-----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, Kd9fY8ST0LPAk5iIuf0ywF6fptC7nVOxUZ3oJs/m4HJnv1BIchcdKx2dxrIRu9Zt AIRN4vcgyQHRh+280+gj0g== 0000904280-02-000229.txt : 20021112 0000904280-02-000229.hdr.sgml : 20021111 20021112170236 ACCESSION NUMBER: 0000904280-02-000229 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021112 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: 1934 Act SEC FILE NUMBER: 000-22423 FILM NUMBER: 02817791 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 fm10q93002-1843.txt FORM 10-Q 9-30-02 - HCB BANCSHARES, INC. 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 September 30, 2002. 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: 1,497,196 shares of common stock outstanding as of October 31, 2002. Page 1 CONTENTS PART I. FINANCIAL INFORMATION --------------------- Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Statements of Financial Condition at September 30, 2002 (unaudited) and June 30, 2002 Condensed Consolidated Statements of Income and Comprehensive Income Three Months Ended September 30, 2002 and 2001 (unaudited) Condensed Consolidated Statements of Cash Flows Three Months Ended September 30, 2002 and 2001 (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 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 SEPTEMBER 30, 2002 (UNAUDITED) and JUNE 30, 2002 - ---------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 2002 JUNE 30, ASSETS (UNAUDITED) 2002 --------------- -------- Cash and due from banks $ 2,969,305 $ 3,492,257 Interest-bearing deposits with banks 10,973,430 14,404,572 ------------ ------------ Cash and cash equivalents 13,942,735 17,896,829 Investment securities available for sale, at fair value 119,994,699 118,198,564 Loans receivable, net of allowance 113,127,749 124,176,898 Accrued interest receivable 1,525,861 1,721,612 Federal Home Loan Bank stock 4,710,300 4,709,900 Premises and equipment, net 5,928,135 7,112,211 Goodwill, net -- 131,250 Real estate held for sale 662,319 910,587 Other assets 1,012,357 1,567,443 ------------ ------------ TOTAL $260,904,155 $276,425,294 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $150,199,483 $165,005,183 Federal Home Loan Bank advances 79,965,146 82,263,936 Advance payments by borrowers for taxes and insurance 121,139 110,446 Accrued interest payable 672,067 740,008 Other liabilities 1,505,353 1,569,433 ------------ ------------ Total liabilities 232,463,188 249,689,006 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 10,000,000 shares authorized, 2,645,000 shares issued, 1,425,056 and 1,425,056 shares outstanding at September 30, 2002 and June 30, 2002, respectively 26,450 26,450 Additional paid-in capital 25,858,029 25,832,641 Unearned ESOP shares (793,500) (846,400) Unearned MRP shares (107,375) (116,169) Accumulated other comprehensive income 2,448,448 1,441,942 Retained earnings 15,561,179 14,950,088 ------------ ------------ 42,993,231 41,288,552 Treasury stock, at cost, 1,219,944 and 1,219,944 shares at September 30, 2002, and June 30, 2002, respectively (14,552,264) (14,552,264) ------------- ------------- Total stockholders' equity 28,440,967 26,736,288 ------------ ------------ TOTAL $260,904,155 $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 ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) - ------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) 2001 ---- ---- INTEREST INCOME: Interest and fees on loans $2,275,167 $2,803,304 Investment securities: Taxable 1,293,521 1,373,940 Nontaxable 321,862 382,707 Other 80,992 140,790 ---------- ---------- Total interest income 3,971,542 4,700,741 ---------- ---------- INTEREST EXPENSE: Deposits 1,064,439 1,711,601 Federal Home Loan Bank advances 1,196,079 1,326,236 Note payable -- 1,000 ---------- ---------- Total interest expense 2,260,518 3,038,837 ---------- --------- NET INTEREST INCOME 1,711,024 1,661,904 PROVISION FOR LOAN AND INVESTMENT LOSSES 90,000 60,000 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN AND INVESTMENT LOSSES 1,621,024 1,601,904 ---------- ---------- NONINTEREST INCOME: Service charges on deposit accounts 234,716 247,529 Gain on sale of branch 742,942 -- Other 150,137 127,197 ---------- ---------- Net noninterest income 1,127,795 374,726 ---------- ---------- NONINTEREST EXPENSE: Salaries and employee benefits 985,805 952,528 Net occupancy expense 237,981 276,859 Communication, postage, printing and office supplies 91,677 107,041 Advertising 43,464 56,142 Data processing 98,587 81,089 Professional fees 148,580 121,930 Amortization of goodwill -- 18,750 Other 146,786 101,008 ---------- ---------- Total noninterest expense 1,752,880 1,715,347 ---------- ---------- INCOME BEFORE INCOME TAXES 995,939 261,283 INCOME TAX PROVISION (BENEFIT) 270,842 (24,000) ---------- ----------- NET INCOME $ 725,097 $ 285,283 ---------- ---------- (Continued)
