Investor Shakes Up HCB

Cameron McKeel, president and chief executive officer of HCB Bancshares Inc., was surprised to learn the holding company had a new leading stockholder.

The 62-year-old executive discovered in thumbing through the June 14 securities filing that Joseph Stilwell of New York City was no ordinary investor.

"We never heard of him until he bought into our company," McKeel said.

An investment group led by Stilwell acquired 150,850 shares of HCB stock, representing 6.9 percent of the Camden-based company. The schedule 13D filing, a required disclosure when an investor breaks the 5 percent threshold of ownership, also outlines his intentions.

These include actively influencing the policies of the company to improve its performance and the value of its stock.

In the 13D, Stilwell advised HCB Bancshares to begin a substantial stock buy-back program and hire an investment banker "to better evaluate all options to increase shareholder value." And he implied that his group will not quietly sit by if management fails to take action to address his concerns.

The threat is not a hollow one.

Stilwell has made his presence known in five other publicly traded bank holding companies during the past 14 months. Four of those investments ended with the companies selling in five months or less after Stilwell's arrival. (See related story below.)

The fifth is snarled in various lawsuits as Stilwell pushes the management to improve operations or sell to someone who will.

Stilwell couldn't be reached for comment last week. But McKeel said he had a conversation with Stilwell in which he noted that he was standing on the street two blocks away from the World Trade Center in New York when the second hijacked airliner slammed into the south tower.

Common Ground

McKeel has talked with Stilwell several times by phone to learn more about him and his position toward HCB Bancshares.

"He describes himself as a balance-sheet analyst," McKeel said. "He looks for firms that, in his opinion, are undervalued and who have excess capital. We fit that criteria, and we know that.

"He's used to being fought tooth-and-nail from the get-go. He was surprised by the reception we gave him."

McKeel and Stilwell also had a face-to-face meeting over dinner at The Capital Hotel in Little Rock on Aug. 6. McKeel said Stilwell described himself as being in his 40s and working five years as a stock broker and 15 years as an investor.

"He's the first person I met who makes his living as an investor," McKeel said. "He said he has been an activist for about 18 months.

"He's very pleasant, and we haven't had any arguments yet. He even picked up the check."

McKeel was struck by the contrast between Stilwell and his aggressively written securities filings.

"Which Mr. Stilwell am I talking to, you or the one who files the 13Ds?" McKeel asked during their meeting. "That's when our conversation took a different turn.

"He said he wouldn't be a problem for us if we agree to work toward improving the performance of the company.

"Virtually everything we talked about, we saw eye-to-eye on. The only difference is he considers selling the company an option. We don't want to sell the bank though."

Stilwell agreed to not turn up the heat on the company and start any proxy fights for two years. In return, the company agreed to achieve a return on equity greater than the average for all publicly traded thrifts.

"We don't see any problem doing that," McKeel said.

The company also is making room on the board of directors for a Stilwell representative, who also will serve on the audit or compensation committees.

As far as performance goes, HCB Bancshares certainly has plenty of room for improvement. Its annualized return on equity, as of March 31, was 1.24 percent. That compares with a 6.91 percent average ROE for all publicly traded thrifts as of June 30.

HCB, which operates two locations under the name of Heartland Community Bank in Camden and one each in Fordyce, Monticello, Sheridan and Bryant, hasn't surpassed the 3 percent ROE mark in the past five years.

"We haven't had any basis for being contentious at this point," McKeel said.

The coming months will determine whether that changes, along with the profitability of HCB Bancshares.

Stilwell's M.O.
By George Waldon

Security of Pennsylvania Financial Corp.

May 1, 2000: A Stilwell investment group files a securities document disclosing a 9 percent stake (122,870 shares) in Security of Pennsylvania Financial Corp., a $134.4 million-asset concern based in Hazleton, Pa.

The Stilwell group schedules a meeting with senior management to discuss maximizing short- and long-term value of SPFC's assets.

