<PAGE>
<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File Number: No. 0-22423
HCB Bancshares, Inc.
______________________________________________________
(Exact name of registrant as specified in its charter)
Oklahoma 62-1670792
- ----------------------- -------------------
(State of incorporation) (I.R.S. Employer
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 of 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ ] Yes [x] No
As of April 30, 1997, there were 2,645,000 shares of the
registrant's Common Stock, par value $0.01 per share, issued and
outstanding.
Transitional small business disclosure format (check one)
Yes [ ] No [x]<PAGE>
<PAGE>
HCB BANCSHARES, INC. AND SUBSIDIARIES
Camden, Arkansas
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as
of June 30, 1996 and March 31, 1997 (Unaudited)
Consolidated Statements of Income for the nine
month and three month periods ended March 31, 1996
and 1997 (Unaudited)
Consolidated Statements of Equity for the nine
month and three month periods ended March 31, 1996
and 1997 (Unaudited)
Consolidated Statements of Cash Flow for the nine
month and three month periods ended March 31, 1996
and 1997 (Unaudited)
Notes to Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31, 1997 and June 30, 1996
<TABLE>
<CAPTION>
ASSETS
------
March 31 June 30,
1997 1996
(Unaudited)
------------ -----------
<S> <C> <C>
Cash and cash equivalents $ 1,046,746 $ 422,509
Interest-bearing deposits in other financial
institutions 8,688,858 16,869,373
Investment securities-available for sale 14,978,463 5,279,625
Mortgage-backed securities - available for sale 10,021,323 12,155,199
Mortgage-backed securities - held to maturity
(estimated market value of $40,339,781 and
$44,934,075) 40,048,969 45,212,891
Loans, net of allowance of $1,441,968 and
$1,283,234) 96,327,903 84,131,024
Accrued interest receivable 1,069,770 977,004
Foreclosed real estate, net 118,787 168,206
Premises and equipment 3,296,054 2,124,293
Land held for resale 562,145 --
Stock in Federal Home Loan Bank 1,237,800 1,199,000
Goodwill, net of amortization 1,455,241 1,575,296
Other assets 1,564,650 1,120,902
------------ ------------
TOTAL ASSETS $180,416,709 $171,235,322
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
- -----------
Deposits $154,785,675 $145,919,251
Advances - Federal Home Loan Bank 10,000,000 10,000,000
Note payable 400,000 --
Accrued interest payable 380,797 395,939
Advances from borrowers for taxes and insurance 388,109 114,004
Other liabilities 470,543 577,692
------------ ------------
Total Liabilities $166,425,124 $157,006,886
------------ ------------
Stockholders' Equity
- --------------------
Serial preferred stock ($.01 par value, 5,000,000
shares authorized; none issued or outstanding $ -- $ N/A
Common stock ($.01 par value, 20,000,000 shares
authorized; none issued or outstanding) -- N/A
Additional paid-in capital
Retained earnings (substantially restricted) 14,096,070 14,514,739
Unrealized loss on securities available-for-sale (104,485) (286,313)
------------ ------------
Total Stockholders' Equity $ 13,991,585 $ 14,228,436
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $180,416,709 $171,235,322
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest Income
- ---------------
Interest and fees on loans $2,043,707 $1,284,506 $5,913,287 $3,727,769
Investment securities 231,595 72,203 624,160 291,277
Mortgage-backed and related
securities 857,210 1,044,807 2,694,492 3,068,273
Other interest income 100,781 162,452 364,007 298,930
---------- ---------- ---------- ----------
Total interest income $3,233,293 $2,563,968 $9,595,946 $7,386,249
---------- ---------- ---------- ----------
Interest Expense
- ----------------
Deposits $1,872,763 $1,540,261 $5,630,757 $4,535,694
Borrowed funds 152,963 154,240 482,889 297,716
Notes payable 10,000 -- 20,000 --
---------- ---------- ---------- ----------
Total interest expense $2,035,726 $1,694,501 $6,133,646 $4,833,410
---------- ---------- ---------- ----------
Net interest income $1,197,567 $ 869,467 $3,462,300 $2,552,839
Provision for loan losses 24,820 -- 168,144 --
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses $1,172,747 $ 869,467 $3,294,156 $2,552,839
---------- ---------- ---------- ----------
Noninterest Income
- ------------------
Net realized loss on sales of
