<PAGE>
FORM - 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended March 31, 1996
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Commission file number 33-17172
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Matewan BancShares, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 55-0639363
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
Box 100
Second Avenue and Vinson Street
Williamson, West Virginia 25661
- ------------------------- --------
(Address of principal executive offices) (Zip Code)
304 235-1544
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(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1 Par Value - 3,667,051 shares March 31, 1996
- ------------------------------------------------------------
1
<PAGE>
Matewan BancShares, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 1996,
December 31, 1995, and March 31, 1995
Consolidated statements of income - Three months ended
March 31, 1996 and March 31, 1995
Consolidated statement of changes in shareholders' equity
for the three months ended March 31, 1996 and 1995
Consolidated statements of cash flows for the three months
ended March 31, 1996 and 1995
Notes to consolidated financial statements
Item 2. Manangement's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31 December 31 March 31
-------- ----------- --------
ASSETS 1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Cash and due from banks $ 32,663 $ 23,881 $ 17,505
Federal funds sold 40,956 17,237 10,505
-------- -------- --------
Cash and cash equivalents 73,619 41,118 28,010
Interest bearing deposits
in other banks 1,393 5,704 265
Investment securities:
Available-for-sale at
fair value 23,912 32,429 10,806
Held-to-maturity at cost 115,139 73,299 98,122
(Approximate fair value
$114,104 at March 31,1996;
$73,839 at December 31, 1995;
and $96,652 at March 31, 1995)
Loans - net 364,065 228,568 216,710
Premises and equipment 20,214 9,692 9,177
Accrued interest receivable
and other assets 18,550 10,224 8,896
-------- -------- --------
TOTAL ASSETS $616,892 $401,034 $371,986
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31 December 31 March 31
-------- ----------- --------
LIABILITIES AND 1996 1995 1995
SHAREHOLDERS' EQUITY ---- ---- ----
<S> <C> <C> <C>
Deposits:
Non-interest bearing $ 68,410 $ 44,917 $ 44,197
Interest bearing 447,295 289,470 268,252
-------- -------- --------
TOTAL DEPOSITS 515,705 334,387 312,449
Short-term borrowings:
Repurchase agreements 9,863 9,361 12,299
Other 12,451 8,349 1,419
-------- -------- --------
TOTAL SHORT TERM
BORROWINGS 22,314 17,710 13,718
Long-term Borrowings 8,000 0 0
Accrued interest payable
and other liabilities 8,037 3,120 3,079
-------- -------- --------
TOTAL LIABILITIES 554,056 355,217 329,246
SHAREHOLDERS' EQUITY
Preferred stock 700 0 0
$1 par value; 1,000,000 shares
authorized; 700,000 issued as
of March 31, 1996 ($25 per share
liquidation preference)
Common Stock - $1 par value 3,684 3,684 3,349
10,000,000 shares authorized;
3,684,104 shares outstanding at
March 31, 1996, and December 31, 1995;
and 3,349,344 shares outstanding at
March 31, 1995, including
17,053, 16,753 and 16,440 shares
in treasury stock
Surplus 27,732 12,182 6,460
Retained earnings 30,803 29,976 33,091
Treasury stock (84) (78) (64)
Net unrealized gain (loss) on
available-for-sale
securities, net of income
taxes 1 53 (96)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 62,836 45,817 42,740
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $616,892 $401,034 $371,986
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 6,998 $ 5,959
Interest and dividends
on investment securities:
Taxable 1,674 1,473
Tax-exempt 50 27
Other interest income 343 146
--------- ---------
TOTAL INTEREST INCOME 9,065 7,605
INTEREST EXPENSE
Deposits 3,553 2,758
Short-term borrowings 128 142
--------- ---------
TOTAL INTEREST EXPENSE 3,681 2,900
--------- ---------
NET INTEREST INCOME 5,384 4,705
PROVISION FOR LOAN LOSSES 462 345
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,922 4,360
OTHER INCOME
Service fees 560 384
Other 196 201
Credit life insurance
commissions 111 134
--------- ---------
TOTAL OTHER INCOME 867 719
OTHER EXPENSES
Salaries and employee
benefits 1,464 1,455
