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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10-K
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[ X ] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) or the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number: 0-11671
POCAHONTAS BANKSHARES CORPORATION
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 325-8181
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Pocahontas Bankshares Corporation: $1.25 Par Value - Common Stock
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 1996 was $30,686,783 and the number of shares
outstanding of the registrant's common stock was 1,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the fiscal year ended
December 31, 1995 are incorporated by reference into Part II.
Portions of the proxy statement for the annual shareholders meeting to be
held April 16, 1996, are incorporated by reference into Part III.
Total number of pages, including cover page and exhibits - 57
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POCAHONTAS BANKSHARES CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS ............................................ 3
ITEM 2. PROPERTIES .......................................... 5
ITEM 3. LEGAL PROCEEDINGS ................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.. 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ............................... 6
ITEM 6. SELECTED FINANCIAL DATA ............................. 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............... 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......... 7
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ............... 7
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.. 8
ITEM 11. EXECUTIVE COMPENSATION ............................. 8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT .................................... 8
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..... 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K ........................... 8
SIGNATURES ................................................... 10
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PART I
ITEM 1. BUSINESS
POCAHONTAS BANKSHARES CORPORATION
Pocahontas Bankshares Corporation ("Corporation" or "Registrant")
was organized under the laws of West Virginia in 1983 at the direction of
the Board of Directors of The First National Bank of Bluefield
("Bluefield"). On March 1, 1984, the effective date of the corporate
reorganization, the shareholders of Bluefield became the shareholders of
the Corporation, and Bluefield became a wholly-owned subsidiary of the
Corporation. On March 11, 1988, the Registrant acquired control of the
Bank of Oceana, Oceana, WV ("Oceana"). On May 24, 1991, the Registrant
formed First Century Bank, Roanoke, Virginia. During 1993, the main office
of First Century Bank was redesignated to Wytheville, Virginia. Effective
November 28, 1994, the merger of Bank of Oceana into The First National
Bank of Bluefield was completed and the name of the resulting entity was
changed to First Century Bank, National Association, with its main office
in Bluefield, West Virginia. Substantially, all of the operations of the
Corporation are carried on through its Bluefield subsidiary which serves as
the Registrant's lead bank. The officers and directors of the Corporation,
who are also officers and directors of the subsidiaries, receive their
entire compensation from the subsidiaries. The Corporation's executive
offices are located at 500 Federal Street, Bluefield, West Virginia.
The Registrant's principal business and major source of revenue
is, and is expected to remain, commercial banking. The Registrant
currently derives substantially all its revenues from dividends paid by the
subsidiary banks. Dividend payments by these subsidiaries are influenced
by the earnings, asset growth and current capital position of the
individual subsidiary. In addition, various regulatory agencies control
the payment of dividends. For additional information regarding the payment
of dividends, see Note 11 of the Notes to the Consolidated Financial
Statements in the Registrant's 1995 Annual Report to the Stockholders
attached as Exhibit 13 to this report.
FIRST CENTURY BANK, N.A.
First Century Bank, N.A., a national banking association, was
organized and chartered in 1891 as The First National Bank of Bluefield,
under the laws of the State of West Virginia and the National Bank Act.
Bluefield offers customary banking services, including commercial, real
estate, installment, and other loans; interest-bearing and non-interest
bearing transaction accounts, savings and time deposit accounts including
certificates and other deposit accounts, featuring various maturities and
market rates; Individual Retirement Accounts; Visa and MasterCard services
under an arrangement with a correspondent bank; safe deposit facilities;
personal and corporate trust services; and various cash management
services. In addition to the main office, Bluefield currently operates
five additional branches in Mercer and Wyoming counties in southern West
Virginia.
As of December 31, 1995, Bluefield had 120 full-time employees
and 9 part-time employees. Bluefield is not a party to any collective
bargaining agreements, and, in the opinion of management, enjoys
satisfactory re lations with its employees.
FIRST CENTURY BANK
First Century Bank, Wytheville, Virginia ("Wytheville"), is a
state chartered bank organized under the laws of the Commonwealth of
Virginia. Wytheville offers customary banking services, including
commercial, real estate, installment, and other loans; interest-bearing and
non-interest bearing transaction accounts, savings and time deposit
accounts including certificates and other deposit accounts, featuring
various maturities and market rates; Individual Retirement Accounts; Visa
and MasterCard services under an arrangement with a correspondent bank;
safe deposit facilities; personal and corporate trust services; and various
cash management services. In addition to the main office, Wytheville
currently operates one additional branch.
As of December 31, 1995, Wytheville had 14 full-time employees
and 2 part-time employees. Wytheville is not a party to any collective
bargaining agreements, and, in the opinion of management, enjoys
satisfactory relations with its employees.
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COMPETITION
Vigorous and intense competition exists in all areas where the
Registrant and its subsidiaries are engaged in business, generally from
other banks located in southern West Virginia and southwestern Virginia.
However, this competition is not only limited to other commercial banks.
The subsidiary banks also compete for certain lines of business with
savings and loan associations, mortgage companies, credit unions, consumer
finance companies, leasing companies, insurance companies, mutual funds and
brokerage firms. Significant competition also exists from state-wide
multi-bank holding companies located in West Virginia and Virginia, which
have offices in the communities the Registrant serves. These institutions
are larger in terms of capital, resources and personnel. This requires that
the Registrant place a high emphasis on quality service, with a significant
amount of personal attention, in order to effectively compete with these
larger institutions. Management feels that this competition is likely to
intensify in the future, as the so called "super-regionals" (such as
NationsBank and Banc One) continue to enter the markets in which the
Registrant currently operates.
FUTURE ACQUISITIONS AND EXPANSION
The Registrant may from time to time consider expansion of its
banking operations through acquisition of or formation of other banks
and/or bank related businesses.
SUPERVISION AND REGULATION
The Corporation is under the jurisdiction of the United States
Securities and Exchange Commission and the State of West Virginia's
Secretary of State with respect to matters relating to the offer and sale
of its securities and matters relating to reporting to such commissions and
to its shareholders.
The Corporation is a registered holding company under the Bank
Holding Company Act of 1956, as amended, and is regulated by the Federal
Reserve. As a bank holding company, the Corporation is required to file
with the Federal Reserve an Annual Report and such additional information
as the Federal Reserve may require pursuant to the Bank Holding Company
Act. The Federal Reserve may also conduct examinations of the Corporation
and each subsidiary. The Bank Holding Company Act requires every bank
holding company to obtain prior approval from the Federal Reserve before
acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any bank which is not already majority owned or
controlled by that bank holding company. The Federal Reserve is
prohibited, however, from approving the acquisition by the Corporation of
the voting shares of, or substantially all of the assets of, any bank
located outside West Virginia, unless such acquisition is specifically
authorized by the laws of the state in which the bank is located. Under
West Virginia law, the Corporation is authorized to acquire ownership or
control of additional banks in the state of West Virginia, provided, this
does not result in control of more than twenty percent (20%) of the total
deposits of all depository institutions in the state of West Virginia.
Acquisition of such additional banks would require ap proval from the
Federal Reserve and the Commissioner of Banking of the State of West
Virginia.
The Bank Holding Company Act further provides that the Federal
Reserve will not approve any acquisition, merger or consolidation (a) which
would result in a monopoly, (b) which would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the
business of banking at any part of the United States, (c) the effect of
which may be to substantially lessen competition or to tend to create a
monopoly in any section of the country or (d) which in any other manner
would be in restraint of trade, unless the anti-competitive effects of the
proposed transaction are clearly outweighed by the public interest in the
probable effect of the transaction meeting the convenience and needs of the
community to be served.
In addition to having the right to acquire ownership and control
of other banks, the Corporation is authorized to acquire ownership and
control of non-banking companies, provided the activities of such companies
are so closely related to banking or managing or controlling banks that the
Federal Reserve considers such activities to be proper to the operation and
control of banks. Regulation Y, promulgated by the Federal Reserve, sets
forth those activities which are regarded as closely related to banking or
managing or controlling banks and thus are permissible activities for bank
holding companies, subject to the approval by the Federal Reserve in
individual cases.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Bank Holding Company Act on any extension of
credit to the bank holding company or any of its subsidiaries, on
investment in the stock or other securities thereof, and on the taking of
such stock or securities for loans to any borrower. Further, under Section
106 of the 1970 amendments to the Bank Holding Company Act and the
regulations of the Federal Reserve, a bank holding company through its
banking subsidiaries is prohibited from engaging in certain tie-in
arrangements in connection with any extension
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of credit or provision of any property or services. The Federal Reserve
possesses cease and desist powers over bank holding companies and their
non-bank subsidiaries if their actions are unsafe or unsound practices or
violations of law.
Bluefield operates as a national banking association subject to
examination by the Office of the Comptroller of the Currency (the
"Comptroller"). The Comptroller regulates all areas of a national bank's
operations, both commercial and trust, including loans, deposits, mergers,
branches, interest rates, and payments of dividends.
Bluefield, by means of its national charter, is also a member of
the Federal Reserve System, and as such, is affected by the monetary
policies of the Federal Reserve System which regulates the national money
supply in order to mitigate recessionary and inflationary pressures. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U. S. Government securities, changes in the reserve
requirement for member banks, and changes in the discount rate for member
bank borrowings.
In view of the changing conditions in the national economy and
the money markets, as well as, the effect of actions by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand of
the business and earnings of the Corporation or its subsidiaries.
Wytheville operates as an insured state non-member bank subject
to examination by the Bureau of Financial Institutions of the State
Corporation Commission of the Commonwealth of Virginia. The Bureau of
Financial Institutions regulates all areas of a state bank's operation,
both commercial and trust, including loans, deposits, mergers, branches,
interest rates and payment of dividends.
Both of the subsidiary banks are also insured and regulated by
the Federal Deposit Insurance Corporation (the "FDIC"). The major function
of the FDIC with respect to insured member banks is to pay depositors to
the extent provided by law in the event an insured bank is closed without
adequately providing for payment of the claims of the depositors.
STATISTICAL DISCLOSURE
The statistical and other financial data disclosures required
pursuant to Guide 3 of the Preparation and Filing of Reports and
Registration Statements under the Securities Exchange Act of 1934 are
contained within Management's Discussion and Analysis of Financial
Condition and Results of Operations appearing on pages 3 through 15 of the
accompanying 1995 Annual Report to Stockholders, incorporated herein by
reference in this Form 10-K annual report as Exhibit 13.
ITEM 2. PROPERTIES
The offices of the Registrant are located at 500 Federal Street,
Bluefield, West Virginia. Principal properties owned or leased by the
subsidiary banks consist of modern single purpose facilities that house all
the amenities to comfortably conduct the full range of financial services
provided by the Registrant and its subsidiaries.
Bluefield holds title to seven pieces of real estate, including the
property and building at 500 Federal Street, the property and building at
516 Federal Street, formerly known as the "Ammar Building." These two
buildings, which are adjacent to each other, comprise a total of
approximately 45,000 square feet of space. The third property is located at
501 Federal Street, which comprises approximately 4,300 square feet of
interior space and approximately 10,200 square feet of real estate. The
fourth property is located at 519 Federal Street, and consists of
approximately 5,000 of interior space. These four properties accommodate
the main offices of both Bluefield and the Registrant.
Bluefield also holds title to three pieces of real estate in Wyoming
County, West Virginia. (1) The property and building that houses the office
in Oceana, located on State Route 10, Cook Parkway, Oceana, West Virginia.
This property consists of approximately 22,000 square feet, of which
approximately 6,500 square feet is interior space. (2) The property and
building that houses the Pineville office located on State Route 10,
Pineville, West Virginia. This property consists of approximately 18,000
square feet, of which approximately 3,000 square feet is interior space.
(3) Lots Number 22 and 23 Hedrick Addition which is currently used as an
employee parking lot for the Oceana main office. This property consists of
approximately 14,000 square feet, of which 5,500 square feet is paved.
In addition, Bluefield leases approximately 8,000 square feet at 200
Princeton Avenue, Bluefield, WV, in accordance with a renewable lease which
provides for an annual rent of $5,000. Bluefield also leases ap proximately
21,750 square feet
5
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feet of space at 2020 College Avenue, Bluefield, WV, under a renewable
lease which currently requires a rental rate of $600 per month. Bluefield
also leases approximately 27,225 square feet of space at 1215-A Stafford
Drive, Princeton, WV. The current renewable lease provides for rent to be
paid at the rate of $14,000 per year with adjustments allowed at the end of
each five year period of the term. In addition, Bluefield also leases
approximately 10,000 square feet at 525 Federal Street, Bluefield, WV,
under a lease which has an annual rent of $19,200.
Wytheville holds title to two pieces of real estate. The property and
building located at 200 Peppers Ferry Road in Wytheville, Virginia houses
the main office and is comprised of approximately two acres of real estate
and approximately 6,200 square feet of interior space. Wytheville also
owns the property and building located on State Route 52 in Max Meadows,
Virginia, which is comprised of approximately one acre of real estate and
approximately 2,000 square feet of interior space and houses the Fort
Chiswell branch.
ITEM 3. LEGAL PROCEEDINGS
Neither the Registrant nor any of its subsidiaries are presently
involved in any material legal proceedings other than ordinary routine
litigation incidental to its business.
As a result of efforts to collect a delinquent loan, Bluefield filed
suit in the Circuit Court of Mercer County, Civil Action 85-C-847-B,
against Andrew L. Clark and William J. Sheppard involving their alleged
failure to pay equity into a townhouse project which was the subject of a
loan agreement with Mercer County, West Virginia, covering the issuance of
an industrial revenue bond in the principal sum of $1,000,000. Still
pending are certain counts of a counterclaim filed by Clark and Sheppard in
relation to the underlying case which was decided in Bluefield's favor.
Management and legal counsel feel strongly that the remaining counts of the
counterclaim filed by Clark and Sheppard are without merit.
As a result of efforts to collect delinquent loans, Oceana filed suit in
the Circuit Court of Wyoming County, Civil Action 90-C-152, against Michael
C. Crouch, d/b/a K&M Auto Sales. Crouch has filed a counterclaim seeking
$3,000,000 in damages against Oceana. The counterclaim purports fraudulent
acts and other wrong-doings relative to the payment and collection of these
loans. Management feels that this counterclaim is without merit and is
vigorously contesting this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to security holders for a vote during
the fourth quarter ended December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
No established public market presently exists for the common stock of
the Registrant. Management does not expect that a more active trading
market will develop in the near future for the common stock of the
Registrant.
Page 13 of the 1995 Annual Report to Stockholders (incorporated herein
by reference) describes further the information for market, stockholders,
and dividends. The payment of dividends is subject to the restrictions
described in Note 11 of the Notes to Consolidated Financial Statements.
The Board of Directors evaluates the dividend payment on the Registrant's
common stock after the conclusion of each calendar quarter.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data required by this item is set forth in
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 15 of the Registrant's 1995 Annual Report to
Stockholders (Exhibit 13), incorporated herein by reference.
