FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-22423
HCB BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 62-1670792
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
237 Jackson Street, Camden, Arkansas 71701
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (870) 836-6841
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days:
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: 1,495,556 shares of common stock
outstanding as of January 31, 2003.
CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Financial Condition at
December 31, 2002 (unaudited) and June 30, 2002
Condensed Consolidated Statements of Income and Comprehensive
Income Three Months and Six Months Ended December 31, 2002
and 2001 (unaudited)
Condensed Consolidated Statements of Cash Flows Six Months
Ended December 31, 2002 and 2001 (unaudited)
Notes to Condensed Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities 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 2
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2002 (UNAUDITED) and JUNE 30, 2002
- --------------------------------------------------------------------------------
DECEMBER 31,
2002 JUNE 30,
ASSETS (UNAUDITED) 2002
------------- --------
Cash and due from banks $ 2,681,621 $ 3,492,257
Interest-bearing deposits with banks 7,067,439 14,404,572
-------------- --------------
Cash and cash equivalents 9,749,060 17,896,829
Investment securities available for sale, at fair value 122,306,020 118,198,564
Loans receivable, net of allowance 108,573,586 124,176,898
Accrued interest receivable 1,433,717 1,721,612
Federal Home Loan Bank stock 4,707,400 4,709,900
Premises and equipment, net 5,755,096 7,112,211
Goodwill, net -- 131,250
Real estate held for sale 575,353 910,587
Other assets 1,229,139 1,567,443
-------------- --------------
TOTAL $ 254,329,371 $ 276,425,294
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 149,215,730 $ 165,005,183
Federal Home Loan Bank advances 74,663,609 82,263,936
Advance payments by borrowers for
taxes and insurance 103,596 110,446
Accrued interest payable 629,502 740,008
Other liabilities 1,268,095 1,569,433
-------------- --------------
Total liabilities 225,880,532 249,689,006
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares authorized,
2,645,000 shares issued, 1,436,111 and 1,425,056 shares
outstanding at December 31, 2002 and June 30, 2002, respectively 26,450 26,450
Additional paid-in capital 25,823,569 25,832,641
Unearned ESOP shares (740,600) (846,400)
Unearned MRP shares (98,581) (116,169)
Accumulated other comprehensive income 2,257,353 1,441,942
Retained earnings 15,617,474 14,950,088
-------------- --------------
42,885,665 41,288,552
Treasury stock, at cost, 1,208,889 and 1,219,944 shares at
December 31, 2002, and June 30, 2002, respectively (14,436,826) (14,552,264)
-------------- --------------
Total stockholders' equity 28,448,839 26,736,288
-------------- --------------
TOTAL $ 254,329,371 $ 276,425,294
============== ==============
See accompanying notes to condensed consolidated financial statements.
Page 3
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001 (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, (UNAUDITED) DECEMBER 31, (UNAUDITED)
INTEREST INCOME: 2002 2001 2002 2001
---- ---- ---- ----
Interest and fees on loans $ 2,093,179 $ 2,734,733 $ 4,368,346 $ 5,538,037
Investment securities:
Taxable 1,245,780 1,358,102 2,539,301 2,732,042
Nontaxable 318,580 321,747 640,442 704,454
Other 55,814 94,828 136,806 235,618
------------ ------------- ------------ ------------
Total interest income 3,713,353 4,509,410 7,684,895 9,210,151
------------ ------------- ------------ ------------
INTEREST EXPENSE:
Deposits 963,242 1,496,927 2,027,681 3,208,528
Federal Home Loan Bank advances 1,167,684 1,299,450 2,363,763 2,625,686
Note payable -- -- -- 1,000
------------ ------------- ------------ ------------
Total interest expense 2,130,926 2,796,377 4,391,444 5,835,214
------------ ------------- ------------ ------------
NET INTEREST INCOME 1,582,427 1,713,033 3,293,451 3,374,937
PROVISION FOR LOAN AND INVESTMENT
LOSSES 203,000 99,000 293,000 159,000
------------ ------------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND INVESTMENT LOSSES 1,379,427 1,614,033 3,000,451 3,215,937
------------ ------------- ------------ ------------
NONINTEREST INCOME:
Service charges on deposit accounts 226,133 272,674 460,849 520,203
Gain on sale of investment securities -- 1,518 -- 1,518
Gain on sale of branch -- -- 742,942 --
Other 177,333 155,017 327,470 282,214
------------ ------------- ------------ ------------
Net noninterest income 403,466 429,209 1,531,261 803,935
------------ ------------- ------------ ------------
NONINTEREST EXPENSE:
Salaries and employee benefits 949,534 988,297 1,935,339 1,940,825
Net occupancy expense 219,182 259,498 457,163 536,357
