<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 nine months ended September 30, 1998
------------------
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 - 3,981,692 shares September 30, 1998
- ----------------------------------------------------------------
<PAGE>
Matewan BancShares, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - September 30, 1998,
December 31, 1997, and September 30, 1997
Consolidated statements of income - Nine months and three months
ended September 30, 1998 and September 30, 1997
Consolidated statement of changes in shareholders' equity for
the nine months ended September 30, 1998 and 1997
Consolidated statements of cash flows for the nine months ended
September 30, 1998 and 1997
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>
September 30 December 31 September 30
------------ ----------- ------------
ASSETS 1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Cash and due from banks $ 22,565 $ 22,805 $ 17,806
Interest bearing deposits 2,146 14,299 5,968
Federal funds sold 3,910 4,420 19,835
-------- -------- --------
Cash and cash equivalents 28,621 41,524 43,609
Investment securities:
Available-for-sale at
fair value 48,514 24,881 18,010
Held-to-maturity at cost 117,233 135,544 138,496
(Approximate fair value
$118,789 at September 30,1998;
$135,778 at December 31, 1997;
and $138,661 at September 30,
1997)
Loans - net 439,591 397,633 388,275
Premises and equipment 20,575 20,545 20,564
Accrued interest receivable
and other assets 22,373 24,731 25,020
-------- -------- --------
TOTAL ASSETS $676,907 $644,858 $633,974
======== ======== ========
</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>
September 30 December 31 September 30
------------ ----------- ------------
LIABILITIES AND 1998 1997 1997
SHAREHOLDERS' EQUITY ---- ---- ----
<S> <C> <C> <C>
Deposits:
Non-interest bearing $ 69,887 $ 77,698 $ 70,587
Interest bearing 500,813 457,576 467,465
-------- -------- --------
TOTAL DEPOSITS 570,700 535,274 538,052
Short-term borrowings:
Repurchase agreements 15,783 14,431 8,258
FHLB advances 0 7,500 5,000
Other 3,179 6,646 3,781
-------- -------- --------
TOTAL SHORT TERM
BORROWINGS 18,962 28,577 17,039
Long-term Borrowings
FHLB advances 5,737 1,170 0
Notes payable 6,512 6,991 7,139
-------- -------- --------
TOTAL LONG TERM
BORROWINGS 12,249 8,161 7,139
Accrued interest payable
and other liabilities 6,958 7,083 7,001
-------- -------- --------
TOTAL LIABILITIES 608,869 579,095 569,231
SHAREHOLDERS' EQUITY
Preferred stock 805 805 805
$1 par value; 1,000,000 shares
authorized; 805,000 issued as
of September 30, 1998, December
31, 1997, and September 30, 1997
($25 per share liquidation
preference), including 186,542,
176,042, and 176,042 shares in
treasury stock
Common Stock - $1 par value 4,052 3,684 3,684
10,000,000 shares authorized;
4,052,514 shares outstanding at
September 30, 1998, including
70,822 shares in treasury stock;
and 3,684,104 shares outstanding
at December 31, 1997 and
September 30, 1997, including
49,884 and 47,354 shares in
treasury stock
Surplus 38,799 29,773 29,773
Retained earnings 30,550 37,084 32,712
Treasury stock (6,294) (5,530) (5,456)
Net unrealized gain(loss) on
available-for-sale
securities, net of deferred
income taxes 126 (53) (43)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 68,038 65,763 64,743
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $676,907 $644,858 $633,974
======== ======== ========
</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>
Nine months ended Three months ended
----------------- ------------------
September 30, September 30,
------------- -------------
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 33,106 $ 30,447 $ 11,443 $10,480
Interest and dividends
on investment securities:
Taxable 7,148 6,715 2,447 2,190
Tax-exempt 328 409 105 130
Other interest income 531 947 201 222
-------- -------- -------- -------
TOTAL INTEREST INCOME 41,113 38,518 14,196 13,022