available for sale securities $ (21,215) $ (129,280) $ (21,215) $ (377,133)
Banking service charges 54,473 14,771 153,949 47,425
Other income 65,995 9,271 86,700 24,553
---------- ---------- ---------- ----------
Total noninterest income (loss)$ 99,253 $ (105,238) $ 219,434 $ (305,155)
---------- ---------- ---------- ----------
Noninterest Expense
- -------------------
Salaries and compensation $ 508,548 $ 257,214 $1,610,368 $ 696,580
Occupancy and equipment 101,038 41,426 291,061 124,508
Federal deposit insurance premiums 5,992 65,101 1,060,711 192,507
Loss on foreclosed real estate 19,557 4,098 40,775 17,053
Data processing expenses 143,146 28,864 272,336 87,049
Professional fees 98,562 47,826 306,900 71,153
Amortization of goodwill 40,018 -- 120,055 --
Other expenses 104,032 67,124 491,963 180,816
---------- ---------- ---------- ----------
Total noninterest expense $1,020,893 $ 511,653 $4,194,169 $1,369,666
---------- ---------- ---------- ----------
Income (loss) before income taxes $ 251,107 $ 252,576 $ (680,579) $ 878,018
Provision for income taxes (benefits) 129,950 87,923 (261,900) 302,403
---------- ---------- ---------- ----------
Net income (loss) $ 121,157 $ 164,653 $ (418,679) $ 575,615
========== ========== ========== ==========
Net earnings (loss) per common share:
Primary and fully diluted N/A N/A N/A N/A
Weighted average number of shares
outstanding
Primary and fully diluted N/A N/A N/A N/A
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Serial Preferred Stock
- ----------------------
Balance beginning of period $ N/A $ N/A $ N/A $ N/A
5,000,000 shares of $.01 par
value, authorized; None
issued or outstanding -- N/A -- N/A
----------- ----------- ----------- -----------
Balance end of period $ -- $ N/A $ -- $ N/A
----------- ----------- ----------- -----------
Common Stock
- ------------
Balance beginning of period $ N/A $ N/A $ N/A $ N/A
20,000,000 shares of $.01 par
value, authorized; None
issued or outstanding -- N/A -- N/A
----------- ----------- ----------- -----------
Balance end of period $ -- $ N/A $ -- $ N/A
----------- ----------- ----------- -----------
Additional Paid-In Capital
- --------------------------
Balance beginning of period $ N/A $ N/A $ N/A $ N/A
Current period activity -- N/A -- N/A
----------- ----------- ----------- -----------
Balance end of period $ -- $ N/A $ -- $ N/A
----------- ----------- ----------- -----------
Retained Earnings
- -----------------
Balance beginning of period $13,974,913 $14,700,722 $14,514,749 $14,289,760
Net income (loss) 121,157 164,653 (418,679) 575,615
----------- ----------- ----------- -----------
Balance end of period $14,096,070 $14,865,375 $14,096,070 $14,865,375
----------- ----------- ----------- -----------
Unrealized Depreciation on
- --------------------------
Securities Available for Sale
-----------------------------
Balance beginning of period $ (195,408) $ (18,788) $ (18,788)$ --
Net increase (decrease), net of
applicable income taxes 90,923 -- (85,697) (18,788)
----------- ----------- ----------- -----------
Balance end of period $ (104,485) $ (18,788) $ (104,485)$ (18,788)
----------- ----------- ----------- -----------
Total stockholders' equity
at period end $13,991,585 $14,846,587 $13,991,585 $14,846,587
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
- -----------------------------------
Net income (loss) $ 121,157 $ 164,653 $ (418,679) $ 575,615
----------- ----------- ----------- -----------
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation $ 32,204 $ 20,250 $ 122,211 $ 60,750
Amortization of:
Deferred loan origination fees 17,099 44,383 36,092 51,944
Goodwill 40,018 -- 120,055 --
Premiums and discounts on loans (2,041) 556 (2,572) (119)
Premiums and discounts on
investment securities 28,883 20,155 115,519 75,564
Provision for loan loss 24,819 -- 168,143 --
Provision for loss on foreclosed
real estate -- -- 15,247 --
Deferred income taxes (22,572) (46,063) (57,986) 147,239
Net loss on sale of investments-
available for sale 21,215 129,280 21,215 377,133
(Gain) loss on disposal of other
assets -- 12,468 3,118 12,468
Decrease (increase) in accrued
interest receivable 82,361 7,578 (92,766) (21,849)
Increase (decrease) in accrued
interest payable (11,317) 2,374 (15,142) 26,016
(Increase) decrease in other
assets (278,059) (162,758) (276,560) (118,429)
Increase (decrease) in other
liabilities 134,106 7,520 (107,149) 33,871
