<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10-K
---------
[ X ] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) or 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
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 17, 1997 was $34,678,344 and the number of shares
outstanding of the registrant's common stock was 2,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the fiscal year ended
December 31, 1996 are incorporated by reference into Part II.
Portions of the proxy statement for the annual shareholders meeting to be
held April 15, 1997, are incorporated by reference into Part III.
Total number of pages, including cover page and exhibits - 61
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
1996 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 DAT.................. 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............................................
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
2
<PAGE>
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, re ceive their
entire compensation from the subsidiaries. The Corporation's executive
offices are located at 500 Fed eral 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 Fi nancial
Statements in the Registrant's 1996 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, 1996, Bluefield had 116 full-time employees
and 13 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, 1996, 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 re lations with its employees.
3
<PAGE>
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 regional banks, 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
4
<PAGE>
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 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 4 through 17 of the
accompanying 1996 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 and the property and building
at 516 Federal Street. 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 525 Federal Street, which comprises
approximately 10,000 square feet of interior space and approximately 20,000
square feet of real estate. The fourth property is located on Bland Street
near the 525 Federal Street property, and consists of approximately 42
parking spaces which is used for employee parking. 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
5
<PAGE>
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 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.
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.
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, 1996.
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 16 of the 1996 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 de
scribed 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.
6
<PAGE>
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 17 of the Registrant's 1996 Annual Report to
Stockholders (Exhibit 13), incorporated herein by reference.
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 4 through 17 of the accompanying 1996
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, 1996, 1995, and 1994, which are included in the Corporation's
1996 Annual Report to Stockholders (Exhibit 13), are incorporated herein by
reference:
The report of independent accountants on page 39 of the Registrant's
1996 Annual Report to Stockholders reflects an unqualified opinion on the
1996 and 1995 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, 1996, issued by Coopers & Lybrand, Charlotte, North Carolina,
the Registrant's independent accountant for those years.
<TABLE>
<CAPTION>
Reference to
1996 Annual Report
-------------------
<S> <C>
Consolidated Statements of Condition Page 18
Consolidated Statements of Income Page 19
Consolidated Statements of Cash Flows Page 20
Consolidated Statements of Changes
in Stockholders' Equity Page 21
Notes to Consolidated Financial
Statements Pages 22 through 38
Report of Independent Accountants Page 39
</TABLE>
The supplementary financial information required by this item is set
forth in Note 13 of "Notes to Consolidated Financial Statements" on Page 36
of the Corporation's 1996 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.
7
<PAGE>
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 28, 1997 (which is not later than 120 days after December
31, 1996, the close of the fiscal year of Registrant): and such information
is incorporated herein by reference to such proxy statement.
ITEM 11. EXECUTIVE COMPENSATION
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 28, 1997, (which is not later than
120 days after December 31, 1996, 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
28, 1997, (which is not later than 120 days after December 31, 1996, 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 28, 1997,
(which is not later than 120 days after December 31, 1996, 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 7 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
1996.
(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 June 30, 1996 Form 10-Q. (Bylaws
were previously
8
<PAGE>
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
9
<PAGE>
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 19, 1997
------------------------------------------
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 18, 1997
------------------------------------------- ----------------
B. L. Jackson, Jr., Chairman of the Board
and Director
BY: /s/ R. W. Wilkinson Date: March 18, 1997
------------------------------------------- ----------------
R. W. Wilkinson, President & Chief Executive
Officer & Director
(Principal Executive Officer)
BY: /s/ Charles A. Peters Date: March 18, 1997
------------------------------------------- ----------------
Charles A. Peters, Secretary and Director
BY: Date:
------------------------------------------- ----------------
Eustace Frederick, Director
BY: Date:
------------------------------------------- ----------------
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 18, 1997
------------------------------------------- ----------------
Byron K. Satterfield, Director
BY: /s/ John C. Shott Date: March 19, 1997
------------------------------------------- ----------------
John C. Shott, Director
BY: /s/ Scott H. Shott Date: March 18, 1997
------------------------------------------- ----------------
Scott H. Shott, Director
10
<PAGE>
BY: Date:
------------------------------------------- ----------------
Walter L. Sowers, Director
BY: /s/ J. Brookins Taylor Date: March 18, 1997
------------------------------------------- ----------------
J. Brookins Taylor, M. D., Director
BY: Date:
------------------------------------------- ----------------
James P. Thomas, M. D., Director
BY: /s/ Frank W. Wilkinson Date: March 17, 1997
------------------------------------------- ----------------
Frank W. Wilkinson, Director
11
<PAGE>
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.
12
<PAGE>
(k) Roll-out: Division of the policy into two separate policies,
---------
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.
---------------
13
<PAGE>
(a) Upon the Executive's death, the Company will promptly take the
appropriate action to obtain the death benefits provided under the Policy,
and
(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.
14
<PAGE>
(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.
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.
-------------------------------------------------
15
<PAGE>
(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, 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.
16
<PAGE>
(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:
--------------------------------
--------------------------------
--------------------------------
17
<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
<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
15, 1997, at Fincastle Country Club, Bluefield, Virginia. All stockholders are
cordially invited to attend.
Table of Contents
Financial Highlights...........................................................1
Letter to the Stockholders.....................................................2
Management's Discussion and Analysis of Financial Condition
and Results of Operation..................................................4
Consolidated Statements of Financial Condition................................18
Consolidated Statements of Income.............................................19
Consolidated Statements of Cash Flows.........................................20
Consolidated Statements of Changes in Stockholders' Equity....................21
Notes to Consolidated Financial Statements....................................22
Report of Independent Accountants.............................................39
Boards of Directors...........................................................40
Corporate and Bank Officers....................................Inside back cover
Pocahontas Bankshares Corporation Subsidiaries........................Back cover
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
1996 1995 1994
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C>
FOR THE YEAR
Total operating income $ 23,076 $ 22,208 $ 20,041
Total operating expense 18,145 17,613 16,409
Net income 2,830 2,414 2,257
Cash dividends declared 1,210 1,100 1,000
AT YEAR END
Assets $278,572 265,980 261,299
Deposits 236,722 232,172 230,882
Loans 179,956 177,794 171,325
Securities 65,500 58,859 64,295
Stockholders' equity 24,629 23,186 21,161
PER COMMON SHARE
Net income $ 1.42 $ 1.21 $ 1.13
Cash dividends declared 0.605 0.500 0.500
Book value 12.31 10.58 10.58
</TABLE>
[GRAPH OF LOANS] [GRAPH OF ASSETS]
[GRAPH OF DEPOSITS] [GRAPH OF BOOK VALUE PER SHARE]
Pocahontas Bankshares Corporation Page 1
<PAGE>
Letter to the
Stockholders
To Our Stockholders,
Customers and Friends:
[PHOTO OF R.W. WILKINSON]
The directors, officers and employees of Pocahontas Bankshares Corporation and
its wholly-owned subsidiaries, First Century Bank, N.A. and First Century Bank,
are pleased to present this Annual Report for 1996.
Pocahontas Bankshares Corporation had the most profitable year in its history
with net income of $2,830,000. This represented an increase for 1996 of 17% over
the previous year. On a per share basis, net income rose to $1.42 compared to
$1.21 the previous year. Total assets were $278,572,000, the highest in the
history of the Corporation. The return on average assets for 1996 was 1.04% and
the return on average equity was 11.84%. 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.
Pocahontas Bankshares has continued to operate First Century Bank, N.A., a
national association in West Virginia and First Century Bank, a state-chartered
bank in Virginia. Management is exceptionally pleased with the performance of
our Virginia bank which continues to grow and contribute to the corporation's
earnings. Both banks continued to improve earnings and asset quality which was
reflected in the performance of the corporation for 1996.
1996 was also an important year for your Corporation because of the major
renovations to the main office located in downtown Bluefield, West Virginia. The
renovations have resulted in a state-of-the-art operations center and
dramatically changed the main office lobby by increasing its use as a modern
retail and commercial financial center. The additional parking on our third
floor has improved service to
Page 2 Pocahontas Bankshares Corporation
<PAGE>
our customers and provided a major convenience with the on-premise parking made
available out of the weather. The new drive-in facility was delayed in
construction due to the weather in the last quarter of 1996 and site
preparation. This new facility, which we will call First Century Square, will
provide added service for our customers with one commercial lane, three retail
lanes and a 24-hour automatic teller machine. This dramatic improvement will
provide a direction for the City into the next millennium. These improvements to
the drive-in and main office have enhanced the Bank's ability to provide quality
service and convenience for our customers in the Bluefield area, and will allow
our continued growth and expansion efforts with minimal renovations or
additional personnel.
