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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-23969
POCAHONTAS BANCORP, INC.
DELAWARE IRS Employer Identification
No. 71-0806097
Address Telephone Number
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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
--- ---
Yes No X
--- ---
The registrant's Common Stock was issued on March 31, 1998, and commenced
trading on April 1, 1998. There were 6,669,309 shares of Common Stock ($.01 par
value) issued and outstanding as of March 31, 1998.
POCAHONTAS FEDERAL SAVINGS AND LOAN ASSOCIATION
TABLE OF CONTENTS
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Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Statements of Financial Condition at March 31,
1998 and September 30, 1997 1
Condensed Consolidated Statements of Income for the Three and Six Months Ended
March 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 1998 and 1997 3
Notes to Condensed consolidated Financial Statements 4
Independent Accountants' Report 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION 10
Item 1
POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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(Unaudited)
March 31, 1998 September 30, 1997
ASSETS
Cash $ 7,322,966 $ 2,805,273
Cash surrender value of life insurance 5,740,921 5,639,161
Investment securities held to maturity 192,541,903 200,552,569
Loans receivable, net 175,135,493 159,690,201
Accrued interest receivable 2,154,854 2,229,531
Premises and equipment, net 2,767,119 1,804,832
Federal Home Loan Bank Stock, at cost 11,305,600 10,052,700
Other assets 3,712,341 642,947
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TOTAL ASSETS $ 400,681,197 $ 383,417,214
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 180,782,959 $ 143,354,096
Federal Home Loan Bank Advances 119,480,000 190,601,038
Securities sold under agreements to
repurchase 1,593,927 20,685,000
Deferred compensation 711,589 947,186
Stock subscription refunds payable 36,646,144 -
Accrued expenses and other liabilities 3,486,136 3,583,625
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Total liabilities 342,700,755 359,170,945
STOCKHOLDERS' EQUITY:
Common stock 66,693 66,693
Additional paid-in capital 50,146,257 15,010,040
Reduction for unallocated ESOP shares (2,856,600) (103,644)
Retained earnings 10,624,092 9,273,180
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Total stockholders' equity 57,980,442 24,246,269
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 400,681,197 $ 383,417,214
============== =============
See notes to condensed consolidated financial statements.
1
POCAHONTAS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
INTEREST INCOME:
Loans receivable $ 3,437,808 $ 2,918,389 $ 6,787,370 $ 5,778,990
Investment securities 3,564,432 3,442,386 7,028,456 7,057,933
----------- ----------- ----------- -----------
Total interest income 7,002,240 6,360,775 13,815,826 12,836,923
INTEREST EXPENSE:
Deposits 2,078,047 1,312,379 3,864,465 2,631,412
Borrowed funds 2,712,447 3,227,688 5,852,206 6,524,945
----------- ----------- ----------- -----------
Total interest expense 4,790,494 4,540,067 9,716,671 9,156,357
NET INTEREST INCOME 2,211,746 1,820,708 4,099,155 3,680,566
PROVISION FOR LOAN LOSSES - 30,000 - 60,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,211,746 1,790,708 4,099,155 3,620,566
OTHER INCOME:
Dividends 173,561 156,282 317,469 329,830
Fees and service charges 111,552 61,345 219,172 188,972
Other 76,464 97,531 136,409 149,262
----------- ----------- ----------- -----------
Total other income 361,577 315,158 673,050 668,064
----------- ----------- ----------- -----------
OPERATING EXPENSE:
Compensation and benefits 973,501 702,084 1,799,358 1,391,333
Occupancy and equipment 143,758 136,221 269,529 296,348
Deposit insurance premium 23,121 4,432 45,368 69,708
Professional fees 82,818 55,977 124,785 137,649
Data processing 74,485 60,862 137,090 124,328
Advertising 56,673 42,434 111,751 90,921
OTS assessment 23,327 23,238 46,193 45,929
Other 144,866 90,520 284,048 242,910
----------- ----------- ----------- -----------