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations appearing on pages 3 through 15 of the accompanying 1995
Annual Report to Stockholders is incorporated by reference in this Form
10-K annual report as Exhibit 13. Management's discussion and analysis
should be read in conjunction with the related financial statements and
notes thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements, management report of financial
responsibility, and report of independent accountants for the years ended
December 31, 1995, 1994, and 1993, which are included in the Corporation's
1995 Annual Report to Stockholders (Exhibit 13), are incorporated herein by
reference:
The report of independent accountants on page 35 of the Registrant's
1995 Annual Report to Stockholders reflects an unqualified opinion on the
1995 and 1994 consolidated statements of financial condition and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended
December 31, 1995, issued by Coopers & Lybrand, Charlotte, North Carolina,
the Registrant's independent accountant for those years.
<TABLE>
<CAPTION>
Reference to
1995 Annual Report
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<S> <C>
Consolidated Statements of Condition Page 16
Consolidated Statements of Income Page 17
Consolidated Statements of Cash Flows Page 18
Consolidated Statements of Changes
in Stockholders' Equity Page 19
Notes to Consolidated Financial
Statements Pages 20 through 34
Report of Independent Accountants Page 35
</TABLE>
The supplementary financial information required by this item is set
forth in Note 14 of "Notes to Consolidated Financial Statements" on Page 32
of the Corporation's 1995 Annual Report to Stockholders (Exhibit 13),
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the independent accountants on
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors and executive officers of the
Registrant has been omitted in accordance with General Instruction G since
Registrant has filed its definitive proxy statement with the Com mission on
or about March 29, 1996 (which is not later than 120 days after December
31, 1995, the close of the fiscal year of Registrant): and such information
is incorporated herein by reference to such proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
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Management remuneration has been omitted in accordance with General
Instruction G since Registrant has filed its definitive proxy statement
with the Commission on or about March 29, 1996, (which is not later than
120 days after December 31, 1995, the close of the fiscal year of
Registrant): and such information is incorporated herein by reference to
such proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners and management has
been omitted in accordance with General Instruction G since Registrant has
filed its definitive proxy statement with the Commission on or about March
29, 1996, (which is not later than 120 days after December 31, 1995, the
close of the fiscal year of Registrant): and such information is
incorporated herein by reference to such proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and related transactions has been omitted in
accordance with General Instruction G since Registrant has filed its
definitive proxy statement with the commission on or about March 29, 1996,
(which is not later than 120 days after December 31, 1995, the close of the
fiscal year of Registrant): and is incorporated herein by reference to such
proxy statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
See Item 8 on Page 6 of this document for a listing of all
Financial Statements, Accountants' Report, and Supplementary
Data.
2. Financial Statement Schedules.
All schedules are omitted, as the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements or related notes.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the fourth quarter of
1995.
(c) Exhibits
3. Articles of incorporation and bylaws.
Articles of amendment to articles of incorporation and restated
articles of incorporation were filed with and are incorporated
herein by reference to the 1994 Form 10-K. (Bylaws were
previously filed in a Registration Statement on Form S-14,
Registration No. 2-85126, and are incorporated herein by
reference.)
10. Material Contracts
a. Sample agreement pertaining to a split-dollar life insurance
arrangement between Bluefield and Messrs. Wilkinson,
Satterfield, Kennett and Albert.
11. Statement regarding computation of per share earnings.
(These statements are included in the notes to the consolidated
financial statements which are incorporated herein by reference.)
13. Annual report to security holders.
22. Subsidiaries of the registrant.
(This disclosure is included in the notes to the consolidated
financial statements which are incorporated herein by reference.)
27. Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Pocahontas Bankshares Corporation
BY: /s/ J. Ronald Hypes
-----------------------------------------
J. Ronald Hypes, Treasurer
(Principal Accounting & Financial Officer)
DATE: March 20, 1996
------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
BY: /s/ B. L. Jackson Date: March 12, 1996
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B. L. Jackson, Jr., Chairman of the
Board and Director
BY: /s/ R. W. Wilkinson Date: March 20, 1996
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R. W. Wilkinson, President & Chief
Executive Officer & Director
(Principal Executive Officer)
BY: /s/ Charles A. Peters Date: March 19, 1996
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Charles A. Peters, Secretary and Director
BY: Date:
------------------------------- --------------
Stelio J. Corte, Director
BY: /s/ Eustace Frederick Date: March 19, 1996
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Eustace Frederick, Director
BY: Date:
------------------------------- --------------
P. Stanley Hodges, C.P.A., Director
BY: /s/ Robert M. Jones, Jr. Date: March 19, 1996
------------------------------- --------------
Robert M. Jones, Jr., M.D., Director
BY: Date:
------------------------------- --------------
Harold L. Miller, Jr., Director
BY: Date:
------------------------------- --------------
C. E. Richner, Director
BY: /s/ B. K. Satterfield Date: March 20, 1996
------------------------------- --------------
Byron K. Satterfield, Director
9
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BY: Date:
------------------------------- --------------
John C. Shott, Director
BY: /s/ Scott H. Shott Date: March 19, 1996
------------------------------- --------------
Scott H. Shott, Director
BY: /s/ Walter L. Sowers Date: March 19, 1996
------------------------------- --------------
Walter L. Sowers, Director
BY: /s/ J. Brookins Taylor Date: March 19, 1996
------------------------------- --------------
J. Brookins Taylor, M. D., Director
BY: /s/ James P. Thomas Date: March 19, 1996
------------------------------- --------------
James P. Thomas, M. D., Director
10
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Exhibit 10
THE FIRST NATIONAL BANK OF BLUEFIELD
EXECUTIVE SPLIT DOLLAR LIFE INSURANCE AGREEMENT
This EXECUTIVE SPLIT DOLLAR LIFE INSURANCE AGREEMENT is made as of the
1st day of April, 1988, by and between The First National Bank of
Bluefield, a West Virginia corporation (the "Company") and
, an executive employed by the Company (the
--------------------------
"Executive").
1. Definitions. Where indicated by initial capital letters, the
-----------
following terms shall have the following meaning:
(a) Agreement: The Executive Split Dollar Life Insurance Agreement
---------
(including Schedules and attachments) entered into between the Company and
Executive pursuant to the Plan.
(b) Amount: The level of insurance specified by Executive in
------
Schedule A which shall not be more than 5 times Executive's Compensation.
(c) Beneficiary: The person or persons designated in writing by
-----------
Executive to receive the Amount.
(d) Cause: Cause means, but is not limited to, a determination by
-----
the Company that Executive may have been guilty of criminal conduct
(regardless of whether proven or admitted), gross negligence or willful
misconduct in the performance of his duties or otherwise, or has engaged in
conduct which, if generally known, would bring discredit to or give rise to
adverse publicity to the Company.
(e) Compensation: Compensation means the Executive's annual
------------
rate of total cash compensation as in effect on January 1 of any year of an
election to increase the Amount.
(f) Insurer: Crown Life Insurance Company, or any other insurance
-------
company issuing a life insurance contract on Executive's life.
(g) Plan: The First National Bank of Bluefield Executive Split
----
Dollar Life Insurance Plan.
(h) Policy: One or more life insurance contracts issued on the
------
life of Executive pursuant to the Plan as identified on Schedule A.
(i) Recoverable Amount: The Company's annual premium, exclusive of
-------------------
any rating, less any amount received from the Executive, compounded at 6%
interest (compounded annually).
(j) Company Cumulative Outlay: The Company's cumulative total
-------------------------
premiums paid to the Insurer, exclusive of ratings, less all amounts
received from the Executive for the Policy.
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(k) Roll-out: Division of the policy into two separate policies,
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one to be retained by the Company, and the other to be transferred to the
Executive.
(l) Retirement: Termination of employment (except for Cause) after
----------
attainment of age 55 with at least ten years of service.
2. Application of Insurance. The Company will apply to the Insurer for
-------------------------
a Policy with a face amount at least equal to the amount of insurance to
which the Executive is entitled under the Plan. The Company may apply for
additional insurance to insure payment to the Company of the Recoverable
Amount. The Company and the Executive agree to take any action necessary
to cause the Insurer to issue the Policy. The Policy shall be subject to
the terms of this Agreement.
3. Amount or Insurance. Executive shall have the right to specify
-------------------
initially the Amount, which shall not be more than 5 times Executive's
Compensation. Executive may thereafter increase the Amount as of April 1
of any subsequent year. If Executive is not then insurable at standard
rates, the additional rating shall be paid by the Company. Any increase in
the Amount shall be not less than $50,000.
4. Ownership. The Company shall be the owner of the Policy, and it may
---------
exercise all ownership rights granted to the owner by the terms of the
Policy except as otherwise provided in this Agreement. The Company shall
keep possession of the Policy.
5. Dividend Option. All dividends declared by the Insurer on the
---------------
Policy shall be applied to purchase additional paid-up life insurance on
the life of the Executive. The dividend option will not be changed without
Executive's written consent.
6. Payment of Premiums.
-------------------
(a) The Company agrees to pay the total amount of each annual Policy
premium on or before the due date of such premium, or within the grace
period provided, if any.
(b) Thirty (30) days prior to the due date of each annual Policy
premium, the Company shall notify the Executive of the exact amount due
from the Executive to the Company as a premium payment. The amount due
shall be equal to the lesser of (a) the annual cost of the term life
insurance protection on the life of the Executive as measured by the PS-58
rate (or substitute table) published from time to time by the Internal
Revenue Service, and (b) the term rates published from time to time by the
Insurer, as determined by the Insurer. The annual amount payable by
Executive may be deducted ratably from Executive's Compensation.
7. Death Benefits.
---------------
(a) Upon the Executive's death, the Company will promptly take the
appropriate action to obtain the death benefits provided under the Policy,
and
<PAGE>
(i) The Company shall be entitled to receive the excess of the
total Policy proceeds over the Amount specified by Executive pursuant to
Section 3. The receipt by the Company of the excess over the amount shall
constitute satisfaction of the Executive's obligation to the Company under
this Agreement; and
(ii) the beneficiary or beneficiaries named under the Policy
shall be entitled to receive the Amount which shall be paid in accordance
with the settlement option elected by the Company at the Executive's
request.
(b) If at the time the Amount becomes payable because of Executive's
death there is no effective beneficiary designation, the Amount shall be
paid to the Executive's estate.
(c) If any beneficiary who is entitled to receive a payment from the
Company pursuant to this Agreement is a minor, the Company, in its
discretion, may dispose of such amount in any one or more of the following
ways:
(i) By payment of the Amount directly to the minor;
(ii) By application of the Amount for the benefit of the minor;
(iii) By payment of the Amount to a parent of the minor or to any
adult person with whom the minor is living at the time or to any person who
is legally qualified and is acting as guardian of the minor or of the
property of the minor, provided that the parent or adult person to whom any
amount is to be paid had advised the Company in writing that he or she will
hold or use the Amount for the benefit of the minor.
(iv) By payment of the Amount to a custodian selected by the
Company under the appropriate Uniform Transfers to Minors Act.
(d) If a beneficiary who is entitled to receive a payment from the
Company under this Agreement is physically or mentally incapable of
personally receiving and giving a valid receipt for any payment due, the
payment may be made to the beneficiary's legal representative, the person's
spouse, son, daughter, parent, brother, sister or other person deemed by
the Company to have incurred expense for the person otherwise entitled to
payment.
(e) The selection of a method of distribution under this Section shall
be in the discretion of the Company, and the Company may not be compelled
to select any method it does not deem to be in the best interest of the
distributee.
8. Policy loans.
------------
(a) The Company has the right to obtain loans secured by the Policy
from the Insurer or from others. The Company also has the right to assign
the Policy as security for the repayment of such loans. The amount of such
loans together with interest thereon shall at no time exceed the Company
Cumulative Outlays. All interest charges with respect to any loans shall
be paid by the Company.
(b) If the Policy is assigned or encumbered in any way, other than a
Policy Loan, on the date of the Executive's death, the Company shall secure
a release or discharge of the assignment or encumbrance to ensure the
prompt payment of death proceeds under the Policy to the Executive's
beneficiary or beneficiaries.
<PAGE>
9. Timing of Roll-Out. Roll-out shall occur no later than the first
------------------
policy anniversary on which:
(1) the Company may retain a policy with cash surrender value equal to
the Company Cumulative Outlays and with death benefits at least equal to
the Recoverable Amount, and
(2) the Executive may receive a policy with death benefits at least
equal to the Amount of coverage specified by the Executive, with no outlays
required to sustain this Amount based on the Dividend schedule in effect on
the Roll-out date, and with no loans.
The Executives may elect an earlier Roll-out date provided that the Company
receives a policy with cash surrender value equal to Company Cumulative
Outlays and with death benefits at least equal to the Recoverable Amount.
10. Amendment and Termination of Agreement.
--------------------------------------
(a) This Agreement may not be amended, altered, or modified except in
writing and signed by the Company and the Executive.
(b) This Agreement shall terminate upon the earliest to occur of any
of the following events:
(i) Roll-out
(ii) termination of the Executive's employment other than by
reason of the death, retirement, or disability (unless the Company
determines that Executive shall be treated as an active employee after a
termination of employment);
(iii) cessation of the Company's business or the bankruptcy,
receivership or dissolution of the Company, unless the Company's business
is continued by a successor corporation or business entity;
(iv) termination of the Agreement by Executive upon written
notice to the Company; or
(v) termination of the Plan by the Company.
(c) If the Executive's termination of employment with the Company is
by reason of disability (as determined by the Company) or by reason of
Retirement, this Agreement shall remain in full force and effect.
11. Disposition of Policy on Termination of Agreement.
-------------------------------------------------
(a) As of the Executive's Roll-out date, the Company shall provide the
Policy into two policies, retaining one policy with a cash surrender value
equal to the Company Cumulative Outlays and a death benefit at least equal
to the Recoverable Amount. The Company shall transfer the remaining policy
to the Executive.
(b) If this Agreement is terminated because of the Executive's
termination of employment for cause (as determined by the Company), the
Executive shall have no rights to the Policy and shall not be permitted to
effectuate a Roll-out at any time.
(c) If this Agreement is terminated because of the Executive's
termination of employment for a reason other than cause, retirement, or a
disability, or pursuant to Section 10 (b) (iii) or (v) of this Agreement,
the Executive,
<PAGE>
at any time within thirty (30) days after his termination of employment (or
longer period as allowed by the Company) shall have the absolute right to
purchase all of the Company's right, title and interest in the Policy free
and clear of all liens, claims or encumbrances (including any Policy loans)
for cash, by tendering to the Company an amount equal to the Company's
Recoverable Amount. The Executive may direct the Company to borrow against
the cash value of the Policy or surrender any paid-up additions to the
Policy and purchase the Policy, subject to any such Policy loan, for an
amount equal to the Company's Recoverable Amount less such borrowed or
cashed-in values.
12. Miscellaneous.
-------------
(a) This Agreement shall not affect any rights the Executive may
otherwise have under any pension, profit sharing or other employee benefit
plan established by the Company.
(b) This Agreement shall be binding on the Company, its successors and
assigns, and it shall be interpreted in accordance with the laws of West
Virginia.
(c) Except as permitted by law or by the Company's written consent,
any benefits to which the Executive or his beneficiaries may become
entitled under this Agreement shall not be subject to anticipation,
alienation, sale, transfer, assignment, or pledge. The Company shall not
be liable for, or subject to, the debts, contracts, liabilities, or torts
of any person entitled benefit under this Agreement.
