<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, 1997
--------------
Commission file number 33-17172
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Matewan BancShares, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 55-0639363
-------- ----------
(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
------------
(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 - 3,659,151 shares March 31, 1997
- ------------------------------------------------------------
<PAGE>
Matewan BancShares, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 1997,
December 31, 1996, and March 31, 1996
Consolidated statements of income - Three months ended
March 31, 1997 and March 31, 1996
Consolidated statement of changes in shareholders' equity
for the three months ended March 31, 1997 and 1996
Consolidated statements of cash flows for the three months
ended March 31, 1997 and 1996
Notes to consolidated financial statements
Item 2. Management'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 1997 1996 1996
-------- ----------- --------
<S> <C> <C> <C>
Cash and due from banks $ 26,833 $ 29,721 $ 32,663
Interest bearing deposits
in other banks 6,705 6,034 1,393
Federal funds sold 33,047 28,928 40,956
-------- -------- --------
Cash and cash equivalents 66,585 64,683 75,012
Investment securities:
Available-for-sale at
fair value 19,285 25,411 23,912
Held-to-maturity at cost 130,943 122,569 115,139
(Approximate fair value
$129,269 at March 31,1997;
$122,427 at December 31, 1997;
and $114,104 at March 31, 1996)
Loans - net 371,641 370,801 364,065
Premises and equipment 20,805 20,871 20,214
Accrued interest receivable
and other assets 23,846 22,851 18,550
-------- -------- --------
TOTAL ASSETS $633,105 $627,186 $616,892
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31 December 31 March 31
1997 1996 1996
-------- -------- --------
<S> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 71,322 $ 78,464 $ 68,410
Interest bearing 458,507 444,844 447,295
-------- -------- --------
TOTAL DEPOSITS 529,829 523,308 515,705
Short-term borrowings:
Repurchase agreements 9,349 10,118 9,863
Other 10,224 13,101 12,451
-------- -------- --------
TOTAL SHORT TERM
BORROWINGS 19,573 23,219 22,314
Long-term Borrowings 7,431 7,579 8,000
Accrued interest payable
and other liabilities 8,138 5,502 8,037
-------- -------- --------
TOTAL LIABILITIES 564,971 559,608 554,056
SHAREHOLDERS' EQUITY
Preferred stock 805 805 700
$1 par value; 1,000,000 shares
authorized; 805,000 issued as
of March 31, 1997 and December 31,
1996 and 700,000 as of March 31, 1996,
including 5,500 shares in treasury
stock March 31, 1997 ($25 per share
liquidation preference)
Common Stock - $1 par value 3,684 3,684 3,684
10,000,000 shares authorized;
3,684,104 shares outstanding at
March 31, 1997, and December 31, 1996;
and 3,349,344 shares outstanding at
March 31, 1996, including
24,953, 23,953 and 17,053 shares
in treasury stock
Surplus 29,773 29,773 27,732
Retained earnings 34,378 33,590 30,803
Treasury stock (360) (206) (84)
Net unrealized gain (loss) on
available-for-sale
securities, net of income
taxes (146) (68) 1
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 68,134 67,578 62,836
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $633,105 $627,578 $616,892
======== ======== ========
</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,
---------
1997 1996
-------- --------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 9,784 $ 6,998
Interest and dividends
on investment securities:
Taxable 2,248 1,674
Tax-exempt 138 50
Other interest income 397 343
-------- --------
TOTAL INTEREST INCOME 12,567 9,065
INTEREST EXPENSE
Deposits 5,102 3,553
Short-term borrowings 403 128
-------- --------
TOTAL INTEREST EXPENSE 5,505 3,681
-------- --------
NET INTEREST INCOME 7,062 5,384
PROVISION FOR LOAN LOSSES 381 462
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,681 4,922
OTHER INCOME
Service fees 868 560
Other 328 196
Credit life insurance
commissions 68 111
-------- --------
TOTAL OTHER INCOME 1,264 867
OTHER EXPENSES
Salaries and employee
benefits 2,328 1,464
Net occupancy 357 252
Equipment 360 214