Total operating expense 1,522,549 1,115,768 2,818,122 2,399,126
INCOME BEFORE INCOME TAXES 1,050,774 990,098 1,954,083 1,889,504
INCOME TAXES 382,965 347,903 707,729 663,297
----------- ----------- ----------- -----------
NET INCOME $ 667,809 $ 642,195 $ 1,246,354 $ 1,226,207
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.10 $ 0.10 $ 0.20 $ 0.19
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.10 $ 0.09 $ 0.18 $ 0.18
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
2
POCAHONTAS BANCORP, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31 (UNAUDITED)
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1998 1997
OPERATING ACTIVITIES:
Net income $ 1,246,354 $ 1,226,207
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of premises and equipment 141,891 97,179
Amortization of deferred loan fees 62,666 49,693
Provision for loan losses - 60,000
Net gain on sale of assets (7,230) (21,457)
Cash surrender value of life insurance policies (101,760) (103,713)
Accrued interest receivable 74,677 295,520
Other assets (3,069,393) 80,844
Special SAIF premium payable - (937,000)
Deferred compensation (235,597) (7,488)
Other liabilities 6,155 467,102
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Net cash provided by operating activities (1,882,237) 1,206,887
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INVESTING ACTIVITIES:
Loan repayments and originations, net (15,500,728) (8,576,791)
Purchase of investment securities held to maturity (11,252,900) (1,918,684)
Proceeds from maturities and principal repayments
of investment securities held to maturity 18,010,666 23,823,518
Purchase of premises and equipment (1,104,178) (64,892)
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Net cash provided (used) by investing activities (9,847,140) 13,263,151
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FINANCING ACTIVITIES:
Net increase in deposits 37,428,863 8,260,314
Proceeds (repayments) of repurchase agreements (19,091,073) 10,860,000
Net decrease in FHLB advances (71,121,038) (30,424,969)
Stock subscription refunds payable 36,646,144 -
Proceeds from issuance of stock 32,730,640 -
Proceeds from exercise of stock options - 42,711
Dividends paid (346,466) (333,059)
----------- -----------
Net cash provided (used) by financing activities 16,247,070 (11,595,003)
----------- -----------
NET INCREASE IN CASH 4,517,693 2,875,035
CASH AT BEGINNING OF PERIOD 2,805,273 2,046,135
----------- -----------
CASH AT END OF PERIOD $ 7,322,966 $ 4,921,170
============ ===========
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 six months ended March 31, 1998, are
not necessarily indicative of the results that may be expected for the entire
fiscal year or any interim period.
On March 31, 1998, in accordance with its plan of conversion and
reorganization Pocahontas Bancorp, Inc. (the "Company") sold 3,570,750 shares
of common stock at a price per share of $10.00. In addition, each of the
769,924 shares of common stock of Pocahontas Federal Savings & Loan
Association (the "Bank"), held by public stockholders were exchanged for
4.0245 shares of common stock of the Company in accordance with the Plan of
Conversion and Agreement and Plan or Reorganization. At March 31, 1998 the
Company had 6,669,309 outstanding shares of common stock. Financial
information presented is for the Company, except for periods prior to
conversion and reorganization, which are for the Bank, except for
classifications within stockholders' equity in the condensed consolidated
statement of financial condition and earnings per common share.
The interim financial information should be read in conjunction with the
consolidated financial statements and notes of the Bank, including a summary
of significant accounting policies followed by the Company, included in the
Annual Report for the fiscal year ended September 30, 1997. The accompanying
unaudited consolidated financial statements include the accounts of the
Company and the Bank. The intercompany accounts of the Company and the Bank
have been eliminated in consolidation.
2. EARNINGS PER COMMON 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 Bank'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.
