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, 2002
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
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1700 E. Highland (870) 802-1700
Jonesboro, Arkansas 72401
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 4,454,280 shares of Common Stock ($0.01 par value) issued and
outstanding as of March 31, 2002.
POCAHONTAS BANCORP, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of
Financial Condition at March 31, 2002
(unaudited) and September 30, 2001 1
Condensed Consolidated Statements of Income
and Comprehensive Income for the Three and
Six Months Ended March 31, 2002 and 2001 (unaudited) 2
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
March 31, 2002 and 2001 (unaudited) 3
Notes to Condensed Consolidated Financial
Statements (unaudited) 4
Independent Accountants' Report 7
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations 8
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
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(Unaudited)
March 31, 2002 September 30, 2001
-------------- ------------------
ASSETS
Cash $ 14,756,398 $ 11,145,799
Cash surrender value of life insurance 6,691,200 6,589,293
Investment securities - trading 3,128,697 3,175,274
Investment securities - held to maturity 9,200,925 11,500,879
Investment securities - available for sale 125,502,767 64,974,115
Loans receivable, net 321,090,366 349,376,099
Accrued interest receivable 3,799,161 4,860,860
Premises and equipment, net 12,942,106 12,274,154
Federal Home Loan Bank Stock, at cost 2,552,400 3,786,500
Goodwill 8,901,074 7,665,461
Core deposit premium 5,878,885 6,257,469
Other assets 1,727,066 1,959,575
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TOTAL ASSETS $516,171,045 $483,565,478
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $396,125,280 $348,540,922
Federal Home Loan Bank advances 50,486,182 73,315,804
Securities sold under agreements to repurchase - 350,000
Deferred compensation 4,072,555 5,138,759
Accrued expenses and other liabilities 4,185,380 4,400,383
------------ ------------
Total liabilities 454,869,397 431,745,868
TRUST PREFERRED SECURITIES 16,890,000 7,231,058
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 8,000,000 shares authorized;
6,969,688 and 6,969,688 shares issued and 4,468,680 and
4,456,280 shares outstanding at September 30, 2001 and
March 31, 2002, respectively 69,696 69,696
Additional paid-in capital 51,201,140 51,201,140
Unearned ESOP Shares (1,441,804) (1,441,804)
Unearned RRP Shares (75,743) (116,237)
Accumulated other comprehesive income (loss) (116,944) 1,222,042
Retained earnings 14,583,507 13,337,606
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64,219,852 64,272,443
Treasury stock at cost, 2,513,408 and 2,501,008
shares, respectively (19,808,204) (19,683,891)
------------ ------------
Total stockholders' equity 44,411,648 44,588,552
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $516,171,045 $483,565,478
============ ============
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 Six Months Ended
March 31, March 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
INTEREST INCOME:
Loans receivable $ 6,009,125 $ 4,730,776 $ 12,751,201 $ 9,456,755
Investment securities 1,770,977 2,141,657 3,047,827 4,472,062
------------ ------------ ------------ ------------
Total interest income 7,780,102 6,872,433 15,799,028 13,928,817
INTEREST EXPENSE:
Deposits 3,198,800 2,945,528 6,543,306 5,982,793
Borrowed funds 767,474 1,513,811 1,606,396 3,377,448
------------ ------------ ------------ ------------
Total interest expense 3,966,275 4,459,339 8,149,702 9,360,241
NET INTEREST INCOME 3,813,827 2,413,094 7,649,326 4,568,576
PROVISION FOR LOAN LOSSES 100,000 -- 200,000 --
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,713,827 2,413,094 7,449,326 4,568,576
OTHER INCOME:
Dividends 27,619 72,935 70,285 172,218
Fees and service charges 965,482 436,920 1,928,977 833,913
Trading gains, net 23,899 438,038 43,834 493,235
Other 241,556 112,770 374,541 235,371
------------ ------------ ------------ ------------
Total other income 1,258,556 1,060,664 2,417,637 1,734,737
------------ ------------ ------------ ------------
OPERATING EXPENSE:
Compensation and benefits 1,933,527 1,143,931 3,854,024 2,269,658
Occupancy and equipment 563,907 229,140 1,123,394 472,562
Deposit insurance premium 15,812 11,495 27,067 22,985
Professional fees 150,965 86,962 267,442 182,141
Data processing 151,188 120,601 288,728 208,282
Advertising 167,805 97,005 297,827 172,000
OTS assessment 26,182 21,647 40,305 44,401
Other 670,766 384,866 1,129,153 710,154
------------ ------------ ------------ ------------
Total operating expense 3,680,152 2,095,647 7,027,940 4,082,182
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,292,232 1,378,111 2,839,023 2,221,130
INCOME TAXES 438,857 550,000 967,857 740,000
------------ ------------ ------------ ------------
NET INCOME 853,375 828,111 1,871,166 1,481,130
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Unrealized holding gain (loss) on available-
-for-sale securities arising during period (912,284) 1,024,748 (1,293,466) 2,033,028
Reclassification adjustment for gains included
in net income (712) 1,267 (45,519) (36,502)
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (58,909) $ 1,852,859 $ 577,700 $ 3,514,158
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ 0.19 $ 0.19 $ 0.43 $ 0.35
============ ============ ============ ============
DILUTED EARNINGS PER SHARE $ 0.19 $ 0.19 $ 0.43 $ 0.35
============ ============ ============ ============
See notes to condensed consolidated financial statements.
