<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1996
REGISTRATION NO. 33-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
MATEWAN BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 6711 55-0639363
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
250 EAST SECOND AVENUE
P. O. BOX 100
WILLIAMSON, WEST VIRGINIA 25661
(304) 235-1544
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAN R. MOORE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
MATEWAN BANCSHARES, INC.
250 EAST SECOND AVENUE
P. O. BOX 100
WILLIAMSON, WEST VIRGINIA 25661
(304) 235-1544
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
WITH COPIES TO:
CHARLES D. DUNBAR FRANK M. CONNER III
ELIZABETH OSENTON LORD ALSTON & BIRD
JACKSON & KELLY 601 PENNSYLVANIA AVENUE, N.W.
1600 LAIDLEY TOWER NORTH BUILDING, SUITE 250
P. O. BOX 553 WASHINGTON, D.C. 20004-2601
CHARLESTON, WEST VIRGINIA 25322
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] _______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
TITLE OF SHARES PROPOSED MAXIMUM(1)(2) AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Convertible
Preferred Stock,
Series A, $25.00
liquidation preference... $17,250,000 $5,950
</TABLE>
===============================================================================
(1) Includes $2,250,000 of securities subject to an over-allotment option
granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the amount of the
Registration Fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
CROSS-REFERENCE TABLE
LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY PART I
OF FORM S-1
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
-------- ------- ----------------------
<C> <C> <S>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Forepart of the Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors; The
Company; Pro Forma Financial
Information
4. Use of Proceeds........................ Use of Proceeds
5. Determination of Offering Price........ Not Applicable
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Inside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered............................ Description of Capital Stock
10. Interests of Named Experts and
Counsel............................... Legal Matters; Experts
11. Information with Respect to the
Registrant............................ Prospectus Summary; Risk Factors; The
Company; Capitalization; Common Stock
Price Range and Dividends;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Supervision and Regulation;
Description of Capital Stock;
Underwriting; Legal Matters; Index to
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 23, 1996
600,000 SHARES
[LOGO OF MATEWAN BANCSHARES, INC.]
% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
Matewan BancShares, Inc., a Delaware corporation ("Matewan" or the
"Company"), is offering (the "Offering") 600,000 shares of % Cumulative
Convertible Preferred Stock, Series A (the "Convertible Preferred Stock").
Matewan, a bank holding company headquartered in Williamson, West Virginia,
serves as the parent of Matewan National Bank (the "Bank") and Matewan Bank,
FSB (the "Thrift" and, together with the Bank, the "Banking Subsidiaries").
Matewan's outstanding common stock, par value $1.00 per share (the "Common
Stock"), is traded over-the-counter on the Nasdaq National Market under the
symbol "MATE."
The primary purpose of the Offering is to finance approximately one-half of
the $28.6 million purchase price of the acquisition by Matewan of Bank One,
Pikeville, N.A. ("Pikeville"), from Banc One Corporation ("Banc One"). See "The
Acquisition."
Matewan has applied for listing of the Convertible Preferred Stock on the
Nasdaq SmallCap Market under the symbol "MATEP."
SEE "RISK FACTORS" ON PAGES 8 AND 9 OF THIS PROSPECTUS FOR A DISCUSSION OF
MATERIAL RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT
INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT COMPANY(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . .. $25.00 $
Total(3) . . . . . . . . . . . . . . $
. . . . . . . . . . . . $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted an option to the Underwriter, exercisable within 30
days of the date of this Prospectus, to purchase up to 90,000 additional
shares of Convertible Preferred Stock at the Price to Public, less the
Underwriting Discount shown above, solely to cover over-allotments, if any.
If the over-allotment option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------
The shares of Convertible Preferred Stock are offered by the Underwriter,
subject to prior sale, when, as and if delivered to and accepted by it, and
subject to its right to reject orders in whole or in part. Delivery of the
shares of Convertible Preferred Stock is expected against payment therefor on
or about , 1996, at the offices of Wheat, First Securities, Inc.,
Richmond, Virginia.
WHEAT FIRST BUTCHER SINGER
The date of this Prospectus is , 1996.
<PAGE>
[LOGO OF MATEWAN BANCSHARES, INC.]
[MAP SHOWING MARKET AREA]
THE COMPANY REGARDS ITS MARKET AS THE SEVEN-COUNTY AREA SHOWN ABOVE (MINGO,
LOGAN AND BOONE COUNTIES IN WEST VIRGINIA AND PIKE, MARTIN, JOHNSON AND FLOYD
COUNTIES IN KENTUCKY, COLLECTIVELY, THE "MARKET"). ALL DEPOSIT AND DEPOSIT
MARKET SHARE DATA INCLUDED IN THE PROSPECTUS IS BASED ON DATA AS OF JUNE 30,
1994, AS COMPILED BY SNL SECURITIES, L.P.
------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CONVERTIBLE
PREFERRED STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET-MAKING TRANSACTIONS IN THE COMMON STOCK
ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is not intended to be complete and is qualified in its
entirety by the more detailed information and the consolidated financial
statements and the related notes thereto appearing elsewhere in this
Prospectus. All per share data of Matewan included in this Prospectus have been
restated to reflect a 300% stock dividend paid in May 1993, a 300% stock
dividend paid in May 1994 and a 10% stock dividend paid by Matewan in June
1995. Unless otherwise specified in this Prospectus, the term "Offering" as
used herein refers to the Company's Offering of 600,000 shares of Convertible
Preferred Stock at $25.00 per share, and does not include the exercise of the
Underwriter's over-allotment option.
MATEWAN BANCSHARES, INC.
Matewan, a bank holding company headquartered in Williamson, West Virginia,
provides through the Bank, organized in 1913, and the Thrift, organized in
1994, a broad range of financial services. Matewan has 13 offices located in
southwestern West Virginia and eastern Kentucky. At September 30, 1995, Matewan
had total assets of $389.5 million, total deposits of $324.0 million and total
shareholders' equity of $44.5 million. Matewan ranked third in its Market.
Matewan's strategy is to become the leading provider of financial services in
its Market by offering customers innovative products through convenient
delivery systems and a well-trained, sales-oriented work force. Management
believes that effective employment of technology in providing financial
services, coupled with a commitment to customer service, affords Matewan with a
distinct competitive advantage in its Market. In implementing its strategy,
management emphasizes the following:
. Technology to enhance products and delivery systems. The Company uses
sophisticated technology to enhance its delivery systems. Matewan offers
its retail customers 24-hour banking by touch-tone phone by means of an
interactive voice response system, and in 1996, Matewan will offer its
retail customers the ability to access account information, transfer
funds and pay certain bills via personal computer. The Company currently
utilizes personal computer technology to enable its commercial customers
to access cash management services via interlinks with Matewan's
mainframe system. The Company also maintains an integrated PC-based
server network system that provides immediate interaction among all
operating functions of the Banking Subsidiaries, thereby enhancing
internal communication and customer service. In addition, the Company's
sophisticated credit rating and pricing models enable the Banking
Subsidiaries to price their loan products to reflect credit risk more
accurately.
. Customer service and convenience. Through extended lobby and drive-up
hours, Saturday and Sunday banking hours and alternative delivery
systems, Matewan offers convenient service to customers. All but one of
the 13 branch offices of the Company are open on Saturdays, and its two
supermarket branches are open on Sundays. No other bank in its Market
offers comparable extended service hours.
