-----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, P02zDTTDRA6yhFVmz3uIS/3iSnO3i3zFtA5imYlc8hV1kgo1qUdYGPSlammrgFuO FZV1U4oyWojzpCcqe9jh5g== 0000950133-99-000722.txt : 19990305 0000950133-99-000722.hdr.sgml : 19990305 ACCESSION NUMBER: 0000950133-99-000722 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990304 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-K405/A SEC ACT: SEC FILE NUMBER: 000-22423 FILM NUMBER: 99557109 BUSINESS ADDRESS: STREET 1: HEARTLAND COMMUNITY BANK STREET 2: 237 JACKSON ST CITY: CAMDEN STATE: AK ZIP: 71701 BUSINESS PHONE: 8708366841 MAIL ADDRESS: STREET 1: HEARTLAND COMMUNITY BANK STREET 2: 237 JACKSON STREET CITY: CAMDEN STATE: AK ZIP: 71701 10-K405/A 1 AMENDMENT NO. 1 TO FORM 10-K DATED JUNE, 30 1998 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-K/A (Amendment No. 1)* [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1998 Commission File Number: 0-22423 HCB BANCSHARES, INC. --------------------------------- (Exact name of small business issuer as specified in its charter) Oklahoma 62-1670792 - --------------------------------------------- ------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 237 Jackson Street, Camden, Arkansas 71701-3941 - --------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (870) 836-6841 -------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 NO X . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, as of a specified date within the past 60 days: $19,928,491 (1,944,243 shares at the last sale price on December 31, 1998 ($10.25 per share); for this purpose, directors, executive officers and 5% stockholders have not been deemed to be non-affiliates). State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 2,640,000 shares of common stock as of December 31, 1998. DOCUMENTS INCORPORATED BY REFERENCE The following lists the documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated: None. * This Amendment No. 1 reflects a revised opinion of Miller, England & Company contained in Item 8 and a revised Exhibit 23.2, consent of Miller, England & Company. 2 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 51 3 [DELOITTE & TOUCHE LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT The Board of Directors of HCB Bancshares, Inc. Camden, Arkansas We have audited the consolidated statement of financial condition of HCB Bancshares, Inc. and subsidiary (the "Company") as of June 30, 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of HCB Bancshares, Inc. and its subsidiary at June 30, 1998, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Little Rock, Arkansas February 3, 1999 52 4 [MILLER, ENGLAND & COMPANY LETTERHEAD] INDEPENDENT AUDITORS' REPORT Board of Directors HCB Bancshares, Inc. and Subsidiaries Camden, Arkansas We have audited the accompanying consolidated statements of financial condition of HCB Bancshares, Inc. and its subsidiaries as of June 30, 1997 and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements for the year ended June 30, 1996 were audited by another auditor and their report is attached hereto. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used in significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of HCB Bancshares, Inc. and its subsidiaries as of June 30, 1997 and the results of their consolidated operations and cash flows for the years ended in conformity with generally accepted accounting principles. As discussed in Note 1, the consolidated financial statements referred to above have been restated. /s/ MILLER, ENGLAND & COMPANY Little Rock, Arkansas September 5, 1997 (February 3, 1999, as to the effect of the restatement described in Note 1) 53 5 [LETTERHEAD OF GAUNT & COMPANY, LTD.] INDEPENDENT AUDITORS' REPORT Board of Directors Heartland Community Bank and Subsidiaries (formerly First Federal Savings and Loan Association of Camden) Camden, Arkansas We have audited the accompanying consolidated statements of financial condition of Heartland Community Bank (formerly First Federal Savings and Loan Association of Camden) and its subsidiary as of June 30, 1996 and 1995 and the related consolidated statements of income, equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used in significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Heartland Community Bank (formerly First Federal Savings and Loan Association of Camden) and its subsidiary as of June 30, 1996 and 1995 and the results of their consolidated operations and cash flows for the years ended in conformity with generally accepted accounting principles. As discussed in note 18, the financial statements for the year ended June 30, 1996, are consolidated as a result of the acquisition of the wholly owned-subsidiary on May 3, 1996. Also discussed in note 1c, as of July 1, 1994 the Bank changed its method of accounting for certain investments in debt and equity securities. /s/ Gaunt & Company, Ltd. Little Rock, Arkansas August 28, 1996 (Except for Note 27, as to which the date is February 4, 1997) 54 6 HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1998 AND 1997 - ---------------------------------------------------------------------------------------------------------------------------- ASSETS 1998 1997 As Restated, see Note 1 Cash and due from banks $ 1,531,363 $ 1,057,943 Interest bearing deposits with banks 2,291,035 18,273,882 ------------ ------------ Cash and cash equivalents 3,822,398 19,331,825 Other interest bearing deposits with banks 2,782,000 Investment securities: Available for sale, at fair value (amortized cost at June 30, 1998 and 1997, of $99,385,263 and $35,680,502, respectively) 99,472,916 35,622,370 Held to maturity, at amortized cost (fair value at June 30, 1998 and 1997, of $27,476,304 and $36,194,353, respectively) 27,503,257 36,493,086 Loans receivable, net of allowance at June 30, 1998 and 1997, of $1,468,546 and $1,492,473, respectively 104,580,165 98,642,635 Accrued interest receivable 1,839,326 1,305,952 Federal Home Loan Bank stock 3,448,900 1,246,500 Premises and equipment, net 5,601,767 4,621,444 Goodwill, net 431,250 1,415,223 Real estate held for sale 461,190 480,368 Other assets 1,010,601 1,339,113 ------------ ------------ TOTAL $ 250,953,770 $ 200,498,516 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits $ 141,931,330 $ 151,192,591 Federal Home Loan Bank advances 68,121,068 10,000,000 Liability to purchase shares for management retention plan 846,400 Advance payments by borrowers for taxes and insurance 209,242 209,140 Accrued interest payable 643,887 410,477 Note payable 320,000 400,000 Other liabilities 1,202,919 355,456 ------------ ------------ Total liabilities 213,274,846 162,567,664 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 14) STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 10,000,000 shares authorized, 2,645,000 shares issued and outstanding 26,450 26,450 Additional paid-in capital 25,861,230 25,775,523 Unearned ESOP shares (1,692,800) (1,990,320) Unearned MRP shares (578,528) Unrealized gain (loss) on investment securities available for sale, net of tax 53,907 (33,353) Retained earnings 14,008,665 14,152,552 ------------ ------------ Total stockholders' equity 37,678,924 37,930,852 ------------ ------------ TOTAL $ 250,953,770 $ 200,498,516 ============ ============
See notes to consolidated financial statements. 55 7 HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 As Restated, see Note 1 INTEREST INCOME: Interest and fees on loans $ 9,057,860 $ 7,958,458 $ 5,352,338 Investment securities: Taxable 5,175,119 4,436,436 4,467,685 Nontaxable 445,122 Other 641,204 592,954 513,158 ------------ ------------ ----------- Total interest income 15,319,305 12,987,848 10,333,181 INTEREST EXPENSE: Deposits 7,272,554 7,534,445 6,314,641 Federal Home Loan Bank advances 1,644,595 636,337 451,957 Note payable 25,000 25,000 ------------ ------------ ----------- Total interest expense 8,942,149 8,195,782 6,766,598 ------------ ------------ ----------- NET INTEREST INCOME 6,377,156 4,792,066 3,566,583 PROVISION FOR LOAN LOSSES 24,000 221,671 42,483 ------------ ------------ ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,353,156 4,570,395 3,524,100 NONINTEREST INCOME (LOSS): Service charges on deposit accounts 291,684 203,023 79,245 Gain (loss) on sales of investment securities available for sale 22,257 (21,215) (926,947) Other 195,356 123,259 74,050 ------------ ------------ ----------- Net noninterest income (loss) 509,297 305,067 (773,652) ------------ ------------ ----------- NONINTEREST EXPENSES: Salaries and employee benefits 3,305,582 2,458,403 1,239,769 Net occupancy expense 760,906 393,969 172,278 Federal insurance premiums 91,448 1,084,547 268,370 Real estate related costs 2,135 32,857 43,439 Data processing 297,077 269,067 114,171 Professional fees 497,519 487,492 109,986 Loss on impaired investment security 150,356 Amortization of goodwill 123,133 160,073 25,436 Other 1,269,889 879,462 377,209 ------------ ------------ ----------- Total noninterest expenses 6,498,045 5,765,870 2,350,658 ------------ ------------ ----------- INCOME (LOSS) BEFORE INCOME TAXES 364,408 (890,408) 399,790 INCOME TAX PROVISION (BENEFIT) (20,705) (280,935) 174,801 ------------ ------------ ----------- NET INCOME (LOSS) $ 385,113 $ (609,473) $ 224,989 ============ ============ =========== EARNINGS PER SHARE: Basic $ 0.16 $ (0.25) N/A ============ ============ Diluted $ 0.16 $ (0.25) N/A ============ ============