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
[LINE DRAWING OF FIRST CENTURY SQUARE]
First Century Square
Pocahontas Bankshares Corporation Page 3
<PAGE>
Management's
Discussion and
Analysis of
Financial
Condition and
Results of
Operations
<TABLE>
<CAPTION>
AVERAGE STATEMENTS OF CONDITION AND NET INTEREST DIFFERENTIAL
1996 1995 1994
--------------------------------------------------------------------------------------------
(Dollars in Thousands)
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
ASSETS: Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks $ 2,009 $ 106 5.28% $ 1,525 $ 86 5.64% $ 90 $ 3 3.33%
Securities available for sale:
U. S. Government securities 5,138 299 5.82% -- -- -- -- -- --
U. S. Government agency securities 3,458 228 6.59% -- -- -- -- -- --
Other securities 5,426 377 6.95% 5,241 386 7.37% 5,097 390 7.65%
--------------------------------------------------------------------------------------------
Total securities available for sale 14,022 904 6.45% 5,241 386 7.37% 5,097 390 7.65%
--------------------------------------------------------------------------------------------
Securities held to maturity:
U. S. Government securities 24,549 1,279 5.21% 36,863 1,880 5.10% 43,666 2,167 4.96%
U. S. Government agency securities 18,513 1,185 6.40% 13,706 857 6.25% 9,708 514 5.29%
State and Municipal securities 5,563 382 6.87% 3,797 287 7.56% 3,313 265 8.00%
Other securities 1,037 64 6.17% 1,049 64 6.10% 785 48 6.11%
--------------------------------------------------------------------------------------------
Total securities held to maturity 49,662 2,910 5.86% 55,415 3,088 5.57% 57,472 2,994 5.21%
--------------------------------------------------------------------------------------------
Federal funds sold 5,918 312 5.27% 8,853 531 6.00% 4,347 205 4.72%
Loans 180,341 16,837 9.34% 175,280 16,566 9.45% 177,888 14,746 8.29%
--------------------------------------------------------------------------------------------
Total interest-earning assets 251,952 21,069 8.36% 246,314 20,657 8.39% 244,894 18,338 7.49%
--------------------------------------------------------------------------------------------
Allowance for loan losses (2,150) (2,059) (1,903)
Cash and due from banks - demand 8,994 7,670 9,623
Premises and equipment - net 6,914 4,909 4,837
Other assets 6,159 5,622 5,190
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $271,869 $262,456 $262,641
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Interest-bearing demand deposits $ 49,685 1,670 3.36% $ 48,920 1,660 3.39% $ 53,365 1,600 3.00%
Savings deposits 64,703 2,360 3.65% 69,118 2,502 3.62% 79,757 2,616 3.28%
Time deposits 93,612 5,023 5.37% 85,862 4,441 5.17% 72,634 2,849 3.92%
--------------------------------------------------------------------------------------------
Total interest-bearing deposits 208,000 9,053 4.35% 203,900 8,603 4.22% 205,756 7,065 3.43%
--------------------------------------------------------------------------------------------
Short-term debt 11,265 428 3.80% 9,661 449 4.65% 7,496 221 2.95%
--------------------------------------------------------------------------------------------
Long-term debt -- -- -- -- -- -- 1,823 138 7.57%
--------------------------------------------------------------------------------------------
Total interest-bearing liabilities 219,265 9,481 4.32% 213,561 9,052 4.24% 215,075 7,424 3.45%
--------------------------------------------------------------------------------------------
Demand deposits 26,832 24,668 25,194
Other liabilities 1,695 1,858 1,555
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES 247,792 240,087 241,824
--------------------------------------------------------------------------------------------
Stockholders' equity 23,897 22,369 20,817
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $271,689 $262,456 $262,641
- -----------------------------------------------------------------------------------------------------------------------------------
Average rate paid to fund earning
assets 3.76% 3.67% 3.03%
NET INTEREST DIFFERENTIAL $11,588 4.60% $ 11,605 4.71% $ 10,914 4.46%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this schedule, interest on nonaccrual loans has been included
only to the extent reflected in the income statement. However, the nonaccrual
loan balance is included in the average amount outstanding. Average balances of
securities available for sale are reported at amortized cost; excludes pretax
unrealized losses of $213,000 in 1996, $484,000 in 1995 and $582,000 in 1994.
Interest income on tax exempt securities is shown based on the actual yield.
<TABLE>
<CAPTION>
VOLUME/RATE ANALYSIS
Increase (Decrease) in Interest
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
--------------------- --------------------------- -------------------------
(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 $ 475 $ (204) $ 271 $(231) $ 2,051 $ 1,820 $ 809 $ 674 $ 1,483
Securities available for sale 606 (88) 518 11 (15) $ (4) 195 195 390
Securities held to maturity (329) 151 (178) (111) 205 94 (91) (496) (587)
Federal funds sold (165) (54) (219) 241 85 326 (181) 117 (64)
Interest-bearing deposits with banks 26 (6) 20 64 19 83 2 -- 2
- -------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 613 (201) 412 (26) 2,345 2,319 734 490 1,224
- -------------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest-bearing demand deposits 32 (22) 10 (142) 202 60 237 (211) 26
Savings deposits (160) 18 (142) (367) 253 (114) 216 (271) (55)
Time deposits 408 174 582 602 990 1,592 (198) (68) (266)
Short-term borrowings 68 (89) (21) 82 146 228 (11) 30 19
Long-term debt -- -- -- (138) -- (138) (54) 27 (27)
- -------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 348 81 429 37 1,591 1,628 190 (493) (303)
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 265 $ (282) $ (17) $ (63) $ 754 $ 691 $ 544 $983 $ 1,527
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Changes due to a combination of volume and rate have been allocated equally
to volume and rate.
Page 4 Pocahontas Bankshares Corporation
<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 original customer base and add new customers as the
economy of this section of Wythe County continues to expand.
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 has afforded the Corporation the ability to streamline
operations, as well as provide for more consistent marketing opportunities with
Wytheville. Additionally, benefits are accruing 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. Management also continues to seek and
evaluate opportunities to increase its market share throughout the region.
Pocahontas Bankshares Corporation Page 5
<PAGE>
<TABLE>
<CAPTION>
AMOUNTS OF LOANS OUTSTANDING
Years Ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 44,209 $ 45,592 $ 46,173 $ 51,240 $ 46,402
Real estate construction 5,603 3,541 2,202 1,911 829
Real estate mortgage 105,564 102,178 97,020 101,781 89,167
Installment 24,580 26,483 25,930 22,399 21,283
- ---------------------------------------------------------------------------------------------------
TOTAL LOANS OUTSTANDING $179,956 $177,794 $171,325 $177,331 $157,681
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY SCHEDULE OF LOANS
Remaining maturity at December 31, 1996
------------------------------------------
(Dollars in Thousands)
1 Year or 1 to 5 After 5
Less Years Years Total
------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $21,290 $ 20,391 $ 2,528 $ 44,209
Real estate construction 5,522 81 -- 5,603
Real estate mortgage 14,636 76,590 14,338 105,564
Installment 5,178 18,549 853 24,580
------------------------------------------
TOTAL $46,626 $ 115,611 $17,719 $ 179,956
------------------------------------------
Loans with fixed
interest rates $18,101 $ 50,770 $17,719 $ 86,590
Loans with floating
interest rates 28,525 64,841 -- 93,366
- -----------------------------------------------------------------------------------
TOTAL $46,626 $ 115,611 $17,719 $ 179,956
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AND LOAN LOSS ANALYSIS
1996 1995 1994 1993 1992
----------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $180,341 $175,280 $177,888 $167,891 $149,138
Allowance for loan losses:
Balance at beginning of period $ 2,145 $ 1,985 $ 1,858 $ 1,540 $ 1,228
Loans charged off
Commercial, financial and agricultural 135 225 270 106 207
Real estate construction
Real estate mortgage 140 235 438 57 145
Installment loans to individuals 297 254 165 137 141
----------------------------------------------------
TOTAL LOANS CHARGED OFF 572 714 873 300 493
----------------------------------------------------
Loan recoveries
Commercial, financial and agricultural 3 8 577 148 91
Real estate construction -- -- -- -- --
Real estate mortgage -- -- 14 -- 2
Installment loans to individuals 20 27 14 11 14
----------------------------------------------------
TOTAL LOAN RECOVERIES 23 35 605 159 107
----------------------------------------------------
Net loans charged off (549) (679) (268) (141) (386)
Provision for loan losses 644 839 395 459 698
- -----------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ 2,240 $ 2,145 $ 1,985 $ 1,858 $ 1,540
- -----------------------------------------------------------------------------------------------------------
Ratio of net loans charged off to
average loans outstanding 0.30% 0.39% 0.15% 0.08% 0.26%
Allowance at year end as a percent of loans 1.24% 1.21% 1.15% 1.05% 0.98%
Provision for loan losses as a percent of loans 0.36% 0.47% 0.23% 0.26% 0.44%
----------------------------------------------------
Nonperforming assets (at year end)
Nonaccrual $ 1,398 $ 3,194 $ 1,564 $ 1,716 $ 1,386
Past-due ninety days or more and still accruing 1,427 781 536 411 479
Other real estate owned 1,976 1,206 928 1,205 2,482
----------------------------------------------------
TOTAL NONPERFORMING ASSETS $ 4,801 $ 5,181 $ 3,028 $ 3,332 $ 4,347
----------------------------------------------------
Nonperforming assets/total loans 2.7% 2.9% 1.8% 1.9% 2.8%
Nonperforming assets/total assets 1.7% 1.9% 1.2% 1.3% 1.8%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Page 6 Pocahontas Bankshares Corporation
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
1996 1995 1994 1993 1992
--------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Percent of Percent of Percent of Percent of Percent of
loans in each loans in each loans in each loans in each loans in each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 481 24.57% $ 443 25.64% $ 594 26.95% $ 551 28.90% $ 495 29.43%
Real estate construction -- 3.11% 20 1.99% 30 1.29% 25 1.08% 10 0.53%
Real estate mortgage 239 58.66% 502 57.47% 781 56.63% 749 57.40% 652 56.54%
Installment 191 13.66% 290 14.90% 245 15.13% 205 12.62% 176 13.50%
Unallocated 1,329 N/A 890 N/A 335 N/A 328 N/A 207 N/A
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,240 100.00% $2,145 100.00% $1,985 100.00% $1,858 100.00% $1,540 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Balance Sheet Analysis
Loans
The Corporation's primary use of funds is loan demand, its most profitable
deployment of funds. Total loans increased $2.2 million or 1.2% in 1996
following a $6.5 million or 3.8% increase in 1995. Expanding affiliate markets
has contributed to loan growth, however, some of the Corporation's large credits
were paid off unexpectedly before year end 1996 which limited the growth
recognized during the first half of 1996. At December 31, 1996, the loan
portfolio comprised 71.1% of total interest-earning assets as compared to 72.0%
of total interest-earning assets at December 31, 1995, and contributed 79.9% of
total interest income in 1996, compared to 80.2% of total interest income in
1995. Loan demand continued to be relatively strong through most of 1996 mostly
in the residential and commercial mortgage categories of the loan portfolio.
