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 June 30, 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 ($0.01 par value) issued and
outstanding as of June 30, 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 June 30, 2001
(unaudited) and September 30, 2000 1
Condensed Consolidated Statements of Income and Comprehensive Income
for the Three and Nine Months Ended June 30, 2001 and 2000 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 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)
June 30, 2001 September 30, 2000
ASSETS
Cash $ 15,333,445 $ 12,941,447
Cash surrender value of life insurance 6,692,855 6,158,076
Investment securities - trading 2,674,031 1,126,712
Investment securities - held to maturity 13,509,729 9,465,856
Investment securities - available for sale 68,667,516 118,024,962
Loans receivable, net 343,778,963 234,416,895
Accrued interest receivable 4,511,121 3,251,939
Premises and equipment, net 10,932,091 3,779,850
Federal Home Loan Bank Stock, at cost 3,034,700 5,988,200
Goodwill 10,428,894 -
Core deposit premium 4,371,588 2,154,131
Other assets 4,742,040 3,796,455
--------------- ---------------
TOTAL ASSETS $ 488,676,973 $ 401,104,523
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 369,302,085 $ 234,971,507
Federal Home Loan Bank advances 58,557,101 117,990,000
Securities sold under agreements to repurchase 1,505,000 1,375,000
Deferred compensation 5,293,060 3,238,092
Accrued expenses and other liabilities 3,960,330 2,151,594
--------------- ---------------
Total liabilities 438,617,576 359,726,193
TRUST PREFERRED SECURITIES 7,226,500 -
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 (153,836) (277,660)
Accumulated other comprehesive income (loss) 554,088 (1,094,470)
--------------- ---------------
Retained earnings 12,736,221 13,089,624
--------------- ---------------
62,516,788 61,062,221
Treasury stock (19,683,891) (19,683,891)
--------------- ---------------
Total stockholders' equity 42,832,897 41,378,330
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 488,676,973 $ 401,104,523
=============== ===============
See notes to condensed consolidated financial statements.
1
POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
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Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
INTEREST INCOME:
Loans receivable $ 5,633,803 4,387,132 $ 15,090,557 $ 12,996,869
Investment securities 1,801,118 3,027,907 6,273,180 9,893,549
----------- ----------- ------------ ------------
Total interest income 7,434,921 7,415,039 21,363,737 22,890,418
INTEREST EXPENSE:
Deposits 3,486,078 2,696,717 9,468,871 7,565,869
Borrowed funds 1,285,971 2,284,200 4,663,420 7,250,382
----------- ----------- ------------ ------------
Total interest expense 4,772,049 4,980,917 14,132,291 14,816,251
NET INTEREST INCOME 2,662,872 2,434,122 7,231,446 8,074,167
PROVISION FOR LOAN LOSSES 23,567 - 23,567 -
----------- ----------- ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,639,305 2,434,122 7,207,879 8,074,167
OTHER INCOME:
Dividends 35,372 258,221 207,591 555,011
Fees and service charges 572,098 393,494 1,406,011 1,164,308
Trading gains (losses), net (192,162) (16,669) 301,073 (12,323)
Gain on sale of investment securities 771,505 183,255 771,505 449,947
Other (14,867) 60,426 220,504 183,505
----------- ----------- ------------ ------------
Total other income 1,171,946 878,727 2,906,684 2,340,448
----------- ----------- ------------ ------------
OPERATING EXPENSE:
Compensation and benefits 4,252,731 1,173,061 6,522,388 3,454,847
Occupancy and equipment 310,848 249,998 783,410 733,858
Deposit insurance premium 19,233 11,413 42,218 52,792
Professional fees 74,344 91,154 256,485 285,478
Data processing 115,316 107,656 323,599 301,486
Advertising 117,121 134,546 289,121 460,523
OTS assessment 21,647 24,291 66,048 69,914
Other 337,351 333,420 1,047,505 1,046,554
----------- ----------- ------------ ------------
Total operating expense 5,248,591 2,125,539 9,330,773 6,405,452
----------- ----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,437,340) 1,187,310 783,790 4,009,163
INCOME TAXES (473,273) 441,193 266,727 1,414,605
----------- ----------- ------------ ------------
NET INCOME (LOSS) (964,067) 746,117 517,063 2,594,558
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Unrealized holding gain (loss) on available
for sale securities arising during period (311,466) (1,371,104) 1,648,558 (3,420,666)
----------- ----------- ------------ ------------
COMPREHENSIVE INCOME (LOSS) $(1,275,533) (624,987) 2,165,621 (826,108)
=========== =========== ============ ============
BASIS EARNINGS (LOSS) PER SHARE $ (0.22) $ 0.14 $ 0.12 $ 0.49
=========== =========== ============ ============
DILUTED EARNINGS (LOSS) PER SHARE $ (0.22) $ 0.14 $ 0.12 $ 0.49
=========== =========== ============ ============
See notes to condensed consolidated financial statements.
