,285 1,441,942
Retained earnings 15,537,315 14,950,088
------------- -------------
42,849,533 41,288,552
------------- -------------
Treasury stock, at cost, 1,187,018 and 1,219,944
shares at June 30, 2003 and 2002, respectively (14,394,546) (14,552,264)
------------- -------------
Total stockholders' equity 28,454,987 26,736,288
------------- -------------
TOTAL $ 251,024,783 $ 276,425,294
============= =============
See notes to consolidated financial statements.
4
HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
- ----------------------------------------------------------------------------------------------
2003 2002 2001
INTEREST INCOME:
Interest and fees on loans $ 8,168,887 $ 10,735,729 $ 11,622,492
Investment securities:
Taxable 4,737,709 5,418,567 6,401,378
Nontaxable 1,268,696 1,344,478 1,529,550
Other 240,879 417,339 524,980
------------ ------------ ------------
Total interest income 14,416,171 17,916,113 20,078,400
------------ ------------ ------------
INTEREST EXPENSE:
Deposits 3,774,026 5,706,164 7,699,484
Federal Home Loan Bank advances 4,455,070 5,116,537 6,372,982
Note payable -- 1,000 7,000
------------ ------------ ------------
Total interest expense 8,229,096 10,823,701 14,079,466
------------ ------------ ------------
NET INTEREST INCOME 6,187,075 7,092,412 5,998,934
PROVISION FOR LOAN AND INVESTMENT LOSSES 533,000 359,000 296,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND INVESTMENT LOSSES 5,654,075 6,733,412 5,702,934
------------ ------------ ------------
NONINTEREST INCOME:
Service charges on deposit accounts 886,951 984,089 765,532
Gain on sales of investment securities
available for sale -- 1,518 --
Gain on sales of loans available for sale, net 584,768 381,733 223,906
Gain on sale of branch 742,942 -- --
Other 172,024 239,120 389,174
------------ ------------ ------------
Total noninterest income 2,386,685 1,606,460 1,378,612
------------ ------------ ------------
NONINTEREST EXPENSE:
Salaries and employee benefits 3,812,522 3,961,413 3,875,094
Net occupancy expense 887,119 1,085,602 1,033,684
Federal insurance premiums 25,953 29,439 50,330
Data processing 390,896 368,176 312,551
Professional fees 457,446 489,360 624,622
Amortization of goodwill -- 75,000 75,000
Other 1,316,909 1,104,155 957,837
------------ ------------ ------------
Total noninterest expenses 6,890,845 7,113,145 6,929,118
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,149,915 1,226,727 152,428
INCOME TAX PROVISION (BENEFIT) 88,750 61,027 (467,888)
------------ ------------ ------------
NET INCOME $ 1,061,165 $ 1,165,700 $ 620,316
------------ ------------ ------------
(Continued)
5
HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
- ------------------------------------------------------------------------------------------
2003 2002 2001
OTHER COMPREHENSIVE INCOME,
NET OF TAX
Unrealized holding gain on securities
arising during period $ 779,343 $ 1,503,060 $ 4,342,068
Reclassification adjustment for
gains included in net income -- (1,518) --
------------- ----------- -----------
Other comprehensive income 779,343 1,501,542 4,342,068
------------- ----------- -----------
COMPREHENSIVE INCOME $ 1,840,508 $ 2,667,242 $ 4,962,384
============= =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
BASIC 1,363,626 1,635,669 1,866,387
============= =========== ===========
DILUTED 1,448,146 1,719,903 1,866,387
============= =========== ===========
EARNINGS PER SHARE:
Basic $ 0.78 $ 0.71 $ 0.33
============= =========== ===========
Diluted $ 0.73 $ 0.68 $ 0.33
============= =========== ===========
DIVIDENDS PER SHARE $ 0.35 $ 0.28 $ 0.24
============= =========== ===========
(Concluded)
See notes to consolidated financial statements.
6
HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Issued Additional Unearned Unearned Other
Common Stock Paid-In ESOP MRP Comprehensive Retained
Shares Amount Capital Shares Shares Income Earnings
--------------------------------------------------------------------------------------------------
BALANCE JULY 1, 2000 2,645,000 $ 26,450 $ 25,945,850 $ (1,269,600) $ (220,104) $ (4,401,668) $ 14,110,667
Net income 620,316
Common stock committed
to be released for ESOP (31,718) 211,600
MRP shares earned 64,503
Net change in unrealized
loss on securities available
for sale, net of tax 4,342,068
Treasury stock purchased
Dividends paid (474,299)
--------- -------- ------------ ---------- --------- ----------- ------------
BALANCE JUNE 30, 2001 2,645,000 26,450 25,914,132 (1,058,000) (155,601) (59,600) 14,256,684
Net income 1,165,700
Common stock committed
to be released for ESOP 77,065 211,600
MRP shares earned 39,432
Net change in unrealized
gain (loss) on securities
available for sale, net of tax 1,501,542
Stock options exercised (158,556)
Treasury stock purchased
Dividends paid (472,296)
--------- -------- ------------ ---------- --------- ----------- ------------
BALANCE JUNE 30, 2002 2,645,000 26,450 25,832,641 (846,400) (116,169) 1,441,942 14,950,088
Net income 1,061,165
Common stock committed
to be released for ESOP 129,615 211,600
MRP shares earned (9,044) 33,544
Net change in unrealized
gain on securities available
for sale, net of tax 779,343
Stock options exercised (171,304)
Treasury stock purchased
Dividends paid (473,938)
--------- -------- ------------ ---------- --------- ----------- ------------
BALANCE JUNE 30, 2003 2,645,000 $ 26,450 $ 25,781,908 $ (634,800) $ (82,625) $ 2,221,285 $ 15,537,315
========= ======== ============ ========== ========= =========== ============
Treasury Treasury Total
Stock Stock Stockholders'
Shares Amount Equity
----------------------------------------
BALANCE JULY 1, 2000 598,420 $ (5,951,045) $ 28,240,550
Net income 620,316
Common stock committed
to be released for ESOP 179,882
MRP shares earned 64,503
Net change in unrealized
loss on securities available
for sale, net of tax 4,342,068
Treasury stock purchased 111,135 (1,038,686) (1,038,686)
Dividends paid (474,299)
--------- ------------- ------------
BALANCE JUNE 30, 2001 709,555 (6,989,731) 31,934,334
Net income 1,165,700
Common stock committed
to be released for ESOP 288,665
MRP shares earned 39,432
Net change in unrealized
gain (loss) on securities
available for sale, net of tax 1,501,542
Stock options exercised (50,473) 619,821 461,265
Treasury stock purchased 560,862 (8,182,354) (8,182,354)
Dividends paid (472,296)
--------- ------------- ------------
BALANCE JUNE 30, 2002 1,219,944 (14,552,264) 26,736,288
Net income 1,061,165
Common stock committed
to be released for ESOP 341,215
MRP shares earned 24,500
Net change in unrealized
gain on securities available
for sale, net of tax 779,343
Stock options exercised (75,163) 858,417 687,113
Treasury stock purchased 42,237 (700,699) (700,699)
Dividends paid (473,938)
--------- ------------- ------------
BALANCE JUNE 30, 2003 1,187,018 $ (14,394,546) $ 28,454,987
========= ============= ============
See notes to consolidated financial statements.