Net occupancy 252 239
Equipment 214 78
Data Processing 249 200
Advertising 133 140
Federal deposit insurance 186 195
Other 1,232 836
--------- ---------
TOTAL OTHER EXPENSE 3,730 3,143
--------- ---------
INCOME BEFORE INCOME TAXES 2,059 1,936
APPLICABLE INCOME TAXES 750 697
--------- ---------
NET INCOME $ 1,309 $ 1,239
========= =========
Preferred Stock Dividends $ 116 $ 0
========= =========
Per Share Earnings Applicable to Common Stock $ .33 $ .34
========= =========
Average common shares
outstanding 3,667,120 3,666,818
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS' EQUITY (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Net
Unrealized
Loss on
Available-
Preferred Common Capital Retained Treasury for-Sale
Stock Stock Surplus Earnings Stock Securities Total
--------- ------ ------- -------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 0 $3,349 $6,460 $32,185 ($48) ($143) $41,803
Treasury Stock Purchases 0 0 0 0 (16) 0 (16)
Change in net unrealized loss on
available-for-sale securities, net
of deferred income taxes 0 0 0 0 0 47 47
Dividends on Common Stock 0 0 0 (333) 0 0 (333)
($.09 per share)
Net income 0 0 0 1,239 0 0 1,239
--------- ------ ------- -------- -------- -------- -------
Balance March 31, 1995 0 $3,349 $6,460 $33,091 ($64) ($96) $42,740
========= ====== ======= ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized
Gain on
Available-
Preferred Common Capital Retained Treasury for-Sale
Stock Stock Surplus Earnings Stock Securities Total
--------- ------ ------- -------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 $0 $3,684 $12,182 $29,976 ($78) $53 $45,817
Treasury Stock Purchases 0 0 0 0 (6) 0 (6)
Change in net unrealized gain on
available-for-sale securities, net
of deferred income taxes 0 0 0 0 0 (52) (52)
Dividends on Common Stock 0 0 0 (366) 0 0 (366)
($.10 per share)
Net income 0 0 0 1,309 0 0 1,309
Issuance of Preferred Shares 700 0 15,550 0 0 0 16,250
Dividends on Preferred Shares 0 0 0 (116) 0 0 (116)
--------- ------ ------- -------- -------- -------- -------
($.1654 per share)
Balance March 31, 1996 $700 $3,684 $27,732 $30,803 ($84) $1 $62,836
========= ====== ======= ======== ======== ======== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31, March 31,
1996 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 1,309 $ 1,239
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION 192 175
AMORTIZATION 96 147
PROVISION FOR LOAN LOSSES 462 345
PROVISION FOR DEFERRED TAXES 5 13
NET CHANGE IN ACCRUED INTEREST
RECEIVABLE AND OTHER ASSETS 793 298
NET CHANGE IN ACCRUED INTEREST
PAYABLE AND OTHER LIABILITIES 3,353 (935)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,210 1,282
INVESTING ACTIVITIES
CASH RECEIVED IN ACQUISITION OF
BANK, NET OF CASH PAID 16,430 0
PROCEEDS FROM SALES OF
AVAILABLE-FOR-SALE SECURITIES 0 0
PROCEEDS FROM MATURITIES OF
AVAILABLE-FOR-SALE SECURITIES 10,988 3,261
PROCEEDS FROM MATURITIES OF
HELD-TO-MATURITY SECURITIES 16,072 16,145)
PURCHASES OF AVAILABLE-FOR-SALE
SECURITIES (2,471) (2,946)
PURCHASES OF HELD-TO-MATURITY
SECURITIES (43,562) (15,430)
NET CHANGE IN INTEREST BEARING
DEPOSITS IN OTHER BANKS 4,311 2,611
NET CHANGE IN LOANS (2,081) (2,312)
PURCHASES OF PREMISES
AND EQUIPMENT (140) (265)
PROCEEDS FROM SALE OF
PREMISES AND EQUIPMENT 0 165
--------- --------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (453) 1,229
FINANCING ACTIVITIES
NET CHANGE IN DEPOSITS (1,268) 1,802
NET CHANGE IN SHORT-TERM
BORROWINGS 4,128 (1,279)
PROCEEDS FROM SALE OF PREFERRED
STOCK 16,250 0
PROCEEDS FROM LONG TERM NOTE 8,000 0
CASH DIVIDENDS PAID (366) (333)
--------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 26,744 190
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 32,501 2,701
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 41,118 25,309
--------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 73,619 $ 28,010
========= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
MARCH 31, 1996
(Dollars in thousands)
1. The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim period are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in Matewan BancShares, Inc. and Subsidiaries'
annual report on Form 10-K for the year ended December 31, 1995.
