FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-22423
HCB BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 62-1670792
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
237 Jackson Street, Camden, Arkansas 71701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (870) 836-6841
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 ninety days:
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: 1,461,199 shares of common stock
outstanding as of April 30, 2003.
CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Financial Condition at
March 31, 2003 (unaudited) and June 30, 2002
Condensed Consolidated Statements of Income and Comprehensive
Income Three Months and Nine Months Ended March 31, 2003
and 2002 (unaudited)
Condensed Consolidated Statements of Cash Flows Nine Months
Ended March 31, 2003 and 2002 (unaudited)
Notes to Condensed Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Page 2
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2003 (UNAUDITED) and JUNE 30, 2002
----------------------------------------------------------------------------------------------------------------
MARCH 31,
2003 JUNE 30,
ASSETS (UNAUDITED) 2002
--------------- --------
Cash and due from banks $ 2,948,907 $ 3,492,257
Interest-bearing deposits with banks 7,049,534 14,404,572
------------ ------------
Cash and cash equivalents 9,998,441 17,896,829
Investment securities available for sale, at fair value 123,979,316 118,198,564
Loans receivable, net of allowance 104,546,169 124,176,898
Accrued interest receivable 1,358,103 1,721,612
Federal Home Loan Bank stock 4,703,800 4,709,900
Premises and equipment, net 5,253,197 7,112,211
Goodwill, net -- 131,250
Real estate held for sale 743,527 910,587
Other assets 2,001,232 1,567,443
------------ ------------
TOTAL $ 252,583,785 $ 276,425,294
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 153,284,635 $ 165,005,183
Federal Home Loan Bank advances 69,869,829 82,263,936
Advance payments by borrowers for
taxes and insurance 147,338 110,446
Accrued interest payable 576,012 740,008
Other liabilities 878,847 1,569,433
------------ ------------
Total liabilities 224,756,661 249,689,006
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares authorized,
2,645,000 shares issued, 1,444,567 and 1,425,056 shares
outstanding at March 31, 2003 and June 30, 2002, respectively 26,450 26,450
Additional paid-in capital 25,841,909 25,832,641
Unearned ESOP shares (687,700) (846,400)
Unearned MRP shares (136,320) (116,169)
Accumulated other comprehensive income 1,631,989 1,441,942
Retained earnings 15,493,297 14,950,088
------------ ------------
42,169,625 41,288,552
Treasury stock, at cost, 1,200,433 and 1,219,944 shares at
March 31, 2003, and June 30, 2002, respectively (14,342,501) (14,552,264)
------------- ------------
Total stockholders' equity 27,827,124 26,736,288
------------ ------------
TOTAL $ 252,583,785 $ 276,425,294
============ ============
See accompanying notes to condensed consolidated financial statements.
Page 3
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, (UNAUDITED) MARCH 31, (UNAUDITED)
INTEREST INCOME: 2003 2002 2003 2002
---- ---- ---- ----
Interest and fees on loans $ 1,886,434 $ 2,666,241 $ 6,254,780 $ 8,204,278
Investment securities:
Taxable 1,092,553 1,377,742 3,631,854 4,109,784
Nontaxable 314,538 320,050 954,980 1,024,504
Other 54,819 93,810 191,625 329,428
---------- ---------- ----------- -----------
Total interest income 3,348,344 4,457,843 11,033,239 13,667,994
---------- ---------- ----------- -----------
INTEREST EXPENSE:
Deposits 890,628 1,303,511 2,918,309 4,512,039
Federal Home Loan Bank advances 1,054,607 1,255,381 3,418,370 3,881,067
Note payable -- -- -- 1,000
---------- ---------- ----------- -----------
Total interest expense 1,945,235 2,558,892 6,336,679 8,394,106
---------- ---------- ----------- -----------
NET INTEREST INCOME 1,403,109 1,898,951 4,696,560 5,273,888
PROVISION FOR LOAN AND INVESTMENT
LOSSES 120,000 60,000 413,000 219,000
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND INVESTMENT LOSSES 1,283,109 1,838,951 4,283,560 5,054,888
---------- ---------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposit accounts 186,609 200,922 647,458 721,125
Gain on sale of investment securities -- -- -- 1,518
Gain on sale of branch -- -- 742,942 --
Other 199,296 201,235 526,766 483,449
---------- ---------- ----------- -----------
Net noninterest income 385,905 402,157 1,917,166 1,206,092
---------- ---------- ----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 927,696 982,712 2,863,035 2,923,537
Net occupancy expense 212,945 268,136 670,108 804,493
Communication, postage, printing and office supplies 74,870 95,794 263,153 310,056
Advertising 34,863 53,255 124,056 207,538
Data processing 95,570 91,113 282,796 257,893
Professional fees 48,385 70,548 325,668 322,595
