<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 six months ended June 30, 1998
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Commission file number 33-17172
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Matewan BancShares, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 55-0639363
-------- ----------
(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 - 3,989,792 shares June 30, 1998
- -----------------------------------------------------------
<PAGE>
Matewan BancShares, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - June 30, 1998,
December 31, 1997, and June 30, 1997
Consolidated statements of income - Six months and three months
ended June 30, 1998 and June 30, 1997
Consolidated statement of changes in shareholders' equity for
the six months ended June 30, 1998 and 1997
Consolidated statements of cash flows for the six months ended
June 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
<TABLE>
<CAPTION>
June 30 December 31 June 30
ASSETS 1998 1997 1997
------- ----------- -------
<S> <C> <C> <C>
Cash and due from banks $ 25,888 $ 22,805 $ 28,280
Interest bearing deposits 13,385 14,299 6,226
Federal funds sold 16,670 4,420 18,836
-------- -------- --------
Cash and cash equivalents 55,943 41,524 53,342
Investment securities:
Available-for-sale at
fair value 41,817 24,881 21,062
Held-to-maturity at cost 112,542 135,544 136,475
(Approximate fair value
$112,991 at June 30,1998;
$135,778 at December 31, 1997;
and $136,053 at June 30, 1997)
Loans - net 434,981 397,633 381,780
Premises and equipment 20,620 20,545 20,531
Accrued interest receivable
and other assets 21,495 24,731 25,743
-------- -------- --------
TOTAL ASSETS $687,398 $644,858 $638,933
======== ======== ========
</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>
LIABILITIES AND June 30 December 31 June 30
SHAREHOLDERS' EQUITY 1998 1997 1997
------- ----------- -------
<S> <C> <C> <C>
Deposits:
Non-interest bearing $ 83,439 $ 77,698 $ 68,297
Interest bearing 491,152 457,576 461,283
-------- -------- --------
TOTAL DEPOSITS 574,591 535,274 529,580
Short-term borrowings:
Repurchase agreements 16,001 14,431 13,319
FHLB advances 5,000 7,500 5,000
Other 5,303 6,646 7,977
-------- -------- --------
TOTAL SHORT TERM
BORROWINGS 26,304 28,577 26,296
Long-term Borrowings
FHLB advances 5,980 1,170 0
Notes payable 6,672 6,991 7,293
-------- -------- --------
TOTAL LONG TERM
BORROWINGS 12,652 8,161 7,293
Accrued interest payable
and other liabilities 6,503 7,083 9,710
-------- -------- --------
TOTAL LIABILITIES 620,050 579,095 572,879
SHAREHOLDERS' EQUITY
Preferred stock 805 805 805
$1 par value; 1,000,000 shares
authorized; 805,000 issued as
of June 30, 1998, December 31,
1997, and June 30, 1997 ($25 per
share liquidation preference),
including 178,142, 176,042, and
102,842 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
June 30, 1998, including 62,722
shares in treasury stock; and
3,684,104 shares outstanding at
December 31, 1997 and June 30,
1997, including 49,884 and 24,953
shares in treasury stock
Surplus 38,799 29,773 29,773
Retained earnings 29,551 37,084 35,101
Treasury stock (5,809) (5,530) (3,247)
Net unrealized gain(loss) on
available-for-sale
securities, net of deferred
income taxes (50) (53) (62)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 67,348 65,763 66,054
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $687,398 $644,858 $638,933
======== ======== ========
</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>
Six months ended Three months ended
June 30, June 30,
------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 21,663 $ 19,967 $ 11,093 $10,183
Interest and dividends
on investment securities:
Taxable 4,701 4,525 2,355 2,277
Tax-exempt 223 279 111 141
Other interest income 330 725 170 328
-------- -------- -------- -------
TOTAL INTEREST INCOME 26,917 25,496 13,729 12,929
INTEREST EXPENSE
Deposits 11,245 10,381 5,722 5,279
Short-term borrowings 729 662 379 259