See notes to consolidated financial statements. 56 8 HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------------------------------------------------- ISSUED COMMON STOCK ADDITIONAL UNEARNED ----------------------------- PAID-IN ESOP SHARES AMOUNT CAPITAL SHARES BALANCE, JULY 1, 1995, AS PREVIOUSLY REPORTED Effect of restatement (Note 1) ---------- --------- ------------ ------------ BALANCE, JULY 1, 1995, AS RESTATED Net income Net change in unrealized gain (loss) on securities available for sale, net of tax ---------- --------- ------------ ------------ BALANCE, JUNE 30, 1996 Net loss (as restated, see note 1) Issuance of common stock, net of costs (as restated, see note 1) 2,645,000 $ 26,450 $ 23,623,393 Purchase of common stock by ESOP 2,116,000 $ (2,116,000) Common stock committed to be released for ESOP (as restated, see note 1) 36,130 125,680 Net change in unrealized gain (loss) on securities available for sale, net of tax ---------- --------- ------------ ------------ BALANCE, JUNE 30, 1997 2,645,000 26,450 25,775,523 (1,990,320) Net income Common stock committed to be released for ESOP 85,707 297,520 Liability to purchase MRP shares MRP shares earned Net change in unrealized gain (loss) on securities available for sale, net of tax Dividends paid ---------- --------- ------------ ------------ BALANCE, JUNE 30, 1998 2,645,000 $ 26,450 $ 25,861,230 $ (1,692,800) ========== ========= ============ ============
- --------------------------------------------------------------------------------------------------------------------------- UNREALIZED GAIN (LOSS) ON INVESTMENT UNEARNED SECURITIES TOTAL MRP AVAILABLE FOR RETAINED STOCKHOLDERS' SHARES SALE, NET EARNINGS EQUITY BALANCE, JULY 1, 1995, AS PREVIOUSLY REPORTED $ (18,788) $ 14,289,760 $ 14,270,972 Effect of restatement (Note 1) 247,276 247,276 ---------- ---------- ------------ ------------- BALANCE, JULY 1, 1995, AS RESTATED (18,788) 14,537,036 14,518,248 Net income 224,989 224,989 Net change in unrealized gain (loss) on securities available for sale, net of tax (267,525) (267,525) ---------- ---------- ------------ ------------- BALANCE, JUNE 30, 1996 (286,313) 14,762,025 14,475,712 Net loss (as restated, see note 1) (609,473) (609,473) Issuance of common stock, net of costs (as restated, see note 1) 23,649,843 Purchase of common stock by ESOP Common stock committed to be released for ESOP (as restated, see note 1) 161,810 Net change in unrealized gain (loss) on securities available for sale, net of tax 252,960 252,960 ---------- ---------- ------------ ------------- BALANCE, JUNE 30, 1997 (33,353) 14,152,552 37,930,852 Net income 385,113 385,113 Common stock committed to be released for ESOP 383,227 Liability to purchase MRP shares (846,400) (846,400) MRP shares earned 267,872 267,872 Net change in unrealized gain (loss) on securities available for sale, net of tax 87,260 87,260 Dividends paid (529,000) (529,000) ---------- ---------- ------------ ------------- BALANCE, JUNE 30, 1998 $ (578,528) $ 53,907 $ 14,008,665 $ 37,678,924 ========== ========== ============ =============
See notes to consolidated financial statements. 57 9 HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 As Restated, see Note 1 OPERATING ACTIVITIES: Net income (loss) $ 385,113 $ (609,473) $ 224,989 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 407,850 187,098 66,005 Amortization (accretion) of: Deferred loan origination fees (26,757) (26,698) 6,258 Goodwill 123,133 160,073 25,436 Premiums and discounts on loans, net (5,454) (27,627) 309 Premiums and discounts on investment securities, net 213,806 (24,428) 125,952 Provision for loan loss 24,000 221,671 42,483 Provision for loss on foreclosed real estate 13,528 30,000 Deferred income taxes 27,027 (110,374) (57,986) Net (gain) loss on sale of investment securities available for sale (22,257) 21,215 926,947 Loss on impaired investment security 150,356 (Gain) loss on disposal of assets, net 20,395 2,558 (5,732) Stock compensation expense 695,271 161,810 Change in accrued interest receivable (533,374) (363,939) 4,742 Change in accrued interest payable 233,410 14,538 29,818 Change in other assets 245,682 (121,167) (742,480) Change in other liabilities 503,764 (12,203) 442,156 ----------- ------------ ----------- Net cash provided (used) by operating activities 2,441,965 (513,418) 1,118,897 ----------- ------------ ----------- INVESTING ACTIVITIES: Purchases of investment securities - held to maturity (20,475,412) Purchases of investment securities available for sale (88,941,413) (28,986,589) (1,995,000) Purchases of other interest bearing deposits (2,782,000) Purchases of loans (8,257,199) (1,305,000) (4,555,000) Purchases of Federal Home Loan Bank stock (2,202,400) Proceeds from sales of loans 4,952,961 1,084,100 244,230 Proceeds from sales of investment securities - available for sale 20,794,327 7,754,176 18,151,851 Loan originations, net of repayments (2,667,081) (15,855,647) (5,283,509) Investment in subsidiary (1,492,782) Principal payments on investment securities 13,087,527 11,627,182 10,506,353 Proceeds from sales of real estate 71,132 Proceeds from sales of premises and equipment 605,641 Proceeds from sales of other assets 62,550 19,723 Purchases of premises and equipment (1,680,464) (3,118,319) (762,178) ----------- ------------ ----------- Net cash used by investing activities (67,018,969) (28,737,547) (5,641,724) ----------- ------------ -----------
(Continued) 58 10 HCB BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 - ------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 As Restated, see Note 1 FINANCING ACTIVITIES: Net increase in deposits $ 141,326 $ 5,273,340 $ 8,806,600 Deposits assumed by others, net (8,541,747) Advances from Federal Home Loan Bank 76,607,000 10,000,000 Repayment of Federal Home Loan Bank advances (18,485,932) Net increase (decrease) in advance payments by borrowers for taxes and insurance 102 (22,594) (117,491) Issuance of common stock, net of related expenses 25,640,162 Proceeds from note payable 400,000 Repayment of note payable (80,000) Dividends paid (529,000) Other (44,172) ------------ ------------- ------------ Net cash provided by financing activities 49,067,577 31,290,908 18,689,109 ------------ ------------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,509,427) 2,039,943 14,166,283 CASH AND CASH EQUIVALENTS: Beginning of year 19,331,825 17,291,882 3,125,599 ------------ ------------- ------------ End of year $ 3,822,398 $ 19,331,825 $ 17,291,882 ============ ============= ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest $ 8,708,739 $ 8,181,244 $ 6,775,124 ============ ============= ============ Income taxes $ 220,000 $ 419,961 $ 786,845 ============ ============= ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Stock issued in exchange for note receivable from ESOP $ - $ 2,116,000 $ - ============ ============= ============
(Concluded) See notes to consolidated financial statements. 59 11 HCB BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1998, 1997 (AS RESTATED, SEE NOTE 1) AND 1996 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION - HCB Bancshares, Inc. (the "Company") was incorporated in December 1996 by Heartland Community Bank (the "Bank") in connection with the conversion of the Bank from a federally chartered mutual savings and loan association to a federally chartered stock savings bank and the offer and sale of the Company's common stock by the Company (the "Conversion"). A portion of the net proceeds from the Conversion was used to acquire 100% of the common stock of the Bank. The remaining net proceeds from the Conversion were retained by the Company. The Conversion was accounted for at historical cost in a manner similar to that in pooling of interests accounting. Upon consummation of the Conversion on April 30, 1997, the Company became a holding company for the Bank. The Bank owned 100% of Heritage Bank Holding, Inc. ("Heritage"), parent of its subsidiary bank, Heartland Community Bank, FSB ("FSB"). During the year ended June 30, 1998, the Bank sold its Little Rock, Arkansas, branch operating facility and deposits to an unrelated party. The form of the sale permitted the Bank to dispose of its stock in Heritage to facilitate conveyance of the branch operations. Goodwill of approximately $860,000 attributable to the Little Rock branch was removed as a part of this sale. The Bank provides a broad line of financial products to individuals and small to medium-sized businesses through full service banking offices located in Camden, Fordyce, Sheridan, and Monticello, Arkansas, as well as a loan production office in Bryant, Arkansas. The consolidated financial statements include the accounts of the Company, the Bank, and the Bank's subsidiary, HCB Properties ("Properties"). Properties' financial condition and operations are insignificant to the consolidated financial statements. The financial statements for the year ended June 30, 1996, are those of the Bank prior to the Conversion. All material intercompany accounts and transactions are eliminated in consolidation. 60 12 RESTATEMENT OF 1997 FINANCIAL STATEMENTS - During December 1998, the Company determined that the consolidated financial statements as of and for the year ended June 30, 1997, should be restated to correct errors contained in those financial statements. Consequently, the consolidated statement of financial condition as of June 30, 1997, and the consolidated statement of operations for the year ended June 30, 1997, have been restated to reflect the corrections as follows:
AS AS PREVIOUSLY REPORTED REPORTED INCREASE, NET DECREASE, NET HEREIN STATEMENT OF FINANCIAL CONDITION Cash and cash equivalents $ 19,456,092 $ 124,267 $ 19,331,825 Investment securities: Available for sale 36,246,161 623,791 35,622,370 Held to maturity 35,869,295 $ 623,791 36,493,086 Accrued interest receivable 1,339,455 33,503 1,305,952 Premises and equipment, net 4,613,006 8,438 4,621,444 Real estate held for sale 516,179 35,811 480,368 Other assets 1,021,232 317,881 1,339,113 Deposits 151,208,763 16,172 151,192,591 Other liabilities 397,885 42,429 355,456 Retained earnings 14,091,750 60,802 14,152,552 Other stockholders' equity 23,647,763 130,537 23,778,300 STATEMENT OF OPERATIONS Interest income 13,101,676 113,828 12,987,848 Noninterest expense 5,578,934 186,936 5,765,870 Income tax benefit 166,645 114,290 280,935
As a result of the corrections, net loss was restated from $422,999 as previously reported to $609,473 and net loss per share was restated from $0.17 as previously reported to $0.25 for both basic and diluted loss per share. RESTATEMENT OF JULY 1, 1995, RETAINED EARNINGS - During December 1998, the Company determined that the deferred tax asset was understated at June 30, 1995. Consequently, retained earnings as of July 1, 1995, as presented in the statements of stockholders' equity, has been restated to correct this error. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS - For purposes of presentation in the consolidated statements of cash flows, "cash and cash equivalents" includes cash on hand and amounts due from depository institutions, which includes interest-bearing amounts available upon demand. OTHER INTEREST BEARING DEPOSITS WITH BANKS - Other interest bearing deposits with banks represents certificates of deposit in other banks held by the Company not meeting the definition of a cash equivalent. 61 13 INVESTMENT SECURITIES - The Company classifies investment securities into one of two categories: held to maturity or available for sale. The Company does not engage in trading activities. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at cost, adjusted for the amortization of premiums and the accretion of discounts. Investment securities that the Company intends to hold for indefinite periods of time are classified as available for sale and are recorded at fair value. Unrealized holding gains and losses are excluded from earnings and reported net of tax as a separate component of stockholders' equity until realized. Investment securities in the available for sale portfolio may be used as part of the Company's asset and liability management practices and may be sold in response to changes in interest rate risk, prepayment risk or other economic factors. Premiums are amortized into interest income using the interest method to the earlier of maturity or call date. Discounts are accreted into interest income using the interest method over the period to maturity. The specific identification method of accounting is used to compute gains or losses on the sales of investment securities. If the fair value of an investment security declines for reasons other than temporary market conditions, the carrying value of such a security is written down to fair value by a charge to operations. LOANS RECEIVABLE - Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at unpaid principal balances adjusted for any charge-offs, the allowance for loan losses, deferred loan fees or costs, and unamortized premiums or discounts. Deferred loan fees or costs and premiums and discounts on loans are amortized or accreted to income using the level-yield method over the remaining period to contractual maturity. The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due or when the loan becomes ninety days past due, whichever occurs first. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments in excess of principal due are received, until such time that in management's opinion, the borrower will be able to meet payments as they become due. ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is a valuation allowance to provide for incurred but not yet realized losses. The Bank reviews its loans for impairment on a quarterly basis. Impairment is determined by assessing the probability that the borrower will not be able to fulfill the contractual terms of the agreement. If a loan is determined to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or by use of the observable market price of the loan or fair value of collateral if the loan is collateral dependent. Throughout the year management estimates the level of probable losses to determine whether the allowance for loan losses is appropriate considering the estimated losses existing in the portfolio. Based on these estimates, an amount is charged to the provision for loan losses and credited to the allowance for loan losses in order to adjust the allowance to a level determined by management to be appropriate relative to losses. The allowance for loan losses is increased by charges to income (provisions) and decreased by charge-offs, net of recoveries. 62 14 Management's periodic evaluation of the appropriateness of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current economic conditions. Homogeneous loans are those that are considered to have common characteristics that provide for evaluation on an aggregate or pool basis. The Company considers the characteristics of (1) one-to-four family residential first mortgage loans; (2) automobile loans and; (3) consumer and home improvement loans to permit consideration of the appropriateness of the allowance for losses of each group of loans on a pool basis. The primary methodology used to determine the appropriateness of the allowance for losses includes segregating certain specific, poorly performing loans based on their performance characteristics from the pools of loans as to type and then applying a loss factor to the remaining pool balance based on several factors including classification of the loans as to grade, past loss experience, inherent risks, economic conditions in the primary market areas and other factors which usually are beyond the control of the Company. Those segregated specific loans are evaluated using the present value of future cash flows, usually determined by estimating the fair value of the loan's collateral reduced by any cost of selling and discounted at the loan's effective interest rate if the estimated time to receipt of monies is more than three months. Non-homogeneous loans are those loans that can be included in a particular loan type, such as commercial loans and multi-family and commercial first mortgage loans, but which differ in other characteristics to the extent that valuation on a pool basis is not valid. After segregating specific, poorly performing loans and applying the methodology as noted in the preceding paragraph for such specific loans, the remaining loans are evaluated based on payment experience, known difficulties in the borrowers business or geographic area, loss experience, inherent risks and other factors usually beyond the control of the Company. These loans are then graded and a factor, based on experience, is applied to estimate the probable loss. Estimates of the probability of loan losses involve an exercise of judgment. While it is possible that in the near term the Company may sustain losses which are substantial in relation to the allowance for loan losses, it is the judgment of management that the allowance for loan losses reflected in the consolidated statements of financial condition is appropriate considering the estimated probable losses in the portfolio. REAL ESTATE HELD FOR SALE - Real estate acquired in settlement of loans is initially recorded at estimated fair value less estimated costs to sell and is subsequently carried at the lower of carrying amount or fair value less estimated disposal costs. Valuations are periodically performed by management, and an allowance for