(d) This Agreement shall not confer upon the Executive any legal or
equitable right against the Company except as expressly provided in this
Agreement, the Plan and the Policy.
(e) Neither this Agreement, the Plan nor the Policy shall constitute
an inducement or consideration for the employment of the Executive and
shall not give the Executive any right to be retained in the employ of the
Company, and the Company hereby retains the right to discharge the
Executive at any time, with or without cause.
(f) The Executive's interest under this Agreement, the Plan and the
Policy, may be assigned by the Executive upon written notice to the
Company.
(g) If a provision of this Agreement is not valid or enforceable, that
fact in no way affects the validity of enforceability of any other
provision.
In consideration of the foregoing, the Company and the Executive have
executed this Agreement in duplicate, all as of the day and year first
written above.
THE FIRST NATIONAL BANK OF BLUEFIELD
By: ________________________________________
____________________________________________
____________________________________________
<PAGE>
Exhibit 13
[Pocahontas Bankshares Corporation
Logo Appears Here]
Pocahontas Bankshares Corporation
1995
Annual Report
<PAGE>
Common Shares
Common shares are not traded on any stock exchange nor over-the-counter.
Stockholder Inquiries
Communications regarding transfer requirements and lost certificates should be
directed to the transfer agent.
Transfer Agent/Registrar
First Century Bank, N.A., Stock Transfer Department, Trust Division, P.O. Box
1559, Bluefield, WV 24701.
Form 10-K Information
Copies of the Pocahontas Bankshares Corporation's Annual Report to the
Securities and Exchange Commission, Form 10-K, may be obtained by writing J.
Ronald Hypes, Treasurer, Pocahontas Bankshares Corporation, P.O. Box 1559,
Bluefield, WV 24701.
Annual Meeting
The annual meeting of the stockholders will be held at 11:00 AM, Tuesday, April
16, 1996, at Fincastle Country Club, Bluefield, Virginia. All stockholders are
cordially invited to attend.
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Financial Highlights......................................... 1
Letter to the Stockholders................................... 2
Management's Discussion and Analysis of Financial Condition
and Results of Operation................................ 3
Consolidated Statements of Financial Condition............... 16
Consolidated Statements of Income............................ 17
Consolidated Statements of Cash Flows........................ 18
Consolidated Statements of Changes in Stockholders' Equity... 19
Notes to Consolidated Financial Statements................... 20
Report of Independent Accountants............................ 35
Boards of Directors.......................................... 36
Corporate and Bank Officers.................................. Inside back cover
Pocahontas Bankshares Corporation Subsidiaries............... Back cover
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------------- Financial
(Dollars in Thousands, Except Per Share Data) Highlights
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
FOR THE YEAR
- ------------------------------------------------------------------------------------------
Total operating income $ 22,208 $ 20,041 $ 18,796
Total operating expense 17,613 16,409 16,327
Net income 2,414 2,257 1,547
Cash dividends declared 1,100 1,000 875
- ------------------------------------------------------------------------------------------
AT YEAR END
- ------------------------------------------------------------------------------------------
Assets $ 265,980 $ 261,299 $ 261,974
Deposits 232,172 230,882 229,451
Loans 177,794 171,325 177,331
Securities 58,859 64,295 58,980
Stockholders' equity 23,186 21,161 20,366
- ------------------------------------------------------------------------------------------
PER COMMON SHARE
- ------------------------------------------------------------------------------------------
Net income $ 2.41 $ 2.26 $ 1.55
Cash dividends declared 1.10 1.00 0.875
Book value 23.19 21.16 20.37
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------
LOANS
- -----------------------------------------------
<S> <C>
1995 $177,794
1994 $171,325
1993 $177,331
- -----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------
ASSETS
- -----------------------------------------------
<S> <C>
1995 $265,980
1994 $261,299
1993 $261,974
- -----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------
DEPOSITS
- -----------------------------------------------
<S> <C>
1995 $232,172
1994 $230,882
1993 $229,451
- -----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------
BOOK VALUE PER SHARE
- -----------------------------------------------
<S> <C>
1995 $23.19
1994 $21.16
1993 $20.37
- -----------------------------------------------
</TABLE>
Pocahontas Bankshares Corporation Page 1
<PAGE>
Letter to the Stockholders
To Our Stockholders,
Customers and Friends:
The directors, officers and employees of Pocahontas Bankshares Corporation and
its wholly-owned subsidiaries, First Century Bank, N.A. and First Century Bank,
Virginia, are pleased to present this Annual Report for 1995.
Pocahontas Bankshares Corporation had the most profitable year in its history
with net income of $2,414,000. This represented an increase for 1995 of 7% over
the previous year. On a per share basis, net income rose to $2.41 compared to
$2.26 the previous year. Total assets were $265,980,000, the highest in the
history of the Corporation. The return on average assets for 1995 was 0.92% and
the return on average equity was 10.79%. Although slightly lower than our
peers, these performance ratios continue to improve through our efforts to
expand our customer base and maintain high asset quality standards.
The year 1995 was the first full year that we operated our West Virginia
operations as one bank under the name of First Century Bank, N.A. Management is
pleased with the performance of the bank since the merger which has resulted in
reduced expenses and more efficient operations. Management believes the merger
is accomplishing its primary goal of providing better service and quality
financial products for our customers.
During 1995, the Corporation began a major renovation of its main office
location in downtown Bluefield, West Virginia. This renovation will result in a
state-of-the-art operations center, along with a modern retail and commercial
financial center. The refurbished main office building will be enhanced with
new drive-in facilities, a 24-hour automated teller machine and additional
parking for the convenience of our customers. This much needed renovation of
the Corporation's antiquated facilities will allow for our continued growth and
expansion efforts well into the next century. Completion of this project is
anticipated for early fall 1996.
Pocahontas Bankshares Corporation continues to be locally owned and managed
and is dedicated to giving quality service and quick response to its customers.
We continue to build and enhance our strong tradition of community banking
excellence and personal service by meeting the financial needs of our customers
on a timely and cost effective basis. We are committed to providing outstanding
service and quality financial products, both personal and electronic, that will
permit us to meet the needs of our customers and provide them with the
technology that will be required for survival as we enter the new millennium.
We ask for your continued support of Pocahontas Bankshares Corporation and its
banking subsidiaries as we make every effort to provide quality service to the
people in our region. Your confidence and continued support are greatly
appreciated.
Sincerely,
/s/ R. W. "Buz" Wilkinson
R. W. "Buz" Wilkinson
President & Chief Executive Officer
Page . 2 Pocahontas Bankshares Corporation
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
AVERAGE STATEMENTS OF CONDITION AND NET INTEREST DIFFERENTIAL
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
Average Average Average Average Average Average
ASSETS: Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks $ 1,525 $ 86 5.64% $ 90 $ 3 3.33% $ 30 $ 1 3.33%
Securities:
U. S. Government securities 36,863 1,880 5.10% 43,666 2,167 4.96% 38,666 2,149 5.56%
U. S. Government agency 13,706 857 6.25% 9,708 514 5.29% 11,266 704 6.25%
State and Municipal securities 3,797 287 7.56% 3,313 265 8.00% 3,724 297 7.98%
Other securities 6,290 450 7.15% 5,882 438 7.45% 5,426 431 7.94%
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities 60,656 3,474 5.73% 62,569 3,384 5.41% 59,082 3,581 6.06%
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold 8,853 531 6.00% 4,347 205 4.72% 9,064 269 2.97%
Loans 175,280 16,566 9.45% 177,888 14,746 8.29% 167,891 13,263 7.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 246,314 20,657 8.39% 244,894 18,338 7.49% 236,067 17,114 7.25%
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (2,059) (1,903) (1,592)
Cash and due from banks - demand 7,670 9,623 8,597
Premises and equipment - net 4,909 4,837 4,116
Other assets 5,622 5,190 5,724
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $262,456 $262,641 $252,912
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Interest-bearing demand deposits $ 48,920 1,660 3.39% $ 53,365 1,600 3.00% $ 45,984 1,575 3.43%
Savings deposits 69,118 2,502 3.62% 79,757 2,616 3.28% 73,496 2,671 3.63%
Time deposits 85,862 4,441 5.17% 72,634 2,849 3.92% 77,613 3,115 4.01%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 203,900 8,603 4.22% 205,756 7,065 3.43% 197,093 7,361 3.73%
Short-term debt 9,661 449 4.65% 7,496 221 2.95% 7,903 202 2.56%
Long-term debt -- -- -- 1,823 138 7.57% 2,597 164 6.31%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 213,561 9,052 4.24% 215,075 7,424 3.45% 207,593 7,727 3.72%
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 24,668 25,194 23,401
Other liabilities 1,858 1,555 1,510
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 240,087 241,824 232,504
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 22,369 20,817 20,408
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $262,456 $262,641 $252,912
====================================================================================================================================
Average rate paid to fund earning
assets 3.67% 3.03% 3.27%
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST DIFFERENTIAL $ 11,605 4.71% $ 10,914 4.46% $ 9,387 3.98%
====================================================================================================================================
</TABLE>
For purposes of this schedule, interest on nonaccrual loans has been included
only to the extent reflected in the income statement. However, the loan balance
is included in the average amount outstanding. Interest income on tax-exempt
securities is shown based on the actual yield.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VOLUME/RATE ANALYSIS
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Interest
------------------------------------------------------------------------------------------
1995 vs. 1994 1994 vs. 1993 1993 vs. 1992
------------------------------------------------------------------------------------------
(Dollars in Thousands)
Due to Change in (1) Due to Change in (1) Due to Change in (1)
------------------------------------------------------------------------------------------
Interest income on: Volume Rate Total Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Loans $ (231) $2,051 $1,820 $ 809 $ 674 $1,483 $1,531 $ (843) $ 688
Securities (107) 197 90 200 (397) (197) (281) (739) (1,020)
Federal funds sold 241 85 326 (181) 117 (64) 37 (33) 4
Interest?bearing deposits with banks 64 19 83 2 -- 2 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME (33) 2,352 2,319 830 394 1,224 1,287 (1,615) (328)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest?bearing demand deposits (142) 202 60 237 (211) 26 540 (144) 396
Savings deposits (367) 253 (114) 216 (271) (55) 559 (279) 280
Time deposits 602 990 1,592 (198) (68) (266) (596) (649) (1,245)
Short-term borrowings 82 146 228 (11) 30 19 (39) (10) (49)
Long-term debt (138) 0 (138) (54) 27 (27) (44) 1 (43)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 37 1,591 1,628 190 (493) (303) 420 (1,081) (661)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ (70) $ 761 $ 691 $ 640 $ 887 $1,527 $ 867 $ (534) $ 333
====================================================================================================================================
</TABLE>
(1) Changes due to a combination of volume and rate have been allocated equally
to volume and rate.
Pocahontas Bankshares Corporation Page 3
<PAGE>
The purpose of this discussion is to focus and expand on certain
information about the Corporation's financial condition and results of
operations which is not otherwise apparent from the audited consolidated
financial statements included in this Annual Report. Reference should be made
to those statements and the selected financial data presented elsewhere in this
report for a thorough understanding of the following discussion and analysis.
Management is not aware of any market or institutional trends, events or
uncertainties that will have or are reasonably likely to have a material effect
on the liquidity, capital resources or operations of the Corporation, except as
discussed herein. Management is also not aware of any current recommendations
by any regulatory authorities which would have such a material effect if
implemented.
Corporate Structure and Acquisitions
Pocahontas Bankshares Corporation ("Corporation"), was chartered under the
laws of West Virginia and operates as a multi-bank, interstate bank holding
company, headquartered in Bluefield, WV. The Corporation began active operations
in March 1984, in a business combination with its then sole subsidiary, The
First National Bank of Bluefield. Pocahontas has acquired and currently operates
two subsidiary banks, First Century Bank, N.A., Bluefield, WV ("Bluefield"), and
First Century Bank, Wytheville, VA ("Wytheville"). These subsidiaries are
engaged in commercial banking activities which provide financial services to
individuals and businesses throughout southern West Virginia and southwestern
Virginia.
On August 30, 1993, Wytheville completed the acquisition of approximately
$6.6 million of deposits and the fixed assets of the Fort Chiswell Branch of
Dominion Bank, N. A. (now First Union Bank). This purchase improved the
Corporation's market presence in Wythe County, Virginia. Additionally, the
staff has worked diligently to retain the customer base and only nominal
depletion of the deposit base has occurred.
During 1994, the Corporation merged the Bank of Oceana into The First
National Bank of Bluefield. The name of the resulting bank was changed to First
Century Bank, N.A. This decision was carefully evaluated prior to its
implementation, because of the long-standing tradition of both institutions
within their local communities. The merger will afford the Corporation the
ability to streamline operations, as well as provide for more consistent
marketing opportunities with Wytheville. Additionally, benefits will accrue for
any future expansion as systems are consistently applied throughout the
organization.
Management continues to evaluate its current corporate structure for ways
to increase efficiency and reduce its overhead expenses. The commitment to
streamline the operations of the Corporation is expected to result in continued
improvement in its financial performance.
Balance Sheet Analysis
The Corporation functions as a financial intermediary, and as such, its
financial condition can best be examined in terms of trends in its sources and
uses of funds.
Loans
The Corporation's primary use of funds is loan demand, its most profitable
deployment of funds. Total loans increased $6.5 million or 3.8% in 1995
following a $6.0 million or 3.4% decrease in 1994. Expanding affiliate markets
has contributed to loan growth, however, some of the Corporation's large credits
were paid off unexpectedly before year end 1994 and those funds were redeployed
during 1995.
