<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the transition period from to
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Commission file number: 0-11671
POCAHONTAS BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
West Virginia 55-0628089
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Federal Street, Bluefield, WV 24701 24701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 325-8181
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- -------
The number of shares outstanding of the registrant's $1.25 par value common
stock, as of August 11, 1997, was 2,000,000 shares.
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Financial Statements (Unaudited)
Consolidated Statements of Financial Condition.............. 3
Consolidated Statements of Income........................... 4
Consolidated Statements of Cash Flows....................... 5
Consolidated Statements of Changes on Stockholders' Equity.. 6
Notes to Consolidated Financial Statements...................... 6 - 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7 - 8
PART II. OTHER INFORMATION
Submission of Matters to a Vote of Security Holders............. 8
Exhibits and Reports on Form 8-K................................ 8
SIGNATURES...................................................... 9
The total number of pages of the Form 10-Q Quarterly Report is nine (9) pages.
2
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) June 30, December 31,
-------- -----------
(Dollars in thousands)
<S> <C> <C>
ASSETS 1997 1996
--------- ----------
Cash and due from banks $ 11,228 $ 12,421
Interest-bearing balances with banks 1,074 1,982
Securities available for sale: (amortized cost approximated $34,834
at June 30, 1997, and $26,632 at December 31, 1996) 34,722 26,438
Securities held to maturity: (market value approximated $27,034
at June 30, 1997, and $39,218 at December 31, 1996) 26,947 39,062
Federal funds sold 3,900 5,750
Loans 183,537 179,956
Less allowance for loan losses 2,295 2,240
--------- ----------
Net loans 181,242 177,716
Premises and equipment 8,637 8,052
Real estate owned other than bank premises 1,763 1,976
Other assets 4,435 4,784
Goodwill and other intangible assets 370 391
--------- ----------
TOTAL ASSETS $ 274,318 $ 278,572
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 27,362 $ 30,562
Interest-bearing 205,374 206,160
--------- ----------
Total deposits 232,736 236,722
Federal funds purchased and securities sold under
agreements to repurchase 11,445 14,514
Demand notes to U. S. Treasury and other
liabilities for borrowed money 3,140 1,756
Other liabilities 1,495 951
--------- ----------
TOTAL LIABILITIES 248,816 253,943
--------- ----------
STOCKHOLDERS' EQUITY
Common stock - par value per share $1.25
Shares authorized: 10,000,000
Shares issued and outstanding: 2,000,000 2,500 2,500
Paid-in capital 785 785
Retained earnings 22,325 21,521
Unrealized losses on securities (108) (177)
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TOTAL STOCKHOLDERS' EQUITY 25,502 24,629
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 274,318 $ 278,572
========= ==========
See accompanying notes to consolidated financial statements
</TABLE>
3
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) Three Months Ended Six Months Ended
June 30, June 30,
-------- -------
(Dollars in thousands, except per share data)
INTEREST INCOME 1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 4,346 $ 4,259 $ 8,516 $ 8,383
Interest on balances with banks 16 5 41 43
Interest and dividends from securities available for sale:
Taxable 562 194 1,034 322
Interest and dividends from securities held to
maturity
Taxable 357 696 811 1,413
Tax-exempt 104 89 205 173
Interest on federal funds sold 57 35 104 126
------- ------- ------- -------
TOTAL INTEREST INCOME 5,442 5,278 10,711 10,460
INTEREST EXPENSE
Interest on time certificates of $100,000 or more 270 302 562 614
Interest on other deposits 1,857 1,949 3,823 3,898
Interest on federal funds purchased and securities
sold under agreements to repurchase 131 84 252 172
Interest on demand notes to U. S. Treasury
and other liabilities for borrowed money 23 14 39 28
------- ------- ------- -------
TOTAL INTEREST EXPENSE 2,281 2,349 4,676 4,712
------- ------- ------- -------
Net interest income 3,161 2,929 6,035 5,748
Provision for loan losses 238 257 379 366
------- ------- ------- -------
Net interest income after provision for loan losses 2,923 2,672 5,656 5,382
NONINTEREST INCOME
Income from fiduciary activities 280 180 460 360
Other operating income 369 296 678 535
Gains (losses) on sale of securities (59) -- (59) --
------- ------- ------- -------
