-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MbTNs/G1eAHRJm41oYmM9QPTQmbHghAUkWLq1+pSZ/uUXKjeYePHPX4HjmuheBRT GatkMAI9yyAbTsdpr4LntQ== 0000904280-01-500021.txt : 20010516 0000904280-01-500021.hdr.sgml : 20010516 ACCESSION NUMBER: 0000904280-01-500021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HCB BANCSHARES INC CENTRAL INDEX KEY: 0001029740 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 621670792 STATE OF INCORPORATION: OK FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22423 FILM NUMBER: 1635157 BUSINESS ADDRESS: STREET 1: HEARTLAND COMMUNITY BANK STREET 2: 237 JACKSON ST CITY: CAMDEN STATE: AR ZIP: 71701 BUSINESS PHONE: 8708366841 MAIL ADDRESS: STREET 1: HEARTLAND COMMUNITY BANK STREET 2: 237 JACKSON STREET CITY: CAMDEN STATE: AR ZIP: 71701 10-Q 1 fm10q33101-1843.txt FORM10Q-3-31-01 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, 2001. 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 2,158,989 shares of common stock outstanding as of April 30, 2001. Page 1 CONTENTS PART I. FINANCIAL INFORMATION --------------------- Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Statements of Financial Condition at March 31, 2001 (unaudited) and June 30, 2000 Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months and Nine Months Ended March 31, 2001 and 2000 (unaudited) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2001 and 2000 (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 PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings Item 2. Changes in Securities 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, 2001 (UNAUDITED) and JUNE 30, 2000
- ------------------------------------------------------------------------------------------------------------------- MARCH 31, 2001 JUNE 30, ASSETS (UNAUDITED) 2000 ------------- ---------- Cash and due from banks $ 3,928,570 $ 3,211,802 Interest-bearing deposits with banks 4,889,127 137,846 ----------- ----------- Cash and cash equivalents 8,817,697 3,349,648 Other interest bearing deposits with banks -- 99,000 Investment securities available for sale, at fair value 130,084,608 132,543,065 Loans receivable, net of allowance 132,725,077 135,626,505 Accrued interest receivable 2,040,278 1,852,887 Federal Home Loan Bank stock 6,518,200 6,223,500 Premises and equipment, net 7,626,852 6,552,484 Goodwill, net 225,000 281,250 Real estate held for sale 414,087 359,608 Other assets 1,641,919 4,304,228 ----------- ----------- TOTAL $ 290,093,718 $ 291,192,175 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $ 158,643,530 $ 144,873,071 Federal Home Loan Bank advances 96,667,377 115,609,029 Advance payments by borrowers for taxes and insurance 273,992 139,554 Accrued interest payable 999,084 917,415 Note payable 80,000 160,000 Other liabilities 1,107,065 1,252,556 ----------- ----------- Total liabilities 257,771,048 262,951,625 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 10,000,000 shares authorized, 2,645,000 shares issued, 1,950,145 and 2,046,580 shares outstanding at March 31, 2001 and June 30, 2000, respectively 26,450 26,450 Additional paid-in capital 25,909,640 25,945,850 Unearned ESOP shares (1,110,900) (1,269,600) Unearned MRP shares (167,788) (220,104) Accumulated other comprehensive income (loss) 432,544 (4,401,668) Retained earnings 14,035,765 14,110,667 ----------- ----------- 39,125,711 34,191,595 Treasury stock, at cost, 694,855 and 598,420 shares at March 31, 2001, and June 30, 2000, respectively (6,803,041) (5,951,045) ----------- ----------- Total stockholders' equity 32,322,670 28,240,550 ----------- ----------- TOTAL $ 290,093,718 $ 291,192,175 =========== ===========
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, 2001 AND 2000 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 2001 2000 2001 2000 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) INTEREST INCOME: Interest and fees on loans $ 2,875,621 $ 2,638,727 $ 8,786,240 $ 7,769,299 Investment securities: Taxable 1,596,357 1,831,359 4,921,531 5,608,558 Nontaxable 382,595 382,364 1,147,255 1,097,473 Other 135,481 101,087 364,884 280,872 ----------- ------------ ----------- ----------- Total interest income 4,990,054 4,953,537 15,219,910 14,756,202 INTEREST EXPENSE: Deposits 1,975,819 1,624,821 5,863,230 4,821,932 Federal Home Loan Bank advances 1,541,681 1,697,568 4,988,088 4,849,364 Note payable 1,500 3,000 5,500 10,000 ----------- ------------ ----------- ----------- Total interest expense 3,519,000 3,325,389 10,856,818 9,681,296 NET INTEREST INCOME 1,471,054 1,628,148 4,363,092 5,074,906 ----------- ------------ ----------- ----------- PROVISION FOR LOAN LOSSES 60,000 -- 236,000 -- ----------- ------------ ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,411,054 1,628,148 4,127,092 5,074,906 NONINTEREST INCOME: Service charges on deposit accounts 172,477 121,957 509,986 396,961 Other 91,580 117,806 408,709 334,313 ----------- ------------ ----------- ----------- Net noninterest income 264,057 239,763 918,695 731,274 ----------- ------------ ----------- ----------- NONINTEREST EXPENSE: Salaries and employee benefits 976,443 984,695 2,920,313 2,925,905 Net occupancy expense 271,649 226,139 760,333 664,408 Communication, postage, printing and office supplies 115,225 94,247 309,650 297,564 Advertising 39,995 53,551 172,960 227,107 Data processing 84,931 84,537 227,692 249,113 Professional fees 123,570 194,182 411,357 875,853 Amortization of goodwill 18,750 18,750 56,250 56,250 Other 62,225 128,216 269,843 292,176 ----------- ------------ ----------- ----------- Total noninterest expense 1,692,788 1,784,317 5,128,398 5,588,376 ----------- ------------ ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (17,677) 83,594 (82,611) 217,804 INCOME TAX BENEFIT (124,000) (152,500) (365,000) (136,500) ----------- ------------ ----------- ----------- NET INCOME $ 106,323 $ 236,094 $ 282,389 $ 354,304 ----------- ------------ ----------- ----------- (Continued)