Data Processing 346 249
Advertising 221 133
Federal deposit insurance 103 186
Other 1,828 1,232
-------- --------
TOTAL OTHER EXPENSE 5,543 3,730
-------- --------
INCOME BEFORE INCOME TAXES 2,402 2,059
APPLICABLE INCOME TAXES 864 750
-------- --------
NET INCOME 1,538 1,309
Preferred Stock Dividends 311 116
EARNINGS APPLICABLE TO COMMON STOCK $ 1,227 $ 1,193
======== ========
Per Share Earnings Applicable to Common Stock $.34 $.33
======== ========
Average common shares
outstanding 3,659,495 3,667,120
========= =========
Dividends per common share $.12 $.10
========= =========
</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
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>
<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, 1997 $805 $3,684 $29,773 $33,590 ($206) ($68) $67,578
Treasury Stock Purchases 0 0 0 0 (154) 0 (154)
Change in net unrealized gain on
available-for-sale securities, net of
deferred income taxes 0 0 0 0 0 (78) (78)
Dividends on Common Stock 0 0 0 (439) 0 0 (439)
($.12 per share)
Net income 0 0 0 1,538 0 0 1,538
Dividends on Preferred Shares 0 0 0 (311) 0 0 (311)
($.387 per share) --------- --------- --------- --------- ------- -------- --------
Balance March 31, 1997 $805 $3,684 $29,773 $34,378 ($360) ($146) $68,134
========= ========= ========= ========= ======= ======== ========
</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,
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 1,538 $ 1,309
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION 332 192
AMORTIZATION 294 96
PROVISION FOR LOAN LOSSES 381 462
PROVISION FOR DEFERRED TAXES 143 5
NET CHANGE IN ACCRUED INTEREST
RECEIVABLE AND OTHER ASSETS (1,294) 793
NET CHANGE IN ACCRUED INTEREST
PAYABLE AND OTHER LIABILITIES 2,350 3,961
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,744 6,818
INVESTING ACTIVITIES
NET CASH RECEIVED IN ACQUISITION OF
BANK 0 15,822
PROCEEDS FROM MATURITIES OF
AVAILABLE-FOR-SALE SECURITIES 6,128 10,988
PROCEEDS FROM MATURITIES OF
HELD-TO-MATURITY SECURITIES 10,254 16,072
PURCHASES OF AVAILABLE-FOR-SALE
SECURITIES (88) (2,471)
PURCHASES OF HELD-TO-MATURITY
SECURITIES (18,624) (43,562)
NET CHANGE IN LOANS (1,238) (2,081)
PURCHASES OF PREMISES
AND EQUIPMENT (257) (140)
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES (3,825) (5,372)
FINANCING ACTIVITIES
NET CHANGE IN DEPOSITS 6,593 (1,268)
NET CHANGE IN SHORT-TERM
BORROWINGS (3,646) 4,128
PROCEEDS FROM SALE OF PREFERRED
STOCK 0 16,250
PROCEEDS FROM LONG TERM NOTE 0 8,000
PAYMENTS ON LONG TERM BORROWINGS (148) 0
CASH DIVIDENDS PAID (816) (366)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,983 26,744
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,902 28,190
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 64,683 46,822
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 66,585 $ 75,012
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
MARCH 31, 1997
(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,
1997. 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, 1996.
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. In January 1997, the Board of Directors of the Company approved the use of up
to $3.00 million to repurchase outstanding preferred shares.
On April 30, 1997, the Company filed a Schedule 13E-4 with the Securities and
Exchange Commission for the purpose of issuing a tender offer to preferred
shareholders to repurchase 114,500 of outstanding preferred shares at a price to
be determined via the offering, but in no event to be less than $24 or greater
than $26.50 per share.
4. On March 15, 1996, the Company acquired for cash all of the outstanding
common stock of Bank One, Pikeville, N.A. (Kentucky) from Banc One Corporation.
This transaction was accounted for under the purchase method of accounting.
Accordingly, the consolidated financial statements include the operations of
Kentucky only from the date of acquisition. The aggregate purchase price was
approximately $29.35 million, which includes costs of acquisition. The Company
financed this transaction with proceeds from the issuance of convertible stock,
long term debt, and available cash.