. Dedicated, sales-oriented work force. Matewan has historically devoted
significant resources to training its work force and instilling a sales-
oriented culture to promote customer service and market penetration. In
addition to extensive orientation and training of new employees with an
emphasis on the individual's job assignment, the Company also provides
regular continuing education and training to all employees. To further
promote customer service, the Company emphasizes performance-based
compensation, as an increasing percentage of employees have their total
compensation, and all employees have at least a portion of their
compensation, based on incentive programs.
The Company's strategy has enabled it to enjoy a compound annual asset growth
rate of 16.9% over the last decade, with assets increasing from $72.8 million
on December 31, 1984, to $389.5 million at September 30, 1995. The Company's
utilization of technology and commitment to cost control has resulted in
3
<PAGE>
an average efficiency ratio of 54.20% for the five years ended December 31,
1994. The Company's returns on average assets were 1.40% and 1.28% (annualized)
for the year ended December 31, 1994, and the nine months ended September 30,
1995, respectively.
PENDING ACQUISITION
Matewan has entered into a stock purchase agreement (the "Purchase
Agreement") with Banc One, providing for Matewan's purchase of 100% of the
outstanding capital stock of Pikeville, a national bank subsidiary of Banc One,
for $28.6 million in cash (the "Acquisition"). Following the Acquisition,
Matewan will operate Pikeville as a separate subsidiary under the name "Matewan
National Bank/Kentucky." At September 30, 1995, Pikeville had total assets of
$221.0 million, total deposits of $181.5 million and total shareholder's equity
of $19.4 million.
The proceeds of the Offering will be used to fund approximately one-half of
the $28.6 million purchase price of the Acquisition. The Acquisition will close
concurrently with the closing of the Offering.
REASONS FOR THE ACQUISITION
The following summarizes the major reasons for the Acquisition and the
benefits Matewan expects will accrue to its operations from the Acquisition:
. Appeal of Pikeville Market. Management views Pikeville and Pike County,
Kentucky as the most attractive segments in Matewan's Market. Pikeville,
Kentucky is a regional hub of economic activity and provides the area
with financial, medical, legal and retail services. Pike County has the
largest population of any county in its Market.
. Increased Market Share. Following the Acquisition, Matewan will increase
its market share of deposits from fourth to second in Pike County and
from third to first in its Market. Management believes that economic
growth in its Market will continue to provide a favorable climate in
which to conduct Matewan's business.
. Increased Operating Efficiencies. After the Acquisition, Matewan will be
able to realize operating efficiencies by consolidating certain
branches, combining data processing operations and leveraging the
capabilities of its existing back-office support functions. Management
estimates that, within one year following the Acquisition, it can
realize expense savings of $1.2 million, or 15% of Pikeville's 1994 non-
interest expense, which will reduce Pikeville's efficiency ratio to
levels approximating Matewan's. See "Risk Factors--Integration of
Pikeville" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Anticipated Operating Effect of
Acquisition on Matewan."
. Revenue Enhancement Opportunities. Pikeville's profitability levels are
below those being realized by Matewan. The Acquisition will provide
Matewan with increased revenue enhancement opportunities through
expanded customer service and convenience for Pikeville's customer base.
Matewan will extend its existing alternative delivery systems and
extended banking hours to Pikeville's operations. The Acquisition will
also permit Matewan to apply its existing training programs to
Pikeville's work force to develop a sales-oriented culture to promote
customer service and further Pikeville's market penetration.
For a discussion of the potential risks to Matewan inherent in the
Acquisition, see "Risk Factors--Negative Effect of Acquisition on Regulatory
Capital" and "--Integration of Pikeville."
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Convertible Preferred
Stock Offered by the
Company................ 600,000 shares
Convertible Preferred
Stock Outstanding after
the Offering........... 600,000 shares
Offering Price.......... $25.00 per share
Use of Proceeds......... Net proceeds of the Offering are estimated to be
approximately $13.8 million and will be used to fund
approximately one-half of the $28.6 million purchase price
of the Acquisition. See "Use of Proceeds," "The Company" and
"The Acquisition."
Proposed Nasdaq SmallCap
Market Symbol.......... "MATEP"
Liquidation Preference.. $25.00 per share
Dividends............... Cumulative annual dividend at a rate of %, or $ per
share, payable in quarterly installments commencing on ,
1996.
Conversion.............. Convertible into shares of Common Stock at a price of $
per share of Common Stock.
Redemption.............. Redeemable at the option of Matewan, on or after , at a
price of %, declining to 100% in 20 .
Voting Rights........... None, except as required by law.
</TABLE>
RISK FACTORS
When deciding whether to invest in the Convertible Preferred Stock,
prospective investors should consider the following material risks associated
with an investment in the Company: the negative effect of the Acquisition on
Matewan's regulatory capital levels; the risk that Matewan will not be able to
successfully integrate Pikeville into its operations; regional economic factors
that affect both Matewan and Pikeville; the scope and effect of financial
institution regulation and possible legislation on both Matewan and Pikeville;
the effects of general economic conditions and monetary policies; and the
potential lack of liquidity in the Convertible Preferred Stock. See "Risk
Factors."
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
MATEWAN BANCSHARES, INC.
The following selected consolidated financial data for the five years ended
December 31, 1994, are derived from the consolidated financial statements of
the Company. The selected consolidated financial data for the nine months ended
September 30, 1995 and 1994, are derived from unaudited consolidated financial
statements. The unaudited consolidated financial statements include all
adjustments (consisting of normal recurring adjustments) which management of
the Company considers necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the nine months ended September 30, 1995, are not necessarily indicative of the
results that may be expected for the entire year ended December 31, 1995. The
information shown below should be read in conjunction with the consolidated
financial statements, the related notes thereto and other financial information
of Matewan included elsewhere in this Prospectus. See "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME FOR THE PERIOD:
Total interest income.. $ 23,898 $ 20,857 $ 28,524 $ 27,428 $ 28,444 $ 29,853 $ 28,067
Total interest expense. 9,329 7,713 10,543 9,774 11,631 15,234 15,403
Net interest income.... 14,569 13,144 17,981 17,654 16,813 14,619 12,664
Provision for loan
losses................ 1,261 1,293 1,643 1,285 1,343 1,507 1,203
Non-interest income.... 2,267 2,099 2,802 2,395 2,409 1,959 1,805
Non-interest expense... 9,961 8,406 11,259 10,372 9,897 9,391 8,238
Income before income