Amortization of goodwill -- 18,750 -- 56,250
Write down of land held for investment 407,149 -- 466,955 --
Other 80,215 69,759 302,757 281,963
---------- ---------- ----------- -----------
Total noninterest expense 1,881,693 1,650,067 5,298,528 5,164,325
---------- ---------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES (212,679) 591,041 902,198 1,096,655
INCOME TAX PROVISION (BENEFIT) (195,760) 110,000 8,476 77,000
----------- ---------- ----------- -----------
NET (LOSS) INCOME $ (16,919) $ 481,041 $ 893,722 $ 1,019,655
----------- ---------- ----------- -----------
(Continued)
Page 4
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, (UNAUDITED) MARCH 31, (UNAUDITED)
2003 2002 2003 2002
---- ---- ---- ----
OTHER COMPREHENSIVE (LOSS) INCOME,
NET OF TAX:
Unrealized holding (loss) gain on securities
arising during period $ (625,364) $ (530,163) $ 190,047 $ (397,314)
Reclassification adjustment for gains
included in net income -- -- -- (1,518)
---------- ----------- ---------- ----------
Other comprehensive (loss) income (625,364) (530,163) 190,047 (398,832)
---------- ----------- ---------- ----------
COMPREHENSIVE (LOSS) INCOME $ (642,283) $ (49,122) $ 1,083,769 $ 620,823
========== ============ ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
BASIC 1,366,342 1,689,348 1,355,649 1,716,691
========== ========== ========== ==========
DILUTED 1,456,922 1,774,003 1,443,193 1,798,198
========== ========== ========== ==========
(LOSS) EARNINGS PER SHARE:
Basic $ (0.01) $ 0.28 $ 0.66 $ 0.59
====== ==== ==== ====
Diluted $ (0.01) $ 0.27 $ 0.62 $ 0.57
====== ==== ==== ====
DIVIDENDS PER SHARE $ 0.09 $ 0.07 $ 0.26 $ 0.20
==== ==== ==== ====
(Concluded)
See accompanying notes to condensed consolidated financial statements.
Page 5
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
-----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31,
2003 (UNAUDITED) 2002
------ -------
OPERATING ACTIVITIES:
Net income $ 893,722 $ 1,019,655
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 446,355 558,964
Amortization (accretion) of:
Deferred loan origination fees (84,450) (11,554)
Goodwill -- 56,250
Premiums and discounts on loans, net (3,309) (13,609)
Premiums and discounts on investment securities, net 372,590 65,385
Net gain on sale of investments securities -- (1,518)
Provision for loan losses 413,000 219,000
Gain on sale of branch (742,942) --
Deferred income taxes (8,476) 77,000
Originations of loans held for sale (22,929,085) (21,380,008)
Proceeds from sales of loans 21,773,766 21,152,797
Stock compensation expense 147,817 174,876
Change in accrued interest receivable 313,231 318,497
Change in accrued interest payable (129,308) (209,529)
Write down of land held for investment 466,955 --
Change in other assets (539,491) (76,628)
Change in other liabilities (685,712) 26,743
------------ -----------
Net cash (used) provided by operating activities (295,337) 1,976,321
------------ -----------
INVESTING ACTIVITIES:
Purchases of investment securities - available for sale (38,282,859) (23,053,591)
Proceeds from sales of investment securities -- 4,995,348
Redemption of Federal Home Loan Bank stock 6,100 26,300
Purchases of premises and equipment (232,946) (258,394)
Net change due to branch sale (2,523,471) --
Loan originations, net of repayments 12,232,649 4,181,696
Principal payments on investment securities 32,371,659 19,808,661
Net increase in real estate held for resale (147,129) (584,535)
------------ ------------
Net cash provided by investing activities 3,424,003 5,115,485
----------- -----------
(Continued)
Page 6
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED)
------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31,
2003 (UNAUDITED) 2002
------ -------
FINANCING ACTIVITIES:
Net increase in deposits $ 1,470,911 $ 4,045,903
Advances from Federal Home Loan Bank -- 2,056,000
Repayment of Federal Home Loan Bank advances (12,394,107) (9,930,124)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 36,892 (27,280)
Repayment of note payable -- (80,000)
Purchase of treasury stock -- (1,935,184)
Payment from treasury stock options exercised 209,763 --
Dividends paid (350,513) (357,774)
------------- ------------
Net cash used by financing activities (11,027,054) (6,228,459)
------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (7,898,388) 863,347
CASH AND CASH EQUIVALENTS:
Beginning of period 17,896,829 18,410,021
------------ ------------
End of period $ 9,998,441 $ 19,273,368
============ ============
(Concluded)
See accompanying notes to condensed consolidated financial statements.
Page 7
HCB BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND CONSOLIDATION
HCB Bancshares, Inc. ("Bancshares"), incorporated under the laws of the
State of Oklahoma, is a savings bank holding company that owns HCB Investments,
Inc. ("HCBI") and HEARTLAND Community Bank and its subsidiary (the "Bank").
