<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the transition period from to
-------------------- --------------------
Commission file number: 0-11671
POCAHONTAS BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
West Virginia 55-0628089
------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Federal Street, Bluefield, WV 24701
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 325-8181
--------------
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 90 days.
Yes X No
--------- ---------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
$1.25 Par Value - Common Stock - 1,000,000 shares
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Financial Statements (Unaudited)
Consolidated Statements of Financial Condition.............. 3
Consolidated Statements of Income........................... 4
Consolidated Statements of Cash Flows....................... 5
Consolidated Statements of Changes on Stockholders' Equity.. 6
Notes to Consolidated Financial Statements...................... 6 - 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K................................ 9
SIGNATURES...................................................... 9
The total number of pages of the Form 10-Q Quarterly Report is nine (9) pages.
2
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) September 30, December 31,
(Dollars in thousands)
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 7,897 $ 10,732
Interest-bearing balances with banks 2,967 245
Securities available for sale: (cost approximated $5,760 at
September 30, 1995, and $5,630 at December 31, 1994) 5,339 4,919
Investment securities: (market value approximated $53,838 at
September 30, 1995 and $57,715 at December 31, 1994)
U.S. Treasury 35,504 41,974
U.S. Government agencies and corporations 13,285 12,647
States and political subdivisions 3,840 3,700
Other securities 1,046 1,055
Total investment securities 53,675 59,376
Federal funds sold 10,500 6,400
Loans 176,746 171,325
Less allowance for loan losses 2,120 1,985
Net loans 174,626 169,340
Premises and equipment 4,759 4,811
Real estate owned other than bank premises 1,206 928
Other assets 4,171 4,075
Goodwill and other intangible assets 441 473
TOTAL ASSETS $ 265,581 $ 261,299
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 26,554 $ 26,836
Interest-bearing 202,796 204,046
Total deposits 229,350 230,882
Federal funds purchased and securities sold under
agreements to repurchase 8,691 5,661
Demand notes to U. S. Treasury and other
liabilities for borrowed money 3,100 1,302
Long-term debt -- 1,200
Other liabilities 1,638 1,093
TOTAL LIABILITIES 242,779 240,138
STOCKHOLDERS' EQUITY
Common stock - par value per share $1.25
Shares authorized: 2,000,000
Shares issued and outstanding: 1,000,000 1,250 1,250
Paid-in capital 2,035 2,035
Retained earnings 19,938 18,587
Unrealized losses on securities (421) (711)
TOTAL STOCKHOLDERS' EQUITY 22,802 21,161
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 265,581 $ 261,299
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited) Three Months Ended Nine Months Ended
September 30, September 30,
INTEREST INCOME 1995 1994 1995 1994
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest and fees on loans $ 4,228 $ 3,813 $ 12,302 $ 10,829
Interest on balances with banks 39 -- 45 1
Interest and dividends from securities available for
sale 94 97 285 294
Interest and dividends from investment securities:
U.S. Treasury and agencies 666 647 2,059 2,011
States and political subdivisions 73 63 215 205
Other investment securities 16 16 48 33
Interest on federal funds sold 119 24 405 100
TOTAL INTEREST INCOME 5,235 4,660 15,359 13,473
INTEREST EXPENSE
Interest on time certificates of 296 149 782 417
$100,000 or more
Interest on other deposits 1,953 1,578 5,530 4,798
Interest on federal funds purchased and securities
sold under agreements to repurchase 76 52 231 124
Interest on demand notes to U. S. Treasury
and other liabilities for borrowed money 37 11 111 31
Interest on long-term borrowings -- 34 -- 105
TOTAL INTEREST EXPENSE 2,362 1,824 6,654 5,475
Net interest income 2,873 2,836 8,705 7,998
Provision for loan losses 311 46 657 156
Net interest income after provision for loan losses 2,562 2,790 8,048 7,842
NONINTEREST INCOME
Income from fiduciary activities 187 150 547 456
