<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: No. 0-22423
HCB BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 62-1670792
(State of 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 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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable
date: 2,645,000 shares.
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CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition
March 31, 1998 (Unaudited) and June 30,
1997
Consolidated Statements of Operations
(Unaudited) Three Months and Nine Months
Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows
(Unaudited) Three Months and Nine Months
Ended March 31, 1998 and 1997
Consolidated Statements of Comprehensive Income
(Loss) Three Months and Nine Months Ended
March 31, 1998 and 1997
Notes to Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31, 1998 and June 30, 1997
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ -----------
<S> <C> <C>
Cash on hand $ 1,352,778 1,182,210
Interest-bearing deposits 6,071,051 18,273,882
Investment securities available for sale 32,342,554 16,155,755
Mortgage-backed securities
Available for sale 35,496,381 20,090,406
Held to maturity (estimated market value of 29,649,003 35,869,295
$30,464,365 and $36,194,353, respectively)
Stock in Federal Home Loan Bank 2,099,800 1,246,500
Loans receivable (net of allowance of $1,484,603 106,288,482 98,642,635
and $1,492,473, respectively)
Accrued interest receivable 1,370,064 1,339,455
Foreclosed assets 33,501 36,179
Land held for resale 130,000 130,000
Premises and equipment 3,387,354 2,778,006
Goodwill 0 1,415,223
Core deposit intangible 450,000 0
Prepaid expenses and other assets 3,049,170 3,206,232
------------ -----------
$221,720,138 200,365,778
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31, 1998 and June 30, 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ -----------
<S> <C> <C>
Liabilities
Deposits $141,017,148 151,208,763
Advances from borrowers for
Taxes, insurance and other 355,337 209,140
Borrowings from Federal Home Loan Bank 40,047,438 10,000,000
Accrued interest payable 294,498 410,477
Accrued expenses and other liabilities 1,719,929 797,885
------------ ------------
Total liabilities 183,434,350 162,626,265
------------ ------------
Stockholders' equity
Common stock, $.01 par value; authorized
10,000,000 share; issued and
outstanding 2,645,000 shares 2,645 2,645
Additional paid-in capital 25,494,132 25,794,471
Note receivable from ESOP (2,116,000) (2,116,000)
Retained earnings 14,841,328 14,091,750
Accumulated other comprehensive income 63,683 (33,353)
------------ ------------
Total stockholders' equity 38,285,788 37,739,513
------------ ------------
$221,720,138 200,365,778
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months and Nine Months Ended
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
1998 1997 1998 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Interest income
Loans $ 936,540 2,043,707 5,245,870 5,913,287
Investment securities 317,915 231,595 966,350 624,160
Mortgage-backed securities 1,021,289 857,210 2,767,125 2,694,492
Other interest income 163,475 100,781 736,594 364,007
---------- --------- --------- ---------
Total interest income 2,439,219 3,233,293 9,715,939 9,595,946
---------- --------- --------- ---------
Interest expense
Deposits 1,048,382 1,872,763 4,759,512 5,630,757
Borrowings from FHLB 444,028 152,963 797,306 482,889
Other interest 4,000 10,000 17,000 20,000
---------- --------- --------- ---------
Total interest expense 1,496,410 2,035,726 5,573,818 6,133,646
---------- --------- --------- ---------
Net interest income 942,809 1,197,567 4,142,121 3,462,300
Provision for loan losses (4,000) 24,820 20,000 168,144
---------- --------- --------- ---------
Net interest income after
provision for loan losses 946,809 1,172,747 4,122,121 3,294,156
---------- --------- --------- ---------
Noninterest income
Service fees on deposits 8,442 64,858 152,193 153,949
Gains (losses) on sales of assets
available for sale or held
for sale 5,848 (22,525) 32,778 (21,215)
Other income, net (28,951) (45,093) 139,168 86,700
---------- --------- --------- ---------
Total noninterest income (14,661) (2,760) 324,139 219,434
---------- --------- --------- ---------
Noninterest expense
Compensation, payroll taxes and
fringe benefits 299,972 583,764 1,782,554 1,610,368
Occupancy and equipment 20,750 95,307 297,246 291,061
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months and Nine Months Ended
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
1998 1997 1998 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Deposit insurance premiums 10,150 5,9923 68,037 1,060,711
Data processing expense 19,628 143,146 204,886 272,336
Other expenses 188,241 90,671 962,009 959,693
---------- --------- --------- ---------
Total noninterest expense 538,741 918,880 3,314,732 4,194,169
---------- --------- --------- ---------
Income (loss) before income tax
