<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C., 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended: March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the transition period from to
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Commission file number: 0-11671
POCAHONTAS BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
West Virginia 55-0628089
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Federal Street, Bluefield, WV 24701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 325-8181
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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
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The number of shares outstanding of the registrant's $1.25 par value common
stock, as of May 11, 1998, was 2,000,000 shares.
1
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POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Financial Statements
Consolidated Statements of Financial Condition.............. 3
Consolidated Statements of Income........................... 4
Consolidated Statements of Cash Flows....................... 5
Consolidated Statements of Changes in Stockholders' Equity.. 6
Notes to Consolidated Financial Statements....................... 6 - 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7 - 8
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K................................. 8
SIGNATURES....................................................... 8
</TABLE>
The total number of pages of the Form 10-Q Quarterly Report is eight (8) pages.
2
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POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) March 31, December 31,
1998 1997
ASSETS (Unaudited) (Audited)
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<S> <C> <C>
Cash and due from banks $ 12,779 $ 8,883
Interest-bearing balances with banks 1,940 2,013
Securities available for sale: (cost approximated $36,896 at
March 31, 1998, and $36,024 at December 31, 1997) 37,047 36,177
Securities held to maturity: (market value approximated $13,840 at
March 31, 1998 and $17,516 at December 31, 1997) 13,650 17,334
Federal funds sold 6,700 3,400
Loans 197,374 197,094
Less allowance for loan losses 2,453 2,370
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Net loans 194,921 194,724
Premises and equipment 8,826 8,660
Real estate owned other than bank premises 638 993
Other assets 4,483 4,213
Goodwill and other intangible assets 340 350
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TOTAL ASSETS $ 281,324 $ 276,747
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 29,534 $ 27,923
Interest-bearing 205,278 204,414
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Total deposits 234,812 232,337
Federal funds purchased and securities sold under
agreements to repurchase 16,187 12,838
Demand notes to U. S. Treasury and other
liabilities for borrowed money 1,650 4,200
Other liabilities 1,657 783
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TOTAL LIABILITIES 254,306 250,158
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STOCKHOLDERS' EQUITY
Common stock - par value per share $1.25
Shares authorized: 10,000,000
Shares issued and outstanding: 2,000,000 2,500 2,500
Paid-in capital 785 785
Retained earnings 23,648 23,223
Accumulated other comprehensive income 85 81
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TOTAL STOCKHOLDERS' EQUITY 27,018 26,589
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 281,324 $ 276,747
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</TABLE>
See accompanying notes to consolidated financial statements
3
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POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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(Dollars in thousands, except per share data)
INTEREST INCOME 1998 1997
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<S> <C> <C>
Interest and fees on loans $ 4,563 $ 4,170
Interest on balances with banks 17 25
Interest and dividends from securities available for sale:
Taxable 580 472
Interest and dividends from securities held to maturity:
Taxable 141 454
Tax-exempt 77 101
Interest on federal funds sold 43 47
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TOTAL INTEREST INCOME 5,421 5,269
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 280 292
Interest on other deposits 1,857 1,966
Interest on federal funds purchased and securities
sold under agreements to repurchase 142 121
Interest on demand notes to U. S. Treasury
and other liabilities for borrowed money 22 16
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TOTAL INTEREST EXPENSE 2,301 2,395
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Net interest income 3,120 2,874
Provision for loan losses 188 141
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Net interest income after provision for loan losses 2,932 2,733
NONINTEREST INCOME
Income from fiduciary activities 180 180
Other operating income 335 309
Securities losses (14) --
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TOTAL NONINTEREST INCOME 501 489
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 1,139 1,103
Furniture and equipment expense 303 301
Other noninterest expense 861 916
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TOTAL NONINTEREST EXPENSE 2,303 2,320
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Income before income taxes 1,130 902
Applicable income taxes 405 297
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NET INCOME $ 725 $ 605
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NET INCOME PER COMMON SHARE $ 0.36 $ 0.30
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997
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<S> <C> <C>
Net income $ 725 $ 605
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 188 141
Depreciation and amortization 159 154
Securities losses 14 --
Net investment amortization and accretion 26 84
Decrease in interest receivable and other assets 89 206
Increase in interest payable and other liabilities 814 501
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,015 1,691
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (3,300) 1,250
Purchases of securities held to maturity (1,380) --
Purchases of securities available for sale (4,004) (5,078)
Proceeds from maturities and calls of securities held to
maturity 5,063 6,098
Proceeds from maturities and calls of securities available for
sale 2,220 --
Proceeds from sales of securities available for sale 883 --
Net increase in loans (280) (3,438)
Acquisition of fixed assets (368) (689)
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NET CASH USED BY INVESTING ACTIVITIES (1,166) (1,857)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits 3,603 987
Net decrease in time deposits (1,128) (1,731)
Net increase (decrease) in short-term borrowings 799 (888)
Cash dividends paid (300) (300)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,974 (1,932)
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NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS $ 3,823 $ (2,098)
CASH AND DUE FROM BANKS AT JANUARY 1, 10,896 14,403
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CASH AND DUE FROM BANKS AT MARCH 31, $ 14,719 $ 12,305
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,178 $ 2,283
Income taxes 130 2
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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(Dollars in thousands)
1998 1997
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<S> <C> <C>
BALANCE, JANUARY 1, $ 26,589 $ 24,629
Net income 725 605
Cash dividends declared - $0.150 per share in 1998 and 1997 300 300
Other comprehensive income (loss) 4 (244)
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BALANCE, MARCH 31, $ 27,018 $ 24,690
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</TABLE>
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Rule S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. All such adjustments were of a
normal recurring nature. Certain reclassifications have been made to the prior
period's financial statements to place them on a comparable basis with the
current period's financial statements. Operating results are for the three-
month period ended March 31, 1998, and are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For further
information refer to the financial statements and footnotes thereto included as
Exhibit 13 to Corporation's annual report on Form 10-K for the year ended
December 31, 1997.