7
HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
- ----------------------------------------------------------------------------------------------------------------
2003 2002 2001
OPERATING ACTIVITIES:
Net income $ 1,061,165 $ 1,165,700 $ 620,316
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 587,557 743,412 730,212
Amortization (accretion) of:
Deferred loan origination fees 67,245 117,153 116,232
Goodwill -- 75,000 75,000
Premiums and discounts on loans, net (4,412) (14,412) (4,487)
Premiums and discounts on investment securities, net 526,094 49,942 68,487
Net gain on sale of investment securities -- (1,518) --
Provision for loan and investment loss 533,000 359,000 296,000
Gain on sale of branch (742,942) -- --
Deferred income taxes (88,750) (269,037) (403,424)
Origination of loans held for sale (35,107,251) (26,675,718) (13,502,308)
Proceeds from sales of loans 33,795,154 27,117,741 12,732,692
Stock compensation expense 194,411 169,541 244,385
Change in accrued interest receivable 214,962 295,576 (164,301)
Change in accrued interest payable (141,700) (232,892) 55,485
Write down of land held for investment 407,149 -- --
Change in other assets (321,565) 192,983 (720,084)
Change in other liabilities (667,300) 358,360 (41,483)
------------ ------------ ------------
Net cash provided by operating activities 312,817 3,450,831 102,722
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of investment securities - available for sale (58,735,889) (23,053,591) --
Proceeds from sales of investment securities -- 4,995,347 --
Principal payments on investment securities 47,645,199 22,407,566 19,629,225
Redemption of Federal Home Loan Bank stock 5,800 25,900 1,487,700
Purchases of premises and equipment (234,596) (290,942) (1,742,409)
Net change due to branch sale (2,523,471) -- --
Loan repayments, net of originations 15,885,458 6,599,759 4,336,955
Proceeds from maturities of other interest-bearing deposits -- -- 99,000
Net decrease (increase) in real estate held for resale 350,238 (512,455) (38,524)
------------ ------------ ------------
Net cash provided by investing activities 2,392,739 10,171,584 23,771,947
------------ ------------ ------------
(Continued)
8
HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
- ---------------------------------------------------------------------------------------------------
2003 2002 2001
FINANCING ACTIVITIES:
Net increase in deposits $ 142,780 $ 3,720,004 $ 16,412,108
Advances from Federal Home Loan Bank -- 6,464,838 213,740,000
Repayment of Federal Home Loan Bank advances (13,195,402) (16,116,596) (237,433,335)
Net (decrease) increase in advance payments by
borrowers for taxes and insurance (26,567) (89,024) 59,916
Repayment of note payable -- (80,000) (80,000)
Purchase of treasury stock (700,699) (8,182,354) (1,038,686)
Payment for treasury stock options exercised 858,417 619,821 --
Dividends paid (473,938) (472,296) (474,299)
------------- ------------- -------------
Net cash used by financing activities (13,395,409) (14,135,607) (8,814,296)
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (10,689,853) (513,192) 15,060,373
CASH AND CASH EQUIVALENTS:
Beginning of year 17,896,829 18,410,021 3,349,648
------------- ------------- -------------
End of year $ 7,206,976 $ 17,896,829 $ 18,410,021
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ 8,405,484 $ 11,056,593 $ 14,023,981
============= ============= =============
Income taxes (received) paid $ 773,855 $ (94,698) $ 150,000
============= ============= =============
See notes to consolidated financial statements.
(Concluded)
9
HCB BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION - HCB Bancshares, Inc.
("Bancshares"), a bank holding company, owns 100 percent of HEARTLAND Community
Bank and its subsidiary (collectively the "Bank"). Bancshares' business is
primarily that of owning the Bank and participating in the Bank's activities.
The Bank provides a broad line of financial products to individuals and small to
medium-sized businesses through banking offices located in Camden, Fordyce,
Sheridan, and Bryant, Arkansas.
The accompanying consolidated financial statements include the accounts of
Bancshares and the Bank and are collectively referred to as the "Company". All
significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of the deferred
tax asset.
CASH AND CASH EQUIVALENTS - For purposes of presentation in the
consolidated statements of cash flows, "cash and cash equivalents" includes cash
on hand and amounts due from depository institutions, which includes
interest-bearing amounts available upon demand.
INVESTMENT SECURITIES - The Company classifies investment securities into
one of two categories: held to maturity or available for sale. The Company does
not engage in trading activities. Debt securities that the Company has the
positive intent and ability to hold to maturity are classified as held to
maturity and recorded at cost, adjusted for the amortization of premiums and the
accretion of discounts.
Investment securities that the Company intends to hold for indefinite
periods of time are classified as available for sale and are recorded at fair
value. Unrealized holding gains and losses are excluded from earnings and
reported net of tax as a separate component of stockholders' equity until
realized. Investment securities in the available for sale portfolio may be used
as part of the Company's asset and liability management practices and may be
sold in response to changes in interest rate risk, prepayment risk or other
economic factors.
Premiums are amortized into interest income using the interest method to
the earlier of maturity or call date. Discounts are accreted into interest
income using the interest method over the period to maturity. The specific
identification method of accounting is used to compute gains or losses on the
sales of investment securities.
If the fair value of an investment security declines for reasons other than
temporary market conditions, the carrying value of such a security is written
down to fair value by a charge to operations.
LOANS RECEIVABLE - Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
stated at unpaid principal balances adjusted for any charge-offs, the allowance
for loan losses, deferred loan fees or costs, and unamortized premiums or
discounts. Interest income is recognized on the interest method. Deferred loan
fees or costs and premiums and discounts on loans are amortized or accreted to
income using the level-yield method over the remaining period to contractual
maturity.
10
The accrual of interest on impaired loans is generally discontinued when,
in management's opinion, the borrower may be unable to meet payments as they
become due or when the loan becomes ninety days past due, whichever occurs
first. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments in excess of principal due are received, until such time that in
management's opinion, the borrower will be able to meet payments as they become
due.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is a valuation
allowance to provide for incurred but not yet realized losses. The Bank reviews
its loans for impairment on a quarterly basis. Impairment is determined by
assessing the probability that the borrower will not be able to fulfill the
contractual terms of the agreement. If a loan is determined to be impaired, the
amount of the impairment is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or by use of
the observable market price of the loan or fair value of collateral if the loan
is collateral dependent. Throughout the year management estimates the level of
probable losses to determine whether the allowance for loan losses is
appropriate considering the estimated losses existing in the portfolio. Based on
these estimates, an amount is charged to the provision for loan losses and
credited to the allowance for loan losses in order to adjust the allowance to a
level determined by management to be appropriate relative to losses. The
allowance for loan losses is increased by charges to income (provisions) and
decreased by charge-offs, net of recoveries.
Management's periodic evaluation of the appropriateness of the allowance is
based on the Company's past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and current economic
conditions.
Homogeneous loans are those that are considered to have common
characteristics that provide for evaluation on an aggregate or pool basis. The
Company considers the characteristics of (1) one-to-four family residential
first mortgage loans; (2) automobile loans and; (3) consumer and home
improvement loans to permit consideration of the appropriateness of the
allowance for losses of each group of loans on a pool basis. The primary
methodology used to determine the appropriateness of the allowance for losses
includes segregating certain specific, poorly performing loans based on their
performance characteristics from the pools of loans as to type and then applying
a loss factor to the remaining pool balance based on several factors including
classification of the loans as to grade, past loss experience, inherent risks,
economic conditions in the primary market areas and other factors which usually
are beyond the control of the Company. Those segregated specific loans are
evaluated using the present value of future cash flows, usually determined by
estimating the fair value of the loan's collateral reduced by any cost of
selling and discounted at the loan's effective interest rate if the estimated
time to receipt of monies is more than three months.