During 1996, the growth in the loan portfolio was primarily accomplished by
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 decreased to an average rate of 9.34% in 1996 compared to 9.45%
in 1995. This reflected relatively stable interest rates during 1995 and 1996.
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 20% 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.
Pocahontas Bankshares Corporation Page 7
<PAGE>
The consumer portion of the loan portfolio which decreased approximately 7% in
1996, 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 continues to carefully monitor the consumer sector as consumer debt
continues to increase. If any major weakening in the economy occurs, the
likelihood for increased volatility arises as consumers are servicing higher
credit card and other installment borrowings.
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, 1996 and 1995,
the subsidiary banks had outstanding commitments to extend credit of
approximately $24,474,000 and $20,280,000, respectively.
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, decreased $380,000, or
approximately 7%, from December 31, 1995 to December 31, 1996. This decrease
occurred primarily in nonaccrual loans, as there were increases in loans past-
due 90 days or more and other real estate owned. 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 a 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.
Page 8 Pocahontas Bankshares Corporation
<PAGE>
MATURITIES OF SECURITIES HELD TO MATURITY
The following table shows the contractual maturities of securities held to
maturity at December 31, 1996, 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 $12,058 5.27% $3,523 5.53% $ -- -- $ -- -- $15,581 5.33%
U. S. Government agency securities 4,440 7.38% 11,276 6.24% $ 635 6.00% -- -- $16,351 6.54%
State, county and municipal securities 1,278 7.76% 2,117 6.66% 2,264 5.63% 440 5.63% $6,099 6.43%
Other securities 1,006 6.06% -- -- 25 7.80% -- -- $1,031 6.10%
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES $18,782 5.98% $16,916 6.15% $2,924 5.73% $440 5.63% $39,062 6.03%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Yields on tax-exempt obligations have not been computed on a tax equivalent
basis.
<TABLE>
<CAPTION>
AVERAGE DEPOSITS
1996 1995 1994
Average Average Average
Amount Rate Amount Rate Amount Rate
------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 26,832 N/A $ 24,668 N/A $ 25,194 N/A
Interest-bearing demand deposits 49,865 3.36% 48,920 3.39% 53,365 3.00%
Savings deposits 64,703 3.65% 69,118 3.62% 79,757 3.28%
Time deposits 93,612 5.37% 85,862 5.17% 72,634 3.92%
- ---------------------------------------------------------------------------------------------
TOTAL AVERAGE DEPOSITS $ 235,012 3.85% $228,568 3.76% $230,950 3.06%
- ---------------------------------------------------------------------------------------------
</TABLE>
There are no foreign offices. Average balances are computed on daily balances.
<TABLE>
<CAPTION>
MATURITIES OF TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
December 31, 1996
----------------------
(Dollars in Thousands)
<S> <C>
Under 3 months $9,989
3 to 6 months 5,118
6 to 12 months 4,097
Over 12 months 3,526
- -----------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT OF $100,000 OR MORE $ 22,730
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM BORROWED FUNDS
December 31,
1996 1995 1994
--------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Securities sold under agreements to repurchase $14,514 $ 8,922 $ 5,661
U. S. Treasury demand notes and others 1,756 720 1,302
- ------------------------------------------------------------------------------------
TOTAL BORROWED FUNDS $16,270 $ 9,642 $ 6,963
- ------------------------------------------------------------------------------------
</TABLE>
The approximate average interest rates, average amounts outstanding, and maximum
amounts outstanding at any month-end for securities sold under agreements to
repurchase are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Average interest rates at December 31 3.50% 3.79% 3.75%
Maximum amounts outstanding at any
month-end $14,514 $ 9,035 $ 7,991
Average daily amount outstanding $10,104 $ 7,775 $ 6,461
Weighted average interest rates 3.66% 4.10% 2.83%
- ------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rates are calculated by dividing the annual
interest expense by the related average daily amounts outstanding.
Pocahontas Bankshares Corporation Page 9
<PAGE>
The Corporation maintains, through its provision, an allowance for loan losses
believed by management to be adequate to absorb potential credit losses inherent
in the portfolio. The $195,000 decrease in the provision for loan losses in 1996
compared to 1995 was primarily a result of decreased net loans charged off in
1996 of $130,000 compared to 1995. The allowance for loan losses was 1.24% of
year-end loans in 1996 compared to 1.21% in 1995.
Securities
Securities, another major use of funds, increased by $6.6 million or 11.3%
during 1996. At December 31, 1996, securities comprised 25.9% of total interest-
earning assets compared to 23.9% of total interest-earning assets at December
31, 1995. 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 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. During 1996, in order to enhance liquidity,
management began to increase the available for sale portfolio, as securities
matured in the held to maturity portfolio. Management believes that the
potential of increased loan demand merits enhancing the liquidity of the
securities portfolio. Net unrealized gains in the held to maturity portfolio
amounted to approximately $156,000 at December 31, 1996, compared to $491,000 in
net unrealized gains at December 31, 1995. This was indicative of the effects of
the relatively stable rate environment during 1996, along with the reduction in
the held to maturity portfolio from $53,440,000 at December 31, 1995, to
$39,062,000 at December 31, 1996.
<TABLE>
<CAPTION>
SECURITIES
1996 1995 1994
--------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Securities available for sale
U. S. Government securities $13,156 --
U. S. Government agency securities 7,999 --
Other securities 5,283 5,419 4,919
--------------------------------
Total securities available for sale 26,438 5,419 4,919
--------------------------------
Securities held to maturity
U. S. Government securities 15,580 31,381 41,974
U. S. Government agency securities 16,352 17,186 12,647
State, county and municipal securities 6,099 3,830 3,700
Other securities 1,031 1,043 1,055
--------------------------------
Total securities held to maturity $39,062 $ 53,440 $ 59,376
--------------------------------
</TABLE>
Page 10 Pocahontas Bankshares Corporation
<PAGE>
As of December 31, 1996, 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 $4,282,000 at
December 31, 1996 and $4,427,000 at December 31, 1995. 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. No unrealized
losses were recognized for the year ended December 31, 1996.
State, county and municipal securities contained no issues in excess of 10% of
stockholders' equity.
Deposits
Deposits, the major source of funds, increased approximately $4.6 million or
2.0% in 1996, following an increase of $1.3 million or 0.6% in 1995. The average
rate paid on interest-bearing deposits in 1996 was 4.35%, an increase from the
average rate of 4.22% paid in 1995, reflecting the stable rate environment
prevailing during most of 1995 and 1996. 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 1996
despite this fierce competition.
Capital Resources
Cash dividends paid to stockholders during 1996 amounted to $1,210,000
compared to $1,100,000 paid to stockholders in 1995 and $1,000,000 in 1994. This
represents a dividend pay out (dividends divided by net income) of 43% in 1996,
46% for 1995 and 44% for 1994. Cash dividends per share equaled $0.605 per share
in 1996, $0.550 per share in 1995 and $0.500 per share in 1994. 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.
