SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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
----------------------
DELAWARE IRS Employer Identification
No. 71-0806097
Address Telephone Number
------- ----------------
203 West Broadway (870) 892-4595
Pocahontas, Arkansas 72455
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
----- -----
There were 4,454,357 shares of Common Stock ($0.10 par value) issued and
outstanding as of March 31, 2001.
POCAHONTAS BANCORP, INC.
TABLE OF CONTENTS
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Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Financial Condition at March 31,
2001 (unaudited) and September 30, 2000 1
Condensed Consolidated Statements of Income and Comprehensive Income
for the Three and Six Months Ended March 31, 2001 and 2000 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 2001 and 2000 (unaudited) 3
Notes to Condensed Consolidated Financial Statements (unaudited) 4
Independent Accountants' Report 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION 14
Item 1
POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
(Unaudited)
March 31, 2001 September 30, 2000
ASSETS
Cash $ 16,838,777 $ 12,941,447
Cash surrender value of life insurance 6,254,820 6,158,076
Investment securities - trading 1,513,665 1,126,712
Investment securities - held to maturity 11,429,840 9,465,856
Investment securities - available for sale 103,584,402 118,024,962
Loans receivable, net 233,460,023 234,416,895
Accrued interest receivable 3,151,154 3,251,939
Premises and equipment, net 3,630,404 3,779,850
Federal Home Loan Bank Stock, at cost 5,132,500 5,988,200
Core deposit premium 2,011,102 2,154,131
Other assets 2,743,737 3,796,455
------------ ------------
TOTAL ASSETS $389,750,424 $401,104,523
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $232,277,003 $234,971,507
Federal Home Loan Bank advances 98,125,000 117,990,000
Securities sold under agreements to repurchase 1,810,000 1,375,000
Deferred compensation 3,170,387 3,238,092
Accrued expenses and other liabilities 2,791,202 2,151,594
------------ ------------
Total liabilities 338,173,592 359,726,193
Trust Preferred Securities 7,226,500 0
STOCKHOLDERS' EQUITY:
Common stock 69,696 69,553
Additional paid-in capital 51,342,840 51,307,395
Unearned ESOP Shares (2,032,221) (2,032,221)
Unearned RRP Shares (202,401) (277,660)
Accumulated other comprehesive income (loss) 865,554 (1,094,470)
------------ ------------
Retained earnings 13,990,755 13,089,624
------------ ------------
64,034,223 61,062,221
Treasury stock (19,683,891) (19,683,891)
------------ ------------
Total stockholders' equity 44,350,332 41,378,330
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $389,750,424 $401,104,523
============ ============
See notes to condensed consolidated financial statements.
1
POCAHONTAS BANCORP,INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
2001 2000 2001 2000
INTEREST INCOME:
Loans receivable $4,730,776 $4,323,478 $ 9,456,755 $ 8,609,737
Investment securities 2,141,657 3,335,376 4,472,062 6,865,642
---------- ---------- ----------- -----------
Total interest income 6,872,433 7,658,854 13,928,817 15,475,379
INTEREST EXPENSE:
Deposits 2,945,528 2,549,999 5,982,793 4,869,152
Borrowed funds 1,513,811 2,353,520 3,377,448 4,966,182
---------- ---------- ----------- -----------
Total interest expense 4,459,339 4,903,519 9,360,241 9,835,334
NET INTEREST INCOME 2,413,094 2,755,335 4,568,576 5,640,045
PROVISION FOR LOAN LOSSES - - - -
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,413,094 2,755,335 4,568,576 5,640,045
OTHER INCOME:
Dividends 72,935 133,751 172,218 296,790
Fees and service charges 436,920 385,878 833,913 770,814
Trading gains 438,038 23,384 493,235 4,346
Other 112,770 86,672 235,371 389,771
---------- ---------- ----------- -----------
Total other income 1,060,664 629,685 1,734,737 1,461,722
---------- ---------- ----------- -----------
OPERATING EXPENSE:
Compensation and benefits 1,143,931 1,166,878 2,269,658 2,281,786
Occupancy and equipment 229,140 241,264 472,562 483,860
Deposit insurance premium 11,495 11,239 22,985 41,379
Professional fees 86,962 109,755 182,141 194,324
Data processing 120,601 112,586 208,282 193,830
Advertising 97,005 160,105 172,000 325,977
OTS assessment 21,647 24,293 44,401 45,623
Other 384,866 351,305 710,154 713,135
---------- ---------- ----------- -----------
Total operating expense 2,095,647 2,177,425 4,082,182 4,279,915
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,378,111 1,207,595 2,221,130 2,821,853
INCOME TAXES 550,000 398,412 740,000 973,412
---------- ---------- ----------- -----------
NET INCOME 828,111 809,183 1,481,130 1,848,441
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Unrealized holding gain (loss) on available
for sale securities arising during period 1,026,015 1,007,415 1,960,024 (2,049,562)
---------- ---------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $1,854,126 $1,816,598 $ 3,441,154 $ (201,122)
========== ========== =========== ===========
BASIS EARNINGS PER SHARE $0.19 $0.15 $0.35 $0.35
========== ========== =========== ===========
DILUTED EARNINGS PER SHARE $0.19 $0.15 $0.35 $0.35
========== ========== =========== ===========
See notes to condensed consolidated financial statements.
