<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, 1998
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Commission file number 33-17172
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Matewan BancShares, Inc.
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(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 section 13 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
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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 - 3,631,420 shares March 31, 1998
- ------------------------------------------------------------
<PAGE>
Matewan BancShares, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 1998,
December 31, 1997, and March 31, 1997
Consolidated statements of income - Three months ended
March 31, 1998 and March 31, 1997
Consolidated statement of changes in shareholders' equity for
the three months ended March 31, 1998 and 1997
Consolidated statements of cash flows for the three months
ended March 31, 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>
March 31 December 31 March 31
1998 1997 1997
-------- ----------- --------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 18,037 $ 22,805 $ 26,833
Interest bearing deposits
in other banks 3,653 14,299 6,705
Federal funds sold 12,720 4,420 33,047
-------- -------- --------
Cash and cash equivalents 34,410 41,524 66,585
Investment securities:
Available-for-sale at
fair value 37,220 24,881 19,285
Held-to-maturity at cost 122,849 135,544 130,943
(Approximate fair value
$123,260 at March 31,1998;
$135,778 at December 31, 1997;
and $129,269 at March 31, 1997)
Loans - net 408,124 397,633 371,641
Premises and equipment 20,730 20,545 20,805
Accrued interest receivable
and other assets 22,770 24,731 23,846
-------- -------- --------
TOTAL ASSETS $646,103 $644,858 $633,105
======== ======== ========
- -------------------------
</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
1998 1997 1997
-------- ----------- --------
<S> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 71,580 $ 77,698 $ 71,322
Interest bearing 470,559 457,576 458,507
-------- -------- --------
TOTAL DEPOSITS 542,139 535,274 529,829
Short-term borrowings:
Repurchase agreements 12,520 14,431 9,349
FHLB advances 4,975 7,500 5,000
Other 2,767 6,646 5,224
-------- -------- --------
TOTAL SHORT TERM
BORROWINGS 20,262 28,577 19,573
Long-term Borrowings
FHLB advances 6,214 1,170 -
Notes payable 6,830 6,991 7,431
-------- -------- --------
TOTAL LONG TERM
BORROWINGS 13,044 8,161 7,083
Accrued interest payable
and other liabilities 4,046 7,083 8,138
-------- -------- --------
TOTAL LIABILITIES 579,491 579,095 564,971
SHAREHOLDERS' EQUITY
Preferred stock 805 805 805
$1 par value; 1,000,000 shares
authorized; 805,000 issued as of
March 31, 1998, December 31, 1997,
and March 31, 1997, including
176,842, 176,842 and 5,500 shares in
treasury stock, respectively
($25 per share liquidation preference)
Common Stock - $1 par value 4,052 3,684 3,684
10,000,000 shares authorized;
4,052,514 shares outstanding at
March 31, 1998, including 57,842
shares in treasury stock; 3,684,104
shares outstanding at December 31,
1997 and March 31, 1997, including
49,884 and 24,953 shares in treasury
stock
Surplus 38,799 29,773 29,773
Retained earnings 28,654 37,084 34,378
Treasury stock (5,601) (5,530) (360)
Net unrealized gain(loss) on
available-for-sale
securities, net of income
taxes (97) (53) (146)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 66,612 65,763 68,134
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $646,103 $644,858 $633,105
======== ======== ========
</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,
-----------------------
1998 1997
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<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 10,570 $ 9,784
Interest and dividends
on investment securities:
Taxable 2,346 2,248
Tax-exempt 112 138
Other interest income 160 397
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TOTAL INTEREST INCOME 13,188 12,567
INTEREST EXPENSE
Deposits 5,523 5,102
Short-term borrowings 350 403
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TOTAL INTEREST EXPENSE 5,873 5,505
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NET INTEREST INCOME 7,315 7,062
PROVISION FOR LOAN LOSSES 758 381
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,557 6,681
OTHER INCOME
Service fees 953 769
Other 211 328
Commission income 136 167
