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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
Amendment No. 1
| x | AMENDED QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2005
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE # 0-23969
POCAHONTAS BANCORP, INC.
| State of Incorporation | IRS Employer Identification No. | |
| DELAWARE | 71-0806097 | |
| Address | Telephone Number | |
1700 E. Highland Jonesboro, Arkansas 72401 | (870) 802-1700 | |
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 twelve 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 whether the Registrant is an accelerated filer (as defined by the Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x.
There were 4,641,717 shares of Common Stock ($0.01 par value) issued and outstanding as of February 10, 2006.
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EXPLANATORY NOTE
The purpose of this Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q of Pocahontas Bancorp, Inc. (the “Company”) for the quarter ended December 31, 2005 (the “Original Form 10-Q”) is to restate the Company’s interim consolidated statements of cash flows for the three months ended December 31, 2005 to correct amounts related to the purchase of certain investment securities that were purchased, but not yet settled and for the three months ended December 31, 2005 and 2004 to correct amounts related to, the receipt of stock dividends on Federal Home Loan Bank (“FHLB”) stock, as discussed in Note 9 to the accompanying interim consolidated financial statements. There was no change in the net increase in cash resulting from either of these corrections. Further, these changes had no effect on the Company’s consolidated statements of income, consolidated statements of financial condition, or condensed consolidated statement of changes in shareholders’ equity.
As a result of the restatement, the Company has determined it to be necessary to amend the Original Form 10-Q. This Amendment No. 1 amends and restates in its entirety Part I, Item 1 and Item 4 and Part II, Item 6 of the Original Form 10-Q. This Amendment No. 1 continues to reflect circumstances as of the date of the filing of the Original Form 10-Q and does not reflect events occurring after the filing of the Original Form 10-Q, or modify or update those disclosures in any way, except as required to reflect the effects of the restatement as described in Note 9 to the accompanying interim consolidated financial statements.
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TABLE OF CONTENTS
| Page | ||
PART I. FINANCIAL INFORMATION | ||
Condensed Consolidated Statements of Financial Condition at December 31, 2005 and September 30, 2005 | 1 | |
| 2 | ||
| 4 | ||
| 5 | ||
| 7 | ||
| 11 | ||
Item 4.Controls and Procedures | 12 | |
PART II.OTHER INFORMATION | 12 | |
| 13 | ||
Exhibits | ||
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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
| December 31, 2005 | September 30, 2005 | |||||||
ASSETS | ||||||||
Cash | $ | 26,144,377 | $ | 23,411,451 | ||||
Cash surrender value of life insurance | 8,098,936 | 8,019,097 | ||||||
Securities held-to-maturity, at cost | 144,282,884 | 129,952,373 | ||||||
Securities available-for-sale, at fair value | 110,683,625 | 99,460,045 | ||||||
Trading securities, at fair value | — | 3,126,044 | ||||||
Loans receivable, net | 412,113,533 | 426,538,047 | ||||||
Loans receivable, held for sale | 2,726,168 | 3,057,985 | ||||||
Accrued interest receivable | 4,501,314 | 4,487,837 | ||||||
Premises and equipment, net | 16,595,320 | 16,716,912 | ||||||
Federal Home Loan Bank stock, at cost | 8,041,800 | 7,962,000 | ||||||
Goodwill | 8,847,572 | 8,847,572 | ||||||
Core deposit premiums, net | 5,080,018 | 5,323,319 | ||||||
Other assets | 4,410,900 | 4,360,885 | ||||||
TOTAL ASSETS | $ | 751,526,447 | $ | 741,263,567 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES: | ||||||||
Deposits | $ | 533,639,492 | $ | 514,043,734 | ||||
Federal Home Loan Bank advances | 142,580,123 | 148,645,397 | ||||||
Deferred compensation | 2,120,850 | 2,176,859 | ||||||
Accrued expenses and other liabilities | 3,658,074 | 7,066,640 | ||||||