INTEREST EXPENSE
Deposits 17,322 15,819 6,077 5,438
Short-term borrowings 729 829 370 167
-------- -------- -------- -------
TOTAL INTEREST EXPENSE 18,421 16,648 6,447 5,605
-------- -------- -------- -------
NET INTEREST INCOME 22,692 21,870 7,749 7,417
PROVISION FOR LOAN LOSSES 2,321 2,051 805 976
-------- -------- -------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 20,371 19,819 6,944 6,441
OTHER INCOME
Service fees 2,941 3,033 999 1,139
Other 348 374 63 17
Commissions 494 466 215 131
-------- -------- -------- -------
TOTAL OTHER INCOME 3,783 3,873 1,277 1,287
OTHER EXPENSES
Salaries and employee
benefits 6,362 6,585 2,128 1,916
Net occupancy 1,041 1,000 346 297
Equipment 1,149 1,090 383 381
Data Processing 1,011 1,036 367 355
Telephone 631 539 198 219
Marketing 531 505 172 145
Loan fees 658 511 236 197
Core deposit amortization 492 568 166 190
Other 4,666 4,492 1,578 1,505
-------- -------- -------- -------
TOTAL OTHER EXPENSE 16,541 16,326 5,574 5,205
-------- -------- -------- -------
INCOME BEFORE INCOME TAXES 7,613 7,366 2,647 2,523
APPLICABLE INCOME TAXES 2,485 2,605 882 855
-------- -------- -------- -------
NET INCOME $ 5,128 $ 4,761 $ 1,765 $ 1,668
======== ======== ======== =======
Preferred Stock Dividends $ 875 $ 1,058 $ 290 $ 352
Earnings Applicable to
Common Stock $ 4,253 $ 3,703 $ 1,475 $ 1,316
======== ======== ======== =======
Per Share Earnings Applicable,
Basic and Diluted $1.07 $.92 $.37 $.35
======== ======== ======== =======
Average common shares
outstanding (thousands) 3,991 4,018 3,986 4,011
======== ======== ======== =======
Dividends per common share $.35 $.33 $.12 $.12
==== ==== ==== ====
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS' EQUITY (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Other
Preferred Common Capital Retained Treasury Comprehensive
Stock Stock Surplus Earnings Stock Income Total
--------- ------ ------- -------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 $ 805 $3,684 $29,773 $33,590 ($206) ($68) $67,578
Comprehensive Income:
Net income 0 0 0 4,761 0 0 4,761
Other Comprehesive Income
net of tax:
Unrealized losses on
available-for-sale securities 0 0 0 0 0 25 25
Comprehensive income -------
4,786
Dividends on Common Stock 0 0 0 (1,313) 0 0 (1,313)
($.33 per share)
Treasury Stock Purchases 0 0 0 0 (5,250) 0 (5,250)
Dividends on Preferred Shares 0 0 0 (1,058) 0 0 (1,058)
($1.406 per share) ------ ------ ------- ------- ------- ---- -------
Balance September 30, 1997 $ 805 $3,684 $29,773 $35,980 ($5,250) ($43) $64,743
====== ====== ======= ======= ======= ==== =======
<CAPTION>
Other
Preferred Common Capital Retained Treasury Comprehensive
Stock Stock Surplus Earnings Stock Income Total
--------- ------ ------- -------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 $ 805 $3,684 $29,773 $37,084 ($5,530) ($53) $65,763
Cash paid on fractional shares 0 0 0 (6) 0 0 (6)
Adjustment for effect of a
10% Common Stock Dividend 0 368 9,026 (9,394) 0 0 0
------ ------ ------- ------- ------- ---- -------
805 4,052 38,799 27,690 (5,530) (53) 65,763
Comprehensive Income:
Net income 0 0 0 5,128 0 0 5,128
Other Comprehesive Income
net of tax:
Unrealized losses on
available-for-sale securities 0 0 0 0 0 179 179
-------
Comprehensive income 5,307
Treasury Stock Purchases 0 0 0 0 (764) 0 (764)
Dividends on Common Stock 0 0 0 (1,387) 0 0 (1,387)
($.35 per share)
Dividends on Preferred Shares 0 0 0 (875) 0 0 (875)
($1.406 per share)
------ ------ ------- ------- ------- ---- -------
Balance September 30, 1998 $ 805 $4,052 $38,799 $30,550 ($6,294) $126 $68,038
====== ====== ======= ======= ======= ==== =======
</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 nine months ended
September 30, September 30,
1998 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 5,128 $ 4,761
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION 980 892
AMORTIZATION 965 972
PROVISION FOR LOAN LOSSES 2,321 2,051