5. At March 31, 1997, the recorded investment in impaired loans under Statement
No. 114 was $12.15 million (of which $4.47 million were on a nonaccrual basis).
Included in this amount is $2.33 million of impaired loans for which the related
allowance for credit losses is $1.21 million and $9.82 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, 1997
approximated $10.97 million.
6. In June 1996, the Financial Accounting Standards Board (FASB)
<PAGE>
issued Statement No. 125, "Accounting for Transfers and Servicings of Financial
Assets and Extinguishments of Liabilities," which was applicable to the Company
January 1, 1997. In October 1996, the FASB agreed to defer the effective date
for one year for the following transactions: securities lending, repurchase
agreements, dollar rolls, and other similarly secured transactions. Statement
No. 125 establishes the standards for determining whether certain transfers of
financial assets should be considered sales of all or part of the assets or
secured borrowings. Statement 125 also establishes standards for settlements of
liabilities through the transfer of assets to a creditor or obtaining an
unconditional release and whether these settlements should prove the debt
extinguished. The adoption of this standard is not expected to have a material
impact on the Company's financial statements.
7. In February 1997, the FASB issued Statement No. 128, "Earnings Per Share,"
(Statement 128) which simplifies the computation of earnings per share available
for common shareholders and make such computation more comparable to
international accounting standards. Under Statement 128, primary earnings per
share will be replaced with "basic" earnings per share and will be computed by
dividing income available to common shareholders by average common shares
outstanding (exclusive of the impact of common stock equivalents). Fully diluted
earnings per share will be renamed "Diluted" and Statement 128 requires that
both computations be shown on the face of the income statement with equal
prominence except for entities with simple capital structures and then only
basic earnings per share will be required. Statement 128 is effective for
interim and annual financial statements ending after December 15, 1997. The
Company does not expect Statement 128 to have a material impact on its financial
statements.
<PAGE>
MATEWAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets at March 31, 1997, have increased approximately $5.9 million since
December 31, 1996, and $16.2 million since March 31, 1996. The Company
experienced annualized growth in each time period of 3.8% and 2.6% percent,
respectively. Deposits have increased approximately $6.5 million and $14.1
million and short term borrowings decreased approximately $3.6 million and $2.7
million over the quarterly and annual intervals. Retained earnings increased
approximately $788 thousand from December 31, 1996, to March 31, 1997, and
approximately $3.5 million in the twelve month period ended March 31, 1997.
The asset structure of the Company's balance sheet at March 31, 1997, compared
to December 31, 1996, and March 31, 1996, has not materially changed, as far as
overall composition. Cash and cash equivalents has increased $1.9 million since
December 31, 1996 and has declined $8.4 million since March 31, 1996.
Investments have increased $2.2 million since December 31, 1996 and $11.2
million since March 31, 1996. Loans have increased $840 thousand since December
31, 1996 and $7.6 million since March 31, 1996. Growth in earning assets in both
the three month period and the twelve month period have been funded by a
combination of deposit growth of $6.5 million and $14.1 million over the same
respective periods and declines in cash and cash equivalents previously noted.
Loan and deposit growth that has taken place in both periods of time has been a
function of growth in the Company's core market areas.
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 thirteen county market area in southern West Virginia, eastern
Kentucky, and western Virginia 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, 1997, and 1996, respectively, for each loan portfolio category
are to customers within this core market.
<PAGE>
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
thirteen county market area, some geographic diversification may be realized by
engaging in business in contiguous counties.
Non-interest bearing deposits decreased approximately $7.1 million in the three
months since December 31, 1996 and increased $2.9 million in the twelve month
period since March 31, 1996. Interest bearing deposits increased approximately
$13.7 million and $11.2 million in the same respective periods of time. 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 helped the Company to insulate earnings from rising interest rate
pressures. Short term borrowings decreased $3.6 million and $2.7 million over
these 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 increased approximately $2.6 million and $101 thousand,
respectively, over the same time periods.