2
POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
- --------------------------------------------------------------------------------
2001 2000
OPERATING ACTIVITIES:
Net income $ 1,481,130 $ 1,848,441
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation of premises and equipment 224,034 248,277
Amortization of deferred loan fees (27,535) (20,991)
Amortization of premiums and discounts, net (199,061) (107,370)
Net (gain) loss on sales of assets 34,252 (34,776)
Increase in cash surrender value of life insurance policies (96,744) (96,744)
Change in operating assets and liabilities:
Trading securities (386,953) 512,419
Accrued interest receivable 100,785 228,489
Other assets 1,043,898 (1,548,834)
Deferred compensation (67,705) (110,183)
Other liabilities 639,608 (1,116,509)
------------ ------------
Net cash provided (used) by operating activities 2,745,709 (197,781)
------------ ------------
INVESTING ACTIVITIES:
Loan repayments, originations, and purchases, net 986,658 (3,863,062)
Proceeds from sale of FHLB Stock 855,700 2,568,100
Purchase of investment securities (1,898,050) (4,000,000)
Proceeds from sale of REO 151,849 220,004
Proceeds from maturities and principal repayments
of investment securities 16,497,208 41,109,276
Purchases of premises and equipment (74,589) (125,222)
------------ ------------
Net cash provided by investing activities 16,518,776 35,909,096
------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (2,694,504) 12,765,690
Proceeds of repurchase agreements, net 435,000 225,000
Net decrease in FHLB advances (19,865,000) (49,085,000)
Proceeds from issuance of Trust Preferred Securities 7,226,500 0
Purchase of treasury stock - (47,004)
Issuance of RRPs 75,259 123,408
Proceeds from exercise of stock options 35,589 21,253
Dividends paid (579,999) (661,988)
------------ ------------
Net cash used by financing activities (15,367,155) (36,658,641)
------------ ------------
NET INCREASE (DECREASE) IN CASH 3,897,330 (947,326)
CASH AT BEGINNING OF PERIOD 12,941,447 8,622,050
------------ ------------
CASH AT END OF PERIOD $ 16,838,777 $ 7,674,724
============ ============
See notes to condensed consolidated financial statements.
3
POCAHONTAS BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with generally accepted accounting principles 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 and
six months ended March 31, 2000, 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
consolidated financial statements and notes of the Company, including a
summary of significant accounting policies followed by the Company, included
in the Annual Report for the fiscal year ended September 30, 2000. The
accompanying unaudited consolidated financial statements include the accounts
of the Company and Pocahontas Federal Savings and Loan Association (the
"Bank"), its wholly owned subsidiary. The intercompany accounts of the
Company and the Bank have been eliminated in consolidation.
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 number of shares used in the basic and diluted earnings
per share calculation are set out in the table below:
Three Months Ended Six Months Ended
------------------------------------ ------------------------------------
March 31, 2001 March 31, 2000 March 31, 2001 March 31, 2000
-------------- -------------- -------------- --------------
Total basic shares outstanding 4,298,362 5,298,457 4,291,359 5,301,359
Add dilutive effect of unexercised options 0 8,046 0 6,713
-------------- -------------- -------------- --------------
Total weighted average shares outstanding
for dilutive earnings per share calculation 4,298,362 5,306,503 4,291,359 5,308,072
============== ============== ============== ==============
3. DECLARATION OF DIVIDENDS
On February 14, 2001, the Board of Directors declared a $.065 per share
quarterly dividend for holders of record March 15, 2001.