-------- -------- -------- -------
TOTAL INTEREST EXPENSE 11,974 11,043 6,101 5,538
-------- -------- -------- -------
NET INTEREST INCOME 14,943 14,453 7,628 7,391
PROVISION FOR LOAN LOSSES 1,516 1,075 758 694
-------- -------- -------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 13,427 13,378 6,870 6,697
OTHER INCOME
Service fees 1,942 1,894 989 1,026
Other 285 357 74 128
Commissions 279 335 143 168
-------- -------- -------- -------
TOTAL OTHER INCOME 2,506 2,586 1,206 1,322
OTHER EXPENSES
Salaries and employee
benefits 4,423 4,669 2,258 2,341
Net occupancy 695 703 367 346
Equipment 766 709 390 349
Data Processing 644 681 310 335
Telephone 433 320 202 145
Marketing 359 360 185 139
Dealer fees 422 315 258 183
Core deposit amortization 326 378 164 188
Other 2,899 2,986 1,477 1,552
-------- -------- -------- -------
TOTAL OTHER EXPENSE 10,967 11,121 5,611 5,578
-------- -------- -------- -------
INCOME BEFORE INCOME TAXES 4,966 4,843 2,465 2,441
APPLICABLE INCOME TAXES 1,603 1,750 800 886
-------- -------- -------- -------
NET INCOME $ 3,363 $ 3,093 $ 1,665 $ 1,555
======== ======== ======== =======
Preferred Stock Dividends $ 585 $ 706 $ 290 $ 394
Earnings Applicable to
Common Stock $ 2,778 $ 2,387 $ 1,375 $ 1,161
======== ======== ======== =======
Per Share Earnings Applicable,
Basic and Diluted $.70 $.59 $.35 $.29
======== ======== ======== =======
Average common shares
outstanding (thousands) 3,994 4,018 3,992 4,011
======== ======== ======== =======
Dividends per common share $.23 $.22 $.12 $.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) $67,578
-------
Comprehensive Income:
Net income 0 0 0 3,093 0 0 3,093
Other Comprehesive Income
net of tax:
Unrealized losses on
available-for-sale
securities 0 0 0 0 0 6 6
-------
Comprehensive income 3,099
Dividends on Common Stock 0 0 0 (876) 0 0 (876)
($.22 per share)
Treasury Stock Purchases 0 0 0 0 (3,041) 0 (3,041)
Dividends on Preferred
Shares ($.938 per share) 0 0 0 (706) 0 0 (706)
---- ------ ------- ------- ------- ---- -------
Balance June 30, 1997 $805 $3,684 $29,773 $35,101 ($3,247) ($62) $66,054
==== ====== ======= ======= ======= ==== =======
</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) $65,763
Adjustment for effect of a
10% Common Stock Dividend 0 368 9,026 (9,394) 0 0 0
---- ------ ------- ------- ------- ---- -------
805 4,052 38,799 27,690 (5,530) (53) 65,763
Comprehensive Income:
Net income 0 0 0 3,363 0 0 3,363
Other Comprehesive Income
net of tax:
Unrealized losses on
available-for-sale securities 0 0 0 0 0 3 3
-------
Comprehensive income 3,366
Treasury Stock Purchases 0 0 0 0 (279) 0 (279)
Dividends on Common Stock 0 0 0 (911) 0 0 (911)
($.23 per share)
Cash paid on fractional shares 0 0 0 (6) 0 0 (6)
Dividends on Preferred Shares 0 0 0 (585) 0 0 (585)
($.938 per share)
---- ------ ------- ------- ------- ---- -------
Balance June 30, 1998 $805 $4,052 $38,799 $29,551 ($5,809) ($50) $67,348
==== ====== ======= ======= ======= ==== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in thousands)
For the six months ended
---------------------------
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME $ 3,363 $ 3,093
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION 666 642
AMORTIZATION 585 600
PROVISION FOR LOAN LOSSES 1,516 1,075
PROVISION FOR DEFERRED TAXES 0 430
GAIN ON SALE OF ASSETS (28) 0
NET CHANGE IN ACCRUED INTEREST
RECEIVABLE AND OTHER ASSETS 2,671 (3,497)
NET CHANGE IN ACCRUED INTEREST
PAYABLE AND OTHER LIABILITIES (580) 3,854
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,193 6,197
INVESTING ACTIVITIES
PROCEEDS FROM SALES OF
AVAILABLE-FOR-SALE SECURITIES 0 0
PROCEEDS FROM MATURITIES OF
AVAILABLE-FOR-SALE SECURITIES 6,982 6,308
PROCEEDS FROM MATURITIES OF
HELD-TO-MATURITY SECURITIES 40,755 13,504
PURCHASES OF AVAILABLE-FOR-SALE
SECURITIES (23,910) (1,948)
PURCHASES OF HELD-TO-MATURITY
SECURITIES (17,777) (27,440)
NET CHANGE IN LOANS (38,864) (12,054)