(Increase) in prepaid/payable
income taxes 186,370 (185,061) (214,364) (521,584)
----------- ----------- ----------- ------------
Total adjustments $ 253,086 $ (149,318) $ (164,939) $ 123,004
----------- ----------- ----------- ------------
Net cash flows provided (used)
by operating activities $ 374,243 $ 15,335 $ (583,618) $ 698,619
----------- ----------- ----------- ------------
Cash Flows from Investing Activities:
- ------------------------------------
Loan originations and principal
payments on loans $ 761,414 $ 184,033 $(11,415,022)$ (3,953,608)
Proceeds from sale of loans -- -- 1,410,336 --
Purchase of loans (950,000) (379,737) (2,254,560) (2,628,000)
Proceeds from sale of investment
securities 2,576,477 3,583,737 2,576,477 12,689,545
Purchase of investment securities (5,851,810) 1,091,619 (23,060,510) (15,000,971)
Principal payments on investment
securities 2,836,956 2,227,193 18,082,993 7,007,726
Proceeds from sale of other assets -- -- 3,215 --
Purchases of premises and
equipment (400,802) (171,259) (1,856,118) (276,851)
----------- ----------- ----------- ------------
Net cash flows used by investing
activities $(1,027,765) $ 6,535,586 $(16,513,189)$ (2,162,159)
----------- ----------- ----------- ------------
</TABLE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities:
- ------------------------------------
Net increase (decrease) in
demand deposits, NOW accounts,
passbook savings accounts
and certificates of deposit $ 3,519,724 $ 2,261,519 $ 8,866,424 $ 5,816,415
Net (decrease) increase in
mortgage escrow funds 274,105 (157,078) 274,105 (186,592)
Proceeds from note payable -- -- 400,000 --
Advances from FHLB -- -- -- 10,000,000
----------- ----------- ----------- -----------
Net cash flows provided (used)
by financing activities $ 3,793,829 $ 2,104,441 $ 9,540,529 $15,629,823
----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents $ 3,140,307 $ 8,655,362 $(7,556,278) $14,166,283
Cash and cash equivalents,
beginning of period $ 6,595,297 $ 8,636,520 $17,291,882 $ 3,125,599
---------- ----------- ----------- -----------
Cash and cash equivalents,
end of period $ 9,735,604 $17,291,882 $ 9,735,604 $17,291,882
=========== =========== =========== ===========
Supplemental disclosures of cash
- --------------------------------
flow information:
- ----------------
Cash paid during the period for:
Interest $ 2,027,043 $ 1,644,843 $ 6,128,788 $ 4,807,394
Income taxes $ -- $ -- $ -- $ 614,655
Loans transferred to foreclosed
real estate $ -- $ -- $ -- $ 126,307
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated (Unaudited) Financial Statements
Note 1 - HCB Bancshares, Inc.
-------------------
HCB Bancshares, Inc. (the "Corporation"), was incorporated under
the laws of the State of Oklahoma for the purpose of becoming the
bank holding company of Heartland Community Bank and its
subsidiaries (the "Bank"), in connection with the Bank's
conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank, pursuant to its Plan of
Conversion. On March 24, 1997, the Corporation commenced a
Subscription Offering of its shares in connection with the
conversion of the Bank (the "Offering"). The Offering was
consummated and the Corporation acquired the Bank on April 30,
1997. The Corporation had no assets prior to the conversion, and
as of March 31, 1997, no stock had been issued as a result of the
Offering.
The accompanying consolidated financial statements as of and for
the three months ended and nine months ended March 31, 1997,
include the accounts of the Corporation and the Bank.
Note 2 - Basis of Consolidation
----------------------
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB. To the
extent that information and footnotes required by generally
accepted accounting principles for complete financial statements
are contained in the audited financial statements included in the
Bank's audit report for the year ended June 30, 1996, such
information and footnotes have not been duplicated herein. All
material intercompany balances and transactions have been
eliminated in the consolidation. The unaudited statements reflect
all adjustments, consisting of normal recurring accruals, which
are in the opinion of management, necessary for fair presentation
of the results of operations, changes in equity and cash flows
for the three month and nine month periods ended March 31, 1997.