2
POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Six months ended
March 31,
----------------------------
2002 2001
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OPERATING ACTIVITIES:
Net income $ 1,871,166 $ 1,481,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 200,000 --
Depreciation of premises and equipment 466,865 224,034
Amortization of core deposit premium 378,584 143,029
Amortization of deferred loan fees (63,730) (27,535)
Amortization of premiums and discounts, net 2,914 (199,061)
Net (gain) loss on sales of assets (135,778) 34,252
Increase in cash surrender value of life insurance policies (101,907) (96,744)
Change in operating assets and liabilities:
Trading securities 46,577 (386,953)
Accrued interest receivable 1,061,699 100,785
Other assets (479,291) 900,869
Deferred compensation (1,066,204) (67,705)
Accrued expenses and other liabilities (215,003) 639,608
------------ ------------
Net cash provided by operating activities 1,965,892 2,745,709
------------ ------------
INVESTING ACTIVITIES:
Acquisition of Southern Mortgage Corp, net of cash acquired (849,049) --
Adjustments to acquisition of Walden/Smith Financial Group, Inc. (426,307) --
Loan repayments, originations, and purchases, net 17,950,855 986,658
Proceeds from sale of loans 10,288,866 --
Proceeds from sale of FHLB Stock 1,234,100 855,700
Purchase of investment securities (81,699,051) (1,898,050)
Proceeds from sale of REO 711,800 151,849
Proceeds from sale of Fixed Assets 11,982 --
Proceeds from maturities and principal repayments of securities 22,179,165 16,497,208
Purchases of premises and equipment (1,107,057) (74,589)
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Net cash provided (used) by investing activities (31,704,696) 16,518,776
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FINANCING ACTIVITIES:
Net increase (decrease) in deposits 47,584,358 (2,694,504)
Proceeds of repurchase agreements, net (350,000) 435,000
Net decrease in FHLB advances (22,829,622) (19,865,000)
Proceeds from issuance of Trust Preferred Securities 9,653,750 7,226,500
Repurchase of Common Stock (124,313) --
Issuance of RRPs -- 75,259
Proceeds from exercise of stock options 40,495 35,589
Dividends paid (625,265) (579,999)
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Net cash provided (used) by financing activities 33,349,403 (15,367,155)
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NET INCREASE IN CASH 3,610,599 3,897,330
CASH AT BEGINNING OF PERIOD 11,145,799 12,941,447
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CASH AT END OF PERIOD $ 14,756,398 $ 16,838,777
============ ============
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 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, 2002, 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,
2001. 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. 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, 2002 March 31, 2001 March 31, 2002 March 31, 2001
-------------- -------------- -------------- --------------
Total basic shares outstanding 4,379,408 4,298,362 4,381,474 4,291,359
Add dilutive effect of unexercised options 27,475 0 13,738 0
---------- --------- --------- ---------
Total weighted average shares outstanding
for dilutive earnings-per-share
calculation 4,406,883 4,298,362 4,395,212 4,291,359
========== ========= ========= =========
3. DECLARATION OF DIVIDENDS
On February 14, 2002, the Board of Directors declared a $.07 per share
quarterly dividend for holders of record March 15, 2002.