2
POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine months ended
June 30,
2001 2000
OPERATING ACTIVITIES:
Net income $ 517,063 $ 2,594,558
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation of premises and equipment 224,034 358,352
Amortization of deferred loan fees (53,106) (49,612)
Amortization of premiums and discounts, net (379,256) (169,643)
Net (gain) loss on sales of assets (771,505) (475,697)
Increase in cash surrender value of life insurance policies (297,050) (145,116)
Change in operating assets and liabilities:
Trading securities (1,547,319) 749,283
Accrued interest receivable 749,463 398,735
Other assets (1,352,755) (2,418,923)
Deferred compensation 2,054,968 (128,452)
Other liabilities 342,653 (1,359,912)
----------- -----------
Net cash used by operating activities (512,810) (646,427)
----------- -----------
INVESTING ACTIVITIES:
Acquisition of First Community Bank, net of cash acquired
of $12,035,545 (15,385,654) -
Loan repayments, originations, and purchases, net 4,762,165 (9,867,278)
Proceeds from sale of FHLB Stock 3,811,100 5,564,800
Purchase of investment securities (4,298,050) (4,000,000)
Proceeds from sale of REO 193,849 448,757
Proceeds from maturities and principal repayments of investment securities 65,878,912 102,763,042
Proceeds from sale of loans 16,748,923 -
Purchases of premises and equipment (389,481) (139,361)
----------- ------------
Net cash provided by investing activities 71,321,764 94,769,960
----------- ------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (12,191,838) 18,301,472
Proceeds of repurchase agreements, net 130,000 225,000
Net decrease in FHLB advances (62,870,566) (49,085,000)
Proceeds from issuance of Trust Preferred Securities 7,226,500 -
Purchase of treasury stock - (47,004)
Issuance of recognition and retention plan shares 277,661 123,408
Proceeds from exercise of stock options (118,248) 21,253
Dividends paid (870,465) (661,988)
----------- ------------
Net cash used by financing activities (68,416,956) (31,122,859)
------------ ------------
NET INCREASE IN CASH 2,391,998 63,000,674
CASH AT BEGINNING OF PERIOD 12,941,447 8,622,050
------------ ------------
CASH AT END OF PERIOD $ 15,333,445 $ 71,622,724
============ ============
See notes to condensed consolidated financial statements.
3
POCAHONTAS BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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 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 nine months
ended June 30, 2001, 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 First Community Bank (the "Bank"), its
wholly owned subsidiary. The intercompany accounts of the Company and the
Bank have been eliminated in consolidation.
2. ACQUISITION
On May 15, 2001, the Company completed its acquisition of Walden / Smith
Financial Group, Inc. ("Walden") and its wholly-owned bank subsidiary,
First Community Bank. As part of the acquisition, Walden's stockholders
received an aggregate of $27.4 million for all of the issued and
outstanding common stock of Walden. The transaction was accounted for
using the purchase method. Goodwill of approximately $10.4 million is
being amortized on a straight-line basis over 20 years.
In connection with the acquisition, the Company's savings bank subsidiary,
Pocahontas Federal Savings and Loan Association, changed its name to First
Community Bank. In addition, the Company will move its corporate
headquarters to Jonesboro, Arkansas within the next several months to
enhance its presence in that market.
The charge-off of excess facilities in the Pocahontas, Arkansas area and
the funding of retirement and severance agreements associated with the
move of the corporate headquarters to Jonesboro, Arkansas resulted in a
restructuring charge of $2.1 million net of taxes, or $0.47 per share
during the quarter ended June 30, 2001. The restructuring charge before
taxes was included in operating expenses in the condensed consolidated
statements of income.
The following unaudited pro forma information is being provided as though
the Company purchased Walden at the beginning of the period being
presented.