Communication, postage, printing and
office supplies 96,606 107,221 188,283 214,262
Advertising 45,729 98,141 89,193 154,283
Data processing 88,639 85,691 187,226 166,780
Professional fees 128,703 130,117 277,283 252,047
Amortization of goodwill -- 18,750 -- 37,500
Other 135,562 111,196 282,348 212,204
------------ ------------- ------------ ------------
Total noninterest expense 1,663,955 1,798,911 3,416,835 3,514,258
------------ ------------- ------------ ------------
INCOME BEFORE INCOME TAXES 118,938 244,331 1,114,877 505,614
INCOME TAX PROVISION (BENEFIT) (66,606) (9,000) 204,236 (33,000)
------------ ------------- ------------ ------------
NET INCOME $ 185,544 $ 253,331 $ 910,641 $ 538,614
------------ ------------- ------------ ------------
(Continued)
Page 4
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001 (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, (UNAUDITED) DECEMBER 31, (UNAUDITED)
2002 2001 2002 2001
---- ---- ---- ----
OTHER COMPREHENSIVE (LOSS) INCOME,
NET OF TAX:
Unrealized holding (loss) gain on securities
arising during period $ (191,095) $ (1,202,928) $ 815,411 $ 132,849
Reclassification adjustment for gains
included in net income -- (1,518) -- (1,518)
------------ ------------- ------------ ------------
Other comprehensive (loss) income (191,095) (1,204,446) 815,411 131,331
------------ ------------- ------------ ------------
COMPREHENSIVE INCOME $ (5,551) $ (951,115) $ 1,726,052 $ 669,945
============ ============= ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
BASIC 1,356,781 1,691,522 1,350,362 1,730,008
============ ============= ============ ============
DILUTED 1,445,945 1,762,565 1,431,835 1,802,986
============ ============= ============ ============
EARNINGS PER SHARE:
Basic $ 0.14 $ 0.15 $ 0.67 $ 0.31
======= ====== ======= ======
Diluted $ 0.13 $ 0.14 $ 0.64 $ 0.30
======= ====== ======= ======
DIVIDENDS PER SHARE $ 0.09 $ 0.07 $ 0.17 $ 0.13
======= ====== ======= ======
(Concluded)
See accompanying notes to condensed consolidated financial statements.
Page 5
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001 (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31,
2002 (UNAUDITED) 2001
---- ----
OPERATING ACTIVITIES:
Net income $ 910,641 $ 538,614
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 300,823 378,512
Amortization (accretion) of:
Deferred loan origination fees (45,436) (52,588)
Goodwill -- 37,500
Premiums and discounts on loans, net (2,206) (8,658)
Premiums and discounts on investment securities, net 194,253 49,323
Net gain on sale of investments securities -- (1,518)
Provision for loan losses 293,000 159,000
Gain on sale of branch (742,942) --
Deferred income taxes (204,236) (33,000)
Originations of loans held for sale (16,316,580) (15,253,558)
Proceeds from sales of loans 13,751,322 12,888,924
Stock compensation expense 114,316 105,956
Change in accrued interest receivable 237,617 89,576
Change in accrued interest payable (75,818) (144,394)
Change in other assets 100,041 20,401
Change in other liabilities (296,464) (45,892)
------------- -------------
Net cash used by operating activities (1,781,669) (1,271,802)
------------- -------------
INVESTING ACTIVITIES:
Purchases of investment securities - available for sale (21,531,849) (12,959,370)
Proceeds from sales of investment securities -- 4,995,348
Redemption of Federal Home Loan Bank stock 2,500 25,500
Purchases of premises and equipment (182,164) (205,152)
Net change due to branch sale (2,523,471) --
Loan originations, net of repayments 9,695,054 869,146
Principal payments on investment securities 18,485,773 11,685,186
Net decrease (increase) in real estate held for resale 21,045 (556,196)
------------- -------------
Net cash provided by investing activities 3,966,888 3,854,462
------------- -------------
(Continued)
Page 6
HCB BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001 (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED DECEMBER 31,
2002 (UNAUDITED) 2001
---- ----
FINANCING ACTIVITIES:
Net (decrease) increase in deposits $ (2,597,994) $ 3,963,247
Advances from Federal Home Loan Bank -- 2,056,000
Repayment of Federal Home Loan Bank advances (7,600,327) (7,591,099)
Net decrease in advance payments by borrowers
for taxes and insurance (6,850) (41,881)
Repayment of note payable -- (80,000)
Purchase of treasury stock -- (1,986,815)
Payment for treasury stock options exercised 115,438 --
Dividends paid (243,255) (232,938)
------------- -------------
Net cash used by financing activities (10,332,988) (3,913,486)
------------- -------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (8,147,769) (1,330,826)
CASH AND CASH EQUIVALENTS:
Beginning of period 17,896,829 18,410,021
------------- -------------
End of period $ 9,749,060 $ 17,079,195
============= =============
See accompanying notes to condensed consolidated financial statements.