expense (benefit) 393,407 251,107 1,131,528 (680,579)
Income tax expense(benefit) 111,566 129,950 386,270 (261,900)
---------- --------- --------- ---------
Net income(loss) $ 281,841 121,157 745,258 (418,679)
========== ========= ========= =========
Earnings per common share $ 0.11 N/A $ 0.28 N/A
========== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months and Nine Months Ended
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
1998 1997 1998 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income(loss) $281,841 121,157 745,258 (418,679)
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 23,810 32,204 170,921 122,211
Amortization (accretion) of
Deferred loan origination fees (1,559) 36,092 8,250 36,092
Goodwill (81,092) 40,018 -- 120,055
Premiums and discounts on loans 2,806 (2,041) (463) (2,572)
Premiums and discounts on
mortgage-backed securities and
investment securities 45,090 28,883 144,062 115,519
Deferred income taxes -- (22,572) -- (57,986)
Provision for loan losses (4,000) 24,819 20,000 168,143
Provision for loss on foreclosed
assets -- -- -- 15,247
(Gain) loss on disposition of
other assets 3,107 -- (10,855) 3,118
Net (gain) loss on sale of assets held
for sale or available for sale (5,848) -- (32,778) --
Increase in accrued interest
receivable 106,662 82,361 (30,609) (92,766)
Decrease in other assets (55,460) (278,059) 157,062 (294,498)
Decrease in accrued interest payable (237,117) (11,317) (294,498) (15,142)
Increase (decrease) in other
liabilities 167,956 134,106 922,044 (107,149)
Increase in prepaid income taxes -- (186,370) -- (214,364)
---------- ---------- ---------- ----------
Net cash provided (used) by
operating activities 246,196 374,243 1,798,394 (583,618)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Net change in loans 523,644 761,414 (7,637,977) (11,415,022)
Purchase of loans -- (950,000) -- (2,254,560)
Proceeds from sales of loans 1,789,989 -- 3,912,342 1,410,336
Proceeds from sale of investment
securities available for sale -- 2,576,477 -- 2,576,477
Purchases of investment securities
available for sale (29,797,050)(5,851,810)(51,614,998) (23,060,510)
Principal payments on investment
securities and mortgage-backed
and related securities 6,880,169 2,836,956 26,215,666 18,082,993
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months and Nine Months Ended
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Purchase of stock in FHLB (830,800) -- (853,000) --
Purchases of property and equipment (1,357,128) (400,802) (2,585,872) (1,856,118)
Proceeds from sale of foreclosed assets 108,693 -- 121,044 --
Proceeds from sale of subsidiary 3,100,000 -- 3,100,000 --
Investment in subsidiary sold (3,100,000) -- (3,100,000) --
Proceeds from sale of other assets -- -- 1,525 3,215
Purchase of branch assets (9,944,624) -- (9,944,624) --
Purchase of core deposit intangible (450,000) -- (450,000) --
Dividends paid (132,250) -- (264,500) --
----------- ---------- ----------- -----------
Net cash used by investing
activities (33,383,247) (1,027,765) (43,166,391)(16,513,189)
----------- ---------- ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits 1,907,375 3,519,724 (843,598) 8,866,424
Increase (decrease) in advance payments
from borrowers for property taxes
and insurance 119,471 274,105 146,197 274,105
Net borrowings from FHLB 23,938,366 -- 30,047,438 --
Increase (decrease) in other borrowings -- -- (80,000) 400,000
Cost of issuance of common stock -- -- (40,903) --
----------- ---------- ----------- -----------
Net cash provided by
Financing activities 25,965,212 3,793,829 29,270,037 9,540,529
----------- ---------- ----------- -----------
Net increase(decrease) in cash (7,106,142) 3,140,307 (12,032,263) (7,556,278)
Cash and due from banks,
beginning of period 14,529,971 6,595,297 19,456,092 17,291,882
----------- ---------- ---------- -----------
Cash and due from banks,
end of period $ 7,423,829 9,735,604 7,423,829 9,735,604
=========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 916,985 2,027,043 5,051,774 4,807,394
=========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
HCB BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the Three Months and Nine Months Ended
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
1998 1997 1998 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 281,841 121,157 745,258 (418,679)
Comprehensive income:
Unrealized holding gain (loss)
on available for sale securities (129,958) 137,762 103,197 (158,311)
--------- ------- ------- --------
Comprehensive income (loss) before
tax expense (benefit) 151,883 258,919 848,455 (576,990)
Income tax expense (benefit) 44,186 46,839 39,514 (53,826)
--------- ------- ------- --------
Net comprehensive income (loss) $ 107,697 212,080 808,941 (523,164)
========= ======= ======= ========
</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 "Company") 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 April 30, 1997, the Bank completed the
conversion and became a wholly owned subsidiary of the Company.