Internal capital retention has allowed for equity growth of approximately $788
thousand and $3.6 million in the respective time periods. Issuance of a new
class of preferred shares netted $16.25 million in new capital in the first
quarter of 1996. Exercise of the underwriter's overallotment option added an
additional $2.6 million in the second quarter of 1996. Equity capital as a
percentage of total assets was 10.76%, 10.77%, and 10.19% at March 31, 1997,
December 31, 1996, and March 31, 1996, 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
<PAGE>
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 14.93% at March 31, 1997, and 14.19% at March 31,
1996. The percentage at December 31, 1996, was 15.63%.
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 available for common share holders for the first quarter of 1997 was
approximately $1.227 million, representing earnings per share applicable to
common stock of $.34, versus $1.193 million, or $.33 per share for the same
period in 1996. Earnings per share for the year ended December 31, 1996 was
$1.43. Return on Average Assets was 1.02% and 1.21% for the three month periods
ended March 31, 1997, and March 31, 1996, respectively. Return on Average Assets
for the year ended December 31, 1996, was 1.15%. Return on Average Equity was
9.24% and 10.73% for the respective three month time periods and 10.37% for the
year ended December 31, 1996.
ACQUISITION ACTIVITY
On March 15, 1996, the Company acquired all of the outstanding common stock of
the Bank One, Pikeville, N.A. franchise (Kentucky). The Kentucky franchise
commenced operations as a wholly owned subsidiary of Matewan BancShares, Inc. At
March 15, 1996, Kentucky had total assets of approximately $204 million,
deposits of approximately $183 million and capital of approximately $20 million.
The Company funded this cash 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 $7.062 million for the three month period ended March
31, 1997 versus $5.384 million for the three month period ended March 31, 1996.
The increase of approximately $1.678 million was a function of the Company
managing its net interest margin through its core business base and the fact
that the Kentucky acquisition contributed earnings for a full quarter in 1997
versus only sixteen days for the same quarter in 1996. Under normal
circumstances, in the rising interest rate environment experienced in the first
quarter of 1997, institutions that are 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, 1997 was
5.23% versus 5.59% for the same period in 1996, an erosion of approximately 6%.
The Company continues to be liability sensitive and accordingly future increases
in market interest rates would generally adversely impact net interest income,
while decreases in market interest rates would generally have a positive impact.
The Company's provision for loan losses for the three months ended March 31,
1997 was approximately $81 thousand lower than for the same
<PAGE>
period in 1996. Net charge-off activity increased to $563 thousand from $463
thousand for the same respective periods. Non-performing loans (loans past due
greater than ninety days plus nonaccrual loans) approximated $5.497 million at
March 31, 1997, versus $5.693 million at March 31, 1996. These levels represent
approximately 1.46% and 1.54% of the gross loans outstanding for each respective
period. The Company's ratio of allowance for loan losses to non-performing loans
of 105.52% as of March 31, 1997. A similar calculation for the first quarter of
1996 produced a ratio of 107.57%. The ratio of allowance for loan losses to
gross loans was 1.54% and 1.65% for the three month periods ended March 31,
1997, and March 31, 1996, respectively. The relatively stable level of these
ratios for the comparable quarterly periods in the face of higher charge-off
activity in the more recent quarter may be mainly attributable to one
phenomenon. The consolidation of the Kentucky franchise in the first quarter of
1996 included an increase to the consolidated Company reserve position of
approximately $3.152 million. In addition, the market devaluation incurred by
the Company for specific credits acquired via the Kentucky acquisition created
an additional cushion for specific credits separate from the reserve. Because of
these acquired cushions, the Company was able to absorb the higher level of loan
charge-offs incurred in the first quarter without having to generate a parallel
increase to its provision for loan losses. 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 $397 thousand during the first three months of
1997 when compared to the same period in 1995. The major reason was the full
quarter contribution from Kentucky in 1997 versus the sixteen day contribution
for 1996. 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 $43 thousand lower in 1997 than for the same three
month period in 1996. 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.