<TABLE>
<CAPTION>
REGULATORY CAPITAL REQUIREMENTS
Combined Capital
Entity Tier 1 (Tier 1 and Tier 2) Leverage
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated 12.79% 13.97% 8.85%
First Century Bank, N.A. 12.62% 13.80% 8.63%
First Century Bank 11.55% 12.70% 8.36%
- ---------------------------------------------------------------------
</TABLE>
Pocahontas Bankshares Corporation Page 11
<PAGE>
One of management's primary objectives is to maintain a strong capital
position. Stockholders' equity, net of unrealized losses on securities,
increased $1,443,000 or 6.2% in 1996. The percentage of earnings reinvested in
the Corporation (net income less dividends as a percentage of net income) for
the years 1996, 1995 and 1994 was 57.2%, 54.4% and 55.7%, 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 6.8% in 1996, 5.9% in 1995, and 6.0% in 1994.
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 $24,270,000 at December 31, 1996, or 12.79% 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 $2,240,000 at December 31, 1996 or 1.18% of total risk-
weighted assets. The Corporation's total consolidated risk-based capital was
$26,510,000, or 13.97% of total risk-weighted assets as of December 31, 1996.
Additionally, risk-based capital guidelines require a minimum leverage ratio
(Tier I capital divided by average adjusted total consolidated assets) of 4%,
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, 1996, the Corporation's leverage ratio was
8.85%; therefore, the Corporation exceeded all current minimum capital
requirements.
Liquidity and Interest Sensitivity
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.
Page 12 Pocahontas Bankshares Corporation
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF INTEREST RATE SENSITIVITY
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 $ 9,291 $ 5,071 $ 8,701 $37,091 $ 5,346 $65,500
Federal funds sold and interest-bearing
balances with banks 7,732 -- -- -- -- 7,732
Loans 102,069 8,860 11,143 48,886 8,998 179,956
-------------------------------------------------------------------
Interest-earning assets 119,092 13,931 19,844 85,977 14,344 253,188
-------------------------------------------------------------------
Time deposits 31,591 25,613 19,057 16,880 49 93,190
Other interest-bearing deposits 57,906 -- -- 55,064 -- 112,970
Other interest-bearing liabilities 15,744 -- 200 300 26 16,270
-------------------------------------------------------------------
Interest-bearing liabilities 105,241 25,613 19,257 72,244 75 222,430
-------------------------------------------------------------------
Interest sensitivity gap $ 13,851 $(11,682) $ 587 $13,733 $14,269 $30,758
Cumulative interest sensitivity gap $ 13,851 $ 2,169 $ 2,756 $16,489 $30,758
-------------------------------------------------------------------
Ratio of interest-earning assets to
interest-bearing liabilities 1.13x 0.54x 1.03x 1.19x 191.25x
--------------------------------------------------------
Ratio of cumulative interest sensitivity
gap to total earning assets 5.47% 0.86% 1.09% 6.51% 12.15%
--------------------------------------------------------
</TABLE>
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, now accounts and money market deposit accounts are much
more interest sensitive than passbook savings accounts and other interest-
bearing liabilities. The primary tool used by management to measure interest
rate risk is to monitor the difference or gap between interest-sensitive earning
assets and interest-bearing liabilities over various periods of time. 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 5.47% at three months, 0.86% at six months and a
one-year positive cumulative gap of 1.09%. The Corporation was somewhat asset
sensitive at December 31, 1995, due to a significant portion of the securities
portfolio maturing during 1996. As these securities were reinvested, the balance
sheet was restructured to reduce asset sensitivity. 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. During 1996, management
began to evaluate more sophisticated risk measurement tools, including
simulation modeling which calculates expected net interest income based on
projected interest-earning assets, interest-bearing liabilities and interest
rates. Utilizing simulation modeling will allow the Corporation to evaluate
earnings and capital at risk due to significant changes in interest rates.
Pocahontas Bankshares Corporation Page 13
<PAGE>
Liquidity can best be demonstrated by an analysis of the Corporation's cash
flows. In 1996, the primary source of cash flows was from financing activities.
This was due to increases in both core deposits and other short-term borrowings.
Cash flows from operations were also significant for 1996. 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. 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.
Income Statement Analysis
Earnings
Net income for 1996 was $2,830,000 or $1.42 per share, an increase of $416,000
or 17% from the $2,414,000 or $1.21 per share earned in 1995, and $573,000 more
than the $2,257,000 or $1.13 per share earned in 1994. This increase occurred
primarily as a result of reductions in the provision for loan losses and
securities losses.
Earnings Per Share
The Corporation's net income, on a per share basis, amounted to $1.42 in 1996
compared to $1.21 in 1995 and $1.13 in 1994. The Earnings Per Share Table
summarizes the principal sources of changes in earnings per share for 1996.
<TABLE>
<CAPTION>
EARNINGS PER SHARE
<S> <C>
Net income per share - 1995 $ 1.21
- -------------------------------------------------
Increase (decrease) due to change in:
Net interest income (0.01)
Provision for loan losses 0.10
Other operating income 0.23
Personnel expense (0.08)
Other expense (0.03)
- -------------------------------------------------
Net income per share - 1996 $ 1.42
- -------------------------------------------------
</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 1996 the net
interest margin decreased $17,000 or 0.1%. This followed a 6.3% increase in
1995, and a 16% increase in 1994. For the year ended December 31, 1996, interest
income increased $412,000, or approximately 2.0%, compared to increases of
$2,319,000, or 12.6% for 1995, and $1,224,000, or 7.2% for 1994. The increase
for 1996 was evenly distributed between the loan and securities portfolios,
resulting from increased volume in both of those portfolios. This increase was
offset by an increase in interest expense of $429,000, or 4.7% for 1996. This
followed an increase in interest expense of $1,628,000, or 21.9% for 1995, and a
decrease of $303,000, or 3.9% for 1994. For 1996, increased interest expense on
time deposits due to
Page 14 Pocahontas Bankshares Corporation
<PAGE>
increased volume was the primary contributor to the increase in total interest
expense. The net interest margin is affected by many factors, but most
significantly by the prevailing interest rates during the period, the spread
between the various sources and uses of funds, and by changes in the volume of
various assets and liabilities. The performance for 1996 is indicative of the
relatively stable rate environment prevailing through most of 1995 and 1996.
Noninterest Income and Expense
Noninterest income increased $456,000 or 29% in 1996, following a $152,000 or
8.9% decrease in 1995, and an increase of $21,000 or 1.2% in 1994. The largest
component of noninterest income is fees from trust services. Fees from trust
services increased $73,000 or 10% for 1996 and $101,000 or 15% for 1995, and
$56,000 or 9% for 1994. The second largest component of noninterest income is
service charges on deposit accounts. These fees increased approximately $13,000
or 2% in 1996, after a decrease of approximately $23,000 or 3% in 1995, and an
increase of approximately $14,000 or 2% in 1994. Securities gains of
approximately $1,000 were recognized in 1996. Securities losses were
approximately $341,000 in 1995 and $117,000 in 1994.
<TABLE>
<CAPTION>
RETURN ON EQUITY AND ASSETS
December 31,
----------------------------
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Percentage of net income to:
Average stockholders' equity 11.84% 10.79% 10.84%
Average total assets 1.04% 0.92% 0.86%
Percentage of dividends declared per
common share to net income per
common share 42.61% 45.64% 44.25%
Percentage of average stockholders'
equity to average total assets 8.79% 8.52% 7.93%
</TABLE>
Noninterest expense, excluding the provision for loan losses, increased 1.2%
in 1996, following a 4.7% increase in 1995 and a 4.5% increase in 1994.
Personnel expense is the largest component of noninterest expense. Personnel
expense increased 3.9% in 1996, following an increase of 1.1% in 1995, and 5.4%
in 1994. In addition to salaries, employee benefits are a significant component
of personnel expense. For a complete discussion of the Corporation's employee
benefits, refer to Note 7 of the Notes to Consolidated Financial Statements,
presented elsewhere in this report. These increases demonstrate management's
ongoing commitment to improve operational efficiency throughout the organization
while keeping personnel expense within current inflationary levels. The largest
decline in noninterest expense was the result of reduced FDIC insurance premiums
paid on the Corporation's deposits for 1996 and 1995. These premiums were
essentially eliminated for 1996.
Income Taxes
Applicable income taxes for 1996 increased $115,000 or 8.6%. This followed a
$362,000 or 36.9% increase for 1995. Income taxes computed at the statutory rate
are reduced primarily by interest earned on state and municipal obligations. 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.
Pocahontas Bankshares Corporation Page 15
<PAGE>
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 1996 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 1996 and 1995.
Also presented below are the dividends paid for those respective years. The
number of stockholders of record on December 31, 1996, was 613 and outstanding
shares totaled 2,000,000.
