<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File number 333-93437
CENTRA FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
WEST VIRGINIA 55-0770610
(State or other jurisdiction (I.R.S. Employer Identification No)
of incorporation or organization)
990 ELMER PRINCE DRIVE
P. O. BOX 656
MORGANTOWN, WEST VIRGINIA 26507-0656
(Address of principal executive offices, zip code)
304-598-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, address, and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 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 [ ] NO [ X ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of June 30, 2000, the number of shares outstanding of the
registrant's only class of common stock was 1,200,000.
Transitional Small Business format (check one): YES [ ] NO [ X ]
<PAGE> 2
Centra Financial Holdings, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited interim consolidated financial statements of Centra
Financial Holdings, Inc. (Centra or Registrant) listed below are
included on pages 2-5 of this report.
Consolidated Statements of Condition at June 30, 2000 and
December 31, 1999
Consolidated Statements of Income for the Six and Three Months
ended June 30, 2000
Consolidated Statement of Stockholders' Equity at June 30, 2000
Consolidated Statement of Cash Flows for the Six Months ended
June 30, 2000
Notes to Consolidated Financial Statements
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for annual year-end financial statements. In the opinion
of management, all adjustments considered necessary for a fair
presentation, have been included and are of a normal recurring
nature. Operating results for the six and three month periods ended
June 30, 2000, are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000.
The Private Securities Litigation Act of 1995 indicates that the
disclosure of forward-looking information is desirable for investors
and encourages such disclosure by providing a safe harbor for
forward-looking statements that involve risk and uncertainty. All
statements other than statements of historical fact included in this
Form 10-QSB including statements in Management's Discussion and
Analysis of Financial Condition and Results of Operations are, or may
be deemed to be, forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Exchange Act of 1934. In order to comply with the terms of the safe
harbor, the corporation notes that a variety of factors, (i.e.
changes in the national and local economies, changes in the interest
rate environment competition, etc.) could cause Centra's actual
results and experience to differ materially from the anticipated
results or other expectations expressed in those forward-looking
statements.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Management's Discussion and Analysis of Results of Operations and
Financial Condition is included on pages 7-16 of this report.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The information called for by this item is provided under the caption
"Market Risk Management" under Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Centra Financial Holdings, Inc. and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,378,461 $ 25,000
Interest-bearing deposits in other banks 56,000 31,011
Federal funds sold 5,881,287 2,637,541
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 7,315,748 2,693,552
Available-for-sale securities, at fair value (amortized cost of $10,474,394 at
June 30, 2000 and $7,402,536 at December 31, 1999) 10,458,420 7,383,171
Loans, net of unearned income 24,915,642 --
Allowance for loan losses (374,000) --
----------- -----------
NET LOANS 24,541,642 --
Premises and equipment, net 1,529,851 316,200
Other assets 820,347 120,180
----------- -----------
TOTAL ASSETS $44,666,008 $10,513,103
=========== ===========
LIABILITIES
Non - interest bearing demand deposits $ 4,950,226 $ --
Interest-bearing demand deposits 1,155,603 --
Savings and money market deposit accounts 19,227,784 --
Savings certificates 2,587,112 --
Large denomination (over $100,000) certificates 2,591,071 --
----------- -----------
TOTAL DEPOSITS 30,511,796 --
Short-term borrowings 3,302,857 --
Other liabilities 282,783 199,254
----------- -----------
TOTAL LIABILITIES 34,097,436 199,254
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 1,900,000 authorized,
1,200,000 outstanding 1,200,000 1,200,000
Additional paid-in capital 10,800,000 10,800,000
Stock subscriptions receivable -- (1,202,000)
Accumulated deficit (1,415,454) (464,786)
Accumulated other comprehensive loss (15,974) (19,365)
----------- -----------
TOTAL EQUITY 10,568,572 10,313,849
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $44,666,008 $10,513,103