Trust preferred securities | 16,967,875 | 16,962,683 | ||||||
Total liabilities | 698,966,414 | 688,895,313 | ||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, $0.01 par value, 8,000,000 shares authorized; 7,602,492 shares issued and 4,641,717 shares outstanding at December 31, 2005 and September 30, 2005 | 76,024 | 76,024 | ||||||
Additional paid-in capital | 57,275,390 | 57,275,390 | ||||||
Unearned ESOP shares | (2,152,968 | ) | (2,076,856 | ) | ||||
Accumulated other comprehensive loss, net | (2,734,653 | ) | (2,517,282 | ) | ||||
Retained earnings | 24,498,784 | 24,013,522 | ||||||
| 76,962,577 | 76,770,798 | |||||||
Treasury stock at cost, 2,960,775 shares, at December 31, 2005 and September 30, 2005 | (24,402,544 | ) | (24,402,544 | ) | ||||
Total stockholders’ equity | 52,560,033 | 52,368,254 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 751,526,447 | $ | 741,263,567 | ||||
See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended December 31 | ||||||
| 2005 | 2004 | |||||
INTEREST INCOME: | ||||||
Loans receivable | $ | 6,901,166 | $ | 5,792,124 | ||
Investment securities | 2,550,338 | 2,985,994 | ||||
Total interest income | 9,451,504 | 8,778,118 | ||||
INTEREST EXPENSE: | ||||||
Deposits | 3,828,760 | 2,795,804 | ||||
Borrowed funds | 1,294,078 | 1,273,509 | ||||
Trust preferred securities | 375,347 | 341,398 | ||||
Total interest expense | 5,498,185 | 4,410,711 | ||||
NET INTEREST INCOME | 3,953,319 | 4,367,407 | ||||
PROVISION FOR LOAN LOSSES | — | 125,000 | ||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES | 3,953,319 | 4,242,407 | ||||
NON-INTEREST INCOME: | ||||||
Dividends | 97,701 | 61,868 | ||||
Fees and service charges | 813,728 | 793,704 | ||||
Gain on sale of loans | 201,634 | 273,429 | ||||
Gain on sale of loan servicing | 219,754 | — | ||||
Gain on sale of securities, net | 54,023 | — | ||||
Trading gain, net | 337 | 362,128 | ||||
Other | 67,758 | 59,659 | ||||
Total other income | 1,454,935 | 1,550,788 | ||||
OPERATING EXPENSE: | ||||||
Compensation and benefits | 2,443,520 | 2,369,650 | ||||
Occupancy and equipment | 736,194 | 668,533 | ||||
Insurance premiums | 109,074 | 90,459 | ||||
Professional fees | 251,359 | 256,757 | ||||
Data processing | 183,990 | 148,212 | ||||
Advertising and donations | 139,497 | 166,744 | ||||
Office supplies | 73,167 | 52,755 | ||||
REO and other repossessed assets | 23,671 | 27,535 | ||||
Other | 357,066 | 319,272 | ||||
Total operating expense | 4,317,538 | 4,099,917 | ||||
INCOME BEFORE INCOME TAXES | 1,090,716 | 1,693,278 | ||||
INCOME TAXES | 234,117 | 575,900 | ||||
NET INCOME | $ | 856,599 | $ | 1,117,378 | ||
(Continued)
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POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended December 31 | |||||||
| 2005 | 2004 | ||||||
OTHER COMPREHENSIVE INCOME (LOSS), | |||||||
NET OF TAX: | |||||||
Unrealized holding gain (loss) on securities available-for-sale arising during the period | $ | (181,716 | ) | $ | 355,523 | ||
Reclassification adjustment for gains included in net income | (35,655 | ) | — | ||||
Other comprehensive income (loss) | (217,371 | ) | 355,523 | ||||
COMPREHENSIVE INCOME | $ | 639,228 | $ | 1,472,901 | |||
EARNINGS PER SHARE: | |||||||
Basic earnings per share | $ | 0.19 | $ | 0.25 | |||
Diluted earnings per share | $ | 0.19 | $ | 0.24 | |||
(Concluded)
See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
| Common Stock | Additional Paid-In Capital | Unearned ESOP Shares | Accumulated Other Comprehensive Income(loss) | Retained Earnings | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||
BALANCE, OCTOBER 1, 2005 | 7,602,492 | $ | 76,024 | $ | 57,275,390 | $ | (2,076,856 | ) | $ | (2,517,282 | ) | $ | 24,013,522 | 2,960,775 | $ | (24,402,544 | ) | $ | 52,368,254 | |||||||||||
Purchase of stock with ESOP loan | (76,112 | ) | (76,112 | ) | ||||||||||||||||||||||||||
Net change in unrealized loss on available-for-sale securities, net of tax | (278,010 | ) | (278,010 | ) | ||||||||||||||||||||||||||
Amortization of loss for securities transferred to HTM | 60,639 | — | — | 60,639 | ||||||||||||||||||||||||||