NOTE B - EARNINGS PER SHARE
Earnings per common share are computed on the weighted average number of shares
of common stock outstanding during the period. There are no stock options or
other capital items that would dilute the Corporation's earnings per share.
NOTE C COMPREHENSIVE INCOME
On January 1, 1998, the Corporation adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. As required by SFAS No. 130,
------------------------------
prior year information has been modified to conform with the new presentation.
Comprehensive income includes net income and all other changes to the
Corporation's equity, with the exception of transactions with shareholders
("other comprehensive income"). The Corporation's only component of other
comprehensive income is the change in unrealized gains and losses on available
for sale securities.
The Corporation's total comprehensive income for the three-month periods ended
March 31, 1998 and 1997 was $729,000 and $361,000, respectively. Information
concerning the Corporation's other comprehensive income for the three-month
periods ended March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Unrealized losses on available for sale securities $ (2) $(323)
Income tax benefit relating to
unrealized losses on available for sale securities 6 79
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Other comprehensive income (loss) $ 4 $(244)
===== =====
</TABLE>
6
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POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 1998
NOTE D ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 132, Employer's
----------
Disclosures about Pensions and Other Postretirement Benefits. This statement
- ------------------------------------------------------------
amends SFAS No. 87, Employers' Accounting for Pensions, SFAS No. 88, Employers'
---------------------------------- ----------
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
- --------------------------------------------------------------------------------
for Termination Benefits, and SFAS No. 106, Employers' Accounting for
- ------------------------ -------------------------
Postretirement Benefits Other Than Pensions. The provisions of the SFAS are
- -------------------------------------------
applicable for financial statements issued for fiscal years beginning after
December 31, 1997. SFAS No. 132 revises employers' disclosures about pension
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans. The Corporation will comply with the disclosure
provisions of the statement.
NOTE E - REGULATORY CAPITAL REQUIREMENTS
Regulators of the Corporation and its subsidiaries have implemented risk-based
capital guidelines which require the maintenance of certain minimum capital as a
percent of assets and certain off-balance sheet items adjusted for predefined
credit risk factors. The regulatory minimums as defined by regulation for Tier
1 and combined Tier 1 and Tier 2 capital ratios were 4.0% and 8.0% respectively.
Tier 1 capital includes tangible common shareholders' equity reduced by goodwill
and certain other intangibles. Tier 2 capital includes portions of the
allowance for loan losses, not to exceed Tier 1 capital. In addition to the
risk-based guidelines, a minimum leverage ratio (Tier 1 capital as a percentage
of average total consolidated assets) of 4% is required. The following table
contains the capital ratios for the Corporation and each subsidiary as of March
31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
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Combined Capital Combined Capital
Entity Tier 1 (Tier 1 and Tier 2) Leverage Tier 1 (Tier 1 and Tier 2) Leverage
<S> <C> <C> <C> <C> <C> <C>
Consolidated.............. 13.06% 14.26% 9.60% 12.66% 13.82% 8.85%
First Century Bank, N.A... 12.74% 13.93% 9.43% 12.48% 13.64% 8.70%
First Century Bank........ 13.02% 14.27% 9.04% 11.67% 12.83% 8.39%
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the first quarter of 1998 net income increased $120,000 or 20% from
$605,000 earned during the first three months of 1997, to $725,000 earned during
the same period in 1998. Net interest income for the period ended March 31,
1998 increased $246,000 or 9% to $3.12 million as compared to $2.87 million for
the first three months of 1997. Compared to the fourth quarter of 1997, net
interest income decreased 5% from $3.27 million. Noninterest income increased
$12,000 or 2.5% to $501,000 for the period ended March 31, 1998, compared to
$489,000 for the same period in 1997. Noninterest income decreased $92,000
compared to the fourth quarter of 1997 level of $593,000. Noninterest expense
decreased 1% to $2.30 million at March 31, 1998, compared to $2.32 million at
March 31, 1997. This was a decrease of 8% when compared to the fourth quarter
of 1997 level of $2.51 million. Management believes that the positive trend in
earnings through the first quarter of 1998 reflects a commitment to enhancing
stockholder value. Management is committed to improving the earnings and
financial condition of the Corporation. Various strategies for lending and
deposit gathering are in effect to maximize the performance under various
interest rate scenarios and economic conditions. Management believes that
controlled growth and cost management will provide for the long-term financial
strength of the Corporation. These factors combined to result in a $228,000 or
25% increase in income before income taxes at March 31, 1998 compared to March
31, 1997. A decrease of $114,000 when compared with the fourth quarter of 1997
is primarily attributed to a decline in the net interest margin of 4.5% due to
maturities of higher yielding investments during the first quarter of 1998.