Non-homogeneous loans are those loans that can be included in a particular
loan type, such as commercial loans and multi-family and commercial first
mortgage loans, but which differ in other characteristics to the extent that
valuation on a pool basis is not valid. After segregating specific, poorly
performing loans and applying the methodology as noted in the preceding
paragraph for such specific loans, the remaining loans are evaluated based on
payment experience, known difficulties in the borrowers' business or geographic
area, loss experience, inherent risks and other factors usually beyond the
control of the Company. These loans are then graded and a factor, based on
experience, is applied to estimate the probable loss.
Estimates of the probability of loan losses involve an exercise of
judgment. While it is possible that in the near term the Company may sustain
losses which are substantial in relation to the allowance for loan losses, it is
the judgment of management that the allowance for loan losses reflected in the
consolidated statements of financial condition is appropriate considering the
estimated probable losses in the portfolio.
REAL ESTATE HELD FOR SALE - Real estate acquired in settlement of loans is
initially recorded at estimated fair value less estimated costs to sell and is
subsequently carried at the lower of carrying amount or fair value less
estimated disposal costs. Management periodically performs valuations, and an
allowance for losses is established by a charge to operations to the extent that
the carrying value of a property exceeds its estimated fair value. Costs
relating to the development and improvement of the property are capitalized,
whereas those relating to holding the property are expensed. Real estate
acquired for sale is carried of the lower of cost or fair value less costs to
sell.
11
PREMISES AND EQUIPMENT - Office premises and equipment are stated at cost
less accumulated depreciation and amortization. The Company computes
depreciation of premises and equipment using the straight-line method over the
estimated useful lives of the individual assets which range from 5 to 50 years
for buildings and improvements and from 3 to 10 years for furniture and
equipment.
GOODWILL AND INTANGIBLE ASSETS - Goodwill and other long-lived assets are
tested periodically for impairment and written down to their fair value as
necessary.
TREASURY STOCK - Treasury stock is stated at cost and is determined by the
first-in, first-out method.
STOCK OPTIONS - The Company applies the provisions of Accounting Principles
Board Opinion No. 25 in accounting for its stock option plan, as allowed under
SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no
compensation cost has been recognized for options granted to employees. Had
compensation cost for these plans been determined based on the fair value at the
grant dates or repricing date for awards under those plans consistent with the
methods of SFAS No. 123, the Company's pro forma net income and pro forma
earnings per share would have been as follows:
2003
AS REPORTED PRO FORMA
Net income (in thousands) $ 1,061 $ 1,048
Earnings per share:
Basic $ 0.78 $ 0.77
Diluted $ 0.73 $ 0.72
2002
AS REPORTED PRO FORMA
Net income (in thousands) $ 1,166 $ 1,146
Earnings per share:
Basic $ 0.71 $ 0.70
Diluted $ 0.68 $ 0.67
2001
AS REPORTED PRO FORMA
Net income (in thousands) $ 620 $ 529
Earnings per share:
Basic $ 0.33 $ 0.28
Diluted $ 0.33 $ 0.28
LOAN ORIGINATION FEES - Loan origination fees and certain direct loan
origination costs are deferred and the net fee or cost is recognized as an
adjustment to interest income using the level-yield method over the contractual
life of the loans. When a loan is fully repaid or sold, the amount of
unamortized fee or cost is recorded in income.
INCOME TAXES - The Company recognizes deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Deferred tax
assets and liabilities are reflected at currently enacted income tax rates
applicable to the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes. The Company considers the need for a valuation allowance if, based
on available evidence, deferred tax assets are not expected to be realized.
INTEREST RATE RISK - The Bank's asset base is exposed to risk including the
risk resulting from changes in interest rates and changes in the timing of cash
flows. The Bank monitors the effect of such risks by considering the mismatch of
the maturities of its assets and liabilities in the current interest rate
environment and the sensitivity of assets and liabilities to changes in interest
rates. The Bank's management has considered the effect of significant
12
increases and decreases in interest rates and believes such changes, if they
occurred, would be manageable and would not affect the ability of the Bank to
hold its assets as planned. However, the Bank is exposed to significant market
risk in the event of significant and prolonged interest rate changes.
EMPLOYEE STOCK OWNERSHIP PLAN - Compensation expense for the Employee Stock
Ownership Plan ("ESOP") is determined based on the average fair value of shares
committed to be released during the period and is recognized as the shares are
committed to be released. For the purposes of earnings per share, ESOP shares
are included in weighted-average common shares outstanding as the shares are
committed to be released.
MANAGEMENT RECOGNITION PLAN - Compensation for Management Recognition Plan
shares granted is based on the fair value of the shares at the date of grant and
is recognized ratably over the vesting period.
EARNINGS PER SHARE - Earnings per share ("EPS") of common stock has been
computed on the basis of the weighted-average number of shares of common stock
outstanding. Basic and diluted earnings per share were both calculated with
1,866,387 weighted-average common shares outstanding for the year ended June 30,
2001. Weighted-average common shares outstanding was the same for basic and
diluted in that year. For the year ended June 30, 2002, basic earnings per share
was calculated using 1,635,669 shares and dilutive earnings per share was
calculated using 1,719,903 shares. For the year ended June 30, 2003, basic
earnings per share was calculated using 1,363,626 shares and dilutive earnings
per share was calculated using 1,448,146 shares. Potential dilutive common
shares include the Stock Option Plan shares and the Management Recognition Plan
shares. These potential common shares had no dilutive effect for the year ended
June 30, 2001. However, for the years ended June 30, 2003 and 2002, the
Management Recognition Plan was antidilutive, but the Stock Option Plan was
dilutive by 84,520 and 84,234 shares, respectively.
STOCK PURCHASED FOR OPTION BENEFIT TRUST - As of June 30, 2003, the Company
has a total of 3,217 shares of its common stock in its stock option plan trust.
These shares are included in treasury stock on the accompanying consolidated
statement of financial condition, are available for sale, and are managed by the
trustees specifically for funding stock option benefits provided to key
employees.
RECLASSIFICATIONS - Certain amounts in the 2002 and 2001 consolidated
financial statements have been reclassified to conform to the classifications
adopted for reporting in 2003. These reclassifications had no effect on net
earnings.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - The Financial Accounting
Standards Board recently issued Statement No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not anticipate that the adoption
SFAS No. 150 will have a material impact on the financial condition or operating
results of the Company.
13
2. INVESTMENT SECURITIES
Investment securities consisted of the following at June 30:
2003
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
Municipal securities $ 25,115,797 $ 1,348,125 $ -- $ 26,463,922
Equity securities 39,750 68,820 -- 108,570
Other securities 2,000,000 -- 20,000 1,980,000
Mortgage-backed securities 74,393,710 1,787,407 20,872 76,160,245
Collateralized mortgage obligations 24,811,534 436,469 394 25,247,609
------------ ------------ ------------ ------------
Total $126,360,791 $ 3,640,821 $ 41,266 $129,960,346
============ ============ ============ ============
2002
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
U.S. Government and agencies $ 1,500,000 $ 30,945 $ -- $ 1,530,945
Municipal securities 25,520,671 323,090 154,570 25,689,191
Equity securities 39,750 30,490 -- 70,240
Other securities 2,000,000 -- 5,000 1,995,000
Mortgage-backed securities 75,820,993 1,820,096 38,053 77,603,036
Collateralized mortgage obligations 10,914,781 395,371 -- 11,310,152
------------ ------------ ------------ ------------
Total $115,796,195 $ 2,599,992 $ 197,623 $118,198,564
============ ============ ============ ============
For the year ended June 30, 2003 and 2001, the Company did not have any
realized gains or losses on sales of investments available for sale. For the
year ended June 30, 2002, the Company realized $11,659 in gains and $10,141 in
losses on sales of investment securities available for sale.