The statements of earnings for the three month and nine month
periods ended March, 31, 1997, are not necessarily indicative of
the results which may be expected for the entire year.
Note 3 - Earnings Per Share
------------------
As of March 31, 1997 no shares of common stock (par value $0.01
per share) had been issued by the Corporation. Therefore, the
consolidated statements of income for the three month and nine
month periods ended March 31, 1997, do not disclose earnings per
share as would otherwise be required.
Note 4 - Stockholders' Equity and Stock Conversion
-----------------------------------------
The Bank converted from a federally chartered mutual savings bank
to a federally chartered stock savings bank pursuant to its Plan
of Conversion which was approved by the Bank's members on April
25, 1997. The conversion was effective on April 30, 1997, and
resulted in the issuance of 2,645,000 shares of common stock (par
value $0.01) at $10 per share for the gross sale price of
$26,450,000. Costs related to the conversion (primarily to
underwriters' commissions, printing and professional fees)
approximated $750,000 and were deducted from the net proceeds to
arrive at net proceeds of $25,700,000. The Corporation also
established an Employee Stock Ownership Plan and Trust which
purchased 211,600 shares of common stock of the Corporation at
the issuance price of $10 per share with funds borrowed from the
Corporation.
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
GENERAL
The Bank's principal business consists of attracting
deposits from the general public and investing those funds in (i)
loans secured by first mortgages on existing owner-occupied
single-family residences in the Bank's primary market area and,
(ii) to a lesser but growing extent, commercial and multi-family
real estate loans and consumer and commercial business loans.
The Bank also maintains a substantial investment portfolio of
mortgage-related securities and 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. 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 securities and other fees. In addition,
net income is affected by the level of noninterest expense, which
primarily consists of employee compensation expenses, deposit
insurance premiums 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.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND JUNE 30,
1996
The Bank had total assets of $180.4 million and $171.2
million at March 31, 1997 and June 30, 1996, respectively.
During the nine month period ended March 31, 1997 the Bank
experienced an increase in its loan portfolio from $84.1 million
at June 30, 1996, to $96.3 million. This increase is due to the
positive results realized from the implementation of the Bank's
long term business plan for growth in its targeted markets of
commercial, consumer and multi-family lending along with natural
growth. During this same period, investment and mortgage-backed
securities and other short-term interest-earning deposits
fluctuated between $62.6 million at June 30, 1996 and $65 million
at March 31, 1997. Investment securities and other short-term
interest-earning deposits tend to vary in conjunction with
variations in savings activity. Additionally, the Bank expended
$1.9 million to purchase land and make improvements to existing
facilities during the nine month period ended March 31, 1997, to
consummate management's planned growth projections.
Deposits increased from $145.9 million at June 30, 1996 to
$154.8 million at March 31, 1997. This increase in deposits of
$8.9 million, again, is a positive result of the Bank's business
plan for growth through increased deposit customer products,
opening or renovation of branch locations and strategic marketing
efforts. The Bank's level of deposits had been sufficient to
fund its loan demand and provide for adequate liquidity until the
year ended June 30, 1996. During the year ended June 30, 1996,
the Bank utilized a credit line with the FHLB of Dallas to obtain
advances. The outstanding balances of FHLB advances at June 30,
1996 and March 31, 1997 were $10 million and $10 million,
respectively. These advances were utilized to reduce interest
rate risk by better matching rates and maturities of existing
interest-earning assets and interest-bearing liabilities.
<PAGE>
<PAGE>
Equity amounted to $14 million at March 31, 1997, and to
$14.2 million at June 30, 1996, respectively. The changes in
equity were due solely to the Bank's net income earned for such
periods. At June 30, 1996, the Bank's regulatory capital
substantially exceeded all applicable regulatory capital
requirements. Regulatory capital levels at March 31, 1997 were
not substantially different from those at June 30, 1996.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND 1996
Net Income (Loss). Net income (loss) for the nine months
ended March 31, 1997 was $(418,679) compared to $575,615 for the
nine months ended March 31, 1996. The changes were attributable
to a special deposit insurance assessment of $881,824 and a
provision for loan losses of $168,144, which were partially
offset by an increase in net interest income of $909,461 and an
increase in noninterest income of $524,589 for the nine months
ended March 31, 1997, as compared to the nine months ended March
31, 1996. Income tax expense for the nine months ended March
31, 1997 compared to 1996 was a tax benefit of $261,900 compared
to a tax expense of $302,403.