4
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 stock options, non-qualified
or compensatory stock options to purchase up to 357,075 shares of Company
Common Stock. The options will 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 equals 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.
The Company applies the provisions of APB 25 in accounting for its stock
options plans, as allowed under SFAS 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for the
options granted to employees or directors. Had compensation cost for these
been determined on the fair value at the grant dates for awards under those
plans consistent with the methods of SFAS No. 123, the Company's pro forma
net income and pro forma earnings per share for the three and six months
ended March 31, 2001, would have been as follows:
Three Months Six Months
Ended March 31, 2001 Ended March 31, 2001
---------------------- ----------------------
As Reported Pro forma As Reported Pro forma
Net income in thousands $ 828 $ 804 $1,481 $1,433
Earnings per share:
Basic $0.19 $0.19 $ 0.35 $ 0.35
Diluted $0.19 $0.19 $ 0.35 $ 0.35
In determining the above pro forma disclosure, the fair value of options
granted during the year was estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
expected volatility - 37%, expected life of grant - 6.5 years, risk free
interest rate 5.25%, and expected dividend rate of 2.5%.
5. Trust Preferred Securities
On March 28, 2001, the Company issued $7.5 million of trust-preferred
securities with a coupon rate of 10.18%. The net proceeds to the Company
were $7.2 million. The Company anticipates contributing $5.0 million to the
Bank on May 15, 2001 as additional-paid-in-capital to increase the Bank's
capital percentages following the acquisition of Walden/Smith Financial
Group, Inc (see footnote 6). The Company anticipates using the remaining
proceeds for general corporate purposes, including but not limited to stock
repurchases, dividends and corporate expenses. Under current tax law, the
dividend paid on trust-preferred securities is deductible.
6. Subsequent Events
Sale of loans - Subsequent to March 31, 2001 the Bank sold approximately
$16.7 million fixed rate mortgage loans. The gain on the sale was
approximately $360,000. The loans had weighted average remaining term of 155
months and weighted average rate of 7.7%. The Bank retained the servicing
rights on the loans and recorded a corresponding asset of $102,000.
5
Sale of investments - Subsequent to March 31, 2001 the Bank sold
approximately $ 36.4 million of available for sale investment securities.
The gain on the sale of securities was approximately $238,000. The securities
were composed primarily of floating rate securities.
Acquisition - On January 4, 2001 the Company entered into an agreement with
Walden/Smith Financial Group to acquire 100% of the outstanding shares of
Walden/Smith Financial group for approximately $27.4 million in cash. The
Company expects to complete the transaction May 15, 2001. Final approval was
received from the Company's primary regulator effective April 26, 2001. At
March 31, 2001 Walden/Smith had total assets of $159 million, total
liabilities of $143 million. The condensed unaudited balance sheet of
Walden/Smith as of March 31, 2001 was as follows:
First Community Bank
Condensed Statement of Financial Condition
March 31, 2001 (Unaudited)
-----------------------------------------------------------------
ASSETS (in thousands)
Cash $ 9,819
Loans Receivable 121,448
Investments 16,739
Other Assets 10,698
--------
Total Assets $158,704
========
LIABILITIES
Deposits $138,305
Borrowings 3,449
Other Liabilities 1,045
--------
Total Liablilities 142,799
EQUITY CAPITAL 15,905
--------
Total Liabilities and Equity $158,704
========
Relocation of Headquarters and Management Changes - On April 11, 2001 the
Company's board of directors voted to reorganize the structure of the Company
and the Bank. The Board unanimously voted (Mr. Edington abstained) to begin
transitioning the Company's and the Bank's headquarters to Jonesboro,
Arkansas immediately following the acquisition of Walden/Smith. In connection
with the move of the headquarters, two outside board members will retire as
of June 30, 2001 and James Edington, President and CEO elected resign as
President and CEO of the Company and the Bank by exercising his option under
his employment contract to not relocate to Jonesboro, Arkansas. Mr. Edington
will remain an employee of the Company in Pocahontas as credit analyst and
will provide other duties and functions assigned by the Board. He will report
directly to the Company's board of directors. Mr. Edington will remain a
member of the board and will serve as Vice Chairman. The Board anticipates
adding three new directors from the Jonesboro area in July 2001. Following
the reorganization Mr. Ralph Baltz will remain as Chairman of the board and
he will accept additional responsibilities in that role resulting in Mr.