=========== ===========
</TABLE>
2
<PAGE> 4
Centra Financial Holdings, Inc. and Subsidiaries
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30 JUNE 30
2000 2000
----------- ------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 420,216 $ 355,117
Securities available-for-sale 277,095 174,476
Interest-bearing bank balances 810 171
Federal funds sold 185,223 107,243
----------- -----------
TOTAL INTEREST INCOME 883,344 637,007
INTEREST EXPENSE
Deposits 365,119 297,987
Short-term borrowings 33,260 27,670
----------- -----------
TOTAL INTEREST EXPENSE 398,379 325,657
----------- -----------
NET INTEREST INCOME 484,965 311,350
Provision for loan losses 374,000 259,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 110,965 52,350
OTHER INCOME
Service charges on deposit accounts 7,361 6,932
Safe deposit 1,799 630
Other 14,171 11,970
----------- -----------
TOTAL OTHER OPERATING REVENUE 23,331 19,532
Loss on sales of securities (495) --
----------- -----------
TOTAL OTHER INCOME 22,836 19,532
OTHER EXPENSE
Salary and employee benefits 497,138 272,195
Occupancy expense 141,823 67,002
Equipment expense 96,763 64,506
Advertising 54,023 41,235
Professional fees 20,109 10,954
Data processing 49,025 22,938
Other 225,588 114,394
----------- -----------
TOTAL OTHER EXPENSE 1,084,469 593,224
----------- -----------
Net loss before income taxes (950,668) (521,342)
Income taxes:
Federal -- --
State -- --
----------- -----------
TOTAL INCOME TAXES -- --
----------- -----------
NET LOSS $ (950,668) $ (521,342)
=========== ===========
Basic and diluted loss per share $ (0.81) $ (0.43)
Basic and diluted weighted average shares outstanding 1,178,350 1,200,000
</TABLE>
3
<PAGE> 5
Centra Financial Holdings, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL STOCK OTHER
COMMON PAID-IN SUBSCRIPTIONS ACCUMULATED COMPREHENSIVE
STOCK CAPITAL RECEIVABLE DEFICIT LOSS TOTAL
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 $1,200,000 $10,800,000 $(1,202,000) $(464,786) $(19,365) $10,313,849
Issuance of common stock -- -- 1,202,000 -- -- 1,202,000
Comprehensive loss:
Net loss -- -- -- (950,668) -- (950,668)
Other comprehensive loss:
Unrealized gain on
available-for-sale
securities of $2,896,
net of
reclassification
adjustment for losses
included in net income
of $495 3,391 3,391
-----------
Total comprehensive loss (947,277)
--------------------------------------------------------------------------------------------
Balance, June 30, 2000 $1,200,000 $10,800,000 $ -- $(1,415,454) $(15,974) $10,568,572
============================================================================================
</TABLE>
4
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Centra Financial Holdings, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net loss $ (950,668)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discounts on securities (196,707)
Provision for loan losses 374,000
Depreciation 66,780
Increase in other liabilities 83,529
Increase in other assets (700,167)
------------
NET CASH USED IN OPERATING ACTIVITIES (1,323,233)
INVESTING ACTIVITIES
Purchases of premises and equipment (1,280,431)
Purchases of available-for-sale securities (19,359,564)
Sales and maturities of available-for-sale securities 16,484,414
Net increase in loans made to customers (24,915,642)
------------
NET CASH USED IN INVESTING ACTIVITIES (29,071,223)
FINANCING ACTIVITIES
Net increase in demand, savings and money market accounts 25,333,612
Net increase in savings certificates 5,178,183
Net increase in short-term borrowings 3,302,857
Collection of stock subscriptions 1,202,000
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 35,016,652
------------
INCREASE IN CASH AND CASH EQUIVALENTS 4,622,196
Cash and cash equivalents, beginning of period 2,693,552
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,315,748
============
</TABLE>
5
<PAGE> 7
Centra Financial Holdings, Inc.
Notes to Consolidated Financial Statements
NOTE A - ORGANIZATION
Centra Bank, Inc. (Centra Bank or the Company) is a newly formed (September 27,
1999), full service commercial bank chartered under the laws of the State of
West Virginia. Centra Bank commenced operations on February 14, 2000. Centra
Financial Holdings, Inc. (Centra Financial) was formed on October 25, 1999 for
purpose of becoming a one-bank holding company to hold all of the outstanding
stock of Centra Bank. The shares of Centra Bank were exchanged for shares of
Centra Financial in the second quarter of 2000. The Company expensed all costs
of start-up activities including activities related to organizing the new
entity. Start-up costs included training costs, consulting fees, utilities and
related expenses during the pre-opening period.