Non-interest expenses increased $1.8 million for the first three months of 1997
over the same period in 1996. Otherwise most increases for overhead-related
expenses were a function of normal business growth and activity. Two reasons
account for most of the increase. First of all, there was the full quarter of
operation for Kentucky in 1997 versus the sixteen day operation in 1996.
Secondly, the Company opened four new offices in the second half of 1996 that
have become
<PAGE>
full cost centers, but have not for the most part have been slower to generate
additional revenues.
For the three month periods ended March 31, 1997 and March 31, 1996,
respectively, net income before taxes increased $343 thousand. Applicable
income taxes increased by $114 thousand in the three month period ended March
31, 1997 over the same period in 1996 The effective income tax rate for the
first three months of 1997 was 35.97% versus 36.43% for the first three months
of 1996. 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 $229 thousand for the three months ended March 31,
1997, over the same period for 1996. Earnings available to common shareholders
increased $33 thousand ($.01 per share) for the three months ended March 31,
1997 over the same period in 1996.
<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,
-------- ---------
1997 1996
---- ----
<S> <C> <C>
Balance at begining of period $5,986 $2,973
Loans charged-off (745) (537)
Recoveries 177 74
Increase incidental to acquisition 0 3,152
Provision for loan losses 381 462
----- -----
Balance at the end of period $5,799 $6,124
===== =====
Non-performing loans $ 5,496 $5,693
Ratio of net charge-offs to
average loans (annualized) .60% .73%
Ratio of nonperforming loans to
gross loans 1.46% 1.54%
Ratio of nonperforming assets to
total assets 1.03% 1.02%
Ratio of allowance for loan losses
to non-performing loans 105.52% 107.57%
Ratio of allowance for loan losses
to gross loans 1.54% 1.65%
</TABLE>
The level of loans classified as troubled, restructured debt was immaterial for
either of the above periods.
<PAGE>
MATEWAN BANCSHARES, INC.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Date Schedule
Information included in EX-27 is incorporated herein by reference.
(b) Form 8-K
None
<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, 1997 By: /s/Dan R. Moore
----------------------------
Dan R. Moore
Chairman of the Board of Directors
and President
May 10, 1997 By: /s/Lee M. Ellis
----------------------------
Lee M. Ellis
Vice President & Chief Financial Officer
<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
1997 1996
<S> <C> <C>
Average shares outstanding 3,684,104 3,684,104
Impact of Treasury Shares 24,609 16,984
--------- ---------
Total 3,659,495 3,667,120
========= =========
Net Income $1,538 $1,309
Net Income Available to Common Shareholders $1,227 $1,193
Earnings Per Share Available to Common Shareholders $.34 $.33
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 26,833
<INT-BEARING-DEPOSITS> 6,705
<FED-FUNDS-SOLD> 33,047
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,285
<INVESTMENTS-CARRYING> 130,943
<INVESTMENTS-MARKET> 129,269
<LOANS> 377,440
<ALLOWANCE> 5,799
<TOTAL-ASSETS> 633,105
<DEPOSITS> 529,829
<SHORT-TERM> 19,573
<LIABILITIES-OTHER> 8,138
<LONG-TERM> 7,431
0
805
<COMMON> 3,684
<OTHER-SE> 63,645
<TOTAL-LIABILITIES-AND-EQUITY> 633,105
<INTEREST-LOAN> 9,784
<INTEREST-INVEST> 2,386
<INTEREST-OTHER> 397
<INTEREST-TOTAL> 12,567
<INTEREST-DEPOSIT> 5,102
<INTEREST-EXPENSE> 5,505
<INTEREST-INCOME-NET> 7,062
<LOAN-LOSSES> 381
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,543
<INCOME-PRETAX> 2,402
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,538
<EPS-PRIMARY> .40
<EPS-DILUTED> .34
<YIELD-ACTUAL> 5.23
<LOANS-NON> 4,398
<LOANS-PAST> 4,711
<LOANS-TROUBLED> 784
<LOANS-PROBLEM> 12,150
<ALLOWANCE-OPEN> 5,986
<CHARGE-OFFS> 745
<RECOVERIES> 177
<ALLOWANCE-CLOSE> 5,799
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,994
</TABLE>