PROVISION FOR DEFERRED TAXES 0 430
GAIN ON SALE OF ASSETS (28) 0
NET CHANGE IN ACCRUED INTEREST
RECEIVABLE AND OTHER ASSETS 1,744 (3,016)
NET CHANGE IN ACCRUED INTEREST
PAYABLE AND OTHER LIABILITIES (125) 957
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,985 7,047
INVESTING ACTIVITIES
PROCEEDS FROM SALES OF
AVAILABLE-FOR-SALE SECURITIES 0 0
PROCEEDS FROM MATURITIES OF
AVAILABLE-FOR-SALE SECURITIES 10,900 9,643
PROCEEDS FROM MATURITIES OF
HELD-TO-MATURITY SECURITIES 57,809 18,910
PURCHASES OF AVAILABLE-FOR-SALE
SECURITIES (34,571) (2,249)
PURCHASES OF HELD-TO-MATURITY
SECURITIES (39,591) (34,857)
NET CHANGE IN LOANS (44,279) (19,525)
PURCHASES OF PREMISES
AND EQUIPMENT (1,385) (576)
PROCEEDS FROM SALE OF
PREMISES AND EQUIPMENT 375 29
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES (50,742) (28,625)
FINANCING ACTIVITIES
NET CHANGE IN DEPOSITS 35,426 14,744
NET CHANGE IN SHORT-TERM
BORROWINGS (9,615) (6,218)
NET CHANGE IN LONG-TERM BORROWINGS 4,088 (440)
ACQUISITION OF TREASURY STOCK (764) (5,250)
CASH PAID ON FRACTIONAL SHARES (6) 0
CASH DIVIDENDS PAID (2,275) (2,332)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 26,854 504
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (12,903) (21,074)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 41,524 64,683
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 28,621 $ 43,609
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(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,
1998. 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, 1997.
2. The financial statements presented herein reflect Matewan BancShares, Inc.
and its consolidated subsidiaries, The Matewan National Bank, Matewan Bank FSB,
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 a minimum 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. On May 30, 1997, the Company filed an amended
Schedule 13E-4 to extend the original tender offer an additional 10 days. On
June 13, 1997, the Company closed the tender offer and repurchased 39,042 shares
of the preferred stock for approximately $1.035 million. Subsequently, in
separate privately negotiated transactions, the Company purchased an additional
142,000 shares for approximately $3.970 million.
4. On March 10, 1998, the Board of Directors authorized a 10% common stock
dividend payable to shareholders of record on April 1, 1998. Average shares
outstanding and per share amounts included in the consolidated financial
statements and notes have been adjusted for this dividend.
5. At September 30, 1998, the recorded investment in impaired loans under
Statement No. 114 was $15.89 million (of which $2.10 million were on a
nonaccrual basis). Included in this amount is $1.67 million of impaired loans
for which the related allowance for credit losses is $730 thousand and $14.22
million of impaired loans that do not have a specific allowance for credit
losses. The average recorded investment in impaired loans during the nine month
period ended September 30, 1998 approximated $12.37 million.
<PAGE>
6. In June 1996, the Financial Accounting Standards Board (FASB) 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). Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported fully earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to Statement 128 requirements. Basic and
diluted earnings per share are the same for the periods presented as the
conversion of preferred stock would be anti-dilutive. The Company has not issued
any other potentially dilutive securities.
8. On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting the components of comprehensive income and requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income as well as certain items that are reported
directly within a separate component of shareholders' equity and bypass net
income. The adoption of Statement 130 did not have a material impact on the
Company's financial condition or results of operations.