Page 4 HCB BANCSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 2001 2000 2001 2000 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) (UNAUDITED) OTHER COMPREHENSIVE INCOME (LOSS), (unaudited) NET OF TAX: Unrealized holding gain (loss) on securities arising during period 1,707,055 114,185 4,834,212 (2,264,316) Reclassification adjustment for gains included in net income -- -- -- -- --------- ------- --------- ---------- Other comprehensive income (loss) 1,707,055 114,185 4,834,212 (2,264,316) --------- ------- --------- ---------- COMPREHENSIVE INCOME (LOSS) $ 1,813,378 $ 350,279 $ 5,116,601 $(1,910,012) ========= ======= ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 1,840,580 1,918,618 1,874,391 2,011,760 ========= ========= ========= ========= EARNINGS PER SHARE: Basic $ 0.06 $ 0.12 $ 0.15 $ 0.18 ==== ==== ==== ==== Diluted $ 0.06 $ 0.12 $ 0.15 $ 0.18 ==== ==== ==== ==== DIVIDENDS PER SHARE $ 0.06 $ 0.06 $ 0.18 $ 0.18 ==== ==== ==== ==== (Concluded)
See accompanying notes to condensed consolidated financial statements. Page 5 HCB BANCSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED MARCH 31, 2001 2000 ---- ------ (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES: Net income $ 282,389 $ 354,306 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 537,269 482,849 Deferred income taxes (365,000) (136,500) Amortization (accretion) of: Deferred loan origination fees (79,057) (135,656) Goodwill 56,250 56,250 Premiums and discounts on loans, net (3,384) (3,465) Premiums and discounts on investment securities, net 56,814 88,637 Stock compensation expense 174,806 273,427 Provision for loan losses 236,000 -- Originations of loans held for sale (7,661,482) (7,430,403) Proceeds from sales of loans 7,387,007 8,016,770 Change in accrued interest receivable (187,391) 30,429 Change in accrued interest payable 81,669 102,901 Change in other assets (196,562) 330,898 Change in other liabilities (145,491) 102,147 ------------ ----------- Net cash provided by operating activities 173,837 2,132,590 INVESTING ACTIVITIES: Purchases of investment securities - available for sale -- (3,302,892) Purchases of Federal Home Loan Bank stock (294,700) (651,400) Purchases of premises and equipment (1,611,637) (333,973) Proceeds from maturity of interest bearing deposits 99,000 619,000 Loan originations, net of repayments 3,022,344 (12,434,604) Principal payments on investment securities 10,459,726 10,775,883 Change in real estate held for sale (54,479) -- ------------ ----------- Net cash provided (used) by investing activities 11,620,254 (5,327,986) (Continued)
Page 6 HCB BANCSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED MARCH 31, 2001 2000 ---- ---- (UNAUDITED) (UNAUDITED) FINANCING ACTIVITIES: Net increase (decrease) in deposits $ 13,770,459 $ (4,356,250) Advances from Federal Home Loan Bank 213,740,000 211,499,000 Repayment of Federal Home Loan Bank advances (232,681,652) (201,545,932) Net increase in advance payments by borrowers for taxes and insurance 134,438 317,534 Repayment of note payable (80,000) (80,000) Common stock acquired for stock option benefit plan trust -- (615,753) Purchase of treasury stock (851,996) (2,048,505) Dividends paid (357,291) (417,579) ------------ ------------ Net cash provided (used) by financing activities (6,326,042) 2,752,515 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,468,049 (442,881) CASH AND CASH EQUIVALENTS: Beginning of period 3,349,648 4,536,214 ------------ ------------ End of period $ 8,817,697 $ 4,093,333 ============ ============
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 Heartland Community Bank and its subsidiary (the "Bank"). Bancshares' business is primarily that of owning the Bank, and participating in the Bank's activities. The accompanying condensed 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. 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 of the Company. The condensed consolidated statement of income and comprehensive income for the three and nine months ended March 31, 2001 is not necessarily indicative of the results that may be expected for the Company's fiscal year ending June 30, 2001. 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, 2000, contained in the Company's Annual Report on Form 10-K for the year ended June 30, 2000. NOTE 2 - EARNINGS PER SHARE The weighted average number of common shares used to calculate earnings per share for the periods ended March 31, 2001 and 2000 were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 2001 2000 2001 2000 ---- ---- ---- ---- Basic weighted - average shares 1,840,580 1,918,618 1,874,391 2,011,760 Effect of dilutive securities 0 0 0 0 --------- --------- --------- --------- Diluted weighted - average shares 1,840,580 1,918,618 1,874,391 2,011,760 ========= ========= ========= =========
The Company has issued stock options and MRP shares that have the potential to be dilutive to its weighted average shares calculation, but are anti-dilutive for these three and nine-month periods. NOTE 3 - STOCK PURCHASED FOR OPTION BENEFIT TRUST As of March 31, 2001, the Company has purchased a total of 208,844 shares of stock and placed them in its stock option plan trust. These shares are included in treasury stock on the accompanying condensed 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. The total number of stock option shares granted as of March 31, 2001 was 295,102 at an average exercise price of $9.14 per share of which 217,495 were vested. This compares to the total number of stock option shares granted as of June 30, 2000, of 312,980 at an average exercise price of $9.14 per share of which 217,495 were vested. NOTE 4 - 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. Page 