The Company has no other operations and conducts no business of
its own other than owning the Bank, investing its portion of the
net proceeds received in the Conversion, and lending funds to
the Employee Stock Ownership Plan which was formed in connection
with the Conversion.
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,
1997, 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 months and nine
months periods ended March 31, 1998 and 1997. The statements of
operations for the three-month and nine-month periods ended
March 31, 1998, are not necessarily indicative of the results
which may be expected for the entire year.
Note 3 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 $.01) at $10.00 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 Company also
established an Employee Stock Ownership Plan and Trust which
purchased 211,600 shares of common stock of the Company at the
issuance price of $10 per share with funds borrowed from the
Company.
Note 3 Sale of Subsidiary
On November 19, 1997, the Bank entered into an agreement to sell
all of the shares of stock of Heritage Banc Holding, Inc.,
parent of HEARTLAND Community Bank, FSB ("FSB"), subject to
approval of the transaction by the OTS. Approval of the
transaction was granted in February, 1998 and the transaction
was completed on February 23, 1998. Pursuant to the terms
of the agreement, the Bank acquired the loans and certain
other assets and liabilities of the Little Rock, AR branch of
FSB and all assets and liabilities of the Monticello, AR branch
and the Bryant, AR loan production office of FSB immediately
after the sale of the holding company.
<PAGE>
Note 4 Adoption of Statement of Financial Accounting Standard
No. 130
The Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," on January 1, 1998.
The standard establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial
statements. Prior period financial statements presented have
been reclassified for comparative purposes.
<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, 1998 AND JUNE 30,
1997
The Company had total assets of $221.7 million and $200.4
million at March 31, 1998 and June 30, 1997, respectively.
During the nine month period ended March 31, 1998 the Bank
experienced an increase in its loan portfolio from $98.6 million
at June 30, 1997, to $106.3 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 assets
fluctuated between $90.4 million at June 30, 1997 and
$103.6 million at March 31, 1998. Investment securities and
other short-term interest-earning deposits tend to vary in
conjunction with variations in savings activity. Additionally,
the Bank expended approximately $2.6 million to purchase
computer and network equipment, furnishings and make
improvements to existing facilities during the nine-month period
ended March 31, 1998, to consummate management's planned growth
projections.
Deposits decreased from $151.2 million at June 30, 1997 to
$141.0 million at March 31, 1998. This decrease in deposits of
$10.2 million resulted from increased competition in the Bank's
main market area of Camden, Arkansas and the sale of $9.4
million in deposits at the Little Rock, Arkansas branch sold to
the Bank of the Ozarks. The Bank's level of deposits has been
sufficient to fund its loan demand and provide for adequate
liquidity. During the nine-month period ended March 31, 1998
and the year ended June 30, 1997, the Bank utilized a credit
line with the FHLB of Dallas to obtain advances to implement its
plan of pursuing a more aggressive investing program. The
outstanding balances of FHLB advances were $40.0 million and
$10.0 million at March 31, 1998 and June 30, 1997, 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.