Bancshares' business is primarily that of owning the Bank, and participating in
the Bank's activities. HCBI holds a $500,000 initial investment in EastPoint
Technologies LLC, which is the company whose core processing software the Bank
utilizes. The accompanying condensed consolidated financial statements include
the accounts of Bancshares, HCBI, and the Bank and are collectively referred to
as the Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with instructions for Form 10-Q. Accordingly, they do not
include all of the information required by generally accepted accounting
principles. The unaudited statements reflect all adjustments, which are, in the
opinion of management, necessary for fair presentation of the financial
condition and results of operations and cash flows of the Company. Those
adjustments consist only of normal recurring adjustments. The condensed
consolidated statements of income and comprehensive income for the nine months
ended March 31, 2003, are not necessarily indicative of the results that may be
expected for the Company's fiscal year ending June 30, 2003. The unaudited
condensed consolidated financial statements and notes thereto should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended June 30, 2002, contained in the Company's Annual Report on
Form 10-K for the year ended June 30, 2002.
NOTE 2 - EARNINGS PER SHARE
The weighted average number of common shares used to calculate earnings per
share for the three and nine month periods ended March 31, 2003 and 2002, were
as follows:
Three months ended Nine months ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Basic weighted - average shares 1,366,342 1,689,348 1,355,649 1,716,691
Effect of dilutive securities 90,580 84,655 87,544 81,507
---------- ---------- ---------- ----------
Diluted weighted - average shares 1,456,922 1,774,003 1,443,193 1,798,198
========== ========== ========== ==========
The Company has issued stock options that have the potential to be dilutive
to its weighted average shares calculation, and were dilutive for the three and
nine month periods ending March 31, 2003 and 2002. In addition, the Company has
issued MRP shares that have the potential to be dilutive to its weighted average
shares calculation, and were dilutive for the three month period ending March
31, 2003, but were anti-dilutive for the remaining periods listed above.
NOTE 3 - 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 may be
a defendant from time to time 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.
NOTE 4 - MONTICELLO BRANCH SALE
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.
Page 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are set forth in note 1 of
the consolidated financial statements as of June 30, 2002 which was filed on
Form 10-K. Of these significant accounting policies, the Company considers its
policy regarding the allowance for loan losses to be its most critical
accounting policy, because it requires management's most subjective and complex
judgments. In addition, changes in economic conditions can have a significant
impact on the allowance for loan losses and therefore the provision for loan
losses and results of operations. The Company has developed appropriate policies
and procedures for assessing the adequacy of the allowance for loan losses,
recognizing that this process requires a number of assumptions and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future periods by changes in economic conditions, the impact of regulatory
examinations, and the discovery of information with respect to borrowers which
is not known to management at the time of the issuance of the consolidated
financial statements.
GENERAL
The Bank's principal business consists of attracting savings deposits from
the general public and investing those funds in loans secured by first mortgages
on existing owner-occupied single-family residences in the Bank's primary market
area, commercial and multi-family real estate loans and consumer and commercial
business loans. The Bank also maintains a substantial investment portfolio of
mortgage-related securities and nontaxable municipal securities.
The Bank's net income is dependent primarily on its net interest income,
which is the difference between interest income earned on its loans,
mortgage-backed securities and securities portfolio and interest paid on
customers' deposits and other borrowings. The Bank's net income is also affected
by the level of noninterest income, such as service charges on customers'
deposit accounts, net gains or losses on the sale of loans and securities and
other fees. In addition, net income is affected by the level of noninterest
expense, which primarily consists of employee compensation expenses, occupancy
expenses and other expenses.
The financial condition and results of operations of the Bank and the
thrift and banking industries as a whole are significantly affected by
prevailing economic conditions, competition and the monetary and fiscal policies
of governmental agencies. Lending activities are influenced by demand for and
supply of credit, competition among lenders and the level of interest rates in
the Bank's market area. The Bank's deposit flows and costs of funds are
influenced by prevailing market rates of interest, primarily on competing
investments, as well as account maturities and the levels of personal income and
savings in the Bank's market area.
Page 9
ASSET QUALITY
The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated.
March 31 June 30,
2003 2002
----------- -----------
Loans accounted for on a nonaccrual basis: (1)
Real estate:
One-to-four family residential............ $ 1,387,842 $ 1,176,095
Other mortgage loans...................... 2,470,793 3,838
Consumer loans............................. 276,197 188,824
Commercial loans........................... 307,133 152,699
--------- ---------
Total................................. $ 4,441,965 $ 1,521,456
========= =========
Accruing loans which are contractually past due
90 days or more:
Real estate:
One-to-four family residential............ $ -- $ 109,209
Other mortgage loans...................... -- 251,333
Commercial loans........................... 293,092 --
Consumer loans............................. 16,355 35,953
--------- ---------
Total................................. $ 309,447 $ 396,495
========= =========
Total nonperforming loans............. $ 4,751,412 $ 1,917,951
========= =========
Percentage of total loans.................... 4.23% 1.44%
==== ====
Other nonperforming assets(2)................ $ 922,087 $ 623,114
========= =========
Loans modified in troubled debt restructurings $ 5,390,935 $ 4,678,247
========= =========
___________
(1) Designated nonaccrual loan payments received are applied first to
contractual principal and interest income is recognized only when
contractually current.
(2) Other nonperforming assets includes foreclosed real estate.