(Concluded)
Page 7
HCB BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION AND CONSOLIDATION
HCB Bancshares, Inc. ("Bancshares"), incorporated under the laws of the
State of Oklahoma, is a savings bank holding company that owns HCB Investments,
Inc. ("HCBI") and HEARTLAND Community Bank and its subsidiary (the "Bank").
Bancshares' business is primarily that of owning the Bank, and participating in
the Bank's activities. HCBI holds a $500,000 initial investment in EastPoint
Technologies LLC, which is the company whose core processing software the Bank
utilizes. The accompanying condensed consolidated financial statements include
the accounts of Bancshares, HCBI, and the Bank and are collectively referred to
as the Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements were
prepared in accordance with instructions for Form 10-Q. Accordingly, they do not
include all of the information required by generally accepted accounting
principles. The unaudited statements reflect all adjustments, which are, in the
opinion of management, necessary for fair presentation of the financial
condition and results of operations and cash flows of the Company. Those
adjustments consist only of normal recurring adjustments. The condensed
consolidated statements of income and comprehensive income for the six months
ended December 31, 2002, are not necessarily indicative of the results that may
be expected for the Company's fiscal year ending June 30, 2003. The unaudited
condensed consolidated financial statements and notes thereto should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended June 30, 2002, contained in the Company's Annual Report on
Form 10-K for the year ended June 30, 2002.
NOTE 2 - EARNINGS PER SHARE
The weighted average number of common shares used to calculate earnings per
share for the three and six month periods ended December 31, 2002 and 2001, were
as follows:
Three months ended Six months ended
December 31, December 31,
2002 2001 2002 2001
---- ---- ---- ----
Basic weighted - average shares 1,356,781 1,691,522 1,350,362 1,730,008
Effect of dilutive securities 89,164 71,043 81,473 72,978
--------- --------- --------- ---------
Diluted weighted - average shares 1,445,945 1,762,565 1,431,835 1,802,986
========= ========= ========= =========
The Company has issued stock options that have the potential to be dilutive
to its weighted average shares calculation, and were dilutive for the three and
six month periods ending December 31, 2002 and 2001. In addition, the Company
has issued MRP shares that have the potential to be dilutive to its weighted
average shares calculation, but these shares were anti-dilutive for these
periods.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company may be
a defendant from time to time in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the consolidated financial statements of the
Company.
NOTE 4 - MONTICELLO BRANCH SALE
On July 19, 2002, the Bank sold its Monticello branch to Simmons First Bank
of South Arkansas. The sale included approximately $8.3 million in loans, $1.5
million in fixed assets, $0.2 million in other assets and $13.2 million in
deposits. The Bank recognized a premium on the deposits of approximately $0.9
million and the difference was paid in cash to the buyer.
Page 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are set forth in note 1 of
the consolidated financial statements as of June 30, 2002 which was filed on
Form 10-K. Of these significant accounting policies, the Company considers its
policy regarding the allowance for loan losses to be its most critical
accounting policy, because it requires management's most subjective and complex
judgments. In addition, changes in economic conditions can have a significant
impact on the allowance for loan losses and therefore the provision for loan
losses and results of operations. The Company has developed appropriate policies
and procedures for assessing the adequacy of the allowance for loan losses,
recognizing that this process requires a number of assumptions and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future periods by changes in economic conditions, the impact of regulatory
examinations, and the discovery of information with respect to borrowers which
is not known to management at the time of the issuance of the consolidated
financial statements.
GENERAL
The Bank's principal business consists of attracting savings deposits from
the general public and investing those funds in loans secured by first mortgages
on existing owner-occupied single-family residences in the Bank's primary market
area, commercial and multi-family real estate loans and consumer and commercial
business loans. The Bank also maintains a substantial investment portfolio of
mortgage-related securities, nontaxable municipal securities, and U.S.
government and agency securities.
The Bank's net income is dependent primarily on its net interest income,
which is the difference between interest income earned on its loans,
mortgage-backed securities and securities portfolio and interest paid on
customers' deposits and other borrowings. The Bank's net income is also affected
by the level of noninterest income, such as service charges on customers'
deposit accounts, net gains or losses on the sale of loans and securities and
other fees. In addition, net income is affected by the level of noninterest
expense, which primarily consists of employee compensation expenses, occupancy
expenses and other expenses.
The financial condition and results of operations of the Bank and the
thrift and banking industries as a whole are significantly affected by
prevailing economic conditions, competition and the monetary and fiscal policies
of governmental agencies. Lending activities are influenced by demand for and
supply of credit, competition among lenders and the level of interest rates in
the Bank's market area. The Bank's deposit flows and costs of funds are
influenced by prevailing market rates of interest, primarily on competing
investments, as well as account maturities and the levels of personal income and
savings in the Bank's market area.