TOTAL NONINTEREST INCOME 590 476 1,079 895
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 1,103 1,063 2,206 2,142
Premises and equipment expense 298 251 599 518
Other noninterest expense 850 771 1,766 1,566
------- ------- ------- -------
TOTAL NONINTEREST INCOME 2,251 2,085 4,571 4,226
------- ------- ------- -------
Income before income taxes 1,262 1,063 2,164 2,051
Provision for income taxes 463 351 760 691
------- ------- ------- -------
NET INCOME $ 799 $ 712 $ 1,404 $ 1,360
======= ======== ========= ===========
NET INCOME PER COMMON SHARE $ 0.40 $ 0.36 $ 0.70 $ 0.68
See accompanying notes to consolidated financial statements
</TABLE>
4
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Six Months Ended
June 30,
---------------------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
-------- --------
<S> <C> <C>
Net income $ 1,404 $ 1,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 379 366
Depreciation and amortization 310 240
Losses on sale of securities 59 --
(Increase) decrease in interest receivable 27 (59)
Net investment amortization and accretion 143 307
Decrease in other assets 560 25
Increase in interest payable and other liabilities 386 126
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,268 2,365
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold 1,850 4,300
Purchases of securities held to maturity (325) (8,382)
Purchases of securities available for sale (11,057) (8,091)
Proceeds from maturities of securities held to maturity 13,157 9,640
Proceeds from sales of securities available for sale 1,751 --
Net increase in loans (3,581) (6,831)
Purchases of premises and equipment (893) (1,527)
-------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 902 (10,891)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits 740 1,081
Net increase (decrease) in time deposits (4,726) 1,768
Net increase (decrease) in short-term borrowings (1,685) 4,524
Cash dividends paid (600) (550)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (6,271) 6,823
-------- --------
NET DECREASE IN CASH AND DUE FROM BANKS (2,101) (1,703)
CASH AND DUE FROM BANKS AT JANUARY 1, 14,403 13,833
-------- --------
CASH AND DUE FROM BANKS AT JUNE 30, $ 12,302 $ 12,130
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,473 $ 4,488
Income taxes 414 761
See accompanying notes to consolidated financial statements
</TABLE>
5
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited) Six Months Ended
June 30,
-------
(Dollars in thousands)
1997 1996
-------- --------
<S> <C> <C>
BALANCE, JANUARY 1, $ 24,629 $ 23,186
Net income 1,404 1,360
Cash dividends declared - $0.300 per share in 1997, and
$0.275 per share in 1996 600 550
Change in unrealized losses on securities 69 (347)
-------- --------
BALANCE, JUNE 30, $ 25,502 $ 23,649
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Rule S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments were of a
normal recurring nature. Certain reclassifications have been made to the prior
period's financial statements to place them on a comparable basis with the
current period's financial statements. Operating results are for the six-month
period ended June 30, 1997, and are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. For further
information refer to the financial statements and footnotes thereto included as
Exhibit 13 to Corporation's annual report on Form 10-K for the year ended
December 31, 1996.
NOTE B - EARNINGS PER SHARE
Earnings per common share are computed on the weighted average number of shares
of common stock outstanding during the period. There are no stock options or
other common stock equivalents that would dilute the Corporation's earnings per
share.
NOTE C - ACCOUNTING PRONOUNCEMENTS
In February, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. This statement amends APB Opinion No. 15, Earnings per
- ------------------
Share. The provisions of the SFAS are applicable for financial statements
issued for periods ending after December 31, 1997. SFAS No. 128 provides
standards for computing and presenting earnings per share. Upon adoption, this
statement is not expected to have a material impact on the Corporation's
disclosures as the Corporation has no common stock equivalents.
In June, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. The provisions of the SFAS are applicable
- ------------------------------
for financial statements issued for fiscal years beginning after December 15,
1997, with reclassification of financial statements for earlier periods provided
for comparison purposes. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. The
Corporation will comply with the disclosure provision of the statement.