NOTE B - BASIS OF PRESENTATION
The accounting and reporting policies of Centra conform to generally accepted
accounting principles and practices in the banking industry. The preparation of
the financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. All significant intercompany accounts
and transactions have been eliminated in consolidation. The interim financial
information included in this report is unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of the results of the interim
periods have been made. These notes are presented in conjunction with the Notes
to Financial Statements included in the annual report of Centra Bank, Inc. as of
December 31, 1999.
NOTE C - NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income by the
average common shares outstanding during the period. Stock options were issued
under the Centra Financial Holdings, Inc. Stock Option Plan (the Plan) in the
second quarter. Because the option price and the market price of the stock are
the same, there is no difference between primary and fully diluted earnings per
share.
NOTE D - ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (FAS 133) which requires all derivatives to
be recorded on the balance sheet at fair value and establishes "special"
accounting for fair value, cash flow, and foreign currency hedges. FAS 133 is
effective, as amended, for quarterly and annual reporting beginning January 1,
2001. This Statement is not expected to impact Centra because Centra currently
does not have derivative financial instruments.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following data should be read in conjunction with the unaudited consolidated
financial statements and the management's discussion and analysis that follows:
<TABLE>
<CAPTION>
At June 30, 2000 and for the Six and SIX THREE
Three Months Ended June 30, 2000 MONTHS MONTHS
ENDED ENDED
-------- --------
<S> <C> <C>
Net income to:
Average assets (6.96)% (5.59)%
Average stockholders' equity (17.21) (19.35)
Net interest margin - fixed 3.93 3.66
Average stockholders' equity to average assets 40.45 28.88
Total loans to total deposits (end of period) 81.66 81.66
Allowance for loan losses to total loans (end of period) 1.50 1.50
Capital ratios:
Tier 1 capital ratio 29.19 98.04
Risk-based capital ratio 29.55 98.28
Leverage ratio 38.48 63.83
Cash dividends as a percentage of net income 0.00 0.00
Per share data:
Book value per share $ 8.81 $ 9.23
Market value per share, end of period (closing price) 10.00 10.00
Basic and diluted loss per share (0.81) (0.43)
</TABLE>
INTRODUCTION
The following discussion and analysis of the consolidated financial statements
of Centra is presented to provide insight into management's assessment of the
financial results. Centra's wholly-owned banking subsidiary, Centra Bank, Inc.,
is the primary financial entity in this discussion. Unless otherwise noted, this
discussion will be in reference to the bank.
The bank began operations February 14, 2000 at 990 Elmer Prince Drive in
Morgantown, West Virginia. Accordingly, comparison of the results of operations
for the three months ended June 30, 2000 with the results for the three months
ended March 31, 2000 is not meaningful. The bank provides a full array of
financial products and services to its customers, including traditional banking
products such as deposit accounts, lending products, debit cards, an Automated
Teller Machine, and safe deposit rental facilities.
Centra was chartered by the State of West Virginia and is subject to regulation,
supervision, and examination by the Federal Deposit Insurance Corporation
("FDIC") and the West Virginia Department of Banking. The bank is not a member
of the Federal Reserve System. The bank is a member of the Federal Home Loan
Bank of Pittsburgh.
You should read this discussion and analysis in conjunction with the prior
year-end audited bank financial statements and footnotes thereto and the ratios,
statistics, and discussions contained elsewhere in this Form 10-QSB.
7
<PAGE> 9
RESULTS OF OPERATIONS
Overview of the Statement of Income
For the six and three months ended June 30, 2000, Centra incurred losses of
$950,668 and $521,342. These losses are attributable to start up operating
expenses that were only partially offset by net interest income and other
operating revenue.
Net interest income totaled $484,965 and $311,350 for the six months and three
months ended June 30, 2000. Net interest income was offset by loan loss
provisions of $374,000 and $259,000 for the six and three months ended June 30,
2000. The provision for loan losses, which is a product of management's formal
quarterly analysis, is made in response to inherent risks in the loan portfolio.