2. The financial statements presented herein reflect Matewan BancShares, Inc.
and its consolidated subsidiaries, The Matewan National Bank, Matewan Bank FSB,
Matewan National Bank/Kentucky and Matewan Venture Fund, Inc.
3. On January 1, 1995, the Company adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended by FASB Statement No. 118. Under this standard, the allowance for loan
losses related to loans that are identified for evaluation in accordance with
Statement 114 is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for collateral
dependent loans. The adoption and implementation of this standard did not have a
material effect on the Company's financial statements, accounting policies,
nonperforming loans, or determination of the adequacy of the allowance for loan
losses.
For definitional purposes of the Company, a loan is considered "impaired" in the
context of Statement 114 when it is assigned an internal classification rating
of substandard, doubtful, or loss, and it is incorporated into the Company's
watch list. The internal classifications that define a credit as impaired and
the criterea evaluated to determine such classification parallel those employed
by banking regulatory authorities.
At March 31, 1996, the recorded investment in impaired loans under Statement No.
114 was $8.08 million (of which $1.37 million were on a nonaccrual basis).
Included in this amount is $4.76 million of impaired loans for which the related
allowance for credit losses is $2.12 million and $3.32 million of impaired loans
that do not have a specific allowance for credit losses. The average recorded
investment in impaired loans during the three month period ended March 31, 1996
approximated $7.29 million.
<PAGE>
4. On September 28, 1995, the Company entered into a definitive agreement with
Banc One Corporation and Bank One Kentucky Corporation under which Matewan
BancShares, Inc. would acquire via cash purchase all of the outstanding common
stock of the Bank One, Pikeville N.A. franchise. Consummation of this
transaction was completed on March 15, 1996. Effective March 16, 1996, the
former Bank One, Pikeville N.A. commenced business at its seven office locations
as Matewan National Bank/Kentucky ("Pikeville"). Absorption of the Pikeville
franchise into the Matewan system increased total consolidated assets
approximately $204 million and total consolidated deposits approximately $183
million.
5. On March 15, 1996, the Company executed a note payable for $8.0 million as a
partial source of funds to finance the Bank One, Pikeville N.A. acquisition. The
note repayment schedule was amortized for a 10 year payback priced 7.75%. The
loan will reprice only at its five year anniversary date on the basis of the
same 200 basis point over five year Treasury Note differential.
6. On March 4, 1996, the Company closed a stock offering for a new class of
convertible preferred stock. Concurrent with this closing, the Company received
a capital infusion of approximately $16.25 million, representing the net
proceeds from the offering. This new class of stock carries a 7.5% dividend and
may not be converted for a period of four years.
7. The preliminary proforma unaudited results of operations for the three month
period ended March 31, 1996 and March 31, 1995, assuming consummation of the
purchase transaction using a preliminary allocation of the purchase price,
issuance of the convertible preferred stock (Note 6), and execution of the note
payable (Note 5) as of January 1, 1995, are as follows:
<TABLE>
<CAPTION>
Three months ended March 31
1996 1995
---- ----
(000's omitted, except
per share data)
<S> <C> <C>
Total revenues $14,298 $13,032
Net income 1,504 1,280
Net income per share applicable to Common Stock .32 .26
</TABLE>
8. Subsequent to March 31, 1996, the Company's underwriters exercised their
overallotment option related to the preferred stock offering and the Company
sold an additional 105,000 shares of preferred stock. The net proceeds
approximated $2,468 million.
<PAGE>
MATEWAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets at March 31, 1996, have increased approximately $216 million since
December 31, 1995, and $245 million since March 31, 1995. Consolidation of the
Matewan National Bank/Kentucky figures accounted for the majority of the
increase. However, excluding the impact of the Pikeville acquisition, the
Company experienced annualized growth in both time periods in excess of ten
percent. Deposits have increased approximately $181 million and $203 million and
short term borrowings increased approximately $4.6 million and $8.6 million over
the quarterly and annual intervals. To fund the acquisition, the Company
incurred $8.0 million of long-term debt and successfully completed a new
preferred stock offering that netted proceeds of another $16.25 million.