losses is established by a charge to operations to the extent that the carrying value of a property exceeds its estimated fair value. Costs relating to the development and improvement of the property are capitalized, whereas those relating to holding the property are expensed. Real estate acquired for sale is carried of the lower of cost or fair value less costs to sell. PREMISES AND EQUIPMENT - Office premises and equipment are stated at cost less accumulated depreciation. The Company computes depreciation of premises and equipment using the straight-line method over the estimated useful lives of the individual assets which range from 5 to 50 years for buildings and improvements and from 3 to 10 years for furniture and equipment. GOODWILL AND LONG LIVED ASSETS - Goodwill is being amortized over six years using the straight-line method. Goodwill and other long lived assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 63 15 LOAN ORIGINATION FEES - Loan origination fees and certain direct loan origination costs are deferred and the net fee or cost is recognized as an adjustment to interest income using the level-yield method over the contractual life of the loans. When a loan is fully repaid or sold, the amount of unamortized fee or cost is recorded in income. INCOME TAXES - The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company considers the need for a valuation allowance if, based on available evidence, deferred tax assets are not expected to be realized. INTEREST RATE RISK - The Bank's asset base is exposed to risk including the risk resulting from changes in interest rates and changes in the timing of cash flows. The Bank monitors the effect of such risks by considering the mismatch of the maturities of its assets and liabilities in the current interest rate environment and the sensitivity of assets and liabilities to changes in interest rates. The Bank's management has considered the effect of significant increases and decreases in interest rates and believes such changes, if they occurred, would be manageable and would not affect the ability of the Bank to hold its assets as planned. However, the Bank is exposed to significant market risk in the event of significant and prolonged interest rate changes. RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. The Company will be required to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the statement of financial condition. Also in June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishing standards for the way public enterprises report information about operating segments in annual financial statements and interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS Nos. 130 and 131 are effective for fiscal years beginning after December 15, 1997, with reclassification of earlier periods. Because the adoption of SFAS Nos. 130 and 131 require only additional disclosures, they will not have a material effect on the Company's consolidated financial statements. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106. The statement revises employers' disclosures about pensions and other postretirement benefits. It does not change the measurement or recognition criteria of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when FASB Statement Nos. 87, 88, and 106 were issued. SFAS No. 132 suggests combined formats for presentation of pension and other postretirement benefit disclosures. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Because the adoption of SFAS No. 132 requires only additional disclosures, it will not have a material effect on the Company's consolidated financial statements. 64 16 The Company early-adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as of October 1, 1998. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Concurrent with adoption, the Company transferred all of its investment securities classified as held to maturity to available for sale. EMPLOYEE STOCK OWNERSHIP PLAN - Compensation expense for the Employee Stock Ownership Plan ("ESOP") is determined based on the average fair value of shares committed to be released during the period and is recognized as the shares are committed to be released. For the purposes of earnings per share, ESOP shares are included in weighted-average common shares outstanding as the shares are committed to be released. MANAGEMENT RECOGNITION PLAN - Compensation for Management Recognition Plan shares granted is based on the fair value of the shares at the date of grant and is recognized ratably over the vesting period. EARNINGS PER SHARE - Earnings per share ("EPS") of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding, assuming the Company was a public company since July 1, 1996. Basic and diluted earnings per share were both calculated with 2,462,084 and 2,434,971 weighted-average common shares outstanding for the years ended June 30, 1998 and 1997, respectively. Weighted-average common shares outstanding was the same for basic and diluted in those years. Potential common shares include the Stock Option Plan shares and the Management Recognition Plan shares, all of which were granted May 1, 1998. Due to stock prices during the period and the existence of a net loss from operations, these potential common shares had no dilutive effect for the year ended June 30, 1998. In future periods, the Stock Option Plan shares or the Management Recognition Plan shares could become dilutive. See Note 11 for information regarding those plans. The Company adopted SFAS No. 128, Earnings Per Share during the year ended June 30, 1998. The previous presentation of primary EPS is replaced with a presentation of basic EPS. Dual presentation of basic and diluted EPS is required on the face of the statements of operations. Presentation within the financial statements includes reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed considering outstanding and potential common shares. The Company restated EPS for the year ended June 30, 1997. RECLASSIFICATIONS - Certain amounts in the 1997 and 1996 consolidated financial statements have been reclassified to conform to the classifications adopted for reporting in 1998. 65 17 2. INVESTMENT SECURITIES Investment securities consisted of the following at June 30:
1998 ---------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR AVAILABLE FOR SALE COST GAINS LOSSES VALUE U.S. Government and agencies $ 22,466,239 $ 42,964 $ 17,273 $ 22,491,930 Municipal securities 18,404,701 83,793 204,617 18,283,877 Mortgage-backed securities 48,804,919 258,101 39,354 49,023,666 Collateralized mortgage obligations 9,709,404 7,462 43,423 9,673,443 ------------ --------- --------- ------------ Total $ 99,385,263 $ 392,320 $ 304,667 $ 99,472,916 ============ ========= ========= ============
1998 ---------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR HELD TO MATURITY COST GAINS LOSSES VALUE Mortgage-backed securities $ 23,518,573 $ 76,295 $ 97,374 $ 23,497,494 Collateralized mortgage obligations 3,984,684 1,220 7,094 3,978,810 ------------ --------- --------- ------------ Total $ 27,503,257 $ 77,515 $ 104,468 $ 27,476,304 ============ ========= ========= ============
1997 ---------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR AVAILABLE FOR SALE COST GAINS LOSSES VALUE U.S. Government and agencies $ 17,263,664 $ 29,854 $ 33,135 $ 17,260,383 Mortgage-backed securities 12,145,839 79,090 24,721 12,200,208 Collateralized mortgage obligations 6,270,999 6,162 115,382 6,161,779 ------------ --------- --------- ------------ Total $ 35,680,502 $ 115,106 $ 173,238 $ 35,622,370 ============ ========= ========= ============
1997 ---------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR HELD TO MATURITY COST GAINS LOSSES VALUE Mortgage-backed securities $ 30,656,584 $ 184,136 $ 423,516 $ 30,417,204 Collateralized mortgage obligations 5,836,502 - 59,353 5,777,149 ------------ --------- --------- ------------ Total $ 36,493,086 $ 184,136 $ 482,869 $ 36,194,353 ============ ========= ========= ============