Non-interest income, exclusive of security transactions, totaled $23,331 and
$19,532 for the six and three months ended June 30, 2000. A loss of $495 was
incurred on securities transactions for the six months ended June 30, 2000 due
to the liquidation of securities to fund loan growth.
INTEREST INCOME AND EXPENSE
Net interest income is the amount by which interest income on earning assets
exceeds interest paid on interest-bearing liabilities. Interest earning assets
include loans and investment securities. Interest-bearing liabilities include
interest-bearing deposits and borrowed funds. Net interest income is the primary
source of revenue for the bank. Changes in market interest rates, as well as
changes in the mix and volume of interest-earning assets and interest-bearing
liabilities, impact net interest income.
The bank's interest earning assets and interest-bearing liabilities changed
significantly during the first six months of 2000. Upon opening, the bank began
accepting all forms of customer deposits as well as offering commercial,
consumer and mortgage products. Therefore, there has been a significant change
in the mix of both assets and liabilities of the bank.
Net interest margin is calculated by dividing net interest income by average
interest earning assets. This ratio serves as a performance measurement of the
net interest revenue stream generated by the bank's balance sheet. The net
interest margin for the six and three months ended June 30, 2000 was 3.93% and
3.66% respectively. Average loan balances have grown from $2,972,401 in the
first quarter to $15,585,164 in the second quarter. Net interest margin declined
from 4.53% in the first quarter to 3.66% in the second quarter. This decline was
expected as the bank's source of funds shifted from seed capital to interest
bearing deposits and liabilities and funds were redeployed into loans.
Management continuously monitors the effects of net interest margin on the
performance of the bank. Net interest margin in future periods will be impacted
by growth and mix of the balance sheet. Management believes that future net
interest margins will continue to be pressured by the continual shifting of
funding sources due to intense competition for deposits.
8
<PAGE> 10
AVERAGE BALANCES AND INTEREST RATES
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 THREE MONTHS ENDED JUNE 30, 2000
--------------------------------------- ------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
----------- --------- ------ ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits in banks $ 47,912 $ 810 3.40% $ 56,253 $ 171 1.22%
Federal funds sold 6,079,546 185,223 6.13 6,880,696 107,243 6.27
Investments:
U.S. treasuries 499,411 14,107 5.65 499,507 7,101 5.69
U.S. agencies 8,902,618 262,988 5.91 11,161,676 167,375 6.00
Loans:
Commercial 7,772,848 342,028 8.85 12,623,648 280,485 8.94
Consumer 350,639 19,846 11.38 680,220 19,088 11.29
Real estate 1,290,842 58,342 9.04 2,520,142 55,544 8.86
Allowance for loan losses (135,547) -- -- (238,846) -- 0.00
----------- -------- ----- ----------- -------- -----
NET LOANS 9,278,782 420,216 9.11 15,585,164 355,117 9.16
----------- -------- ----- ----------- -------- -----
Total earning assets 24,808,269 883,344 7.16 34,183,296 637,007 7.49
Cash and due from banks 921,263 1,213,333
Other assets 1,738,879 2,122,152
----------- -----------
TOTAL ASSETS $27,468,411 $37,518,781
=========== ===========
LIABILITIES
Deposits:
Non-interest bearing demand $ 1,257,454 $ -- $ 2,207,291 $ --
NOW 567,764 9,371 3.32 968,881 8,058 10.15
Money market checking 10,926,307 285,519 5.25 17,350,989 228,059 16.04
Savings 111,385 1,476 2.66 197,480 1,325 8.19
IRAs 152,972 5,059 6.65 289,481 4,744 19.99
CDs 1,991,833 63,694 6.43 3,518,902 55,801 1.01
Short-term borrowings 1,125,061 33,260 5.95 1,891,408 27,670 5.88
----------- -------- ----- ----------- -------- -----
TOTAL INTEREST BEARING LIABILITIES 14,875,322 398,379 5.39 24,217,141 325,657 5.41
----------- -------- ----- ----------- -------- -----
Other liabilities 224,387 258,940
----------- -----------
TOTAL LIABILITIES 16,357,163 26,683,372
EQUITY
Common stock 1,200,000 1,200,000
Paid-in capital 10,800,000 10,800,000
Accumulated deficit (866,879) (1,142,070)
Unrealized gains (losses) (21,873) (22,521)
----------- -----------
TOTAL EQUITY 11,111,248 10,835,409
----------- -----------
TOTAL LIABILITIES AND EQUITY $27,468,411 $37,518,781
=========== ===========
Net interest spread 1.77 2.09
Impact of non-interest bearing
funds on margin 2.16 1.58
----- -----
Net interest income-margin $484,965 3.93% $311,350 3.66%
======== ===== ======== =====
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the six and three months ended June 30, 2000
was $374,000 and $259,000 respectively. The provision for loan losses is based
upon management's continuing evaluation of the adequacy of the allowance for
loan losses and overall management of inherent credit risk.
