<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, 1996
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
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(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 - 2,000,000 shares
1
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
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 - 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K................................ 8
SIGNATURES...................................................... 8
</TABLE>
The total number of pages of the Form 10-Q Quarterly Report is eight (8) 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 1996 1995
----------- -----------
<S> <C> <C>
Cash and due from banks $ 9,225 $ 10,000
Interest-bearing balances with banks 1,737 3,833
Securities available for sale: (cost approximated $17,542 at
September 30, 1996, and $5,419 at December 31, 1995) 17,184 5,419
Securities held to maturity: (market value approximated $44,631 at
September 30, 1996, and $53,931 at December 31, 1995) 44,700 53,440
Federal funds sold 6,900 6,300
Loans 180,810 177,794
Less allowance for loan losses 2,183 2,145
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Net loans 178,627 175,649
Premises and equipment 7,769 5,417
Real estate owned other than bank premises 1,941 1,206
Other assets 4,527 4,285
Goodwill and other intangible assets 401 431
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TOTAL ASSETS $ 273,011 $ 265,980
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 27,621 $ 27,361
Interest-bearing 207,447 204,811
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Total deposits 235,068 232,172
Federal funds purchased and securities sold under
agreements to repurchase 9,953 8,922
Demand notes to U. S. Treasury and other
liabilities for borrowed money 2,403 720
Other liabilities 1,451 980
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TOTAL LIABILITIES 248,875 242,794
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STOCKHOLDERS' EQUITY
Common stock - par value per share $1.25
Shares authorized: 2,000,000 at December 31, 1995, and
10,000,000 at September 30, 1996
Shares issued and outstanding: 1,000,000 at December 31, 1995,
and 2,000,000 at September 30, 1996 2,500 1,250
Paid-in capital 785 2,035
Retained earnings 21,153 19,901
Unrealized losses on securities (302) -----
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TOTAL STOCKHOLDERS' EQUITY 24,136 23,186
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 273,011 $ 265,980
========== ==========
</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,
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(Dollars in thousands, except per share data)
INTEREST INCOME 1996 1995 1996 1995
------ -------- --------- ---------
<S> <C> <C> <C> <C>
Interest and fees on loans $4,291 $ 4,228 $ 12,674 $ 12,302
Interest on balances with banks 28 39 71 45
Interest and dividends from securities available for 233 94 555 285
sale
Interest and dividends from securities held to 697 755 2,283 2,322
maturity
Interest on federal funds sold 71 119 197 405
------ -------- --------- ---------
TOTAL INTEREST INCOME 5,320 5,235 15,780 15,359
INTEREST EXPENSE
Interest on time certificates of 310 296 924 782
$100,000 or more
Interest on other deposits 1,962 1,953 5,860 5,530
Interest on federal funds purchased
and securities
sold under agreements to 89 76 261 231
repurchase
Interest on demand notes to U. S. Treasury
and other liabilities for 15 37 43 111
borrowed money
------ -------- --------- ---------
TOTAL INTEREST EXPENSE 2,376 2,362 7,088 6,654
------ -------- --------- ---------
Net interest income 2,944 2,873 8,692 8,705
Provision for loan losses 82 311 448 657
------ -------- --------- ---------
Net interest income after provision for
loan losses 2,862 2,562 8,244 8,048
NONINTEREST INCOME
Income from fiduciary activities 180 187 540 547
Other operating income 294 277 829 879
Securities gains (losses) 1 -- 1 --
------ -------- --------- ---------
TOTAL NONINTEREST INCOME 475 464 1,370 1,426
NONINTEREST EXPENSE
Salaries, wages, and other employee 1,092 1,057 3,234 3,119
benefits
Furniture and equipment expense 265 250 783 790
Other noninterest expense 832 745 2,398 2,578
------ -------- --------- ---------
TOTAL NONINTEREST EXPENSE 2,189 2,052 6,415 6,487
------ -------- --------- ---------
Income before income taxes 1,148 974 3,199 2,987
Applicable income taxes 406 335 1,097 986
------ -------- --------- ---------
NET INCOME $ 742 $ 639 $ 2,102 $ 2,001
====== ======== ========= =========
NET INCOME PER COMMON SHARE $ 0.37 $ 0.32 $ 1.05 $ 1.00
</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 1996 1995
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<S> <C> <C>
Net income $ 2,102 $ 2,001
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 448 657
Depreciation and amortization 357 374
Securities gains (1) --
(Increase) decrease in interest receivable 79 (57)
Net investment amortization and accretion 422 587
(Increase) decrease in other assets 8 (169)
Increase in interest payable and other liabilities 223 300
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,638 3,693
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold (600) (4,100)
Purchases of securities held to maturity (9,397) (5,429)
Purchases of securities available for sale (12,251) --
Proceeds from maturities of securities held to maturity 17,736 10,280
Net increase in loans (4,079) (5,738)
Acquisition of fixed assets (2,678) (265)
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NET CASH USED BY INVESTING ACTIVITIES (11,269) (5,252)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits 907 (15,543)
Net increase in time deposits 1,989 14,011
Net increase in short-term borrowings 2,714 3,628
Cash dividends paid (850) (650)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 4,760 1,446
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NET DECREASE IN CASH AND DUE FROM BANKS $ (2,871) $ (113)
CASH AND DUE FROM BANKS AT JANUARY 1, 13,833 10,977
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CASH AND DUE FROM BANKS AT SEPTEMBER 30, $ 10,962 $ 10,864
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,757 $ 6,245
Income taxes 1,263 1,068
</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)
1996 1995
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<S> <C> <C>
BALANCE, JANUARY 1, $ 23,186 $ 21,161
Net income 2,102 2,001
Cash dividends declared - $0.425 per share
in 1996, and $0.325 per share in 1995 850 650
Change in unrealized losses on securities (302) 290
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BALANCE, SEPTEMBER 30, $ 24,136 $ 22,802
=========== ===========
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted 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, 1996, and are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
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, 1995.