In February, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
- -------------------------------------------------------------------
statement supersedes SFAS No. 14, Financial Reporting for Segments of an
--------------------------------------
6
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 (Continued)
NOTE C - ACCOUNTING PRONOUNCEMENTS (Continued)
Enterprise and amends SFAS No. 94, Consolidation of all Majority-Owned
- ---------- -----------------------------------
Subsidiaries. The provisions of the SFAS are applicable for financial
- ------------
statements issued for fiscal years beginning after December 15, 1997. SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The provisions of the statement are not expected to impact the
Corporation's disclosures as the Corporation believes it has only one operating
segment.
NOTE D - REGULATORY CAPITAL REQUIREMENTS
Regulators of the corporation and its subsidiaries have implemented risk-based
capital guidelines which require the maintenance of certain minimum capital as a
percent of assets and certain off-balance sheet items adjusted for predefined
credit risk factors. The regulatory minimums as defined by regulation for Tier 1
and combined Tier 1 and Tier 2 capital ratios were 4.0% and 8.0% respectively.
Tier 1 capital includes tangible common shareholders' equity reduced by goodwill
and certain other intangibles. Tier 2 capital includes portions of the allowance
for loan losses, not to exceed Tier 1 capital. In addition to the risk-based
guidelines, a minimum leverage ratio (Tier 1 capital as a percentage of average
total consolidated assets) of 4% is required. The following table contains the
capital ratios for the Corporation and each subsidiary as of June 30, 1997 and
1996.
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- --------------------------------------
Combined Capital Combined Capital
Entity Tier 1 (Tier 1 and Tier 2) Leverage Tier 1 (Tier 1 and Tier 2) Leverage
- ------------------------------- ------- ------------------ -------- ------ ------------------ --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated.............. 13.17% 14.37% 9.12% 12.17% 13.30% 8.57%
First Century Bank, N.A... 12.91% 14.11% 8.92% 12.12% 13.25% 8.51%
First Century Bank........ 12.45% 13.68% 8.75% 11.04% 12.17% 7.96%
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the second quarter of 1997 net income increased $87,000 or 12.2% from the
$712,000 earned during the second three months of 1996, to $799,000 earned
during the same period in 1997. This improvement was primarily the result of
increases in the interest margin of $232,000, or 7.9%, and in noninterest income
of $114,000, or 23.9%. This increase was offset by an increase in noninterest
expenses of $166,000. Earnings per share for the second quarter of 1997 were
$0.40 compared to $0.36 per share for the second quarter of 1996. When compared
to the first quarter of 1997, net income increased $194,000, from $605,000 for
the quarter ended March 31, 1997, to $799,000 for the quarter ended June 30,
1997. This was attributable to increases in the interest margin of $287,000, and
in noninterest income of $101,000, along with a reduction in noninterest
expenses of $69,000 which helped offset an increase in the provision for loan
losses of $97,000 when compared with the first quarter of 1997. Additionally,
the corporation had $59,000 in securities losses attributable to the sale of
approximately 40% of its holdings in a U.S. Government mutual fund. The lower
interest rate environment during the second quartered allowed management to
reduce its investment in the mutual fund in favor of more traditional bank
investment alternatives. Earnings per share increased $0.10 per share from $0.30
per share for the quarter ended March 31, 1997, to $0.40 per share for the
quarter ended June 30, 1997.
The improved performance during the second quarter enhanced the earnings for the
six-month period ended June 30, 1997. Net income was $1,404,000 for the first
six months of 1997 which was an increase of $44,000, or 3.2%, over the 1996
level of $1,360,000. Increases in the interest margin of $287,000, or 5.0%, and
noninterest income of $184,000, or 20.6%, contributed to the improved earnings.
Trust fees were the major factor in improved noninterest income, reflecting
growth in and an enhanced pricing strategy for fiduciary activities. Noninterest
expenses increased $345,000 to $4,571,000 for the six months ended June 30,
1997, from $4,226,000 for the same period in 1996.