During the nine months ended March 31, 2003, total nonperforming loans
increased $2.8 million due primarily to a $2.5 million increase in Other
mortgage loans. Approximately $2.0 million of the increase in Other mortgage
loans is four loans to one borrower secured by land. The borrower made payments
on these loans on April 1, 2003, and Management believes these four land loans
are well secured and does not expect any loss.
During the three months ended March 31, 2003 and March 31, 2002, gross
interest income of approximately $96,200 and $31,500, respectively, would have
been recorded on loans accounted for on a nonaccrual basis if the loans had been
current throughout the respective periods. Interest on such loans included in
income during such respective periods amounted to approximately $10,500 and
$2,000, respectively.
During the nine months ended March 31, 2003 and March 31, 2002, gross
interest income of approximately $288,600 and $94,500, respectively, would have
been recorded on loans accounted for on a nonaccrual basis if the loans had been
current throughout the respective periods. Interest on such loans included in
income during such respective periods amounted to approximately $129,000 and
$37,100, respectively.
Page 10
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
The following table sets forth information regarding the Company's average
interest-earning assets and interest-bearing liabilities and reflects the
average yield of interest-earning assets and the average cost of
interest-bearing liabilities for the periods indicated. Average balances are
derived from daily balances. The table also presents information for the periods
indicated with respect to the difference between the weighted average yield
earned on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, or "interest rate spread," which savings
institutions have traditionally used as an indicator of profitability. Another
indicator of an institution's net interest income is its "net yield on
interest-earning assets," which is its net interest income divided by the
average balance of interest-earning assets. Net interest income is affected by
the interest rate spread and by the relative amounts of interest-earning assets
and interest-bearing liabilities. The yield on nontaxable securities has not
been adjusted to a tax equivalent basis. The yield on available for sale
securities is based on amortized cost. Loans on a nonaccrual basis are included
in the computation of the average balance of loans receivable. Loan fees
deferred and accreted into income are included in interest earned. Whenever
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.
Three Months Ended March 31,
-------------------------------------------------------------------------
2003 2002
--------------------------------- --------------------------------------
Average Average
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Interest-earning assets:
Loans receivable...................... $ 103,852,289 $ 1,886,434 7.27% $ 129,498,738 $ 2,666,241 8.24%
Investment and mortgage-backed
securities
Taxable............................. 92,496,295 1,092,553 4.72 92,391,979 1,377,742 5.96
Nontaxable.......................... 25,106,459 314,538 5.01 25,510,950 320,050 5.02
FHLB stock............................ 4,675,680 28,823 2.47 4,676,542 34,588 2.96
FHLB DDA.............................. 9,088,186 25,331 1.11 15,184,165 58,220 1.53
Other interest-earning assets......... 187,662 665 1.42 166,591 1,002 2.41
----------- --------- ---- ----------- --------- ----
Total interest-earning assets....... 235,406,571 3,348,344 5.69 267,428,965 4,457,843 6.67
--------- ---------
Noninterest-earning assets............... 15,182,548 16,328,520
----------- -----------
Total assets.......................... $ 250,589,119 $ 283,757,485
=========== ===========
Interest-bearing liabilities:
NOW, MMDA, statement savings........... $ 42,272,589 136,758 1.29 $ 43,809,149 141,555 1.29
Time deposits.......................... 99,698,640 753,870 3.02 114,635,495 1,161,956 4.05
FHLB advances.......................... 70,932,317 1,054,607 5.95 84,803,040 1,255,381 5.92
----------- --------- ---- ---------- --------- ----
Total interest-bearing liabilities..... 212,903,546 1,945,235 3.65 243,247,684 2,558,892 4.21
--------- ---------
Noninterest-bearing liabilities.......... 8,994,018 9,272,797
----------- ----------
Total liabilities..................... 221,897,564 252,520,481
Equity................................... 28,691,555 31,237,004
----------- ----------
Total liabilities and equity.......... $ 250,589,119 $ 283,757,485
=========== ===========
Net interest income...................... $ 1,403,109 $ 1,898,951
========= =========
Net interest rate spread................. 2.04% 2.46%
==== ====
Net yield on interest-earning assets..... 2.38% 2.84%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities............................ 110.57% 109.94%
======= ======
Page 11
Nine Months Ended March 31,
-------------------------------------------------------------------------
2003 2002
--------------------------------- --------------------------------------
Average Average
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Interest-earning assets:
Loans receivable...................... $ 110,162,769 $ 6,254,780 7.57% $ 132,877,503 $ 8,204,278 8.23%
Investment and mortgage-backed
securities
Taxable............................. 92,549,186 3,631,854 5.23 90,628,797 4,109,784 6.05
Nontaxable.......................... 25,342,079 954,980 5.02 27,236,608 1,024,504 5.02