7
<PAGE>
POCAHONTAS BANKSHARES CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Percentage comparisons to 1997 performance will not be as favorable for the
remainder of 1998 as was experienced during the first quarter. Unfavorable
earnings in the first quarter of 1997 resulted in a significant percentage
improvement in the first quarter of 1998. The performance during the first
quarter is in line with budgeted projections for 1998. Comparisons for the
remainder of 1998 will be more indicative of the traditional performance of the
Corporation. On a per share basis, earnings per common share through March 31,
1998, were $0.36 as compared to $0.30 for the same period in 1997, and $0.39 per
share for the fourth quarter of 1997. This reflected an annualized return on
average assets of 1.05% and an annualized return on average equity of 10.77% for
the period ended March 31, 1998.
Total assets increased $4.6 million from December 31, 1997 to March 31, 1998.
Total assets at March 31, 1998 were $281.3 million as compared to $276.7 million
at December 31, 1997. The loan portfolio grew slightly during this three-month
period, increasing to $197.4 million. This was funded by a decrease in the
investment portfolio of approximately $2.8 million or 5%. In the current
interest rate environment, liquidity was allowed to accumulate in anticipation
of increasing loan demand, as other investment opportunities were unattractive.
Total deposits increased by $2.5 million to $234.8 million at March 31, 1998
from $232.3 million at December 31, 1997. The increase in deposits was evenly
distributed between noninterest-bearing and interest-bearing deposits. This
illustrates the Corporation's ongoing efforts to compete against other banks and
nontraditional financial services providers, with competitive pricing for
deposits.
Management continues to monitor its ongoing efforts surrounding the Year 2000
problem. Internal reviews of hardware and software are nearing completion.
Additionally, an educational program, including brochures and seminars for
customers has been implemented. Management is very focused on its efforts to
provide for minimal disruptions to its operations as a result of this problem.
By helping its customers understand the significance of Year 2000, Management
believes it will further reduce the Corporation's exposure to losses associated
with the Year 2000 problem.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
(a.) Exhibit 27 - Financial Data Schedule
(b.) None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Pocahontas Bankshares Corporation
---------------------------------
By: /s/ J. Ronald Hypes
----------------------------------
J. Ronald Hypes, Treasurer
(Principal Accounting and Financial Officer)
Date: May 11, 1998
----------------------
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,779
<INT-BEARING-DEPOSITS> 1,940
<FED-FUNDS-SOLD> 6,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,047
<INVESTMENTS-CARRYING> 13,650
<INVESTMENTS-MARKET> 13,840
<LOANS> 197,374
<ALLOWANCE> 2,453
<TOTAL-ASSETS> 281,324
<DEPOSITS> 234,812
<SHORT-TERM> 17,837
<LIABILITIES-OTHER> 1,657
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 24,518
<TOTAL-LIABILITIES-AND-EQUITY> 281,324
<INTEREST-LOAN> 4,563
<INTEREST-INVEST> 798
<INTEREST-OTHER> 43
<INTEREST-TOTAL> 5,421
<INTEREST-DEPOSIT> 2,137
<INTEREST-EXPENSE> 2,301
<INTEREST-INCOME-NET> 3,120
<LOAN-LOSSES> 188
<SECURITIES-GAINS> (14)
<EXPENSE-OTHER> 2,303
<INCOME-PRETAX> 1,130
<INCOME-PRE-EXTRAORDINARY> 725
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 0.00
<LOANS-NON> 1,346
<LOANS-PAST> 288
<LOANS-TROUBLED> 642
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,370
<CHARGE-OFFS> 128
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 2,453
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