taxes................. 5,614 5,544 7,881 8,392 7,982 5,680 5,028
Applicable income
taxes................. 2,009 2,000 2,876 3,269 2,919 2,068 1,538
Net income............. 3,605 3,544 5,005 5,123 5,063 3,612 3,490
BALANCE SHEET DATA:
Total assets........... 389,513 366,290 371,410 342,949 329,156 323,627 301,923
Loans--net............. 228,274 210,539 214,744 195,853 172,764 168,097 170,343
Securities available
for sale.............. 9,032 9,782 11,051 921 922 951 894
Securities held to
maturity.............. 96,565 97,082 98,930 98,814 106,263 105,513 89,496
Federal funds sold..... 20,503 14,519 4,770 14,032 18,090 21,200 14,255
Deposits............... 324,039 306,363 310,647 291,153 281,116 271,271 252,512
Shareholders' equity... 44,465 40,930 41,803 38,032 33,952 29,959 27,124
PER SHARE DATA:
Net income............. 0.98 0.97 1.36 1.40 1.38 0.98 0.95
Cash dividends......... 0.30 0.20 0.31 0.28 0.28 0.23 0.16
Book value............. 12.12 11.16 11.40 10.37 9.25 8.17 7.40
AVERAGE SHARES
OUTSTANDING............ 3,668 3,668 3,668 3,668 3,668 3,668 3,668
KEY RATIOS:
PERFORMANCE:
Return on average
assets................ 1.28% 1.33% 1.40% 1.56% 1.57% 1.18% 1.28%
Return on average
shareholders' equity.. 11.29 12.03 12.39 14.12 16.44 12.56 13.01
Net interest margin.... 5.75 5.46 5.53 5.88 5.73 5.23 5.05
Non-interest expense to
average assets........ 3.55 3.17 3.14 3.16 3.07 3.07 3.03
Efficiency ratio....... 59.16 55.15 54.17 51.73 51.49 56.65 56.94
Ratio of earnings to
fixed charges: (1)
Excluding interest on
deposits.............. 13.64x 20.59x 18.63x 36.71x 22.17x 8.68x 8.54x
Including interest on
deposits.............. 1.60 1.72 1.75 1.86 1.69 1.37 1.33
LIQUIDITY AND CAPITAL:
Average loans to
average deposits...... 70.19% 66.29% 67.14% 64.69% 61.85% 64.27% 67.75%
Dividend payout ratio.. 28.77 19.05 22.82 20.34 20.58 23.08 17.02
Average shareholders'
equity to average
assets................ 11.41 11.18 11.27 11.07 9.55 9.39 9.85
Tier 1 leverage ratio.. 11.01 10.65 10.76 10.49 9.63 8.50 8.10
Risk-based capital:
Tier 1 capital ratio.. 18.17 17.71 17.98 17.63 17.61 15.05 13.73
Total capital ratio .. 19.29 18.96 19.23 18.88 18.86 16.15 14.77
ASSET QUALITY:
Net charge-offs to
average loans
outstanding............ 0.95 0.76 0.82 0.44 0.51 0.80 0.48
Non-performing loans to
total period-end
loans................. 1.36 1.12 1.08 0.65 1.75 1.21 1.52
Non-performing assets
to total period-end
assets................ 0.88 0.65 0.67 0.42 1.04 0.77 1.19
Allowance for loan
losses to total
period-end loans...... 1.14 1.46 1.35 1.49 1.41 1.18 1.08
Allowance for loan
losses to non-
performing loans...... 84.18 130.28 125.14 230.79 80.35 97.66 71.09
</TABLE>
- --------
(1) The ratio of earnings to fixed charges has been computed by dividing income
before taxes and fixed charges by fixed charges. Fixed charges include
interest expense, but not rent expense, as the interest component of rent
expense is not significant.
6
<PAGE>
BANK ONE, PIKEVILLE, N.A.
The following selected financial data for the three years ended December 31,
1994, are derived from the financial statements of Pikeville. The selected
financial data for the nine months ended September 30, 1995 and 1994, are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments (consisting of normal recurring adjustments) which
management of Pikeville considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the nine months ended September 30, 1995, are not necessarily
indicative of the results that may be expected for the entire year ended
December 31, 1995. The information shown below should be read in conjunction
with the financial statements and the related notes thereto of Pikeville
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED AT OR FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ----------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C>
INCOME FOR THE PERIOD:
Total interest income....... $ 13,601 $ 13,225 $ 17,580 $ 17,364 $ 17,997
Total interest expense...... 5,858 4,542 6,237 5,865 7,669
Net interest income......... 7,743 8,683 11,343 11,499 10,328
Provision for loan losses... 675 1,524 2,064 1,312 1,200
Non-interest income......... 973 1,184 1,129 1,226 1,287
Non-interest expense........ 6,764 5,671 7,644 7,593 7,667
Income before income taxes.. 1,277 2,672 2,764 3,820 2,748
Applicable income taxes..... 400 869 840 1,200 800
Cumulative effect adjustment
--change in accounting
for income taxes........... -- -- -- 272 --
Net income.................. 877 1,803 1,924 2,348 1,948
BALANCE SHEET DATA:
Total assets................ 221,019 227,258 225,871 242,150 234,153
Loans--net.................. 164,191 163,607 165,154 142,383 126,164
Securities available for
sale....................... 3,567 21,674 30,749 -- --
Securities held to
maturity................... 9,299 11,479 10,666 78,282 74,829
Securities purchased under
agreement to resell........ 25,674 12,047 1,123 -- 12,475
Deposits.................... 181,509 185,760 183,070 194,370 206,877
Shareholder's equity........ 19,369 19,863 19,343 20,323 19,846
KEY RATIOS:
PERFORMANCE:
Return on average assets.... 0.52% 1.08% 0.82% 1.02% 0.84%
Return on average
shareholder's equity....... 6.03 12.41 9.46 11.73 9.84
Net interest margin......... 4.98 5.21 5.32 5.44 4.89
Non-interest expense to
average assets............. 4.01 3.40 3.26 3.29 3.37
Efficiency ratio............ 77.60 57.47 61.29 59.67 66.01
LIQUIDITY AND CAPITAL:
Average loans to average
deposits................... 92.78 82.24 81.35 64.34 62.47
Average shareholder's equity
to average assets.......... 8.66 8.56 8.48 8.43 8.61
Tier 1 leverage ratio....... 8.59 8.62 8.38 8.17 8.23
Risk-based capital:
Tier 1 capital ratio....... 10.52 10.36 10.10 11.86 14.03
Total capital ratio........ 11.77 11.61 11.35 13.11 15.28
ASSET QUALITY:
Net charge-offs to average
loans outstanding.......... 1.58 0.41 0.43 0.25 0.74
Non-performing loans to
total period-end loans..... 2.42 0.94 1.10 0.40 2.34
Non-performing assets to
total period-end assets.... 1.92 0.75 0.88 0.29 1.46
Allowance for loan losses to
total period-end loans..... 2.20 2.77 2.95 2.48 2.04
Allowance for loan losses to
non-performing loans....... 90.93 294.32 268.93 611.68 86.88
</TABLE>
7
<PAGE>
RISK FACTORS
Before investing in the shares of Convertible Preferred Stock offered
hereby, prospective investors should give special consideration to the
material risks described below, together with all of the other information
appearing elsewhere in this Prospectus.
NEGATIVE EFFECT OF ACQUISITION ON REGULATORY CAPITAL
The Acquisition will have a negative effect on the regulatory capital ratios
of Matewan. Assuming consummation of the Acquisition and the issuance of the
Convertible Preferred Stock, Matewan's capital ratios at September 30, 1995,
under regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), would be affected as follows: the total risk-based capital
ratio would decrease from 19.29% to 12.11%, the Tier 1 capital ratio would
decrease from 18.17% to 10.86% and the Tier 1 leverage ratio would decrease
from 11.01% to 7.47%. Notwithstanding these decreases, the Banking
Subsidiaries and Pikeville will continue to maintain the requisite capital
levels to qualify under regulatory guidelines as "well capitalized"
institutions.
The following table sets forth, as of September 30, 1995, capital ratios of
Matewan; the pro forma capital ratios of Matewan, after giving effect to the
Acquisition; the pro forma capital ratios of Matewan after giving effect to
the Acquisition and the Offering; and the minimum capital ratios required by
regulation. See "Supervision and Regulation--Capital Adequacy."