4
Pro Forma Information (Unaudited)
---------------------------------
(in thousands, except earnings per share)
Nine Months Ended
June 30,
2001 2000
---- ----
Net interest income $12,216 $9,465
Income before income taxes 2,472 2,611
Net income (loss) 1,694 1,995
Earnings (loss) per share - basic & diluted $ 0.39 $ 0.47
3. 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 Nine Months Ended
---------------------------- ----------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
Total basic shares outstanding 4,298,680 5,251,081 4,293,800 5,284,598
Add dilutive effect of unexercised options 0 6,712 0 6,712
--------- --------- --------- ---------
Total weighted average shares outstanding
for dilutive earnings per share
calculation 4,298,680 5,257,793 4,293,800 5,291,310
========= ========= ========= =========
4. DECLARATION OF DIVIDENDS
On June 12, 2001, the Board of Directors declared a $.065 per share
quarterly dividend for holders of record June 15, 2001.
5. 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
5
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 Nine
months ended June 30, 2001, would have been as follows:
Three Months Nine Months
Ended June 30, 2001 Ended June 30, 2001
------------------------------- -----------------------------
As Reported Pro forma As Reported Pro forma
Net income (loss) in thousands $ (964) $ (988) $ 517 $ 445
Earnings (loss) per share:
Basic $ (0.22) $ (0.23) $ 0.12 0.10
Diluted $ (0.22) $ (0.23) $ 0.12 0.10
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%.
6. 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 contributed $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 note 2). The Company used the remaining
proceeds for general corporate purposes, including but not limited to
additional business acquisitions, stock repurchases, dividends and
corporate expenses. Under current tax law, the dividend paid on
trust-preferred securities is deductible.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement
No. 141 (SFAS No. 141), "Business Combinations," and Statement No. 142
(SFAS No. 142), "Goodwill and Other Intangible Assets." SFAS 142 includes
requirements to test goodwill and indefinite lived intangible assets for
impairment rather than amortize them. These standards will be adopted by
the Company beginning October 1, 2001. The Company is currently evaluating
the impact that these standards will have on its financial statements.
8. SUBSEQUENT EVENTS
Acquisition - On July 17, 2001 the Company announced that its wholly-owned
subsidiary, First Community Bank, had entered into a definitive Stock
Purchase Agreement to acquire all of the outstanding common stock of
Southern Mortgage Corporation, Tulsa, Oklahoma for $950,000 in cash. The
Board of Directors of First Community Bank approved the acquisition
unanimously. The completion of the acquisition is subject to certain
additional due diligence matters, as well as customary conditions. The
acquisition is expected to be completed in the fourth quarter of fiscal
year 2001.
* * * * * *
6
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 June 30, 2001, and the related condensed consolidated
statements of income and comprehensive income for the three-month and
nine-month periods ended June 30, 2001 and 2000, and of cash flows for the
nine-month periods ended June 30, 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.
/s/ Deloitte & Touche
Little Rock, Arkansas
August 9, 2001
7
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 June 30, 2001, as compared to September 30, 2000.
General. The Company's total assets increased $87.6 million or 21.8% to
$488.7 million at June 30, 2001, as compared to $401.1 million at
September 30, 2000. The increase was primarily due to the acquisition of
First Community Bank that included total assets of $152.2 million. The
Bank sold $16.7 million of fixed-rate mortgage loans for which the Bank
retained servicing rights and $44.2 million of available-for-sale
investment securities.
Loans receivable, net. Net loans receivable increased by $109.4 million or
46.7% to $343.8 million at June 30, 2001, from $234.4 million as of
September 30, 2000, primarily due to the acquisition of First Community
Bank that included approximately $133.8 million in loans. The Bank sold
approximately $16.7 million of fixed rate mortgage loans due to
management's expectation of accelerated prepayments and refinances due to
the reduction in interest rates. The Bank retained the servicing rights.
Investment securities held to maturity. Investment securities held to
maturity increased $4.0 million, or 42.1% to $13.5 million at June 30,
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 and the acquisition of First Community
Bank on May 15, 2001.
Investment securities available for sale. Investment securities available
for sale decreased $49.3 million, or 41.8%, to $68.7 million at June 30,
2001, from $118.0 million at September 30, 2000. This net change was
primarily due to the sale of $44.2 million of available-for-sale
investment securities, the call of $9.5 million of investment securities
and the acquisition of First Community Bank that included $13.1 million of
investment securities.