9
<PAGE> 11
Due to the start up nature of the bank, arriving at an appropriate allowance
involves a high degree of management judgment. In exercising this judgment,
management considers numerous internal and external factors including, but not
limited to, portfolio growth, national and local economic conditions, trends in
the markets served, historical loss experience of other institutions in these
markets and guidance from the bank's primary regulator. Ultimately, management's
efforts produce an allowance for loan losses that is appropriate in the
circumstances for loan losses and in accordance with applicable accounting and
regulatory standards
NON-INTEREST INCOME
The bank's non-interest income is generated from fees related to deposit
accounts and electronic banking revenue. Due to the start-up nature of the bank,
non-interest income totaled $22,836 and $19,532 for the six and three months
ended June 30, 2000. The bank has undertaken a strategic philosophy of offering
free checking with minimal fees to capture market share. Therefore, non-interest
income is expected to be below peer institutions.
NON-INTEREST EXPENSE
For the six and three months ended June 30, 2000, non-interest expense totaled
$1,084,469 and $593,224, respectively. Non-interest expense reflects all costs
for the first six months while the bank opened on February 14, 2000. This
"mismatch" of expenses and revenues should be reduced as the bank achieves
critical mass. Salaries and employee benefits, occupancy expense and furniture,
fixtures and equipment expense are the bank's primary non-interest expenses.
For the six and three months ended June 30, 2000, depreciation of leasehold
improvements and furniture, fixtures and equipment totaled $66,780 and $46,780,
respectively. Net occupancy expense totaled $141,823 and $67,002 in the six and
three months ended June 30, 2000.
Maintaining acceptable levels of non-interest expense and operating efficiency
are key performance indicators for the bank. The financial services industry
uses the efficiency ratio (total non-interest expense less amortization of
intangibles and non-recurring items as a percentage of the aggregate of net
interest income and non-interest income) as a key indicator of performance. Due
to growing to a level that will facilitate economies of scale and significant
start up expenses during the first six months of 2000, the relevancy of the
efficiency ratio as an indicator of performance is minimal.
RETURN ON ASSETS AND EQUITY
Returns on assets (ROA) and equity (ROE) were (6.96)% and (17.21)% respectively.
These negative returns are the result of start up costs and minimal interest
earning assets. It is anticipated that these performance indicators will
continue to migrate towards those of the bank's peers.
The bank is considered well-capitalized under regulatory and industry standards
of risk-based capital.
INCOME TAX EXPENSE
The bank has not recorded income tax expense (benefit) during the six or three
months ended June 30, 2000. While the bank is generating net operating losses
that will reduce future tax
10
<PAGE> 12
liabilities, a valuation allowance has been established that eliminates the tax
benefit from the financial statements until it is recognized.
FINANCIAL CONDITION
OVERVIEW OF THE STATEMENT OF CONDITION
Total assets have increased $34.2 million since December 31, 1999. This is
attributable to the bank commencing operations on February 14, 2000. Asset
growth has occurred due to increases in loans and investments and was funded by
increases in all categories of deposits and short-term borrowings. Investment
securities and federal funds sold are utilized to temporarily invest funds
pending anticipated loan demand.