Effective October 1, 1998, the Company adopted SFAS No. 133. Concurrent with this adoption, investment securities with an amortized cost of $27,503,257 and a market value of $27,476,304 at June 30, 1998, and categorized in the statement of financial condition at June 30, 1998, as held to maturity were transferred to available for sale. This transfer from the held to maturity category at the date of the initial adoption of SFAS No. 133 does not call into question the Company's intent to hold other debt securities to maturity in the future. 66 18 Such investment securities are categorized as held to maturity as of June 30, 1998, because it was management's intent at that date to hold such securities until maturity and the subsequent change in that intent and the recategorization of such securities to available for sale occurred only upon the adoption of SFAS No. 133. SFAS No. 133 prohibits the presentation of any change due to its adoption in any period prior to the period of adoption. During the year ended June 30, 1998, the Company determined that a mortgage-backed security ("MBS") was declining in value and judged that decline to be other than temporary. As a result of this determination, the carrying value of the MBS was adjusted downward at June 30, 1998, by approximately $150,000 to reflect this decline. The loss for the other than temporary decline in the MBS's estimated value is included in noninterest expenses in the statement of operations for the year ended June 30, 1998. There is no current active market for this MBS. Gross realized gains on sales of available for sale securities were approximately $22,000 in the year ended June 30, 1998. There were no significant gross realized losses in the year ended June 30, 1998 aside from the other than temporary decline in the value of a MBS described above. Gross realized losses on sales of available for sale securities were approximately $21,000 in the year ended June 30, 1997. Gross gains of approximately $4,000 and gross losses of approximately $931,000 were realized on sales of available for sale securities during the year ended June 30, 1996. The scheduled maturities of debt securities at June 30, 1998, by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
AMORTIZED FAIR COST VALUE Due in one year or less $ 2,492,606 $ 2,501,285 Due from one year to five years 8,493,900 8,502,200 Due from five years to ten years 9,927,091 9,941,603 Due after ten years 19,957,343 19,830,719 -------------- ------------- 40,870,940 40,775,807 Mortgage-backed securities 72,323,492 72,521,160 Collateralized mortgage obligations 13,694,088 13,652,253 -------------- ------------- Total $ 126,888,520 $ 126,949,220 ============== =============
All securities above are available for sale except for mortgage-backed securities and collateralized mortgage obligations with an amortized cost of $27,503,257 and a fair value of $27,476,304. 67 19 3. LOANS RECEIVABLE Loans receivable consisted of the following at June 30:
1998 1997 First mortgage loans: One- to four- family residences $ 49,267,399 $ 62,340,601 Multi-family and commercial 48,496,934 28,171,093 Loans to facilitate sales of foreclosed real estate 473,476 616,660 Less undisbursed loan funds (3,921,787) (2,057,095) ------------ ------------ Total first mortgage loans 94,316,022 89,071,259 ------------ ------------ Consumer and other loans: Commercial loans 2,708,927 2,101,963 Automobile 4,070,750 2,399,648 Consumer and home improvement loans 2,860,250 4,294,686 Loans collateralized by deposits 2,215,441 2,434,621 ------------ ------------ Total consumer and other loans 11,855,368 11,230,918 ------------ ------------ Allowance for loan losses (1,468,546) (1,492,473) Deferred loan fees (122,679) (167,069) ------------ ------------ Loans receivable, net $ 104,580,165 $ 98,642,635 ============ ============
The Company originates and maintains loans receivable which are substantially concentrated in its lending territory (primarily Southern Arkansas) but also originates commercial real estate loans in other areas of Arkansas and in contiguous states. The Company's policy calls for collateral or other forms of repayment assurance to be received from the borrower at the time of loan origination. Such collateral or other form of repayment assurance is subject to changes in economic value due to various factors beyond the control of the Company. The Company has made loans to its directors, officers, and their related business interests. The aggregate dollar amount of loans outstanding to directors, officers and their related business interests totaled approximately $435,886 and $548,179 at June 30, 1998 and 1997, respectively. Loans identified by management as impaired at June 30, 1998, were not significant. The Company is not committed to lend additional funds to debtors whose loans have been modified. 4. ACCRUED INTEREST RECEIVABLE Accrued interest receivable consisted of the following at June 30:
1998 1997 Investment securities $ 1,220,964 $ 657,484 Loans 618,362 648,468 ------------ ------------ Total $ 1,839,326 $ 1,305,952 ============ ============
68 20 5. ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES A summary of the activity in the allowances for loan and real estate losses is as follows for the years ended June 30:
1998 1997 1996 ---------------------------- --------------------------- -------------------------- REAL REAL REAL LOANS ESTATE LOANS ESTATE LOANS ESTATE Balance, beginning of year $ 1,492,473 $ 28,825 $ 1,283,234 $ 58,587 $ 728,491 $ 28,587 Acquisition of subsidiary 524,140 Provision 24,000 221,671 13,527 42,483 30,000 Net (charge-offs) and recoveries (47,927) (28,825) (12,432) (43,289) (11,880) ------------ ---------- ------------ --------- ------------ --------- Balance, end of year $ 1,468,546 $ - $ 1,492,473 $ 28,825 $ 1,283,234 $ 58,587 ============ ========== ============ ========= ============ =========
6. FEDERAL HOME LOAN BANK STOCK The Bank is a member of the Federal Home Loan Bank System. As a member of this system, it is required to maintain an investment in capital stock of the Federal Home Loan Bank ("FHLB") in an amount equal to the greater of 1% of its outstanding home loans or .3% of its total assets. No ready market exists for such stock and it has no quoted market value but may be redeemed at par. The carrying value of the stock is its cost. 7. PREMISES AND EQUIPMENT Premises and equipment consisted of the following at June 30:
1998 1997 Land and buildings $ 4,641,036 $ 4,288,410 Furniture and equipment 2,037,876 1,074,129 Leasehold improvements 32,548 ------------ ------------- Total 6,678,912 5,395,087 Accumulated depreciation (1,077,145) (773,643) ------------ ------------- Premises and equipment, net $ 5,601,767 $ 4,621,444 ============ =============
8. DEPOSITS Deposits are summarized as follows at June 30:
1998 1997 Demand and NOW accounts, including noninterest-bearing deposits of $4,332,481 and $2,689,637 in 1998 and 1997, respectively $ 10,664,546 $ 9,390,225 Money market 18,384,835 17,807,493 Passbook savings 7,512,607 8,441,845 Certificates of deposit 105,369,342 115,553,028 --------------- -------------- Total $ 141,931,330 $ 151,192,591 =============== ==============
69 21 The aggregate amount of short-term jumbo certificates of deposit with a minimum denomination of $100,000 was approximately $10,012,676 and $9,373,751 at June 30, 1998 and 1997, respectively. At June 30, 1998, scheduled maturities of certificates of deposit are as follows: Years ending June 30: 1999 $ 81,511,781 2000 18,402,045 2001 5,396,765 2002 58,751 -------------- Total $ 105,369,342 ==============
Eligible deposits of the Bank are insured up to $100,000 by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). Legislation was signed into law by the President on September 30, 1996, to recapitalize the SAIF. As a result of such legislation, the Bank was required to pay a one-time special assessment of $889,011 which had an approximate $551,187 after-tax effect on the results of operations for the year ended June 30, 1997. The legislation also mandated that the deposit insurance premiums charged SAIF-insured institutions (such as the Bank) decline effective January 1, 1997. 9. FEDERAL HOME LOAN BANK ADVANCES AND NOTE PAYABLE The Bank pledges as collateral for FHLB advances its FHLB stock and has entered into blanket collateral agreements with the FHLB whereby the Bank agrees to maintain, free of other encumbrances, qualifying single family first mortgage loans with unpaid principal balances, when discounted to 75% of such balances, of at least 100% of total outstanding advances. Additionally the Bank has pledged mortgage-backed securities with a carrying value of approximately $28,048,000 at June 30, 1998, as additional collateral. Advances at June 30, 1998 and 1997, have maturity dates as follows:
1998 1997 ---------------------------------- ----------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE RATE AMOUNT RATE AMOUNT Years ending June 30: 1999 5.647 % $ 5,289,500 2000 5.807 3,000,000 2001 6.308 6,125,000 6.407 % $ 5,000,000 2002 5.863 4,500,000 2003 5.876 9,055,000 6.000 5,000,000 Thereafter 5.897 40,151,568 ------------- ------------ Total 5.905 % $ 68,121,068 6.204 % $ 10,000,000 ============= ============
The note payable is due in annual installments of $80,000 plus interest through September 2001. The note bears interest at 7.50% and is collateralized by real estate held for sale and office premises with a combined carrying value at June 30, 1998, of approximately $500,000. 70 22 10. INCOME TAXES The provisions for income taxes are summarized as follows:
YEARS ENDED JUNE 30, ------------------------------------------------- 1998 1997 1996 Income tax provision (benefit): Current $ (47,732) $ (170,561) $ 232,787 Deferred 27,027 (110,374) (57,986) ---------- ----------- ---------- Total $ (20,705) $ (280,935) $ 174,801 ========== =========== ==========
The reasons for the differences between the statutory federal income tax rates and the effective tax rates are summarized as follows:
YEARS ENDED JUNE 30, ------------------------------------------------------------------------------------------------- 1998 1997 1996 Taxes at statutory rate $ 123,899 34.0 % $ (302,739) (34.0)% $ 135,929 34.0 % Increase (decrease) resulting from: Tax exempt income (135,853) (37.3)% Goodwill 41,865 11.5 % 54,425 6.1 % Compensation (68,347) (18.8)% 9,687 2.4 % Other, net 17,731 4.9 % (32,621) (3.7)% 29,185 7.3 % ---------- ------- ---------- ------ ---------- ------ Total $ (20,705) (5.7)% $ (280,935) (31.6)% $ 174,801 43.7 % ========== ======= ========== ====== ========== ======
During the year ended December 31, 1996, new legislation was enacted which provides for the recapture into taxable income of certain amounts previously deducted as additions to the bad debt reserves for income tax purposes. The Bank changed its method of determining bad debt reserves for tax purposes following the year ended June 30, 1997. The amounts to be recaptured for income tax reporting purposes are considered by the Bank in the determination of the net deferred tax liability. The Company's deferred tax asset account was comprised of the following at June 30:
1998 1997 Deferred tax assets: Allowance for loan losses $ 225,376 $ 244,623 Unrealized loss on investments 24,779 Deferred compensation 213,828 181,808 Loan fees 31,283 45,475 Other 10,205 ---------- --------- Total deferred tax assets 470,487 506,890 Deferred tax liabilities: Premises and equipment 94,677 88,134 Investment premiums and discount 16,325 36,769 Loan discounts 17,219 38,783 Unrealized gain on investments 33,746 Other 58,590 ---------- --------- Total deferred tax liabilities 220,557 163,686 ---------- --------- Net deferred tax asset $ 249,930 $ 343,204 ========== =========
71 23 A deferred tax liability has not been recognized for the bad debt reserves of the Bank created in the tax years which began prior to December 31, 1987 (the base year). At June 30, 1998, the amount of these reserves totaled approximately $3,462,860 with an unrecognized deferred tax liability approximating $1,177,372. Such unrecognized deferred tax liability could be recognized in the future, in whole or in part, if (i) there is a change in federal tax law, (ii) the Bank fails to meet certain definitional tests and other conditions in the federal tax law, (iii) certain distributions are made with respect to the stock of the Bank, or (iv) the bad debt reserves are used for any purpose other than absorbing bad debt losses. 11. BENEFIT PLANS EMPLOYEE STOCK OWNERSHIP PLAN - The Company has established an employee stock ownership plan ("ESOP") to benefit substantially all employees. The ESOP originally purchased 211,600 shares of common stock in the Conversion with proceeds received from a loan from the Company. The Company's note receivable, presented in the statements of stockholders' equity as unearned ESOP shares, is to be repaid in installments of $211,600 on June 30th each year through 2006. Interest is based upon the prime rate, which is to be adjusted and paid quarterly. The note may be prepaid without penalty. The ESOP is funded by contributions made by the Bank in amounts sufficient to retire the debt. Compensation expense of $427,399 and $161,813 was recognized during the years ended June 30, 1998 and 1997, respectively. Shares no longer required to be held to collateralize the debt and earnings from the common stock held by the ESOP are allocated among participants on the basis of compensation in the year of allocation. Benefits become 100% vested after five years of credited service. Forfeitures of nonvested benefits will be reallocated among remaining participating employees in the same proportion as contributions. At June 30, 1998 and 1997, 29,752 and 12,568 shares, respectively, were committed to be released by the ESOP to participant accounts. At June 30, 1998, there were 42,320 shares allocated to participant accounts and 169,280 unallocated shares. The fair value of the unallocated shares amounted to approximately $2,539,200 at June 30, 1998. STOCK OPTION PLAN - The Stock Option Plan ("SOP"), approved by the Company's stockholders during the year ended June 30, 1998, provides for a committee of the Company's Board of Directors to award incentive or non-incentive stock options, representing up to 317,400 shares of Company stock. Options granted to executive officers and directors vest 25% immediately and 25% on each of the three subsequent anniversary dates on the grant. Options granted to employees vest 20% immediately upon grant, with the balance vesting in equal amounts on the four subsequent anniversary dates of the grant. Options granted vest immediately in the event of retirement, disability, or death. Outstanding stock options can be exercised over a ten year period from the date of grant. Under the SOP, options have been granted to directors and key employees to purchase common stock of the Company. The exercise price in each case equals the fair market value of the Company's stock at the date of grant. Options granted in the current year have an exercise price of $16.00, and a weighted average remaining contract life of 9.8 years at June 30, 1998. 72 24 A summary of the status of the Company's stock option plan as of June 30, 1998, and changes during the year ending on that date is presented below:
WEIGHTED AVERAGE EXERCISE OPTIONS SHARES PRICE Outstanding at beginning of year Granted 304,300 $ 16 Exercised Forfeited (128) 16 -------- ---- Outstanding at June 30, 1998 304,172 $ 16 ======== ==== Options exercisable at June 30, 1998 71,969 $ 16 ======== ====
The Company applies the provisions of Accounting Principles Board Opinion No. 25 in accounting for its stock option plan, as allowed under SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized for options granted to employees. Had compensation cost for these plans been determined based on the fair value at the grant dates for awards under those plans consistent with the methods of SFAS No. 123, the Company's pro forma net income and pro forma earnings per share would have been as follows:
1998 ---------------------------------------- AS REPORTED PRO FORMA Net income (in thousands) $ 385 $ 157 Earnings per share: Basic $ 0.16 $ .06 Diluted $ 0.16 $ .06
In determining the above pro forma disclosure, the fair value of options granted during the year was estimated on the date of grant using the binomial option-pricing model with the following weighted average assumptions: expected volatility - 15%, expected life of options - 7.5 years, risk-free interest rate - - 5.7%, and expected dividend rate - 1.25%. The weighted average fair value of options granted during the fiscal year ended June 30, 1998, was $4.81 per share. MANAGEMENT RECOGNITION PLAN - The Management Recognition Plan ("MRP"), approved by the Company's stockholders during the year ended June 30, 1998, provides for a committee of the Company's Board of Directors to award restricted stock to key officers as well as non-employee directors. The MRP authorizes the Company to grant up to 52,900 shares of Company stock, all of which were granted during 1998. Compensation expense will be recognized based on the fair market value of the shares on the grant date of $16.00 over the vesting period. Shares granted to directors (43,372) vest 25% at the grant date and 25% each May 1 afterward. Shares granted to non-directors (9,528) vest 20% at the grant date and 20% each May 1 afterward. Shares granted will be deemed vested in the event of retirement, disability, or death. At June 30, 1998, no shares awarded under this plan have been purchased. A liability has been established, based on the grant price, for the shares to be purchased. Differences between the price at the date of grant and the actual purchase price will be recorded as an adjustment to stockholders' equity. Approximately $268,000 in compensation expense was recognized during the year ended June 30, 1998. 73 25 DEFINED BENEFIT PLAN - The Bank had a qualified, noncontributory defined benefit retirement plan (the "Plan") covering all of its eligible employees. Employees were eligible when they had attained at least twenty-one years of age and six months of service with the Bank. A resolution was initially adopted by the Board of Directors on July 1, 1996, to terminate the Plan as of September 16, 1996, and to freeze benefit accruals as of July 31, 1996. The Company experienced delays in terminating the Plan and on June 18, 1998, a resolution was adopted to terminate the Plan as of September 1, 1998, with benefit accruals remaining frozen as of July 31, 1996. Settlement of the related pension obligation is anticipated within the next plan year. All active participants will become fully vested for their accrued benefits. The Plan provides that any excess assets will be allocated to participants. As such, based on the funded status of the Plan, no gain or loss is expected upon settlement.