<TABLE>
<CAPTION>
AFTER AFTER ACQUISITION REGULATORY
ACTUAL ACQUISITION AND OFFERING MINIMUMS
------ ----------- ----------------- ----------
<S> <C> <C> <C> <C>
Total risk-based capital
ratio................... 19.29% 8.86% 12.11% 8.00%
Tier 1 capital ratio..... 18.17 7.61 10.86 4.00
Tier 1 leverage ratio.... 11.01 5.24 7.47 3.00-5.00
</TABLE>
INTEGRATION OF PIKEVILLE
While Matewan has in the past made other acquisitions, Matewan has never
made an acquisition as large as Pikeville. The future growth and profitability
of Matewan will depend on the success of Matewan's integration of Pikeville's
operations. Historically, Pikeville has not achieved the same level of
financial results as Matewan, and the integration of Pikeville into Matewan
could adversely affect Matewan's financial performance. Matewan's ability to
successfully integrate Pikeville into Matewan's current operations will depend
on a number of factors, including: (i) its ability to improve Pikeville's
operating efficiency; (ii) its ability to devote adequate personnel to
integrate Pikeville's operations into Matewan's operations, while still
managing its existing operations effectively; (iii) its ability to improve
Pikeville's operating results; and (iv) its ability to effectuate cost savings
from the Acquisition. No assurance can be given that Matewan will be able to
integrate successfully Pikeville, that the operation of Pikeville will not
adversely affect Matewan's profitability, or that Matewan will be able to
manage effectively its growth resulting from the Acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Anticipated Operating Effect of Acquisition on Matewan."
REGIONAL ECONOMIC FACTORS
Matewan's offices are located in a seven-county area in southwestern West
Virginia and eastern Kentucky. The economy in Matewan's Market is directly and
indirectly dependent on the coal industry. The economy also benefits from
various governmental infrastructure projects and assistance programs. These
infrastructure projects have been substantially completed, and no assurance
can be given that funds will be provided for future projects. A downturn in
the coal industry or a decline in governmental expenditures could negatively
impact the value of collateral securing loans held in Matewan's portfolio, the
ability of borrowers to repay such loans in accordance with original terms and
demand for Matewan's loans, deposits and other products.
8
<PAGE>
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
Matewan, the Banking Subsidiaries and Pikeville are subject to extensive
regulation and supervision. The regulatory authorities have broad discretion
in connection with their supervision, examination and enforcement activities
and policies. Among other powers, the regulatory authorities may impose
restrictions on the operation of a financial institution, may require the
classification of assets by an institution and may dictate an increase in an
institution's allowance for loan losses. Any change in the applicable
statutes, regulations or policies or in the regulatory structure, whether by
the Federal Reserve, the Office of the Comptroller of the Currency (the
"OCC"), the Office of Thrift Supervision (the "OTS"), the Federal Deposit
Insurance Corporation (the "FDIC") or Congress, could have a material impact
on Matewan, the Bank, the Thrift or Pikeville and their respective operations.
See "Supervision and Regulation."
ECONOMIC CONDITIONS AND MONETARY POLICIES
Economic conditions and monetary policies beyond Matewan's control may have
a significant impact on Matewan's operations, including such matters as
changes in net interest income from one period to another. Examples of such
conditions and policies include: (i) the strength of credit demand by
customers; (ii) the percentage of deposits that must be held in the form of
non-earning cash reserves; (iii) the introduction and growth of new investment
instruments and transaction accounts by non-bank financial competitors; and
(iv) changes in the general levels of interest rates, including changes
resulting from Federal Reserve monetary activities.
POTENTIAL LACK OF LIQUIDITY
The Common Stock has only recently been listed on the Nasdaq National
Market, and there is limited trading in the Common Stock. Prior to the
Offering, there has been no public market in the Convertible Preferred Stock.
Although Matewan has applied for listing of the Convertible Preferred Stock on
the Nasdaq SmallCap Market, there can be no assurance that an active trading
market in the Convertible Preferred Stock will develop or, if developed, that
such market will be sustained after the Offering.
9
<PAGE>
THE COMPANY
Matewan, which was incorporated in 1984 under the laws of the State of
Delaware, is a registered bank holding company headquartered in Williamson,
West Virginia. Matewan was organized for the purpose of serving as the holding
company for the Bank and is also the holding company for the Thrift. The
principal business of Matewan is directing, planning and coordinating the
business activities of the Bank and the Thrift, and the financial condition
and results of operations of Matewan are primarily dependent upon the
operations of these entities. At September 30, 1995, Matewan had total assets
of $389.5 million, total deposits of $324.0 million and total shareholders'
equity of $44.5 million.
The Bank was organized as a national bank in 1913 in Matewan, West Virginia.
The Bank maintains its executive offices in Williamson, West Virginia, and has
banking offices in Matewan, Gilbert, Delbarton, Kermit, Danville and Logan,
West Virginia. In May 1994, the Bank opened the Money Center in Williamson,
West Virginia, which, in addition to centralizing all of the lending
departments of the Bank, also serves as a loan production office, a loan
support office and the headquarters for the financial services division of the
Bank. The Bank has a total of nine offices.
The Thrift was organized and established as a federally chartered de novo
savings bank in 1994. The Thrift operates two traditional offices located in
Coal Run and Paintsville, Kentucky, and two supermarket branches located in
Pikeville and Goody, Kentucky.
Matewan's Market is developing an increasingly diverse economy. The coal
industry is the local economy's principal industry, and demand for the type of
coal found in the Company's Market, bituminous, has increased. Clean air
legislation has prompted consumers of coal, predominately utilities, to burn
low-sulfur coal, such as the type of bituminous coal found in the Market, that
emits fewer pollutants. The Market's coal mining industry is complemented by
wholesale trade, retail trade and service industries. Infrastructure projects,
such as the construction of the Highway 119 corridor, are improving access to
the area and are expected to facilitate future economic growth. Pikeville,
Kentucky, is a regional hub of economic activity and provides the area with
financial, medical, legal and retail services. See "Risk Factors--Regional
Economic Factors."
Matewan's strategy is to become the leading provider of financial services
in its Market by offering customers innovative products through convenient
delivery systems and a well-trained, sales-oriented work force. Management
believes that effective use of technology in providing financial services,
coupled with a commitment to customer service, affords Matewan a competitive
advantage in its Market. In implementing this strategy, management emphasizes
the following:
. Technology to enhance products and delivery systems. The Company has
extensively utilized sophisticated technology to enhance its delivery
systems. Matewan offers its retail customers 24-hour banking by touch-
tone phone by means of an interactive voice response system. In 1996,
Matewan will offer its retail customers the ability to access account
information, transfer funds and pay certain bills via personal computer.
The Company currently utilizes personal computer technology that enables
commercial customers to access cash management services via interlinks
with Matewan's main frame system. The Company also maintains an
integrated PC-based server network system that provides immediate
interaction among all operating functions of the Banking Subsidiaries,
thereby enhancing internal communication and customer service. In
addition, the Company's sophisticated credit rating and pricing models
enable the Banking Subsidiaries to price their loan products to reflect
credit risk more accurately.
. Customer service and convenience. Through the use of two supermarket
branches and other alternative delivery systems and extended banking
hours of service, the Banking Subsidiaries offer convenient service to
customers. All but one of the 13 branch offices of the Banking
Subsidiaries are open on Saturday, and the two supermarket branches are
open on Sunday from 1:00 p.m. to 6:00 p.m. During the week, seven of the
13 branches have extended hours, with 7:00 a.m. to 7:00 p.m. drive-up
service and 9:00 a.m. to 5:00 p.m. lobby service for stand-alone
branches and 9:00 a.m. to 8:00 p.m.
10
<PAGE>
service for supermarket branches. No other bank offers comparable
extended service hours in its Market.