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, 2002, would have been as follows:
Three-Months Ended Six-Months Ended
March 31, March 31,
------------------ ------------------
2002 2001 2002 2001
----- ----- ------- -------
Net income (in thousands):
As reported $ 853 $ 828 $ 1,871 $ 1,481
Pro forma $ 829 $ 804 $ 1,823 $ 1,433
Earnings per share:
Basic - as reported $0.19 $0.19 $ 0.43 $ 0.35
Basic - pro forma $0.19 $0.19 $ 0.43 $ 0.35
Diluted - as reported $0.19 $0.19 $ 0.43 $ 0.35
Diluted - pro forma $0.19 $0.19 $ 0.43 $ 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 December 8, 2001, the Company issued $10.0 million of trust preferred
securities with a floating coupon rate, which is reset semi-annually,
equal to the six-month LIBOR plus 3.75%. The floating rate may not exceed
11.0% until December 8, 2006. The securities were sold pursuant to an
exemption from registration under the Securities Act of 1933 (the "Act"),
and have not been registered under the Act. The proceeds, net of issuance
costs, to the Company were approximately $9.65
5
million. The Company plans to use the 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.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill
and Other Intangible Assets. The statement will require discontinuing
the amortization of goodwill and other intangible assets with indefinite
useful lives. Instead, these assets will be tested periodically for
impairment and written down to their fair value as necessary. The
Company adopted the provisions of this statement on October 1, 2001. The
Company has completed a transitional impairment review to identify if
there is an impairment to the goodwill or intangible assets of
indefinite life using fair value methodology which differs from an
undiscounted cash flow methodology which continues to be used for
intangible assets with an identifiable life. There was no impairment
loss resulting from the transitional impairment test. Any subsequent
impairment losses will be reflected in operating income in the income
statement. Annual amortization expense would have been approximately
$383,000 for the year ending September 30, 2002. There was no goodwill
amortization expense during the three and six months ended March 31,
2001.
7. ACQUISITION
On January 16, 2002 the Company entered into an agreement with Spring
Rivers Bancshares, Inc. to acquire Peoples Bank of Imboden in a cash
merger valued at approximately $8.0 million. The Board of Directors of
each institution has unanimously approved the transaction. Due diligence
has been completed. The transaction has been approved by regulatory
authorities and is expected to close in May 2002. Peoples Bank is
headquartered in Imboden, Arkansas and operates four full-service banking
offices. At September 30, 2001, Peoples Bank had total assets of $64.2
million, total deposits of $58.7 million and stockholders' equity of $5.1
million.
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
March 31, 2002, and the related condensed consolidated statements of income and
comprehensive income for the three-month and six-month periods ended March 31,
2002 and 2001, and of cash flows for the six-month periods ended March 31, 2002
and 2001. 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, 2001, 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 9, 2001, 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, 2001, 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 LLP
Little Rock, Arkansas
May 3, 2002
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 March 31, 2002, as compared to September 30, 2001.
General. The Company's total assets increased $32.6 million or 6.74% to $516.2
million at March 31, 2002, as compared to $483.6 million at September 30, 2001.
Loans receivable, net. Net loans receivable decreased by $28.3 million or 8.1%
to $321.1 million at March 31, 2002, from $349.4 million at September 30, 2001.
The decrease was partially due to the sale of $10.3 million of loans during the
six-month period ended March 31, 2002. The decrease was also attributed to
management's determination to maintain high underwriting standards in the face
of a generally weakening local economy, which resulted in lower origination of
new loans during the six-months ended March 31, 2002.
Investment securities held to maturity. Investment securities held to maturity
decreased $2.3 million, or 2.0% to $9.2 million at March 31, 2002, from $11.5
million at September 30, 2002. The decrease in the Company's held to maturity
investment portfolio was due to the maturity of securities.
Investment securities available for sale. Investment securities available for
sale increased $60.5 million, or 93.1%, to $125.5 million at March 31, 2002,
from $65.0 million at September 30, 2001. This net change was primarily due to
the purchase of $81.7 million of securities and the call and maturity of $22.2
million of investment securities during the six-month period ended March 31,
2002.