Net income | 856,599 | 856,599 | ||||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | (371,337 | ) | — | — | (371,337 | ) | |||||||||||||||||||
BALANCE, December 31, 2005 | 7,602,492 | $ | 76,024 | $ | 57,275,390 | $ | (2,152,968 | ) | $ | (2,734,653 | ) | $ | 24,498,784 | 2,960,775 | $ | (24,402,544 | ) | $ | 52,560,033 | |||||||||||
See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended December 31, | ||||||||
| 2005 | 2004 | |||||||
| (As restated, see Note 9) | ||||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 856,599 | $ | 1,117,378 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | — | 125,000 | ||||||
Depreciation of premises and equipment | 328,973 | 311,077 | ||||||
Amortization of deferred loan fees | (17,090 | ) | (23,567 | ) | ||||
Amortization of premiums and discounts, net | 68,719 | 37,443 | ||||||
Amortization of core deposit premium | 243,301 | 243,301 | ||||||
Decrease in loans held for sale | 533,451 | 446,000 | ||||||
Net gain on sale of loans | (201,634 | ) | (273,429 | ) | ||||
Net gain on sale of investment securities | (54,023 | ) | — | |||||
Net gain on sale of mortgage servicing rights | (219,754 | ) | — | |||||
Increase in cash surrender value of life insurance policies | (79,839 | ) | (93,936 | ) | ||||
Stock dividends on FHLB stock | (79,800 | ) | (48,700 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Trading securities | (442,256 | ) | (365,686 | ) | ||||
Accrued interest receivable | (13,477 | ) | 321,261 | |||||
Other assets | (183,282 | ) | (301,007 | ) | ||||
Deferred compensation | (56,009 | ) | (54,539 | ) | ||||
Accrued expenses and other liabilities | (464,011 | ) | 145,759 | |||||
Net cash provided by operating activities | 219,868 | 1,586,355 | ||||||
INVESTING ACTIVITIES: | ||||||||
Purchases of investment securities | (36,868,631 | ) | (42,714,327 | ) | ||||
Proceeds from sale of securities available-for-sale | 1,662,471 | — | ||||||
Proceeds from maturities, calls and principal prepayment of investment securities | 10,420,277 | 10,968,501 | ||||||
Net increase in FHLB Bank stock | — | — | ||||||
Net decrease in loans | 14,441,604 | 17,419,482 | ||||||
Proceeds from sale of real estate owned | 353,020 | 348,321 | ||||||
Proceeds from sale of assets | — | 681 | ||||||
Purchases of premises and equipment | (207,381 | ) | (1,898,083 | ) | ||||
Net cash used by investing activities | $ | (10,198,640 | ) | $ | (15,875,425 | ) | ||
(Continued)
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POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended December 31 | ||||||||
| 2005 | 2004 | |||||||
| (As restated, see Note 9) | ||||||||
FINANCING ACTIVITIES: | ||||||||
Net increase in deposits | $ | 19,595,758 | $ | 13,786,159 | ||||
Net decrease in FHLB advances | (6,065,274 | ) | (61,453 | ) | ||||
Purchase of stock for ESOP | (76,112 | ) | (319,733 | ) | ||||
Dividends paid | (742,674 | ) | (371,338 | ) | ||||
Net cash provided by financing activities | 12,711,698 | 13,033,635 | ||||||
NET INCREASE (DECREASE) IN CASH | 2,732,926 | (1,255,435 | ) | |||||
CASH AT BEGINNING OF PERIOD | 23,411,451 | 35,218,491 | ||||||
CASH AT END OF PERIOD | $ | 26,144,377 | $ | 33,963,056 | ||||
(Concluded)
See notes to unaudited condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 1. | BASIS OF PRESENTATION |
The condensed consolidated statement of financial condition information at September 30, 2005 was derived from the audited consolidated statement of financial condition of Pocahontas Bancorp, Inc. (the “Company”), at September 30, 2005. The condensed consolidated financial statements at and for the three months ended December 31, 2005 and 2004 are unaudited. The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation 10 of Regulation S-X. Certain information required for a complete presentation in accordance with generally accepted accounting principles has been omitted. All adjustments that are, in the opinion of management, necessary for a fair presentation of the interim financial statements have been included. The results of operations for the three months ended December 31, 2005, are not necessarily indicative of the results that may be expected for the entire fiscal year or any interim period.