Page 4 HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) - ----------------------------------------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) 2001 ---- ---- OTHER COMPREHENSIVE INCOME, NET OF TAX: Unrealized holding gain on securities arising during period $ 1,006,506 $ 1,335,777 Reclassification adjustment for gains included in net income -- -- ----------- ----------- Other comprehensive income 1,006,506 1,335,777 ----------- ----------- COMPREHENSIVE INCOME $ 1,731,603 $ 1,621,060 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC 1,343,943 1,768,494 =========== =========== DILUTED 1,427,939 1,843,429 =========== =========== EARNINGS PER SHARE: Basic $ 0.54 $ 0.16 ====== ====== Diluted $ 0.51 $ 0.15 ====== ====== DIVIDENDS PER SHARE $ 0.08 $ 0.06 ====== ====== (Concluded)
See accompanying notes to condensed consolidated financial statements. Page 5 HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED) - ---------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) 2001 ------ ------- OPERATING ACTIVITIES: Net income $ 725,097 $ 285,283 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 156,859 192,616 Amortization (accretion) of: Deferred loan origination fees 26,163 (3,396) Goodwill -- 18,750 Premiums and discounts on loans, net (958) (1,103) Premiums and discounts on investment securities, net 54,026 19,050 Provision for loan losses 90,000 60,000 Gain on sale of branch (742,942) -- Deferred income taxes 270,842 (24,000) Originations of loans held for sale (7,143,961) (6,208,096) Proceeds from sales of loans 5,400,812 5,899,495 Stock compensation expense 87,082 29,457 Change in accrued interest receivable 145,473 118,090 Change in accrued interest payable (33,253) (70,590) Change in other assets (288,452) 27,585 Change in other liabilities (47,581) (74,280) ------------ ------------ Net cash provided (used) by operating activities (1,300,793) 268,861 ------------ ----------- INVESTING ACTIVITIES: Purchases of investment securities - available for sale (6,218,957) (4,827,871) Redemption (purchase) of Federal Home Loan Bank stock (400) 17,700 Purchases of premises and equipment (211,239) (87,197) Net change due to branch sale (2,523,471) -- Loan originations, net of repayments 4,448,935 (3,651,670) Principal payments on investment securities 5,934,096 5,430,995 Net increase in real estate held for resale (65,921) (64,831) ------------ ------------ Net cash provided (used) by investing activities 1,363,043 (3,182,874) ----------- ------------ (Continued)
Page 6 HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER, 2002 AND 2001 (UNAUDITED) - ---------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) 2001 ------ ------- FINANCING ACTIVITIES: Net decrease in deposits $ (1,614,241) $ (713,403) Advances from Federal Home Loan Bank -- 2,056,000 Repayment of Federal Home Loan Bank advances (2,298,790) (5,801,914) Net increase in advance payments by borrowers for taxes and insurance 10,693 41,928 Repayment of note payable -- (80,000) Purchase of treasury stock -- (1,656,813) Dividends paid (114,006) (108,387) ------------- ------------- Net cash used by financing activities (4,016,344) (6,262,589) ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (3,954,094) (9,176,602) CASH AND CASH EQUIVALENTS: Beginning of period 17,896,829 18,410,021 ------------ ------------ End of period $ 13,942,735 $ 9,233,419 ============ ============
See accompanying notes to condensed consolidated financial statements. (Concluded) 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 three months ended September 30, 2002, 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 periods ended September 30, 2002 and 2001, were as follows:
Three months ended September 30, 2002 2001 ---- ---- Basic weighted - average shares 1,343,943 1,768,494 Effect of dilutive securities 83,996 74,935 ---------- ---------- Diluted weighted - average shares 1,427,939 1,843,429 ========== ==========
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 months ending September 30, 2002 and 2001. In addition, the Company has issued MRP shares that have the potential to be dilutive to its weighted average shares calculation, but were anti-dilutive for these three month periods. 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. 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, 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, 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 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.