Deposits have grown to $30.5 million as of June 30, 2000. Short-term borrowings
have increased to $3.3 million.
Stockholders' equity has increased approximately $255,000 due to a combination
of the $1.2 million collection of stock receivables from year-end offset by the
loss incurred in the first six months of 2000.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents totaled $7.3 million as of June 30, 2000. This is an
increase of $4.6 million from year-end. These balances will stabilize or
decrease in subsequent quarters due to loan demand and the acquisition of
short-term government securities in lieu of federal funds sold.
Management believes the current balance of cash and cash equivalents and
investment and loan portfolios maturing within one year adequately serves the
bank's liquidity and customer needs. Total cash and cash equivalents fluctuate
on a daily basis due to transactions in process and other liquidity needs.
INVESTMENT SECURITIES
Investment securities totaled $10.5 million as of June 30, 2000. U.S. securities
comprise the majority of the portfolio. This is an increase of $3.1 million from
year-end.
All of the bank's investment securities are classified as available-for-sale.
Management believes the available-for-sale classification provides flexibility
for the bank in terms of growing the bank as well as interest rate risk
management. At June 30, 2000, the amortized cost of the bank's investment
securities totaled $10.5 million, resulting in unrealized depreciation in the
investment portfolio of $16 thousand and a corresponding decrease in the bank's
equity of $16 thousand.
Management monitors the earnings performance and liquidity of the investment
portfolio on a regular basis through Asset/Liability Committee meetings. The
group also monitors net interest income, sets pricing guidelines, and manages
interest rate risk for the bank. Through active balance sheet management and
analysis of the investment securities portfolio, the bank maintains sufficient
liquidity to satisfy depositor requirements and the various credit needs of its
customers. Management believes the risk characteristics inherent in the
investment portfolio are acceptable based on these parameters.
11
<PAGE> 13
LOANS
The bank's lending is primarily focused in north central West Virginia, and
consists primarily of commercial lending, retail lending, which includes
single-family residential mortgages, and consumer lending. Loans totaled $24.9
million as of June 30, 2000.
The following table details total loans outstanding as of June 30, 2000:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
Commercial $15,308
Real estate, commercial 4,386
Real estate, mortgage 4,120
Consumer 1,102
-------
TOTAL LOANS $24,916
=======
</TABLE>
Commercial loans constitute the largest component of the lending portfolio. This
increase is the result of a concerted effort to attract quality commercial loans
while maintaining appropriate underwriting standards. Management expects
commercial loan demand to continue to be strong during the remainder of 2000.
The bank will continue to selectively lend to customers outside its primary
market area.
LOAN CONCENTRATION
While the bank does have significant commercial loan balances, the bank does not
have a concentration of its loan portfolio in any one industry. Due to the
recent opening of the bank, management has been working closely with the West
Virginia Department of Banking to assure that lending transactions meet
applicable state and federal regulations.
ALLOWANCE FOR LOAN LOSSES
The allowance is maintained at a level believed to be adequate by management to
absorb probable losses in the loan portfolio. Due to the start up nature of the
bank, arriving at an appropriate allowance involves a high degree of management
judgment. In exercising this judgment, management considers numerous internal
and external factors including, but not limited to, portfolio growth, national
and local economic conditions, trends in the markets served, historical loss
experience of other institutions in these markets and guidance from the bank's
primary regulator. Ultimately, management's efforts produce an allowance for
loan losses that is appropriate in the circumstances for loan losses and in
accordance with applicable accounting and regulatory standards.
The bank has experienced no charge offs in the six or three months ended June
30, 2000.
The bank has no nonperforming, nonaccrual, delinquent loans or other real estate
owned as of June 30, 2000.
FUNDING SOURCES
The bank considers deposits, short-term borrowings, and long-term borrowings
when evaluating funding sources. Traditional deposits continue to be the most
significant source of funds for the bank, reaching $30.5 million at June 30,
2000.
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Management believes that the deposit base remains the most significant funding
source for the bank and will continue to concentrate on balancing deposit growth
and adequate net interest margin to meet the bank's strategic goals. The bank
continues to offer "special" deposit products in its markets to fund profitable
growth opportunities.