Baltz becoming an executive officer of the Company and the Bank. Dwayne
Powell, CFO will succeed Mr. Edington as President and CEO. Mr. Powell will
relocate to Jonesboro, Arkansas.
It is expected that the Company and the Bank will benefit significantly from
being headquartered in the Jonesboro market area. The Jonesboro market is the
largest market in the Company's market area and it has had the highest growth
rate and is expected to continue to have the highest growth rate of any
6
community in the Bank's market area. The board of directors anticipates that
the Bank's asset /liability mix will continue to become much more like that
of a traditional commercial bank. The charge off of excess facilities in the
Pocohontas area and the funding of retirement and severance agreements
associated with the move of the corporate headquarters to Jonesboro will
result in the aftertax restructuring charge in the range of $2.1 million, or
$0.47 per share. The restructuring charge is expected to be taken in the 3rd
quarter of Fiscal 2001.
* * * * * *
7
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Stockholders of
Pocahontas Bancorp, Inc.
Pocahontas, Arkansas
We have reviewed the accompanying condensed consolidated statement of financial
condition of Pocahontas Bancorp, Inc. and subsidiaries (the "Company") as of
March 31, 2000, and the related condensed consolidated statements of income and
comprehensive income for the three-month and six-month periods ended March 31,
2001 and 2000, and of cash flows for the six-month periods ended March 31, 2001
and 2000. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, 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 review, we are not aware of any material modifications that should
be made to such condensed consolidated 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 auditing standards generally
accepted in the United States of America, the consolidated statement of
financial condition of Pocahontas Bancorp, Inc. and subsidiaries as of September
30, 2000, 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 November 8, 2000, 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, 2000, is fairly stated, in all
material respects, in relation to the consolidated statement of financial
condition from which it has been derived.
[SIGNATURE OF DELOITTE & TOUCHE APPEARS HERE]
Little Rock, Arkansas
May 8, 2001
8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This quarterly report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those contemplated by such forward-looking statements.
These important factors include, without limitation, the Bank's continued
ability to originate quality loans, fluctuation of interest rates, real estate
market conditions in the Bank's lending areas, general and local economic
conditions, the Bank's continued ability to attract and retain deposits, the
Company's ability to control costs, new accounting pronouncements and changing
regulatory requirements.
Financial Condition at March 31, 2001, as compared to September 30, 2000.
General. The Company's total assets decreased $11.3 million or 2.8% to $389.8
million at March 31, 2001, as compared to $401.1 million at September 30, 2000.
Loans receivable, net. Net loans receivable decreased by $0.9 million or 0.4% to
$233.5 million at March 31, 2001, from $234.4 million at September 30, 2000.
Subsequent to March 31, 2001 the Company sold approximately $16.7 million of
fixed rate loans (see subsequent event note to the financial statements). The
loans were sold in anticipation of the consummation of the Walden/Smith
acquisition and management expectation of accelerated prepayments and refinances
due to the recent reductions in market interest rates. The Company retained the
servicing rights and the customer relationships.
Investment securities held to maturity. Investment securities held to maturity
increased $1.9 million, or 20.0% to $11.4 million at March 31, 2001, from
$9.5 million at September 30, 2000. The increase in the Company's held to
maturity investment portfolio was due to the purchase of $2.0 million of
corporate bonds.
Investment securities available for sale. Investment securities available for
sale decreased $14.4 million, or 12.2%, to $103.6 million at March 31, 2001,
from $118.0 million at September 30, 2000. This decrease was primarily due to
the sale of $4.9 million of available for sale investment securities and the
call of $4.0 million of investment securities during the quarter ended
December 31, 2000 and the call of $3.0 million of investment securities during
the quarter ended March 31, 2001.
Investment securities trading. Investment securities trading increased to
$1.5 million, or 36.4% at March 31, 2001, from $1.1 million at September 30,
2000 primarily due to gains on trading account securities.