FHLB stock............................ 4,675,470 96,584 2.75 4,682,034 113,120 3.22
FHLB DDA.............................. 8,585,029 92,906 1.44 12,129,045 211,702 2.33
Other interest-earning assets......... 184,816 2,135 1.54 155,431 4,606 3.95
----------- ---------- ---- ----------- ---------- ----
Total interest-earning assets....... 241,499,349 11,033,239 6.09 267,709,418 13,667,994 6.80
---------- ----------
Noninterest-earning assets............... 15,425,808 16,487,361
----------- -----------
Total assets.......................... $ 256,925,157 $ 284,196,779
=========== ===========
Interest-bearing liabilities:
NOW, MMDA, statement savings........... $ 41,077,773 429,349 1.39 $ 43,448,145 634,831 1.95
Time deposits.......................... 101,531,286 2,488,960 3.27 112,706,641 3,877,208 4.59
FHLB advances.......................... 76,549,641 3,418,370 5.95 87,466,988 3,881,067 5.92
Note payable........................... -- -- -- 19,562 1,000 6.82
----------- --------- ---- ----------- ---------- ----
Total interest-bearing liabilities.... 219,158,700 6,336,679 3.85 243,641,336 8,394,106 4.59
--------- ----------
Noninterest-bearing liabilities.......... 9,423,685 8,801,807
----------- -----------
Total liabilities..................... 228,582,385 252,443,143
Equity................................... 28,342,772 31,753,636
----------- -----------
Total liabilities and equity.......... $ 256,925,157 $ 284,196,779
=========== ===========
Net interest income...................... $ 4,696,560 $ 5,273,888
========== ==========
Net interest rate spread................. 2.24% 2.21%
==== ====
Net yield on interest-earning assets..... 2.59% 2.63%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 110.19% 109.88%
======= ======
RATE/VOLUME ANALYSIS
The following table analyzes dollar amounts of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's rate)
and (ii) changes attributable to rate (changes in rate multiplied by the current
period's volume).
Page 12
Three Months Ended March 31 Nine Months Ended March 31
----------------------------------- ------------------------------------
2003 vs. 2002 2003 vs. 2002
----------------------------------- ------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------- ------------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands) (In thousands)
Interest income:
Loans receivable $ (528) $ (252) $ (780) $ (1,402) $ (547) $ (1,949)
Investment and
mortgage-backed securities
Taxable 2 (287) (285) 87 (565) (478)
Nontaxable (5) (1) (6) (71) 1 (70)
FHLB stock -- (6) (6) (1) (16) (17)
FHLB DDA (23) (10) (33) (62) (57) (119)
Other interest-earning assets -- -- -- 1 (3) (2)
----- ---- ------- ------- ------ -------
Total interest-earning assets (554) (556) (1,110) (1,448) (1,187) (2,635)
----- ---- ------- ------- ------ -------
Interest expense:
NOW, MMDA, statement savings (5) -- (5) (35) (171) (206)
Time deposits (151) (257) (408) (384) (1,004) (1,388)
FHLB advances (205) 4 (201) (484) 21 (463)
Note payable -- -- -- (1) -- (1)
---- ---- ------- ------- ------ -------
Total interest-bearing
liabilities (361) (253) (614) (904) (1,154) (2,058)
---- ---- ------- ------- ------ -------
Change in net interest income $ (193) $ (303) $ (496) $ (544) $ (33) $ (577)
==== ==== ======= ======= ====== =======
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2003 AND JUNE 30, 2002
The Company had consolidated total assets of $252.6 million and $276.4
million at March 31, 2003, and June 30, 2002, respectively. During the nine
month period ended March 31, 2003, the Company experienced a decrease in its
consolidated loan portfolio from $124.2 million at June 30, 2002, to $104.5
million at March 31, 2003. Of the $19.6 million decrease, $8.3 million is due to
the sale of loans in the Monticello branch sale. The remaining $11.3 million
decrease in loans is attributed to slow loan demand combined with significant
competition.
During this same period, investments and mortgage-backed securities
increased from $118.2 million at June 30, 2002, to $124.0 million at March 31,
2003. While investments and mortgage-backed securities increased $5.8 million
for the nine month period ended March 31, 2003, there were $32.8 million in
paydowns offset with purchases of $38.3 million and a $0.3 million increase in
the market value of the securities. The Bank continues to purchase securities to
replace both loan prepayments and securities prepayments. The Bank's emphasis in
purchasing securities has been mortgage-backed securities with short (2-4 years)
average lives and very little extension risk (not more than 6 years estimated
average life) if interest rates rise significantly.
Deposits decreased from $165.0 million at June 30, 2002, to $153.3 million
at March 31, 2003. While deposits decreased $11.7 million in the nine month
period, $13.2 million in deposits were sold in the Monticello branch sale.
Although the Bank's level of deposits has been sufficient to provide for
adequate liquidity, the deposit market remains competitive. The outstanding
balances of FHLB borrowings decreased from $82.3 million at June 30, 2002, to
$69.9 million at March 31, 2003.
Stockholders' equity amounted to $27.8 million at March 31, 2003, and $26.7
million at June 30, 2002. The changes in equity were primarily due to an
increase in accumulated other comprehensive income and net income for the
period. At March 31, 2003, the Bank's regulatory capital exceeded all applicable
regulatory capital requirements.