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, 1996.
<TABLE>
<CAPTION>
Combined Capital
Entity Tier 1 (Tier 1 and Tier 2) Leverage
------------------------ ------- ------------------- ---------
<S> <C> <C> <C>
Consolidated 12.54% 13.69% 8.70%
First Century Bank, N.A. 12.43% 13.57% 8.57%
First Century Bank 11.27% 12.42% 8.18%
</TABLE>
6
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 (Continued)
NOTE C - STOCK SPLIT
On April 16, 1996, the Board of Directors approved a two-for-one stock
split which was effected in the form of a 100% stock dividend, payable on
May 6, 1996, to shareholders of record on April 26, 1996. Accordingly,
all per common share data has been adjusted to reflect the stock split.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the third quarter of 1996 net income increased $103,000 or 16.1%
from the $639,000 earned during the third three months of 1995, to
$742,000 earned during the same period in 1996. This increase was
primarily the result of a decrease in the provision for loan losses of
$229,000 reflecting management's commitment to improving credit quality
during 1995 and early 1996. Noninterest expenses increased by
approximately $137,000 when compared with 1995. This increase was
primarily in the other noninterest expense category of noninterest
expense, reflecting inflationary increases in operating costs combined
with additional increases in loan collection expenses. Earnings per
share for the third quarter of 1996 were $0.37 compared to $0.32 per
share for the third quarter of 1995. When compared to the second quarter
of 1996, net income increased $30,000, from $712,000 for the quarter
ended June 30, 1996, to $742,000 for the quarter ended September 30,
1996. This again was attributable to a decrease in the provision for
loan losses of $175,000 when compared with the second quarter of 1996,
which offset an increase in noninterest expense of approximately
$104,000. The net interest margin also increased $15,000 from $2,929,000
at June 30, 1996, to $2,944,000 for the quarter ended September 30, 1996.
Earnings per share increased $0.01 per share from $0.36 per share for the
quarter ended June 30, 1996, to $0.37 per share for the quarter ended
September 30, 1996.
The stable performance during the third quarter enhanced the earnings for
the nine-month period ended September 30, 1996. Net income was
$2,102,000 for the first nine months of 1996 compared to $2,001,000 for
1995, or an increase of approximately 5%. A reduction in the provision
for loan losses was the main contributor to the improved earnings. The
provision for loan losses improved $209,000 from $657,000 for the nine
months ended September 30, 1995, to $448,000 for the same period in 1996.
Earnings per share for the nine month period ended September 30, 1996 was
$1.05 compared to $1.00 for 1995. The Registrant's performance through
September 30, 1996 reflects an annualized return on average assets of
1.03% and a return on average equity of 11.84%.
Total assets increased $7.0 million from December 31, 1995 to September
30, 1996. Total assets at September 30, 1996 were $273.0 million as
compared to $266.0 million at December 31, 1995. The loan portfolio
continued to grow during this nine-month period, increasing to $180.8
million or an increase of $3.0 million or 1.7%. This demonstrates
management's ongoing commitment to providing for the credit needs of the
Registrant's local communities. Investment securities also increased
approximately $3.0 million or 5.1% to $61.9 million at September 30,
1996. A substantial portion of this growth was funded by an increase in
total deposits of approximately $2.9 million to $235.1 million at
September 30, 1996.
7
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(a.) Exhibit 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 12, 1996
-----------------
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,225
<INT-BEARING-DEPOSITS> 1,737
<FED-FUNDS-SOLD> 6,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,184
<INVESTMENTS-CARRYING> 44,700
<INVESTMENTS-MARKET> 44,631
<LOANS> 180,810
<ALLOWANCE> 2,183
<TOTAL-ASSETS> 273,011
<DEPOSITS> 235,068
<SHORT-TERM> 12,356
<LIABILITIES-OTHER> 1,451
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 21,636
<TOTAL-LIABILITIES-AND-EQUITY> 273,011
<INTEREST-LOAN> 12,674
<INTEREST-INVEST> 2,838
<INTEREST-OTHER> 268
<INTEREST-TOTAL> 15,780
<INTEREST-DEPOSIT> 6,784
<INTEREST-EXPENSE> 7,088
<INTEREST-INCOME-NET> 8,692
<LOAN-LOSSES> 448
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 6,415
<INCOME-PRETAX> 3,199
<INCOME-PRE-EXTRAORDINARY> 2,102
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,102
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 0.00
<LOANS-NON> 1,333
<LOANS-PAST> 546
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,145
<CHARGE-OFFS> 431
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 2,183
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