<TABLE>
<CAPTION>
PER SHARE DATA BY QUARTER
Market Quotations
------------------------------------------
Dividends 1996 1995
-------------------- ------------------------------------------
Quarter 1996 1995 High Low High Low
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 0.125 $0.100 $16.50 $14.50 $15.00 $13.63
Second Quarter $ 0.150 $0.100 18.00 16.00 15.00 13.25
Third Quarter $ 0.150 $0.125 19.00 18.50 16.00 14.00
Fourth Quarter 0.180 0.225 18.75 18.50 16.88 14.00
- ------------------------------------------------------------------------------------------
</TABLE>
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 OF TRUST ASSET RESPONSIBILITY AT BOOK VALUE]
Page 16 Pocahontas Bankshares Corporation
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
Statistical Summary, 1996 - 1992
December 31,
--------------------------------------------------------------------------
1996 % 1995 % 1994 % 1993 % 1992 %
--------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $179,956 65 $177,794 67 $171,325 66 $177,331 68 $157,681 64
Securities 65,500 23 58,859 23 64,295 25 58,980 22 62,612 25
Federal funds sold 5,750 2 6,300 2 6,400 2 7,770 3 6,970 3
Interest-bearing deposits with banks 1,982 1 3,833 1 245 -- 46 -- 8 --
--------------------------------------------------------------------------
INTEREST-EARNING ASSETS 253,188 91 246,786 93 242,265 93 244,127 93 227,271 92
--------------------------------------------------------------------------
Cash and due from banks 12,421 4 10,000 4 10,732 4 9,749 4 11,275 4
Premises and equipment 8,052 3 5,417 2 4,811 2 4,640 2 3,714 2
Other assets 7,151 3 5,922 2 5,476 2 5,316 2 6,310 3
Allowance for loan losses (2,240) (1) (2,145) (1) (1,985) (1) (1,858) (1) (1,540) (1)
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $278,572 100 $265,980 100 $261,299 100 $261,974 100 $247,030 100
- --------------------------------------------------------------------------------------------------------------------
Savings deposits $112,970 41 $112,768 42 $128,582 49 $127,905 49 $110,924 45
Time deposits 93,190 33 92,043 35 75,464 29 75,570 29 79,420 32
Other interest-bearing liabilities 16,270 6 9,642 4 8,163 3 11,457 4 11,784 5
--------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES 222,430 80 214,453 81 212,209 81 214,932 82 202,128 82
--------------------------------------------------------------------------
Demand deposits 30,562 11 27,361 10 26,836 10 25,976 10 24,372 10
Other liabilities 951 -- 980 -- 1,093 1 700 -- 886 --
--------------------------------------------------------------------------
TOTAL LIABILITIES 253,943 91 242,794 91 240,138 92 241,608 92 227,386 92
--------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 24,629 9 23,186 9 21,161 8 20,366 8 19,644 8
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY $278,572 100 $265,980 100 $261,299 100 $261,974 100 $247,030 100
- --------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $236,722 $232,172 $230,882 $229,451 $214,716
BOOK VALUE PER SHARE $ 12.31 $ 11.60 $ 10.58 $ 10.18 $ 9.82
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS
Statistical Summary, 1996 - 1992
Years Ended December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Interest income $21,069 $20,657 $18,338 $17,114 $17,442
Interest expense 9,481 9,052 7,424 7,727 8,388
--------------------------------------------------
NET INTEREST MARGIN 11,588 11,605 10,914 9,387 9,054
--------------------------------------------------
Provision for loan losses 644 839 395 459 698
--------------------------------------------------
Net credit margin 10,944 10,766 10,519 8,928 8,356
--------------------------------------------------
Noninterest income 2,007 1,551 1,703 1,682 1,736
Noninterest expense 8,664 8,561 8,985 8,600 7,799
--------------------------------------------------
INCOME BEFORE INCOME TAXES 4,287 3,756 3,237 2,010 2,293
--------------------------------------------------
Provision for income taxes 1,457 1,342 980 586 588
--------------------------------------------------
Income before cumulative effect of accounting change 2,830 2,414 2,257 1,424 1,705
Cumulative effect of accounting change -- -- -- 123 --
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,830 $ 2,414 $ 2,257 $ 1,547 $ 1,705
- ------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE:
Income before cumulative effect of accounting change $ 1.42 $ 1.21 $ 1.13 $ 0.71 $ 0.85
Cumulative effect of accounting change -- -- -- 0.06 --
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 1.42 $ 1.21 $ 1.13 $ 0.77 $ 0.85
- ------------------------------------------------------------------------------------------------------------
Dividends per common share $ 0.605 $0.550 $ 0.500 $ 0.438 $ 0.425
Payout ratio 43% 45% 44% 57% 50%
</TABLE>
Pocahontas Bankshares Corporation Page 17
<PAGE>
Consolidated
Statements of
Financial
Condition
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---------------------
ASSETS (Dollars in Thousands)
<S> <C> <C>
Cash and due from banks $ 12,421 $ 10,000
Interest-bearing balances with banks 1,982 3,833
Securities available for sale 26,438 5,419
Securities held to maturity (estimated market value of $39,218 in 1996 and $53,931 in 1995) 39,062 53,440
Federal funds sold 5,750 6,300
Loans 179,956 177,794
Less allowance for loan losses (2,240) (2,145)
---------------------
Net loans 177,716 175,649
Premises and equipment, net 8,052 5,417
Other assets 7,151 5,922
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $278,572 $265,980
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 30,562 $ 27,361
Interest-bearing 206,160 204,811
---------------------
Total deposits 236,722 232,172
Short-term borrowings 16,270 9,642
Other liabilities 951 980
---------------------
TOTAL LIABILITIES 253,943 242,794
---------------------
Commitments (Notes 9 and 10) -- --
STOCKHOLDERS' EQUITY
Common stock -$1.25 par value; shares issued and outstanding:
2,000,000 at December 31, 1996 and 1,000,000 at December 31, 1995 2,500 1,250
Paid-in capital 785 2,035
Retained earnings 21,521 19,901
Unrealized losses on securities (177) --
---------------------
TOTAL STOCKHOLDERS' EQUITY 24,629 23,186
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $278,572 $265,980
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 18 Pocahontas Bankshares Corporation
<PAGE>
Consolidated
Statements of
Income
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
---------------------------------------
INTEREST INCOME (Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C>
Interest and fees on loans $ 16,837 $16,566 $14,746
Interest on balances with banks 106 86 3
Interest and dividends from securities available for sale:
Taxable 904 386 390
Interest and dividends from securities held to maturity:
Taxable 2,528 2,801 2,729
Tax-exempt 382 287 265
Interest on federal funds sold 312 531 205
---------------------------------------
TOTAL INTEREST INCOME 21,069 20,657 18,338
---------------------------------------
INTEREST EXPENSE
Interest on time certificates of $100,000 or more 1,231 1,089 591
Interest on other deposits 7,822 7,514 6,474
Interest on federal funds purchased and securities
sold under agreements to repurchase 370 320 183
Interest on demand notes to U. S. Treasury and other indebtedness 58 129 38
Interest on long-term borrowings -- -- 138
---------------------------------------
TOTAL INTEREST EXPENSE 9,481 9,052 7,424
---------------------------------------
Net interest income 11,588 11,605 10,914
Provision for loan losses 644 839 395
---------------------------------------
Net interest income after provision for loan losses 10,944 10,766 10,519
---------------------------------------
NONINTEREST INCOME
Income from fiduciary activities 830 757 656
Service charges on deposit accounts 829 816 839
Other noninterest income 347 319 325
Securities gains (losses) 1 (341) (117)
---------------------------------------
TOTAL NONINTEREST INCOME 2,007 1,551 1,703
---------------------------------------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 4,376 4,210 4,164
Furniture and equipment expense 1,051 1,031 1,020
Data procession expense 467 470 472
Advertising and public relations 331 340 364
Insurance and bonding 128 406 656
Supplies and printing 331 334 267
Other noninterest expense 1,980 1,770 2,042
---------------------------------------
TOTAL NONINTEREST EXPENSE 8,664 8,561 8,985
---------------------------------------
Income before income taxes 4,287 3,756 3,237
Applicable income taxes 1,457 1,342 980
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 2,830 $ 2,414 $ 2,257
- --------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.42 $1.21 $1.13
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Pocahontas Bankshares Corporation Page 19
<PAGE>
Consolidated
Statements of
Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1996 1995 1994
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES (Dollars in Thousands)
<S> <C> <C> <C>
Net Income $2,830 $ 2,414 $2,257
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 644 839 395
Depreciation and amortization 473 499 478
Deferred income tax benefit (46) (46) (254)
Securities (gains) losses (1) 341 117
(Increase) decrease in interest receivable 106 (94) (176)
Net investment amortization and accretion 496 753 856
Net (increase) decrease in other assets (164) (226) 257
Net increase (decrease) in interest payable and other liabilities (118) (224) 344
----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,220 4,256 4,274
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in federal funds sold 550 100 1,370
Purchases of securities held to maturity (9,397) (9,671) (22,828)
Purchases of securities available for sale (21,998) -- --
Proceeds from maturities and calls of securities held to maturity 23,297 14,354 16,078
Net (increase) decrease in loans (3,305) (6,787) 5,678
Purchases of premises and equipment (2,770) (1,087) (585)
Proceeds from disposal of premises and equipment 5 22 58
----------------------------------
NET CASH USED BY INVESTING ACTIVITIES (13,618) (3,069) (229)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand and savings deposits 3,403 (15,289) 1,537
Net increase (decrease) in time deposits 1,147 16,579 (106)
Net increase (decrease) in short-term borrowings 6,628 2,679 (2,294)
Principal repayments of long-term debt -- (1,200) (1,000)
Cash dividends paid (1,210) (1,100) (1,000)
----------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 9,968 1,669 (2,863)
----------------------------------
Net increase in cash and cash equivalents 570 2,856 1,182
Cash and cash equivalents at beginning of year 13,833 10,977 9,795
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 14,403 $ 13,833 $ 10,977
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $9,517 $9,037 $7,647
Income taxes $1,751 $1,456 $1,046
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 20 Pocahontas Bankshares Corporation
<PAGE>
Consolidated
Statements of
Changes in
Stockholder's
Equity
<TABLE>
<CAPTION>
Common Stock Unrealized
---------------------------- Paid-In Retained Losses on
Shares Amount Capital Earnings Securities
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994 (Dollars in Thousands, Except Number of Shares)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 1,000,000 $1,250 $2,035 $17,330 $(249)
Net income -- -- -- 2,257 --
Unrealized losses on securities, net -- -- -- -- (462)
Cash dividends declared -- $0.50 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 --
Unrealized gain on securities, net -- -- -- -- 711
Cash dividends declared -- $0.55 per share -- -- -- (1,100) --
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 1,000,000 1,250 2,035 19,901 --
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Additional shares issued in two-for-one stock split
effected in the form of a stock dividend 1,000,000 1,250 (1,250) -- --
Net income -- -- -- 2,830 --
Unrealized losses on securities, net -- -- -- (177)
Cash dividends declared -- $0.605 per share -- -- -- (1,210) --
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,000,000 $2,500 $ 785 $ 21,521 $(177)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Pocahontas Bankshares Corporation Page 21
<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 wholly owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
Statement of Cash Flows -- For purposes of reporting cash flows, cash
equivalents include cash on hand and amounts due from banks (including cash
items in process of collection); and interest-bearing balances with banks.