. Dedicated, sales-oriented work force. Matewan has historically devoted
significant resources to training its work force and instilling a sales-
oriented culture to promote customer service and market penetration. In
addition to extensive orientation and training of new employees with an
emphasis on the individual's job assignment, the Company also provides
regular continuing education and training of all employees. It is the
Company's policy to reimburse employees for all business-related courses
taken at local universities, and the Company has sponsored graduate
level courses through Marshall University at its offices for its
employees and local residents. To further promote customer service, the
Company emphasizes performance-based compensation, with an increasing
percentage of employees having their total compensation, and all
employees having a portion of their compensation, based on incentive
programs.
Implementation of this strategy has enabled the Company to enjoy a compound
annual asset growth rate of 16.8% over the last decade, with assets increasing
from $72.8 million on December 31, 1984, to $389.5 million on September 30,
1995. The Company's utilization of technology and commitment to cost control
has resulted in an average efficiency ratio of 54.20% for the five years ended
December 31, 1994. The Company's returns on average assets were 1.40% and
1.28% (annualized) for the year ended December 31, 1994, and the nine months
ended September 30, 1995, respectively.
The executive offices of Matewan are located at Second Avenue and Vinson
Street, Williamson, West Virginia, 25661, and the telephone number at this
address is (304) 235-1544.
THE ACQUISITION
TERMS AND CONDITIONS OF THE ACQUISITION
Pursuant to the Purchase Agreement with Banc One, Matewan will purchase 100%
of the outstanding capital stock of Pikeville for $28.6 million in cash. After
the Acquisition, Matewan will operate Pikeville as a separate subsidiary,
under the name "Matewan National Bank/Kentucky."
Matewan will fund the purchase price of the Acquisition from (i) estimated
net proceeds of the Offering in the amount of $13.8 million, (ii) $2.8 million
in cash and cash equivalents and (iii) a ten-year loan to the holding company
in an original principal amount of $12.0 million, which will bear interest at
the rate of 2.0% per annum above the five-year Treasury note yield on the date
of the loan, repricing after five years. Matewan will pledge 50% of the common
stock of its subsidiary, the Bank, as collateral for this loan. The
Acquisition will close concurrently with the Offering.
Matewan and Banc One, for federal income tax purposes, will elect to treat
the purchase of the outstanding stock of Pikeville as a purchase of
Pikeville's assets pursuant to Section 338(h)(10) of the Internal Revenue Code
of 1986, as amended (the "Code"). One result of a 338(h)(10) election is that
Pikeville's tangible and intangible assets with a fair market value in excess
of their adjusted tax bases will receive a "step-up" in basis for federal
income tax purposes. To the extent the adjusted tax basis of intangible
property (such as core deposit intangibles, other intangibles and goodwill) is
stepped up (which is anticipated as a result of the Acquisition), Matewan will
receive the benefit of amortization deductions with respect to those assets.
Banc One has agreed to remove the derivatives portfolio of Pikeville at or
before the closing of the Acquisition and to indemnify Pikeville and Matewan
for all expenses or losses accruing or arising after September 28, 1995,
relating to the derivatives portfolio. In addition, Banc One has agreed to
indemnify Pikeville and Matewan for costs or losses relating to certain
litigation and to share costs or losses with Pikeville and Matewan and to
indemnify Pikeville and Matewan above certain limits for certain other
litigation. Banc One will also indemnify Pikeville and Matewan with respect to
certain employment and employee benefit matters, as well as for inaccuracies
in the representations and warranties made to Matewan resulting in losses in
excess of $100,000. These indemnities are for differing periods of time of not
less than three years.
11
<PAGE>
The closing of the Acquisition is contingent upon: (i) the approval of the
Federal Reserve which was received on , 1996; (ii) closing of the loan;
and (iii) consummation of the Offering. In the event that the Purchase
Agreement is terminated by reason of Matewan's failure, for any reason, to
fund the purchase price, Matewan is obligated to pay Banc One a fee equal to
$250,000.
REASONS FOR THE ACQUISITION
The following summarizes the major objectives of the Acquisition and the
benefits Matewan expects will accrue to its operations from the Acquisition.
Appeal of Pikeville Market. Management views Pikeville and Pike County,
Kentucky, as the most attractive segments in Matewan's Market. Pike County has
the largest population of any county in the Market. Pikeville, Kentucky, is a
regional hub of economic activity and provides the area with financial,
medical, legal and retail services.
Increased Market Share. Upon consummation of the Acquisition, Matewan will
increase its market share of deposits from fourth to second in Pike County and
from third to first in its Market. Management believes that economic growth in
its Market will continue to provide a favorable climate in which to conduct
Matewan's business. The following table reflects, based on the latest publicly
available data, the pro forma effects (after closing two offices) that the
Acquisition will have on Matewan's branch network, deposits and deposit market
share at June 30, 1994:
<TABLE>
<CAPTION>
HISTORICAL/(1)/ PRO FORMA FOR ACQUISITION/(1)/
-------------------------- ----------------------------------
CURRENT DEPOSIT DEPOSIT
NUMBER OF MARKET NUMBER OF MARKET
OFFICES DEPOSITS SHARE OFFICES DEPOSITS SHARE
--------- -------- ------- ----------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Mingo County, WV........ 6 $206.7 53.9% 6 $206.7 53.9%
Pike County, KY/(2)/.... 3 10.5 1.3 8 204.7 25.6
Logan County, WV........ 2 28.9 8.0 2 28.9 8.0
Boone County, WV........ 1 60.7 28.2 1 60.7 28.2
Johnson County,
KY/(2)/................ 1 -- -- 1 -- --
Floyd County, KY........ -- -- -- -- -- --
Martin County, KY....... -- -- -- -- -- --
--- ------ ---- --- ------ ----
Total for Seven
Counties............. 13 $306.8 12.6% 18 $500.9 20.5%
=== ====== ==== === ====== ====
</TABLE>
--------
/(1)/ All historical and pro forma deposit and market share data is as of
June 30, 1994.
/(2)/ Two of the Company's Pike County offices and the Company's Johnson
County office were opened after June 30, 1994.
The following table shows the pro forma comparative market position of
Matewan in its Market, after giving effect to the Acquisition, as of June 30,
1994:
<TABLE>
<CAPTION>
DEPOSITS PERCENTAGE
INSTITUTION (IN MILLIONS) OF DEPOSITS
----------- ------------- -----------
<S> <C> <C>
Matewan BancShares, Inc............................ $500.9 20.5%
Pikeville National Corporation..................... 458.5 18.8
Banc One Corporation............................... 304.8 12.5
Trans Financial Bancorp............................ 277.7 11.4
First Prestonsburg Bancshares...................... 131.1 5.4
Citizens National Corporation...................... 128.7 5.3
Ten remaining institutions......................... 637.3 26.1
</TABLE>
All of Matewan's and Pikeville's offices are located within approximately a
35-mile radius of Matewan's headquarters. As Matewan is already serving
depositors and borrowers in the Market, the Company
12
<PAGE>
is familiar with these areas. The customer base of Pikeville includes
approximately 92,600 households as customers, having approximately 17,450
deposit accounts with Pikeville. Matewan believes that by acquiring this
depositor base it will have significant future growth opportunities to provide
mortgage loans, consumer loans and other financial services to these
depositors.