Page 9
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
The following table sets forth information regarding the Company's average
interest-earning assets and interest-bearing liabilities and reflects the
average yield of interest-earning assets and the average cost of
interest-bearing liabilities for the periods indicated. Average balances are
derived from daily balances. The table also presents information for the periods
indicated with respect to the difference between the weighted average yield
earned on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, or "interest rate spread," which savings
institutions have traditionally used as an indicator of profitability. Another
indicator of an institution's net interest income is its "net yield on
interest-earning assets," which is its net interest income divided by the
average balance of interest-earning assets. Net interest income is affected by
the interest rate spread and by the relative amounts of interest-earning assets
and interest-bearing liabilities. The yield on nontaxable securities has not
been adjusted to a tax equivalent basis. The yield on available for sale
securities is based on amortized cost. Loans on a nonaccrual basis are included
in the computation of the average balance of loans receivable. Loan fees
deferred and accreted into income are included in interest earned. Whenever
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.
Three Months Ended December 31,
---------------------------------------------------------------------
2002 2001
------------------------------ ----------------------------------
Average Average
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Interest-earning assets:
Loans receivable......................... $ 111,200,080 $ 2,093,179 7.53% $ 135,418,541 $ 2,734,733 8.08%
Investment and mortgage-backed
securities
Taxable............................... 94,397,277 1,245,780 5.28 90,029,793 1,358,102 6.03
Nontaxable............................ 25,390,510 318,580 5.02 25,668,648 321,747 5.01
FHLB stock............................. 4,675,352 32,407 2.77 4,675,852 35,358 3.02
FHLB DDA............................... 6,427,468 22,541 1.40 11,324,382 58,237 2.06
Other interest-earning assets.......... 187,662 866 1.85 157,914 1,233 3.12
------------- ----------- ---- ------------- ----------- ----
Total interest-earning assets......... 242,278,349 3,713,353 6.13 267,275,130 4,509,410 6.75
----------- -----------
Noninterest-earning assets............... 15,163,206 17,017,965
------------- -------------
Total assets.......................... $ 257,441,555 $ 284,293,095
============= =============
Interest-bearing liabilities:
NOW, MMDA, statement savings........... $ 40,738,430 139,870 1.37 $ 43,074,550 190,206 1.77
Time deposits.......................... 100,561,510 823,372 3.28 113,199,574 1,306,721 4.62
FHLB advances.......................... 78,352,380 1,167,684 5.96 87,473,612 1,299,450 5.94
------------- ----------- ---- ------------- ----------- ----
Total interest-bearing liabilities..... 219,652,320 2,130,926 3.88 243,747,736 2,796,377 4.59
----------- -----------
Noninterest-bearing liabilities.......... 9,347,375 8,415,659
------------- -------------
Total liabilities..................... 228,999,695 252,163,395
Equity................................... 28,441,860 32,129,700
------------- -------------
Total liabilities and equity.......... $ 257,441,555 $ 284,293,095
============= =============
Net interest income...................... $ 1,582,427 $ 1,713,033
============ ===========
Net interest rate spread................. 2.25% 2.16%
==== ====
Net yield on interest-earning assets..... 2.61% 2.56%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 110.30% 109.65%
====== ======
Page 10
Six Months Ended December 31,
---------------------------------------------------------------------
2002 2001
------------------------------- -----------------------------------
Average Average
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Interest-earning assets:
Loans receivable......................... $ 113,247,235 $ 4,368,346 7.71% $ 134,529,754 $ 5,538,037 8.23%
Investment and mortgage-backed
securities
Taxable............................... 92,524,326 2,539,301 5.49 89,548,350 2,732,042 6.10
Nontaxable............................ 25,457,302 640,442 5.03 28,080,657 704,454 5.02
FHLB stock............................. 4,675,368 67,761 2.90 4,684,720 78,532 3.35
FHLB DDA............................... 8,391,699 67,575 1.61 10,854,223 153,482 2.83
Other interest-earning assets.......... 184,816 1,470 1.59 150,308 3,604 4.80
------------- ----------- ---- ------------- ----------- ----
Total interest-earning assets......... 244,480,746 7,684,895 6.29 267,848,012 9,210,151 6.88
----------- -----------
Noninterest-earning assets............... 15,544,720 16,540,115
------------- -------------
Total assets.......................... $ 260,025,466 $ 284,388,127
============= =============
Interest-bearing liabilities:
NOW, MMDA, statement savings........... $ 40,539,554 292,591 1.44 $ 43,162,699 493,275 2.29
Time deposits.......................... 102,427,690 1,735,090 3.39 111,763,180 2,715,253 4.86
FHLB advances.......................... 79,297,245 2,363,763 5.96 88,770,006 2,625,686 5.92
Note payable........................... -- -- -- 29,130 1,000 6.87
------------- ----------- ---- ------------- ----------- ----
Total interest-bearing liabilities.... 222,264,489 4,391,444 3.95 243,725,015 5,835,214 4.79
----------- -----------
Noninterest-bearing liabilities.......... 9,602,620 8,567,516
------------- -------------
Total liabilities..................... 231,867,109 252,292,531
Equity................................... 28,158,357 32,095,596
------------- -------------
Total liabilities and equity.......... $ 260,025,466 $ 284,388,127
============= =============
Net interest income...................... $ 3,293,451 $ 3,374,937
=========== ===========
Net interest rate spread................. 2.34% 2.09%
==== ====
Net yield on interest-earning assets..... 2.69% 2.52%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 110.00% 109.90%
====== ======
RATE/VOLUME ANALYSIS
The following table analyzes dollar amounts of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's rate)
and (ii) changes attributable to rate (changes in rate multiplied by the current
period's volume).