Securities --Securities are classified as either held to maturity, available
for sale or trading. Classification of securities is generally determined on the
date of purchase. In determining such classification, securities that the
Corporation has 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. The Corporation has no securities classified as trading.
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.
Page 22 Pocahontas Bankshares Corporation
<PAGE>
1. Summary of Significant Accounting and Reporting Policies (continued)
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 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
Pocahontas Bankshares Corporation Page 23
<PAGE>
1. Summary of Significant Accounting and Reporting Policies (continued)
and in the process of collection. If a loan or a portion of a loan is classified
as doubtful or is partially charged off, the loan is classified as nonaccrual.
Loans that are on a current payment status or past due less than 90 days may
also be classified as nonaccrual if repayment in full of principal and/or
interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance by the borrower, in accordance with the contractual
terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash receipts in excess of that amount are recorded
as recoveries to the allowance for loan losses until prior charge-offs have been
fully recovered.
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 $391,000 at
December 31, 1996 and $431,000 at December 31, 1995, net of accumulated
amortization of $793,000 and $753,000 respectively, and is included in other
assets.
Income Taxes -- The Corporation files a consolidated federal income tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities
Page 24 Pocahontas Bankshares Corporation
<PAGE>
1. Summary of Significant Accounting and Reporting Policies (continued)
and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilites of a change in tax rates is
recognized as income or expense in the period that includes the enactment date.
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.
Common Stock and Per Share Data -- On April 16, 1996, shareholders approved an
increase in the number of authorized shares of the Corporation's common stock
from 2,000,000 to 10,000,000. Additionally, on the same date, the Board of
Directors approved a two-for-one stock split which was effected in the form of a
100% stock dividend, payable on May 6, 1996, to shareholders of record on April
26, 1996. Accordingly, all per common share data has been adjusted to reflect
the stock split. Earnings per common share are computed on the weighted average
number of shares of common stock outstanding during each year.
2. Securities
Securities available for sale at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Government obligations $ 13,201 $25 $ 70 $13,156
U.S. Government agency obligations 8,003 46 50 7,999
Equity Securities 5,428 -- 145 5,283
- ----------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE FOR SALE $ 26,632 $71 $265 $26,438
- ----------------------------------------------------------------------------------------
</TABLE>
<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
- ----------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE FOR SALE $5,419 $ -- $ -- $5,419
- ----------------------------------------------------------------------------------------
</TABLE>
Pocahontas Bankshares Corporation Page 25
<PAGE>
2. Securities (continued)
Securities held to maturity at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government obligations $ 15,580 $ 20 $ 50 $ 15,550
U.S. Government agency obligations 15,057 92 73 15,076
Mortgage-backed securities 1,295 10 21 1,284
State and municipal obligations 6,099 185 8 6,276
Other debt securities 1,031 1 -- 1,032
- ----------------------------------------------------------------------------------------
TOTAL SECURITIES HELD TO MATURITY $ 39,062 $ 308 $ 152 $ 39,218
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------------------------------------
<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>
Securities with an aggregate par value of $43,800,000 at December 31, 1996 and
$37,550,000 at December 31, 1995, were pledged to secure public and trust
deposits and for other purposes required or permitted by law, including
approximately $17,000,000 at December 31, 1996 and $13,000,000 at December 31,
1995 pledged to secure repurchase agreements.
There were no sales of securities for the years ended December 31, 1996, 1995
and 1994. Gross losses of $341,000 in 1995 and $118,000 in 1994 were realized on
writedowns of marketable equity securities. Gross gains of $1,000 in 1996 were
realized on calls of securities purchased at a discount.
The amortized cost and estimated market value for securities available for
sale and securities held to maturity by expected maturities at December 31, 1996
were as follows:
<TABLE>
<CAPTION>
Securities available for sale
Net
Amortized Market Unrealized
Cost Value (Losses)
-------------------------------
(Dollars in Thousands)
-------------------------------
<S> <C> <C> <C>
Due in one year or less $ 20,191 $ 20,175 $ (16)
Due after one year through five years 1,013 980 (33)
Securities with no contractual maturities 5,428 5,283 (145)
- -----------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE FOR SALE $ 26,632 $ 26,438 $ (194)
- -----------------------------------------------------------------------------
</TABLE>
Page 26 Pocahontas Bankshares Corporation
<PAGE>
2. Securities (continued)
<TABLE>
<CAPTION>
Securities held to maturity
Net
Amortized Market Unrealized
Cost Value Gains
------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Due in one year or less $ 18,782 $ 18,869 $ 87
Due after one year through five years 16,916 16,930 14
Due after five years through ten years 2,924 2,979 55
Due after ten years 440 440 --
- ---------------------------------------------------------------------
TOTAL SECURITIES HELD TO MATURITY $ 39,062 $ 39,218 $ 156
- ---------------------------------------------------------------------
</TABLE>
3. Loans
Loans at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-----------------------
(Dollars in Thousands)
<S> <C> <C>
Commercial, financial and agricultural $ 44,209 $ 45,592
Real estate - construction 5,603 3,541
Real estate - mortgage (residential and commercial) 105,564 102,178
Loans to individuals 24,580 26,483
-----------------------
Total loans 179,956 177,794
Less: allowance for credit losses 2,240 2,145
- -----------------------------------------------------------------------------
NET LOANS $177,716 $175,649
- -----------------------------------------------------------------------------
</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 $4,685,000 and $9,772,000 at December 31, 1996 and 1995, respectively.
During 1996, $3,523,000 in new loans were made and repayments were $8,610,000.
4. Allowance for Loan Losses
An analysis of the allowance for loan losses for 1996, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1995 1994
--------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at beginning of year $2,145 $ 1,985 $ 1,858
Provision for loan losses 644 839 395
Recoveries on loans previously charged off 23 35 605
Loans charged off (572) (714) (873)
- -----------------------------------------------------------------------------
BALANCE AT END OF YEAR $2,240 $ 2,145 $ 1,985
- -----------------------------------------------------------------------------
</TABLE>
Pocahontas Bankshares Corporation Page 27
<PAGE>
4. Allowance for Loan Losses (continued)
The following is a summary of loans considered impaired under SFAS 114, as
amended by SFAS 118:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
----------------------
(Dollars in Thousands)
<S> <C> <C>
Gross impaired loans $ 1,416 $ 2,908
Valuation allowance for impaired loans 281 531
----------------------
Record investment in impaired loans 1,135 2,377
Average recorded investment in impaired loans for the year ended 1,988 1,652
- -------------------------------------------------------------------------------------------
</TABLE>
There was no interest income recognized on impaired loans (during the portion
of the year they were impaired) for the years ended December 31, 1996 and 1995.