Retained earnings increased approximately $827 thousand from December 31, 1995,
to March 31, 1996, and decreased approximately $2.3 million in the twelve month
period ended March 31, 1996. The latter decrease was due to the effect of the
reallocation between capital accounts related to the June 1995 stock dividend
after considering earnings and cash dividends. The former increase is due to the
retention of earnings, net of dividends paid.
The asset structure of the Company's balance sheet at March 31, 1996, compared
to December 31, 1995, and March 31, 1995, reflects several notable differences.
Net loans have increased approximately $135 million from December 31, 1995,
mainly due to the Pikeville acquisition and subsequent consolidation. This
increase reflects a level of 59.0% of total assets versus a pre-acquisition
level of just under 57.0%. Deposit growth attributable to both the acquisition
and normal core market growth for the three month and twelve month periods
depicted in the financial statements ended March 31, 1996, supported almost all
of this loan growth. Investment securities have increased approximately $33.3
million since December 31, 1995, and $30.1 million since March 31, 1995.
Investment securities comprise approximately 22.5% of the Company's total assets
versus 18.3% at December 31, 1995. Cash and cash equivalent balances increased
approximately $32.5 million and $45.6 million. Interest bearing deposits in
other banks decreased approximately $4.3 million and increased approximately
$1.1 million, respectively, in the three month and twelve month periods ended
March 31, 1996. Virtually all of the growth in overall earning asset levels over
these respective time periods was funded through increased deposits and short-
term borrowings. Fixed assets increased approximately $10.2 million and $11.0
million during the three month and twelve month periods ended March 31, 1996.
Almost all of the increases are attributable to the absorption of the fixed
assets of the newly acquired franchise and additional data communication and
data processing enhancements related to its conversion to the Company's
operating system. Other assets increased approximately $8.3 million since
December 31, 1995, mainly due to preliminary goodwill, core deposits, and
organizational expenditures related to the Pikeville acquisition.
<PAGE>
Regarding the loan portfolio, it is the Company's policy to maintain a
strategic asset mix wherein the loan portfolio represents approximately sixty-
five percent (65%) of total assets. More specifically, the desired targeted mix
within the loan portfolio is equally distributed among the commercial, consumer,
and real estate loan categories. Real estate loans represent the largest
component of the Company's loan portfolio. The majority of the real estate loans
are of the one-to-four family residential nature. Consumer loans represent the
second largest category of the loan portfolio. Automobile loans approximate 50%
of the total consumer portfolio. Commercial loans represent the smallest
component of the Company's loan portfolio. All classes of loans are subject to
minimum acceptable underwriting standards regarding downpayment, term, equity,
loan-to-value measures and collateral coverage, adequate cash flow and debt
coverage, and credit history, among other things. The primary focus for all
categories of lending is the seven county market area in southern West Virginia
and eastern Kentucky that the Company has identified as its core market. As a
point of fact, the overwhelming majority of the loans outstanding on both March
31, 1996, and 1995, respectively, for each loan portfolio category are to
customers within this core market.
By definition, two major credit concentrations exist for the Company: (1) those
delineated by loan category as a proportion of the Company's capital base, and
(2)that of a single industry concentration. Loan categories that exceed 25% of
the Company's capital base are: (1) those secured by one-to-four family
residences, (2) those secured by automobiles, (3) those secured by commercial
real estate and equipment, and (4) those characterized as unsecured loans. The
other type of concentration relates to the general overall reliance on the coal
industry prevalent in the Company's market area. Given the market area's
dependence on this industry, avoidance of this type of concentration by the
Company is neither likely nor practical.
Although the Company has a diversified loan portfolio, a substantial portion of
its debtors' ability to honor their obligations is dependent on the coal
industry. Accordingly, a downturn in the coal industry could impact both the
value of collateral held as security and the ability to repay contracts in
accordance with original terms. The Company attempts to mitigate this
sensitivity somewhat by spreading the portfolio throughout eastern Kentucky,
southern West Virginia, and western Virginia. While the bulk of both the lending
and deposit taking functions of the Company are currently in its present seven
county market area, some geographic diversification may be realized by engaging
in business in contiguous counties.
