<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the transition period from____________________to____________________
Commission file number: 0-11671
POCAHONTAS BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
West Virginia 55-0628089
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Federal Street, Bluefield, WV 24701
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 325-8181
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
The number of shares outstanding of the registrant's $1.25 par value common
stock, as of November 10, 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
Exhibits and Reports on Form 8-K.............................. 8
SIGNATURES.................................................... 8
The total number of pages of the Form 10-Q Quarterly Report is eight (8) pages.
2
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands)
ASSETS 1997 1996
-------- --------
<S> <C> <C>
Cash and due from banks $ 10,637 $ 12,421
Interest-bearing balances with banks 134 1,982
Securities available for sale: (amortized cost approximated $36,814
at September 30, 1997, and $26,632 at December 31, 1996) 36,915 26,438
Securities held to maturity: (market value approximated $24,374
at September 30, 1997, and $39,218 at December 31, 1996) 24,244 39,062
Federal funds sold -- 5,750
Loans 189,576 179,956
Less allowance for loan losses 2,328 2,240
-------- --------
Net loans 187,248 177,716
Premises and equipment 8,507 8,052
Real estate owned other than bank premises 1,410 1,976
Other assets 4,535 4,784
Goodwill and other intangible assets 360 391
-------- --------
TOTAL ASSETS $273,990 $278,572
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 26,358 $ 30,562
Interest-bearing 199,828 206,160
-------- --------
Total deposits 226,186 236,722
Federal funds purchased and securities sold under
agreements to repurchase 15,881 14,514
Demand notes to U. S. Treasury and other
liabilities for borrowed money 4,106 1,756
Other liabilities 1,648 951
-------- --------
TOTAL LIABILITIES 247,821 253,943
======== ========
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 22,842 21,521
Unrealized losses on securities 42 (177)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 26,169 24,629
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $273,990 $278,572
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share data)
INTEREST INCOME 1997 1996 1997 1996
------ ------ ------- -------
<S> <C> <C> <C> <C>
Interest and fees on loans $4,432 $4,291 $12,948 $12,674
Interest on balances with banks 24 28 65 71
Interest and dividends from securities available for sale:
Taxable 567 233 1,601 555
Interest and dividends from securities held to maturity:
Taxable 298 595 1,109 2,008
Tax-exempt 102 102 307 275
Interest on federal funds sold 56 71 160 197
-------- -------- -------- --------
TOTAL INTEREST INCOME 5,479 5,320 16,190 15,780
INTEREST EXPENSE
Interest on time certificates of $100,000 or more 269 310 831 924
Interest on other deposits 1,915 1,962 5,738 5,860
Interest on federal funds purchased and securities
sold under agreements to repurchase 138 89 390 261
Interest on demand notes to U. S. Treasury
and other liabilities for borrowed money 20 15 59 43
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 2,342 2,376 7,018 7,088
-------- -------- -------- --------
Net interest income 3,137 2,944 9,172 8,692
Provision for loan losses 204 82 583 448
-------- -------- -------- --------
Net interest income after provision for loan losses 2,933 2,862 8,589 8,244
NONINTEREST INCOME
Income from fiduciary activities 284 180 744 540
Other operating income 345 294 1,023 829
Gains (losses) on sale of securities -- 1 (59) 1
-------- -------- -------- --------
TOTAL NONINTEREST INCOME 629 475 1,708 1,370
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 1,097 1,092 3,303 3,234
Premises and equipment expense 341 265 940 783
Other noninterest expense 875 832 2,641 2,398
-------- -------- -------- --------
TOTAL NONINTEREST EXPENSE 2,313 2,189 6,884 6,415
-------- -------- -------- --------
Income before income taxes 1,249 1,148 3,413 3,199
Provision for income taxes 432 406 1,192 1,097
-------- -------- -------- --------
NET INCOME 817 742 2,221 2,102
======== ======== ======== ========
NET INCOME PER COMMON SHARE $ 0.41 $ 0.37 $ 1.11 $ 1.05
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
------- -------
<S> <C> <C>
Net income $ 2,221 $ 2,102
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 583 448
Depreciation and amortization 465 357
Losses (gains) on sale of securities 59 (1)
Decrease in interest receivable 10 79
Net investment amortization and accretion 196 422
Decrease in other assets 629 8
Increase in interest payable and other liabilities 480 223
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,643 3,638
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in federal funds sold 5,750 (600)
Purchases of securities held to maturity (500) (9,397)
Purchases of securities available for sale (13,057) (12,251)
Proceeds from maturities of securities held to maturity 15,858 17,736
Proceeds from sales of securities available for sale 1,751 --
Net increase in loans (9,395) (4,079)
Purchases of premises and equipment (963) (2,678)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (556) (11,269)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits (4,728) 907
Net increase (decrease) in time deposits (5,808) 1,989
Net increase in short-term borrowings 3,717 2,714
Cash dividends paid (900) (850)
------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (7,719) 4,760
------- -------
NET DECREASE IN CASH AND DUE FROM BANKS $(3,632) $(2,871)
CASH AND DUE FROM BANKS AT JANUARY 1, 14,403 13,833
------- -------
CASH AND DUE FROM BANKS AT SEPTEMBER 30, $10,771 $10,962
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,702 $ 6,757
Income taxes 924 1,263
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited) Nine Months Ended
September 30,
------------
(Dollars in thousands)
1997 1996
--------- ---------
<S> <C> <C>
BALANCE, JANUARY 1, $ 24,629 $ 23,186
Net income 2,221 2,102
Cash dividends declared - $0.450 per share
in 1997, and $0.425 per share in 1996 900 850
Change in unrealized losses on securities 219 (302)
--------- ---------
BALANCE, SEPTEMBER 30, $ 26,169 $ 24,136
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Rule S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments were of a
normal recurring nature. Certain reclassifications have been made to the prior
period's financial statements to place them on a comparable basis with the
current period's financial statements. Operating results are for the nine-month
period ended September 30, 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
September 30, 1997 (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
September 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.................. 13.11% 14.30% 9.31% 12.54% 13.69% 8.70%
First Century Bank, N.A....... 12.87% 14.06% 9.15% 12.43% 13.57% 8.57%
First Century Bank............ 12.45% 13.65% 8.61% 11.27% 12.42% 8.18%
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the third quarter of 1997 net income increased $75,000 or 10.1% from the
$742,000 earned during the third three-month period of 1996, to $817,000 earned
during the same period in 1997. This improvement was primarily the result of
increases in the interest margin of $193,000, or 6.6%, and in noninterest income
of $154,000, or 32.4%. This increase was offset by increases in noninterest
expenses of $124,000 and in the provision for loan losses of $122,000. Earnings
per share for the third quarter of 1997 were $0.41 compared to $0.37 per share
for the third quarter of 1996. When compared to the second quarter of 1997, net
income increased $18,000, from $799,000 for the quarter ended June 30, 1997, to
$817,000 for the quarter ended September 30, 1997. This increase of 2.3%
reflected the relative stability of earnings throughout both quarters
attributable to the stable interest rate environment during those quarters.