Page 4 Pocahontas Bankshares Corporation
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNTS OF LOANS OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 45,592 $ 46,173 $ 51,240 $ 46,402 $ 46,856
Real estate construction 3,541 2,202 1,911 829 1,043
Real estate mortgage 102,178 97,020 101,781 89,167 70,851
Installment 26,483 25,930 22,399 21,283 22,088
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS OUTSTANDING $177,794 $171,325 $177,331 $157,681 $140,838
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MATURITY SCHEDULE OF LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
Remaining maturity at December 31, 1995
-------------------------------------------------------------------
(Dollars in Thousands)
1 Year or 1 to 5 After 5 Total
Less Years Years
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 36,371 $ 5,965 $ 3,256 $ 45,592
Real estate construction 3,154 387 -- 3,541
Real estate mortgage 60,169 27,785 14,224 102,178
Installment 7,483 18,234 766 26,483
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $107,177 $52,371 $18,246 $177,794
- ------------------------------------------------------------------------------------------------------------------------------------
Loans with fixed
interest rates $ 9,224 $49,935 $18,246 $ 77,405
Loans with floating
interest rates 97,953 2,436 -- 100,389
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $107,177 $52,371 $18,246 $177,794
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS AND LOAN LOSS ANALYSIS
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $175,280 $177,888 $167,891 $149,138 $130,372
Allowance for loan losses:
Balance at beginning of period $ 1,985 $ 1,858 $ 1,540 $ 1,228 $ 1,075
Loans charged off
Commercial, financial and agricultural 225 270 106 207 188
Real estate construction -- -- -- -- --
Real estate mortgage 235 438 57 145 120
Installment loans to individuals 254 165 137 141 182
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS CHARGED OFF 714 873 300 493 490
- ------------------------------------------------------------------------------------------------------------------------------------
Loan recoveries
Commercial, financial and agricultural 8 577 148 91 3
Real estate construction -- -- -- -- --
Real estate mortgage -- 14 -- 2 4
Installment loans to individuals 27 14 11 14 7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LOAN RECOVERIES 35 605 159 107 14
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans charged off (679) (268) (141) (386) (476)
Provision for loan losses 839 395 459 698 629
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ 2,145 $ 1,985 $ 1,858 $ 1,540 $ 1,228
====================================================================================================================================
Ratio of net loans charged off to
average loans outstanding 0.39% 0.15% 0.08% 0.26% 0.37%
Allowance at year end as a percent of loans 1.21% 1.15% 1.05% 0.98% 0.87%
Provision for loan losses as a percent of loans 0.47% 0.23% 0.26% 0.44% 0.45%
- ------------------------------------------------------------------------------------------------------------------------------------
Nonperforming assets (at year end)
Nonaccrual $ 3,194 $ 1,564 $ 1,716 $ 1,386 $ 2,845
Past-due ninety days or more and still accruing 781 536 411 479 1,197
Other real estate owned 1,206 928 1,205 2,482 3,377
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS $ 5,181 $ 3,028 $ 3,332 $ 4,347 $ 7,419
- ------------------------------------------------------------------------------------------------------------------------------------
Nonperforming assets/total loans 2.9% 1.8% 1.9% 2.8% 5.3%
Nonperforming assets/total assets 1.9% 1.2% 1.3% 1.8% 3.1%
====================================================================================================================================
</TABLE>
Pocahontas Bankshares Corporation Page 5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
Percent of Percent of Percent of Percent of
loans in each loans in each loans in each loans in each
Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 443 25.64% $ 594 26.95% $ 551 28.90% $ 495 29.43%
Real estate construction 20 1.99% 30 1.29% 25 1.08% 10 0.53%
Real estate mortgage 502 57.47% 781 56.63% 749 57.40% 652 56.54%
Installment 290 14.90% 245 15.13% 205 12.62% 176 13.50%
Unallocated 890 N/A 335 N/A 328 N/A 207 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,145 100.00% $1,985 100.00% $1,858 100.00% $1,540 100.00%
====================================================================================================================================
1991
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
Percent of
loans in each
Category to
Amount Total Loans
--------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 488 33.27%
Real estate construction 11 0.74%
Real estate mortgage 551 50.31%
Installment 101 15.68%
Unallocated 77 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $1,228 100.00%
====================================================================================================================================
</TABLE>
At December 31, 1995, the loan portfolio comprised 72.0% of total
interest-earning assets as compared to 70.7% of total interest-earning assets at
December 31, 1994, and contributed 80.2% of total interest income in 1995,
compared to 80.4% of total interest income in 1994. Loan demand continued to be
relatively strong through most of 1995 in all the major categories of the loan
portfolio.
During 1995, the growth in the loan portfolio was primarily accomplished by
aggressive solicitation of small and middle-market companies within the
Corporation's primary trade areas. Emphasis continued to be on strong local
companies with known local management and excellent financial stability.
Consistent with management's philosophy on relationship banking, most borrowers
are also depositors and utilize other banking services. Most of the commercial
loans in the portfolio were made at variable rates of interest. The average
yield of the loan portfolio increased to an average rate of 9.45% in 1995
compared to 8.29% in 1994. This reflected the effects of rising rates during
most of 1994.
Although the commercial loan portfolio is generally diversified and
geographically dispersed within the region, aggregate loans to three specific
lines of business represent greater than 25% of the Corporation's equity. These
lines of business are Coal Related, Hotel/Motel, and Health Care Professionals.
Although none of these industries represent more than 10% of the total loan
portfolio, management closely monitors these lines. Within each specific
industry, borrowers are well diversified as to specialty, service or other
unique feature of the overall industry. A substantial portion of the customers'
ability to honor their contractual commitment is largely dependent upon the
economic conditions of the respective industry and overall economic conditions
of southern West Virginia and southwestern Virginia.
The consumer portion of the loan portfolio which increased approximately 2%
in 1995, consisted of both secured and unsecured loans made to individuals and
families for various reasons including the purchase of automobiles, home
improvements, educational expenses and other worthwhile purposes. The
Corporation's expansion into Virginia greatly enhanced the opportunities for
increased consumer lending. As interest rates continue to increase, the
weakening economy that is being predicted may reduce these opportunities. As
the region moves through these economic cycles, management believes the
Corporation is well positioned to serve this important market segment.
Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total amount of commitments does not
necessarily represent future cash requirements. At December 31, 1995 and 1994,
the subsidiary banks had outstanding commitments to extend credit of
approximately $20,280,000 and $15,721,000, respectively.
Page 6 Pocahontas Bankshares Corporation
<PAGE>
Any discussion of the loan portfolio would not be complete without
mentioning nonperforming assets. Nonperforming assets, including nonaccrual
loans, loans past-due 90 days or more and other real estate owned, increased
$2,153,000 from December 31, 1994 to December 31, 1995. This increase of
approximately 71% is primarily the result of two commercial loans which the
Corporation has identified and is aggressively pursuing collection efforts to
limit the exposure to losses. The Corporation's policy is to discontinue the
accrual of interest on loans that are past due more than 90 days, unless such
loans are well collateralized and in process of collection. Loans that are on a
current payment status or past due less than 90 days may also be classified as
nonaccrual if repayment of principal or interest is in doubt.
Management continues to enhance the methodology and procedures for
determining the adequacy of the allowance for loan losses. These enhancements
have been approved by each of the respective subsidiaries' boards of directors.
The procedures that are utilized entail analyzing the loan "watch" list and
assigning classifications to each loan, as set forth by the appropriate
regulatory agency. Other real estate owned is also analyzed and assigned a
classification. Subsequently, classified loans are categorized and appropriate
reserves are assigned as follows: Substandard - 1% - 20%, Doubtful - 50%, and
Loss - 100%. Other loans, more than 90 days past due, that have not been
considered in the aforementioned procedures are assigned a classification of
Substandard and are reserved for accordingly. The remaining portfolio is
segregated into consumer, commercial, and residential real estate loans, and the
historical net charge off percentage of each category is applied to the current
amount outstanding in that category. Also, a review of concentrations of credit,
classes of loans and pledged collateral is performed to determine the existence
of any deterioration. In addition, volume and trends in delinquencies and
nonaccruals, off-balance sheet credit risks, the loan portfolio composition,
loan volume and maturity of the portfolio, national and local economic
conditions and the experience, ability and depth of lending management and staff
are given consideration.
The Corporation maintains, through its provision, an allowance for loan
losses believed by managment to be adequate to absorb potential credit losses
inherent in the portfolio. The $444,000 increase in the provision for loan
losses in 1995 compared to 1994 was primarily a result of increased net loans
charged off in 1995 of $411,000 compared to 1994. The allowance for loan losses
was 1.21% of year-end loans in 1995 compared to 1.15% in 1994.
Securities
Securities, another major use of funds, decreased by $5.4 million or 8.5%
during 1995. At December 31, 1995, securities comprised 23.9% of total interest-
earning assets compared to 26.5% of total interest-earning assets at December
31, 1994. The composition of the Corporation's securities portfolio reflects
management's investment strategy of maximizing portfolio yields subject to risk
and liquidity considerations. The primary objective of the Corporation's
investment strategy is to maintain an appropriate level of asset liquidity and
provide management a tool to assist in controlling and managing the
Corporation's
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SECURITIES
- --------------------------------------------------------------------------------
December 31
-------------------------------
1995 1994 1993
-------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
U.S. Government securities $31,381 $41,974 $39,282
U.S. Government agency securities 17,186 12,647 10,725
State, county and municipal securities 3,830 3,700 3,687
Other securities 6,462 5,974 5,286
- --------------------------------------------------------------------------------
TOTAL SECURITIES $58,859 $64,295 $58,980
================================================================================
</TABLE>
Pocahontas Bankshares Corporation Page . 7
<PAGE>
- --------------------------------------------------------------------------------
MATURITIES OF SECURITIES
- --------------------------------------------------------------------------------
The following table shows the maturities of securities at December 31, 1995,
and the weighted average yield of such securities:
<TABLE>
<CAPTION>
After One After Five
Within But Within But Within After
One year Five Years Ten Years Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities $18,165 4.97% $13,216 5.34% $ -- -- $ -- -- $31,381 5.13%
U.S. Government agency securities 3,551 5.18% 12,868 5.28% $ 767 6.00% -- -- 17,186 5.29%
State, county and municipal securities 500 7.50% 2,838 7.45% 492 6.24% -- -- 3,830 7.30%
* Other securities 4,427 7.20% 1,018 6.06% 25 7.80% $992 6.00% 6,462 6.84%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES $26,643 5.42% $29,940 5.54% $1,284 6.13% $992 6.00% $58,859 5.50%
====================================================================================================================================
</TABLE>
* Other securities includes marketable equity securities with no stated
maturity. Yields on tax-exempt obligations have not been computed on a tax
equivalent basis.
- --------------------------------------------------------------------------------
AVERAGE DEPOSITS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
Average Average Average
---------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
---------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 24,668 N/A $ 25,194 N/A $ 23,401 N/A
Interest-bearing demand deposits 48,920 3.39% 53,365 3.00% 45,984 3.42%
Savings deposits 69,118 3.62% 79,757 3.28% 73,496 3.63%
Time deposits 85,862 5.17% 72,634 3.92% 77,613 4.01%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL AVERAGE DEPOSITS $228,568 3.76% $230,950 3.06% $220,494 3.34%
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
MATURITIES OF TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995
-------------------------
(Dollars in Thousands)
<S> <C>
Under 3 months $ 8,161
3 to 6 months 4,943
6 to 12 months 5,098
Over 12 months 3,832
- --------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT OF $100,000 OR MORE $22,034
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SHORT-TERM BORROWED FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
--------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Federal funds purchased and securities
sold under agreements to repurchase $8,922 $5,661 $6,944
U. S. Treasury demand notes and others 720 1,302 2,313
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL BORROWED FUNDS $9,642 $6,963 $9,257
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The approximate average interest rates, average amounts outstanding, and maximum
amounts outstanding at any month-end for federal funds purchased and securities
sold under agreements to repurchase are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Average interest rates at December 31 3.79% 3.75% 2.09%
Maximum amounts outstanding at any
month-end $9,035 $7,991 $8,959
Average daily amount outstanding $7,775 $6,461 $6,640
Weighted average interest rates 4.10% 2.83% 2.32%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rates are calculated by dividing the annual
interest expense by the related average daily amounts outstanding.
Page . 8 Pocahontas Bankshares Corporation
<PAGE>
interest rate position while at the same time producing adequate levels of
interest income. Management of the maturity of the portfolio is necessary to
ensure adequate liquidity and manage interest rate risk. During 1994, the
Corporation adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115).
At adoption, the Corporation classified its debt securities portfolio as held to
maturity. The equity portfolio was classified as available for sale. Management
determined that it had the positive intent and ability to hold its debt
securities to maturity. The portfolio is structured so that maturities of
securities, along with other available sources, will provide for sufficient
liquidity. Net unrealized gains in the held to maturity portfolio amounted to
approximately $491,000 at December 31, 1995, compared to $1,661,000 in net
unrealized losses at December 31, 1994. This was indicative of the effects of
the stable to declining rate environment during 1995.
As of December 31, 1995, the Corporation had an investment in Van Kampen
American Capital U.S. Government Fund, a mutual fund comprised primarily of
U.S. agency mortgage-backed securities. The investment is classified as
available for sale. The aggregate book and market value of this investment was
$4,427,000 at December 31, 1995 and $4,057,000 at December 31, 1994. The mutual
fund is composed primarily of GNMA and FNMA pools of mortgages which have
weighted average maturities of approximately seven years. Management is not
aware of any adverse information regarding this issue with regard to regulatory
action, downgrading of debt ratings or cessation of dividends. Due to activities
within the fund during 1995, management determined that the unrealized losses
which it had accumulated were other than temporary and therefore, approximately
$341,000 of losses were recognized for the year ended December 31, 1995.
State, county and municipal securities contained no issues in excess of 10%
of stockholders' equity.
Deposits
Deposits, the major source of funds, increased approximately $1.3 million
or 0.6% in 1995, following an increase of $1.4 million or 0.6% in 1994. The
average rate paid on interest-bearing deposits in 1995 was 4.22%, an increase
from the average rate of 3.43% paid in 1994, reflecting the rising interest
rates prevailing during late 1994 which increased interest expense on
certificates of deposit for most of 1995. Competition for deposits continues to
intensify among commercial banks, savings banks, thrift institutions, credit
unions, mutual funds, brokerage houses, insurance companies, and certain
national retailers. Despite this intense competition management is pleased with
the deposit growth during the last few years. This growth was maintained in 1995
despite this fierce competition.
Capital Resources
Cash dividends paid to stockholders during 1995 amounted to $1,100,000
compared to $1,000,000 paid to stockholders in 1994 and $875,000 in 1993. This
represents a dividend pay out (dividends divided by net income) of 46% in 1995,
44% for 1994 and 57% for 1993. Cash dividends per share equaled $1.10 per share
in 1995, $1.00 per share in 1994 and $0.875 per share in 1993. The Corporation
is dependent upon dividends paid by the subsidiary banks to fund dividends to
the shareholders and to cover other operating costs, including debt service. The
Corporation's Board of Directors considers historical financial performance,
future prospects, and anticipated needs for capital in formulating the dividend
payment policy. Future dividends are dependent upon the Corporation's financial
results, capital requirements and general economic conditions.
Pocahontas Bankshares Corporation Page . 9
<PAGE>
One of management's primary objectives is to maintain a strong capital
position. Stockholders' equity, net of unrealized losses on securities,
increased $2,025,000 or 9.6% in 1995. The percentage of earnings reinvested in
the business (net income less dividends as a percentage of net income) for the
years 1995, 1994 and 1993 was 54.4%, 55.7% and 43.4%, respectively. The internal
capital formation rate (net income less dividends as a percentage of average
stockholders' equity) indicates the rate at which assets can grow while
maintaining the current ratio of stockholders' equity to assets. The internal
capital formation rate was 5.9% in 1995, 6.0% in 1994, and 3.3% in 1993.
Risk-based capital regulations require all banks and bank holding companies
to have a minimum total risk-based capital ratio of 8% with half of the capital
composed of core capital. Conceptually, risk-based capital requirements assess
the risk of a financial institution's balance sheet and off-balance sheet
commitments in relation to its capital. Under the guidelines, capital strength
is measured in two tiers which are used in conjunction with risk adjusted assets
in determining the risk-based capital ratios. The Corporation's Tier I capital,
which consists of stockholders' equity, adjusted for certain intangible assets,
amounted to $22,755,000 at December 31, 1995, or 12.26% of total risk-weighted
assets. Tier II capital, or supplementary capital, includes capital components
such as qualifying allowance for loan losses, and can equal up to 100% of an
institution's Tier I capital with certain limitations. The Corporation's Tier II
capital amounted to $2,145,000 at December 31, 1995 or 1.16% of total risk-
weighted assets. The Corporation's total consolidated risk-based capital was
$24,900,000, or 13.42% of total risk-weighted assets as of December 31, 1995.