Quarter Ended September 30, ------------------------------------------------------------------------- 2002 2001 ----------------------------------- ---------------------------------- Average Average Average Interest Yield/ Average Interest Yield/ Balance Earned/Paid Rate Balance Earned/Paid Rate ------- ----------- ------- ------- ----------- ------- Interest-earning assets: Loans receivable......................... $116,001,697 $2,275,167 7.85% $133,640,481 $2,803,304 8.39% Investment and mortgage-backed securities Taxable............................... 90,026,436 1,293,521 5.75 88,801,112 1,373,940 6.19 Nontaxable............................ 25,524,086 321,862 5.04 30,492,676 382,707 5.02 FHLB stock............................. 4,675,384 35,354 3.02 4,693,588 95,245 8.12 FHLB DDA............................... 10,986,527 45,033 1.64 10,647,850 43,175 1.62 Other interest-earning assets.......... 179,242 605 1.35 144,337 2,370 6.57 ----------- --------- ---- ----------- --------- ---- Total interest-earning assets......... 247,393,372 3,971,542 6.42 268,420,044 4,700,741 7.01 --------- --------- Noninterest-earning assets............... 15,885,885 16,058,237 ----------- ----------- Total assets.......................... $263,279,257 $284,478,281 =========== =========== Interest-bearing liabilities: NOW, MMDA, statement savings........... $ 41,289,431 152,721 1.48 $ 42,609,454 303,069 2.85 Time deposits.......................... 104,293,869 911,718 3.50 110,326,785 1,408,532 5.11 FHLB advances.......................... 80,242,111 1,196,079 5.96 90,066,400 1,326,236 5.89 Note payable........................... -- -- -- 58,261 1,000 6.87 ----------- --------- ---- ----------- --------- ---- Total interest-bearing liabilities.... 225,825,411 2,260,518 4.00 243,060,900 3,038,837 5.00 --------- --------- Noninterest-bearing liabilities.......... 9,576,723 8,766,453 ----------- ----------- Total liabilities..................... 235,402,134 251,827,353 Equity................................... 27,877,123 32,650,928 ----------- ----------- Total liabilities and equity.......... $263,279,257 $284,478,281 =========== =========== Net interest income...................... $1,711,024 $1,661,904 ========= ========= Net interest rate spread................. 2.42% 2.01% ==== ==== Net yield on interest-earning assets..... 2.77% 2.48% ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 109.55% 110.43% ======= ======
Page 10 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).
2002 vs. 2001 --------------------------------------------- Increase (Decrease) Due to --------------------------------------------- Rate/ Volume Rate Volume Total ------ ---- ------ ----- (In thousands) Interest income: Loans receivable $ (370) $ (182) $ 24 $(528) Investment and mortgage-backed securities Taxable 19 (98) (1) (80) Nontaxable (62) 2 (1) (61) FHLB stock -- (60) -- (60) FHLB DDA 1 -- 1 2 Other interest-earning assets 1 (2) (1) (2) ----- ----- ---- ---- Total interest-earning assets (411) (340) 22 (729) ----- ----- ---- ---- Interest expense: NOW, MMDA, statement savings (9) (145) 4 (150) Time deposits (77) (444) 24 (497) FHLB advances (145) 16 (1) (130) Note payable (1) -- -- (1) ----- ----- ---- ---- Total interest-bearing liabilities (232) (573) 27 (778) ----- ----- ---- ---- Change in net interest income $ (179) $ 233 $ (5) $ 49 ===== ===== ==== ====
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2002 AND JUNE 30, 2002 The Company had consolidated total assets of $260.9 million and $276.4 million at September 30, 2002, and June 30, 2002, respectively. During the three month period ended September 30, 2002, the Company experienced a decrease in its consolidated loan portfolio from $124.2 million at June 30, 2002, to $113.1 million at September 30, 2002. Of the $11.1 million decrease, $8.3 million is due to the sale of loans in the Monticello branch sale. During this same period, investments and mortgage-backed securities increased from $118.2 million at June 30, 2002, to $120.0 million at September 30, 2002. While investments and mortgage-backed securities increased $1.8 million for the three month period ended September 30, 2002, there were $5.9 million in paydowns offset with purchases of $6.2 million and a $1.5 million increase in the market value of the securities. Deposits decreased from $165.0 million at June 30, 2002, to $150.2 million at September 30, 2002. Of the $14.8 million decrease, $13.2 million is due to the sale of deposits 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 $80.0 million at September 30, 2002. Stockholders' equity amounted to $28.4 million at September 30, 2002, 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 September 30, 2002, the Bank's regulatory capital exceeded all applicable regulatory capital requirements. Page 11 COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 Net Income. Net income for the three months ended September 30, 2002, was approximately $725,000 compared to net income of $285,000 for the three months ended September 30, 2001. The changes resulted primarily from an increase in net interest income of $49,000, an increase in noninterest income of $753,000 offset by an increase in the provision for loan and investment loss of $30,000, a decrease in the income tax benefit of $295,000 and a increase in noninterest expense of $37,000. The specific reasons for