Page 11
Three Months Ended December 31 Six Months Ended December 31
---------------------------------- -------------------------------------
2002 vs. 2001 2002 vs. 2001
---------------------------------- -------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------------- -------------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands) (In thousands)
Interest income:
Loans receivable $ (489) $ (153) $ (642) $ (876) $ (294) $ (1,170)
Investment and
mortgage-backed securities
Taxable 66 (178) (112) 91 (284) (193)
Nontaxable (3) -- (3) (66) 2 (64)
FHLB stock -- (3) (3) -- (11) (11)
FHLB DDA (25) (11) (36) (35) (51) (86)
Other interest-earning assets -- -- -- 1 (2) (1)
------ ------ ------- ------- ------ ---------
Total interest-earning assets (451) (345) (796) (885) (640) (1,525)
------ ------ ------- ------- ------ ---------
Interest expense:
NOW, MMDA, statement savings (10) (40) (50) (30) (171) (201)
Time deposits (146) (337) (483) (227) (753) (980)
FHLB advances (135) 3 (132) (280) 18 (262)
Note payable -- -- -- (1) -- (1)
------ ------ ------- ------- ------ ---------
Total interest-bearing
liabilities (291) (374) (665) (538) (906) (1,444)
------ ------ ------- ------- ------ ---------
Change in net interest income $ (160) $ 29 $ (131) $ (347) $ 266 $ (81)
====== ====== ======= ======= ====== =========
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2002 AND JUNE 30, 2002
The Company had consolidated total assets of $254.3 million and $276.4
million at December 31, 2002, and June 30, 2002, respectively. During the six
month period ended December 31, 2002, the Company experienced a decrease in its
consolidated loan portfolio from $124.2 million at June 30, 2002, to $108.6
million at December 31, 2002. Of the $15.6 million decrease, $8.3 million is due
to the sale of loans in the Monticello branch sale. The remaining $7.3 million
decrease in loans is attributed to slow loan demand combined with significant
competition.
During this same period, investments and mortgage-backed securities
increased from $118.2 million at June 30, 2002, to $122.3 million at December
31, 2002. While investments and mortgage-backed securities increased $4.1
million for the six month period ended December 31, 2002, there were $18.5
million in paydowns offset with purchases of $21.5 million and a $1.3 million
increase in the market value of the securities. The Bank continues to purchase
securities to replace both loan prepayments and securities prepayments. The
Bank's emphasis in purchasing securities has been mortgage-backed securities
with short (2-3 years) average lives and very little extension risk (not more
than 5 years estimated average life) if interest rates rise significantly.
Deposits decreased from $165.0 million at June 30, 2002, to $149.2 million
at December 31, 2002. Of the $15.8 million decrease, $13.2 million is due to the
sale of deposits in the Monticello branch sale. Although the Bank's level of
deposits has been sufficient to provide for adequate liquidity, the deposit
market remains competitive. The outstanding balances of FHLB borrowings
decreased from $82.3 million at June 30, 2002, to $74.7 million at December 31,
2002.
Stockholders' equity amounted to $28.4 million at December 31, 2002, and
$26.7 million at June 30, 2002. The changes in equity were primarily due to an
increase in accumulated other comprehensive income and net income for the
period. At December 31, 2002, the Bank's regulatory capital exceeded all
applicable regulatory capital requirements.
Page 12
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER
31, 2002 AND 2001
Net Income. Net income for the three months ended December 31, 2002, was
approximately $186,000 compared to net income of $253,000 for the three months
ended December 31, 2001. The changes resulted primarily from a decrease in net
interest income of $131,000, a decrease in noninterest income of $26,000 an
increase in the provision for loan and investment loss of $104,000, offset by a
decrease in noninterest expense of $135,000 and an increase in the income tax
benefit of $58,000.