Other operating income 277 346 879 857
Securities gains (losses) -- 1 -- 1
TOTAL NONINTEREST INCOME 464 497 1,426 1,314
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 1,057 1,079 3,119 3,049
Furniture and equipment expense 250 251 790 767
Other noninterest expense 745 944 2,578 2,708
TOTAL NONINTEREST EXPENSE 2,052 2,274 6,487 6,524
Income before income taxes 974 1,013 2,987 2,632
Applicable income taxes 335 335 986 855
NET INCOME $ 639 $ 678 $ 2,001 $ 1,777
NET INCOME PER COMMON SHARE $ 0.64 $ 0.68 $ 2.00 $ 1.78
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) Nine Months Ended
September 30,
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 1995 1994
<S> <C> <C>
Net income $ 2,001 $ 1,777
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 657 156
Depreciation and amortization 374 357
Securities gains -- (1)
(Increase) decrease in interest receivable (57) 19
Net investment amortization and accretion 587 663
(Increase) decrease in other assets (169) 17
Increase in interest payable and other liabilities 300 515
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,693 3,503
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (4,100) 5,770
Purchases of investment securities (5,429) (14,720)
Proceeds from sales investment securities -- --
Proceeds from maturities of investment securities 10,280 12,487
Net increase in loans (5,738) (2,369)
Acquisition of fixed assets (265) (517)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (5,252) 651
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits (15,543) 931
Net increase (decrease) in time deposits 14,011 (4,138)
Net increase (decrease) in short-term borrowings 3,628 (87)
Principal repayments of long-term debt -- (600)
Cash dividends paid (650) (600)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,446 (4,494)
NET DECREASE IN CASH AND DUE FROM BANKS $ (113) $ (340)
CASH AND DUE FROM BANKS AT JANUARY 1, 10,977 9,795
CASH AND DUE FROM BANKS AT SEPTEMBER 30, $ 10,864 $ 9,455
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,245 $ 5,282
Income taxes 1,068 636
Noncash transaction:
Other borrowing incurred in satisfaction of long-term debt 1,200 --
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited) Nine Months Ended
September 30,
(Dollars in thousands)
1995 1994
<S> <C> <C>
BALANCE, JANUARY 1, $ 21,161 $ 20,366
Net income 2,001 1,777
Cash dividends declared - $0.65 per share in 1995 and
$0.60 per share in 1994 650 600
Change in unrealized losses on securities 290 (494)
BALANCE, SEPTEMBER 30, $ 22,802 $ 21,049
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally ac cepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Rule S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments were of a
normal recurring nature. Certain reclassifications have been made to the prior
period's financial statements to place them on a comparable basis with the
current period's financial statements. Operating results are for the nine-month
period ended September 30, 1995, and are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995. For further
information refer to the financial statements and footnotes thereto included as
Exhibit 13 to Corporation's annual report on Form 10-K for the year ended
December 31, 1994.
NOTE B - REGULATORY CAPITAL REQUIREMENTS
Regulators of the corporation and its subsidiaries have implemented risk-based
capital guidelines which require the maintenance of certain minimum capital as a
percent of assets and certain off-balance sheet items adjusted for predefined
credit risk factors. The regulatory minimums for Tier 1 and combined Tier 1 and
Tier 2 capital ratios were 4.0% and 8.0% respectively. Tier 1 capital includes
tangible common shareholders' equity reduced by goodwill and certain other
intangibles. Tier 2 capital includes portions of the allowance for loan losses,
not to exceed Tier 1 capital. In addition to the risk-based guidelines, a
minimum leverage ratio (Tier 1 capital as a percentage of average total
consolidated assets) of 4% is required. This minimum may be increased by at
least 1% or 2% for entities with higher levels of risk or that are experiencing
or anticipating significant growth. The following table contains the capital
ratios for the Corporation and each subsidiary as of September 30, 1995.