At June 30, 2003, municipal securities with a carrying value of
approximately $454,000 were pledged to collateralize public deposits. As of June
30, 2002, no securities were pledged as collateral for public deposits. At June
30, 2003 and 2002, mortgage-backed securities with a carrying value of
approximately $15.4 million and $16.7 million, respectively, were pledged as
collateral for Federal Home Loan Bank advances.
14
The scheduled maturities of available for sale securities at June 30, 2003,
by contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
Due in one year or less $ -- $ --
Due from one year to five years -- --
Due from five years to ten years -- --
Due after ten years 27,115,797 28,443,922
------------ ------------
27,115,797 28,443,922
Equity securities 39,750 108,570
Mortgage-backed securities 74,393,710 76,160,245
Collateralized mortgage obligations 24,811,534 25,247,609
------------ ------------
Total $126,360,791 $129,960,346
============ ============
3. LOANS RECEIVABLE
Loans receivable consisted of the following at June 30:
2003 2002
First mortgage loans:
One- to four- family residences $ 33,550,184 $ 41,724,098
Multi-family and commercial 42,560,230 50,626,236
Real estate construction loans 9,726,671 12,449,965
Less undisbursed loan funds (5,772,941) (5,945,029)
------------- -------------
Total first mortgage loans 80,064,144 98,855,270
------------- -------------
Consumer and other loans:
Commercial loans 13,207,629 14,406,499
Automobile 4,102,692 6,836,399
Consumer and home improvement loans 5,029,886 4,807,218
Loans collateralized by deposits 2,034,110 2,469,033
Less undisbursed loan funds (2,137,580) (1,718,669)
------------- -------------
Total consumer and other loans 22,236,737 26,800,480
------------- -------------
Outstanding loans 102,300,881 125,655,750
Allowance for loan losses (1,605,677) (1,628,515)
Net deferred loan costs and discounts 84,341 149,663
------------- -------------
Loans receivable, net $ 100,779,545 $ 124,176,898
============= =============
The Company originates and maintains loans receivable which are
substantially concentrated in its lending territory (primarily Southern
Arkansas) but also originates commercial real estate loans in other areas of
Arkansas. The Company's policy calls for collateral or other forms of repayment
assurance to be received from the borrower at the time of loan origination. Such
collateral or other form of repayment assurance is subject to changes in
economic value due to various factors beyond the control of the Company.
At June 30, 2003, impaired loans totaled approximately $6.0 million and all
had designated reserves for possible loan losses. Reserves relative to impaired
loans at June 30, 2003, were approximately $550,000.
15
Approximately $480,000 in interest income was recognized on average impaired
loans of approximately $5.95 million for the year ended June 30, 2003. At June
30, 2002, impaired loans totaled approximately $4.9 million and all had
designated reserves for possible loan losses. Reserves relative to impaired
loans at June 30, 2002, were approximately $426,000. Approximately $173,000 in
interest income was recognized on average impaired loans of approximately $2.2
million for the year ended June 30, 2002. Interest recognized on impaired loans
on a cash basis during 2003 and 2002 was immaterial. The Company is not
committed to lend additional funds to debtors whose loans have been modified.
At June 30, 2003 and 2002, the Company had zero and $396,000 in accruing
loans over 90 days delinquent, respectively. Nonaccruing loans at June 30, 2003
and 2002, totaled $3.5 million and $1.5 million, respectively.
The subsidiary Bank had extensions of credit to executive officers,
directors and to companies in which the Banks' directors were principal owners,
in the amount of approximately $67,000 as of June 30, 2003 and $1.8 million as
of June 30, 2002.
Balance, June 30, 2002 $ 1,759,829
New extensions of credit --
Repayments (1,692,431)
-----------
Balance, June 30, 2003 $ 67,398
===========
In management's opinion, such loans were made in the ordinary course of
business and were made on substantially the same terms (including interest rates
and collateral) as those prevailing at the time for comparable transactions with
other persons. Further, in management's opinion, these extensions of credit did
not involve more than the normal risk of collectability or present other
unfavorable features.
Certain loans are originated for sale. These loans are typically held for
sale only a short time, and do not represent a material amount in the aggregate
prior to their sale. Normally the short time between origination and sale does
not provide for significant differences between cost and market values.
4. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consisted of the following at June 30:
2003 2002
Investment securities $ 828,294 $ 839,287
Loans 628,078 882,325
---------- ----------
Total $1,456,372 $1,721,612
========== ==========
5. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows
for the years ended June 30:
2003 2002 2001
Balance, beginning of year $ 1,628,515 $ 1,446,114 $ 1,231,709
Provision 533,000 330,000 296,000
Charge-offs (652,968) (234,382) (101,761)
Recoveries 97,130 86,783 20,166
----------- ----------- -----------
Balance, end of year $ 1,605,677 $ 1,628,515 $ 1,446,114
=========== =========== ===========
6. FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank System. As a member of
this system, it is required to maintain an investment in capital stock of the
Federal Home Loan Bank ("FHLB") in an amount equal to the greater of 1% of its
outstanding home loans or 1/20 of its advances (borrowings) from the FHLB. No
ready market
16
exists for such stock and it has no quoted market value but may be redeemed at
par. The carrying value of the stock is its cost.
The Gramm-Leach-Bliley Act of 1999 required each FHLB to replace its
existing capital stock with a new class or classes of capital stock, establish
new minimum investment requirements for its members, and comply with new minimum
leverage and risk-based capital requirements. The Bank is a member of the Dallas
FHLB, which currently plans to implement its new capital plan on September 2,
2003.
The new minimum investment requirement states that each member must
maintain an investment in new Class B Stock equal to the sum of a membership
investment requirement (0.20% of the member's total assets as of the previous
December 31), and an activity-based investment requirement (4.25% of currently
outstanding advances and certain new Mortgage Partnership Finance ("MPF")
Program loans. As of June 30, 2003, the Bank is estimated to have a capital
stock requirement of $3.4 million, well below its capital stock balance of $4.7
million as of the same date.
7. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at June 30:
2003 2002
Land and buildings $ 5,521,876 $ 7,153,233
Furniture and equipment 3,580,334 3,667,962
------------ ------------
Total 9,102,210 10,821,195
Accumulated depreciation (3,988,565) (3,708,984)
------------ ------------
Premises and equipment, net $ 5,113,645 $ 7,112,211
============ ============
The decrease in premises and equipment includes a $407,000 write down of
land held for investment in Camden, Arkansas which previously was to be the site
of a new home office facility. These two parcels were purchased in 1996 and 1999
and significant costs were necessary to make the land suitable to build upon.
The Board of Directors decided that in the near future it would not be in the
best interests of the Company to expend the resources necessary to build a new
home office facility. Since the land will not be utilized in the near future,
appraisals were obtained in March 2003, and the land was written down to fair
market value during that quarter. This amount was included in other noninterest
expense.