Net income for the six months ended December 31, 2002, was approximately
$911,000 compared to net income of $539,000 for the six months ended December
31, 2001. The changes resulted primarily from a decrease in net interest income
of $81,000, an increase in the provision for loan and investment loss of
$134,000, a decrease in the income tax benefit of $237,000, offset by an
increase in noninterest income of $727,000 and a decrease in noninterest expense
of $97,000. The specific reasons for the above changes and the Monticello branch
sale effect on net income are discussed below.
Interest Income. Interest income for the three months ended December 31,
2002, was approximately $3,713,000, or $796,000 less than interest income for
the three months ended December 31, 2001. The total average interest-earning
assets decreased $25.0 million, while the yield decreased from 6.75% to 6.13%.
Of the $796,000 decrease in interest income, $489,000 and $153,000 was due to
volume and rate decreases, respectively in loans, $178,000 was due to rate
decreases on taxable investment and mortgage-backed securities, $3,000 was due
to volume decreases on nontaxable investments, $3,000 was due to rate decreases
on FHLB stock, $25,000 and $11,000 was due to volume and rate decreases,
respectively on FHLB DDA, offset by a $66,000 increase in the volume of taxable
investments and mortgage-backed securities.
For the three months ended December 31, 2002, compared to the three months
ended December 31, 2001, the average balance of loans receivable decreased $24.2
million, total loan interest income decreased $642,000 and the average yield on
loans decreased 55 basis points. For the same comparative periods, the average
balance of investments and mortgage-backed securities receivable increased $4.1
million, interest income decreased $115,000 and the average yield decreased 59
basis points. Further, the average balance of other interest-earning assets
(primarily FHLB DDA's and FHLB stock) decreased $4.9 million, interest income
decreased $39,000 and the average yield decreased 37 basis points.
Interest income for the six months ended December 31, 2002, was
approximately $7,685,000, or $1,525,000 less than interest income for the six
months ended December 31, 2001. The total average interest-earning assets
decreased $23.4 million, while the yield decreased from 6.88% to 6.29%. Of the
$1,525,000 decrease in interest income, $876,000 and $294,000 was due to volume
and rate decreases, respectively in loans, $284,000 was due to rate decreases on
taxable investment and mortgage-backed securities, $66,000 was due to volume
decreases on nontaxable investments, $11,000 was due to rate decreases on FHLB
stock, $35,000 and $51,000 was due to volume and rate decreases, respectively on
FHLB DDA, offset primarily by an $91,000 increase in the volume of taxable
investments and mortgage-backed securities.
For the six months ended December 31, 2002, compared to the six months
ended December 31, 2001, the average balance of loans receivable decreased $21.3
million, total loan interest income decreased $1,170,000 and the average yield
on loans decreased 52 basis points. For the same comparative periods, the
average balance of investments and mortgage-backed securities receivable
increased $353,000, interest income decreased $257,000 and the average yield
decreased 45 basis points. Further, the average balance of other
interest-earning assets (primarily FHLB DDA's and FHLB stock) decreased $2.4
million, interest income decreased $99,000 and the average yield decreased 94
basis points.
Interest Expense. For the three months ended December 31, 2002, compared to
the three months ended December 31, 2001, the average balance of
interest-bearing liabilities decreased $24.1 million, total interest expense
decreased $665,000 and the average cost decreased 71 basis points. The average
balance of interest-bearing deposits decreased $15.0 million, deposit interest
expense decreased $534,000 and the average cost decreased 110 basis points. The
average balance of FHLB advances decreased $9.1 million, FHLB interest expense
decreased $132,000 and the average cost increased 2 basis points.
Page 13
Of the $665,000 decrease in interest expense, $156,000 was due to volume
decreases in deposits, $377,000 was due to rate decreases on deposits, and
$135,000 was due to volume decreases on FHLB advances offset by a $3,000
increase due to average rate increases on FHLB advances.
For the six months ended December 31, 2002, compared to the six months
ended December 31, 2001, the average balance of interest bearing liabilities
decreased $21.5 million, total interest expense decreased $1,444,000 and the
average cost decreased 84 basis points. The average balance of interest-bearing
deposits decreased $12.0 million, deposit interest expense decreased $1,181,000
and the average cost decreased 130 basis points. The average balance of FHLB
advances decreased $9.5 million, FHLB interest expense decreased $262,000 and
the average cost increased 4 basis points.
Of the $1,444,000 decrease in interest expense, $257,000 was due to volume
decreases in deposits, $924,000 was due to rate decreases on deposits, and
$280,000 was due to volume decreases on FHLB advances primarily offset by a
$18,000 increase due to average rate increases on FHLB advances.