Investment securities trading. Investment securities trading increased to
$2.7 million at June 30, 2001, from $1.1 million at September 30, 2000
primarily due to increase in the market value of trading securities.
Goodwill. On May 15, 2001 the Company purchased First Community Bank
resulting in goodwill of approximately $10.4 million.
Core Deposit Premium. Core deposit premium increased $2.2 million to $4.4
million at June 30, 2001, from $2.2 million at September 30, 2000,
primarily due to the acquisition of First Community Bank on May 15, 2001.
8
Other assets. Other assets increased $946,000, to $4.7 million, or 24.9%
at June 30, 2001, from $3.8 million at September 30, 2000. The increase
was primarily due to a increase in deferred income tax benefits recognized
during the period.
Deposits. Deposits increased $134.3 million or 57.2% to $369.3 million at
June 30, 2001, from $235.0 million at September 30, 2000, primarily due
the acquisition of First Community Bank on May 15, 2001.
Deferred compensation. Deferred compensation increased $2.1 million or
63.3% to $5.3 million at June 30, 2001 from $3.2 million at September 30,
2000. The increase was due to the funding of retirement and severance
agreements associated with the move of the corporate headquarters to
Jonesboro.
Accrued expenses and other liabilities. Accrued expenses and other
liabilities increased $1.8 million, or 81.8%, to $4.0 million at June 30,
2001, from $2.2 million at September 30, 2000. This increase was primarily
due to the adjustment for the tax effect on unrealized gain/loss on
available for sale securities and the acquisition of First Community Bank.
Federal Home Loan Bank advances. FHLB advances decreased $59.4 million or
50.3% to $58.6 million at June 30, 2001, from $118.0 million at September
30, 2000. Proceeds obtained from the sale of $44.2 million of investment
securities available for sale and $16.7 million of loans were used to
repay the advances.
Trust Preferred Securities. Trust preferred securities of $7.5 million
were issued during the three-month period ended March 31, 2001. Net
proceeds to the Company were $7.2 million.
Stockholders' equity. Stockholders' equity increased $1.4 million or 3.4%
to $42.8 million at June 30, 2001, from $41.4 million at September 30,
2000. The change in stockholders' equity was primarily due to net income
of $517,063, dividends of $870,465, and a change in the unrealized gain on
available for sale securities of $1,648,558, net of the income tax effect.
Comparison of Results of Operations for the Three and Nine Months Ended
June, 2001 and 2000.
Overview. Net income was $1,135,933, excluding one-time charges net of
taxes for the quarter ended June 30, 2001, compared to net income of
$746,117, for the quarter ended June 30, 2000, an increase of $389,816 or
52.2%. Basic and diluted earnings per share were $0.26 compared to basic
and diluted earning per share of $0.14, excluding one-time charges net of
taxes, respectively for the same period last year. One-time charges net of
taxes of $2.1 million were related to the charge-off of excess facilities
in the Pocahontas area and funding of retirement and severance agreements
associated with the move of the corporate headquarters to Jonesboro. The
net loss for the quarter ended June 30, 2001 including the one-time
charges net of taxes was $964,067 or $0.22 per share basic and diluted.
Net income for the nine month period ended June 30, 2001 was $2,617,063
compared to $2,594,558, excluding one time charges net of taxes for the
period ended June 30, 2001, an increase of $22,505 or 0.9%. Basic and
diluted earnings per share for the nine-month period were $0.61, excluding
one-time charges net of taxes, compared to basic and diluted earnings per
share of $0.49, for the same period last year. The net income for the
nine-month period ended June 30, 2001 including one-time charges net of
taxes was $517,063 or $0.12 per share basic and diluted.
Net interest income. Net interest income after provision for loan losses
for the quarter ended June 30, 2001 was $2,639,305 compared to $2,434,122
for the quarter ended June 30, 2000, an increase of $205,183 or 8.4%.
9
Net interest income after provision for loan losses for the nine-month
period ended June 30, 2001 was $7,207,879 compared to $8,074,167 for the
nine-month period ended June 30, 2000, a decrease of $866,288 or 10.7%.
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
nine-month periods ended June 30, 2001 and 2000.