Earnings per share increased $0.01 per share from $0.40 per share for the
quarter ended June 30, 1997, to $0.41 per share for the quarter ended September
30, 1997.
The steady performance during the third quarter enhanced the earnings for the
nine-month period ended September 30, 1997. Net income was $2,221,000 for the
first nine months of 1997 which was an increase of $119,000, or 5.7%, over the
1996 level of $2,102,000. Increases in the interest margin of $480,000, or
5.5%, and noninterest income of $338,000, or 24.7%, 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 $469,000 to $6,884,000 for the nine-month period
ended September 30, 1997, from $6,415,000 for the same period in 1996. This
increase was primarily the result of losses incurred in disposing certain
parcels of other real estate owned.
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 nine-month period ended September 30, 1997 were $1.11
compared to $1.05 per share for 1996. The Corporation's performance through
September 30, 1997 reflects an annualized return on average assets of 1.07% and
a return on average equity of 11.76%.
Total assets declined approximately $4.6 million from December 31, 1996 to
September 30, 1997. Total assets at September 30, 1997 were $274.0 million as
compared to $278.6 million at December 31, 1996. The loan portfolio continued
to grow during this nine-month period, increasing to $189.6 million or an
increase of $9.6 million or 5.3%. The investment portfolio funded this growth
as it decreased approximately $4.3 million, or 6.6%. Additionally, due to
seasonal lending requirements, the Corporation was a net purchaser of daily fed
funds at September 30, 1997, compared to a net seller of fed funds at December
31, 1996. Total deposits decreased approximately $10.0 million during the
period ended September 30, 1997, with most of this decline occurring in the
noninterest-bearing category. A portion of this loss was anticipated due to
certain short-term deposits received at year-end 1996. However, this is also
indicative of the aggressive competition for deposits in the Corporation's
primary markets.
Many months ago our company recognized the necessity to insure that our
operating systems and software could handle the upcoming century date change,
commonly referred to as the Year 2000, or Y2K, problem, without adversely
impacting our operations. This problem was obvious early on because many of our
loan products had maturity dates well into the next century. In early 1997, we
commissioned a senior level project to review our compliance regarding this
issue. The stated goal of this project is "to achieve Mission Critical
Compliance...by December 31, 1998." We are currently in the assessment phase of
this project. We anticipate that the testing phase of the project will be
completed by mid 1998. At the present time, the Corporation does not anticipate
the incurrence of material incremental costs related to the Y2K problem in any
single future year.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(a.) Exhibit 27 - Financial Data Schedule
(b.) None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
(Registrant) Pocahontas Bankshares Corporation
---------------------------------
By: /s/ J. Ronald Hypes
--------------------------
J. Ronald Hypes, Treasurer
(Principal Accounting and Financial Officer)
Date: November 10, 1997
-------------------------
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,637
<INT-BEARING-DEPOSITS> 134
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,915
<INVESTMENTS-CARRYING> 24,244
<INVESTMENTS-MARKET> 24,374
<LOANS> 189,576
<ALLOWANCE> 2,328
<TOTAL-ASSETS> 273,990
<DEPOSITS> 226,186
<SHORT-TERM> 19,987
<LIABILITIES-OTHER> 1,648
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 23,669
<TOTAL-LIABILITIES-AND-EQUITY> 273,990
<INTEREST-LOAN> 12,948
<INTEREST-INVEST> 3,017
<INTEREST-OTHER> 225
<INTEREST-TOTAL> 16,190
<INTEREST-DEPOSIT> 6,569
<INTEREST-EXPENSE> 7,018
<INTEREST-INCOME-NET> 9,172
<LOAN-LOSSES> 583
<SECURITIES-GAINS> (59)
<EXPENSE-OTHER> 6,884
<INCOME-PRETAX> 3,413
<INCOME-PRE-EXTRAORDINARY> 2,221
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,221
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 0.00
<LOANS-NON> 1,411
<LOANS-PAST> 194
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,240
<CHARGE-OFFS> 514
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 2,328
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