1998 1997 Reconciliation of funded status: Actuarial present value of accumulated benefit obligations: Vested portion $ 417,651 $ 441,321 Vested part of excess assets 141,752 42,262 Non-vested portion ---------- ----------- Accumulated benefit obligation 559,403 483,583 Effect of estimated future pay growth ---------- ----------- Projected benefit obligation 559,403 483,583 Plan assets at fair value 559,403 483,583 ---------- ----------- Funded status Unrecognized net (gain) or loss Unrecognized prior service cost Unrecognized net transition obligation ---------- ----------- (Accrued) prepaid pension cost $ - $ - ========== =========== Determination of pension cost: Service cost Interest cost $ 33,099 $ 30,790 Actual return on assets (75,820) (60,011) Net amortization and deferral 42,721 29,221 ---------- ----------- Net periodic pension cost $ - $ - ========== ===========
The weighted average interest rate used in determining the projected benefit obligation was 6.0% in 1998 and 7.5% in 1997. The expected long-term rate of return on assets was 7.5% for 1998 and 1997. OFFICERS' AND DIRECTORS RETIREMENT PLAN - During the year ended June 30, 1996, the Bank adopted a "non-qualified" retirement plan for its officers and directors in recognition of their years of service to the Bank. The plan is an annuity contract plan whereby funds are to be set aside annually in a grantor trust, with the Bank acting as trustee of the Trust. Distributions are scheduled to be paid upon completion of six to ten years of service to the Bank. No tax deduction for the Plan is claimed until funds are paid to the beneficiaries. Future funding is dependent on continued service to the Bank and therefore is expensed as the plan is funded each year. For the years ended June 30, 1998, 1997 and 1996, contributions to the plan totaled $154,088, $232,308, and $242,511, respectively. 74 26 401(k) PLAN - Effective July 1, 1993, employees of the Bank may participate in a 401(k) savings plan, whereby the employees may elect to make contributions pursuant to a salary reduction agreement upon reaching age 21 and completing one year of service. At its discretion, the Bank may make matching contributions to the plan. Employer contributions vest 20% each year beginning in the third year of service and become 100% vested in seven years. No matching contribution was made by the Bank during the year ended June 30, 1998. Matching contributions to the plan were $25,997 and $1,188 for the years ended June 30, 1997 and 1996, respectively. EMPLOYMENT AGREEMENTS - Certain executive officers of the Bank and the Company have employment agreements with three year renewable terms. Such agreements provide for termination pay and other benefits under certain circumstances. Aggregate termination pay is approximately $800,000. 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The Company does not use financial instruments with off-balance sheet risk as part of its asset/liability management program or for trading purposes. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Such collateral consists primarily of residential properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company had the following outstanding commitments at June 30, 1998: Undisbursed construction loans $ 3,921,787 Commitments to originate mortgage loans 1,172,421 Letters of credit 81,000 Unused lines of credit 948,786 ----------- Total $ 6,123,994 ===========
The funding period for construction loans is generally less than nine months and commitments to originate mortgage loans are generally outstanding for 60 days or less. At June 30, 1998, interest rates on commitments are believed by management to approximate market rates. 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein 75 27 are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The estimated fair values of financial instruments are as follows:
JUNE 30, 1998 JUNE 30, 1997 --------------------------------- ------------------------------ ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ASSETS: Cash and due from banks $ 1,531,363 $ 1,531,363 $ 1,057,943 $ 1,057,943 Interest bearing deposits with banks 2,291,035 2,291,035 18,273,882 18,273,882 Other interest bearing deposits with banks 2,782,000 2,782,000 Investment securities: Available for sale 99,472,916 99,472,916 35,622,370 35,622,370 Held to maturity 27,503,257 27,476,304 36,493,086 36,194,353 Federal Home Loan Bank stock 3,448,900 3,448,900 1,246,500 1,246,500 Loans receivable, net 104,580,165 104,737,165 98,642,635 99,131,271 Accrued interest receivable 1,839,326 1,839,326 1,305,952 1,305,952 LIABILITIES: Deposits: Demand, NOW, money market and regular savings 36,561,988 36,561,988 35,639,563 35,639,563 Certificates of deposit 105,369,342 105,492,342 115,553,028 116,362,078 Federal Home Loan Bank advances 68,121,068 68,435,068 10,000,000 10,000,000 Liability to purchase MRP shares 846,400 793,500 Accrued interest payable 643,887 643,887 410,477 410,477 Advance payments by borrowers for taxes and insurance 209,242 209,242 209,140 209,140 Note payable 320,000 320,000 400,000 400,000
For cash and due from banks, interest bearing deposits with banks, other interest bearing deposits with banks, Federal Home Loan Bank stock and accrued interest receivable, the carrying value is a reasonable estimate of fair value primarily because of the short-term nature of instruments or, as to Federal Home Loan Bank stock, the ability to sell the stock back to the Federal Home Loan Bank at cost. The fair value of investment securities is based on quoted market prices, dealer quotes and prices obtained from independent pricing services. The fair value of loans receivable is estimated based on present values using applicable risk-adjusted spreads to the U.S. Treasury curve to approximate current entry-value interest rates considering anticipated prepayment speeds, maturity and credit risks. The fair value of demand deposit accounts, NOW accounts, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit, Federal Home Loan Bank advances, and notes payable is estimated using the rates currently offered for deposits and borrowings of similar remaining maturities at the reporting date. The fair value of the liability for MRP shares is determined by the product of the number of shares to be purchased and their market value at June 30, 1998. For advance payments by borrowers for taxes and insurance and accrued interest payable the carrying value is a reasonable estimate of fair value, primarily because of the short-term nature of instruments. Commitments are generally made at prevailing interest rates at the time of funding and, therefore, there is no difference between the contract amount and fair value. 76 28 The fair value estimates presented herein are based on pertinent information available to management as of June 30, 1998 and 1997. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since the reporting date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. 14. COMMITMENTS AND CONTINGENCIES During the year ended June 30, 1998, a circuit court entered a judgment against the Bank in the amount of $78,000 for breach of contract regarding its alleged failure to provide a party the right to purchase real estate formerly used as a branch location. The Company has appealed the judgment to the court of appeals. The Company and its counsel believe there is a likelihood that the merits of the case will result in a reversal of the lower court's decision. No accrual of this possible loss has been made in the consolidated financial statements as of June 30, 1998. In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial position of the Company. 15. RETAINED EARNINGS Upon the Conversion, the Company established a special liquidation account for the benefit of eligible account holders and the supplemental eligible account holders in an amount equal to the net worth of the Bank as of the date of its latest statement of financial condition contained in the final offering circular used in connection with the Conversion. The liquidation account will be maintained for the benefit of eligible account holders and supplemental eligible account holders who continue to maintain their accounts in the Bank after conversion. In the event of a complete liquidation (and only in such event), each eligible and supplemental eligible account holder will be entitled to receive a liquidation distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. The Company may not declare or pay cash dividends on its shares of common stock if the effect thereof would cause the Company's stockholders' equity to be reduced below applicable regulatory capital maintenance requirements for insured institutions or below the special liquidation account referred to above. 16. REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possible additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. 77 29 Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible capital (as defined in the regulations) to tangible assets (as defined) and core capital (as defined) to adjusted total assets (as defined), and of total risk-based capital (as defined) to risk-weighted assets (as defined). As of June 30, 1998 and 1997, the most recent notification from the Office of Thrift Supervision categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum core (Tier I core), Tier I risk-based, and total risk-based ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category. The Bank's actual capital amounts (in thousands) and ratios are also presented in the tables:
FOR CAPITAL ACTUAL ADEQUACY PURPOSES ----------------------------------- ------------------------------------ AMOUNT RATIO AMOUNT RATIO As of June 30, 1998: Tier I (Core) Capital to Adjusted Total Assets $ 29,224 11.64 % $ 10,027 4.00 % Total Risk-Based Capital to Risk-weighted Assets 31,021 29.09 % 8,531 8.00 % Tier I (Core) Capital to Risk-weighted Assets 29,224 27.04 % N/A N/A Tangible Capital to Tangible Assets 29,261 11.67 % 3,759 1.50 %
TO BE CATEGORIZED AS WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS -------------------------------------- AMOUNT RATIO As of June 30, 1998: Tier I (Core) Capital to Adjusted Total Assets $ 12,526 5.00 % Total Risk-Based Capital to Risk-weighted Assets 10,664 10.00 % Tier I (Core) Capital to Risk-weighted Assets 6,466 6.00 % Tangible Capital to Tangible Assets N/A N/A
FOR CAPITAL ACTUAL ADEQUACY PURPOSES --------------------------------- -------------------------------- AMOUNT RATIO AMOUNT RATIO As of June 30, 1997: Tier I (Core) Capital to Adjusted Tangible Assets $ 26,373 13.16 % $ 8,018 3.00 % Total Risk-Based Capital to Risk-weighted Assets 27,865 30.07 % 7,415 8.00 % Tier I (Core) Capital to Risk-weighted Assets 26,373 28.46 % N/A N/A Tangible Capital to Tangible Assets 27,153 13.67 % 2,980 1.50 %
TO BE CATEGORIZED AS WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS --------------------------- AMOUNT RATIO As of June 30, 1997: Tier I (Core) Capital to Adjusted Tangible Assets $ 10,023 5.00 % Total Risk-Based Capital to Risk-weighted Assets 9,269 10.00 % Tier I (Core) Capital to Risk-weighted Assets 5,561 6.00 % Tangible Capital to Tangible Assets N/A N/A
The Company is restricted by state law as to the amount of dividends it may pay and by other factors including the assets available to pay dividends. The Bank is subject to regulatory restrictions as to the payment of dividends to the Company. 78 30 Regulations require the Bank to maintain an amount equal to 4% of deposits (net of loans collateralized by deposits) plus short-term borrowings in cash and U.S. Government and other approved securities. 17. PARENT COMPANY ONLY FINANCIAL INFORMATION The following condensed statement of financial condition as of June 30, 1998, and condensed statements of income and cash flows for the year ended June 30, 1998, for HCB Bancshares, Inc. should be read in conjunction with the consolidated financial statements and the notes herein.
HCB BANCSHARES, INC. (PARENT COMPANY ONLY) CONDENSED STATEMENT OF FINANCIAL CONDITION JUNE 30, 1998 - ------------------------------------------------------------------------------------ ASSETS Deposit in Bank $ 8,030,275 Investment in Bank 29,709,482 Other assets 11,714 ----------- TOTAL ASSETS 37,751,471 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accrued expenses and other liabilities $ 72,547 Stockholders' equity 37,678,924 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 37,751,471 ===========
CONDENSED STATEMENT OF INCOME YEAR ENDED JUNE 30, 1998 - ------------------------------------------------------------------------------------ EXPENSES: Operating expenses $ 83,974 ----------- LOSS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY (83,974) INCOME TAX PROVISION (45,725) ----------- LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDARY (129,699) EQUITY IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY 514,812 ----------- NET INCOME $ 385,113 ===========
79 31 HCB BANCSHARES, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 1998 - ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 385,113 Adjustments to reconcile net income to net cash used by operating activities: Equity in undistributed earnings of Bank subsidiary (514,812) Changes in operating assets and liabilities: Other assets 15,048 Accrued expenses and other liabilities 29,409 ---------- Net cash used by operating activities (85,242) ---------- FINANCING ACTIVITIES: Dividends paid (529,000) ---------- Net cash used by financing activities (529,000) ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS (614,242) CASH AND CASH EQUIVALENTS: Beginning of period 8,644,517 ---------- End of period $ 8,030,275 ==========
80 32 18. QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables represent summarized data for each of the four quarters in the year ended June 30, 1998. Information for the quarters in the year ended June 30, 1997, are not presented because the Company's initial issuance of securities was not completed until during the quarter ended June 30, 1997.
1998 (IN THOUSANDS, EXCEPT SHARE DATA) FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER Interest income $ 4,339 $ 3,808 $ 3,547 $ 3,625 Interest expense 2,608 2,256 2,046 2,032 ----------- ----------- ----------- ----------- Net interest income 1,731 1,552 1,501 1,593 Provision for loan losses 4 20 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 1,731 1,552 1,497 1,573 Noninterest income (loss) (66) 236 185 154 Noninterest expense 2,019 1,785 1,467 1,227 ----------- ----------- ----------- ----------- Income (loss) before income taxes (354) 3 215 500 Income tax provision (benefit) (248) (19) 74 172 ----------- ----------- ----------- ----------- Net income (loss) $ (106) $ 22 $ 141 $ 328 =========== =========== =========== =========== Basic income (loss) per common share $ (0.04) $ 0.01 $ 0.06 $ 0.13 =========== =========== =========== =========== Diluted income (loss) per common share $ (0.04) $ 0.01 $ 0.06 $ 0.13 =========== =========== =========== =========== Cash dividends declared per common share $ 0.05 $ 0.05 $ 0.05 $ 0.05 =========== =========== =========== =========== Average common shares and common stock equivalents outstanding 2,471,997 2,464,560 2,457,123 2,449,686
Information above for the first, second, and third quarters is different from information previously reported by the Company. These amounts are different because of corrections made affecting these quarters. Such corrections were necessary because of information coming to the attention of management in December, 1998. The amounts reported above have been restated to reflect the corrections as follows:
THIRD SECOND FIRST QUARTER QUARTER QUARTER Interest income - --------------- As previously reported for interim period $3,860 $3,599 $3,678 Adjustment (52) (52) (53) ------- ------- ------- As reported herein $3,808 $3,547 $3,625 ======= ======= ======= Noninterest expense - ------------------- As previously reported for interim period $1,591 $1,463 $1,313 Adjustment 194 4 (86) ------- ------- ------- As reported herein $1,785 $1,467 $1,227 ======= ======= ======= Income tax provision (benefit) - ------------------------------ As previously reported for interim period $ 34 $ 100 $ 175 Adjustment (53) (26) (3) ------- ------- ------- As reported herein $ (19) $ 74 $ 172 ======= ======= =======
Adjustments resulting in the above restatements derived principally from accounting for stock compensation plans, due from bank outages, other than temporary declines in market value of investment securities, leasehold improvements abandoned, and related income tax adjustments. * * * * * * 81 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: March 2,1999 By: /s/ Vida H. Lampkin ---------------------------------------- Vida H. Lampkin Chairman of the Board, President and Chief Executive Officer (Duly Authorized Representative)
EX-23.2 2 CONSENT OF MILLER, ENGLAND & COMPANY 1 [LETTERHEAD OF MILLER, ENGLAND & COMPANY] EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-51927 of HCB Bancshares, Inc. on Form S-8 of our report dated September 5, 1997, (February 3, 1999, as to the effect of the restatement described in Note 1) appearing in the Annual Report on Form 10-K of HCB Bancshares, Inc. for the year ended June 30, 1998. /s/ MILLER, ENGLAND & COMPANY Little Rock, Arkansas February 25, 1999 -----END PRIVACY-ENHANCED MESSAGE-----