The interim financial information should be read in conjunction with the Company’s annual consolidated financial statements and notes there to, including a summary of significant accounting policies followed by the Company, for the fiscal year ended September 30, 2005. The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, First Community Bank (the “Bank”); as well as the Bank’s subsidiaries, Southern Mortgage Corporation, P.F. Service, Inc. and Sun Realty, Inc., which provide real estate services (collectively referred to as the “Company”). All significant intercompany transactions have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Stock Compensation –As discussed below, FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees. As of October 1, 2005, the Company adopted FAS 123(R) using the modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. As of October 31, 2005, the Company’s options were fully vested, requiring no expense to be recorded for the three-month period ended December 31, 2005.
Recently Adopted or Issued Accounting Standards– In November 2005,FSP FAS 115-1 and FAS 124-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” was issued. The FSP addressed the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. It also included accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance of the FSP amended FASB Statements No. 115,Accounting for Certain Investments in Debt and Equity Securities, No. 124,Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No 18,The Equity Method of Accounting for Investments in Common Stock. The FSP nullified certain requirements of Emerging Issues Task Force (“EITF”) Issue 03-1 and supersedes EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.” The FSP gives guidance regarding how to determine whether an investment is impaired, if impaired how to evaluate whether the impairment is other-than-temporary, and proper accounting and disclosures for the investments. The Guidance is effective for reporting periods beginning after December 15, 2005; earlier application is permitted. The adoption of EITF 03-1 did not have an effect on net income or stockholders’ equity.
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In December 2004 the FASB issued Statement Number 123 (revised 2004) (“FAS 123 (R)”),Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees. As of October 1, 2005, the Company adopted FAS 123(R) using the modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. As of October 31, 2005, the Company’s options were fully vested. Accordingly, the adoption of FAS 123 (R) did not have an effect on the Company’s consolidated financial statements.
Reclassifications –Certain amounts for the three-month period ended December 31, 2004 have been reclassified to conform to the presentation for the three -month period ended December 31, 2005.
| 2. | EARNINGS PER SHARE |
The earnings per share amounts were computed using the weighted average number of shares outstanding during the periods presented. In accordance with Statement of Position No. 93-6,Employers’ Accounting for Employee Stock Ownership Plans, issued by the American Institute of Certified Public Accountants, shares owned by the Company’s Employee Stock Ownership Plan that have not been committed to be released are not considered to be outstanding for the purpose of computing earnings per share.
The weighted average numbers of shares used in the basic and diluted earnings per share calculation are set out in the table below:
Three Months Ended December 31, | ||||
| 2005 | 2004 | |||
Total weighted average basic shares outstanding | 4,512,609 | 4,512,059 | ||
Add dilutive effect of unexercised options | 55,132 | 84,315 | ||
Total weighted average shares outstanding for dilutive earnings-per-share calculation | 4,567,741 | 4,596,374 | ||
| 3. | DECLARATION OF DIVIDENDS |
On November 16, 2005, the Board of Directors declared an $0.08 per share quarterly cash dividend for holders of record on December 15, 2005.
| 4. | BENEFIT PLANS |
Stock Option Plan - The Company’s stockholders approved the 1998 Stock Option Plan (“SOP”) on October 23, 1998. The SOP provides for a committee of the Company’s Board of Directors to award incentive non-qualified or compensatory stock options to purchase up to 357,075 shares of Company common stock. The options vest in equal amounts over five years with the first vesting date on October 23, 1999. Options granted vest immediately in the event of retirement, disability, or death, or following a change in control of the Company. Outstanding stock options can be exercised over a ten-year period. Under the SOP, options have been granted to directors and key employees of the Company. The exercise price in each case equaled the fair market value of the Company’s stock at the date of grant. The Company granted 350,000 options on October 23, 1998, which have an exercise price of $9.00 per share. As of December 31, 2005, 174,000 options were outstanding and exercisable.