At December 31, 1996, 1995 and 1994, the Corporation had nonaccrual loans of
$1,398,000, $3,194,000 and $1,564,000, respectively. Interest income of $5,000,
$129,000 and $26,000 was recognized on these loans in 1996, 1995 and 1994,
respectively. Had these loans performed in accordance with their original terms,
interest income of $176,000, $408,000 and $213,000 would have been recorded in
1996, 1995 and 1994, respectively.
5. Premises and Equipment
Premises and equipment at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
--------------------
(Dollars in Thousands)
<S> <C> <C>
Land $ 1,051 $ 921
Buildings and improvements 7,117 5,435
Equipment and fixtures 4,572 3,569
-------------------
Total 12,740 9,925
-------------------
Less accumulated depreciation 4,688 4,508
- -------------------------------------------------------------------------------
NET PREMISES AND EQUIPMENT $ 8,052 $ 5,417
- -------------------------------------------------------------------------------
</TABLE>
Depreciation charged to operating expense amounted to $432,000 in 1996,
$459,000 in 1995, and $438,000 in 1994.
6. Deposits
Deposits at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
----------------------
(Dollars in Thousands)
<S> <C> <C>
Individuals, partnerships and corporations:
Demand deposits $ 26,492 $ 25,293
Time and savings deposits 195,311 194,739
U.S. Government 297 319
States and political subdivisions 11,205 10,378
Commercial banks -- 7
Certified and official checks 3,417 1,436
- -----------------------------------------------------------------------------
TOTAL DEPOSITS $236,722 $232,172
- -----------------------------------------------------------------------------
</TABLE>
Page 28 Pocahontas Bankshares Corporation
<PAGE>
6. Deposits (continued)
Time deposits included certificates of deposit issued in amounts of $100,000
or more totaling approximately $22,730,000 and $22,034,000 at December 31, 1996
and 1995, 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,
1996 1995 1994
----------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost $ 239 $ 197 $ 246
Interest cost 348 290 311
Actual return on plan assets (983) (1,025) 21
Unrecognized gain (loss) 435 560 (570)
Net amortizations and deferrals (35) (49) (51)
- ------------------------------------------------------------------------
NET PERIODIC PENSION (BENEFIT) COST $ 4 $ (27) $ (43)
- ------------------------------------------------------------------------
</TABLE>
The actuarial present value of the projected benefit obligation was determined
using a discount rate of 7.50% for 1996 and 7.25% for 1995; a rate of
compensation increases of 3% for 1996 and 4% for 1995; and expected long-term
rate of return on plan assets of 9% for 1996 and 1995. The funded status of the
plan as of December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------
(Dollars in Thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 3,860 $ 3,490
Non-vested 19 152
-------------------
Total 3,879 3,642
-------------------
Projected benefit obligation 4,842 4,861
Market value of plan assets 7,025 6,150
-------------------
Plan assets in excess of projected
benefit obligation 2,183 1,289
Unrecognized prior service costs 376 406
Unrecognized net transition asset (583) (648)
Unrecognized net gain (1,458) (525)
- ---------------------------------------------------------------------------------
Prepaid pension costs recorded in
the consolidated statements of financial condition $ 518 $ 522
- ---------------------------------------------------------------------------------
</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.
Pocahontas Bankshares Corporation Page 29
<PAGE>
7. Post Employment Benefits (continued)
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.
Financial Accounting Standards Board's Statement of Financial Accounting
Standards 106, "Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106) requires expense relating to postretirement benefits to be recognized
during an employee's time of service instead of the cash basis. The
Corporation'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, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
Health Life Health Life
----------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ (298,727) $ (315,628) $(307,809) $(324,505)
Fully eligible plan participants (76,926) (179,765) (73,736) (174,313)
Other active plan participants (92,449) (104,489) (82,728) (96,691)
----------------------------------------------------
Total (468,102) (599,882) (464,273) (595,509)
Unrecognized net gain (212,950) (56,160) (210,751) (11,332)
Unrecognized prior service cost -- -- -- --
Unrecognized transition obligation 506,671 378,975 538,338 402,661
- ---------------------------------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT BENEFIT COST $ (174,381) $ (277,067) $(136,686) $(204,180)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's actuary has estimated the net postretirement expense for
1996, 1995, 1994 for each plan as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Health Life Health Life Health Life
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 8,517 $ 8,912 $ 6,907 $ 8,098 $16,657 $27,593
Interest cost 32,236 42,277 32,424 40,457 39,867 36,334
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 (9,129) -- (11,511) (674) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET POSTRETIREMENT EXPENSE $63,291 $74,875 $ 59,487 $71,567 $88,191 $87,613
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 9.0% annual rate of increase in the per capita
cost of covered health care benefits is assumed for 1995 and 8.5% for 1996. 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 7.50% for 1996 and 7.25% for 1995.
Page 30 Pocahontas Bankshares Corporation
<PAGE>
7. Post Employment Benefits (continued)
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 employees may elect to make pretax
contributions up to a maximum of fifteen percent (15%) of their salary, which is
matched fifty percent (50%) by the Corporation. Total amounts charged to
operating expense for payments pursuant to this plan were approximately $88,000
in 1996, $82,000 in 1995 and $86,000 in 1994.
8. Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1996 1995 1994
-------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Tax provision attributed to income from operations:
Federal
Current $1,225 $1,087 $ 994
Deferred (46) (46) (254)
State
Current 278 301 240
- ----------------------------------------------------------------------------------
INCOME TAX PROVISION $1,457 $1,342 $ 980
- ----------------------------------------------------------------------------------
</TABLE>
The components of deferred tax liabilities (assets) at December 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------
(Dollars in Thousands)
<S> <C> <C>
Depreciation $125 $ 105
Postretirement -- 30
----------------
Gross deferred tax liabilities 125 135
----------------
Foreclosures (54) (56)
Provision for loan losses (641) (613)
Marketable equity securities (229) (179)
Other net (91) (81)
----------------
Gross deferred tax assets (1,015) (929)
----------------
Valuation allowance 229 179
- ----------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ (661) $(615)
- ----------------------------------------------------------------------
</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>
Year Ended December 31,
----------------------------------------------
1996 1995 1994
----------------------------------------------
(Dollars in Thousands)
Amount % Amount % Amount %
-------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate $ 1,458 34 $1,277 34 $1,101 34
Tax-exempt interest income from certain investment
securities and loans (200) (5) (203) (5) (232) (7)
State income tax expense, net of federal benefit 177 4 198 5 159 5
Nondeductible (income) expense 22 1 70 2 (48) (2)
- -------------------------------------------------------------------------------------------------------
APPLICABLE INCOME TAXES $ 1,457 34 $1,342 36 $ 980 30
- -------------------------------------------------------------------------------------------------------
</TABLE>
Pocahontas Bankshares Corporation Page 31
<PAGE>
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 $919,000 at
December 31, 1996 and $599,000 at December 31, 1995. These instruments contain
various elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial condition. Additionally,
certain off-balance sheet items of approximately $24,474,000 at December 31,
1996, and $20,280,000 at December 31, 1995, comprised primarily of unfunded loan
commitments, have an estimated fair value that is not materially different from
the notional amount.
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
Page 32 Pocahontas Bankshares Corporation
<PAGE>
10. Financial Instruments, Concentrations of Credit and Fair Values (continued)
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, 1996 and
1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------
Estimated Carrying Estimated Carrying
Fair Value Amount Fair Value Amount
----------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 14,403 $ 14,403 $ 13,833 $ 13,833
Federal funds sold 5,750 5,750 6,300 6,300
Securities available for sale 26,438 26,438 5,419 5,419
Securities held to maturity 39,218 39,062 53,931 53,440
Net loans 180,235 177,716 177,378 175,649
Liabilities:
Deposits with no stated maturities $143,532 $143,532 $140,129 $140,129
Deposits with stated maturities 92,914 93,190 92,098 92,043
Short-term borrowings 16,270 16,270 9,642 9,642
</TABLE>
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.
Pocahontas Bankshares Corporation Page 33
<PAGE>
11. Regulatory Matters
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, 1996, retained net profits for the years 1996 and 1995, which were
free of such regulatory restrictions were approximately $1,121,000.
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. It is anticipated that capital will be fully restored to its initial
level by earnings in 1997.
The Corporation and its subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and each of its subsidiaries must meet specific capital
guidelines that involve quantitative measures of the Corporation's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Corporation's capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure adequcy require the
Corporation and its subsidiaries to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Corporation and each of its subsidiaries meet all captial
adequacy requirements to which they are subject.