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TOTAL OTHER INCOME 1,300 1,264
OTHER EXPENSES
Salaries and employee
benefits 2,165 2,328
Net occupancy 328 357
Equipment 376 360
Data Processing 334 346
Telephone 231 175
Marketing 174 221
Dealer fees 164 132
Core deposit amortization 162 190
Other 1,422 1,434
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TOTAL OTHER EXPENSE 5,356 5,543
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INCOME BEFORE INCOME TAXES 2,501 2,402
APPLICABLE INCOME TAXES 803 864
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NET INCOME 1,698 1,538
Preferred Stock Dividends 290 311
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EARNINGS APPLICABLE TO COMMON STOCK $ 1,408 $ 1,227
========== ==========
Per Share Earnings Applicable, Basic and Diluted $.35 $.31
========== ==========
Average common shares
outstanding 3,995,642 4,025,444
========== ==========
Dividends per common share $.11 $.11
========== ==========
</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) $67,578
Comprehensive Income:
Net income 0 0 0 1,538 0 0 1,538
Other Comprehesive Income
net of tax:
Unrealized losses on
available-for-sale securities 0 0 0 0 0 (78) (78)
-------
Comprehensive income 1,460
Dividends on Common Stock 0 0 0 (439) 0 0 (439)
($.12 per share)
Treasury Stock Purchases 0 0 0 0 (154) 0 (154)
Dividends on Preferred Shares
($.387 per share) 0 0 0 (311) 0 0 (311)
------ ------ ------- ------- ------- ----- -------
Balance March 31, 1997 $ 805 $3,684 $29,773 $34,378 ($360) ($146) $68,134
====== ====== ======= ======= ======= ===== =======
</TABLE>
<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, 1998 $805 $3,684 $29,773 $37,084 ($5,530) ($53) $65,763
Adjustment for effect of a
10% Common Stock Dividend 0 368 9,026 (9,394) 0 0 0
----- ------ ------- ------- ------- ----- -------
805 4,052 38,799 27,690 (5,530) (53) 65,763
Comprehensive Income:
Net income 0 0 0 1,698 0 0 1,698
Other Comprehesive Income
net of tax:
Unrealized losses on
available-for-sale securities 0 0 0 0 0 (44) (44)
-------
Comprehensive income 1,654
Treasury Stock Purchases 0 0 0 0 (71) 0 (71)
Dividends on Common Stock
($.11 per share) 0 0 0 (438) 0 0 (438)
Net income 0 0 0 1,698 0 0 1,698
Cash paid on fractional shares 0 0 0 (6) 0 0 (6)
Dividends on Preferred Shares
($.463 per share) 0 0 0 (290) 0 0 (290)
----- ------ ------- ------- ------- ----- -------
Balance March 31, 1998 $805 $4,052 $38,799 $28,654 ($5,601) ($97) $66,612
====== ====== ======= ======= ======= ===== =======
</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,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 1,698 $ 1,538
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION 319 332
AMORTIZATION 296 294
PROVISION FOR LOAN LOSSES 758 381
PROVISION FOR DEFERRED TAXES - 143
GAIN ON SALE OF ASSETS (2) -
NET CHANGE IN ACCRUED INTEREST
RECEIVABLE AND OTHER ASSETS 1,720 (1,140)
NET CHANGE IN ACCRUED INTEREST
PAYABLE AND OTHER LIABILITIES (3,037) 2,350
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,752 3,898
INVESTING ACTIVITIES
PROCEEDS FROM MATURITIES OF
AVAILABLE-FOR-SALE SECURITIES 4,816 6,128
PROCEEDS FROM MATURITIES OF
HELD-TO-MATURITY SECURITIES 19,335 10,254
PURCHASES OF AVAILABLE-FOR-SALE
SECURITIES (17,234) (88)
PURCHASES OF HELD-TO-MATURITY
SECURITIES (6,656) (18,624)
NET CHANGE IN LOANS (11,249) (1,238)
PROCEEDS FROM SALES OF PURCHASES
AND EQUIPMENT 119 -
PURCHASES OF PREMISES
AND EQUIPMENT (621) (257)
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES (11,490) (3,825)
FINANCING ACTIVITIES
NET CHANGE IN DEPOSITS 6,865 6,593
NET CHANGE IN SHORT-TERM
BORROWINGS (8,315) (3,646)
NET CHANGE IN LONG-TERM
BORROWINGS 4,883 (148)
ACQUISITION OF TREASURY SHARES (71) (154)
CASH PAID ON FRACTIONAL SHARES (6) -
CASH DIVIDENDS PAID (732) (816)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,624 1,829
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (7,114) 1,902
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 41,524 64,683
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 34,410 $ 66,585
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
MARCH 31, 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 137,000 shares for
approximately $3.755 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 March 31, 1998, the recorded investment in impaired loans under Statement
No. 114 was $11.03 million (of which $2.92 million were on a nonaccrual basis).