NARK Stock Option Plan–During the fiscal year ended September 30, 2002, the Company completed its acquisition of North Arkansas Bancshares, Inc. The Company assumed 30,970 in stock options granted to employees and directors of North Arkansas Bancshares, Inc. related to such acquisition. All options granted to non-employee directors shall expire one year after the non-employee director ceases to maintain continuous service. On December 31, 2005, 16,831 options were outstanding.
| 5. | GOODWILL AND INTANGIBLE ASSETS |
The Company performed its annual goodwill impairment test as of April 1, 2005 and concluded there was no impairment to the book value of the Company’s goodwill. Absent any impairment indicators, the Company will perform its next impairment test as of April 1, 2006, during the quarter ended June 30, 2006.
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As of December 31, 2005 the Company had total core deposit premiums of $5,080,018, net of accumulated amortization of $4,510,189. Core deposit premiums are estimated to have a useful life of 10 years.
The amortization of core deposit premiums is reported in the “interest expense on deposits” line item of the Company’s Condensed Consolidated Statements of Income and Comprehensive Income. Total amortization expense for core deposit premiums was approximately $243,301 for the three-month period ended December 31, 2005. Amortization expense for the net carrying amount of core deposit premiums at December 31, 2005, was estimated to be as follows (in thousands):
Nine months ending September 30, 2006 | $ | 730 | |
Year ending September 30, 2007 | 973 | ||
Year ending September 30, 2008 | 839 | ||
Year ending September 30, 2009 | 794 | ||
Year ending September 30, 2010 | 794 | ||
After September 30, 2010 | 950 | ||
Total | $ | 5,080 | |
| 6. | CONTINGENCIES |
The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the condensed consolidated financial statements of the Company and its subsidiaries.
| 7. | ALLOWANCE FOR LOAN LOSSES |
A summary of the activity in the allowance for loan losses is as follows (in thousands):
| Three Months Ended December 31, | ||||||||
| 2005 | 2004 | |||||||
Balance at beginning of the period | $ | 3,209 | $ | 3,765 | ||||
Provision for losses | — | 125 | ||||||
Charge-offs | (459 | ) | (386 | ) | ||||
Recoveries | 20 | 162 | ||||||
Balance at end of the period | $ | 2,770 | $ | 3,666 | ||||
| 8. | EMPLOYEE STOCK OWNERSHIP PLAN |
The Company established an Employee Stock Ownership Plan (“ESOP”) on March 31, 1998. During the fiscal year ended September 30, 2005, the ESOP established a new $3.09 million line of credit with the Company. The loan proceeds were used to pay off the $0.29 million balance of the loan established during fiscal 2003 and the $1.80 million balance of the loan established during fiscal 2004. The remaining $1.00 million was to be used to purchase additional shares of Company stock on or before December 31, 2005. The loan is collateralized by shares that were purchased with the proceeds of the loan. As of December 31, 2005, the ESOP owed $2.13 million on the line of credit. As the loan is repaid, ESOP shares will be allocated to participants of the ESOP and are available for release to the participants subject to the vesting provisions of the ESOP.
| 9. | RESTATEMENT OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Subsequent to the issuance of the Company’s December 31, 2005 interim consolidated financial statements, the Company determined that amounts presented in the Company’s interim consolidated statements of cash flows for the three months ended December 31, 2005 reflected an error in the presentation of the Company’s investment securities that were purchased, but not yet settled, at September 30, 2005 for the three months ended December 31, 2005 and 2004, an error in the presentation of the receipt of stock dividends on FHLB stock. As a result, the accompanying interim consolidated statement of cash flows for the three
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months ended December 31, 2005 has been restated to present the purchase of certain investment securities that were purchased, but not yet settled, at September 30, 2005 in the investing activities section rather than in the operating activities section. The amounts presented in the Company’s consolidated statements of cash flows for the three months ended December 31, 2005 and 2004 also reflect a correction in the presentation of the receipt of stock dividends paid on FHLB stock as an adjustment to reconcile net income to net cash provided by operating activities rather than investing activities. These corrections resulted in an increase in net cash provided by operating activities and a corresponding increase in cash used in investing activities of $2.4 million from those amounts previously presented in the consolidated statement of cash flows for the three months ended December 31, 2005. For the three months ended December 31, 2004, the correction resulted in a decrease in cash provided by operating activities and a corresponding decrease in cash used by investing activities of $49 thousand. There was no change in the net increase in cash resulting from either of these corrections. Further, these changes had no effect on the Company’s consolidated statements of income, consolidated statements of financial condition, or condensed consolidated statement of changes in shareholder’s equity.