Rate/Volume Analysis (in thousands)
Nine-Month Periods Ended June 30, 2001 vs. 2000
Increase/(Decrease)
Due to
------
Total
Rate/ Increase
Volume Rate Volume (Decrease)
------ ---- ------ ----------
Interest income:
Loan Receivable 2,704 66 (676) 2,094
Investment securities (4,940) 182 1,138 (3,620)
------- ------ ----- -------
Total interest earning assets (2,236) 248 462 (1,526)
Interest expense:
Deposits 1,958 479 (534) 1,903
Borrowed funds (4,029) 996 446 (2,587)
------- ------ ------ -------
Total interest bearing liabilities (2,071) 1,475 (88) (684)
Net change in net interest income (166) (1,227) 550 (842)
------- ------ ------ -------
Provision for Loan Losses (24)
Net change in net interest income
after provision for loan losses (866)
-------
Non-Interest income. Non-interest income increased to $1,171,946 for the
three-month period ended June 30, 2001 compared to $878,727 for the
quarter ended June 30, 2000, an increase of $293,219 or 33.3%. The
increase in non-interest income was primarily due to an increase in fees
and service charges and a gain in sale of investment securities.
Non-interest income increased to $2,906,684 for the nine-month period
ended June 30, 2001 compared to $2,340,448 for the nine-month period ended
June 30, 2000, an increase of $566,236 or 24.2%. The increase in
non-interest income for the nine-month period ended June 30, 2001 was
primarily the result of an increase in fees and service charges and gain
on sale of investments.
Operating expense. Total operating expenses were $2,066,773 compared to
$2,125,539, excluding one-time charges before taxes of $3.2 million for
the quarter ended June 30, 2001, a decrease of $58,765 or 2.8%. One-time
charges before taxes of $3.2 million were related to the charge-off of
excess facilities in the Pocahontas area and funding of retirement and
severance agreements associated with the move of the corporate
headquarters to Jonesboro.
Total operating expenses decreased to $6,148,955 compared to $6,405,452,
excluding one-time charges before taxes of $3.2 million, for the
nine-month period ended June 30, 2000, a decrease of $256,497 or 4.0%.
One-time charges before taxes of $3.2 million were related to the
charge-off of excess
10
facilities in the Pocahontas area and funding of retirement and severance
agreements associated with the move of the corporate headquarters to
Jonesboro.
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.
The following table sets forth information regarding loans delinquent for
90 days or more and real estate owned by the Bank on the dates indicated.
June 30, 2001 September 30, 2000
------------- ------------------
(Dollars in Thousands)
Delinquent loans:
Single family mortgage $ 2,339 $ 1,477
Other mortgage loans 1,676 485
Other loans 1,480 54
--------- --------
Total delinquent loans 5,495 2,016
Total real estate owned (1) 1,040 646
--------- --------
Total non-performing assets $ 6,535 2,662
========= ========
Total loans delinquent 90 days or more to net
loans receivable 1.60% 0.86%
Total loans delinquent 90 days or more to total assets 1.12% 0.50%
Total nonperforming loans and REO to total assets 1.34% 0.66%
(1) Net of valuation allowances
It is the policy of the Bank 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 $3,479,000 or 172.6% between
September 30, 2000 and June 30, 2001, primarily due to the increase in
loans receivable from the acquisition of First Community Bank.
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 significantly influenced by one or two
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.
11
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 nine months ended June 30, 2001.
At June 30, 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 June 30, 2001, the Bank's capital to assets ratio exceeded all
regulatory requirements.
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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 September
30, 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 Net Portfolio Value as a Percentage of
in Basis Points ------------------- 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.
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
13
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8-K was filed on May 30, 2001 and amended on
Form 8-K/A on July 30, 2001, to report that the Company has
completed its acquisition of Walden/Smith Financial Group, Inc. and
its wholly-owned subsidiary, First Community Bank.
In connection with the acquisition, the Company's savings bank
subsidiary, Pocahontas Federal Savings and Loan Association, changed
its name to First Community Bank. In addition, the Company will move
its corporate headquarters to Jonesboro, Arkansas within the next
several months to enhance its presence in that market.
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: 8/14/01 /s/ James Edington
--------------------------- -------------------------------------
James Edington
President and Chief Executive Officer
Date: 8/14/01 /s/ Dwayne Powell
--------------------------- -------------------------------------
Dwayne Powell
Chief Financial Officer
Date: 8/14/01 /s/ Terry Prichard
--------------------------- -------------------------------------
Terry Prichard
Controller
15