Page 13
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH
31, 2003 AND 2002
Net Income. Net loss for the three months ended March 31, 2003, was
approximately $17,000 compared to net income of $481,000 for the three months
ended March 31, 2002. The changes resulted primarily from a decrease in net
interest income of $496,000, a decrease in noninterest income of $16,000, an
increase in the provision for loan and investment loss of $60,000, an increase
in noninterest expense of $232,000, offset by an increase in the income tax
benefit of $306,000. The increase in noninterest expense is related to a
nonrecurring write down of excess land held for investment of $407,000 as
discussed below.
Net income for the nine months ended March 31, 2003, was approximately
$894,000 compared to net income of $1,020,000 for the nine months ended March
31, 2002. The changes resulted primarily from a decrease in net interest income
of $577,000, an increase in the provision for loan and investment loss of
$194,000, an increase in noninterest expense of $134,000, offset by an increase
in noninterest income of $711,000 and a decrease in the income tax of $69,000.
The specific reasons for the above changes on net income are discussed below.
Interest Income. Interest income for the three months ended March 31, 2003,
was approximately $3,348,000, or $1,110,000 less than interest income for the
three months ended March 31, 2002. The total average interest-earning assets
decreased $32.0 million, and the yield decreased from 6.67% to 5.69%. The
primary contributing factors to the decrease in interest income were a $528,000
and $252,000 decrease due to volume and rate decreases, respectively in loans,
and a $287,000 decrease due to rate decreases on taxable investment and
mortgage-backed securities.
For the three months ended March 31, 2003, compared to the three months
ended March 31, 2002, the average balance of loans receivable decreased $25.6
million, total loan interest income decreased $780,000 and the average yield on
loans decreased 97 basis points. For the same comparative periods, the average
balance of investments and mortgage-backed securities receivable decreased $0.3
million, interest income decreased $291,000 and the average yield decreased 97
basis points. Further, the average balance of other interest-earning assets
(primarily FHLB DDA's and FHLB stock) decreased $6.1 million, interest income
decreased $39,000 and the average yield decreased 30 basis points.
Interest income for the nine months ended March 31, 2003, was approximately
$11,033,000, or $2,635,000 less than interest income for the nine months ended
March 31, 2002. The total average interest-earning assets decreased $26.2
million, while the yield decreased from 6.80% to 6.09%. Of the $2,635,000
decrease in interest income, $1,402,000 and $547,000 was due to volume and rate
decreases, respectively in loans, $565,000 was due to rate decreases on taxable
investment and mortgage-backed securities, $71,000 was due to volume decreases
on nontaxable investments and mortgage-backed securities, $16,000 was due to
rate decreases on FHLB stock, $62,000 and $57,000 was due to volume and rate
decreases, respectively on FHLB DDA, offset primarily by an $87,000 increase due
to the volume of taxable investments and mortgage-backed securities.
For the nine months ended March 31, 2003, compared to the nine months ended
March 31, 2002, the average balance of loans receivable decreased $22.7 million,
total loan interest income decreased $1,949,000 and the average yield on loans
decreased 66 basis points. For the same comparative periods, the average balance
of investments and mortgage-backed securities receivable increased $26,000,
interest income decreased $548,000 and the average yield decreased 62 basis
points. Further, the average balance of other interest-earning assets (primarily
FHLB DDA's and FHLB stock) decreased $3.5 million, interest income decreased
$138,000 and the average yield decreased 69 basis points.
Interest Expense. For the three months ended March 31, 2003, compared to
the three months ended March 31, 2002, the average balance of interest-bearing
liabilities decreased $30.3 million, total interest expense decreased $614,000
and the average cost decreased 56 basis points. The average balance of
interest-bearing deposits decreased $16.5 million, deposit interest expense
decreased $413,000 and the average cost decreased 78 basis points. The average
balance of FHLB advances decreased $13.9 million, FHLB interest expense
decreased $201,000 and the average cost increased 3 basis points.
Of the $614,000 decrease in interest expense, $156,000 was due to volume
decreases in deposits, $257,000 was due to rate decreases on deposits, and
$205,000 was due to volume decreases on FHLB advances offset by a $4,000
increase due to average rate increases on FHLB advances.
Page 14
For the nine months ended March 31, 2003, compared to the nine months ended
March 31, 2002, the average balance of interest bearing liabilities decreased
$24.5 million, total interest expense decreased $2,058,000 and the average cost
decreased 74 basis points. The average balance of interest-bearing deposits
decreased $13.5 million, deposit interest expense decreased $1,594,000 and the
average cost decreased 112 basis points. The average balance of FHLB advances
decreased $10.9 million, FHLB interest expense decreased $463,000 and the
average cost increased 3 basis points.
Of the $2,058,000 decrease in interest expense, $419,000 was due to volume
decreases in deposits, $1,175,000 was due to rate decreases on deposits, and
$484,000 was due to volume decreases on FHLB advances primarily offset by a
$21,000 increase due to average rate increases on FHLB advances.
Net Interest Income. Net interest income for the three months ended March
31, 2003, was $1.4 million, or $496,000 less than net interest income for the
three months ended March 31, 2002. The decrease in net interest income for the
three months ended March 31, 2003, compared to the three months ended March 31,
2002, was the result of a $193,000 decrease due to lower volumes and a $303,000
decrease due to lower net interest spreads.