PURCHASES OF PREMISES
AND EQUIPMENT (1,080) (321)
PROCEEDS FROM SALE OF
PREMISES AND EQUIPMENT 375 19
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES (33,519) (21,932)
FINANCING ACTIVITIES
NET CHANGE IN DEPOSITS 39,317 6,272
NET CHANGE IN SHORT-TERM
BORROWINGS (2,273) 3,077
NET CHANGE IN LONG-TERM BORROWINGS 4,491 (286)
ACQUISITION OF TREASURY STOCK (279) (3,041)
CASH PAID ON FRACTIONAL SHARES (6) 0
CASH DIVIDENDS PAID (1,505) (1,628)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 39,745 4,394
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 14,419 (11,341)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 41,524 64,683
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 55,943 $ 53,342
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
JUNE 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 139,100 shares for
approximately $3.821 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 June 30, 1998, the recorded investment in impaired loans under Statement
No. 114 was $11.75 million (of which $3.01 million were on a nonaccrual basis).
Included in this amount is $1.75 million of impaired loans for which the related
allowance for credit losses is $805 thousand and $10.00 million of impaired
loans that do not have a specific allowance for credit losses. The average
recorded investment in impaired loans during the twelve month period ended June
30, 1998 approximated $11.42 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 June 30, 1998, have increased approximately $42.5 million since
December 31, 1997, and $48.5 million since June 30, 1997. The Company
experienced annualized growth in each time period of 13.3% and 7.6% percent,
respectively. Deposits have increased approximately $39.3 million and $45.0
million and short term borrowings decreased approximately $2.2 million and
increased approximately $8 thousand over the semiannual and annual intervals.
Long term borrowings have increased approximately $4.5 million and $5.4 million
over the same respective intervals. Retained earnings decreased approximately
$7.5 million from December 31, 1997, to June 30, 1998, and approximately $5.6
million in the twelve month period ended June 30, 1998. The accounting impact of
the 10% common stock dividend declared in the first quarter of 1998 was the
reason for experiencing both decreases.
The asset structure of the Company's balance sheet at June 30, 1998, compared to
December 31, 1997, and June 30, 1997, has changed, as far as overall
composition. Cash and cash equivalents has increased approximately $14.4 million
since December 31, 1997 and approximately $262 million since June 30, 1997.
Investments decreased $6.1 million since December 31, 1997 and $3.2 million
since June 30, 1997. The proportion of the investment portfolio classified as
available-for-sale on June 30, 1998 increased to twenty-seven percent (27%)
compared to fifteen percent (15%) on December 31, 1997 and thirteen percent
(13%) on June 30, 1997. Much of the increase was a function of management's
decision to classify as available-for-sale securities purchased in the first six
months of 1998 with the proceeds from held-to-maturity securities called in the
same time period. Loans have increased approximately $37.3 million since
December 31, 1997 and approximately $53.2 million since June 31, 1997. Growth in
earning assets for both of the same respective periods has been funded
predominantly by deposit growth. Both loan and core deposit growth that has
taken place in both periods of time has been a function of growth in the
Company's core market areas. Company deposit totals included approximately $20
million at June 30, 1998 and $10 million at December 31, 1997 in funds of a
major commercial customer which would be characterized as short-term and
nonrecurring in nature. Most of these deposits could be anticipated to leave the
Company within thirty days of the respective financial statement dates.