9. In February 1998, the Financial Accounting Standards Board issued Statement
132, "Employers' Disclosures about Pension and Other Postretirement Benefits -
an amendment of FASB Statement No. 87, 88, and 106." This statement revises
employers' disclosures about pension and other postretirement benefit plans, but
does not change the measurement or recognition of those plans. It standardizes
the disclosure requirements to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis and eliminates certain disclosures that
are no longer useful as they were when Statements 87, 88, and 106 were issued.
This Statement is effective for fiscal years beginning after December 15, 1997.
These disclosure requirements will not have a material impact on the Company's
financial position or results of operations.
<PAGE>
10. The Company has completed the initial testing phase of its Year 2000
systems testing. Core applications relating to loans, deposits, and general
ledger have been tested and determined to be compliant. Additional tests on the
Company's other application systems should be completed by March 31, 1999.
Through September 30, 1998, the Company had incurred approximately $60 thousand
in period expenses relative to Year 2000 testing.
11. Certain amounts in the 1997 financial statements have been reclassified to
conform to 1998 presentation. Such reclassifications had no effect on net income
or shareholders' equity as previously reported.
<PAGE>
MATEWAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
Total assets at September 30, 1998, have increased approximately $32.0 million
since December 31, 1997, and $42.9 million since September 30, 1997. Annualized
rates of growth for each respective time period were 6.6% and 6.7% percent. Over
the same respective time periods, deposits have increased approximately $35.4
million and $32.6 million, short term borrowings decreased approximately $9.62
million and increased approximately $1.9 million, and long term borrowings
increased approximately $4.1 million and $5.1 million. Retained earnings as of
September 30, 1998 decreased approximately $6.5 million from December 31, 1997,
and approximately $2.2 million in the twelve months from September 30, 1997. The
accounting impact of the 10% common stock dividend declared in the first quarter
of 1998 was the major reason for both decreases.
The proportional asset structure of the Company's balance sheet at September 30,
1998, compared to December 31, 1997, and September 30, 1997, has changed. Cash
and cash equivalents has decreased approximately $12.9 million and approximately
$15.0 million in the respective periods. Investments increased $5.3 million and
$9.2 million in the same respective periods. Securities classified as available-
for-sale increased to twenty-nine percent (29%) of the investment portfolio on
September 30, 1998 from sixteen percent (16%) and twelve percent (12%) for the
same periods. Much of the increase was a function of management's decision to
classify as available-for-sale securities purchased in the nine months of 1998
with the proceeds from held-to-maturity securities called or maturing in the
same time period. Loans have increased approximately $41.9 million and
approximately $51.3 million in the same time periods. Growth in earning assets
has been funded predominantly by cash and deposit growth for both periods. Most
loan and core deposit growth that has taken place has been a function of growth
in the Company's core market areas.
Regarding the loan portfolio, Company policy is to maintain a strategic asset
mix wherein the loan portfolio represents approximately sixty-five percent (65%)
of total assets and seventy-five percent (75%) of total deposits. 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 55% 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,
<PAGE>
among other things. The primary focus for all categories of lending is the
sixteen 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 September
30, 1998, and 1997, 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 classified as unsecured loans. The
other type of concentration relates to the general overall reliance on the coal
industry prevalent in the Company's core 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 maintains 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 sixteen
county market area, some geographic diversification may be realized by engaging
in business in contiguous counties.
The liability structure of the Company has changed slightly as well in since
both December 31, 1997 and September 30, 1997. Non-interest bearing deposits
decreased approximately $7.8 million and $700 thousand for each respective
period. Interest bearing deposits increased approximately $43.2 million and
$33.3 million in the same respective periods of time. Both depository
subsidiaries of the Company have interest rate structures that offer returns
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 $9.6 million and increased $1.9 million over these same
periods of time. Factors contributing to these changes are the volatile nature
of these types of funds (primarily tax deposits), an 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 negative features of money market accounts. Long term
borrowings increased approximately $4.1 million and $5.1 million in the same
periods of time. Other liabilities decreased approximately $125 thousand and $43
thousand over the same respective time periods.