Additionally, risk-based capital guidelines require a minimum leverage ratio
(Tier I capital divided by average adjusted total consolidated assets) of 3%,
which may be increased for institutions with higher levels of risk or that are
experiencing or anticipating significant growth. The Corporation has not been
advised by any regulatory agency of any specific minimum leverage ratio
applicable to it. As of December 31, 1995, the Corporation's leverage ratio was
8.55%; therefore, the Corporation exceeded all current minimum capital
requirements.
- --------------------------------------------------------------------------------
REGULATORY CAPITAL REQUIREMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Combined Capital
Entity Tier 1 (Tier 1 and Tier 2) Leverage
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated 12.26% 13.42% 8.55%
First Century Bank, N.A. 12.08% 13.23% 8.37%
First Century Bank 11.17% 12.32% 8.04%
- --------------------------------------------------------------------------------
</TABLE>
Liquidity and Interest Rate Sensitivity Management
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive earning
assets and interest-bearing liabilities. Liquidity management involves the
ability to meet the cash flow requirements of customers who may be depositors
wanting to withdraw funds or borrowers needing assurance that sufficient funds
will be available to meet their credit needs. Interest rate sensitivity
management seeks to avoid fluctuating net interest margins and to enhance
consistent growth of net interest income through periods of changing interest
rates.
Maturities of securities and loan payments are the principal source of
liquidity. Interest rate sensitivity varies with different types of interest-
earning assets and interest-bearing liabilities. Overnight federal funds on
which rates change daily and loans which are tied to the prime rate, differ
considerably from long-term securities and fixed rate loans. Similarly, time
deposits over $100,000 and money market certificates are much more interest
sensitive than passbook savings accounts and other interest-bearing liabilities.
The shorter term interest rate sensitivities are the key to measurement of the
interest sensitiv-
Page . 10 Pocahontas Bankshares Corporation
<PAGE>
ity gap, or excess interest-sensitive earning assets over interest-bearing
liabilities. Trying to minimize this gap is a continual challenge in a changing
interest rate environment and one of the objectives of the Corporation's
asset/liability management strategy.
Management's continued efforts in generating variable rate loans has
resulted in a positive cumulative gap of 11.00% at three months, 5.92% at six
months and a one-year positive cumulative gap of 7.66%. Management structured
the Corporation to be somewhat asset sensitive at December 31, 1993, in
anticipation of rising interest rates which were expected in 1994. During 1995,
management maintained this position, however, due to approaching maturities in
the investment portfolio, these gaps became more positive at year-end.
Management continues to monitor the Corporation's asset/liability gap positions,
and thus has produced interest sensitivity ratios which are well within targeted
levels established in the Corporation's asset/liability management guidelines.
The Corporation's asset sensitive position at December 31, 1995, will afford the
opportunity to offer fixed rate financing through 1996. Additionally, certain
deposits, such as passbook savings deposits, are assumed not to be as rate
sensitive as other deposits, such as NOW accounts and money market deposit
accounts.
Liquidity can best be demonstrated by an analysis of the Corporation's cash
flows. In 1995 and 1994, the primary source of cash flows was from operations,
illustrating management's goal to turn its expansion efforts of the past several
years into profitability. The Corporation's principal source of cash flows in
1993 was from financing activities, primarily increases in demand and savings
deposits, commonly called core deposits. This increase in core deposits reduced
the Corporation's dependence on higher cost sources of liquidity. A secondary
source of liquidity came from investing activities in the maturities of
investment securities. This demonstrated management's attempts to maintain the
investment portfolio with short-term, high quality investments. The
Corporation's primary use of cash was from investing activities, primarily
increases in earning assets deployed in investments and loans. This also
demonstrated the Corporation's ability to accommodate loan demand within its
service areas.
- --------------------------------------------------------------------------------
ANALYSIS OF INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Months Years
Less Than 3 3 - 6 6 - 12 1 - 5 Over 5 Totals
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities $ 9,442 $ 5,532 $11,667 $29,941 $ 2,277 $ 58,859
Federal funds sold and interest-bearing
balances with banks 10,133 -- -- -- -- 10,133
Loans 102,530 6,896 11,365 47,311 9,692 177,794
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets 122,105 12,428 23,032 77,252 11,969 246,786
- ------------------------------------------------------------------------------------------------------------------------------------
Time deposits 29,264 24,546 18,730 19,457 46 92,043
Other interest-bearing deposits 56,496 -- -- 56,272 -- 112,768
Other interest-bearing liabilities 9,209 407 -- -- 26 9,642
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities 94,969 24,953 18,730 75,729 72 214,453
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ 27,136 $(12,525) $ 4,302 $ 1,523 $11,897 $ 32,333
Cumulative interest sensitivity gap $ 27,136 $ 14,611 $18,913 $20,436 $32,333
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning assets to
interest-bearing liabilities 1.29 x 0.50 x 1.23 x 1.02 x 166.24 x
- ----------------------------------------------------------------------------------------------------------------------
Ratio of cumulative interest sensitivity
gap to total earning assets 11.00 % 5.92 % 7.66 % 8.28 % 13.10 %
- ----------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
Pocahontas Bankshares Corporation Page . 11
<PAGE>
Income Statement Analysis
Earnings
Net income for 1995 was $2,414,000 or $2.41 per share, an increase of
$157,000 or 7% from the $2,257,000 or $2.26 per share earned in 1994, and
$867,000 more than the $1,547,000 or $1.55 per share earned in 1993. This
increase occurred primarily as a result of a $2,319,000 or 12.6% increase in
interest income, which continued to be enhanced by the repricing loan portfolio
during the rapidly rising rate environment experienced during 1994 and early
1995.
Earnings Per Share
The Corporation's net income, on a per share basis, amounted to $2.41 in
1995 compared to $2.26 in 1994 and $1.55 in 1993. The Earnings Per Share Table
summarizes the principal sources of changes in earnings per share for 1995.
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Net income per share - 1994 $ 2.26
- --------------------------------------------------------------------------------
Increase (decrease) due to change in:
Net interest income 0.69
Provision for loan losses (0.44)
Other operating income (0.15)
Personnel expense (0.05)
Other expense 0.10
- --------------------------------------------------------------------------------
Net income per share - 1995 $ 2.41
================================================================================
</TABLE>
Net Interest Margin
The major portion of the Corporation's earnings are derived from the net
interest margin, which is the interest income on interest-earning assets less
the interest expense on interest-bearing liabilities. During 1995 the net
interest margin increased $671,000 or 6.3%. This followed a 16% increase in
1994, and a 4% increase in 1993. The net interest margin is affected by many
factors, but most significantly by the level of interest rates prevailing during
the period, the spread between the various sources and uses of funds, and by
changes in the volume of various assets and liabilities.
Noninterest Income and Expense
Noninterest income decreased $152,000 or 8.9% in 1995, following a $21,000
or 1.2% increase in 1994, and a decrease of $54,000 or 3.1% in 1993. The largest
component of noninterest income is fees from trust services. Fees from trust
services increased $101,000 or 15% for 1995 and $56,000 or 9% for 1994, after
remaining level in 1993. The second largest component of noninterest income is
service charges on deposit accounts. These fees decreased approximately $23,000
or 3% in 1995, after an increase of approximately $14,000 or 2% in 1994, and
$51,000 or 7% in 1993. Securities losses were approximately $341,000 in 1995,
$117,000 in 1994 and $61,000 in 1993.
- --------------------------------------------------------------------------------
RETURN ON EQUITY AND ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Percentage of net income to:
Average stockholders' equity 10.79% 10.84% 7.58%
Average total assets 0.92% 0.86% 0.61%
Percentage of dividends declared per
common share to net income per
common share 45.64% 44.25% 56.63%
Percentage of average stockholders'
equity to average total assets 8.52% 7.93% 8.07%
================================================================================
</TABLE>
Noninterest expense, excluding the provision for loan losses, decreased
4.7% in 1995, following a 4.5% increase in 1994 and a 10.3% increase in 1993.
Personnel expense is the largest component of noninterest expense. Personnel
expense increased 1.1% in 1995,
Page . 12 Pocahontas Bankshares Corporation
<PAGE>
following an increase of 5.4% in 1994, and 16.1% in 1993. Effective January 1,
1993, the Corporation adopted Statement of Financial Accounting Standards No.
106, "Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106),
prospectively. SFAS 106 requires expense relating to postretirement benefits to
be recognized during the employee's time of service instead of the cash basis.
The effect of this accounting change for 1993 was an additional increase in
personnel expense of approximately $133,000 compared with the cash basis method.
For a complete discussion of the Corporation's employee benefits, refer to Note
8 of the Notes to Consolidated Financial Statements, presented elsewhere in this
report. The smaller increases for 1995 and 1994 demonstrate management's ongoing
commitment to improve operational efficiency throughout the organization. The
largest decline in noninterest expense was the result of reduced FDIC insurance
premiums paid on the Corporation's deposits for 1995 of approximately $272,000,
down from $522,000 in 1994. These premiums will be essentially eliminated for
1996.
Income Taxes
In 1993, the Corporation implemented Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The cumulative
effect of adopting this statement was approximately $123,000 or $0.25 per common
share. In 1995, the Corporation's effective tax rate increased by approximately
6% due to the nondeductible nature of the writedown which was recognized on the
Van Kampen American Capital mutual fund. For a complete discussion of the
Corporation's tax position, refer to Note 8 of the Notes to Consolidated
Financial Statements, presented elsewhere in this report.
The Effects of Inflation and Changing Prices
Inflation affects the Corporation in several ways, but not to the same
extent that it does a company which makes large capital expenditures or has a
large investment in inventory. The Corporation's asset and liability structure
is primarily monetary in nature and, therefore, its financial results are more
affected by changes in interest rates than by inflation. However, the actions of
the Federal Reserve Board during 1995 indicates that interest rate management
will be the primary tool used to curtail inflationary pressures. Inflation does
affect noninterest expense, such as personnel expense and the cost of services
and supplies. These increases must be offset, to the extent possible, by
increases in noninterest income and by control of noninterest expense.
Per Share Data By Quarter
No established public market presently exists for the common stock of the
Corporation. The per share data by quarter table shows the approximate high and
low bid as reported by the transfer agent and local brokers for 1995 and 1994.
Also presented below are the dividends paid for those respective years. The
number of stockholders of record on December 31, 1995, was 593 and outstanding
shares totaled 1,000,000.
- --------------------------------------------------------------------------------
PER SHARE DATA BY QUARTER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Quotations
-----------------------------------------------------------
Dividends 1995 1994
---------------- -----------------------------------------------------------
Quarter 1995 1994 High Low High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $0.20 $0.20 $30.00 $27.25 $22.50 $20.50
Second Quarter 0.20 0.20 30.00 26.50 27.00 21.50
Third Quarter 0.25 0.20 32.00 28.00 30.00 25.00
Fourth Quarter 0.45 0.40 33.75 28.00 30.00 26.00
====================================================================================================================================
</TABLE>
Pocahontas Bankshares Corporation Page . 13
<PAGE>
Trust Asset Responsibility
Assets managed by the Trust Division are presented at book value which is
the Federal income tax basis of the assets and is not representative of current
market value. Trust responsibility, as measured by market value, is
substantially greater than book value.