Net Interest Income. Net interest income for the nine
months ended March 31, 1997 was $3,462,300, an increase of 35.6%
when compared to net interest income of $2,552,839 for the nine
months ended March 31, 1996. This increase was attributable to
an increase in total interest income of $2,209,697 and an
increase in total interest expense of $1,300,236. The net
interest margin for the nine months ended March 31, 1997 was
2.41% compared to 2.04% for the nine months ended March 31, 1996.
This increase in net interest income and net interest margin is
due to an increase in the average volume of interest-earning
assets, combined with a decrease in the average rate paid on
interest-bearing liabilities. One cause for the increase in
average interest-earning assets when comparing the nine months
ended March 31, 1997 to the nine months ended March 31, 1996 was
the acquisition of the subsidiary, Heritage Bank, FSB in May of
1996. The average volume of interest-earning assets increased
from $135.7 million for the nine months ended March 31, 1996 to
$170.3 million for the nine months ended March 31, 1997 which had
the effect of increasing total interest income by $1,945,660.
The average rate paid on interest-bearing liabilities decreased
during the nine months ended March 31, 1997 to 5.10% from 5.22%
for the nine months ended March 31, 1996. The decrease in the
average rate on interest-bearing liabilities had the effect of
decreasing total interest expense between the nine months ended
March 31, 1996 and the nine months ended March 31, 1997 by
$213,792.
The average yield on interest-earning assets remained
relatively unchanged between the two periods, which is indicative
of the fact that the Bank's interest-earning assets are not
highly sensitive to the increases in market interest rates which
occurred between the two periods. For the nine months ended
March 31, 1997, the average yield on interest-earning assets was
2.71%, compared to 2.51% for the nine months ended March 31,
1996, which had the effect of increasing total interest income by
$958,194. In addition, the average volume of interest-bearing
liabilities increased by 29.9%, reflecting the acquisition of the
Bank's subsidiary savings bank, when comparing March 31, 1997 to
March 31, 1996. This volume increase attributed to an increase
in total interest expense of $1,308,855.
Provision for Loan Losses. During the nine months ended
March 31, 1997, the Bank's management initiated an extensive
internal loan review of all loan files both of the parent and
subsidiary. The review resulted in the adoption of more
conservative loan loss allowance standards than had been used in
the past. This new policy on allowance for loan losses was
deemed prudent in establishing credit underwriting standards for
future expected lending areas, such as commercial real estate,
business and consumer loans, which inherently have more risk.
Management made a provision for loan losses in the nine months
<PAGE>
ended March 31, 1997 of $168,144. There was no provision made in
the nine months ended March 31, 1996. This current period
provision is the result of the aforementioned extensive review of
the allowance for loan losses of the Bank and management's
estimates of conditions and circumstances that materialized in
the nine month period ended March 31, 1997. The allowance for
loan losses, after this provision, of $1,441,968, represented
1.5% of outstanding loans at March 31, 1997. Nonperforming loans
as of March 31, 1997 and 1996, as a percent of total loans,
remained below .20%.
Management evaluates the carrying value of the loan
portfolio periodically and the allowance is adjusted accordingly.
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 insurance commissions from sales of credit life
insurance, fees for banking service charges and sales of
investment and mortgage-backed securities. Noninterest income
for the nine months ended March 31, 1997, was $219,434, compared
to $(305,155) for the nine months ended March 31, 1996. This
represents an increase of $524,589. This increase is partially
due to a reduction of losses of $355,918, that were realized on
sales of investment securities which were classified as
available-for-sale during the nine month period ended March 31,
1996 when compared to sales of investment securities during the
same period in 1997. The remaining increase of $168,671, is due
primarily to fluctuations in sales of credit life insurance
policies and new fee earning banking services offered by the Bank
to its deposit customers.