Along with traditional deposits, the bank has access to both short-term and
long-term borrowings to fund its operations and investments. The bank's
short-term borrowings consist of arrangements to purchase federal funds,
corporate deposits held in overnight repurchase agreements, and various FHLB
borrowings. At June 30, 2000, short-term borrowings totaled $3.3 million.
CAPITAL/STOCKHOLDERS' EQUITY
Centra sold 1.2 million shares of stock at $10 per share or a total of $12
million in a private offering during 1999 and completed the issuance in
February, 2000.
The primary source of funds for dividends to be paid by Centra Financial
Holdings, Inc. is dividends received from its subsidiary bank, Centra Bank, Inc.
Dividends paid by the subsidiary bank are subject to restrictions by banking
regulations. The most restrictive provision requires regulatory approval if
dividends declared in any year exceeds the year's retained net profits, as
defined, plus the retained net profits of the two preceding years. As of June
30, 2000, no such dividends have been paid and dividend payments are not
anticipated during the year. Centra Bank, Inc. will not pay dividends without
first obtaining the approval of the West Virginia Commissioner of Banking.
Centra is subject to various regulatory capital requirements administered by the
federal banking agencies. Under the capital adequacy guidelines and the
regulatory framework for prompt corrective action, Centra must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Failure to meet minimum capital requirements can initiate certain
mandatory, and possible discretionary, actions by regulators that, if
undertaken, could have a direct material effect on Centra's financial
statements.
MARKET RISK MANAGEMENT
The objective of the bank's Asset/Liability Management function is to maintain
consistent growth in net interest income within the bank's policy guidelines.
This objective is accomplished through management of the bank's balance sheet
liquidity and interest rate risk exposure based on changes in economic
conditions, interest rate levels, and customer preferences.
Liquidity measures an organization's ability to meet cash obligations as they
come due. During the six months ended June 30, 2000, the bank generated cash
primarily from increases in deposit accounts. The bank used cash flows of $24.9
million for the origination of loans and $2.9 million for the net acquisition of
short-term government securities.
Additionally, management considers that portion of the loan portfolio that
matures within one year and the maturities within one year in the investment
portfolio as part of the bank's liquid
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assets. The bank's liquidity is monitored by its Asset/Liability Committee,
which establishes and monitors ranges of acceptable liquidity. Management feels
the bank's current liquidity position is acceptable.
The bank manages interest rate risk to minimize the impact of fluctuating
interest rates on earnings. The bank uses simulation techniques which attempt to
measure the change in net interest income at various levels of interest rate
changes, basic banking interest rate spreads, the shape of the yield curve, and
the impact of changing product growth patterns. The primary method of measuring
the sensitivity of earnings to changing market interest rates is to simulate
expected cash flows using varying assumed interest rates while also adjusting
the timing and magnitude of non-contractual deposit repricing to more accurately
reflect anticipated pricing behavior.
The principal function of interest rate risk management is to maintain an
appropriate relationship between those assets and liabilities that are sensitive
to changing market interest rates. The bank closely monitors the sensitivity of
its assets and liabilities on an ongoing basis and projects the effect of
various interest rate changes on its net interest margin. Interest sensitive
assets and liabilities are defined as those assets or liabilities that mature or
reprice within a designated time-frame. The difference between rate sensitive
assets and rate sensitive liabilities for a specified period of time is known as
"gap".
To aid in interest rate management, the bank anticipates using FHLB advances as
a low risk means of matching maturities of earning assets with interest bearing
funds to achieve a desired interest rate spread over the life of the earning
assets.
A commonly used measure of interest rate risk is the gap report. A gap report
identifies the ratio of earning assets to interest bearing liabilities that will
mature or reprice within a given time period. A sensitivity ratio of greater
than 1.00 (positive gap) indicates that more earning assets than interest
bearing liabilities will be subject to interest rate repricing during a given
period. Thus, an increase in interest rates would tend to have a positive impact
on net interest income, while a decline in rates would tend to have the opposite
effect.