[GRAPH APPEARS HERE]
- ----------------------------------------------
TRUST ASSET RESPONSIBILITY AT BOOK VALUE
- ----------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1995 $163 MM
1994 $162 MM
1993 $161 MM
1992 $162 MM
1991 $150 MM
- ----------------------------------------------
</TABLE>
Page . 14 Pocahontas Bankshares Corporation
<PAGE>
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF FINANCIAL CONDITION
Statistical Summary, 1995 - 1991
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------
1995 % 1994 % 1993 % 1992 % 1991 %
------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 177,794 67 $ 171,325 66 $ 177,331 68 $ 157,681 64 $ 140,838 59
Securities 58,859 23 64,295 25 58,980 22 62,612 25 66,929 28
Federal funds sold 6,300 2 6,400 2 7,770 3 6,970 3 14,455 6
Interest-bearing deposits with banks 3,833 1 245 -- 46 -- 8 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS 246,786 93 242,265 93 244,127 93 227,271 92 222,222 93
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 10,000 4 10,732 4 9,749 4 11,275 4 8,328 3
Premises and equipment 5,417 2 4,811 2 4,640 2 3,714 2 3,689 2
Other assets 5,922 2 5,476 2 5,316 2 6,310 3 6,961 3
Allowance for loan losses (2,145) (1) (1,985) (1) (1,858) (1) (1,540) (1) (1,228) (1)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 265,980 100 $ 261,299 100 $ 261,974 100 $ 247,030 100 $ 239,972 100
====================================================================================================================================
Savings deposits $ 112,768 42 $ 128,582 49 $ 127,905 49 $ 110,924 45 $ 77,519 32
Time deposits 92,043 35 75,464 29 75,570 29 79,420 32 100,101 42
Other interest-bearing liabilities 9,642 4 8,163 3 11,457 4 11,784 5 14,939 6
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES 214,453 81 212,209 81 214,932 82 202,128 82 192,559 80
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 27,361 10 26,836 10 25,976 10 24,372 10 26,878 11
Other liabilities 980 -- 1,093 1 700 -- 886 -- 1,626 1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 242,794 91 240,138 92 241,608 92 227,386 92 221,063 92
- ---------------------------------------------------------- --------------- --------------- --------------- -----------------
STOCKHOLDERS' EQUITY 23,186 9 21,161 8 20,366 8 19,644 8 18,909 8
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY $ 265,980 100 $ 261,299 100 $ 261,974 100 $ 247,030 100 $ 239,972 100
====================================================================================================================================
TOTAL DEPOSITS $ 232,172 $ 230,882 $ 229,451 $ 214,716 $ 204,498
BOOK VALUE PER SHARE $ 23.19 $ 21.16 $ 20.37 $ 19.65 $ 18.91
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Statistical Summary, 1995 - 1991
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Interest income $ 20,657 $ 18,338 $ 17,114 $ 17,442 $ 19,011
Interest expense 9,052 7,424 7,727 8,388 11,135
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 11,605 10,914 9,387 9,054 7,876
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 839 395 459 698 629
- ------------------------------------------------------------------------------------------------------------------------------------
Net credit margin 10,766 10,519 8,928 8,356 7,247
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income 1,551 1,703 1,682 1,736 1,568
Noninterest expense 8,561 8,985 8,600 7,799 6,971
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 3,756 3,237 2,010 2,293 1,844
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 1,342 980 586 588 434
- ------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 2,414 2,257 1,424 1,705 1,410
Cumulative effect of accounting change -- -- 123 -- --
NET INCOME $ 2,414 $ 2,257 $ 1,547 $ 1,705 $ 1,410
====================================================================================================================================
EARNINGS PER COMMON SHARE:
Income before cumulative effect of accounting change $ 2.41 $ 2.26 $ 1.42 $ 1.71 $ 1.41
Cumulative effect of accounting change -- -- 0.13 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2.41 $ 2.26 $ 1.55 $ 1.71 $ 1.41
====================================================================================================================================
Dividends per common share $ 1.10 $ 1.00 $ 0.875 $ 0.85 $ 0.85
Payout ratio 46% 44% 57% 50% 60%
====================================================================================================================================
</TABLE>
Pocahontas Bankshares Corporation Page . 15
<PAGE>
Consolidated
Statements of
Financial
Condition
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
-----------------------------
ASSETS (Dollars in Thousands)
<S> <C> <C>
Cash and due from banks $ 10,000 $ 10,732
Interest-bearing balances with banks 3,833 245
Securities available for sale 5,419 4,919
Securities held to maturity (estimated market value of $53,931 in 1995 and $57,715 in 1994) 53,440 59,376
Federal funds sold 6,300 6,400
Loans 177,794 171,325
Less allowance for loan losses (2,145) (1,985)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 175,649 169,340
Premises and equipment 5,417 4,811
Other assets 5,922 5,476
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 265,980 $ 261,299
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 27,361 $ 26,836
Interest-bearing 204,811 204,046
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 232,172 230,882
Federal funds purchased and securities sold under
agreements to repurchase 8,922 5,661
Demand notes to U. S. Treasury and other indebtedness 720 1,302
Long-term debt -- 1,200
Other liabilities 980 1,093
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 242,794 240,138
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments (Notes 9 and 10) -- --
STOCKHOLDERS' EQUITY
Common stock -$1.25 par value; 2,000,000 shares authorized;
1,000,000 shares issued and outstanding 1,250 1,250
Paid-in capital 2,035 2,035
Retained earnings 19,901 18,587
Unrealized losses on securities -- (711)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 23,186 21,161
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 265,980 $ 261,299
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page . 16 Pocahontas Bankshares Corporation
<PAGE>
Consolidated
Statements of
Income
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1995 1994 1993
-------------------------------------------------
INTEREST INCOME (Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C>
Interest and fees on loans $16,566 $14,746 $13,263
Interest on balances with banks 86 3 1
Interest and dividends from securities:
Taxable 3,187 3,119 3,284
Tax-exempt 287 265 297
Interest on federal funds sold 531 205 269
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 20,657 18,338 17,114
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on time certificates of $100,000 or more 1,089 591 645
Interest on other deposits 7,514 6,474 6,716
Interest on federal funds purchased and securities
sold under agreements to repurchase 320 183 154
Interest on demand notes to U.S. Treasury and other indebtedness 129 38 48
Interest on long-term borrowings -- 138 164
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 9,052 7,424 7,727
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 11,605 10,914 9,387
Provision for loan losses 839 395 459
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 10,766 10,519 8,928
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Income from fiduciary activities 757 656 600
Service charges on deposit accounts 816 839 825
Other noninterest income 319 325 318
Securities gains (losses) (341) (117) (61)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 1,551 1,703 1,682
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 4,210 4,164 3,950
Furniture and equipment expense 1,031 1,020 960
Data procession expense 470 472 429
Advertising and public relations 340 364 359
Insurance and bonding 406 656 637
Supplies and printing 334 267 273
Other noninterest expense 1,770 2,042 1,992
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 8,561 8,985 8,600
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,756 3,237 2,010
Applicable income taxes 1,342 980 586
Income before cumulative effect of accounting change 2,414 2,257 1,424
Cumulative effect of accounting change -- -- 123
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,414 $ 2,257 $ 1,547
====================================================================================================================================
EARNINGS PER COMMON SHARE:
Income before cumulative effect of accounting change $ 2.41 $ 2.26 $ 1.42
Cumulative effect of accounting change -- -- 0.13
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2.41 $ 2.26 $ 1.55
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Pocahontas Bankshares Corporation Page . 17
<PAGE>
Consolidated
Statements of
Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1995 1994 1993
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (Dollars in Thousands)
<S> <C> <C> <C>
Income before cumulative effect of accounting change $ 2,414 $ 2,257 $ 1,424
Adjustments to reconcile income before cumulative effect of
accounting change to net cash provided by operating activities:
Provision for loan losses 839 395 459
Depreciation and amortization 499 478 429
Deferred income tax benefit (46) (254) (3)
Securities losses 341 117 61
(Increase) decrease in interest receivable (94) (176) 41
Net investment amortization and accretion 753 856 774
Net (increase) decrease in other assets (226) 257 (312)
Net increase (decrease) in interest payable and other liabilities (224) 344 (188)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,256 4,274 2,685
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in federal funds sold 100 1,370 (800)
Purchases of securities held to maturity (9,671) (22,828) (21,653)
Proceeds from sales of securities held to maturity -- -- 2,189
Proceeds from maturities of securities held to maturity 14,354 16,078 22,361
Net (increase) decrease in loans (6,787) 5,678 (18,414)
Acquisition of premises and equipment (1,087) (585) (2,178)
Proceeds from disposal of premises and equipment 22 58 789
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (3,069) (229) (17,706)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits (15,289) 1,537 18,585
Net increase (decrease) in time deposits 16,579 (106) (3,850)
Net increase (decrease) in short-term borrowings 2,679 (2,294) 73
Principal repayments of long-term debt (1,200) (1,000) (400)
Cash dividends paid (1,100) (1,000) (875)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,669 (2,863) 13,533
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks 2,856 1,182 (1,488)
Cash and due from banks at beginning of year 10,977 9,795 11,283
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $13,833 $10,977 $ 9,795
====================================================================================================================================
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 9,037 $ 7,647 $ 7,874
Income taxes $ 1,456 $ 1,046 $ 755
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page . 18 Pocahontas Bankshares Corporation
<PAGE>
Consolidated
Statements of
Changes in
Stockholders'
Equity
<TABLE>
<CAPTION>
Common Stock Unrealized
-------------------- Paid-In Retained Losses on
Shares Amount Capital Earnings Securities
YEAR ENDED DECEMBER 31, 1993 --------------------------------------------------------------------------------------
(Dollars in Thousands, Except Number of Shares)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 1,000,000 1,250 2,035 16,658 (299)
Net income -- -- -- 1,547 --
Change in unrealized losses on securities -- -- -- -- 50
Cash dividends declared--$0.875 per share -- -- -- (875) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1,000,000 $ 1,250 $ 2,035 $ 17,330 $ (249)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
Net income -- -- -- 2,257 --
Change in unrealized losses on securities -- -- -- -- (462)
Cash dividends declared--$1.00 per share -- -- -- (1,000) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 1,000,000 $ 1,250 $ 2,035 $ 18,587 $ (711)
====================================================================================================================================
YEAR ENDED DECEMBER 31, 1995
Net income -- -- -- 2,414 --
Change in unrealized losses on securities -- -- -- -- 711
Cash dividends declared--$1.10 per share -- -- -- (1,100) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 1,000,000 $ 1,250 $ 2,035 $ 19,901 $ --
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Pocahontas Bankshares Corporation Page . 19
<PAGE>
Notes to
Consolidated
Financial
Statements
1. Summary of Significant Accounting and Reporting Policies
Pocahontas Bankshares Corporation and its subsidiaries (the "Corporation"),
First Century Bank, N.A. and First Century Bank, Virginia operate eight branches
in southern West Virginia and southwestern Virginia. The Corporation's primary
source of revenue is derived from loans to customers who are predominately small
to medium size businesses and middle income individuals. The accounting and
reporting policies of the Corporation conform to generally accepted accounting
principles and to general practices within the banking industry. Certain
reclassifications have been made to the prior years' financial statements to
place them on a comparable basis with the current year's financial statements.
The following is a summary of the more significant accounting and reporting
policies:
Management Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation -- The consolidated financial statements include
the accounts of Pocahontas Bankshares Corporation and its subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Cash and Due From Banks -- For purposes of reporting cash flows, cash and due
from banks includes cash on hand and amounts due from banks (including cash
items in process of collection).
Securities -- The Corporation adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" as of January 1, 1994. Management reviewed the securities portfolio
upon adoption and classified securities as either held to maturity or available
for sale. Classification of securities is generally determined on the date of
purchase. In determining such classification, securities that the Corporation
had the positive intent and ability to hold to maturity are classified as held
to maturity and are carried at amortized cost. All other securities are
classified as available for sale and are carried at fair value with unrealized
gains and losses included in stockholders' equity on an after-tax basis.
Realized gains and losses, determined using the specific identification
method, and declines in value judged to be other than temporary are included in
noninterest income. Premiums and discounts are amortized into interest income
using a level yield method.
Loans -- Loans are reported at their principal outstanding balance net of
charge-offs and certain other deferred or unearned income. Interest income is
generally recognized when income is earned using the interest method.
Allowance for loan losses -- Effective January 1, 1995, the Corporation
adopted Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114). Under the new standard, 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
Page . 20 Pocahontas Bankshares Corporation
<PAGE>
1. Summary of Significant Accounting and Reporting Policies (continued)
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 this standard had no impact on the Corporation's
allowance for loan losses.
The Corporation uses several factors in determining if a loan is impaired. The
internal asset classification procedures include a thorough review of
significant loans and lending relationships and include the accumulation of
related data. This data includes loan payment status, borrowers' financial data
and borrowers' operating factors such as cash flows, operating income or loss,
etc.
The adequacy of the allowance for loan 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 loan losses is established through charges to earnings in
the form of a provision for loan losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are included
in the provision for loan 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.
Income recognition on impaired and nonaccrual loans -- 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-collateralized 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
Pocahontas Bankshares Corporation Page . 21
<PAGE>
1. Summary of Significant Accounting and Reporting Policies (continued)
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.
Premises and Equipment -- Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line method
based upon the estimated useful lives of the assets. The cost of major
improvements is capitalized. The expenditures for maintenance and repairs are
charged to expense as incurred. Gains or losses on assets sold are included in
other operating income.
Goodwill And Other Intangibles -- The cost of the investments in the
subsidiaries in excess of amounts attributable to tangible and identified
intangible assets at dates of acquisition is recorded as goodwill and is being
amortized to operations over a period of 25 years using the straight-line
method. A portion of the cost of purchased subsidiaries has been allocated to
value associated with the future earnings potential of the acquired core deposit
base and is being amortized over eight years, the estimated life of the deposit
base. The unamortized balance of intangibles totaled approximately $431,000 at
December 31, 1995 and $471,000 at December 31, 1994, net of accumulated
amortization of $753,000 and $713,000 respectively, and is included in other
assets.
Income Taxes -- Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). This statement requires that all deferred tax asset and liability
balances be determined by application to temporary differences of the tax rate
expected to be in effect when taxes will become payable or receivable. Temporary
differences are differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements that will result in taxable
or deductible amounts in future years. The Corporation's temporary differences
consist primarily of provision for loan losses, accelerated depreciation and
postretirement costs.
Other Real Estate Owned -- Other real estate owned includes properties on which
the Corporation's subsidiaries have foreclosed and taken title. Real estate
properties acquired as a result of foreclosures are carried at the lower of the
recorded investment in the loan or the fair value less estimated selling costs.
Any excess of the outstanding principal loan balance over the fair value of the
foreclosed property is charged to the allowance for loan losses. Any subsequent
fair value adjustments and net operating expenses are charged to noninterest
expense.
Per Share Data -- Earnings per common share are computed on the weighted
average number of shares of common stock outstanding during each year.
Page . 22 Pocahontas Bankshares Corporation
<PAGE>
2. Securities
Securities available for sale at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Securities $ 5,419 $ -- $ -- $ 5,419
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Securities $ 5,630 $ -- $ 711 $ 4,919
==============================================================================================
</TABLE>
Securities held to maturity at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Government obligations $ 31,381 $ 97 $ 94 $ 31,384
U.S. Government agency obligations 15,589 278 14 15,853
Mortgage-backed securities 1,597 12 19 1,590
State and municipal obligations 3,830 222 -- 4,052
Other debt securities 1,043 9 -- 1,052
- ----------------------------------------------------------------------------------------------
TOTAL SECURITIES HELD TO MATURITY $ 53,440 $ 618 $ 127 $ 53,931
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Government obligations $ 41,974 $ -- $ 1,422 $ 40,552
U.S. Government agency obligations 10,686 1 223 10,464
Mortgage-backed securities 1,961 3 128 1,836
State and municipal obligations 3,700 163 7 3,856
Other debt and equity securities 1,055 -- 48 1,007
- ----------------------------------------------------------------------------------------------
TOTAL SECURITIES HELD TO MATURITY $ 59,376 $ 167 $ 1,828 $ 57,715
==============================================================================================
</TABLE>
Securities with an aggregate par value of $37,550,000 at December 31, 1995 and
1994, were pledged to secure public and trust deposits and for other purposes
required or permitted by law, including approximately $13,000,000 at
December 31, 1995 and $12,000,000 at December 31, 1994 pledged to secure repur-
chase agreements.
There were no sales of securities for the years ended December 31, 1995 and
1994. Proceeds from the sale of securities during 1993 were $2,189,000. Gross
losses of $341,000 in 1995, $118,000 in 1994 and $68,000 in 1993 were realized
on writedowns of marketable equity securities.
Pocahontas Bankshares Corporation Page . 23
<PAGE>
2. Securities (continued)
The amortized cost and estimated market value for securities available for
sale and securities held to maturity by expected maturities at December 31, 1995
were as follows:
Securities available for sale
<TABLE>
<CAPTION>
Net
Amortized Market Unrealized
Cost Value (Losses)
------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities with no contractual maturities $ 5,419 $ 5,419 $ --
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Securities held to maturity
Net
Amortized Market Unrealized
Cost Value (Losses)
------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due in one year or less $ 22,215 $ 22,195 $ (20)
Due after one year through five years 22,940 30,434 494
Due after five years through ten years 1,285 1,302 17
- ------------------------------------------------------------------------------------
TOTAL SECURITIES HELD TO MATURITY $ 53,440 $ 53,931 $ 491
====================================================================================
</TABLE>
3. Loans
Loans at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
------------------------
(Dollars in Thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 45,592 $ 46,173
Real estate - construction 3,541 2,202
Real estate - mortgage (residential and commercial) 102,178 97,020
Loans to individuals 26,483 25,930
- -----------------------------------------------------------------------------------
Total loans 177,794 171,325
Less: allowance for credit losses 2,145 1,985
- -----------------------------------------------------------------------------------
Net loans $ 175,649 $ 169,340
===================================================================================
</TABLE>
The Corporation's subsidiaries have had and can be expected to have in the
future various banking transactions with directors, executive officers, their
immediate families and affiliated companies in which they are principal
stockholders (commonly referred to as related parties). The total amount of
loans was $9,772,000 and $9,812,000 at December 31, 1995 and 1994,
respectively. During 1995, $5,872,000 in new loans were made and repayments were
$5,912,000.