Other assets. Other assets decreased to $2.7 million, or 29.0% at March 31,
2001, from $3.8 million at September 30, 2000. The decrease was primarily due to
a decrease in deferred income taxes.
Deposits. Deposits decreased $2.7 million or 1.2% to $232.3 million at March 31,
2001, from $235.0 million at September 30, 2000, primarily due to the Company
reducing interest rates on its deposit products in an effort to reduce the
overall cost of funds.
Deferred compensation. Deferred compensation decreased $0.07 million or 2.2% to
$3.17 million at March 31, 2001 from $3.24 million at September 30, 2000. The
decrease was due to an annual payment made to a retired director.
Accrued expenses and other liabilities. Accrued expenses and other liabilities
increased $0.6 million, or 27.3%, to $2.8 million at March 31, 2001, from
$2.2 million at September 30, 2001. This increase was primarily due to the
adjustment for the tax effect on unrealized gain/loss on available for sale
securities.
9
Federal Home Loan Bank advances. FHLB advances decreased $19.9 million or 16.9%
to $98.1 million at March 31, 2001, from $118.0 million at September 30, 2000.
This decrease was due the sale of investment securities available for sale and
the use of proceeds to reduce FHLB advances.
Stockholders' equity. Stockholders' equity increased $3.0 million or 7.3% to
$44.4 million at March 31, 2001, from $41.4 million at September 30, 2000. The
change in stockholders' equity was primarily due to Net Income of $1,481,130
which was partially offset by dividends of $579,999 and an increase in the
unrealized gain on available for sale securities, net of the income tax effect.
Comparison of Results of Operations for the Three and Six Months Ended March 31,
2001 and 2000.
Overview. Net income was $828,111 for the quarter ended March 31, 2001, compared
to $809,183, for the quarter ended March 31, 2000, an increase of $18,928 or
2.3%. Basic and diluted earnings per share were $0.19 compared to basic and
diluted earning per share of $0.15 for the same period last year.
Net income for the six month period ended March 31, 2001 was $1,481,130 compared
to $1,848,441, for the same period ended March 31, 2000, a decrease of $367,311
or 19.9%. Basic and diluted earnings per share for the six-month period were
$0.35 compared to basic and diluted earnings per share $0.35 for the same period
last year.
Net interest income. Net interest income after provision for loan losses for the
quarter ended March 31, 2001 was $2,413,094 compared to $2,755,335 for the
quarter ended March 31, 2000, a decrease of $342,241 or 12.4%.
Net interest income after provision for loan losses for the six-month period
ended March 31, 2001 was $4,568,576 compared to $5,640,045 for the six-month
period ended March 31, 2000, a decrease of $1,071,469 or 19.0%.
The table below analyzes net interest income by component and in terms of
changes in the volume of interest-earning assets and interest-bearing
liabilities and the changes in the related yields and rates for the six-month
periods ended March 31, 2001 and 2000.
Rate/Volume Analysis (in thousands)
2001 vs. 2000
-------------------
Increase/(Decrease)
Due to
-------------------
Total
Rate/ Increase
Volume Rate Volume (Decrease)
------------------- ------------- ------------- ---------------
Interest income:
Loan Receivable 1,125 540 (819) 846
Investment securities (4,150) (919) 2,675 (2,394)
------ ------ ----- ------
Total interest earning assets (3,025) (379) 1,856 (1,548)
Interest expense:
Deposits 718 1,291 (958) 1,051
Borrowed funds (3,346) 248 1,509 (1,589)
------ ------ ----- ------
Total interest bearing liabilities (2,628) 1,539 551 (538)
------ ------ ----- ------
Net change in net interest income (397) (1,918) 1,305 (1,010)
====== ====== ===== ======
10
Non-Interest income. Non-interest income increased to $1,060,664 for the
three-month period ended March 31, 2001 compared to $629,685 for the quarter
ended March 31, 2000, an increase of $430,979 or 68.4%. The increase in
non-interest income was primarily due to an increase in fees and service charges
resulting from the Company's checking account marketing program and an increase
in gain on trading securities.