Non-interest bearing deposits increased approximately $23.4 million and $24.2
million and interest bearing deposits increased approximately $158 million and
$179 million in the three month period since December 31, 1995 and in the twelve
month period since March 31, 1995, respectively. All depository subsidiaries of
the Company have interest rate structures that offer yields that have been
consistently competitive with other deposit products available in the market
over these same time periods. This deposit pricing posture has enabled the
<PAGE>
Company to insulate earnings from rising interest rate pressures. Short term
borrowings increased $4.6 million and $8.6 million over the same time periods.
Factors contributing to these changes are the volatile nature of these types of
funds (primarily tax deposits), the increasing placement of public funds in
accounts of this nature, and the fact that, in the interest rate environment
prevalent over the periods addressed, these types of accounts possess most of
the unattractive features of money market accounts. Other liabilities decreased
approximately $4.9 million and $5.0 million, respectively, over the same time
periods. The majority of the increase is attributable to the impact of the
acquisition and subsequent consolidation of the Pikeville franchise.
Internal capital retention has allowed for equity growth of approximately $769
thousand and $3.8 million in the respective time periods. Issuance of a new
class of preferred shares netted another $16.25 million in new capital in the
first quarter of 1996. Equity capital as a percentage of total assets was
10.18%, 11.42%, and 11.48% at March 31, 1996, December 31, 1995, and March 31,
1995, respectively. The Company is now required to meet certain regulatory
capital requirements for capital on a risk-adjusted basis. Risk adjustment
allows for the inclusion of off-balance sheet items such as unused credit
commitments, exclusion of certain no-risk assets, as well as inclusion of other
factors that may cause additional risk to the Company. The Company's risk-
weighted capital to risk-weighted asset percentage was 14.19% at March 31, 1996,
and 19.38% at March 31, 1995. The percentage at December 31, 1995, was 19.06%.
The primary reason for the decrease at March 31, 1996, from other prior period
levels was the dual effect of absorbing approximately $8.9 million in goodwill
related to the Pikeville acquisition and the Pikeville asset mix.
Management is not aware of any trends, events, or uncertainties, either
favorable or unfavorable, that are reasonably likely to have a material effect
on the Company's liquidity, capital resources, or results of operations. There
are no current recommendations by regulatory authorities which, if implemented,
would have a material effect on the Company. The Company has no outstanding
loans that have been classified for regulatory purposes as loss, doubtful,
substandard, or special mention that result from trends or uncertainties which
management reasonably expects to materially impact future operating results,
liquidity, or capital resources.
<PAGE>
MATEWAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY
Net income for the first quarter of 1996 was approximately $1.309 million,
representing earnings per share applicable to common stock of $.33,
versus $1.239 million, or $.34 per share for the same period in 1995. Earnings
per share for the year ended December 31, 1995 was $1.42. Return on Average
Assets was 1.21% and 1.36% for the three month period ended March 31, 1996, and
March 31, 1995, respectively. Return on Average Assets for the year ended
December 31, 1995, was 1.38%. Return on Average Equity was 10.73% and 11.89% for
the respective three month time periods and 12.49% for the year ended December
31, 1995.
ACQUISITION ACTIVITY
On September 28, 1995, the Company entered into a definitive agreement with Banc
One Corporation and Bank One Kentucky Corporation under which Matewan
BancShares, Inc. would acquire via cash purchase all of the outstanding common
stock of the Bank One, Pikeville N.A. franchise. Consummation of the transaction
was completed March 15, 1996. The Pikeville franchise resumed operations as a
wholly owned subsidiary of Matewan BancShares, Inc. as Matewan National
Bank/Kentucky. At March 15, 1996, Pikeville had total assets of approximately
$204 million, deposits of approximately $183 million and capital of
approximately $20 million. The Company funded this acquisition with long-term
debt of approximately $8 million, a capital stock offering of $16.25 million,
and available cash.
RESULTS OF OPERATIONS
Net interest income was $5.384 million for the three month period ended March
31, 1996 versus $4.705 million for the three month period ended March 31, 1995.