4
For the three-month and six-month periods ended March 31, 1998, the weighted
average number of shares used in the basic and diluted earnings per share
calculation are set out in the table below:
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Period Basic Diluted
----- -------
---------------------------------------------------------------------
Three months ended March 31, 1998 6,383,649 6,827,569
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Six months ended March 31, 1998 6,383,649 6,827,569
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Three months ended March 31, 1997 6,610,864 6,834,922
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Six months ended March 31, 1997 6,595,681 6,834,922
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3. DECLARATION OF DIVIDENDS
On January 21, 1998, the Board of Directors declared a $0.056 per share
(restated for the 4.0245 exchange rate) quarterly dividend for holders of
record March 18, 1998.
* * * * * *
5
INDEPENDENT ACCOUNTANTS' REPORT
To 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. (the "Company") as of December 31, 1997,
and the related condensed consolidated statements of income and cash flows for
the three-month and six-month periods ended March 31, 1998 and 1997. 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 generally accepted auditing standards, 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 generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of Pocahontas
Federal Savings and Loan Association and subsidiaries as of September 30, 1997
(see Note 1 to the accompanying condensed consolidated financial statements),
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated October 30, 1997, 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, 1997, 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 11, 1998
6
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition at March 31, 1998, as compared to September 30, 1997
Total assets increased $17.3 million or 4.5% to $400.7 million at March 31,
1998, as compared to $383.4 million at September 30, 1997. This increase was
primarily due to an increase of $15.4 million, or 9.6%, in the loan portfolio.
The growth in the loan portfolio was due to continued strong loan demand in the
Company's local market.
Deposits increased $37.4 million or 26.0% to $180.8 million primarily due to the
acquisition of deposits and premises and equipment of three branches located
within the Bank's market area. As a result of this transaction, deposits
increased $27.9 million. The remainder of the increase was due to increased
activity within the Bank's market area.
FHLB advances decreased $71.1 million or 37.3%. This decrease was due to the
increase in deposits discussed above and the new equity discussed below. The
cash resulting from these transactions was used to repay FHLB advances.
Stock subscription refunds payable increased $36.6 million to $36.6 million due
to oversubscriptions in the stock offering discussed below and the resulting
requirement to refund such subscriptions. Funding for these refunds will come
primarily from increases in FHLB advances.
The Company concluded its second step stock offering, as described in Note 1 to
the condensed consolidated financial statements, on March 31, 1998 and raised
approximately $33 million of new equity. The proceeds of such offering were
used primarily to repay FHLB advances.
Results of Operations for the Three and Six Months Ended March 31, 1998 and 1997
For the three months ended March 31, 1998, the Bank had net income of $668,000
as compared to $642,000 for the three months ended March 31, 1997, an increase
of $26,000 or 4.0%. The increase in net income was primarily attributable to an
increase in net interest income after provision for loan losses of $421,000 or
23.5% and an increase in other income of $46,000 or 14.7%. The increase in net
interest income was primarily due to a change in the Bank's asset/liability mix.
See management's discussion of financial condition. The change in the Bank's
asset/liability mix resulted in an increase in the net interest margin to 2.3%
for the three months ended March 31, 1998 compared to 2.0% for the three months
ended December 31, 1997 and an increase in the interest rate spread to 2.2% at
March 31, 1998 compared to 1.8% at December 31, 1997.
The increase in net interest income was partially offset by an increase in
operating expenses of $407,000 or 36.5%. The increase in operating expense was
primarily attributable to an increase in compensation expense. Compensation
expense increased due to an increase in number of personnel due to branches
increasing 50% and due to increases in compensation resulting from changes in
responsibility for certain employees.
For the six months ended March 31, 1998, the Bank had net income of $1,246,000
as compared to $1,226,000 for the six months ended March 31, 1997, an increase
of $20,000 or 1.6%. The increase in net income was primarily attributable to an
increase in net interest income after provision for loan losses of $478,000 or
13.2%. The increase in net interest income was partially offset by an increase
in operating
7
expenses of $419,000 or 17.5%. The increase in operating expenses for the six-
month period were approximately the same as those for the three-month period
discussed above.
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 six month
period ended March 31, 1998, compared to $60,000 for the same period in 1997.