Net Interest Income. Net interest income for the three months ended
December 31, 2002, was $1.6 million, or $131,000 less than net interest income
for the three months ended December 31, 2001. The decrease in net interest
income for the three months ended December 31, 2002, compared to the three
months ended December 31, 2001, even though our net interest spread increased 9
basis points, was the result of the overall decrease in our average balance
sheet.
Net interest income for the six months ended December 31, 2002, was $3.3
million, or $81,000 less than net interest income for the six months ended
December 31, 2001. The decrease in net interest income for the six months ended
December 31, 2002, compared to the six months ended December 31, 2001, even
though our net interest spread increased 25 basis points, was the result of the
overall decrease in our average balance sheet.
Provision for Loan and Investment Losses. During the three months ended
December 31, 2002, the Bank's management continued its review of the
appropriateness of the amount of the allowance for loan and investment losses.
Based on these reviews, management made a total of $203,000 in provision for
loan losses. The allowance for loan losses of $1.7 million at December 31, 2002,
represented 1.47% of gross outstanding loans, which compares to 1.22% as of June
30, 2002. The provision was made in consideration of reviews of individual loans
and the fact that nonperforming loans as of December 31, 2002, as a percent of
total loans increased to 1.92% from 1.44% as of June 30, 2002. In addition,
total classified assets as a percent of the Bank's tangible capital plus
allowance for loan loss was 43.4% as of December 31, 2002, which compares to
31.0% as of June 30, 2002. As of December 31, 2002, the Bank had $10.6 million
in assets classified substandard or doubtful as compared to $7.1 million as of
June 30, 2002.
Management evaluates the carrying value of the loan portfolio periodically
and provisions are made, if necessary. While management uses the best
information available to make evaluations, future provisions to the allowance
may be necessary if conditions differ substantially from the assumptions used in
making the evaluations. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to recognize changes to the
allowance based upon their judgments and the information available to them at
the time of their examination.
There were no significant changes in loan terms during the period, nor were
there significant changes in the estimation methodologies employed or
assumptions utilized. Nonperforming loan and loss trends did not indicate a need
to substantially modify loss experience factors during the period.
Noninterest Income. Noninterest income is typically comprised primarily of
gains on the sales of loans and service charges on deposit accounts. Noninterest
income for the three months ended December 31, 2002, was approximately $403,000
compared to approximately $429,000 for the three months ended December 31, 2001.
As expected, service charge income on deposit accounts decreased due to the sale
of the Monticello branch. However, part of this decrease is made up for in an
increase in other noninterest income that is primarily gains on the sales of
loans held for sale.
Noninterest income for the six months ended December 31, 2002, was
approximately $1,531,000 compared to approximately $804,000 for the six months
ended December 31, 2001. As expected, service charge income on deposit
Page 14
accounts decreased due to the sale of the Monticello branch. However, part of
this decrease is made up for in an increase in other noninterest income that is
primarily gains on the sales of loans held for sale. In addition, for the six
months ended December 31, 2002, the Company recognized a gain on the sale of its
Monticello branch of approximately $743,000.
Noninterest Expense. The major components of noninterest expense are
salaries and employee benefits paid to or on behalf of the Company's employees
and directors, professional fees paid to consultants, attorneys, and
accountants, occupancy expense for ownership and maintenance of the Company's
buildings, furniture and equipment and data processing expenses. Total
noninterest expense for the three months ended December 31, 2002, was $1.66
million compared to $1.80 million for the three months ended December 31, 2001.
Significant components of the decrease in noninterest expense were a $38,000
decrease in salaries and employee benefits, a $40,000 decrease in net occupancy
expense, a $52,000 decrease in advertising, a $19,000 decrease in amortization
of goodwill, offset slightly by a $24,000 increase in other expense.
Total noninterest expense for the six months ended December 31, 2002, was
$3.4 million compared to $3.5 million for the six months ended December 31,
2001. Significant components of the decrease in noninterest expense were a
$79,000 decrease in net occupancy expense, a $26,000 decrease in communication,
postage, printing and office supplies, a $65,000 decrease in advertising, a
$38,000 decrease in amortization of goodwill, offset by a $20,000 increase in
data processing expense, a $25,000 increase in professional fees, and a $70,000
increase in other expenses.
Income Taxes. The effective income tax rates for the Company for the three
months ended December 31, 2002 and 2001 were (56.00)% and (3.68)%, respectively.
The effective income tax rates for the Company for the six months ended December
31, 2002 and 2001 were 18.32% and (6.53)%, respectively. The variance in the
effective rate from the expected statutory rate is due primarily to tax exempt
interest.
The negative effective tax rates disclosed above is a net tax benefit and
increases net income. The net tax benefit is primarily due to tax-exempt income.