June 2, 2000: Prior to the scheduled meeting, SPFC and Northeast Pennsylvania Financial Corp. of Hazleton, Pa., announce the signing of a definitive merger agreement.

Northeast Pennsylvania Financial Corp., a $669.6 million-asset concern, agrees to acquire SPFC for $17.50 per share ($26 million). Shares were trading at $10.88 before the announcement. The Stilwell group sells its SPFC shares on the open market.

Cameron Financial Corp.

July 7, 2000: A Stilwell investment group files a securities document disclosing a 7 percent stake (134,000 shares) in Cameron Financial Corp., a $308 million-asset concern based in Cameron, Mo.

The Stilwell group requests that Cameron management hire an investment banker and demands Cameron's list of shareholders, a meeting with Cameron's management and an invitation for the Stilwell group's representatives to join the board of directors.

The group also writes to other Cameron shareholders expressing its dismay with management's inability to achieve shareholder value and publishes that letter in the local press.

Oct. 6, 2000: Cameron announces that it has entered into an agreement to be acquired by Dickinson Financial Corp., a $2.67 billion-asset concern based in Kansas City, Mo. The deal is valued at $39.7 million ($20.75 per share).

At the time of the announcement, shares have traded at a 52-week range of $10.50-$18.50. The Stilwell group sells its Cameron shares on the open market.

Community Financial Corp.

Jan. 4, 2001: A Stilwell investment group files a securities document disclosing a 6.1 percent stake (135,500 shares) in Community Financial Corp. of Olney, Ill.

The Stilwell group reports that it acquired the stock for investment purposes after CFC announced the sale of two of its four subsidiary banks and its intent to sell one or more of its remaining subsidiaries.

Jan. 25, 2001: CFC announces the sale of one of its remaining subsidiaries. Later, the Stilwell group announces its intention to run an alternate slate of directors at the 2001 annual meeting if the company does not sell the remaining subsidiary.

March 27, 2001: The Stilwell group writes to CFC confirming the company has agreed to meet with one of the Stilwell group's proposed nominees to the board of directors.

March 30, 2001: Before the meeting takes place, CFC announces it has agreed to merge with First Financial Corp. of Terre Haute, Ind., a $2 billion-asset concern. Shares were trading at $11.75 before the $15 per share ($32.3 million cash) announcement.

The Stilwell group, having accomplished its purpose of maximizing shareholder value, announces it will not seek representation on the board or solicit proxies for use at the annual meeting.

Montgomery Financial Corp.

Feb. 23, 2001: A Stilwell investment group files a securities document disclosing a 9 percent stake (110,000 shares) in Montgomery Financial Corp., a $142.9 million-asset concern based in Crawfordsville, Ind.

The Stilwell group states that it acquired the MFC stock for investment purposes and that it believes the value of Montgomery's assets exceeds its current market price.

April 20, 2001: The Stilwell group meets with Montgomery's management, suggests that management should maximize shareholder value by selling the institution and notifies management that it would run an alternate slate of directors at the 2001 annual meeting unless the company entered into a transaction.

June 5, 2001: Montgomery announces it has hired an investment banking firm, to "help evaluate available alternatives to improve financial performance and maximize shareholder value ... [including] a potential acquisition or merger."

June 13, 2001: The Stilwell group reports its intention to nominate two persons to Montgomery's board at the 2001 annual meeting.

July 24, 2001: Montgomery announces that it has signed a definitive merger agreement with Union Community Bancorp, a $127.3 million-asset concern in Crawfordsville, Ind. The $18.5 million deal is valued at $15 per share. The Stilwell group shares were assembled for around $11 per share.

Oregon Trail Financial Corp.

Nov. 17, 2000: A Stilwell investment group files a securities document disclosing a 7.5 percent stake (250,000 shares) in Oregon Trail Financial Corp., a $382 million-asset concern based in Baker City, Ore.