Included in this amount is $1.99 million of impaired loans for which the related
allowance for credit losses is $919 thousand and $9.04 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, 1998
approximated $11.25 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 have no material impact on the Company's
financial position or results of operations.
<PAGE>
10. 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 March 31, 1998, have increased approximately $1.2 million since
December 31, 1997, and $13.0 million since March 31, 1997. The Company
experienced annualized growth in each time period of .7% and 2.1% percent,
respectively. Deposits have increased approximately $6.9 million and $12.3
million and short term borrowings decreased approximately $8.3 million and
increased approximately $689 thousand over the quarterly and annual intervals.
Long term borrowings have increased approximately $4.8 million and $5.6 million
over the same respective intervals. Retained earnings decreased approximately
$8.4 million from December 31, 1997, to March 31, 1998, and approximately $5.7
million in the twelve month period ended March 31, 1998. The accounting impact
of the 10% common stock dividend declared in the first quarter was the reason
for both decreases.
The asset structure of the Company's balance sheet at March 31, 1998, compared
to December 31, 1997, and March 31, 1997, has changed, as far as overall
composition. Cash and cash equivalents has decreased approximately $7.1 million
since December 31, 1997 and approximately $32.2 million since March 31, 1997.
Investments decreased $356 thousand since December 31, 1997 and increased $9.8
million since March 31, 1997. Loans have increased approximately $10.5 million
since December 31, 1997 and approximately $36.5 million since March 31, 1997.
Growth in earning assets in both the quarter and annual periods 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, Company policy is 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 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 March 31, 1998,
<PAGE>
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.
Non-interest bearing deposits decreased approximately $6.1 million in the three
months since December 31, 1997 and increased $258 thousand in the twelve month
period since March 31, 1997. Interest bearing deposits increased approximately
$12.9 million and $12.3 million in the same respective periods of time. All
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 $8.3 million and increased $689
thousand over these same intervals 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 $4.9 million
and $5.9 million in the three month and twelve month periods ended March 31,
1998. Other liabilities decreased approximately $3.0 million and $4.1 million,
respectively, over the same respective time periods.
Internal capital retention has allowed for equity growth of approximately $849
thousand in the first three months of 1998. Total equity capital experienced a
$1.56 million decrease in the twelve month period ended March 31, 1998. Combined
repurchases of approximately $5.2 million of the Company's common and preferred
stock accounted for the annual decline. Equity capital as a percentage of
<PAGE>
total assets was 10.31%, 10.20%, and 10.76% at March 31, 1998, December 31,
1997, and March 31, 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 14.54% at
March 31, 1998, and 14.93% at March 31, 1997. The percentage at December 31,
1997, was 14.41%.
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 share holders for the first quarter of 1998 was
approximately $1.408 million, representing basic and diluted earnings per share
applicable to common stock of $.35, versus $1.227 million, or $.31 per share for
the same period in 1997. Basic and diluted earnings per share for the year ended
December 31, 1997 was $1.31. Return on Average Assets was 1.08% and 1.02% for
the three month periods ended March 31, 1998, and March 31, 1997, respectively.
Return on Average Assets for the year ended December 31, 1996, was 1.06%. Return
on Average Equity was 10.27% and 9.24% for the respective three month time
periods and 9.94% for the year ended December 31, 1997.
RESULTS OF OPERATIONS
Net interest income was $7.315 million for the three month period ended March
31, 1998 versus $7.062 million for the three month period ended March 31, 1997.
The increase of approximately $253 thousand was 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 three months ended March 31,
1998 was 5.15% versus 5.23% for the same period in 1997, an erosion of
approximately 1.5%. 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,
1998 was approximately $377 thousand higher than for the same period in 1997.