Page . 24 Pocahontas Bankshares Corporation
<PAGE>
4. Allowance for Loan Losses
An analysis of the allowance for loan losses for 1995, 1994 and 1993 was as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1994 1993
------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,985 $ 1,858 $ 1,540
Provision for loan losses 839 395 459
Recoveries on loans previously charged off 35 605 159
Loans charged off (714) (873) (300)
- --------------------------------------------------------------------------------------
Balance at end of year $ 2,145 $ 1,985 $ 1,858
======================================================================================
</TABLE>
At December 31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS 114 totaled approximately $2,377,000
of which $118,000 related to loans with no valuation allowance because the loans
have been partially written down through charge-offs and $2,790,000 related to
loans with a corresponding valuation allowance of $531,000. For the year ended
December 31, 1995, the average recorded investment in impaired loans was
approximately $1,652,000. The Corporation recognized no interest on impaired
loans (during the portion of the period they were impaired) for the year ended
December 31, 1995.
At December 31, 1995, 1994 and 1993, the Corporation had nonaccrual loans of
$3,194,000, $1,564,000 and $1,716,000, respectively. Interest income of
$129,000, $26,000 and $14,000 was recognized on these loans in 1995, 1994 and
1993, respectively. Had these loans performed in accordance with their original
terms, interest income of $408,000, $213,000 and $162,000 would have been
recorded in 1995, 1994 and 1993, respectively.
5. Premises and Equipment
Premises and equipment at December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
----------------------
(Dollars in Thousands)
<S> <C> <C>
Land $ 921 $ 927
Buildings and improvements 5,435 4,680
Equipment and fixtures 3,569 3,418
- --------------------------------------------------------------------------------------
Total 9,925 9,025
- --------------------------------------------------------------------------------------
Less accumulated depreciation 4,508 4,214
- --------------------------------------------------------------------------------------
NET PREMISES AND EQUIPMENT $ 5,417 $ 4,811
======================================================================================
</TABLE>
Depreciation charged to operating expense amounted to $459,000 in 1995,
$438,000 in 1994, and $366,000 in 1993.
Pocahontas Bankshares Corporation Page . 25
<PAGE>
6. Deposits
Deposits at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
----------------------
(Dollars in Thousands)
<S> <C> <C>
Individuals, partnerships and corporations:
Demand deposits $ 25,293 $ 24,883
Time and savings deposits 194,739 192,976
U.S. Government 319 491
States and political subdivisions 10,378 11,380
Commercial banks 7 7
Certified and official checks 1,436 1,145
- --------------------------------------------------------------------------------------
TOTAL DEPOSITS $232,172 $230,882
======================================================================================
</TABLE>
Time deposits included certificates of deposit issued in amounts of $100,000
or more totaling approximately $22,034,000 and $17,247,000 at December 31, 1995
and 1994, respectively.
7. Post Employment Benefits
The Corporation has a noncontributory, trusteed pension plan covering all
eligible employees with six months of service who have attained the age of
twenty and one-half. Contributions to the plan are based on computations by
independent actuarial consultants. Due to the present excess funded position of
the pension plan, no contributions have been made since 1985.
The components of the net periodic pension benefit were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1995 1994 1993
------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost $ 197 $ 246 $ 225
Interest cost 290 311 278
Actual return on plan assets (1,025) 21 (202)
Unrecognized gain (loss) 560 (570) (341)
Net amortizations and deferrals (49) (51) (75)
- -------------------------------------------------------------------------------------
NET PERIODIC PENSION BENEFIT $ (27) $ (43) $ (115)
=====================================================================================
</TABLE>
Page 26 . Pocahontas Bankshares Benefit
<PAGE>
7. Post Employment Benefits (continued)
The actuarial present value of the projected benefit obligation was
determined using a discount rate of 7.25% for 1995 and 8% for 1994, a rate of
compensation increases of 4% and expected long-term rate of return on plan
assets of 9% for 1995 and 1994. The funded status of the plan as of December
31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------
(Dollars in Thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 3,490 $ 2,512
Non-vested 152 142
- ----------------------------------------------------------------------------------------
Total 3,642 2,654
- ----------------------------------------------------------------------------------------
Projected benefit obligation 4,861 3,681
Market value of plan assets 6,150 5,231
- ----------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 1,289 1,550
Unrecognized prior service costs 406 436
Unrecognized net transition asset (648) (713)
Unrecognized net gain (525) (779)
- ----------------------------------------------------------------------------------------
Prepaid pension costs recorded in
the consolidated statements of financial condition $ 522 $ 494
- ----------------------------------------------------------------------------------------
</TABLE>
The plan's assets include common stock, fixed income securities, short-term
investments and cash.
The Corporation sponsors two defined benefit postretirement plans that cover
both salaried and nonsalaried employees. One plan provides medical benefits, and
the other provides life insurance benefits. The postretirement health care plan
is contributory and the life insurance plan is noncontributory.
The health plan has an annual limitation (a "cap") on the dollar amount of the
employer's share of the cost of covered benefits incurred by a plan participant.
The retiree is responsible, therefore, for the amount by which the cost of the
benefit coverage under the plan incurred during a year exceeds that cap.
Effective January 1, 1993, the Corporation adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards 106, "Accounting
for Postretirement Benefits Other Than Pensions" (SFAS 106), prospectively. This
statement requires expense relating to postretirement benefits to be recognized
during an employee's time of service instead of the cash basis. The Corpora-
tion's transition obligation under SFAS 106 was approximately $1,107,000 at
January 1, 1993. The Corporation elected to recognize this obligation over 20
years as a component of the annual postretirement benefit cost.
The liability for postretirement benefits is unfunded. The funded status of
each plan at December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
Health Life Health Life
------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated postretirement
benefit obligations:
Retirees $ (307,809) $ (324,505) $ (362,199) $ (260,212)
Fully eligible plan participants (73,736) (174,313) (76,750) (122,718)
Other active plan participants (82,728) (96,691) (95,057) (123,134)
- ------------------------------------------------------------------------------------------
Total (464,273) (595,509) (534,006) (506,064)
Unrecognized net (gain) or loss (210,751) (11,332) (151,718) (75,381)
Unrecognized prior service cost -- -- -- --
Unrecognized transition obligation 538,338 402,661 570,005 426,347
- ------------------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COST $ (136,686) $ (204,180) $ (115,719) $ (155,098)
==========================================================================================
</TABLE>
Pocahontas Bankshares Corporation Page . 27
<PAGE>
7. Post Employment Benefits (continued)
The Corporation's actuary has estimated the expense for 1995, 1994 and 1993
for each plan as follows:
<TABLE>
<CAPTION>
1995 1994 1993
Health Life Health Life Health Life
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 6,907 $ 8,098 $ 16,657 $ 27,593 $ 26,022 $ 16,596
Interest cost 32,424 40,457 39,867 36,334 42,934 33,041
Actual return on plan assets -- -- -- -- -- --
Amortization of transition obligation 31,667 23,686 31,667 23,686 31,667 23,686
Net amortization of prior service
cost and net gain (11,511) (674) -- -- -- --
- -------------------------------------------------------------------------------------------------------------
NET POSTRETIREMENT EXPENSE $ 59,487 $ 71,567 $ 88,191 $ 87,613 $ 100,623 $ 73,323
=============================================================================================================
</TABLE>
For measurement purposes, a 10.5% annual rate of increase in the per capita
cost of covered health care benefits is assumed for 1994 and 9.0% for 1995. The
rate is assumed to decrease gradually to 5.0% by 2003 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. Increasing the assumed health care cost trend rates by
one percentage point in each year would not have a significant impact.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for 1995 and 8% for 1994.
The Corporation maintains a qualified 401(k) retirement savings plan. All full
time employees are eligible to participate on a voluntary basis, after
completing their first year of service. All employee contributions were matched
by the Corporation at a rate of fifty percent (50%) of the employee
contributions. Total amounts charged to operating expense for payments
pursuant to this plan were approximately $82,000 in 1995, $86,000 in 1994 and
$80,000 in 1993.
8. Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
Tax provision attributed to income from operations: 1995 1994 1993
----------------------------
Federal (Dollars in Thousands)
<S> <C> <C> <C>
Current $ 1,087 $ 994 $ 407
Deferred (46) (254) (3)
State
Current 301 240 182
------------------------------------------------------------------------------------------------
INCOME TAX PROVISION $ 1,342 $ 980 $ 586
================================================================================================
</TABLE>
There was no tax benefit to securities losses for 1995 and 1994. Tax expense
applicable to securities gains approximated $2,000 in 1993. Effective January 1,
1993, the Corporation adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109). The cumulative effect of the
adoption of SFAS 109 was $123,000 for the year ended December 31, 1993.
Page 28 . Pocahontas Bankshares Corporation
<PAGE>
8. Income Taxes (continued)
The components of deferred tax liabilities (assets) at December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------
(Dollars in Thousands)
<S> <C> <C>
Depreciation $ 105 $ 73
Postretirement 30 58
------------------------------------------------------------------------
Gross deferred tax liabilities 135 131
------------------------------------------------------------------------
Foreclosures (56) (43)
Provision for loan losses (613) (600)
Marketable equity securities (179) (305)
Other-net (81) (57)
------------------------------------------------------------------------
Gross deferred tax assets (929) (1,005)
------------------------------------------------------------------------
Valuation allowance 179 305
------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ (615) $ (569)
========================================================================
</TABLE>
A valuation allowance was established for the "temporary" and "other than
temporary" writedowns of marketable equity securities because their recognition
is limited to future capital gains generated by the Corporation. No tax benefit
has been recognized in the financial statements for the writedowns.
The principal differences between the effective tax rate and the federal
statutory rate was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------
(Dollars in Thousands)
Amount % Amount % Amount %
-------------------- ------------------ -------------------
<S> <C> <C> <C>
Provision at statutory rate $ 1,277 34 $ 1,101 34 $ 683 34
Tax-exempt interest income from certain investment
securities and loans (203) (5) (232) (7) (253) (14)
State income tax expense, net of federal benefit 198 5 159 5 172 10
Nondeductible (income) expense 70 2 (48) (2) (16) (1)
----------------------------------------------------------------------------------------------------------------------
APPLICABLE INCOME TAXES $ 1,342 36 $ 980 30 $ 586 29
======================================================================================================================
</TABLE>
9. Commitments and Contingencies
In the normal course of business, the Corporation is involved in various
legal suits and proceedings. In the opinion of management based on the advice of
legal counsel, these suits are without substantial merit and should not result
in judgments which in the aggregate would have a material adverse effect on the
Corporation's financial statements.
10. Financial Instruments, Concentrations of Credit and Fair Values
The subsidiaries of the Corporation are parties to various financial
instruments with off-balance sheet risk arising in the normal course of business
to meet the financing needs of their customers. Those financial instruments
include commitments to extend credit and standby letters of credit. These
commitments include standby letters of credit of approximately $599,000 at
December 31, 1995 and $795,000 at December 31, 1994. These instruments contain
various elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial condition.
Pocahontas Bankshares Corporation Page . 29
<PAGE>
10. Financial Instruments, Concentrations of Credit and Fair Values (continued)
The subsidiaries' exposure to credit loss, in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
and standby letters of credit, is the contractual amount of those instruments.
The subsidiaries use the same credit policies in making commitments and
conditional obligations that they do for on-balance sheet instruments.
The Corporation's subsidiaries grant various types of credit including, but
not limited to, agribusiness, commercial, consumer, and residential loans to
customers primarily located throughout southern West Virginia and southwestern
Virginia. Each customer's creditworthiness is examined on a case by case basis.
The amount of collateral obtained, if any, is determined by management's credit
evaluation of the customer. Collateral held varies, but may include property,
accounts receivable, inventory, plant and equipment, securities, or other income
producing property. Although the loan portfolio is generally well diversified
and geographically dispersed within the region, aggregate loans to three
specific lines of business represent greater than 25% of the Corporation's
equity. These lines of business are Coal, Hotel/Motel, and Health Care. Although
none of these industries represent more than 10% of the total loan portfolio,
management closely monitors these lines. Within each specific industry,
borrowers are well diversified as to specialty, service, or other unique feature
of the overall industry. A substantial portion of the customers' ability to
honor their contractual commitment is largely dependent upon the economic
conditions of the respective industry and overall economic conditions of the
region.
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," (SFAS 107), requires the disclosure of the
estimated fair value of on and off-balance sheet financial instruments. For the
Corporation, as for most financial institutions, approximately 95% of its assets
and liabilities are considered financial instruments as defined by SFAS 107.
Most of the Corporation's financial instruments, however, lack an available
trading market characterized by a willing buyer and a willing seller engaging in
an exchange transaction. It is also the Corporation's general practice and
intent to hold its financial instruments to maturity and not to engage in
trading or sales activities. Therefore, significant estimations and present
value calculations were used by the Corporation for the purposes of this
disclosure.
Estimated fair values have been determined by the Corporation using the
best available data and an estimation methodology suitable for each category of
financial instruments. For those loans and deposits with floating interest rates
it is presumed that the estimated fair value generally approximated the recorded
book balances. The carrying amounts of accrued interest approximated fair value.
The estimated fair value and the recorded book balances at December 31, 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 13,833 $ 13,833 $ 10,977 $ 10,977
Federal funds sold 6,300 6,300 6,400 6,400
Securities 59,350 58,859 62,634 64,295
Net loans 177,378 175,649 163,396 169,340
Liabilities:
Deposits with no stated maturities $140,129 $140,129 $155,418 $155,418
Deposits with stated maturities 92,098 92,043 73,753 75,464
Short-term borrowings 9,642 9,642 6,963 6,963
Long-term debt -- -- 1,206 1,200
- ------------------------------------------------------------------------------------------
</TABLE>
Page . 30 Pocahontas Bankshares Corporation
<PAGE>
10. Financial Instruments, Concentrations of Credit and Fair Values (continued)
The estimation methodologies used to determine fair value are as follows:
Financial instruments actively traded in a secondary market have been valued
using quoted available market prices. Financial instruments with stated
maturities have been valued using a present value discounted cash flow with a
discount rate approximating current market rates for similar assets and
liabilities. Financial instrument liabilities with no stated maturities have an
estimated fair value equal to both the amount payable on demand and the recorded
book balance. The net loan portfolio has been valued using a present value
discounted cash flow. The discount rate used in these calculations is the
federal funds sold rate adjusted for noninterest operating costs, credit loss,
and assumed prepayment risk. Fair values for nonperforming loans are estimated
using discounted cash flow analyses, or underlying collateral values, where
applicable. Changes in assumptions or estimation methodologies may have a
material effect on these estimated fair values.
The Corporation's remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has been customary
with historical cost basis accounting. Additionally, certain off-balance sheet
items of approximately $20,280,000 at December 31, 1995, and $15,721,000 at
December 31, 1994, comprised primarily of unfunded loan commitments, have an
estimated fair value that is not materially different from the notional amount.
11. Restriction on Dividends from Subsidiaries
The Corporation's principal source of funds for dividend payment and debt
service is dividends received from the subsidiary banks.
Under applicable Federal laws, the Comptroller of the Currency, the primary
regulator of First Century Bank, N.A., restricts the total dividend payments of
a national bank in any calendar year to the net profits of that year, as
defined, combined with the retained net profits of the two preceding years. At
December 31, 1995, retained net profits for the years 1995 and 1994, which were
free of such regulatory restrictions, approximated $323,000.