8. DEPOSITS
Deposits are summarized as follows at June 30:
2003 2002
Demand and NOW accounts, including
noninterest-bearing deposits of
$9,447,561 and $8,889,867 in 2003 and
2002, respectively $ 42,807,702 $ 39,092,410
Money market 4,751,127 5,911,715
Statement savings 7,927,966 8,010,973
Certificates of deposit 96,469,709 111,990,085
------------ ------------
Total $151,956,504 $165,005,183
============ ============
17
The aggregate amount of short-term jumbo certificates of deposit with a
minimum denomination of $100,000 was approximately $17.2 million and $19.3
million at June 30, 2003 and 2002, respectively.
At June 30, 2003, scheduled maturities of certificates of deposit are as
follows:
Years ending June 30:
2004 $76,372,882
2005 17,025,525
2006 3,071,302
Thereafter --
-----------
Total $96,469,709
===========
Eligible deposits of the Bank are insured up to $100,000 by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC").
Deposits from related parties held by the Company at June 30, 2003 and
2002, totaled $1,133,132 and $1,296,863, respectively.
In management's opinion, such deposits were made in the ordinary course of
business and were made on substantially the same terms (including interest
rates) as those prevailing at the time for comparable transactions with other
persons.
9. FEDERAL HOME LOAN BANK ADVANCES
The Bank pledges as collateral for FHLB advances its FHLB stock and has
entered into blanket collateral agreements with the FHLB whereby the Bank agrees
to maintain, free of other encumbrances, qualifying single family first mortgage
loans with unpaid principal balances, when discounted to 75% of such balances,
of at least 100% of total outstanding advances. Additionally the Bank has
pledged mortgage-backed securities with a carrying value of approximately $15.4
million at June 30, 2003, as additional collateral. Advances at June 30, 2003
and 2002, had maturity dates as follows:
2003 2002
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT
Years ending June 30:
2003 --% $ -- 5.70% $12,007,051
2004 5.65 9,875,000 5.65 9,875,000
2005 5.95 7,055,998 5.95 7,141,929
2006 5.92 4,826,966 5.92 4,859,326
2007 5.91 6,454,197 5.91 6,477,709
2008 5.82 13,827,000 5.84 14,043,294
Thereafter 6.17 27,029,373 6.17 27,859,627
---- ----------- ---- -----------
Total 5.96% $69,068,534 5.93% $82,263,936
==== =========== ==== ==========
10. INCOME TAXES
Income tax provisions (benefits) are summarized as follows:
YEARS ENDED JUNE 30,
-------------------------------------
2003 2002 2001
Income tax provision (benefit):
Current $ 382,206 $ 330,065 $ (64,464)
Deferred (293,456) (269,038) (403,424)
--------- --------- ---------
Total $ 88,750 $ 61,027 $(467,888)
========= ========= =========
18
The reasons for the differences between the statutory federal income
tax rates and the effective tax rates are summarized as follows:
YEARS ENDED JUNE 30,
-----------------------------------------------------------
2003 2002 2001
Taxes at statutory rate $ 390,971 34.0% $ 417,087 34.0% $ 51,826 34.0%
Increase (decrease)
resulting from:
Tax exempt income (431,357) (37.51) (457,123) (37.26) (520,047) (341.18)
Disallowed interest expense 55,383 4.82 66,972 5.46 85,650 56.19
State income taxes 38,681 3.36 -- -- -- --
Change in estimate -- -- -- -- (67,000) (43.95)
Compensation (16,371) (1.42) (38,289) (3.12) (19,825) (13.01)
Other, net 51,443 4.47 72,380 5.89 1,508 0.99
--------- ----- --------- ----- --------- ------
Total $ 88,750 7.72% $ 61,027 4.97% $(467,888) (306.96)%
========= ===== ========= ===== ========= ======
During the year ended December 31, 1996, new legislation was enacted which
provides for the recapture into taxable income of certain amounts previously
deducted as additions to the bad debt reserves for income tax purposes. The Bank
changed its method of determining bad debt reserves for tax purposes following
the year ended June 30, 1997. The amounts to be recaptured for income tax
reporting purposes are considered by the Bank in the determination of the net
deferred tax liability.
The Company's deferred tax asset account was comprised of the following at
June 30:
2003 2002
Deferred tax assets:
Allowance for loan losses $ 585,425 $ 543,084
Write-down on land held for investment 178,797 --
Deferred compensation 370,410 388,868
Net operating loss carryforward 624,590 801,281
AMT credit carryforward 800,410 445,313
Other 50,523 140,367
---------- ----------
Total deferred tax assets 2,610,155 2,318,913
---------- ----------
Deferred tax liabilities:
Premises and equipment 70,883 106,624
Unrealized gains on available for sale investments 1,378,270 960,427
Loan fees -- 1,200
FHLB dividends 500,402 465,675
---------- ----------
Total deferred tax liabilities 1,949,555 1,533,926
---------- ----------
Net deferred tax asset $ 660,600 $ 784,987
========== ==========
A deferred tax liability has not been recognized for the bad debt reserves
of the Bank created in the tax years which began prior to December 31, 1987 (the
base year). At June 30, 2003, the amount of these reserves totaled approximately
$3,462,590 with an unrecognized deferred tax liability of $1,177,281. Such
unrecognized deferred tax liability could be recognized in the future, in whole
or in part, if (i) there is a change in federal tax law, (ii) the Bank fails to
meet certain definitional tests and other conditions in the federal tax law,
(iii) certain distributions are made with respect to the stock of the Bank, or
(iv) the bad debt reserves are used for any purpose other than absorbing bad
debt losses.
As of June 30, 2003 the Company has a net operating loss carryforward of
$1,882,908, of which $207,222, $1,120,698, and $554,988 expire in 2019, 2020,
and 2021, respectively. The Company's AMT credit carryforward of $800,410 does
not have an expiration date.
19
The portion of the net deferred tax asset resulting from net operating loss
carryforward and AMT credit carryforward totals $1,425,000 as of June 30, 2003.
The recoverability of this asset is entirely contingent upon the production of
taxable income for income tax reporting purposes. Management anticipates that
the Company will produce such income in the near future based on management's
current forecasts of earnings and if necessary, management's tax and
interest-rate risk planning strategy of selling available for sale tax exempt
securities and reinvesting the proceeds into taxable income producing
securities. The strategy does not anticipate significant taxable gains on the
sale of the tax-exempt securities, but rather a shift of nontaxable interest
income to taxable interest income. Should this strategy not result in a
sufficient amount of net taxable income, the Company will determine the need for
a valuation allowance for the potion of the net deferred tax asset resulting
from the carryforwards.
11. BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN - The Company has established an employee
stock ownership plan ("ESOP") to benefit substantially all employees. The ESOP
has a note payable to Bancshares, the proceeds from which were used to purchase
shares of common stock of Bancshares.
The note receivable, presented in the statements of stockholders' equity as
unearned ESOP shares, is to be repaid in installments of $211,600 on June 30th
each year through 2006. Interest is based upon the prime rate, which is to be
adjusted and paid annually. The note may be prepaid without penalty. The ESOP is
funded by contributions made by the Bank in amounts sufficient to retire the
debt. Compensation expense of $341,215, $288,665, and $179,882 was recognized
during the years ended June 30, 2003, 2002 and 2001, respectively.
Benefits become 100% vested after three years of credited service. Shares
are released to participants proportionately as the loan is repaid. Dividends on
allocated shares are recorded as dividends and charged to retained earnings.
Dividends on unallocated shares are used to repay the loan and are treated as
compensation expense. Forfeitures of nonvested benefits will be reallocated
among remaining participating employees in the same proportion as contributions.