<PAGE>
Equity levels and composition have changed slightly since December 31, 1997 and
September 30, 1997. Internal capital retention has allowed for equity growth of
approximately $2.2 million and $3.3 million for each respective time period.
Combined repurchases of approximately $838 thousand of the Company's common and
preferred stock over the last twelve months have restrained annual growth
somewhat. Equity capital as a percentage of total assets was 10.05%, 10.20%, and
10.21% at September 30, 1998, December 31, 1997, and September 30, 1997,
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 14.13%, 14.41% and 13.93% for the same
respective dates.
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. The growth of the Company's national bank
subsidiary via internal consolidations and normal core business growth will make
this subsidiary subject to the provisions and requirements of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) regarding
internal control monitoring guidelines for banks with assets in excess of $500
million in 1998.
<PAGE>
MATEWAN BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SUMMARY
Net income available for common shareholders for the nine month period ended
September 30, 1998 was approximately $4.253 million, versus $3.703 million for
the same period ended September 30, 1997. Both basic and diluted earnings per
share applicable to common stock for each respective period were $1.07 and $.92
per share. For the quarters ending September 30, 1998 and 1997, the same
earnings measures were $1.475 million and $1.316 million, respectively or $.37
per share and $.35 per share, basic and diluted. Basic and diluted earnings per
share for the year ended December 31, 1997 was $1.31.
Return on Average Assets for the nine month periods ended September 30, 1998,
and September 30, 1997, was 1.05% and 1.03% respectively. Similar return
measures for the quarterly periods ended on those dates were 1.03% and 1.09%,
respectively. Return on Average Assets for the year ended December 31, 1997, was
1.06%. Return on Average Equity was 10.33% and 9.73% for the respective nine
month time periods ended September 30, 1998 and September 30, 1997 Return on
Average Equity for the year ended December 31, 1997 was 9.94%.
RESULTS OF OPERATIONS
Net interest income for the nine month period ended September 30, 1998 was
$22.692 million versus $21.870 million for the same period ended September 30,
1997. Comparable levels for three month periods ending the same dates were
$7.749 million and $7.417 million. The increases of approximately $822 thousand
for the nine month period and $332 thousand for the quarter were a function of
increasing volume in the Company's core business base and the Company managing
the net interest margin of its core business base. Actual Net Interest Margin
(net interest income divided by average earning assets) for the nine months
ended September 30, 1998 was 5.15% versus 5.25% for the same period in 1997, an
erosion of less than 2%. Net interest margin for the third quarter of 1998 was
4.87% compared to 5.21% for the third quarter of 1997. 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 nine months ended September 30,
1998 was approximately $270 thousand higher than for the same period in 1997.
Net charge-off activity increased by approximately $19 thousand over the same
period of time. Net charge-offs approximated loan loss provision for the nine
months ended September 30, 1998. Non-performing loans (loans past due greater
than ninety days plus nonaccrual loans) approximated $6.079 million at September
30, 1998, versus $4.302 million at September 30, 1997. These levels represent
approximately 1.35% and 1.09% of the gross loans outstanding for each respective
period. The Company's ratio of
<PAGE>
allowance for loan losses to non-performing loans of 89.24% as of September 30,
1998. A similar calculation for the same time in 1997 produced a ratio of
132.06%. The ratio of allowance for loan losses to gross loans was 1.22% and
1.44% for the same periods. 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 decreased $90 thousand during the first nine months of 1998
when compared to the same period in 1997. Service fees and other fees generally
decreased $92 in the current period due to the absence of a major business
contributor in this period. Commission income increased approximately $38
thousand for the same nine month period in 1998. Other income declined
approximately $26 thousand due mainly to the recognition of some large and
nonrecurring gains in the first quarter of 1997.