Net interest income for the nine months ended March 31, 2003, was $4.7
million, or $577,000 less than net interest income for the nine months ended
March 31, 2002. The decrease in net interest income for the three months ended
March 31, 2003, compared to the three months ended March 31, 2002, was the
result of a $544,000 decrease due to lower volumes and a $33,000 decrease due to
lower net interest spreads.
Provision for Loan and Investment Losses. During the three and nine months
ended March 31, 2003, the Bank's management continued its review of the
appropriateness of the amount of the allowance for loan and investment losses.
Based on these reviews, management made a total of $120,000 and $413,000 in
provision for loan losses for the three and nine months ended March 31, 2003,
respectively. The allowance for loan losses of $1.8 million at March 31, 2003,
represented 1.63% of gross outstanding loans, which compares to 1.22% as of June
30, 2002. The provision was made in consideration of reviews of individual loans
and the fact that nonperforming loans as of March 31, 2003, as a percent of
total loans increased to 4.23% from 1.44% as of June 30, 2002. In addition,
total classified assets as a percent of the Bank's tangible capital plus
allowance for loan loss was 43.3% as of March 31, 2003, which compares to 31.0%
as of June 30, 2002. As of March 31, 2003, the Bank had $10.7 million in assets
classified substandard or doubtful as compared to $7.1 million as of June 30,
2002.
Management evaluates the carrying value of the loan portfolio periodically
and provisions are made, if necessary. While management uses the best
information available to make evaluations, future provisions to the allowance
may be necessary if conditions differ substantially from the assumptions used in
making the evaluations. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to recognize changes to the
allowance based upon their judgments and the information available to them at
the time of their examination.
There were no significant changes in loan terms during the period, nor were
there significant changes in the estimation methodologies employed or
assumptions utilized. Nonperforming loan and loss trends did not indicate a need
to substantially modify loss experience factors during the period.
Noninterest Income. Noninterest income is typically comprised primarily of
gains on the sales of loans and service charges on deposit accounts. Noninterest
income for the three months ended March 31, 2003, was approximately $386,000
compared to approximately $402,000 for the three months ended March 31, 2002. As
expected, service charge income on deposit accounts decreased due to the sale of
the Monticello branch. However, part of this decrease was made up for by an
increase in gains on the sales of loans held for sale.
Noninterest income for the nine months ended March 31, 2003, was
approximately $1,917,000 compared to approximately $1,206,000 for the nine
months ended March 31, 2002. As expected, service charge income on deposit
accounts decreased due to the sale of the Monticello branch. However, part of
this decrease is made up for by an increase in other noninterest income that is
primarily gains on the sales of loans held for sale. In addition, for the nine
months ended March 31, 2003, the Company recognized a gain on the sale of its
Monticello branch of approximately $743,000.
Page 15
Noninterest Expense. The major components of noninterest expense are
typically salaries and employee benefits paid to or on behalf of the Company's
employees and directors, professional fees paid to consultants, attorneys, and
accountants, occupancy expense for ownership and maintenance of the Company's
buildings, furniture and equipment and data processing expenses. Total
noninterest expense for the three months ended March 31, 2003, was $1.88 million
compared to $1.65 million for the three months ended March 31, 2002. Significant
components of the increase in noninterest expense were a $55,000 decrease in
salaries and employee benefits, a $55,000 decrease in net occupancy expense, a
$21,000 decrease in communication, postage, printing and office supplies, a
$18,000 decrease in advertising, a $22,000 decrease in professional fees, a
$19,000 decrease in amortization of goodwill, offset by a $407,000 nonrecurring
noninterest expense for the write down of land held for investment, a $4,000
increase in data processing, and a $10,000 increase in other expense.
The $407,000 expense for the write down of land held for investment is land
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 recently 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. While the Company does not intend to build on this land in the
near future, it currently does plan to utilize this land at some undetermined
future date.
During the quarter ended March 31, 2003 the Company stepped up its efforts
to reduce noninterest expenses. All outside consultant contracts were reviewed
and those that were not considered critical to the Company were cancelled for an
estimated annual cost savings of $250,000. Over the past nine months, the
Company has reduced its full time equivalent employee number by 10.5 through
attrition (this number does not include the employees of the Monticello branch
sold in July 2002) for an estimated annual cost savings of $175,000. Numerous
other smaller cost saving decisions have been implemented and the Company
expects to continue its efforts to reduce noninterest expenses.
Total noninterest expense for the nine months ended March 31, 2003, was
$5.30 million compared to $5.16 million for the nine months ended March 31,
2002. Significant components of the increase in noninterest expense were a
$61,000 decrease in salaries and employee benefits, a $134,000 decrease in net
occupancy expense, a $47,000 decrease in communication, postage, printing and
office supplies, an $83,000 decrease in advertising, a $56,000 decrease in
amortization of goodwill, offset by a $467,000 write down in land held for
investment, a $25,000 increase in data processing expense, and a $21,000
increase in other expenses.