At both June 30, 2003 and 2002, 21,160 shares were committed to be released by
the ESOP to participant accounts. At June 30, 2003, there were 148,120 shares
allocated to participant accounts and 63,480 unallocated shares. The fair value
of the unallocated shares amounted to $1,088,682 (63,480 shares at $17.15 per
share) at June 30, 2003.
Participants with vested account balances leaving employment, generally,
may elect to have their allocated shares distributed. In the case of a
distribution of shares, which at the time of distribution are not readily
tradable on an established securities market, the Company is required to issue a
put option to the participant. The put option is priced using the fair market
value as determined as of the most recent valuation date (prior to the exercise
of such right) by an independent appraiser. Any excess of the total purchase
price at which the participant may put the shares to the Company over the fair
value of the shares at the date of the issuance of the option is recognized as
expense to the Company with the fair value of the shares recorded as treasury
stock. During the years ended June 30, 2003, June 30, 2002, and June 20, 2001 no
put options were issued.
STOCK OPTION PLAN - The Stock Option Plan ("SOP"), approved by the
Company's stockholders during the year ended June 30, 1998, provides for a
committee of the Company's Board of Directors to award incentive or
non-incentive stock options, representing up to 317,400 shares of Company stock.
Options granted to executive officers and directors vest 25% immediately and 25%
on each of the three subsequent anniversary dates of the grant. Options granted
to employee's vest 20% immediately upon grant, with the balance vesting in equal
amounts on the four subsequent anniversary dates of the grant. Options granted
vest immediately in the event of disability or death. Outstanding stock options
can be exercised over a ten-year period from the date of grant. Vested options
of terminated participants expire one year after the participant's termination
date.
Under the SOP, options have been granted to directors and key employees to
purchase common stock of the Company. The exercise price in each case equals the
fair market value of the Company's stock at the date of grant. During the year
ended June 30, 2003, 25,000 option shares were granted at a price of $18.10 per
option share. No new options were granted during the years ended June 30, 2002
or 2001.
20
A summary of the status of the Company's stock option plan as of June 30,
2003, and changes during the years ending June 30, 2002 and 2001, is presented
below:
WEIGHTED
AVERAGE
EXERCISE
OPTIONS SHARES PRICE
Outstanding at June 30, 2000 312,980 $ 9.14
Granted -- --
Exercised -- --
Forfeited 18,513 9.18
------- ------
Outstanding at June 30, 2001 294,467 9.14
------- ------
Granted -- --
Exercised 50,473 9.14
Forfeited 25,444 9.13
------- ------
Outstanding at June 30, 2002 218,550 9.14
------- ------
Granted 25,000 8.10
Exercised 75,163 9.14
Forfeited -- --
------- ------
Outstanding at June 30, 2003 168,387 $10.47
======= ======
Options exercisable at June 30, 2003 (vested) 149,637 $ 9.51
======= ======
Exercise prices for options outstanding at June 30, 2003, range from $9.125
to $18.10 per share. The weighted average remaining contractual life of such
shares was 5.6 years at June 30, 2003.
The fair value of options granted was estimated on the date of grant using
the binomial option-pricing model with the following weighted average
assumptions:
2003
GRANTS
Volatility 10.00 %
Life of options 10.0 years
Risk-free interest rate 3.53 %
Dividend rate 1.93 %
The weighted average fair value of options granted during the fiscal year
ended June 30, 2003, was $3.03 per share.
MANAGEMENT RECOGNITION PLAN - The Management Recognition Plan ("MRP"),
approved by the Company's stockholders during the year ended June 30, 1998,
provides for a committee of the Company's Board of Directors to award restricted
stock to key officers as well as non-employee directors. The MRP authorizes the
Company to grant up to 52,900 shares of Company stock. Compensation expense is
recognized based on the fair market value of the shares on the grant date over
the vesting period. Under the original plan, shares granted to directors and
executive officers vest 25% at the grant date and 25% each May 1 afterward.
Shares granted to non-directors and non executive officers vest 20% at the grant
date and 20% each May 1 afterward. Shares granted will be deemed vested in the
event of disability, or death. At June 30, 2003, all shares have been acquired
that are necessary to meet the Plan's award requirements. The difference between
the price at the date of grant and the actual purchase price is recorded as an
adjustment to stockholders' equity as shares are vested. Approximately $34,000,
$40,000 and $65,000 in compensation expense was recognized during the years
ended June 30, 2003, 2002, and 2001, respectively. On May 17, 2000, all
directors voluntarily elected to extend their vesting period three additional
years to May 1, 2004. In addition, certain officers also voluntarily elected to
adopt the three-year extension of their vesting period. On May 22, 2003, the
8,520 shares, which had been forfeited by former plan participants, were
21
granted at $18.10 per share. Of these shares, 8,210 shares were awarded to
directors or executive officers and 310 shares were awarded to non-directors or
executive officers.
OFFICERS' AND DIRECTORS RETIREMENT PLAN - During the year ended June 30,
1996, the Bank adopted a "non-qualified" retirement plan for its officers and
directors in recognition of their years of service to the Bank. The plan is an
annuity contract plan whereby funds are to be set aside annually in a grantor
trust, with the Bank acting as trustee of the Trust. Distributions are scheduled
to be paid upon completion of six to ten years of service to the Bank. No tax
deduction for the Plan is claimed until funds are paid to the beneficiaries.
Future funding is dependent on continued service to the Bank and therefore is
expensed as the plan is funded each year. For the years ended June 30, 2003,
2002 and 2001, contributions to the plan totaled approximately $29,000,
$124,000, and $181,000, respectively.
401(k) PLAN - Effective July 1, 1993, employees of the Bank may participate
in a 401(k) savings plan, whereby the employees may elect to make contributions
pursuant to a salary reduction agreement upon reaching age 21 and completing one
year of service. At its discretion, the Bank may make matching contributions to
the plan. Employer contributions vest 20% each year beginning in the third year
of service and become 100% vested in seven years. The Bank made no matching
contribution during the years ended June 30, 2003, 2002 or 2001.
EMPLOYMENT AGREEMENTS - Certain executive officers of the Bank and the
Company have employment agreements with one to three year renewable terms. Such
agreements provide for termination pay and other benefits under certain
circumstances. As of June 30, 2003, aggregate termination pay is approximately
$0.70 million.
CHANGE-IN-CONTROL AGREEMENTS - As of June 30, 2003, certain officers of the
Bank and the Company had change-in-control agreements with three-year renewable
terms. Such agreements provide for benefits under circumstances of
changes-in-control as defined in the agreements. The benefits provide for a
range of 25% to 299% of the officers' compensation. As of June 30, 2003, the
aggregate benefits total approximately $0.80 million.
12. SALE OF BRANCH
On July 19, 2002, the Bank sold its Monticello branch to Simmons First Bank
of South Arkansas. The sale included approximately $8.3 million in loans, $1.5
million in fixed assets, $0.2 million in other assets, and $13.2 million in
deposits. The Bank recognized a premium on the deposits of approximately $0.9
million and the difference was paid in cash to the buyer. The Bank recognized a
net gain on this sale of approximately $743,000.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated statements of
financial condition. The Company does not use financial instruments with
off-balance sheet risk as part of its asset/liability management program or for
trading purposes. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amounts of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses.