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<TABLE>
<CAPTION>
COMPARATIVE RATE SENSITIVITY SUMMARY
JUNE 30, 2000 (DOLLARS IN THOUSANDS)
0-3 4-12 1-3 OVER 3
MONTHS MONTHS YEARS YEARS TOTAL
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest bearing deposits in banks $ 56 $ -- $ -- $ -- $ 56
Federal funds sold 5,881 -- -- -- 5,881
Investments 7,462 2,974 -- 22 10,458
Loans:
Non real estate 17,746 2,617 219 623 21,205
Real estate 175 110 -- 3,426 3,711
Allowance for loan losses (374) -- -- -- (374)
-------- ------- ------- ------- --------
TOTAL EARNING ASSETS 30,946 5,701 219 4,071 40,937
INTEREST BEARING LIABILITIES
Deposits:
NOW 1,154 -- -- -- 1,154
Money market checking 18,963 -- -- -- 18,963
Savings -- -- 269 -- 269
CDs 100 433 4,541 104 5,178
Short-term borrowings 2,302 1,000 -- -- 3,302
-------- ------- ------- ------- --------
TOTAL INTEREST BEARING LIABILITIES 22,519 1,433 4,810 104 28,866
-------- ------- ------- ------- --------
Interest sensitivity gap for the period $ 8,427 $ 4,268 $(4,591) $ 3,967 $ 12,071
-------- ------- ------- ------- --------
Cumulative interest sensitivity gap $ 8,427 $12,965 $ 8,104 $12,071
======== ======= ======= ======= ========
Cumulate rate sensitivity ratio 137.42% 153.00% 128.18% 141.82%
======== ======= ======= ======= ========
</TABLE>
EFFECTS OF INFLATION ON FINANCIAL STATEMENTS
Substantially all of the bank's assets relate to banking and are monetary in
nature. Therefore they are not impacted by inflation to the same degree as
companies in capital-intensive industries in a replacement cost environment.
During a period of rising prices, a net monetary asset position results in loss
in purchasing power and conversely a net monetary liability position results in
an increase in purchasing power. In the banking industry, typically monetary
assets exceed monetary liabilities. Therefore as prices have recently increased,
financial institutions experienced a decline in the purchasing power of their
net assets.
FUTURE OUTLOOK
Results of operations in the first six months of 2000 represent the infancy
stage of a typical de novo banking institution. The emphasis in future periods
will be to attract depositors and deploy those funds in the lending function.
The critical challenge for the bank in the future will be the emphasis on
customer service with the highest quality products and technology.
The bank has already exceeded first year growth goals after approximately four
months of operation and is approaching its year two goals. The challenge will be
to achieve critical mass to cover fixed costs inherent with the start-up of any
new financial institution.
Future plans for the bank involve the bank taking advantage of both technology
and personal customer contact. The bank is introducing retail internet services
in the third quarter and is currently using the internet to serve business
customers. In addition to "top of the line" technology, the bank is committed to
providing individual and personal banking services. As part of our commitment,
the bank is searching for additional branch locations that will
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compliment our delivery systems and enable the bank to service a broader
customer base. The land for one branch site has been acquired and plans are
underway to begin construction of the facility later in 2000. Also under
consideration are additional ATM locations to further enhance our distribution
network.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The information called for by this item is provided under the caption "Market
Risk Management" under Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 21, 2000, Centra Bank, Inc. held a special meeting of shareholders, at
which shareholders voted upon and approved a merger/corporate reorganization
that involved the formation of Centra Financial Holdings, Inc. to act as the
bank holding company of Centra Bank, Inc. In the merger/corporate
reorganization, each Centra Bank, Inc. shareholder became a shareholder of
Centra Financial Holdings, Inc. and this holding company now owns all of the
outstanding stock of Centra Bank, Inc.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule for the six months ended June 30, 2000.
(b) No other exhibits are required to be filed herewith.
(c) The corporation was not required to file a Form 8-K during the first six
months of 2000.
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.
August 9, 2000 CENTRA FINANCIAL HOLDINGS, INC.
By: /s/ Douglas J. Leech
-------------------------------------
Douglas J. Leech
President and Chief Executive Officer
By: /s/ Kevin D. Lemley
-------------------------------------
Kevin D. Lemley
Chief Financial Officer
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