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
<PAGE>
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 June 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.
Non-interest bearing deposits increased approximately $5.7 million in the six
months since December 31, 1997 and increased $15.1 million in the twelve month
period since June 30, 1997. Interest bearing deposits increased approximately
$33.6 million and $29.9 million in the same respective periods of time. These
increases include the amounts referenced earlier belonging to the large
commercial customer that could be expected to leave the Company before the end
of the next quarter. 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 $2.2 million and
increased $8 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
<PAGE>
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 $4.5 million
and $5.4 million in the six month and twelve month periods ended June 30, 1998.
Other liabilities decreased approximately $580 thousand and $3.2 million,
respectively, over the same respective time periods.
Internal capital retention has allowed for equity growth of approximately $1.6
million in the first half of 1998. Total equity capital experienced a $1.3
million increase in the twelve month period ended June 30, 1998. Combined
repurchases of approximately $2.5 million of the Company's common and preferred
stock restrained annual growth somewhat. Equity capital as a percentage of total
assets was 9.80%, 10.20%, and 10.34% at June 30, 1998, December 31, 1997, and
June 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 13.97% at June 30, 1998,
and 14.21% at June 30, 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 six months of 1998
was approximately $2.778 million, representing basic and diluted earnings per
share applicable to common stock of $.70, versus $2.387 million, or $.59 per
share for the same period in 1997. For the quarters ending June 30, 1998 and
1997, the same earnings measures were $1.375 million and $1.161 million,
respectively or $.35 per share and $.29 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 was 1.06% and 1.01% for the six month periods ended
June 30, 1998, and June 30, 1997, respectively. Similar return measures for the
quarterly periods ended on those dates were 1.04% and 1.00%, respectively.
Return on Average Assets for the year ended December 31, 1996, was 1.06%. Return
on Average Equity was 10.45% and 9.25% for the respective six month time periods
ended June 30, 1998 and June 30, 1997 and 9.94% for the year ended December 31,
1997.
RESULTS OF OPERATIONS
Net interest income was $14.943 million for the six month period ended June 30,
1998 versus $14.453 million for the six month period ended June 30, 1997.
Comparable levels for three month period ending the same dates were $7.628
million and $7.391 million. The increases of approximately $490 thousand for the
six month period and $237 for the quarter were a function of both 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 six months ended June
30, 1998 was 5.22% versus 5.27% for the same period in 1997, an erosion of less
than 1%. Net interest margin for the second quarter of 1998 was 5.29% compared
to 5.31% for the second 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 six months ended June 30, 1998
was approximately $441 thousand higher than for the same period in 1997. Net
charge-off activity increased by approximately $291 thousand in the first half
of 1998 over the first half of 1997. Net charge-offs approximated loan loss
provision for the first half of 1998 by approximately 103%. Non-performing loans
(loans past due greater than ninety days plus nonaccrual loans) approximated
$5.456 million at June 30, 1998, versus $6.028 million at June 30, 1997. These
levels represent approximately 1.22% and 1.56% of the gross loans outstanding
for each respective period. The Company's ratio of allowance for loan losses to
non-performing loans of 99.43% as of June 30, 1998. A similar calculation for
the first half of 1997 produced a ratio of 99.52%. The ratio of allowance for
loan losses to gross loans
<PAGE>
was 1.23% and 1.49% for the six month periods ended June 30, 1998, and June 30,
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 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 $80 thousand during the first six months of 1998
when compared to the same period in 1997. Service fees and other fees generally
increased in the current half due to a change in the service fee schedule from
the earlier period and normal business growth. Commission income declined
approximately $56 thousand for the same six month period. Reduced commissions
received for sales of credit insurance products was the major reason for the
decrease. Other income declined approximately $72 thousand due mainly to the
recognition of some large and nonrecurring gains in the first quarter of 1997.