<TABLE>
<CAPTION>
Combined Capital
Entity Tier 1 (Tier 1 and Tier 2) Leverage
- - ----------------------- ------ ------------------- --------
<S> <C> <C> <C>
Consolidated................ 12.20% 13.36% 8.47%
First Century Bank, N.A..... 12.23% 13.39% 8.46%
First Century Bank.......... 11.15% 12.28% 8.18%
</TABLE>
6
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 (Continued)
NOTE C - CHANGE IN ACCOUNTING PRINCIPLES FOR IMPAIRED LOANS
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan
(SFAS 114) as amended by Statement of Financial Accounting Standards No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures (SFAS 118). Under the new standards, a loan is considered impaired,
based on current information and events, if it is probable that the Corporation
will be unable to collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement. The measurement of
impaired loans that are collateral dependent is based on the fair value of the
collateral. The measurement of other impaired loans is generally based on the
present value of expected future cash flows discounted at the historical
effective interest rate. The initial adoption of these standards had an
immaterial effect on the Corporation's financial statements.
The adequacy of the allowance for credit losses is periodically evaluated by the
Corporation in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Corporation's historical loss experience,
known and inherent risks in the loan portfolio, including adverse circumstances
that may affect the ability of the borrower to repay interest and/or principal,
the estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan categories.
Such factors as the level and trend of interest rates and the condition of the
national and local economies are also considered.
The allowance for credit losses is established through charges to earnings in
the form of a provision for credit losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are included
in the provision for credit losses. Loans continue to be classified as impaired
unless they are brought fully current and the collection of scheduled interest
and principal is considered probable.
When a loan or portion of a loan is determined to be uncollectible, the portion
deemed uncollectible is charged against the allowance and subsequent recoveries,
if any, are credited to the allowance.
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well-secured and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is classified as nonaccrual. Loans that are on a
current payment status or past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable period of time, and there is a sustained period of
repayment performance by the borrower, in accordance with the contractual terms
of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash receipts in excess of that amount are recorded
as recoveries to the allowance for loan losses until prior charge-offs have been
fully recovered.
7
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 (Continued)
NOTE C - CHANGE IN ACCOUNTING PRINCIPLES FOR IMPAIRED LOANS (Continued)
Loans:
Loans at September 30, 1995 and 1994 consist of the following:
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Commercial, financial and agricultural $ 46,453 $ 52,059
Real estate - construction 2,969 2,142
Real estate - mortgage (residential and commercial) 100,232 100,037
Loans to individuals 27,092 25,299
-------- --------
Total loans 176,746 179,537
Less: allowance for credit losses 2,120 1,925
-------- --------
Net loans $174,626 $177,612
======== ========
</TABLE>
Allowance for credit losses:
An analysis of the allowance for credit losses as of September 30, 1995,
1994 and 1993 is as follows:
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period $1,985 $1,858 $1,540
Provision charged to operating expense 657 156 167
Recoveries on loans 25 597 158
Loans charged off (547) (686) (255)
------ ------ ------
Balance at end of period $2,120 $1,925 $1,610
====== ====== ======
</TABLE>
At September 30, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 totaled approximately $2,093,000 of
which $121,000 related to loans with no valuation allowance because the loans
have been partially written down through charge-offs and $2,514,000 related to
loans with a corresponding valuation allowance of $542,000. For the period ended
September 30, 1995, the average recorded investment in impaired loans was
approximately $1,470,000. The Corporation recognized no interest on impaired
loans (during the portion of the period that they were impaired) for the period
ended September 30, 1995.
NOTE D - LONG-TERM DEBT
The Corporation refinanced its long-term debt which resulted in an expedited
payment schedule and a lower interest rate. The new debt is scheduled to be paid
by December 31, 1995 at a rate of New York prime less one quarter of one percent
(currently 8.50%).