The additional fair value write down in land held for investment of $60,000
for the nine months ended March 31, 2003 relates to land held in Benton,
Arkansas.
Income Taxes. The effective income tax rates for the Company for the three
months ended March 31, 2003 and 2002 were (92.04)% and 18.61%, respectively. The
effective income tax rates for the Company for the nine months ended March 31,
2003 and 2002 were 0.94% and 7.02%, respectively. The variance in the effective
rate from the expected statutory rate is due primarily to tax exempt interest.
The negative effective tax rate disclosed above for the three months ended
March 31, 2003 is a net tax benefit and increases net income. The net tax
benefit is primarily due to tax-exempt income. The corresponding deferred tax
asset totals approximately $1.9 million as of March 31, 2003, and $1.7 million
as of June 30, 2002. 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 future
based on management's current forecasts of earnings.
SOURCES OF CAPITAL AND LIQUIDITY
The Company has no business other than that of the Bank and banking related
activities. Bancshares' primary sources of liquidity are cash, dividends paid by
the Bank and earnings on investments and loans. In addition, the Bank is subject
to regulatory limitations with respect to the payment of dividends to
Bancshares.
Page 16
The Bank has historically maintained substantial levels of capital. The
assessment of capital adequacy is dependent on several factors including asset
quality, earnings trends, liquidity and economic conditions. Maintenance of
adequate capital levels is integral to provide stability to the Bank. The Bank
needs to maintain substantial levels of regulatory capital to give it maximum
flexibility in the changing regulatory environment and to respond to changes in
the market and economic conditions.
The Bank's primary sources of funds are savings deposits, borrowed funds,
proceeds from principal and interest payments on loans and mortgage-backed
securities, interest payments and maturities of investment securities and
earnings. While scheduled principal repayments on loans and mortgage-backed
securities and interest payments on investment securities are a relatively
predictable source of funds, deposit flows and loan and mortgage-backed
securities prepayments are greatly influenced by general interest rates,
economic conditions, competition and other factors.
At March 31, 2003 and June 30, 2002, the Company had designated all
securities as available for sale. In addition to internal sources of funding,
the Bank as a member of the FHLB, has substantial borrowing authority with the
FHLB. The Bank's use of a particular source of funds is based on need,
comparative total costs and availability.
At March 31, 2003, the Bank had $5.5 million in commitments to originate
loans (including unfunded portions of construction loans) and approximately $0.5
million in unused lines of credit. At the same date, the total amount of
certificates of deposit which were scheduled to mature in one year or less was
$83.8 million. Management anticipates that the Bank will have adequate resources
to meet its current commitments through internal funding sources described
above.
Management is not aware of any current recommendations by its regulatory
authorities, legislation, competition, trends in interest rate sensitivity, new
accounting guidance or other material events and uncertainties that would have a
material effect on the Bank's ability to meet its liquidity demands.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have
been prepared in accordance with instructions to Form 10-Q which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time due
to inflation.
Unlike most industrial companies, virtually all of the Bank's assets and
liabilities are monetary in nature. As a result, changes in interest rates
generally have a more significant impact on a financial institution's
performance than do changes in the rate of inflation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management policies
as well as the potential impact of interest rate changes upon the market value
of the Bank's portfolio equity, see "MARKET RISK" in the Company's Annual Report
on Form 10-K for the year ended June 30, 2002. There has been no material change
in the Company's asset and liability position since June 30, 2002.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated the effectiveness of the Company's disclosure controls
and procedures (as defined in 15 C. F. R. ss.240.13a-14(c)) as of a date within
ninety days prior to the filing of this quarterly report. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's current disclosure controls and procedures are
effective.
Page 17
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect those controls subsequent to the
date of evaluation.
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
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 may be
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.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
99 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K:
On February 11, 2003, the Registrant filed a Current Report on Form
8-K under item 5 to report that Cameron D. McKeel retired from the
Board of Directors effective February 7, 2003, and as President and
CEO effective February 17, 2003. The Current Report also stated that
Vida H. Lampkin was named Interim President and CEO.
Page 18
SIGNATURES
Pursuant to the requirements 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.
Registrant
Date: May 8, 2003 By: /s/Vida H. Lampkin
------------------------
Vida H. Lampkin
Chairman of the Board and Interim President
and Chief Executive Officer
(Duly Authorized Representative)
Date: May 8, 2003 By: /s/Scott A. Swain
------------------------
Scott A. Swain
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Page 19
CERTIFICATION
I, Vida H. Lampkin, Chairman of the Board and Interim President and Chief
Executive Officer of HCB Bancshares, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of HCB Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
By: /s/ Vida H. Lampkin
--------------------------------------------------
Name: Vida H. Lampkin
Title: Chairman of the Board and Interim President
and Chief Executive Officer
Page 20
CERTIFICATION
I, Scott A. Swain, Senior Vice President and Chief Financial Officer of HCB
Bancshares, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of HCB Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
By: /s/ Scott A. Swain
---------------------------------------------
Name: Scott A. Swain
Title: Senior Vice President and
Chief Financial Officer
Page 21