the above changes and the Monticello branch sale effect on net income are discussed below. Interest Income. Interest income for the three months ended September 30, 2002, was approximately $3,972,000, or $729,000 less than interest income for the three months ended September 30, 2001. The total average interest-earning assets decreased $21.0 million, while the yield decreased from 7.01% to 6.42%. Of the $729,000 decrease in interest income, $370,000 was due to volume decreases in loans, $182,000 was due to rate decreases on loans, $98,000 was due to rate decreases on taxable investment and mortgage-backed securities, $62,000 was due to volume decreases on nontaxable investments and mortgage-backed securities, $60,000 was due to rate decreases on FHLB stock, offset by an increase in the volume of taxable investments and mortgage-backed securities. For the three months ended September 30, 2002, compared to the three months ended September 30, 2001, the average balance of loans receivable decreased $17.6 million, total loan interest income decreased $528,000 and the average yield on loans decreased 54 basis points. For the same comparative periods, the average balance of investments and mortgage-backed securities receivable decreased $3.7 million, interest income decreased $141,000 and the average yield decreased 30 basis points. Further, the average balance of other interest-earning assets (primarily FHLB DDA's and FHLB stock) increased $0.3 million, interest income decreased $60,000 and the average yield decreased 159 basis points. On July 19, 2002, the Bank sold its Monticello branch that included approximately $8.3 million in loans at a rate of approximately 8.10 percent. This transaction had the effect of reducing average loans outstanding by approximately $6.5 million during the three months ended September 30, 2002, and reducing interest income by approximately $133,000 for the same period. Interest Expense. Total average interest-bearing liabilities decreased $17.2 million, while the average interest rate on such liabilities decreased from 5.00% to 4.00%. The average balance of interest-bearing deposits decreased $7.4 million, deposit interest expense decreased $647,000 and the average cost decreased 155 basis points. The average balance of FHLB advances decreased $9.8 million, FHLB interest expense decreased $130,000 and the average cost increased 7 basis points. Of the $778,000 decrease in interest expense, $86,000 was due to volume decreases in deposits, $589,000 was due to rate decreases on deposits, $145,000 was due to volume decreases on FHLB advances, offset by a $16,000 increase due to rate increases on FHLB advances and the difference is an increase due to both rate and volumes on deposits. On July 19, 2002, the Bank sold its Monticello branch that included approximately $13.2 million in deposits at a rate of approximately 2.90 percent. This transaction had the effect of reducing average deposits outstanding by approximately $10.4 million during the three months ended September 30, 2002, and reducing interest expense by approximately $75,000 for the same period. Net Interest Income. Net interest income for the three months ended September 30, 2002, was $1.7 million, or $49,000 more than net interest income for the three months ended September 30, 2001. The increase in net interest income for the three months ended September 30, 2002, compared to the three months ended September 30, 2001, was the result of an increase in our interest rate spread of 41 basis points. This trend reflects the liability sensitive nature of the Company which would, keeping all other things equal, typically show improved net interest income in a decreasing interest rate environment. Page 12 Provision for Loan and Investment Losses. During the three months ended September 30, 2002, 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 $90,000 in provision for loan losses for the three months ended September 30, 2002. The allowance for loan losses of $1.6 million at September 30, 2002, represented 1.38% 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 September 30, 2002, as a percent of total loans increased to 1.51% 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 35.9% as of September 30, 2002, which compares to 31.0% as of June 30, 2002. As of September 30, 2002, the Bank had $8.7 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. However, for the three months ended September 30, 2002, the Company recognized a gain on the sale of its Monticello branch of approximately $743,000. Noninterest income for the three months ended September 30, 2002, was approximately $1,128,000 compared to approximately $375,000 for the three months ended September 30, 2001. This increase of approximately $753,000 is primarily the result of the $743,000 gain on the sale of the Monticello branch. Based on the average for the six months ended June 30, 2002, it is estimated that the sale of the Monticello branch will result in approximately a $49,000 decrease in noninterest income per quarter, primarily consisting of service charges on deposit accounts. 