The Company evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the credit
applicant. Such collateral consists primarily of residential properties. Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. The
22
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
The Company had the following outstanding commitments at June 30, 2003:
Undisbursed construction loans $4,783,023
Commitments to originate mortgage loans 989,918
Commitments to originate commercial loans 82,000
Unused lines of credit 2,055,580
----------
Total $7,910,521
==========
The funding period for construction loans is generally less than nine
months and commitments to originate mortgage loans are generally outstanding for
60 days or less. At June 30, 2003, interest rates on commitments are believed by
management to approximate market rates.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data to develop
the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The estimated fair values of financial instruments are as follows:
JUNE 30, 2003 JUNE 30, 2002
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
ASSETS:
Cash and due from banks $ 3,003,656 $ 3,003,656 $ 3,492,257 $ 3,492,257
Interest-bearing deposits with banks 4,203,320 4,203,320 14,404,572 14,404,572
Investment securities:
Available for sale 129,960,346 129,960,346 118,198,564 118,198,564
Loans receivable, net 100,779,545 103,394,671 124,176,898 127,424,573
Accrued interest receivable 1,456,372 1,456,372 1,721,612 1,721,612
Federal Home Loan Bank stock 4,704,100 4,704,100 4,709,900 4,709,900
LIABILITIES:
Deposits:
Demand, NOW, money
market and statement savings 55,486,795 55,486,795 53,015,098 53,015,098
Certificates of deposit 96,469,709 96,867,264 111,990,085 112,396,949
Federal Home Loan Bank advances 69,068,534 77,791,523 82,263,936 86,780,344
Advance payments by
borrowers for taxes and insurance 83,879 83,879 110,446 110,446
Accrued interest payable 563,620 563,620 740,008 740,008
For cash and due from banks, interest-bearing deposits with banks, Federal
Home Loan Bank stock and accrued interest receivable, the carrying value is a
reasonable estimate of fair value primarily because of the short-term nature of
instruments or, as to Federal Home Loan Bank stock, the ability to sell the
stock back to the Federal Home Loan Bank at cost. The fair value of investment
securities is based on quoted market prices, dealer quotes and prices obtained
from independent pricing services. The fair value of loans receivable is
estimated based on present values using the rates currently offered for loans of
similar remaining maturities at the reporting date.
23
The fair value of demand deposit accounts, NOW accounts, savings accounts
and money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit and Federal Home Loan
Bank advances is estimated using the rates currently offered for deposits and
borrowings of similar remaining maturities at the reporting date. For advance
payments by borrowers for taxes and insurance and accrued interest payable the
carrying value is a reasonable estimate of fair value, primarily because of the
short-term nature of these instruments. Commitments are generally made at
prevailing interest rates at the time of funding and are relatively short term.
Therefore, there is no difference between the contract amount and fair value.
The fair value estimates presented herein are based on pertinent
information available to management as of June 30, 2003 and 2002. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the reporting date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented herein.
15. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the consolidated financial statements of the Company.
In May, 1999, a shareholder filed a putative class action complaint against
the Company and several current and former officers alleging that the defendants
defrauded the plaintiff and other shareholder class members through various
public statements and reports that had the supposed effect of artificially
inflating the price the plaintiff and other putative class members paid to
purchase the Company's common stock.
The Company and the other defendants moved to dismiss the complaint. The
federal district court granted the motion on March 31, 2001, but allowed
plaintiffs 30 days from the date of the order to file an amended class action
complaint. On August 28, 2001, the Company was informed by the federal district
court that the case was dismissed with prejudice on August 27, 2001.
16. RETAINED EARNINGS
Upon the Conversion, the Company established a special liquidation account
for the benefit of eligible account holders and the supplemental eligible
account holders in an amount equal to the net worth of the Bank as of the date
of its latest statement of financial condition contained in the final offering
circular used in connection with the Conversion. The liquidation account will be
maintained for the benefit of eligible account holders and supplemental eligible
account holders who continue to maintain their accounts in the Bank after
Conversion. In the event of a complete liquidation (and only in such event),
each eligible and supplemental eligible account holder will be entitled to
receive a liquidation distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held.
The Bank may not declare or pay cash dividends on its shares of common
stock if the effect thereof would cause the Bank's stockholders' equity to be
reduced below applicable regulatory capital maintenance requirements for insured
institutions or below the amount of the special liquidation account referred to
above. This requirement effectively limits the dividend paying ability of the
Company in that the Company must maintain an investment in equity of the Bank
sufficient to enable the Bank to meet its requirements as noted above. Required
capital amounts are shown in Note 17 to the consolidated financial statements.
Liquidation account balances are not maintained because of the cost of
maintenance and the remote likelihood of complete liquidation. Additionally, the
Bank is limited to distributions it may make to Bancshares without OTS approval
if the distribution would cause the total distributions to exceed the Bank's net
income for the year to date plus the Bank's net income (less distributions) for
the preceding two years. Bancshares may use assets other than its investment in
the Bank as a source of dividends.
24
17. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possible additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of tangible capital (as defined in the regulations) to tangible assets
(as defined) and core capital (as defined) to adjusted total assets (as
defined), and of total risk-based capital (as defined) to risk-weighted assets
(as defined).
As of June 30, 2003 and 2002, the most recent notification from the Office
of Thrift Supervision categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum core (Tier I core), Tier I
risk-based, and total risk-based ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
The Bank's actual capital amounts (in thousands) and ratios are also
presented in the tables:
TO BE CATEGORIZED
AS WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
AS OF JUNE 30, 2003:
Tier I (Core) Capital to Adjusted Total Assets $23,056 9.39 % $ 9,821 4.00 % $12,276 5.00 %
Total Risk-Based Capital to Risk-weighted Assets 24,459 21.83 % 8,962 8.00 % 11,202 10.00 %
Tier I (Core) Capital to Risk-weighted Assets 23,056 20.58 % N/A N/A 6,721 6.00 %
Tangible Capital to Tangible Assets 23,056 9.39 % 3,683 1.50 % N/A N/A
AS OF JUNE 30, 2002:
Tier I (Core) Capital to Adjusted Total Assets $21,396 7.88 % $10,861 4.00 % $13,576 5.00 %
Total Risk-Based Capital to Risk-weighted Assets 23,025 17.06 % 10,798 8.00 % 13,497 10.00 %
Tier I (Core) Capital to Risk-weighted Assets 21,396 15.85 % N/A N/A 8,098 6.00 %
Tangible Capital to Tangible Assets 21,396 7.88 % 4,073 1.50 % N/A N/A
Regulations require the Bank to maintain an amount equal to 4% of deposits
(net of loans collateralized by deposits) plus short-term borrowings in cash and
U.S. Government and other approved securities.
25
18. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following condensed statements of financial condition as of June 30,
2003 and 2002, and condensed statements of income and cash flows for the years
ended June 30, 2003, 2002 and 2001, for HCB Bancshares, Inc. should be read in
conjunction with the consolidated financial statements and the notes herein.