Increased Operating Efficiencies. Management anticipates that the Company
will realize significant operating efficiencies and expense savings by means
of the consolidation of operations of Matewan and Pikeville. In addition to
the elimination of management fees paid by Pikeville to Banc One, management
expects to generate additional expense savings through the assimilation of
data processing functions, the consolidation of two branches (one additional
branch was closed by Pikeville in December 1995). Management also anticipates
more efficiently utilizing the current operating systems of Matewan by
spreading the cost of such systems over a larger asset base. In particular,
management anticipates effective utilization of the technological investment
made by Matewan over a much larger customer base, providing Pikeville
customers the services currently provided to Matewan's existing customer base,
but without a proportional increase in personnel or equipment. Management
estimates that, within one year following the Acquisition, it can recognize
cost savings of $1.2 million, or 15% of Pikeville's 1994 non-interest expense,
which would reduce Pikeville's efficiency ratio to levels approximating
Matewan's historical efficiency ratio. See "Risk Factors--Integration of
Pikeville" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Anticipated Operating Effect of Acquisition on
Matewan."
Revenue Enhancement Opportunities. Pikeville's profitability levels are
below those being realized by Matewan. The Acquisition will provide Matewan
with increased revenue enhancement opportunities through expanded customer
service and convenience for Pikeville's customer base. Matewan will extend its
existing alternative delivery systems and extended banking hours to
Pikeville's operations. The Acquisition will also permit Matewan to apply its
existing training programs to Pikeville's work force to develop a sales-
oriented culture to promote customer service and further Pikeville's market
penetration.
USE OF PROCEEDS
The net proceeds from the sale of the Convertible Preferred Stock offered
hereby will be used to fund approximately one-half of the estimated costs of
the Acquisition, consisting of the $28.6 million purchase price and
capitalized estimated costs and expenses of $400,000. The sources of funds
needed to fund these amounts are described below:
<TABLE>
<S> <C>
Estimated net proceeds of Offering............................ $13,800,000
Long-term debt................................................ 12,000,000
Cash and cash equivalents..................................... 3,200,000
-----------
$29,000,000
</TABLE>
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Matewan at
September 30, 1995, and is adjusted to give effect to the consummation of the
Acquisition and the issuance of 600,000 shares of Convertible Preferred Stock
offered hereby.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
---------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(DOLLARS IN
LONG-TERM DEBT THOUSANDS)
<S> <C> <C>
Note payable--$12.0 million note with interest at 2.0%
per annum above the
five-year Treasury note yield at the date of the loan,
repricing after five years and due in monthly
installments over ten years............................. $ -- $ 12,000
SHAREHOLDERS' EQUITY
Preferred Stock--$1.00 par value; 1,000,000 shares
authorized no shares outstanding at September 30, 1995;
as adjusted 600,000 shares, Convertible Preferred Stock,
Series A (aggregate liquidation value $15,000,000)(1)... -- 15,000
Common Stock--$1.00 par value; 10,000,000 shares
authorized; 3,684,104 shares outstanding at September
30, 1995, including 16,253 treasury shares ............. 3,684 3,684
Surplus.................................................. 12,182 10,982
Retained earnings........................................ 28,727 28,727
Treasury stock........................................... (68) (68)
Net unrealized loss on available-for-sale securities, net
of income taxes......................................... (60) (60)
-------- --------
Total shareholders' equity........................... 44,465 58,265
-------- --------
Total liabilities and shareholders' equity........... $389,513 $617,615
======== ========
</TABLE>
- --------
(1) Assumes that 600,000 shares of Convertible Preferred Stock are sold at
$25.00 per share and that the net proceeds from the Offering are
approximately $13.8 million. If the Underwriter's over allotment option is
exercised in full, 690,000 shares of Convertible Preferred Stock would be
sold resulting in net proceeds from the Offering of $ .
14
<PAGE>
COMMON STOCK PRICE RANGE AND DIVIDENDS
The Common Stock is traded on the Nasdaq National Market under the symbol
"MATE." Prior to its listing on the Nasdaq National Market on June 1, 1994,
there was no established trading market for the Common Stock. At December 31,
1995, there were approximately 610 holders of record of the Common Stock and
3,667,351 shares outstanding.
The following table sets forth the high and low sales prices of the Common
Stock for each quarter since the listing of the Common Stock on the Nasdaq
National Market on June 1, 1994:
<TABLE>
<CAPTION>
PRICE RANGE CASH DIVIDENDS
------------- DECLARED PER
HIGH LOW COMMON SHARE
------ ------ --------------
<S> <C> <C> <C>
1994:
First Quarter................................ $ -- $ -- $0.057
Second Quarter............................... 24.55 18.18 0.057
Third Quarter................................ 20.00 17.27 0.057
Fourth Quarter............................... 18.86 14.09 0.138
1995:
First Quarter................................ 18.18 15.23 0.090
Second Quarter............................... 20.50 17.27 0.090
Third Quarter................................ 20.50 18.50 0.100
Fourth Quarter............................... 21.38 19.50 0.100
1996:
First Quarter (through , 1996)............ --
</TABLE>
On , 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $ per share.
On January 10, 1995, Matewan's Board of Directors authorized the repurchase
of up to 100,000 shares of its Common Stock. As of the date of this
Prospectus, a total 1,700 shares have been purchased for a total of $46,000.
Purchases may be made from time to time, subject to regulatory requirements,
in the open market or in privately negotiated transactions. Purchased shares
may be used from time to time for various corporate purposes.
Matewan currently intends to continue to pay regular quarterly cash
dividends on the Common Stock, subject to Matewan's needs for funds. However,
Matewan's dividend policy is subject to the discretion of the Board of
Directors. In determining whether to continue such dividend payments and in
establishing the amount of any dividends to be paid, the Board will consider
Matewan's earnings, capital requirements and financial condition, prospects
for future earnings, federal economic and regulatory policies, general
business conditions and other relevant factors, certain of which are beyond
the control of Matewan.
The primary source of funds for dividends paid by Matewan to its
shareholders is the dividend income received from its Banking Subsidiaries,
and after the Acquisition, from Pikeville. The ability of the Banking
Subsidiaries and Pikeville to pay dividends is regulated by the OCC, in the
case of the Bank and Pikeville, and the OTS, in the case of the Thrift, and,
in certain cases, requires the approval of such agencies. The OCC and the OTS
also have the authority to prohibit a regulated depository institution from
engaging in what in such agency's opinion constitutes an unsafe or unsound
practice for conducting business. Depending upon the financial condition of
the depository institution, payment of dividends could be deemed to constitute
such an unsafe or unsound practice. In addition, a depository institution may
not pay a dividend or otherwise make a capital distribution if the payment
thereof would cause such institution to fail to satisfy its capital
requirements. Due to regulatory dividend limits, it is not anticipated that
Pikeville will be in a position to declare dividends before the fourth quarter
of 1996. See "Supervision and Regulation--Payment of Dividends."
Although management believes that the Banking Subsidiaries will be able to
generate sufficient earnings to pay dividends to Matewan in amounts sufficient
to fund the payment of dividends on the Convertible Preferred
15
<PAGE>
Stock, to continue Matewan's current dividend policy with respect to the
Common Stock and to service the interest and principal payments on the
indebtedness incurred to fund the Acquisition, there can be no assurance that
the Banking Subsidiaries and Pikeville will be able to generate such earnings
or to pay such dividends. To the extent that the Banking Subsidiaries and
Pikeville are unable to generate sufficient earnings or to pay sufficient
dividends to enable Matewan to pay full dividends on both the Convertible
Preferred Stock and the Common Stock, Matewan would be required to pay all
cumulative dividends on the Convertible Preferred Stock before paying any
dividends on the Common Stock. See "Description of Capital Stock."
16
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed consolidated balance sheet as of September
30, 1995, and the pro forma condensed consolidated statements of income for
the nine months ended September 30, 1995, and the year ended December 31,
1994, give effect to the acquisition of 100% of the outstanding capital stock
of Pikeville by Matewan. The pro forma information is based on the historical
financial statements of Matewan and Pikeville, giving the effect to the
proposed Acquisition under the purchase method of accounting and the
assumptions and adjustments in the accompanying notes to the pro forma
financial statements.