Since the new Pikeville franchise contributed only 16 days worth of activity
towards first quarter performance, this increase of approximately $679 was
mainly attributable to the Company managing its net interest margin through its
core business base. Under normal circumstances, in the rising interest rate
environment experienced in the first quarter of 1996, an institution that is
liability sensitive in the short run would expect an unfavorable reaction in net
interest income as interest-bearing liabilities reprice at higher rates faster
than interest-earning assets reprice. Because the Company has exercised such
extreme vigilance in maintaining its funds pricing positions, as interest rates
increased, net interest income was not as vulnerable to erosion. Actual Net
Interest Margin (net interest income divided by average earning assets) for the
three months ended March 31, 1996 was 5.59% versus 5.69% for the same period in
1995, an erosion of less than 2%. The Company continues to be liability
sensitive and accordingly future increases in market interest rates would
generally adversely impact
<PAGE>
net interest income, while decreases in market interest rates would generally
have a positive impact. Consolidation of the Pikeville franchise should mitigate
some of this liability sensitivity for the Company, since the Pikeville
franchise is actually asset sensitive in the short term..
The Company's provision for loan losses for the three months ended March 31,
1996 was approximately $117 thousand higher than for the same period in 1995.
Pikeville did not make a contribution to loan loss provison in the current
quarter towards consolidated Company totals. Net charge-off activity decreased
to $463 thousand from $707 thousand for the same respective periods. Pikeville's
contribution to this measure was immaterial. Non-performing loans (loans past
due greater than ninety days plus nonaccrual loans) approximated $5.693 million
at March 31, 1996, versus $2.922 million at March 31, 1995. These levels
represent approximately 1.54% and 1.33% of the gross loans outstanding for each
respective period. The consolidation of the Pikeville franchise included an
increase to the consolidated Company reserve position of approximately $3.152
million. Consolidation of the Pikeville loan loss reserve and its non-performing
loans with those of the Company for the first quarter of 1996 produced a ratio
of allowance for loan losses to non-performing loans of 107.57%. A similar
calculation for the first quarter of 1995 produced a ratio of 87.95%. The ratio
of allowance for loan losses to gross loans was 1.65% and 1.17% for the three
month periods ended March 31, 1996, and March 31, 1995, respectively. The
Company maintains an extremely aggressive postition in dealing with the workout
or liquidation of higher risk accounts. Management has determined that (1) there
exists sufficient coverage in the loan loss reserve to absorb the effect of
anticipated charge-offs without requiring any additional reserves and (2) on an
ongoing basis, provisions to loan loss reserve will continue to be made to
reflect any ongoing additional exposure to the loan portfolio. Management has
analyzed and evaluated the condition of the loan portfolio, has made provision
for known anticipated losses, and does not anticipate any further significant
losses.
Non-interest income increased $148 thousand during the first three months of
1996 when compared to the same period in 1995. Service fees and other fees
generally increased in the current quarter due to a change in the service fee
schedule from the earlier quarter and normal business growth. Sales of credit
insurance in the same periods translated into commissions approximately $23
thousand lower in 1996 than for the same three month period in 1995. High loss
experiences by the Company's credit insurance underwriters resulted in the
underwriters' companies tightening eligibility standards for policies issued in
the Company's market area. Sales volumes have declined accordingly. The
Pikeville franchise did not make a material contribution to non-interest income
for the sixteen days that it operated as a subsidiary of Matewan BancShares.
Non-interest expenses increased $589 thousand for the first three months of 1996
over the same period in 1995. These increases were related partly to the effect
of operating expenses in opening the two supermarket offices of Matewan Bank FSB
that were incurred subsequent
<PAGE>
to the end of the first quarter of 1995. Overall, higher equipment and data
processing expenses related to the Company's outsourcing its data processing
functions to Electronic Data Systems (EDS) and converting the Pikeville
franchise to the same operating system were experienced. Otherwise most
increases for overhead-related expenses were a function of normal business
growth and activity. For the most part, the contribution from the Pikeville
franchise for sixteen days of normal, ongoing operations was not material to the
overall Company levels of non-interest expense. However, the Company incurred
approximately $366 thousand of accounting, legal, and underwriting expenses
related to consummating the Pikeville acquisition and closing the preferred
stock offering. Management anticipates incurring some additional nonrecurring
expenses related to the Pikeville acquisition of a lesser amount in the second
quarter of 1996.