HCB BANCSHARES, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2003 AND 2002
ASSETS 2003 2002
Deposit in Bank $ 922,508 $ 1,221,185
Cash equivalents 194,659 175,817
----------- -----------
Cash and cash equivalents 1,117,167 1,397,002
Investment in Bank 22,992,902 21,927,797
Loans receivable 1,027,166 1,060,298
Investment securities 108,570 70,240
Other assets 845,806 821,076
----------- -----------
TOTAL ASSETS $26,091,611 $25,276,413
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities $ 149,363 $ 143,059
Stockholders' equity 25,942,249 25,133,354
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,091,611 $25,276,413
=========== ===========
CONDENSED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
INCOME: 2003 2002 2001
Dividend from Bank $ -- $ 9,000,000 $ 1,000,000
Interest and dividend income 116,018 205,248 230,421
----------- ----------- -----------
Total income 116,018 9,205,248 1,230,421
EXPENSES:
Operating expenses 122,404 48,944 191,509
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND DISTRIBUTION IN
(EXCESS) LESS THAN BANK SUBSIDIARY INCOME (6,386) 9,156,304 1,038,912
INCOME TAX (BENEFIT) PROVISION (2,445) 59,849 13,000
----------- ----------- -----------
INCOME BEFORE DISTRIBUTIONS IN (EXCESS) LESS
THAN BANK SUBSIDIARY INCOME (3,941) 9,096,455 1,025,912
DISTRIBUTIONS IN (EXCESS) THAN BANK
SUBSIDIARY INCOME 1,065,106 (7,930,755) (405,596)
----------- ----------- -----------
NET INCOME $ 1,061,165 $ 1,165,700 $ 620,316
=========== =========== ===========
26
HCB BANCSHARES, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
OPERATING ACTIVITIES 2003 2002 2001
Net income $ 1,061,165 $ 1,165,700 $ 620,316
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions (less than) in excess of bank subsidiary income (1,065,106) 7,930,755 405,596
Changes in operating assets and liabilities:
Other assets (11,301) 239,824 (259,752)
Accrued expenses and other liabilities 18,494 (194,647) 228,425
----------- ----------- -----------
Net cash provided by operating activities 3,252 9,141,632 994,585
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase loans, net of repayments 33,132 (360,298) --
----------- ----------- -----------
Net cash provided (used) by investing activities 33,132 (360,298) --
----------- ----------- -----------
FINANCING ACTIVITIES:
Dividends paid (473,937) (472,296) (474,299)
Purchase of treasury stock, net 157,718 (7,562,533) (1,038,686)
----------- ----------- -----------
Net cash used by financing activities (316,219) (8,034,829) (1,512,985)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (279,835) 746,505 (518,400)
CASH AND CASH EQUIVALENTS:
Beginning of year 1,397,002 650,497 1,168,897
----------- ----------- -----------
End of year $ 1,117,167 $ 1,397,002 $ 650,497
=========== =========== ===========
27
19. OTHER COMPREHENSIVE INCOME
The amount of income tax expense or benefit allocated to each component of
comprehensive income, including reclassification adjustments, are shown below:
YEAR ENDED JUNE 30, 2003
------------------------------------
BEFORE TAX TAX EXPENSE NET-OF-TAX
AMOUNT AMOUNT AMOUNT
------------------------------------
UNREALIZED GAINS ON SECURITIES:
Unrealized holding gain on securities
arising during period $1,197,187 $ 417,844 $ 779,343
Less reclassification adjustment for
(gains) losses included in net income -- -- --
---------- ---------- ----------
Other comprehensive income $1,197,187 $ 417,844 $ 779,343
========== ========== ==========
YEAR ENDED JUNE 30, 2002
------------------------------------------
BEFORE TAX TAX EXPENSE NET-OF-TAX
AMOUNT AMOUNT AMOUNT
------------------------------------------
UNREALIZED GAINS ON SECURITIES:
Unrealized holding gain on securities
arising during period $ 2,544,652 $ 1,041,592 $ 1,503,060
Less reclassification adjustment for
(gains) losses included in net income (1,518) -- (1,518)
----------- ----------- -----------
Other comprehensive income $ 2,543,134 $ 1,041,592 $ 1,501,542
=========== =========== ===========
YEAR ENDED JUNE 30, 2001
-------------------------------------
BEFORE TAX TAX EXPENSE NET-OF-TAX
AMOUNT AMOUNT AMOUNT
-------------------------------------
UNREALIZED GAINS ON SECURITIES:
Unrealized holding gain on securities
arising during period $7,236,824 $2,894,756 $4,342,068
Less reclassification adjustment for
(gains) losses included in net income -- -- --
---------- ---------- ----------
Other comprehensive income $7,236,824 $2,894,756 $4,342,068
========== ========== ==========
28
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
----------------------------------------------
(1) Financial Statements. The following consolidated financial statements
are incorporated by reference from Item 8 hereof:
Independent Auditors' Reports
Consolidated Statements of Financial Condition as of June 30,
2003 and 2002
Consolidated Statements of Income and Comprehensive Income for
the years ended June 30, 2003, 2002 and 2001
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended June
30, 2003, 2002 and 2001
Notes to Consolidated Financial Statements for the years ended
June 30, 2003, 2002 and 2001
(2) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the Securities and
Exchange Commission are omitted because of the absence of conditions
under which they are required or because the required information is
included in the Consolidated Financial Statements and related Notes
thereto.
(3) Exhibits. The following is a list of exhibits filed as part of this
Annual Report on Form 10-K and is also the Exhibit Index.
NO. DESCRIPTION
--- -----------
3.1 Articles of Incorporation of HCB Bancshares, Inc. *
3.2 Bylaws of HCB Bancshares, Inc. ****
4 Form of Common Stock Certificate of HCB Bancshares, Inc. *
10.1 Form of HCB Bancshares, Inc. 1997 Stock Option and Incentive
Plan *=
10.2 Form of HCB Bancshares, Inc. Management Recognition Plan and
Trust Agreement *=
10.3(a) Employment Agreements by and between Heartland Community
Bank and Vida H. Lampkin and Cameron D. McKeel *=
10.3(b) Employment Agreements by and between HCB Bancshares, Inc.
and Vida H. Lampkin and Cameron D. McKeel **=
10.4 Intentionally omitted.
10.5 Heartland Community Bank Directors' Retirement Plan, as
amended*=
10.6(a) Change-in-Control Protective Agreement between Heartland
Community Bank and Scott A. Swain *****=
10.6(b) Change-in-Control Protective Agreement between HCB
Bancshares, Inc. and Scott A. Swain *****=
10.7(a) Employment Agreement by and between Heartland Community Bank
and Charles Black ******=
10.7(b) Employment Agreement by and between HCB Bancshares, Inc. and
Charles Black ******=
29
NO. DESCRIPTION
--- -----------
10.8 Standstill Agreement dated August 29, 2001, by and among HCB
Bancshares, Inc. and Stilwell Value Partners IV, L.P.,
Stilwell Associates, L.P., Stilwell Value LLC and Joseph
Stilwell***
10.9 Change-in-Control Protective Agreement between Heartland
Community Bank, HCB Bancshares, Inc. and Paula J. Bergstrom
(1)=
10.10 Change-in-Control Protective Agreement between Heartland
Community Bank, HCB Bancshares, Inc. and Henry A. Pryor(1)=
10.11 Separation Agreement among Cameron D. McKeel, the Company and
the Bank
13 Annual Report to Stockholders for the fiscal year ended June
30, 2003(1)
21 Subsidiaries(1)
23.1 Consent of BKD, LLP(1)
23.2 Consent of Deloitte & Touche LLP(1)
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32 18 USC Section 1350 Certification
- ----------
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 (File No. 333-19093).
** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 2000 (File No. 0-22423).
*** Incorporated by reference to the Company's Current Report on Form 8-K
filed on September 5, 2001 (File No. 0-22423).
**** Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001 (File No. 0-22423).
***** Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 2001 (File No. 0-22423).
****** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 2002 (File No. 0-22423).
(1) Previously filed.
= Management contract or compensatory plan or arrangement.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HCB BANCSHARES, INC.
Date: October 16, 2003 By: /s/ Charles T. Black
-----------------------------------
Charles T. Black
President and Chief Executive Officer
(Duly Authorized Representative)