Non-interest expenses increased $215 thousand during the first nine months of
1998 when compared to the same period in 1997, an increase of 1.3%. Most of the
increases experienced were a function of increasing business volume. For the
nine month periods ended September 30, 1998 and September 30, 1997,
respectively, net income taxes decreased $120 thousand. The effective income tax
rate for the first nine months of 1998 was 32.6% versus 35.4% for the same
period in 1997. These levels reflect changes in composition of the Company's
earnings, favorable tax effects attributable to Matewan Bank FSB, and
reorganization of some of the Company's subsidiaries to take advantage of some
available tax saving opportunities. Net income after income taxes increased $367
thousand for the same period. Earnings available to common shareholders
increased $550 thousand ($.15 per share) for the same period of time.
<PAGE>
Analysis of the Allowance for Loan Losses (Unaudited)
MATEWAN BANCSHARES, INC AND SUBSIDIARIES
(Amounts listed in thousands)
<TABLE>
<CAPTION>
Nine months ended
Year-to-date amounts listed through September 30, September 30,
-------------- ---------------
1998 1997
-------------- ---------------
<S> <C> <C>
Balance at begining of period $ 5,478 $ 5,986
Loans charged-off (2,947) (3,088)
Recoveries 573 733
Provision for loan losses 2,321 2,051
------- -------
Balance at the end of period $5,425 $5,682
====== ======
Non-performing loans $6,079 $ 4,302
Ratio of net charge-offs to
average loans (annualized) .97% .82%
Ratio of nonperforming loans to
gross loans 1.35% 1.09%
Ratio of nonperforming assets to
total assets 1.01% .85%
Ratio of allowance for loan losses
to non-performing loans 89.24% 132.06%
Ratio of allowance for loan losses
to gross loans 1.22% 1.44%
</TABLE>
The level of loans classified as troubled, restructured debt was approximately
$4.132 million as of September 30, 1998 and immaterial as of September 30, 1997.
<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 - 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)
October 31, 1998 By: /s/ Dan R. Moore
----------------------------
Dan R. Moore
Chairman of the Board of Directors
and President
October 31, 1998 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 per share data)
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
ended September 30 ended September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 4,052 4,052 4,052 4,052
Impact of Treasury Shares 61 34 66 41
------ ------ ------ ------
Total 3,991 4,018 3,986 4,011
====== ====== ====== ======
Net Income $5,128 $4,761 $1,765 $1,668
====== ====== ====== ======
Preferred Stock Dividends $ 875 $1,058 $ 290 $ 352
====== ====== ====== ======
Net Income Available to
Common Shareholders $4,253 $3,703 $1,475 $1,316
====== ====== ====== ======
Earnings Per Share
Applicable to Common Stock $1.07 $.92 $.37 $.35
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 22,565
<INT-BEARING-DEPOSITS> 2,146
<FED-FUNDS-SOLD> 3,910
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,514
<INVESTMENTS-CARRYING> 117,233
<INVESTMENTS-MARKET> 118,789
<LOANS> 445,016
<ALLOWANCE> 5,425
<TOTAL-ASSETS> 676,907
<DEPOSITS> 570,700
<SHORT-TERM> 18,962
<LIABILITIES-OTHER> 6,958
<LONG-TERM> 12,249
0
805
<COMMON> 4,052
<OTHER-SE> 63,181
<TOTAL-LIABILITIES-AND-EQUITY> 676,907
<INTEREST-LOAN> 33,106
<INTEREST-INVEST> 7,476
<INTEREST-OTHER> 531
<INTEREST-TOTAL> 41,113
<INTEREST-DEPOSIT> 17,322
<INTEREST-EXPENSE> 18,421
<INTEREST-INCOME-NET> 22,692
<LOAN-LOSSES> 2,321
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,541
<INCOME-PRETAX> 7,613
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,253
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 5.15
<LOANS-NON> 2,337
<LOANS-PAST> 3,742
<LOANS-TROUBLED> 4,132
<LOANS-PROBLEM> 6,196
<ALLOWANCE-OPEN> 5,478
<CHARGE-OFFS> 2,947
<RECOVERIES> 573
<ALLOWANCE-CLOSE> 5,425
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 870
</TABLE>