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 Bank on the dates indicated.
March 31, 1998 September 30, 1997
-------------- ------------------
(Dollars in thousands)
Delinquent loans:
Single family mortgage $ 807 $ 422
Other mortgage loans 53 0
Other loans 57 31
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Total delinquent loans 917 453
Total real estate owned(1) 54 17
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Total non-performing assets 971 470
Total loans delinquent 90 days or more to net
loans receivable 0.55% 0.28%
Total loans delinquent 90 days or more to total assets 0.23% 0.12%
Total nonperforming loans and REO to total assets 0.24% 0.12%
(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 decreased $464,000 or 98.7% during the six month period ended March 31,
1998.
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 Supervision
requires 1.0% total liquidity. The Bank's average liquidity ratio during March
1998 was 11.4% compared to 5.17% during the month of September 1997. At March
31, 1998, the Bank was in compliance with all liquidity requirements.
At March 31, 1998, the Bank had outstanding loan commitments of $10.4 million.
Funding of these commitments will be accomplished by utilizing cash resources
from deposits, Federal Home Loan Bank advances and/or repurchase agreements,
principal and interest payments from loans and investments.
8
The Bank utilizes Federal Home Loan Bank advances and/or repurchase agreements
to leverage its capital to maximize earnings and to maintain a stable capital to
asset ratio. At March 31, 1998, the Bank's capital to asset ratio exceeded all
regulatory requirements.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion of qualitative and quantitative risks in the September 30, 1997
annual report. The risks identified in the annual report have been mitigated by
the increase in core deposits and capital, see management's discussion and
analysis of financial condition and results of operations.
9
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
The Company's registration statement (No. 333-43143) on Form S-1 was declared
effective on February 11, 1998. The offering commenced on February 23, 1998 and
expired on March 18, 1998. Friedman, Billings, Ramsey & Co., Inc. was the
managing underwriter in the offering. The sale in the offering of 3,570,750 the
Company's $0.01 par value common shares closed on March 31, 1998 for gross
proceeds of $35.7 million. Net of offering costs and expenses of $834,000,
the offering generated net proceeds of $34.9 million. Of such proceeds, $2.9
million was in the form of a loan to the Company's bank subsidiary's ESOP for
the purchase by the ESOP of 285,660 common shares in the offering, $16.0 million
was infused as capital into the Company's bank subsidiary and the remainder was
deposited in a non-interest bearing checking account at the subsidiary bank.
The Bank used the amount infused as capital and the deposits to repay FHLB
advances.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
The Bank convened its 1997 Annual Meeting of Stockholders on January 21, 1998.
At the meeting, the stockholders of the Bank considered and voted on:
1. The election as directors of nominees listed below:
2. The ratification of the appointment of Deloitte & Touche, LLP as
auditors for the Bank for the fiscal year ending September 30,
1998.
The results of the election of directors are as follows:
For Withheld
--- --------
Skip Martin 1,520,492 0
Charles R. Ervin 1,520,492 0
N. Ray Campbell 1,520,492 0
The ratification of the engagement of Deloitte & Touche LLP was approved by a
vote of 1,515,358 votes for, 5,000 against and 134 abstaining.
The Bank convened a special meeting of stockholders on March 20, 1998. At the
meeting, the stockholders of the Bank considered and voted for the conversion
and reorganization of the Pocahontas Federal Mutual Holding Company, the Bank's
Mutual Holding Company. The conversion and reorganization was approved by a
vote of 1,295,433 in favor and 1,200 against.
10
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
11
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POCAHONTAS FEDERAL BANCORP, INC.
Date: May 12, 1998 /s/ Skip Martin
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Skip Martin
President and Chief Executive Officer
Date: May 12, 1998 /s/ James Edington
------------------------ ---------------------------------------
James Edington
Executive Vice President
Date: May 12, 1998 /s/ Dwayne Powell
------------------------ ---------------------------------------
Dwayne Powell
Chief Financial Officer
12