The Stilwell group's stated purpose in acquiring the Oregon Trail stock is to profit from the appreciation in the market price of its stock through the assertion of shareholder rights. These include seeking representation on its board of directors and making proposals to management that include the possible sale of Oregon Trail.

The Stilwell group assembles the shares at prices ranging between $11.40 and $13.25. The stock currently is trading at $16.

Dec. 15, 2000: The Stilwell group reports it has scheduled a meeting with representatives of Oregon Trail's management to discuss the company's business plans and goals for return on equity.

Jan. 9, 2001: The Stilwell group reports filing a lawsuit to compel Oregon Trail to produce its list of shareholders and other records, including specified minutes of board of director meetings.

Feb. 1, 2001: The Stilwell group reports that the parties have reached an agreement in principle for the production of the disputed items.

The Stilwell group also reports proposing to Oregon Trail's representatives during a Jan. 25 meeting that it invite two of its nominees to sit on the board of directors. Oregon Trail agreed to consider the proposal.

Feb. 16, 2001: The Stilwell group reports that Oregon Trail has rejected its proposal. The Stilwell group reports it will nominate an alternate slate of nominees to sit on the Oregon Trail board and will solicit proxies for this purpose.

The Stilwell group also reports filing a lawsuit against Charles Henry Rouse, a director of Oregon Trail. The lawsuit seeks to remove Rouse from Oregon Trail's board because Rouse allegedly violated Oregon Trail's residency requirement for directors.

Feb. 23, 2001: The Stilwell group reports that the parties were unable to enter into a settlement agreement of the shareholder list litigation because Oregon Trail decided to place unreasonable preconditions upon the production of the list.

May 22, 2001: The Stilwell group files a lawsuit seeking the removal of Edward Elms as a director of Oregon Trail. The action is taken after the company ignores a May 18 deadline set by the Stilwell group to take action against Elms, whom Stilwell accuses of giving false deposition testimony in the Rouse lawsuit.

June 1, 2001: The Stilwell group seeks Securities and Exchange Commission clearance to solicit proxies to elect its nominee, Kevin Padrick, to the board of directors of Oregon Trail at the upcoming 2001 annual meeting.

HCB Bancshares

Category — 2001* — 2000 — 1999 — 1998 — 1997 — 1996 — 1995 — 1994 — 1993 — 1992

Total Assets — $290,100 — $291,192 — $285,397 — $250,954 — $200,499 — $171,235 — $126,987 — $126,723 — $123,748 — $115,472
Net Income — $282 — $786 — $416 — $385 — ($609)** — $225 — $1,429 — $1,388 — $1,334 — $1,510

All figures are in thousands. Numbers in parentheses indicate loss. *Nine months ending March 31. **Reflects special deposit insurance assessment to help recapitalize the deposit insurance fund for savings institutions. Without that, the net loss would have been about $58,286.

Woeful Performance Ratios for HCB Bancshares Inc.

Year — ROE — ROA

2000 — 2.76% — 0.27%
1999 — 1.14% — 0.15%
1998 — 1.02% — 0.18%
1997 — -3.38% — -0.34%
1996 — 1.53% — 0.16%

Inside Investors

Shareholder — Position — Percent Owned — Shares — Value?

Vida H. Lampkin — chairman — 3.3% — 74,725 — $926,590
Cameron McKeel — president & CEO — 2.4% — 53,737 — $666,339
Carl Parker Jr. — director — 1.8% — 41,226 — $511,202
Clifford O. Steelman — director — 1.7% — 38,226 — $474,002
Ned Ray Purtle — director — 1.6% — 35,000 — $434,000
All directors, nominees for director and executive officers as a group (9 persons) — 15.5% — 349,542 — $4,334,321

Top Institutional Holders

HCB Bancshares, Inc. Employee Stock Ownership Plan — 6.7% — 148,120 — $1,836,688
Stilwell Value Partners IV Ltd., New York City — 6.9% — 150,850 — $1,870,540

?Based on recent price of $12.40 per share.