The pro forma statements have been prepared by Matewan's management based
upon the financial statements of Pikeville. These pro forma statements may not
be indicative of the results that actually would have occurred if the
Acquisition had been in effect on the dates indicated or which may be obtained
in the future. In addition, minor differences may result from rounding. The
pro forma financial statements should be read in conjunction with the
financial statements and notes of Matewan and Pikeville included elsewhere in
this Prospectus.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-----------------------------------------------
AS REPORTED
------------------
PRO FORMA PRO FORMA
MATEWAN PIKEVILLE ADJUSTMENTS CONSOLIDATED
-------- --------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents..... $ 35,838 $ 6,334 $(3,200)(a) $ 38,972
Interest bearing deposits..... 675 -- -- 675
Securities purchased under
agreement to resell.......... -- 25,674 -- 25,674
Held to maturity securities... 96,565 9,299 302 (b) 106,166
Available for sale
securities................... 9,032 3,567 -- 12,599
Loans, net.................... 228,274 164,191 (412)(b) 392,053
Premises and equipment........ 9,742 8,948 18,690
Accrued interest receivable
and other assets............. 9,387 3,006 10,393 (b) 22,786
-------- -------- ------- --------
Total assets.............. $389,513 $221,019 $ 7,083 $617,615
======== ======== ======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Deposits:
Noninterest bearing......... $ 42,722 $ 24,540 $ -- $ 67,262
Interest bearing............ 281,317 156,969 652 (b) 438,938
-------- -------- ------- --------
Total..................... 324,039 181,509 652 506,200
Short-term borrowings:
Federal funds purchased..... -- 14,815 -- 14,815
Repurchase agreements....... 13,968 -- -- 13,968
Other....................... 3,755 2,076 -- 5,831
-------- -------- ------- --------
Total..................... 17,723 16,891 -- 34,614
Long-term debt................ -- -- 12,000 (a) 12,000
Accrued interest payable and
other liabilities............ 3,286 3,250 -- 6,536
-------- -------- ------- --------
Total liabilities......... 345,048 201,650 12,652 559,350
Shareholders' equity.......... 44,465 19,369 (5,569)(a,b) 58,265
-------- -------- ------- --------
Total liabilities and
shareholders' equity..... $389,513 $221,019 $ 7,083 $617,615
======== ======== ======= ========
</TABLE>
See notes to pro forma condensed consolidated financial statements
(unaudited).
17
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------------------
AS REPORTED
------------------
PRO FORMA PRO FORMA
MATEWAN PIKEVILLE ADJUSTMENTS CONSOLIDATED
------- --------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO
DATA)
<S> <C> <C> <C> <C>
Interest income............. $23,898 $13,601 $ 14 (c1,4) $37,513
Interest expense............ 9,329 5,858 308 (c2,5) 15,495
------- ------- ------ -------
Net interest income ........ 14,569 7,743 (294) 22,018
Provision for loan losses... 1,261 675 -- 1,936
------- ------- ------ -------
Net interest income after
provision for loan losses
........................... 13,308 7,068 (294) 20,082
Other income................ 2,267 973 -- 3,240
Other expenses.............. 9,961 6,764 770 (c3,6) 17,495
------- ------- ------ -------
Income before income taxes.. 5,614 1,277 (1,064) 5,827
Applicable income taxes..... 2,009 400 (426)(c7) 1,983
------- ------- ------ -------
Net income.................. 3,605 877 (638) 3,844
Preferred dividends......... -- -- (d)
------- ------- ------ -------
Net income applicable to
Common Stock............... $ 3,605 $ 877 $ $
======= ======= ====== =======
Average common shares
outstanding................ 3,668 3,668
Net income per share
applicable to Common Stock
........................... $ 0.98 $
======= =======
Ratio of earnings to fixed
charges and preferred stock
dividends:
Excluding interest on
deposits................... 13.64x x
Including interest on
deposits................... 1.60
</TABLE>
See notes to pro forma condensed consolidated financial statements (unaudited).
18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
AS REPORTED
------------------
PRO FORMA PRO FORMA
MATEWAN PIKEVILLE ADJUSTMENTS CONSOLIDATED
------- --------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO
DATA)
<S> <C> <C> <C> <C>
Interest income.............. $28,524 $17,680 $ 19 (c1,4) $46,123
Interest expense............. 10,543 6,237 411 (c2,5) 17,191
------- ------- ------ -------
Net interest income ......... 17,981 11,343 (392) 28,932
Provision for loan losses.... 1,643 2,064 -- 3,707
------- ------- ------ -------
Net interest income after
provision for loan losses .. 16,338 9,279 (392) 25,225
Other income................. 2,802 1,129 -- 3,931
Other expenses............... 11,259 7,644 1,027 (c3,6) 19,930
------- ------- ------ -------
Income before income taxes... 7,881 2,764 (1,419) 9,226
Applicable income taxes...... 2,876 840 (568)(c7) 3,148
------- ------- ------ -------
Net income................... 5,005 1,924 (851) 6,078
Preferred dividends.......... -- -- (d)
------- ------- ------ -------
Net income per share
applicable to Common Stock.. $ 5,005 $ 1,924 $ $
======= ======= ====== =======
Average common shares
outstanding................. 3,668 3,668
Net income per share
applicable to Common Stock
............................ $ 1.36 $
======= =======
Ratio of Earnings to fixed
charges and preferred stock
dividends:
Excluding interest on
deposits.................... 18.63x x
Including interest on
deposits.................... 1.75
</TABLE>
See notes to pro forma condensed consolidated financial statements (unaudited).
19
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
Pursuant to the Purchase Agreement, Matewan will pay Banc One $28,600 in
cash for the purchase of 100% of the outstanding capital stock of Pikeville
and will incur estimated related costs and expenses of $400. The pro forma
financial statements assume that the Acquisition will be accounted for as a
purchase.
(a) Reflects the proceeds of the Offering, the increase in long-term debt,
and the reduction in cash as a result of the Acquisition.
<TABLE>
<S> <C>
$15,000 of Convertible Preferred Stock, less estimated costs of
issuance...................................................... $13,800
Long-term debt................................................. 12,000
Cash and cash equivalents...................................... 3,200
-------
Purchase price and related costs............................... $29,000
=======
</TABLE>
(b) Under purchase accounting, Pikeville's assets and liabilities are
required to be adjusted to their estimated fair values. The estimated fair
value adjustments have been determined by Matewan based upon available
information set forth in the notes to Pikeville's financial statements
included elsewhere in this Prospectus and other information available to
management. No assurance can be given that such estimated fair values
represent fair values that would ultimately be determined at the effective
date of the Acquisition. Following are the pro forma adjustments made to
reflect Pikeville's fair values at September 30, 1995.