For the three month periods ended March 31, 1996 and March 31, 1995,
respectively, net income before taxes increased $123 thousand. Applicable
income taxes increased by $53 thousand in the three month period ended March 31,
1996, over the same period in 1995. The effective income tax rate for the first
three months of 1996 was 36.43% versus 36.00% for the first three months of
1995. These levels reflect both changes in composition of the Company's earnings
and favorable tax effects attributable to Matewan Bank FSB. Net income after
income taxes increased only $70 thousand for the three months ended March 31,
1996, over the same period for 1995, a consequence of an interest rate
environment less favorable to a liability sensitive institution, expenses
connected with closing the preferred stock offering and acquiring Matewan
National Bank/Kentucky, and a loan loss provision that was more than 33% higher
than for the prior period.
<PAGE>
Analysis of the allowance for Loan Losses (Unaudited)
MATEWAN BANCSHARES, INC AND SUBSIDIARIES
(Amounts listed in thousands)
<TABLE>
<CAPTION>
Three months ended
Year-to-date amounts listed through March 1, March 31,
-------- ---------
1996 1995
---- ----
<S> <C> <C>
Balance at begining of period $2,973 $2,932
Loans charged-off (537) (802)
Recoveries 74 95
Increase incidental to acquisition 3,152 0
Provision for loan losses 462 345
----- -----
Balance at the end of period $6,124 $2,570
===== =====
Non-performing loans $ 5,693 $2,922
Ratio of net charge-offs to
average loans (annualized) .73% 1.34%
Ratio of nonperforming loans to
gross loans 1.54% 1.33%
Ratio of nonperforming assets to
total assets 1.02% .89%
Ratio of allowance for loan losses
to non-performing loans 107.57% 87.95%
Ratio of allowance for loan losses
to gross loans 1.65% 1.17%
</TABLE>
The level of loans classified as troubled, restructured debt was immaterial for
either of the above periods.
<PAGE>
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.
MATEWAN BANCSHARES, INC.
(Registrant)
May 10, 1996 By: /s/Dan R. Moore
----------------------------
Dan R. Moore
Chairman of the Board of Directors
and President
May 10, 1996 By: /s/Lee M. Ellis
----------------------------
Lee M. Ellis
Vice President & Chief Financial Officer
<PAGE>
MATEWAN BANCSHARES, INC.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11
Exhibit 27 Financial Date Schedule
Information included in EX-27 is incorporated herein by reference.
(b) Reports on Form 8-K - A report on Form 8-K was filed on March 28, 1996.
<PAGE>
EXHIBIT 11
Computation of Earnings per Share
(dollars in thousands, except shares and per share data)
<TABLE>
<CAPTION>
For the Three Months
ended March 31
1996 1995
<S> <C> <C>
PRIMARY:
Average shares outstanding 3,684,104 3,684,104
Impact of Treasury Shares 16,984 17,286
--------- ---------
Total 3,667,120 3,666,818
========= =========
Net Income $1,309 $1,239
====== ======
Preferred Stock Dividends $116 $0
==== ==
Earnings per share applicable to common stock $.33 $.34
==== ====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 32,663
<INT-BEARING-DEPOSITS> 1,393
<FED-FUNDS-SOLD> 40,956
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,912
<INVESTMENTS-CARRYING> 115,139
<INVESTMENTS-MARKET> 114,104
<LOANS> 370,189
<ALLOWANCE> 6,124
<TOTAL-ASSETS> 616,892
<DEPOSITS> 515,705
<SHORT-TERM> 22,314
<LIABILITIES-OTHER> 8,037
<LONG-TERM> 8,000
0
700
<COMMON> 3,684
<OTHER-SE> 58,002
<TOTAL-LIABILITIES-AND-EQUITY> 616,892
<INTEREST-LOAN> 6,998
<INTEREST-INVEST> 1,724
<INTEREST-OTHER> 343
<INTEREST-TOTAL> 9,065
<INTEREST-DEPOSIT> 3,553
<INTEREST-EXPENSE> 3,681
<INTEREST-INCOME-NET> 5,384
<LOAN-LOSSES> 462
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,730
<INCOME-PRETAX> 2,059
<INCOME-PRE-EXTRAORDINARY> 2,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,309
<EPS-PRIMARY> .36
<EPS-DILUTED> .33
<YIELD-ACTUAL> 5.59
<LOANS-NON> 4,398
<LOANS-PAST> 1,224
<LOANS-TROUBLED> 507
<LOANS-PROBLEM> 8,080
<ALLOWANCE-OPEN> 2,973
<CHARGE-OFFS> 537
<RECOVERIES> 74
<ALLOWANCE-CLOSE> 6,124
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