Non-interest expenses decreased $154 thousand for the first six 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 six month periods ended June 30, 1998 and June 30, 1997, respectively,
net income taxes decreased $147 thousand. The effective income tax rate for the
first three months of 1998 was 32.28% versus 36.13% for the first half 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 $270 thousand for the six
months ended June 30, 1998, over the same period for 1997. Earnings available to
common shareholders increased $391 thousand ($.11 per share) for the six months
ended June 30, 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>
Six months ended
Year-to-date amounts listed through June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Balance at begining of period $ 5,478 $ 5,986
Loans charged-off (1,895) (1,690)
Recoveries 326 412
Provision for loan losses 1,516 1,075
------- -------
Balance at the end of period $ 5,425 $ 5,783
======= =======
Non-performing loans $5,456 $6,028
Ratio of net charge-offs to
average loans (annualized) .77% .69%
Ratio of nonperforming loans to
gross loans 1.22% 1.56%
Ratio of nonperforming assets to
total assets .90% 1.08%
Ratio of allowance for loan losses
to non-performing loans 99.43% 99.52%
Ratio of allowance for loan losses
to gross loans 1.23% 1.49%
</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 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)
July 31, 1998 By: /s/ Dan R. Moore
----------------------------
Dan R. Moore
Chairman of the Board of Directors
and President
July 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 shares and per share data)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
ended June 30 ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 4,052,514 4,052,514 4,052,514 4,052,514
Impact of Treasury Shares 31,189 17,838 37,672 18,161
--------- --------- --------- ---------
Total 3,994,172 4,018,207 3,992,129 4,011,075
========= ========= ========= =========
Net Income $ 3,363 $ 3,093 $ 1,665 $ 1,555
======= ======= ======= =======
Preferred Stock Dividends $ 585 $ 706 $ 290 $ 394
======= ======= ======= =======
Net Income Available to
Common Shareholders $ 2,778 $ 2,387 $ 1,375 $ 1,161
======= ======= ======= =======
Earnings Per Share
Applicable to Common Stock $.70 $.59 $.35 $.29
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 25,888
<INT-BEARING-DEPOSITS> 13,385
<FED-FUNDS-SOLD> 16,670
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,817
<INVESTMENTS-CARRYING> 112,542
<INVESTMENTS-MARKET> 112,991
<LOANS> 440,406
<ALLOWANCE> 5,425
<TOTAL-ASSETS> 687,398
<DEPOSITS> 574,591
<SHORT-TERM> 26,304
<LIABILITIES-OTHER> 6,503
<LONG-TERM> 12,652
0
805
<COMMON> 4,052
<OTHER-SE> 62,491
<TOTAL-LIABILITIES-AND-EQUITY> 687,398
<INTEREST-LOAN> 21,663
<INTEREST-INVEST> 4,924
<INTEREST-OTHER> 330
<INTEREST-TOTAL> 26,917
<INTEREST-DEPOSIT> 11,245
<INTEREST-EXPENSE> 11,974
<INTEREST-INCOME-NET> 14,943
<LOAN-LOSSES> 1,516
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,967
<INCOME-PRETAX> 4,966
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,363
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
<YIELD-ACTUAL> 5.29
<LOANS-NON> 2,830
<LOANS-PAST> 2,626
<LOANS-TROUBLED> 165
<LOANS-PROBLEM> 5,456
<ALLOWANCE-OPEN> 5,478
<CHARGE-OFFS> 1,895
<RECOVERIES> 326
<ALLOWANCE-CLOSE> 5,425
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,055
</TABLE>