8 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 30, 2001, but allowed plaintiffs 30 days from the date of the order to file an amended class action complaint. As of May 14, 2001, plaintiffs had not filed an amended complaint. Page 9 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 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. GENERAL The Bank's principal business consists of attracting deposits from the general public and investing those funds in loans collateralized by first mortgages on existing owner-occupied single-family residences in the Bank's primary market area and loans collateralized by, to a lesser but growing extent, commercial and multi-family real estate, consumer loans and commercial business loans. The Bank also maintains a substantial investment portfolio of mortgage-related securities, nontaxable municipal securities, and U.S. government and agency 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 and its investment portfolio, and interest paid on customers' deposits and funds borrowed. 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, the level of noninterest expense, which normally will primarily consist of employee compensation expenses, occupancy expense, and other expenses, affects net income. 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. Demand for and supply of credit, competition among lenders and the level of interest rates in the Bank's market area influence lending activities. The Bank's deposit flows and costs of funds are influenced by prevailing market rates of interest on competing investments, as well as account maturities and the levels of personal income and savings in the Bank's market area. 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), (ii) changes attributable to rate (changes in rate multiplied by the prior period's volume) and (iii) changes in rate/volume (changes in rate multiplied by changes in volume). Page 10
Three-Months Ended March 31, Nine-Months Ended March 31, -------------------------------- -------------------------------------- 2001 vs. 2000 2001 vs. 2000 -------------------------------- -------------------------------------- Increase (Decrease) Due to Increase (Decrease) Due to -------------------------------- -------------------------------------- Rate/ Rate/ Volume Rate Volume Total Volume Rate Volume Total ------ ---- ------ ----- ------ ---- ------ ----- (In thousands) (In thousands) -------------------------------- -------------------------------------- Interest income: Loans receivable $ 279 $ (38) $ (4) $ 237 $ 992 $ 22 $ 3 $ 1,017 Investment securities (124) (118) 7 (235) (557) (84) 4 (637) Other interest-earning assets 7 26 2 35 63 18 3 84 --------------------------------- -------------------------------------- Total interest-earning assets 162 (130) 5 37 498 (44) 10 464 --------------------------------- -------------------------------------- Interest expense: Deposits 108 228 15 351 256 745 40 1,041 FHLB advances (61) (98) 3 (156) (98) 242 (5) 139 Note payable (1) 0 0 (1) (4) 0 0 (4) ------ ------ ----- ------ ------ ------- ----- ------- Total interest-bearing liabilities 46 130 18 194 154 987 35 1,176 ------ ------ ----- ------ ------ ------- ----- ------- Change in net interest income $ 116 $ (260) $ (13) $ (157) $ 344 $(1,031) $ (25) $ (712) ====== ====== ===== ====== ====== ======= ===== =======
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND JUNE 30, 2000 The Company had consolidated total assets of $290.1 million and $291.2 million at March 31, 2001 and June 30, 2000, respectively. During the nine-month period ended March 31, 2001 the Company experienced a decrease in its consolidated loan portfolio from $135.6 million at June 30, 2000, to $132.7 million at March 31, 2001. During this same period, investments and mortgage-backed securities decreased from $132.5 million at June 30, 2000 to $130.1 million at March 31, 2001. While total investments decreased $2.4 million for the nine-month period ended March 31, 2001, there were $10.4 million in paydowns offset with an $8.0 million increase in the market value of the securities. The decrease in the consolidated loan portfolio is a recent event. In the three months ended March 31, 2001, consolidated loans decreased $5.96 million, primarily due to payoffs of large commercial real estate loans. Competition for these large loans remains strong, however, the Company remains competitive and further significant reductions are not expected. Deposits have increased from $144.9 million at June 30, 2000 to $158.6 million at March 31, 2001. Some of the recent increase in deposits is attributed to a new full service branch located in Bryant, Arkansas, as well as, new certificate of deposit special rate products, new checking account products and continued cross-selling efforts. 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 $115.6 million at June 30, 2000, to $96.7 million at March 31, 2001, reflecting the increase in deposits and decrease in loans and investments. Stockholders' equity amounted to $32.3 million at March 31, 2001, and $28.2 million at June 30, 2000. The changes in equity were primarily due to an increase in accumulated other comprehensive income net of dividends paid and the purchase of treasury stock. At March 31, 2001, the Bank's regulatory capital exceeded all applicable regulatory capital requirements. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND NINE-MONTHS ENDED MARCH 31, 2001 AND 2000 Net Income. Net income for the three months ended March 31, 2001 was approximately $106,000 compared to net income of approximately $236,000 for the three months ended March 31, 2000. Net income for the nine months Page 11 ended March 31, 2001 was approximately $282,000 compared to net income of approximately $354,000 for the nine months ended March 31, 2000. Explanations of primary changes to income and expense items follow. Interest Income. Interest income for the three months ended March 31, 2001 increased approximately $37,000 compared to the three months ended March 31, 2000. Interest income for the nine months ended March 31, 2001 increased approximately $464,000 compared to the nine months ended March 31, 2000. The increases in interest income were primarily due to increases in volumes of loans and offset by lower rates and volumes of investment securities. Interest Expense. Interest expense for the three months ended March 31, 2001 increased approximately $194,000 compared to the three months ended March 31, 2000. Interest expense for the nine months ended March 31, 2001 increased approximately $1,176,000 compared to the nine months ended March 31, 2000. The increase for the three months ended March 31, 2001 was primarily due to increases in both rate and volume of deposits, offset by decreases in both rate and volume of FHLB advances. The increase for the nine months ended March 31, 2001 was primarily due to increases in deposit rates and volumes, and an increase in FHLB rates. The increase in deposit rates over the two periods exhibit the increase in market rates over the same period. More recently, however, these rates have decreased significantly and as a result, the Company's cost of deposits has decreased from 5.38% for the three months ended December 31, 2000, to 5.21% for the three months ended March 31, 2001. As a result of the above changes, net interest income for the three months ended March 31, 2001 decreased approximately $157,000 compared to the three months ended March 31, 2000, and net interest income for the nine months ended March 31, 2001 decreased approximately $712,000 compared to the nine months ended March 31, 2000. Provision for Loan Losses. The Bank made provisions for loan losses of $60,000 and $236,000 for the three and nine months ended March 31, 2001, respectively. This provision reflects management's most recent review as of March 31, 2001. The allowance for loan losses of $1.4 million represented 1.03 percent of gross outstanding loans at March 31, 2001, which compares to 0.85 percent at June 30, 2000. Nonperforming loans as of March 31, 2001, and June 30, 2000, as a percent of total loans, were 0.75% and 0.64% respectively. Management evaluates the carrying value of the loan portfolio periodically and the allowance is adjusted if necessary. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In particular, management recognizes that recent and planned changes in the amounts and types of lending by the Bank will result in further growth of the Bank's loan loss allowance and may justify further changes in the Bank's loan loss allowance policy in the future. 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. Noninterest Income. Noninterest income is comprised primarily of service charges on deposit accounts, and gains on the sales of loans. Noninterest income for the three months ended March 31, 2001, was approximately $264,000 compared to approximately $240,000 for the three months ended March 31, 2000. Noninterest income for the nine months ended March 31, 2001, was approximately $919,000 compared to approximately $731,000 for the nine months ended March 31, 2000. The increase for the three-month period is due primarily to increases in fees earned on checking and savings accounts, and insurance commissions on policies associated with loan products. The increase for the nine-month period is due primarily to increases in fees earned on checking and savings accounts, insurance commissions on policies associated with loan products, and other loan fee income. In light of the increasingly competitive markets for deposits and loans, management has continued the shifting of the Bank's deposit taking and loan origination activities to reflect, among other things, the importance of offering valued customer services that generate additional fee income, and it is expected that management will continue this trend for the foreseeable future. Noninterest Expense. The major components of noninterest expense are salaries and employee benefits paid to or on behalf of the Company's employees and directors, occupancy expense for ownership and maintenance of the Company's buildings, furniture, and equipment, data processing expenses, advertising, and professional fees paid to Page 12 consultants, attorneys, and accountants. Total noninterest expense for the three months ended March 31, 2001 was $1.70 million compared to $1.80 million for the three months ended March 31, 2000. The primary difference was a decrease in professional fees and other expense, offset by increases in occupancy expense due to opening a new full service branch in Bryant, Arkansas. Total noninterest expense for the nine months ended March 31, 2001 was $5.10 million compared to $5.60 million for the nine months ended March 31, 2000. The decrease is primarily attributed to a decrease in professional fees. In light of the substantial costs associated with the recent, pending and planned expansions of the Bank's activities, facilities and staff, including the additional costs associated with adding staff, building or renovating branches, and introducing new deposit and loan products and services, it is expected that the Bank's noninterest expense levels may remain high relative to the historical levels for the Bank, as well as the prevailing levels for institutions that are not undertaking such expansions, for an indefinite period of time, as management implements the Bank's business strategy. Among the activities planned are continued increased loan originations in the areas of multi-family residential, commercial real estate, commercial business and consumer loans. Income Taxes. The effective income tax rate for the Bank for the three months ended March 31, 2001 and 2000 was (701.5%) and (182.4%), respectively. The effective income tax rate for the Bank for the nine months ended March 31, 2001 and 2000 was (441.8%) and (62.7%), respectively. Each rate includes both federal and Arkansas tax components. The variance in the effective rate from the expected statutory rate is due primarily to tax exempt interest. These negative rates are a result of net tax benefit, which increases net income. These benefits are due primarily to increases in net operating loss carryforwards for income tax reporting purposes. The corresponding deferred tax asset totals approximately $1.5 million and $1.1 million as of March 31, 2001 and June 30, 2000, respectively. 