Non-interest income increased to $1,734,737 for the six-month period ended
March 31, 2001 compared to $1,461,722 for the six-month period ended March 31,
2000, an increase of $273,015 or 18.7%. The increase in non-interest income for
the six-month period ended March 31, 2001 was primarily the result of an
increase in fees and service charges resulting from an aggressive checking
account marketing program and an increase in gain on trading securities.
Operating expense. Total operating expenses were $2,095,647 for quarter ended
March 31, 2001 compared to $2,177,425 for the quarter ended March 31, 2000, a
decrease of $81,778 or 3.8%.
Total operating expenses decreased to $4,082,182 for the six month period ended
March 31, 2001 compared to $4,279,915 for the six-month period ended March 31,
2000, a decrease of $197,733 or 4.6%.
Non-performing Loans and Loan Loss Provisions
The allowance for loan losses is established through a provision for loan losses
based on management's quarterly asset classification review and evaluation of
the risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which includes a review of all loans of
which full collection may not be reasonably assured, considers among other
matters, the estimated value of collateral, cash flow analysis, historical loan
loss experience, and other factors that warrant recognition in providing
adequate allowances. No provision for loan losses was made during the three or
six month periods ended March 31, 2001 and 2000. Management believes that the
current allowance for loan loss is adequate to absorb possible loan losses in
the existing portfolio. However, future reviews may require additional
provisions.
The following table sets forth information regarding loans delinquent for
90 days or more and real estate owned by the Company on the dates indicated.
March 31, 2001 September 30, 2000
------------------ -------------------
(Dollars in Thousands)
Delinquent loans:
Single family mortgage $ 1,648 $ 1,477
Other mortgage loans 237 485
Other loans 138 54
------------------ -------------------
Total delinquent loans 2,023 2,016
Total real estate owned (1) 430 646
------------------ -------------------
Total non-performing assets $ 2,453 $ 2,662
================== ===================
Total loans delinquent 90 days or more to net
loans receivable 0.87 % 0.86 %
Total loans delinquent 90 days or more to total assets 0.52 % 0.50 %
Total nonperforming loans and REO to total assets 0.63 % 0.66 %
(1) Net of valuation allowances
11
It is the policy of the Company to place loans 90 days or more past due on a
non-accrual status by establishing a specific interest reserve that provides for
a corresponding reduction in interest income. Delinquent loans 90 days or more
past due increased $7,000 or 0.3% between September 30, 2000 and March 31, 2001.
Loan delinquency and losses on loans and REO are closely connected to the local
economy. The Company operates in rural areas and in many of its locations the
local markets are tied to one or two significant employers. Should the economy
deteriorate to a point that those employers begin reducing their work force, it
could have a material negative impact on the Company.
Liquidity and Capital Resources
Regulatory liquidity is defined as a percentage of the institution's average
daily balance of net withdrawable deposits and current borrowings, invested with
final maturities no long than five years. The Office of Thrift Supervision
requires 1.0% total liquidity. The Bank met all liquidity requirements during
the six months ended March 31, 2001.
At March 31, 2001, the Company had various commitments arising in the normal
course of business. Such commitments were not material and are not expected to
have a material adverse impact on the operations of the Company.
At March 31, 2001, the Bank's capital to assets ratio exceeded all regulatory
requirements.
Required
To Be Categorized As
Required Well Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2001:
Tangible capital to tangible assets $ 36,923 9.63 % $ 5,750 1.50 % N/A N/A
Core capital to adjusted tangible assets 36,923 9.63 15,333 4.00 $ 19,166 5.00
Total capital to risk weighted assets 38,525 17.87 17,246 8.00 21,558 10.00
Tier I capital to risk weighted assets 36,923 17.13 8,623 4.00 12,935 6.00
As of September 30, 2000:
Tangible capital to tangible assets $ 35,423 8.92 % $ 5,955 1.50 % N/A N/A
Core capital to adjusted tangible assets 35,423 8.92 15,880 4.00 $ 19,850 5.00
Total capital to risk weighted assets 37,050 17.66 16,784 8.00 20,968 10.00
Tier I capital to risk weighted assets 35,423 16.88 8,392 4.00 12,581 6.00
12
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. It is the objective of the Company to minimize, to the degree
prudently possible, its exposure to interest rate risk, while maintaining an
acceptable interest rate spread. Interest rate spread is the difference between
the Company's yield on its interest-earning assets and its cost of interest-
bearing liabilities. Interest rate risk is generally understood to be the
sensitivity of the Company's earnings, net asset values, and stockholders'
equity to changes in market interest rates.