Investment securities trading. Investment securities trading decreased to $3.1
million, or 3.1% at March 31, 2002, from $3.2 million at September 30, 2001
primarily due to decrease in the market value of trading securities.
Other assets. Other assets decreased to $1.7 million, or 15.0% at March 31,
2002, from $2.0 million at September 30, 2001. The net change was primarily due
to the sale of $711,800 of REO and an increase in prepaid items of $479,291
during the six months ended March 31, 2002.
Deposits. Deposits increased $47.6 million or 13.7% to $396.1 million at March
31, 2002, from $348.5 million at September 30, 2001, primarily due to core
deposit growth in the Bank's market area.
Deferred compensation. Deferred compensation decreased $1.0 million or 21.6% to
$4.1 million at March 31, 2002 from $5.1 million at September 30, 2001. The
decrease was due to annual payments made
8
to retired directors and payments made to fulfill retirement and severance
agreements associated with the move of the corporate headquarters to Jonesboro.
Accrued expenses and other liabilities. Accrued expenses and other liabilities
decreased $0.2 million, or 4.5%, to $4.2 million at March 31, 2002, from $4.4
million at September 30, 2001.
Federal Home Loan Bank advances. FHLB advances decreased $22.8 million or 31.1%
to $50.5 million at March 31, 2002, from $73.3 million at September 30, 2001.
This decrease was due to the use of proceeds from the increase in certificate of
deposit accounts to repay FHLB advances.
Stockholders' equity. Stockholders' equity decreased $0.2 million or 0.4% to
$44.4 million at March 31, 2002, from $44.6 million at September 30, 2001. The
change in stockholders' equity was primarily due to net income of $1,871,166
which was partially offset by dividends of $0.6 million and a decrease in the
unrealized gain on available for sale securities of $1.3 million, net of the
income tax effect.
Comparison of Results of Operations for the Three and Six Months Ended March 31,
2002 and 2001.
Overview. Net Income was $853,375 for the quarter ended March 31, 2002, compared
to $828,111, for the quarter ended March 31, 2001, an increase of $25,264 or
3.1%. Basic and diluted earnings per share were $0.19 compared to basic and
diluted earning per share of $0.19 for the same period last year.
Net income for the six month period ended March 31, 2002 was $1,871,166 compared
to $1,481,130, for the same period ended March 31, 2001, an increase of $390,036
or 26.3%. Basic and diluted earnings per share for the six-month period were
$0.43 compared to basic and diluted earning per share of $0.35 the same period
last year.
Net interest income. Net interest income after provision for loan losses for the
quarter ended March 31, 2002 was $3,713,827 compared to $2,413,094 for the
quarter ended March 31, 2001, an increase of $1,300,733 or 54.0%. Net interest
income after provision for loan losses for the six-month period ended March 31,
2002 was $7,449,326 compared to $4,568,576 for the six-month period ended March
31, 2001, an increase of $2,880,750 or 63.1%. The increase in net interest
income was due to the average rates on interest-bearing liabilities decreasing
faster than the average rates on interest-bearing assets. Also, the acquisition
of First Community Bank in May 2001 resulted in an increase in the volume of
interest earning assets and interest bearing liabilities.
9
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-months
period ended March 31, 2002 compared to the six months ended March 31, 2001.
Rate/Volume Analysis (in thousands)
Six-Month Periods Ended March 31, 2002 vs. 2001
Increase/(Decrease)
Due to
Total
Rate/ Increase
Volume Rate Volume (Decrease)
------- ------- -------- -------
Interest income:
Loan Receivable $ 6,476 $ 92 $ (3,274) $ 3,294
Investment securities (2,433) (575) 1,584 (1,424)
------- ------- -------- -------
Total interest earning assets 4,043 (483) (1,690) 1,870
Interest expense:
Deposits 1,699 (1,567) 428 560
Borrowed funds (3,585) (2,533) 4,347 (1,771)
------- ------- -------- -------
Total interest bearing
liabilities (1,886) (4,100) 4,775 (1,211)
------- ------- -------- -------
Net change in net interest
income $ 5,929 $ 3,617 $ (6,465) 3,081
======= ======= ========
Provision for Loan Losses 200
-------
Net change after provision $ 2,881
=======
Non-Interest income. Non-interest income increased to $1,258,556 for the
three-month period ended March 31, 2002 compared to $1,060,664 for the quarter
ended March 31, 2001, an increase of $197,892 or 18.7%. The increase in
non-interest income were primarily due to an increase in fees and service
charges resulting from the Company's checking account marketing program, which
was partially off-set by a decline in trading gains.