The corresponding deferred tax asset totals approximately $1.7 million as of
December 31, 2002, and $1.7 million as of June 30, 2002. The recoverability of
this asset is entirely contingent upon the production of taxable income for
income tax reporting purposes. Management anticipates that the Company will
produce such income in the near future based on management's current forecasts
of earnings.
SOURCES OF CAPITAL AND LIQUIDITY
The Company has no business other than that of the Bank and banking related
activities. Bancshares' primary sources of liquidity are cash, dividends paid by
the Bank and earnings on investments and loans. In addition, the Bank is subject
to regulatory limitations with respect to the payment of dividends to
Bancshares.
The Bank has historically maintained substantial levels of capital. The
assessment of capital adequacy is dependent on several factors including asset
quality, earnings trends, liquidity and economic conditions. Maintenance of
adequate capital levels is integral to provide stability to the Bank. The Bank
needs to maintain substantial levels of regulatory capital to give it maximum
flexibility in the changing regulatory environment and to respond to changes in
the market and economic conditions.
The Bank's primary sources of funds are savings deposits, borrowed funds,
proceeds from principal and interest payments on loans and mortgage-backed
securities, interest payments and maturities of investment securities and
earnings. While scheduled principal repayments on loans and mortgage-backed
securities and interest payments on investment securities are a relatively
predictable source of funds, deposit flows and loan and mortgage-backed
securities prepayments are greatly influenced by general interest rates,
economic conditions, competition and other factors.
At December 31, 2002 and June 30, 2002, the Company had designated all
securities as available for sale. In addition to internal sources of funding,
the Bank as a member of the FHLB, has substantial borrowing authority with the
FHLB. The Bank's use of a particular source of funds is based on need,
comparative total costs and availability.
At December 31, 2002, the Bank had $4.5 million in commitments to originate
loans (including unfunded portions of construction loans) and approximately $0.7
million in unused lines of credit. At the same date, the total
Page 15
amount of certificates of deposit which were scheduled to mature in one year or
less was $83.6 million. Management anticipates that the Bank will have adequate
resources to meet its current commitments through internal funding sources
described above.
Management is not aware of any current recommendations by its regulatory
authorities, legislation, competition, trends in interest rate sensitivity, new
accounting guidance or other material events and uncertainties that would have a
material effect on the Bank's ability to meet its liquidity demands.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have
been prepared in accordance with instructions to Form 10-Q which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time due
to inflation.
Unlike most industrial companies, virtually all of the Bank's assets and
liabilities are monetary in nature. As a result, changes in interest rates
generally have a more significant impact on a financial institution's
performance than do changes in the rate of inflation.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management policies
as well as the potential impact of interest rate changes upon the market value
of the Bank's portfolio equity, see "MARKET RISK" in the Company's Annual Report
on Form 10-K for the year ended June 30, 2002. There has been no material change
in the Company's asset and liability position since June 30, 2002.
Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated the effectiveness of the Company's disclosure controls
and procedures (as defined in 15 C. F. R.ss.240.13a-14(c) and 15 C. F.
R.ss.240.15-14(c)) as of a date within ninety days prior to the filing of this
quarterly report. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Company's current disclosure
controls and procedures are effective.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect those controls subsequent to the
date of evaluation.
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company may be
a defendant in certain claims and legal actions arising in the ordinary course
of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material adverse effect on the consolidated financial statements of the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Page 16
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on November 21, 2002.
1,127,453 shares of the Company's common stock were represented at the Annual
Meeting in person or by proxy.
Stockholders voted in favor of the election of three nominees for director.
The voting results for each nominee were as follows:
Votes in Favor
Nominee of Election Votes Withheld
----------------- -------------- --------------
Cameron D. McKeel 1,107,003 20,450
Bruce D. Murry 1,107,978 19,475
F. Michael Akin 1,107,383 20,070
There were no broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
99 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K:
None.
Page 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HCB BANCSHARES, INC.
Registrant
Date: February 11, 2003 By: /s/ Vida H. Lampkin
--------------------------------
Vida H. Lampkin
Chairman of the Board and
Interim President and Chief
Executive Officer
(Duly Authorized Representative)
Date: February 11, 2003 By: /s/Scott A. Swain
--------------------------------
Scott A. Swain
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Page 18
CERTIFICATION
I, Vida H. Lampkin, Chairman of the Board and Interim President and Chief
Executive Officer of HCB Bancshares, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of HCB Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 11, 2003
By: /s/ Vida H. Lampkin
--------------------------------------------
Name: Vida H. Lampkin
Title: Chairman of the Board and Interim
President and Chief Executive Officer
Page 19
CERTIFICATION
I, Scott A. Swain, Senior Vice President and Chief Financial Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of HCB Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 11, 2003
By: /s/ Scott A. Swain
---------------------------------------
Name: Scott A. Swain
Title: Senior Vice President and
Chief Financial Officer
Page 20