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, 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 September 30, 2002, was $1.75 million compared to $1.72 million for the three months ended September 30, 2001. Significant components of the increase in noninterest expense were a $33,000 increase in salaries and employee benefits, a $17,000 increase in data processing expense, a $27,000 increase in professional fees, a $46,000 increase in other expenses, offset by a $39,000 decrease in net occupancy expense, a $15,000 decrease in communication, postage, printing and office supplies, a $19,000 decrease in amortization of goodwill and a $13,000 decrease in advertising. Based on the average for the six months ended June 30, 2002, it is estimated that the sale of the Monticello branch will result in approximately a $93,000 decrease in noninterest expense per quarter, primarily as a result of decreased salaries and employee benefits, occupancy expense and data processing expense. Income Taxes. The effective income tax rates for the Company for the three months ended September 30, 2002 and 2001 were 27.2% and (9.2)%, respectively. The variance in the effective rate from the expected statutory rate is due primarily to tax exempt interest. The negative rate for fiscal three months ended September 30, 2001, 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 $1.7 million as of September 30, 2002, 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 Page 13 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 securities prepayments are greatly influenced by general interest rates, economic conditions, competition and other factors. At September 30, 2002 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 September 30, 2002, the Bank had $4.5 million in commitments to originate loans (including unfunded portions of construction loans) and approximately $1.1 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 $84.7 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. Page 14 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. ' 240.13a-14(c) and 15 C. F. R. '240.15-14(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. 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 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: 3.2 Bylaws of HCB Bancshares, Inc. as amended 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 July 31, 2002, the Registrant filed a Current Report on Form 8-K under item 5 to report the completed sale of its Monticello, Arkansas branch office to Simmons First Bank of South Arkansas. On August 26, 2002, the Registrant filed a Current Report on Form 8-K under item 5 to report the commencement of a stock repurchase program to acquire up to 75,171 shares of its common stock, representing approximately 5% of the outstanding common stock. 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: November 8, 2002 By: /s/Cameron D. McKeel -------------------------------- Cameron D. McKeel President and Chief Executive Officer (Duly Authorized Representative) Date: November 8, 2002 By: /s/Scott A. Swain -------------------------------- Scott A. Swain Senior Vice President and Chief Financial Officer (Principal Financial Officer) Page 16 CERTIFICATION I, Cameron D. McKeel, 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: November 8, 2002 By: /s/ Cameron D. McKeel --------------------------------------------- Name: Cameron D. McKeel Title: President, and Chief Executive Officer Page 17 CERTIFICATION I, Scott A. Swain, 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: November 8, 2002 By: /s/ Scott A. Swain -------------------------------------- Name: Scott A. Swain Title: Senior Vice President, and Chief Financial Officer Page 18 EX-3 3 ex3fm10q93002-1843.txt EXHIBIT 3.2 TO FORM10-Q 9-30-02 EXHIBIT 3.2 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 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, Page 2 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 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 Page 3 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. 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. Page 4 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 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, except that this Section 14(a) shall not apply to the director proposed by Mr. Joseph Page 5 Stilwell pursuant to the Corporation's Standstill Agreement, dated August 29, 2001, with Stilwell Value Partners IV, L.P., Stilwell Associates, L.P., Stilwell Value LLC, Joseph Stilwell, and the director proposed by Joseph Stilwell. 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 15(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 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. Page 6 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 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. Page 7 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. 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. Page 8 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. Page 9 EX-99 4 ex99fm10q93002-1843.txt EXHIBIT 99 TO FORM 10-Q 9-30-02 Exhibit 99 CERTIFICATION PURSUANT TO 18. U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned executive officers of the Registrant hereby certify that this Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By:/s/ Cameron D. McKeel ------------------------------------------ Name: Cameron D. McKeel Title: President and Chief Executive Officer By:/s/ Scott A. Swain ------------------------------------------ Name: Scott A. Swain Title: Senior Vice President and Chief Financial Officer Date: November 8, 2002 -----END PRIVACY-ENHANCED MESSAGE-----