Equity amounted to $38.3 million at March 31, 1998, and to
$37.7 million at June 30, 1997, respectively. The changes in
equity were due solely to the Bank's net income earned for such
periods. At June 30, 1997, the Bank's regulatory capital
substantially exceeded all applicable regulatory capital
requirements. Regulatory capital levels at March 31, 1998 were
not substantially different from those at June 30, 1997.
<PAGE>
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 1998 AND 1997
Net Income (Loss). Net income for the nine months ended
March 31, 1998 was $745,300 compared to a loss of $418,700 for
the nine months ended March 31, 1997. The changes were
attributable to a non-recurring one time, special deposit
insurance assessment of $889,000 and professional fees of
$306,900, incurred in the nine months ended March 31, 1997, an
increase in net interest income of $827,900 and an increase in
noninterest income of $104,700 for the nine months ended March
31, 1998, as compared to the nine months ended March 31, 1997.
Income tax expense for the nine months ended March 31, 1998 was
a tax expense of $386,300 compared to a tax benefit of $261,900
for the nine months ended March 31, 1997.
Net Interest Income. Net interest income for the nine
months ended March 31, 1997 was $4.1 million, an increase of
19.6% when compared to net interest income of $3.4 million for
the nine months ended March 31, 1997. This increase was
attributable to an increase in total interest income of $120,000
and a decrease in total interest expense of $559,800. The net
interest margin for the nine months ended March 31, 1998 was
2.22% compared to 2.41% for the nine months ended March 31,
1997. The increase in net interest income and decrease in net
interest margin was due to an increase in the average volume of
interest-earning assets combined with a decrease in average
volume of deposit liabilities and an increase in the average
rate paid on interest bearing liabilities. The average volume
of interest-earning assets increased from $170.3 million for the
nine months ended March 31, 1997 to $192.2 million for the nine
months ended March 31, 1998, which had the effect of increasing
interest income by approximately $411,000. Average
interest-earning assets increased , in part, when comparing the
nine months ended March 31, 1997 to the nine months ended March
31, 1998 as a result of the increased purchases of investment
securities and the increase in the average volume of loans
receivable. The average rate paid on interest-bearing
liabilities increased during the nine months ended March 31,
1998 from 5.10% after the nine month period ended March 31,
1997, to 5.22%. The increase in the average rate on
interest-bearing liabilities had the effect of increasing total
interest expense between the nine months ended March 31, 1997
and the nine months ended March 31, 1997 by approximately
$214,000.
For the nine months ended March 31, 1998, the average
yield on interest-earning assets was 7.46%, compared to 7.51%
for the nine months ended March 31, 1997, which had the effect
of decreasing total interest income by $24,000. The average
volume of interest-bearing liabilities increased by 5.72%,
reflecting the change in deposits and the utilization of
liquidity in the implementation of the Bank's long term business
plan for growth in its targeted markets. when comparing March
31, 1998 to March 31, 1997. This volume increase attributed to
a increase in total interest expense of approximately $25,000.
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, 1998, the average yield on interest-
earning assets was 2.81% compared to 2.71% for the nine months
ended March 31, 1997.
Provision for Loan Losses. During the year ended June 30,
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 ended March
31, 1998 of $20,000, compared to a provision for loan loss of
approximately $168,100 in the nine months ended March 31, 1997.
The allowance for loan losses, after this provision, of $1.5
million, represented 1.38 % of outstanding loans at March 31,
1998. Nonperforming loans as of March 31, 1998 were 1.12% of
total loans and below 1.0% at March 31, 1997.