As of December 31, 1996, First Century Bank, N.A., and First Century Bank have
each received notification from their respective regulators that they are well-
capitalized under the regulatory framework for prompt corrective action. To be
adequately capitalized, minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the following table must be maintained. There
are no conditions or events since the recent notifications that management
believes have changed the institutions' categories.
Page 34 Pocahontas Bankshares Corporation
<PAGE>
11. Regulatory Matters (continued)
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $26,510 13.97% >$15,181 > 8.00% N/A
- -
First Century Bank, N.A. $22,844 13.80% >$13,242 > 8.00% >$16,552 > 10.00%
- - - -
First Century Bank $3,081 12.70% >$ 1,940 > 8.00% > $2,425 > 10.00%
- - - -
Tier I Capital (to Risk Weighted Assets):
Consolidated $24,270 12.79% >$ 7,590 > 4.00% N/A
- -
First Century Bank, N.A. $20,884 12.62% >$ 6,621 > 4.00% > $9,931 > 6.00%
- - - -
First Century Bank $2,801 11.55% >$ 970 > 4.00% > $1,455 > 6.00%
- - - -
Tier I Capital (to Average Assets):
Consolidated $24,270 8.85% >$10,971 > 4.00% N/A
- -
First Century Bank, N.A. $20,884 8.63% >$ 9,681 > 4.00% >$12,101 > 5.00%
- - - -
First Century Bank $2,801 8.36% >$ 1,340 > 4.00% > $1,675 > 5.00%
- - - -
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Consolidated $24,900 13.42% >$14,849 > 8.00% N/A
- -
First Century Bank, N.A. $21,663 13.23% >$13,099 > 8.00% >$16,374 > 10.00%
- - - -
First Century Bank $2,724 12.32% >$ 1,768 > 8.00% >$ 2,211 > 10.00%
- - - -
Tier I Capital (to Risk Weighted Assets):
Consolidated $22,755 12.26% >$ 7,425 > 4.00% N/A
- -
First Century Bank, N.A. $19,773 12.08% >$ 6,550 > 4.00% >$ 9,825 > 6.00%
- - - -
First Century Bank $2,469 11.17% >$ 884 > 4.00% >$ 1,326 > 6.00%
- - - -
Tier I Capital (to Average Assets):
Consolidated $22,755 8.55% >$10,647 > 4.00% N/A
- -
First Century Bank, N.A. $19,773 8.37% >$ 9,435 > 4.00% >$11,794 > 5.00%
- - - -
First Century Bank $2,469 8.04% >$ 1,228 > 4.00% >$ 1,536 > 5.00%
- - - -
</TABLE>
12. Short-term Borrowings
Short-term borrowings consist of treasury tax and loan deposits, which are
generally repaid within 30 days from the transaction date, and securities sold
under agreements to repurchase. Securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Information
concerning securities sold under agreements to repurchase is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------------------
(Dollars in Thousands)
<S> <C> <C>
Average balance during the year $10,104 $ 7,775
Average interest rate during the year 3.66% 4.10%
Maximum month-end balance during the year $14,514 $ 8,922
- -----------------------------------------------------------------------
</TABLE>
Pocahontas Bankshares Corporations Page 35
<PAGE>
13. Quarterly Financial Data (Unaudited)
The summary financial data by quarter for the years ended December 31, 1996,
1995 and 1994 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>
1996
Interest income $ 5,182 $ 5,278 $ 5,320 $ 5,289
Net interest income 2,819 2,929 2,944 2,896
Provision for possible loan losses 109 257 82 196
Securities gains (losses) -- -- 1 --
Income before taxes 988 1,063 1,148 1,088
Net income 648 712 742 728
- ------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.33 $ 0.36 $ 0.37 $ 0.36
- ------------------------------------------------------------------------------
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 $ 0.35 $ 0.33 $ 0.32 $ 0.21
- ------------------------------------------------------------------------------
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 $ 0.22 $ 0.33 $ 0.34 $ 0.24
- ------------------------------------------------------------------------------
</TABLE>
Page 36 Pocahontas Bankshares Corporation
<PAGE>
14. Parent Company Financial Data
Condensed financial information of Pocahontas Bankshares Corporation (parent
company only) is presented below:
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
December 31,
---------------------------
1996 1995
---------------------------
(Dollars in Thousands)
<S> <C> <C>
Assets:
Cash $ 287 $ 204
Investment in subsidiaries at equity 24,031 22,673
Other assets 339 362
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $24,657 23,239
- ----------------------------------------------------------------------------------------------------------
Liabilities:
Other liabilities $ 28 $ 53
---------------------------
TOTAL LIABILITIES 28 53
---------------------------
Stockholders' Equity:
Common Stock -$1.25 par value; shares issued and outstanding:
2,000,000 at December 31, 1996 and 1,000,000 at December 31, 1995 2,500 1,250
Paid-in capital 785 2,035
Retained earnings (less unrealized losses on securities) 21,344 19,901
- ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 24,629 23,186
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,657 $23,239
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years ended December 31,
---------------------------------
1996 1995 1994
---------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Income:
Dividends from subsidiary banks $1,350 $ 2,400 $ 1,800
---------------------------------
TOTAL INCOME 1,350 2,400 1,800
---------------------------------
Expenses:
Interest on long-term borrowings -- 56 138
Other 64 37 106
---------------------------------
TOTAL EXPENSES 64 93 244
---------------------------------
Applicable income taxes (benefits) (9) (24) (156)
Income before equity in undistributed
net income of subsidiaries 1,295 2,331 1,712
Equity in undistributed net income of subsidiaries 1,535 83 545
- ------------------------------------------------------------------------------------------------
NET INCOME $2,830 $ 2,414 $ 2,257
- ------------------------------------------------------------------------------------------------
</TABLE>
Pocahontas Bankshares Corporation Page 37
<PAGE>
14. Parent Company Financial Data (continued)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Years ended December 31,
-------------------------------
1996 1995 1994
-------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,830 $ 2,414 $ 2,257
Adjustments to reconcile net income to net cash
Provided by operating activities
Equity in undistributed net income of subsidiaries (1,535) (83) (545)
Other adjustments, net (2) (6) (136)
-------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,293 2,325 1,576
-------------------------------
Cash flows from financing activities
Principal repayments of long term debt -- (1,200) (1,000)
Cash dividends paid (1,210) (1,200) (1,000)
-------------------------------
NET CASH USED BY FINANCING ACTIVITIES (1,210) (2,300) (2,000)
-------------------------------
Net increase (decrease) in cash 83 25 (424)
Cash at January 1, 204 179 603
- --------------------------------------------------------------------------------------------------
Cash at December 31, $ 287 $ 204 $ 179
- --------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ -- $ 56 $ 138
Income taxes $ 1,751 $ 1,456 $ 1.046
</TABLE>
Page 38 Pocahontas Bankshares Corporation
<PAGE>
Report of
Independent
Accountants
The Board of Directors and Stockholders
Pocahontas Bankshares Corporation:
We have audited the accompanying consolidated statements of financial condition
of Pocahontas Bankshares Corporation and Subsidiaries (the "Corporation") as of
December 31, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
January 24, 1997
Pocahontas Bankshares Corporation Page 39
<PAGE>
Boards of
Directors
POCAHONTAS BANKSHARES CORPORATION
- --------------------------------------------------------------------------------
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., 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
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.
- --------------------------------------------------------------------------------
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
John D. Lay
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
- --------------------------------------------------------------------------------
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
Stephen A. Lester
Ewald-Lester Insurance
Agency, Inc.
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
Page 40 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
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
John D. Lay
Vice President, Wyoming
County Area
Randall Price
Vice President,
Corporate Development
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 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
Office and Teller Operations
Manager
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
Zerna Felts
Branch and Security Officer,
Fort Chiswell Office
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,421
<INT-BEARING-DEPOSITS> 1,982
<FED-FUNDS-SOLD> 5,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,438
<INVESTMENTS-CARRYING> 39,062
<INVESTMENTS-MARKET> 39,218
<LOANS> 179,956
<ALLOWANCE> 2,240
<TOTAL-ASSETS> 278,572
<DEPOSITS> 236,722
<SHORT-TERM> 16,270
<LIABILITIES-OTHER> 951
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 22,129
<TOTAL-LIABILITIES-AND-EQUITY> 278,572
<INTEREST-LOAN> 16,837
<INTEREST-INVEST> 3,814
<INTEREST-OTHER> 418
<INTEREST-TOTAL> 21,069
<INTEREST-DEPOSIT> 9,053
<INTEREST-EXPENSE> 9,481
<INTEREST-INCOME-NET> 11,588
<LOAN-LOSSES> 644
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 8,664
<INCOME-PRETAX> 4,287
<INCOME-PRE-EXTRAORDINARY> 2,830
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,830
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 4.60
<LOANS-NON> 1,398
<LOANS-PAST> 1,427
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,145
<CHARGE-OFFS> 572
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 2,240
<ALLOWANCE-DOMESTIC> 911
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,329
</TABLE>