8
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the third quarter of 1995 net income decreased $39,000 or 5.8% from the
$678,000 earned during the third three months of 1994, to $639,000 earned during
the same period in 1995. This decline, although slight, was primarily the result
of an increase in the provision for loan losses $265,000 reflecting the effects
of a large loan recovery during the third quarter of 1994, as well as a slightly
higher level of charge-offs during the third quarter of 1995. Noninterest
expenses were also reduced by approximately $222,000 when compared with 1994, of
which approximately half of this was attributable to a reduction in the
assessment charged to the Registrant for FDIC insurance on its deposits. The
remainder is a reflection of management's ongoing commitment to controlling
operating costs. Earnings per share for the third quarter of 1995 were $0.64
compared to $0.68 per share for the third quarter of 1994. When compared to the
second quarter of 1995, net income decreased $17,000, from $656,000 for the
quarter ended June 30, 1995, to $639,000 for the quarter ended September 30,
1995. This again was attributable to an increase in the provision for loan
losses of $66,000 when compared with the second quarter of 1995. The net
interest margin also declined $69,000 from $2,942,000 at June 30, 1995, to
$2,873,000 for the quarter ended September 30, 1995. Earnings per share
decreased $0.02 per share from $0.66 per share for the quarter ended June 30,
1995, to $0.64 per share for the quarter ended September 30, 1995.
The stable performance during the second quarter enhanced the earnings for the
nine-month period ended September 30, 1995. Net income was $2,001,000 for the
first nine months of 1995 compared to $1,777,000 for 1994, or an increase of
approximately 13%. The net interest margin was the main contributor to the
improved earnings. Net interest income improved $707,000 to $8,705,000 for the
nine months ended September 30, 1995, from $7,842,000 for the same period in
1994. Earnings per share for the nine month period ended September 30, 1995 was
$2.00 compared to $1.78 for 1994. The Registrants performance through September
30, 1995 reflects an annualized return on average assets of 1.02% and a return
on beginning equity of 12.61%.
Total assets increased $4.3 million from December 31, 1994 to September 30,
1995. Total assets at September 30, 1995 were $265.6 million as compared to
$261.3 million at December 31, 1994. The loan portfolio continued to grow during
this nine-month period, increasing to $176.7 million or an increase of $5.4
million or 3.2%. This demonstrates management's ongoing commitment to providing
for the credit needs of the Registrant's local communities. A substantial
portion of this growth in the loan portfolio was funded by maturities in the
investment portfolio which decreased $5.3 million or 8.3%. Total deposits
remained relatively stable at $229.3 million at September 30, 1995.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(a.) Ex-27 Financial Data Schedule
(b.) None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(Registrant) Pocahontas Bankshares Corporation
---------------------------------
By: /s/ J. Ronald Hypes
-----------------------------------
J. Ronald Hypes, Treasurer
(Principal Accounting and
Financial Officer)
Date: November 6, 1995
---------------------------
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 7,897
<INT-BEARING-DEPOSITS> 2,967
<FED-FUNDS-SOLD> 10,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,339
<INVESTMENTS-CARRYING> 53,675
<INVESTMENTS-MARKET> 53,838
<LOANS> 176,746
<ALLOWANCE> 2,120
<TOTAL-ASSETS> 265,581
<DEPOSITS> 229,350
<SHORT-TERM> 11,791
<LIABILITIES-OTHER> 1,638
<LONG-TERM> 0
<COMMON> 1,250
0
0
<OTHER-SE> 21,552
<TOTAL-LIABILITIES-AND-EQUITY> 265,581
<INTEREST-LOAN> 12,302
<INTEREST-INVEST> 2,607
<INTEREST-OTHER> 450
<INTEREST-TOTAL> 15,359
<INTEREST-DEPOSIT> 6,312
<INTEREST-EXPENSE> 6,654
<INTEREST-INCOME-NET> 8,705
<LOAN-LOSSES> 657
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,487
<INCOME-PRETAX> 2,987
<INCOME-PRE-EXTRAORDINARY> 2,001
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,001
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 2.00
<YIELD-ACTUAL> 4.70
<LOANS-NON> 1,365
<LOANS-PAST> 795
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,746
<ALLOWANCE-OPEN> 1,985
<CHARGE-OFFS> 547
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 2,120
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