Under applicable laws of the Commonwealth of Virginia, the Commissioner of
Financial Institutions, the primary regulator of First Century Bank, restricts
the dividend payment of a newly chartered institution, until any deficit in
capital funds originally paid in are restored by earnings to their initial
level.
12. Long-Term Debt
In January 1995, the Corporation refinanced its long-term debt which
resulted in an expedited payment schedule and a lower interest rate. The new
obligation was repaid as of December 31, 1995.
13. Stock Split
At the 1994 Annual Meeting of Stockholders, an amendment to the Articles of
Incorporation was approved whereby the par value per share of the Corporation's
common stock was reduced from $2.50 to $1.25. The stockholders also approved a 2
for 1 stock split. Accordingly, all per common share data has been adjusted to
reflect the stock split.
Pocahontas Bankshares Corporation Page . 31
<PAGE>
14. Quarterly Financial Data (Unaudited)
The summary financial data by quarter for the years ended December 31,
1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
1995
Interest income $ 4,960 $ 5,164 $ 5,235 $ 5,298
Net interest income 2,890 2,942 2,873 2,900
Provision for possible loan losses 101 245 311 182
Securities gains (losses) -- -- -- 341
Income before taxes 1,033 980 974 769
Net income 706 656 639 413
- -------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.70 $ 0.66 $ 0.64 $ 0.41
- -------------------------------------------------------------------------------------------------------------------
1994
Interest income $ 4,274 $ 4,539 $ 4,660 $ 4,865
Net interest income 2,441 2,721 2,836 2,916
Provision for possible loan losses 60 50 46 239
Securities gains (losses) -- -- 1 (118)
Income before taxes 642 977 1,013 605
Net income 447 652 678 480
- -------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.45 $ 0.65 $ 0.68 $ 0.48
- -------------------------------------------------------------------------------------------------------------------
1993
Interest income $ 4,194 $ 4,217 $ 4,318 $ 4,385
Net interest income 2,290 2,292 2,344 2,461
Provision for possible loan losses 64 (21) 124 292
Securities losses (1) -- -- (60)
Income before taxes 586 659 601 164
Income before cumulative effect of accounting change 437 493 380 114
Net income 560 493 380 114
- -------------------------------------------------------------------------------------------------------------------
Income per share before cumulative effect of accounting change 0.43 0.49 0.38 0.12
NET INCOME PER SHARE $ 0.56 $ 0.49 $ 0.38 $ 0.12
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page . 32 Pocahontas Bankshares Corporation
<PAGE>
15. Parent Company Financial Data
Condensed financial information of Pocahontas Bankshares Corporation
(parent company only) is presented below:
Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
----------------------
Assets: (Dollars in Thousands)
<S> <C> <C>
Cash $ 204 $ 179
Investment in subsidiaries at equity 22,673 21,879
Other assets 362 329
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS 23,239 22,387
- ----------------------------------------------------------------------------------------------
Liabilities:
Long-term debt -- 1,200
Other liabilities 53 26
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 53 1,226
- ----------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock -$1.25 par value; 2,000,000 shares authorized;
1,000,000 shares issued and outstanding 1,250 1,250
Paid-in capital 2,035 2,035
Retained earnings (less unrealized losses on securities) 19,901 17,876
- ----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 23,186 21,161
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,239 $22,387
- ----------------------------------------------------------------------------------------------
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1995 1994 1993
----------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Income:
Dividends from subsidiary banks $2,400 $1,800 $1,660
- -----------------------------------------------------------------------------------------
TOTAL INCOME 2,400 1,800 1,660
- -----------------------------------------------------------------------------------------
Expenses:
Interest on long-term borrowings 56 138 165
Other 37 106 90
- -----------------------------------------------------------------------------------------
TOTAL EXPENSES 93 244 255
- -----------------------------------------------------------------------------------------
Applicable income taxes (benefits) (24) (156) (46)
Income before equity in undistributed
net income of subsidiaries 2,331 1,712 1,451
Equity in undistributed net income of subsidiaries 83 545 96
- -----------------------------------------------------------------------------------------
NET INCOME $2,414 $2,257 $1,547
- -----------------------------------------------------------------------------------------
</TABLE>
Pocahontas Bankshares Corporation Page . 33
<PAGE>
15. Parent Company Financial Data (continued)
Statement of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1995 1994 1993
-------------------------
Cash flows from operating activities (Dollars in Thousands)
<S> <C> <C> <C>
Net income $ 2,414 $ 2,257 $ 1,547
Adjustments to reconcile net income to net cash
Provided by operating activities:
Equity in undistributed net income of subsidiaries (83) (545) (96)
Other adjustments, net (6) (136) 51
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,325 1,576 1,502
- -------------------------------------------------------------------------------
Cash flows from financing activities
Principal repayments of long term debt (1,200) (1,000) (400)
Cash dividends paid (1,100) (1,000) (875)
- -------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (2,300) (2,000) (1,275)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash 25 (424) 227
Cash at January 1, 179 603 376
- -------------------------------------------------------------------------------
Cash at December 31, $ 204 $ 179 $ 603
- -------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 56 $ 138 $ 165
Income taxes $ 1,456 $ 1,046 $ 755
- -------------------------------------------------------------------------------
</TABLE>
Page . 34 Pocahontas Bankshares Corporation
<PAGE>
The Board of Directors and Stockholders Report of
Pocahontas Bankshares Corporation: Independent
Accountants
We have audited the accompanying consolidated statements of financial condition
of Pocahontas Bankshares Corporation and Subsidiaries (the "Corporation") as of
December 31, 1995 and 1994, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pocahontas
Bankshares Corporation and Subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1994 the Corporation
changed its method of accounting for certain investments in debt and equity
securities. As discussed in Notes 1 and 7 to the financial statements, in 1993
the Corporation changed its methods of accounting for income taxes and
postretirement benefits, respectively.
Charlotte, North Carolina
January 26, 1996
/s/ Coopers & Lybrand
- ---------------------------
Pocahontas Bankshares Corporation Page . 35
<PAGE>
Boards of
Directors
- ---------------------------
POCAHONTAS BANKSHARES CORPORATION
- --------------------------------------------------------------------------------
Stelio J. Corte
Vice President, Secretary &
Treasurer
Corte Construction, Inc.
Eustace Frederick
Retired, Senior Vice President-
Mining, Consolidation Coal Co.,
Southern Appalachia Region
P. Stanley Hodges
C.P.A., Hodges, Jones & Terry
B. L. Jackson, Jr.
Chairman of the Board
Pocahontas Bankshares
Corporation
Robert M. Jones, Jr., M.D.
Physician
Harold Lee Miller, Jr.
President
Flat Top Insurance Agency
Charles A. Peters
President,
Peters Equipment, Inc.
Secretary, Pocahontas
Bankshares Corporation
C. E. Richner
President
C. E. Richner Drilling Co.
Byron K. Satterfield
Executive Vice President &
Trust Officer, First Century
Bank, N.A.
John C. Shott
Chairman of the Board
Paper Supply Company
Scott H. Shott
Shott Foundation
Walter L. Sowers
President
Pemco Corporation
J. Brookins Taylor, M.D.
Physician
James P. Thomas, M.D.
Physician and Surgeon
R. W. Wilkinson
President & Chief Executive
Officer, Pocahontas Bankshares
Corporation, First Century
Bank, N.A.
Chairman, First Century Bank
FIRST CENTURY BANK, N.A.
- --------------------------------------------------------------------------------
Eustace Frederick
Retired, Senior Vice President-
Mining, Consolidation Coal Co.,
Southern Appalachia Region
B. L. Jackson, Jr.
Chairman of the Board
Pocahontas Bankshares
Corporation
Robert M. Jones, Jr.
Physician
Harold Lee Miller, Jr.
President
Flat Top Insurance Agency
Marshall S. Miller
President, Marshall Miller
& Associates
Charles A. Peters
President, Peters Equipment, Inc.
Secretary, Pocahontas
Bankshares Corporation
Robert L. Raines
Retired, President
Pocahontas Land Corporation
C. E. Richner
President
C. E. Richner Drilling Co.
Byron K. Satterfield
Executive Vice President &
Trust Officer, First Century
Bank, N.A.
John H. Shott
Attorney
Scott H. Shott
Shott Foundation
Walter L. Sowers
President, Pemco Corporation
William Chandler Swope
President
Swope Construction
Services, Inc.
J. Brookins Taylor, M.D.
Physician
James P. Thomas, M.D.
Physician and Surgeon
Frank Wilkinson
Vice President, Marketing and
Branch Administration,
First Century Bank, N.A.
R. W. Wilkinson
President & Chief Executive
Officer, Pocahontas Bankshares
Corporation,
First Century Bank, N.A.
Chairman, First Century Bank
FIRST CENTURY BANK, N.A.
WYOMING COUNTY OPERATIONS
ADVISORY BOARD
- --------------------------------------------------------------------------------
Ted Bailey
President, Pineville Land Co.
Tom Evans, Jr.
President, Evans Funeral Home
Randall D. Price
Vice President, Wyoming
County Area, First Century
Bank, N.A.
C. E. Richner
President,
C. E. Richner Drilling Co.
Byron K. Satterfield
Executive Vice President &
Trust Officer, First Century
Bank, N.A.
Frank. W. Wilkinson
Vice President, Marketing and
Branch Administration,
First Century Bank, N.A.
R. W. Wilkinson
President & Chief Executive
Officer, Pocahontas Bankshares
Corporation, First Century
Bank, N.A.
Chairman, First Century Bank
Dennis Worrell
Partner, Worrell Exxon &
Owner, D & T Car Wash
FIRST CENTURY BANK
- --------------------------------------------------------------------------------
Dallas E. Carico
Retired, President, Ft. Chiswell
Construction, Co.
James W. Caudill
President, R. P. Johnson & Sons
Robert T. Dupuis
President, P & T Products, Inc.
Jeffery L. Forlines
Chief Executive Officer, First
Century Bank
P. Stanley Hodges
C.P.A., Hodges, Jones & Terry
Stephen A. Lester
Ewald-Lester Insurance
Agency, Inc.
R. W. Wilkinson
President & Chief Executive
Officer, Pocahontas Bankshares
Corporation,
First Century Bank, N.A.
Chairman, First Century Bank
Page . 36 Pocahontas Bankshares Corporation
<PAGE>
Officers
POCAHONTAS BANKSHARES CORPORATION
- --------------------------------------------------------------------------------
B. L. Jackson, Jr.
Chairman of the Board
R. W. Wilkinson
President & Chief Executive
Officer
Charles A. Peters
Secretary
W. E. Albert
Assistant Secretary
J. Ronald Hypes
Treasurer
FIRST CENTURY BANK, N.A.
- --------------------------------------------------------------------------------
ADMINISTRATION
R. W. Wilkinson
President &
Chief Executive Officer
J. Ronald Hypes
Vice President & Comptroller
John D. Lay
Assistant Comptroller
Wayne L. Blevins
Assistant Comptroller
Barbara Moore-Ray
Community
Development Officer
Kenneth W. Beard
Vice President &
Compliance Officer
Zella W. Dillon
Auditor
Lisa A. Keene
Training Director
Barry W. Whitt
Loan Review Officer
BRANCH ADMINISTRATION
Frank W. Wilkinson
Vice President, Marketing and
Branch Administration
Marshall V. Lytton
Vice President & Manager,
Princeton Office
Randall Price
Vice President, Wyoming
County Area
Angela M. James
Assistant Cashier
Karen Kidd
Assistant Cashier
Revonda D. Helms
Assistant Cashier
Juanita Growe
Branch Manager, Pineville
Branch
Jean Stanley
Assistant Cashier
Rhonda G. Sutherland
Assistant Cashier
Rita Toler
Assistant Cashier, Oceana Office
LOANS
R. S. Kennett
Senior Vice President, Loans
Garnett L. Little
Vice President, Loans
Hal Absher
Director of Secondary
Mortgage Lending
Robert Sexton
Manager, Consumer Loan
Department
Debra Brunty
Consumer Loan Manager,
Wyoming County Area
James Goodwin
Real Estate Loan Officer
Christopher W. Nipper
Loan Collection Officer
Charles Lester
Loan Officer and
Collection Officer
Shela D. Fortner
Consumer Loan Officer
Charlene Maynard
Consumer Loan Officer
OPERATIONS
W. E. Albert
Vice President & Cashier
Jack M. Forbes
Assistant Vice
President, Transit
Erwin C. Browning
Assistant Vice President &
Security Officer
Nina C. Crockett
Manager, Administrative
Support Group
Christina H. Naylor
Assistant Vice President
Teller Operations
Martha Cooper
Assistant Cashier
Harold Mitchell
Assistant Cashier
Rebecca Lynn Daniels
Assistant Cashier, Wyoming
County Operations
TRUST
Byron K. Satterfield
Executive Vice President &
Trust Officer
Patsy R. Sykes
Vice President & Trust Officer
Elizabeth Pruett
Trust Operations Officer
Gary R. Mills
Trust Officer and
Director of Human Resources
FIRST CENTURY BANK
- --------------------------------------------------------------------------------
R. W. Wilkinson
Chairman &
Trust Officer
Jeffery L. Forlines
President &
Chief Executive Officer
W. Edward Smith
Assistant Vice President
James B. Litton
Vice President & Security Officer,
Wytheville Office
Lisa H. Lester
Assistant Cashier
Zerna Felts
Branch and Security Officer,
Fort Chiswell Office
<PAGE>
Pocahontas Bankshares Corporation Subsidiaries
FIRST CENTURY BANK, N.A.
500 Federal Street
Bluefield, WV 24701
(304) 325-8181
200 Princeton Avenue
Bluefield, WV 24701
(304) 325-6600
2020 College Avenue
Bluefield, WV 24701
(304) 327-5660
1223 Stafford Drive
Pine Plaza, Princeton, WV 24740
(304) 425-0856
Rt. 10, Cook Parkway
Oceana, WV 24870
(304) 682-6221
Rt. 10, East Pineville
Pineville, WV 24874
(304) 732-8850
FIRST CENTURY BANK
Wytheville Office
200 Pepper's Ferry Road
Wytheville, VA 24382
(540) 223-1115
Fort Chiswell Office
Rt. 94
Max Meadows, VA 24360
(540) 637-3100
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<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,000
<INT-BEARING-DEPOSITS> 3,833
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<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 53,440
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<LOANS> 177,794
<ALLOWANCE> 2,145
<TOTAL-ASSETS> 265,980
<DEPOSITS> 232,172
<SHORT-TERM> 9,642
<LIABILITIES-OTHER> 980
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0
0
<COMMON> 1,250
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<INTEREST-DEPOSIT> 8,603
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<LOAN-LOSSES> 839
<SECURITIES-GAINS> (341)
<EXPENSE-OTHER> 8,561
<INCOME-PRETAX> 3,756
<INCOME-PRE-EXTRAORDINARY> 2,414
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,414
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 2.41
<YIELD-ACTUAL> 4.71
<LOANS-NON> 3,194
<LOANS-PAST> 781
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 1,985
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