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. 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. 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 prepayments are greatly influenced by general interest rates, economic conditions, competition, and other factors. At March 31, 2001, and June 30, 2000, 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, 2001, the Bank had $4.0 million in commitments to originate loans (including unfunded portions of construction loans), and approximately $928,000 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 $94.5 million. Management anticipates that the Bank will have adequate resources to meet its current commitments through internal funding sources described above. Page 13 For the nine months ended March 31, 2001, total deposits increased approximately $13.8 million, or 12.7 percent annualized. Approximately $4.5 million of the increase was in certificates of deposits and the remaining $9.3 million due to an increase in transaction accounts. Management has initiated new certificate of deposit special rate products, and continued to offer competitive transaction account plans to help retain existing customers and attract new customers. Management will continue to monitor the progress of the new products, and develop new products and services. 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, 2000. There has been no material change in the Company's asset and liability position since June 30, 2000. 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 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 30, 2001, but allowed plaintiffs 30 days from the date of the order to file an amended class action complaint. As of May 14, 2001, plaintiffs had not filed an amended complaint. Item 2. Changes in Securities 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 Page 14 Item 6. Exhibits and Reports on Form 8-K Exhibits: 3.2 Bylaws of HCB Bancshares, Inc., as amended. Reports on Form 8-K: None Page 15 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 14, 2001 By: /s/ Cameron D. McKeel ---------------------- Cameron D. McKeel President and Chief Executive Officer (Duly Authorized Representative) Date: May 14, 2001 By: /s/ Scott A. Swain ------------------- Scott A. Swain Senior Vice President and Chief Financial Officer (Principal Financial Officer) Page 16 EX-3 2 exhibit10q-1843.txt AMENDED BYLAWS HCB BANCSHARES, INC. BYLAWS ARTICLE I PRINCIPAL EXECUTIVE OFFICE The principal executive office of HCB Bancshares, Inc. (the "Corporation") shall be at 237 Jackson Street, Camden, Arkansas 71701. The Corporation may also have offices at such other places within or without the State of Arkansas as the board of directors shall from time to time determine. ARTICLE II Shareholders SECTION 1. Place of Meetings. All annual and special meetings of ------------------- shareholders shall be held at the principal executive office of the Corporation or at such other place within or without the State of Arkansas as the board of directors may determine and as designated in the notice of such meeting. SECTION 2. Annual Meeting. A meeting of the shareholders of the Corporation -------------- for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the board of directors may determine. SECTION 3. Special Meetings. Special meetings of the shareholders for any ----------------- purpose or purposes may be called at any time by the Board of Directors or a duly authorized committee thereof only in accordance with the provisions of the Corporation's Certificate of Incorporation. SECTION 4. Conduct of Meetings. Annual and special meetings shall be -------------------- conducted in accordance with these Bylaws or as otherwise prescribed by the board of directors. The board of directors shall designate, when present, the chairman or the chief executive officer of the Corporation to preside at such meetings. SECTION 5. Notice of Meeting. Written notice stating the place, day and ----------------- hour of the meeting and the purpose or purposes for which the meeting is called shall be mailed by the secretary or the officer performing his duties, not less than ten days nor more than 60 days before the meeting to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at his address as it appears on the records of the Corporation as of the record date prescribed in Section 6 of this Article II. A shareholder's written waiver of notice of a meeting before or after a meeting, or the shareholder's presence at a meeting, shall relieve the Corporation of the requirement to give notice hereunder, except where the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened. When any shareholders' meeting, either annual or special, is adjourned for more than 30 days, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for 30 days or less or of the business to be transacted at such adjourned meeting, other than an announcement at the meeting at which such adjournment is taken. SECTION 6. Fixing of Record Date. For the purpose of determining ------------------------ shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days, and in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of 1 shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. In order that the Corporation may determine the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. SECTION 7. Voting Lists. The officer who has charge of the stock ledger of ------------ the Corporation shall prepare and make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified on the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. The stock ledger shall be the only evidence as to who are the shareholders entitled to examine the list required by this section. SECTION 8. Quorum. One-third of the outstanding shares of the Corporation ------ entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than one-third of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 9. Proxies. At all meetings of shareholders, a shareholder may vote ------- by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid after three years from the date of its execution unless the proxy provides for a larger period. SECTION 10. Voting. At each election for directors, every shareholder ------ entitled to vote at such election shall be entitled to one vote for each share of stock held by him. Unless otherwise provided by the Corporation's Certificate of Incorporation, by statute or by these Bylaws in all matters other than the election of directors, a majority of those votes present in person or represented by proxy at a lawful meeting and entitled to vote on the subject matter shall be sufficient to pass on a transaction or matter. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at a lawful meeting and entitled to vote on the election of directors. SECTION 11. Voting of Shares in the Name of Two or More Persons. When ------------------------------------------------------ ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the shareholders of the Corporation, any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose name shares of stock stand, the vote or votes to which these persons are entitled shall be cast as directed by a majority of those holding such stock and present in person or by proxy at such meeting. If the vote is evenly split on any particular matter, each fraction may vote the securities in question proportionally, or any person voting the shares, or a beneficiary, if any, may apply to the district court to appoint an additional person to act with the persons so voting the shares, which shall then be voted as determined by a majority of such persons and the person appointed by such court. If the instrument so filed shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of this Section 11 shall be a majority or even-split in interest. SECTION 12. Voting of Shares by Certain Holders. Shares standing in the ------------------------------------ name of another corporation may be voted by any officer, agent or proxy as the bylaws of such 2 corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he has expressly empowered the pledgee to vote, in which case only the pledgee or his proxy may represent such stock and vote thereon. Neither treasury shares of its own stock held by the Corporation, nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted for quorum purposes. SECTION 13. Inspectors of Election. In advance of any meeting of ------------------------ shareholders, the chairman of the board or the board of directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. The number of inspectors shall be either one or three. If the board of directors so appoints either one or three inspectors, that appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board may make such appointment at the meeting. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment in advance of the meeting or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by applicable law, the duties of such inspectors shall include: determining the number of shares of stock and the voting power of each share, the shares of stock represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders. SECTION 14. Nominating Committee. The board of directors or a committee --------------------- appointed by the board of directors shall act as a nominating committee for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Provided such committee makes such nominations, no nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the Corporation in accordance with the provisions of the Corporation's Certificate of Incorporation. SECTION 15. New Business. Any new business to be taken up at the annual ------------- meeting shall be stated in writing and filed with the secretary of the Corporation in accordance with the provisions of the Corporation's Certificate of Incorporation. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees, but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as provided in the Corporation's Certificate of Incorporation. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation --------------- shall be under the direction of its board of directors. The board of directors shall annually elect a chairman from among its members and shall designate, when present, the chairman to preside at its meetings. 