In light of the increasingly competitive markets for
deposits and loans, management has recently shifted 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 compensation and benefits paid to the Bank's
employees and directors, occupancy expense for ownership and
maintenance of the Bank's building and furniture and equipment,
and insurance premiums paid to the FDIC for insurance of
deposits. Total noninterest expense for the nine months ended
March 31, 1997 was $4,194,169, compared to $1,369,666 for the
nine months ended March 31, 1996. The increase was largely due
to an increase in expense related to a one time assessment by the
FDIC to the Bank to replenish the SAIF depleted by prior years
losses in the thrift industry. During the years in which thrifts
as an industry, suffered many publicized and non-publicized
"bailouts" by the SAIF, and its predecessor, the Federal Savings
and Loan Insurance Corporation, the deposit insurance fund for
the thrift industry was severely depleted. After several years
of debate Congress with the assistance of the FDIC, which
administers the SAIF, consummated a plan of action to replenish
the SAIF to a level of coverage required by statute (the
designated reserve ratio of 1.25% of insured deposits) for the
remaining covered deposits. The plan of remedy included a one
time assessment to each thrift institution based on capital
levels and deposits, among other factors. This one time
assessment was recognized by the Bank in the nine months ended
<PAGE>
March 31, 1997, in the amount of $881,824 and was expensed in the
same period. This assessment was paid November 27, 1996. The
effective deposit insurance rate prior to the assessment was .23%
compared to a rate of .065% after the assessment. The second
largest component of noninterest expense for the nine months
ended March 31, 1997 was compensation expense, including director
and officer retirement plans and other benefits, which totaled
$1,610,368, compared to $686,580 for the nine months ended March
31, 1996. This increase was attributable to increases in salary
expense due to an increase in personnel for future growth, the
acquisition of the subsidiary savings bank and increased
directors fees due to additional time incurred by the Board in
evaluating and working on various strategic plans for the Bank.
Other noninterest expense incurred during the nine months ended
March 31, 1997, included amounts incurred to facilitate the name
change of the Bank to HEARTLAND Community Bank in September 1996.
In addition, fees were incurred for personnel placement services
to attract key personnel for hire, a computer consultant was
engaged to evaluate operating systems and further growth needs,
and marketing consultants were approached for market strategies
and implementation. These expense categories increased $235,747
during the nine months ended March 31, 1997 compared with the
same period in 1996. Overall, noninterest expense increased for
the nine month period ended March 31, 1997, compared to the nine
month-period ended March 31, 1996, by approximately $1,156,306 as
a direct result of the acquisition of the subsidiary savings
bank, exclusive of the FDIC one-time assessment.
Included in noninterest expenses for the nine months ended
March 31, 1997 was a charge for the amortization of goodwill of
$120,055, which resulted from the acquisition of the subsidiary
bank during the year ended June 30, 1996. The amortization will
be $160,074 per year over a ten year period, subsequent to June
30, 1996, and is not expected to have a material effect on the
future earnings of the Bank.
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, introducing
new deposit and loan products and services and implementing the
planned stock benefit plans after the Conversion, it is expected
that the Bank's noninterest expense levels may remain somewhat
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 increased loan originations in the areas of multi-
family residential, commercial real estate, commercial business
and consumer loans. Customer products to be introduced include
ATM and debit cards and an expanded deposit account mix. In
addition, two new branch facilities are to be constructed with
planned completion in July 1997. Other existing facilities will
be renovated to attract and serve an increased customer base.
<PAGE>
<PAGE>
Income Taxes. The effective income tax rate for the Bank
for the nine months ended March 31, 1997 and 1996 was 38.5% which
includes federal and Arkansas tax components. A tax benefit of
$(261,900) for 1996 and an expense of $302,403 for 1996 was
recognized resulting in a decrease of $564,303.
SOURCES OF CAPITAL AND LIQUIDITY
The Bank is required to maintain minimum levels of liquid
assets as defined by the OTS regulations. This requirement which
may be varied at the discretion of the OTS depending on economic
conditions and deposit outflows, is based upon a percentage of
deposits and short term borrowings. Current OTS regulations
require that a savings association maintain liquid assets of not
less than 5% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less, of
which short-term liquid assets must consist of not less than 1%.
At March 31, 1997, the Bank's liquidity, as measured for
regulatory purposes, was 16.9%, or $15.8 million in excess of the
minimum OTS liquidity requirement of 5%, and 5.7% or $6.2 million
in excess of the OTS short term liquidity requirement of 1%.
Management of the Bank seeks to maintain a relatively high level
of liquidity in order to retain flexibility in terms of
investment opportunities and deposit pricing and in order to meet
funding needs of deposit outflows and loan commitments.