Changes in interest rates affect the Company's earnings. The effect on earnings
of changes in interest rates generally depends on how quickly the Company's
yield on interest-earnings assets and cost of interest-bearing liabilities react
to the changes in market rates of interest. If the Company's cost of deposit
accounts reacts more quickly to changes in market interest rates than the yield
on the Company's mortgage loans and other interest-earnings assets, then an
increasing interest rate environment is likely to adversely affect the Company's
earnings and a decreasing interest rate environment is likely to favorably
affect the Company's earnings. On the other hand, if the Company's yield on its
mortgage loans and other interest-earnings assets reacts more quickly to changes
in market interest rates than the Company's cost of deposit accounts, then an
increasing rate environment is likely to favorably affect the Company's earnings
and a decreasing interest rate environment is likely to adversely affect the
Company's earnings.
Net Portfolio Value. The value of the Company's loan and investment portfolio
will change as interest rates change. Rising interest rates will generally
decrease the Company's net portfolio value ("NPV"), while falling interest rates
will generally increase the value of that portfolio. The following table sets
forth, quantitatively, as of December 31 2000, the OTS estimate of the projected
changes in NPV in the event of a 100, 200, and 300 basis point instantaneous and
permanent increase and decrease in market interest rates:
Changes in Change in NPV
Interest Rates as a Percentage of
in Basis Points Net Portfolio Value Estimated Market
-----------------------------------------------
(Rate Shock) Amount $ Change % Change Ratio Value of Assets
- ------------------ ------------ --------------- -------------- --------------- ----------------------
+300 bp $13,706 $(22,389) -62% 3.87% (-562) bp
+200 bp 22,064 (14,032) -39% 6.07% (-342) bp
+100 bp 28,726 (7,369) -20% 7.73% (-176) bp
0 bp 36,096 9.49%
- -100 bp 40,542 4,446 12% 10.49% 101 bp
- -200 bp 43,628 7,532 21% 11.16% 167 bp
- -300 bp 47,724 11,629 32% 12.03% 254 bp
Computations of prospective effects of hypothetical interest rate changes are
calculated by the OTS from data provided by the Company and are based on
numerous assumptions, including relative levels of market interest rates, loan
repayments and deposit runoffs, and should not be relied upon as indicative of
actual results. Further, the computations do not contemplate any actions the
Company may undertake in response to changes in interest rates.
13
Management cannot predict future interest rates or their effect on the Company's
NPV in the future. Certain shortcomings are inherent in the method of analysis
presented in the computation of NPV. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in differing degrees to changes in market interest rates. Additionally, certain
assets, such as adjustable rate loans, which represent the Company's primary
loan product, have features that restrict changes in interest rates during the
initial term and over the remaining life of the asset. In addition, the
proportion of adjustable rate loans in the Company's portfolio could decrease in
future periods due to refinancing activity if market rates decrease. Further,
in the event of a change in interest rates, prepayment and early withdrawal
levels could deviate significantly from those assumed in the table. Finally,
the ability of many borrowers to service their adjustable-rate debt may decrease
in the event of an interest rate increase.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the Pocahontas Bancorp, Inc. or
the Bank is a party or to which any of their property is subject. From time-to-
time, the Bank is a party to various legal proceedings incident to its business.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
Election of Directors: For % Withheld %
Skip Martin 4,070,544 95.7 181,396 4.3
Charles R. Ervin 4,077,519 95.9 174,421 4.1
Dwayne Powell 4,079,519 96.0 172,421 4.0
The ratification of Auditors was approved by vote of 4,239,809 in favor, 3,236
against, and 8,895 abstentions.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
14
SIGNATURES
----------
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: 5-15-01 /s/ James Edington
--------------------- -------------------------------------
James Edington
President and Chief Executive Officer
Date: 5-15-01 /s/ Dwayne Powell
--------------------- -------------------------------------
Dwayne Powell
Chief Financial Officer
Date: 5-15-01 /s/ Terry Prichard
--------------------- -------------------------------------
Terry Prichard
Controller
15