The effect of the restatement on the Company’s consolidated statements of cash flows for the three months ended December 31, 2005 and 2004 are reflected in the table below:
Consolidated statement of cash flows:
| 2005 | 2004 | |||||||||||||||
As previously reported | As restated | As previously reported | As restated | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Stock Dividends on FHLB Stock | $ | — | $ | (79,800 | ) | $ | — | $ | (48,700 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accrued expenses and other liabilities | (2,894,011 | ) | (464,011 | ) | 145,759 | 145,759 | ||||||||||
Net cash (used) provided by operating activities | (2,130,332 | ) | 219,868 | 1,635,055 | 1,586,355 | |||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Purchases of investment securities | (34,438,631 | ) | (36,868,631 | ) | (42,714,327 | ) | (42,714,327 | ) | ||||||||
Net increase in FHLB stock | (79,800 | ) | — | (48,700 | ) | — | ||||||||||
Net cash used by investing activities | (7,848,440 | ) | (10,198,640 | ) | (15,924,125 | ) | (15,875,425 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Net cash provided by financing activities | 12,711,698 | 12,711,698 | 13,033,635 | 13,033,635 | ||||||||||||
NET INCREASE (DECREASE) IN CASH | 2,732,926 | 2,732,926 | (1,255,435 | ) | (1,255,435 | ) | ||||||||||
CASH AT BEGINNING OF PERIOD | 23,411,451 | 23,411,451 | 35,218,491 | 35,218,491 | ||||||||||||
CASH AT END OF PERIOD | $ | 26,144,377 | $ | 26,144,377 | $ | 33,963,056 | $ | 33,963,056 | ||||||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Pocahontas Bancorp, Inc.
Jonesboro, Arkansas
We have reviewed the accompanying condensed consolidated statement of financial condition of Pocahontas Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2005, and the related condensed consolidated statements of income and comprehensive income and cash flows for the three-month periods ended December 31, 2005 and 2004, and stockholders’ equity for the three-month period ended December 31, 2005. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition of Pocahontas Bancorp, Inc. and subsidiaries as of September 30, 2005, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated December 22, 2005 (May 19, 2006 as to the effects of the restatement described in Note 26) we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial condition as of September 30, 2005 is fairly stated, in all material respects, in relation to the consolidated statement of financial condition from which it has been derived.
As discussed in Note 9, the consolidated statements of cash flows for the three-month periods ended December 31, 2005 and 2004 have been restated.
Little Rock, Arkansas
February 8, 2006 (May 19, 2006 as to the
effects of the restatement described in Note 9)
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CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. In designing and evaluating the disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating its controls and procedures.
Under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer previously concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective. Subsequent to the date of that evaluation, management considered the restatement of the Company’s interim consolidated financials statements and concluded that the restatement itself was an indicator of a material weakness related to controls over the preparation and review of its consolidated statement of cash flows. Based on such considerations, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2005, the Company’s disclosure controls and procedures were not effective because of the material weakness described below. Specifically, the Company did not maintain effective controls to appropriately classify the presentation of the purchase of certain investment securities and the receipt of stock dividends on FHLB stock, all as more fully discussed in Note 9 to the accompanying interim consolidated financial statements.
Changes in Internal Controls Over Financial Reporting
In an effort to reduce the possibility of classification errors in the future, the Company has modified the internal controls over the preparation and review of its consolidated statements of cash flows during the third quarter of 2006. Management has implemented a process to aid in ensuring the correct classification of items included in the consolidated statements of cash flows, including a detailed statement of cash flows preparation checklist. Accordingly, management believes that this process will accentuate the internal controls already in place and remediate the weakness discussed above. There have been no other changes made in the Company’s internal controls over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Item 6. Exhibits
Exhibits
Exhibit No. 31.1 – Certification of President and Chief Executive Officer.
Exhibit No. 31.2 – Certification of Chief Financial Officer
Exhibit No. 32.1 – Written Statement of President and Chief Executive Officer.
Exhibit No. 32.2 – Written Statement of Chief Financial Officer
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Pursuant to the requirements 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.
| POCAHONTAS BANCORP, INC. | ||
| Date: May 19, 2006 | /s/ Dwayne Powell | |
| Dwayne Powell | ||
| President and Chief Executive Officer | ||
| Date: May 19, 2006 | /s/ Terry Davis | |
| Terry Davis | ||
| Chief Financial Officer | ||
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