3 SECTION 2. Number, Term and Election. The board of directors shall consist ------------------------- of seven members and shall be divided into three classes as nearly equal in number as possible. The members of each class shall be elected for a term of three years and until their successors are elected or qualified. The board of directors shall be classified in accordance with the provisions of the Corporation's Certificate of Incorporation. SECTION 3. Regular Meetings. A regular meeting of the board of directors ----------------- shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. SECTION 4. Special Meetings. Special meetings of the board of directors may ---------------- be called by or at the request of the chairman, the chief executive officer or one-third of the directors. The person calling the special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors called by such persons. SECTION 5. Participation in Meetings. Members of the board of directors, or ------------------------- any committee designated by the board of directors, may participate in meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person. SECTION 6. Notice. Written notice of any special meeting shall be given to ------ each director at least two days previous thereto delivered personally or by telegram or at least seven days previous thereto delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid if mailed or when delivered to the telegraph company if sent by telegram. Any director may waive notice of any meeting by a writing filed with the secretary. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 7. Quorum. A majority of the number of directors fixed by Section 2 ------ shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III. SECTION 8. Manner of Acting. The act of the majority of the directors ---------------- present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Certificate of Incorporation, or the Oklahoma General Corporation Act. SECTION 9. Action Without a Meeting. Any action required or permitted to be ------------------------ taken by the board of directors or any committee thereof at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the board of directors, or committee, as the case may be, and filed with the minutes or proceedings of the board or committee. SECTION 10. Resignation. Any director may resign at any time by sending a ----------- written notice of such resignation to the home office of the Corporation addressed to the chairman or chief executive officer. Unless otherwise specified therein such resignation shall take effect upon receipt thereof by the chairman or chief executive officer. SECTION 11. Vacancies. Any vacancy occurring in the board of directors --------- shall be filled in accordance with the provisions of the Corporation's Certificate of Incorporation. Any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of two-thirds of the directors then in office or by election 4 at an annual meeting or at a special meeting of the shareholders held for that purpose. The term of such director shall be in accordance with the provisions of the Corporation's Certificate of Incorporation. SECTION 12. Removal of Directors. Any director or the entire board of --------------------- directors may be removed only in accordance with the provisions of the Corporation's Certificate of Incorporation. SECTION 13. Compensation. Directors, as such, may receive compensation for ------------ service on the board of directors. Members of either standing or special committees may be allowed such compensation for actual attendance at committee meetings as the board of directors may determine. SECTION 14. Qualifications. (a) Each member of the Board of Directors and -------------- each nominee for the Board of Directors must be a resident of the State of Arkansas. In order to establish residency, any nominee must provide evidence satisfactory to the Board of Directors that the nominee occupied a dwelling located in Arkansas for a minimum of six months out of each of the three calendar years prior to the date of the person's nomination to the Board of Directors and has an intention to continue to occupy a dwelling located in the State of Arkansas. (b) A person is not qualified to serve as director if he or she: (1) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, (2) is a person against whom a federal or state regulatory agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty, breach of trust or violation of any law, rule, or regulation and that order is final and not subject to appeal; (3) has been found either by any federal or state regulatory agency whose decision is final and not subject to appeal or by a court to have (A) breached a fiduciary duty involving personal profit or (B) committed a violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency; or (4) has been nominated by a person who would be disqualified from serving as a director of the Corporation under Subsection 14(b)(1), (2) or (3). ARTICLE IV EXECUTIVE AND OTHER COMMITTEES The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, as they may determine to be necessary or appropriate for the conduct of the business of the Corporation, and may prescribe the duties, constitution and procedures thereof. Each committee shall consist of one or more directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The board of directors shall have power, by the affirmative vote of a majority of the authorized number of directors, at any time to change the members of, to fill vacancies in, and to discharge any committee of the board. Any member of any such committee may resign at any time by giving notice to the Corporation; provided, however, that notice to the board, the chairman of the board, the chief executive officer, the chairman of such committee, or the secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, either with or without cause, by the affirmative vote of a majority of the authorized number of directors at any meeting of the board called for that purpose. Notwithstanding the above, no committee of the board of directors shall have the power or authority in reference to amending the Corporation's Certificate of Incorporation (except that a committee, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided for in subsection A of Section 1032 of the Oklahoma General Corporation Act, may fix the designations and any of the 5 preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation in accordance with the provisions of Sections 1081 or 1082 of the Oklahoma General Corporation Act, recommending to the shareholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the shareholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution, Bylaws or Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend, authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to the provisions of Section 1083 of the Oklahoma General Corporation Act. ARTICLE V OFFICERS SECTION 1. Positions. The officers of the Corporation shall be a chairman, --------- a president, one or more vice presidents, a secretary and a treasurer, each of whom shall be elected by the board of directors. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. SECTION 2. Election and Term of Office. The officers of the Corporation --------------------------- shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until his successor shall have been duly elected and qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The board of directors may authorize the Corporation to enter into an employment contract with any officer in accordance with state law; but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V. SECTION 3. Removal. Any officer may be removed by vote of two-thirds of the ------- board of directors whenever, in its judgment, the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contract rights, if any, of the person so removed. SECTION 4. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. SECTION 5. Remuneration. The remuneration of the officers shall be fixed ------------ from time to time by the board of directors, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. Contracts. To the extent permitted by applicable law, and except --------- as otherwise prescribed by the Corporation's Certificate of Incorporation or these Bylaws with respect to certificates for shares, the board of directors 6 or the executive committee may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation ----- and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for the -------------------- payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees or agents of the Corporation in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. Deposits. All funds of the Corporation not otherwise employed -------- shall be deposited from time to time to the credit of the Corporation in any of its duly authorized depositories as the board of directors may select. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. Certificates for Shares. The shares of the Corporation shall be ----------------------- represented by certificates signed by, or in the name of, the Corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer or the secretary or an assistant secretary of the Corporation certifying and representing the number of shares owned by him in the Corporation. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 2. Form of Share Certificates. All certificates representing shares -------------------------- issued by the Corporation shall set forth upon the face or back that the Corporation will furnish to any shareholder upon request and without charge a full statement of the powers, designations, preferences and relative participating optional or other special rights of the shares of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Each certificate representing shares shall state upon the face thereof: That the Corporation is organized under the laws of the State of Oklahoma; the name of the person to whom issued; the number and class of shares, the designation of the series, if any, which such certificate represents; the par value of each share represented by such certificate, or a statement that the shares are without par value. Other matters in regard to the form of the certificates shall be determined by the board of directors or as may be required by the Oklahoma General Corporation Act. SECTION 3. Payment for Shares. No certificate shall be issued for any share ------------------ until such share is fully paid. SECTION 4. Form of Payment for Shares. The consideration for the issuance -------------------------- of shares shall be paid in accordance with the provisions of the Corporation's Certificate of Incorporation. SECTION 5. Transfer of Shares. Transfer of shares of capital stock of the ------------------ Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 7 SECTION 6. Lost Certificates. The board of directors may direct a new ------------------ certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. ARTICLE VIII FISCAL YEAR; ANNUAL AUDIT The fiscal year of the Corporation shall end on the last day of June of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. ARTICLE IX DIVIDENDS Dividends upon the stock of the Corporation, subject to the provisions of the Corporation's Certificate of Incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in the Corporation's own stock. ARTICLE X CORPORATION SEAL The corporate seal of the Corporation shall be in such form as the board of directors shall prescribe. ARTICLE XI AMENDMENTS In accordance with the Corporation's Certificate of Incorporation, these Bylaws may be repealed, altered, amended or rescinded by the shareholders of the Corporation only by vote of not less than 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the shareholders called for that purpose (provided that notice of such proposed repeal, alteration, amendment or rescission is included in the notice of such meeting). In addition, the board of directors may repeal, alter, amend or rescind these Bylaws by vote of a majority of the board of directors at a legal meeting held in accordance with the provisions of these Bylaws. -----END PRIVACY-ENHANCED MESSAGE-----