Non-interest income increased to $2,417,637 for the six-month period ended March
31, 2002 compared to $1,734,737 for the six-month period ended March 31, 2001,
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 a checking account marketing program,
which was partially off-set by a decline in trading gains.
Operating expense. Total operating expenses were $3,680,152 for quarter ended
March 31, 2002 compared to $2,095,647 for the quarter ended March 31, 2001, an
increase of 1,584,505 or 75.6%. The increase is primarily due to an increase in
compensation and occupancy expenses resulting from the acquisition of First
Community Bank in May 2001.
Total operating expenses increased to $7,027,940 for the six month period ended
March 31, 2001 compared to $4,082,182 for the six month period ended March 31,
2001, an increase of $2,945,758 or 72.2%. The increase is primarily due to an
increase in compensation and occupancy expenses resulting from the acquisition
of First Community Bank in May 2001.
10
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 on
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. A provision of $100,000 was made during the three month
period ended December 31, 2001 and a provision of $100,000 was made during the
three month period ended March 31, 2002 and no provision for loan losses was
made during the same periods last year. Management believes that the allowance
for loan losses is appropriate based on estimated losses.
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.
March 31, 2002 September 30, 2001
-------------- ------------------
(Dollars in Thousands)
Delinquent loans:
Single family mortgage $ 2,811 $ 1,883
Other mortgage loans 2,576 2,988
Other loans 1,612 1,454
---------- ----------
Total delinquent loans 6,999 6,325
Total real estate owned (1) 963 1,342
---------- ----------
Total non-performing assets $ 7,962 $ 7,667
========== ==========
Total loans delinquent 90 days or more to net
loans receivable 2.18% 1.81%
Total loans delinquent 90 days or more to total assets 1.36% 1.31%
Total nonperforming loans and REO to total assets 1.55% 1.59%
(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 $0.3 million or 3.8% between September 30, 2001 and March 31,
2002.
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.
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 longer than five years. The Office of Thrift
11
Supervision requires 1.0% total liquidity. The Bank met all liquidity
requirements during the six months ended March 31, 2002.
At March 31, 2002, 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, 2002, the Bank's capital to assets ratio exceeded all regulatory
requirements.
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 September 30, 2001, 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 $ 48,971 $ (16,272) -24.9% 10.27% (2.81) bp
+200 bp 54,914 (10,330) -15.8% 11.33% (1.75) bp
+100 bp 60,594 (4,649) -7.1% 12.31% (1.93) bp
0 bp 65,243 - 0.0% 13.08% -
-100 bp 68,501 3,257 5.0% 13.58% 0.50 bp
-200 bp 71,350 6,107 9.0% 14.00% 0.93 bp
-300 bp - - 0.0% 0.00 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
13
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 %
A.J. Baltz 3,744,130 95.9% 158,802 4.1%
Robert Rainwater 3,763,599 96.4% 139,333 3.6%
James A. Edington 3,744,461 95.9% 158,471 4.1%
The ratification of Auditors was approved by vote of 3,758,247 in favor, 5,524
against, and 139,161 abstentions.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
On January 23, 2002, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K. The report disclosed in Item 5 "Other
Events" that the Company had entered into a Stock Purchase Agreement with Spring
Rivers Bancshares, Inc. and its Arkansas bank subsidiary, Peoples Bank of
Imboden. No financial statements were required to be filed with this report. The
Agreement dated January 16, 2002, was filed as an exhibit to the report.
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: 05/14/02 /s/ Dwayne Powell
--------------------------- -------------------------------------
Dwayne Powell
President and Chief Executive Officer
Date: 05/14/02 /s/ Terry Prichard
--------------------------- -------------------------------------
Terry Prichard
SVP/Controller
15