7
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Earnings per share for the six month periods ended June 30, 1997 were $0.70
compared to $0.68 per share for 1996. The Corporation's performance through June
30, 1997 reflects an annualized return on average assets of 1.02% and a return
on average equity of 11.24%.
Total assets declined approximately $4.3 million from December 31, 1996 to June
30, 1997. Total assets at June 30, 1997 were $274.3 million as compared to
$278.6 million at December 31, 1996. The loan portfolio continued to grow during
this six month period, increasing to $183.5 million or an increase of $3.5
million or 2.0%. The investment portfolio funded this growth as it decreased
approximately $3.8 million, or 5.8%. Total deposits decreased approximately $4.0
million during the first half of 1997, with most of this decline occurring in
the noninterest-bearing category. This loss was anticipated due to certain
short-term deposits received at year-end 1996.
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held on April 15, 1997. Total outstanding
shares were 2,000,000 at April 15, 1997. Matters brought before the stockholders
and the voting results are as follows:
(1) To elect fifteen (14) nominees for director to serve for a term of one year.
<TABLE>
<CAPTION>
Nominee Shares For Shares Against Abstentions
------- ---------- -------------- -----------
<S> <C> <C> <C>
Eustace Frederick 1,383,157 1,340 1,248
B. L. Jackson, Jr. 1,384,405 92 1,248
Robert M. Jones, Jr., M.D. 1,384,497 -- 1,248
Harold L. Miller 1,384,405 92 1,248
Charles A. Peters 1,384,401 96 1,248
C. E. Richner 1,384,401 96 1,248
Byron K. Satterfield 1,384,497 -- 1,248
John C. Shott 1,384,405 92 1,248
Scott H. Shott 1,384,405 92 1,248
Walter L. Sowers 1,384,497 -- 1,248
J. Brookins Taylor, M.D. 1,383,905 592 1,248
James P. Thomas, M.D. 1,384,405 92 1,248
Frank W. Wilkinson 1,384,405 92 1,248
R. W. Wilkinson 1,384,401 96 1,248
</TABLE>
(2) To ratify the selection of Coopers & Lybrand, Certified Public Accountants,
to serve as independent auditors for the registrant for the year ending December
31, 1997. Shares for: 1,383,897; Shares against: 1,000; Abstentions: 848.
The text for the matters listed in this Item 4 is set forth in the definitive
proxy solicitation materials which were filed with the Commission on or about
March 28, 1997, and are incorporated herein by reference.
Item 6 - Exhibits and Reports on Form 8-K.
(a.) Exhibit 27 - Financial Data Schedule
(b.) None
8
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Pocahontas Bankshares Corporation
---------------------------------
By: /s/ J. Ronald Hypes
-----------------------------
J. Ronald Hypes, Treasurer
(Principal Accounting and Financial Officer)
Date: August 11 1997
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9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,228
<INT-BEARING-DEPOSITS> 1,074
<FED-FUNDS-SOLD> 3,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,722
<INVESTMENTS-CARRYING> 26,947
<INVESTMENTS-MARKET> 27,034
<LOANS> 183,537
<ALLOWANCE> 2,295
<TOTAL-ASSETS> 274,318
<DEPOSITS> 232,736
<SHORT-TERM> 14,585
<LIABILITIES-OTHER> 1,495
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 23,002
<TOTAL-LIABILITIES-AND-EQUITY> 274,318
<INTEREST-LOAN> 8,516
<INTEREST-INVEST> 2,050
<INTEREST-OTHER> 145
<INTEREST-TOTAL> 10,711
<INTEREST-DEPOSIT> 4,385
<INTEREST-EXPENSE> 4,676
<INTEREST-INCOME-NET> 6,035
<LOAN-LOSSES> 379
<SECURITIES-GAINS> (59)
<EXPENSE-OTHER> 4,571
<INCOME-PRETAX> 2,164
<INCOME-PRE-EXTRAORDINARY> 1,404
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,404
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 0.00
<LOANS-NON> 1,583
<LOANS-PAST> 151
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,240
<CHARGE-OFFS> 336
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 2,295
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