Historically, the Bank has been able to meet its liquidity
demands through internal sources of funding supplemented from
time to time by advances from the FHLB of Dallas.
The Bank's primary sources of funds are deposits, 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. The Bank does not
solicit deposits outside of its market area through brokers or
other financial institutions.
The Bank has also designated certain securities as available
for sale in order to meet liquidity demands. At March 31, 1997,
the Bank had designated securities with a fair value of
approximately $25 million 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.
Another source of liquidity is the net proceeds of the
Conversion. Following the completion of the Conversion,
effective April 30, 1997, the Bank received over half of the net
proceeds of the Conversion. These funds are expected to be used
by the Bank for its business activities, including investment in
interest-earning assets.
For additional information about cash flows from the Bank's
operating, investing and financing activities see the
consolidated financial statements presented elsewhere herein.
At March 31, 1997, the Bank had outstanding $9,154,733 in
commitments to originate loans (including unfunded portions of
construction loans) and $16,076 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 $92.8 million.
Management anticipates that the Bank will have adequate resources
to meet its current commitments through internal funding sources
described above. Historically, the Bank has been able to retain
a significant amount of its deposits as they mature.
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.<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and any subsidiary may be a party
to various legal proceedings incident to its or their business.
At March 31, 1997, there were no regulatory or other legal
proceedings to which the Company or any subsidiary was a party,
or to which of any of their property was subject, which were
expected by management to result in a material loss.
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
--------------------------------
The following exhibits are filed as part of this report:
2(1) Plan of Conversion of HEARTLAND Community Bank
3.1(1) Articles of Incorporation of HCB Bancshares, Inc.
3.2(1) Bylaws of HCB Bancshares, Inc.
4(1) Form of Common Stock Certificate of HCB Bancshares,
Inc.
10.1(1) Form of HCB Bancshares, Inc. 1997 Stock Option and
Incentive Plan
10.2(1) Form of HCB Bancshares, Inc. Management Recognition
Plan and Trust Agreement
10.3(a)(1) Employment Agreements between HEARTLAND Community
Bank and Vida H. Lampkin and Cameron D. McKeel
10.3(b)(1) Employment Agreements between HCB Bancshares, Inc.
and Vida H. Lampkin and Cameron D. McKeel
10.4(a)(1) Change-in-Control Protective Agreement between
HEARTLAND Community Bank and William C. Lyon
10.4(b)(1) Change-in-Control Protective Agreement between HCB
Bancshares, Inc. and William C. Lyon
10.5(1) HEARTLAND Community Bank Directors' Retirement Plan,
as amended
27 Financial Data Schedule
_______________
(1) Incorporated by reference to Company's Registration Statement
on Form SB-2, No. 333-19093
The Corporation did not file a current report on Form 8-K during
the quarter covered by this report.<PAGE>
<PAGE>
SIGNATURE
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 as of the
date set forth below.
HCB BANCSHARES, INC.
Date: May 15, 1997 By: /s/ Vida H. Lampkin
-----------------------------------
Vida H. Lampkin, President
(Duly Authorized Representative and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,046,747
<INT-BEARING-DEPOSITS> 8,688,858
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,999,786
<INVESTMENTS-CARRYING> 40,048,969
<INVESTMENTS-MARKET> 40,339,781
<LOANS> 96,327,903
<ALLOWANCE> 1,441,968
<TOTAL-ASSETS> 180,416,709
<DEPOSITS> 154,785,675
<SHORT-TERM> 10,000,000
<LIABILITIES-OTHER> 1,639,449
<LONG-TERM> 0
<COMMON> 0
0
0
<OTHER-SE> 13,991,585
<TOTAL-LIABILITIES-AND-EQUITY> 180,416,709
<INTEREST-LOAN> 5,913,287
<INTEREST-INVEST> 3,282,899
<INTEREST-OTHER> 364,007
<INTEREST-TOTAL> 9,560,193
<INTEREST-DEPOSIT> 5,630,757
<INTEREST-EXPENSE> 6,133,646
<INTEREST-INCOME-NET> 3,426,547
<LOAN-LOSSES> 168,144
<SECURITIES-GAINS> (21,215)
<EXPENSE-OTHER> 4,194,169
<INCOME-PRETAX> (680,579)
<INCOME-PRE-EXTRAORDINARY> (418,679)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (418,679)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
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