Net charge-off activity increased by approximately $189 thousand in the first
quarter of 1998 over the first quarter of 1997. Net charge-offs approximated
loan loss provision for the first quarter of 1998. Non-performing loans (loans
past due greater than ninety days plus nonaccrual loans) approximated $4.680
million at March 31, 1998, versus $5.497 million at March 31, 1997. These levels
represent approximately 1.14% and 1.46% of the gross loans outstanding for each
respective period. The Company's ratio of allowance for loan losses to non-
performing loans of 117.07% as of March 31, 1998. A similar calculation for the
first quarter of 1997 produced a ratio of 105.52%. The ratio of allowance for
loan losses to gross loans was 1.34% and 1.54% for the three month periods ended
March 31, 1998, and March 31, 1997, 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
<PAGE>
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 $36 thousand during the first three months of 1998
when compared to the same period in 1997. 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. Commission income declined
approximately $36 thousand for the same three month period. Reduced commissions
received for sales of credit insurance products was the major reason for the
decrease. Other income declined approximately $117 thousand due mainly to the
recognition of some large and nonrecurring gains in the first quarter of 1997.
Non-interest expenses decreased $187 thousand for the first three months of 1998
over the same period in 1997. Most decreases for overhead-related expenses were
a function of internal consolidation and positioning moves initiated by the
Company in the second half of 1997.
For the three month periods ended March 31, 1998 and March 31, 1997,
respectively, net income taxes decreased $61 thousand. The effective income tax
rate for the first three months of 1998 was 32.11% versus 35.97% for the first
three months of 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
$160 thousand for the three months ended March 31, 1998, over the same period
for 1997. Earnings available to common shareholders increased $176 thousand
($.04 per share) for the three months ended March 31, 1998 over the same period
in 1997.
<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,
-------- ---------
1998 1997
---- ----
<S> <C> <C>
Balance at begining of period $5,478 $5,986
Loans charged-off (903) (745)
Recoveries 146 177
Provision for loan losses 758 381
------ ------
Balance at the end of period $5,479 $5,799
====== ======
Non-performing loans $4,680 $5,496
Ratio of net charge-offs to
average loans (annualized) .75% .60%
Ratio of nonperforming loans to
gross loans 1.14% 1.46%
Ratio of nonperforming assets to
total assets .86% 1.03%
Ratio of allowance for loan losses
to non-performing loans 117.07% 105.52%
Ratio of allowance for loan losses
to gross loans 1.34% 1.54%
</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, 1998 By: /s/Dan R. Moore
----------------------------
Dan R. Moore
Chairman of the Board of Directors
and President
May 10, 1998 By: /s/Lee M. Ellis
----------------------------
Lee M. Ellis
Vice President & Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 18,037
<INT-BEARING-DEPOSITS> 3,653
<FED-FUNDS-SOLD> 12,720
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,220
<INVESTMENTS-CARRYING> 122,849
<INVESTMENTS-MARKET> 123,260
<LOANS> 413,603
<ALLOWANCE> 5,479
<TOTAL-ASSETS> 646,103
<DEPOSITS> 542,139
<SHORT-TERM> 20,262
<LIABILITIES-OTHER> 4,046
<LONG-TERM> 13,044
4,052
0
<COMMON> 805
<OTHER-SE> 61,755
<TOTAL-LIABILITIES-AND-EQUITY> 646,103
<INTEREST-LOAN> 10,570
<INTEREST-INVEST> 2,458
<INTEREST-OTHER> 160
<INTEREST-TOTAL> 13,188
<INTEREST-DEPOSIT> 5,523
<INTEREST-EXPENSE> 5,873
<INTEREST-INCOME-NET> 7,315
<LOAN-LOSSES> 758
<SECURITIES-GAINS> 1,300
<EXPENSE-OTHER> 0
<INCOME-PRETAX> 5,356
<INCOME-PRE-EXTRAORDINARY> 2,501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,698
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<YIELD-ACTUAL> 5.15
<LOANS-NON> 3,045
<LOANS-PAST> 1,634
<LOANS-TROUBLED> 552
<LOANS-PROBLEM> 11,034
<ALLOWANCE-OPEN> 5,478
<CHARGE-OFFS> 903
<RECOVERIES> 146
<ALLOWANCE-CLOSE> 5,479
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,732
</TABLE>