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
<PAGE>
<PAGE>
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, banking service charges, loan origination and
commitment fees earned and gains on sales of loans originated
for the secondary market. Noninterest income for the nine
months ended March 31, 1998, was $324,100, compared to $222,200
for the nine months ended March 31, 1997. This represents an
increase of $101,900. This increase is due primarily to
increases in loan fees earned as a result of more aggressive
lending activities 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, 1998 was $3.3 million, compared to $4.1 million for
the nine months ended March 31, 1997. The decrease was largely
due to a one time, special 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 three months ended March 31, 1997, in the amount
of $889,000 and was expensed in the same period. This
assessment was paid November 27, 1997. 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, 1998 was compensation expense, including director and
officer retirement plans and other benefits, which totaled $1.8
million, compared to $1.6 million for the nine months ended
March 31, 1997. This increase was attributable to increases in
salary expense due to an increase in personnel for future
growth, accrual of contributions to an Employee Stock Ownership
Plan established in conjunction with the conversion of the Bank
to a stock association, and increased directors fees due to
additional time incurred by the Board in evaluating and working
on various strategic plans for the Bank. During the nine
months ended March 31, 1997, amounts were incurred to facilitate
the name change of the Bank to HEARTLAND Community Bank. 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 decreased $29,000
during the nine months ended March 31, 1998 compared with the
same period in 1997. Overall, noninterest expense increased for
the nine month period ended March 31, 1998, compared to the nine
month period ended March 31, 1997, by approximately $10,000,
exclusive of the FDIC one time, special assessment.
<PAGE>
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 introduced in the current
quarter include ATM and debit cards and an expanded deposit
account mix. In addition, two new branch facilities were
constructed and completed in the quarter ended September 30,
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, 1998 and 1997 was 38.3%
which includes federal and Arkansas tax components. A tax
benefit of $261,900 for 1997 and an expense of $386,300 for 1998
were recognized, resulting in an increase of $648,200.
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, 1998, the Bank's liquidity, as
measured for regulatory purposes, was 14.32%, or $15.2 million
in excess of the minimum OTS liquidity requirement of 5%.
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 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, 1998, the Bank had designated securities with a fair value
of approximately $67.8 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, 1998, the Bank had outstanding $6.2 million
in commitments to originate loans (including unfunded portions
of construction loans) and $135,000 in unused lines of credit.
At the same date, the total amount of certificates of deposit
which were scheduled to mature in one year or less was $59.0
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.
As the year 2000 approaches, an important business issue
has emerged regarding how existing application software programs
and operating systems can accommodate this date value. Many
computer programs that can only distinguish the final two digits
of the year entered ( a common programming practice in earlier
years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on
the wrong date or are expected to be unable to compute payment,
interest or delinquency. Rapid and accurate data processing is
essential to the operations of the Company.
<PAGE>
<PAGE>
All of the material computer programs of the Company
that could be affected by this problem are provided by major
third party vendors. Currently, the Company is in the process
of replacing/upgrading all computer systems and programs, as
well as most equipment, in order to provide cost-effective and
efficient delivery of services to its customers, information to
management, and to provide additional capacity for processing
information and transactions due to acquisitions. The third
party vendors of the Company have advised the Company that all
such computer systems and programs will be year 2000 compliant.
However, if the third party vendors are unable to resolve year
2000 issues in time, the Company would likely experience
significant data processing delays, mistakes or failures. These
delays, mistakes or failures could have a significant adverse
impact on the financial condition and results of operations of
the Company.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
The tabular and narrative information set forth in this
report and in the registrant's most recent Annual Report on form
10-K discloses detailed quantitative and qualitative information
about market risks and their effects on the registrant,
particularly with respect to changes in market interest rates on
interest-earning assets and interest-bearing liabilities.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 27 Financial Data Schedule
Reports on Form 8-K:
None
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HCB BANCSHARES, INC.
Registrant
Date: May 15, 1998 By: /s/ Vida H. Lampkin
----------------------------------
Vida H. Lampkin
Chairman, President and
Chief Executive Officer
(Duly Authorized Representative)
Date: May 15,1998 By: /s/ J. Marcie Ainsworth
----------------------------------
J. Marcie Ainsworth
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,352,778
<INT-BEARING-DEPOSITS> 6,071,051
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0
<OTHER-SE> 38,285,788
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<EXPENSE-OTHER> 3,314,732
<INCOME-PRETAX> 1,131,528
<INCOME-PRE-EXTRAORDINARY> 1,131,528
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 745,258
<EPS-PRIMARY> .28
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