<TABLE>
<CAPTION>
NET ASSETS
-------------------
INCREASE (DECREASE)
<S> <C>
Amounts as reported by Pikeville............................ $19,369
Fair value adustments:
Investments............................................... 302
Loans..................................................... (412)
Deposit base intangibles.................................. 2,997
Certificates of deposit................................... (652)
Costs in excess of net assets of company acquired......... 7,396
-------
$29,000
=======
</TABLE>
(c) For purposes of determining the pro forma effect of the Acquisition on
Matewan's consolidated statement of income, the following pro forma
adjustments have been made:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
1 Decrease in interest income resulting from the use
of cash,
at an assumed interest rate of 5.0%............... $(120) $(160)
2 Interest expense on $12,000 of long-term debt at
7.5% over 10 years
(assuming no principal reductions in the periods
presented)........................................ (675) (900)
3 Amortization of deposit base intangibles over the
estimated lives
of the deposit relationships on an accelerated
basis............................................. (493) (657)
4 Amortization/accretion of adjustments to
investments and loans............................. 134 179
5 Amortization/accretion of adjustments to
certificates of deposit........................... 367 489
6 Amortization of cost in excess of net assets
acquired over 20 years............................ (277) (370)
7 Decrease in income tax provision associated with
adjustments....................................... 426 568
----- -----
$(638) $(851)
===== =====
</TABLE>
(d) Reflects quarterly dividends at an assumed annual rate of % as if the
Convertible Preferred Stock had been outstanding as of the beginning of each
period.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is designed to provide a better understanding of
the results of operations and the financial condition of the Company. This
discussion should be read in conjunction with the information included under
"Prospectus Summary," "Risk Factors," "The Company," "The Acquisition,"
"Business" and the consolidated financial statements and the related notes
thereto of Matewan included elsewhere in this Prospectus.
ANTICIPATED OPERATING EFFECT OF ACQUISITION ON MATEWAN
The major objectives of the Acquisition and the benefits Matewan expects
will accrue to its operations from the Acquisition include expansion of its
presence in the attractive Pikeville market, increased share in Matewan's
Market, increased operating efficiences resulting from the consolidation of
operations, revenue enhancement resulting from expanded customer service and
the development of a sales-oriented work force at Pikeville. See "The
Acquisition--Reasons for the Acquisition."
There are a number of factors which will have an effect on the financial
impact of the Acquisition to Matewan, including, but not limited to, the
ability of Matewan to realize expense savings and to enhance operating
revenues, the expenses associated with the Acquisition, such as interest
expense on Acquisition debt, foregone income on the funds used in the
Acquisition, the amortization of intangibles and the costs of the Acquisition
and the dividends on the Convertible Preferred Stock. See "Risk Factors--
Integration of Pikeville".
Management believes that based on the historical core earnings of Pikeville
and the operating efficiencies and expense savings that can be achieved as a
result of the consolidation of the operations of Matewan and Pikeville, the
Acquisition of Pikeville will generate sufficient earnings to offset the
expenses and costs associated with the Acquisition as described above, with
the result that the Acquisition will be accretive to earnings per share within
one year and thereafter.
Management expects to generate expense savings through the assimilation of
data processing and mortgage origination functions and the consolidation of
two branches. Pikeville has historically paid management, data processing and
other fees to Banc One in connection with an inter-company agreement. Matewan
plans to convert data processing, mortgage origination and other systems
concurrently with closing of the Acquisition and anticipates a net reduction
of such outlays of approximately $700,000 annually. The application of
Matewan's lower fixed cost structure to the operations of Pikeville and the
recent termination of 25 data processing employees by Pikeville will generate
the majority of these expense savings. Management also anticipates cost
savings through the consolidation of two Pikeville branches into existing
Matewan offices by June 30, 1996. The consolidation of these two offices is
expected to reduce the expenses of the combined company by approximately
$500,000 in the first year. Given the proximity of these offices to existing
Matewan branches, management does not anticipate significant account run-off.
In addition, the historical financial results of Pikeville reflect the
operation of a branch closed by Pikeville on December 31, 1995, prior to the
Acquisition. The deposits of this branch totalled $4.0 million, and the annual
expenses historically associated with the operation of this facility were an
estimated $150,000.
As a result of effecting the Acquisition, Matewan will be able to avoid
incurring certain non-recurring expenses incurred by Pikeville. During the
nine months ended September 30, 1995, Pikeville incurred a one time charge of
$500,000 associated with severance and retention bonus programs implemented by
Banc One prior to the Acquisition. Matewan does not anticipate any additional
expenses related to this program. The income statement for Pikeville for the
period ended September 30, 1995, also reflects a one-time charge of $300,000,
to conform Pikeville's depreciation lives for fixed assets to those of Banc
One.
In addition to the currently quantifiable cost reductions described above,
Matewan believes that the Acquisition will permit more efficient utilization
of Matewan's current infrastructure. While Matewan has
21
<PAGE>
enjoyed an average efficiency ratio of 54.20% for the five years ended
December 31, 1994, by effecting the Acquisition, Matewan will increase its
total earning assets by approximately 57.3% and increase its full-time
employee work force by only 44.6%. In addition, Matewan will make available to
Pikeville's customers the banking technology services currently provided by
Matewan to its existing customer base, thereby reducing the per customer cost
of Matewan's investment in such technology. As a result of greater utilization
of the management and technology investments made by Matewan, management
anticipates that the combined company will generate significant additional net
interest income without incurring proportional non-interest expense, thereby
achieving proportionately higher earnings than Matewan currently achieves.
Management of Matewan also believes that the earnings of the combined
company will be increased by incremental revenue enhancements that are
anticipated to be achieved through the more convenient banking services
provided by the Banking Subsidiaries relative to Pikeville's current banking
hours and through the PC-based and telephone banking services currently
provided by the Banking Subsidiaries that are not currently afforded by
Pikeville. Management also anticipates that over time and through the training
programs of Matewan, it will be able to instill a sales-oriented culture in
the work force of Pikeville that will result in increased revenue through the
sale of additional deposit and non-deposit products.
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
SUMMARY
Net income for the first nine months of 1995 was $3.6 million, or $0.98 per
share, versus $3.5 million, or $0.97 per share, for the same period in 1994.
Return on average assets was 1.28% and 1.33% for each of the nine-month
periods ended September 30, 1995 and September 30, 1994, respectively. Return
on average equity was 11.29% and 12.03% for the respective nine-month periods.
FINANCIAL CONDITION
Total assets at September 30, 1995, increased $23.2 million from September
30, 1994. This level of growth and the concurrent asset mix reflect both
increased loan demand and the diminished appeal of holding investment
securities in the interest rate environment prevalent over this period of
time. Deposits increased $17.7 million and short-term borrowings increased
$2.1 million over this time period.
Net loans have increased $17.7 million from September 30, 1994, reflecting
levels of 58.6% and 57.5% of total assets as of September 30, 1995, and 1994,
respectively. Deposit growth of $17.7 million, or 5.8%, for the 12-month
period ended September 30, 1995, funded almost all of this loan growth.
Investment securities have decreased $1.3 million from September 30, 1994,
representing 27.1% of the Company's current total assets versus 29.2% for the
comparable prior period. Cash and cash equivalent balances increased $7.8
million while interest bearing deposits in other banks decreased $2.6 million
during the 12-month period ended September 30, 1995. Virtually all of this
growth in earning assets was funded through increased deposits and short-term
borrowings. Fixed assets increased $979,000 during the 12-month period ended
September 30, 1995. Commencement of operations of a new office in Paintsville
and two new supermarket offices account for most of the increases, together
with installation of data processing equipment related to the conversion to
Electronic Data Systems ("EDS").
Non-interest bearing deposits increased $867,000, or 2.1%, and interest
bearing deposits increased $16.8 million, or 6.4%, in the 12-month period
since September 30, 1994. The Company's deposit pricing strategy has enabled
the Company to minimize the effect on earnings from rising interest rate
pressures. Short-term borrowings increased $2.1 million, or 13.7%, from
September 30, 1994. Factors contributing to these changes are the volatile
nature of these types of funds (primarily tax deposits) and the increasing
placement of public funds in accounts of this nature. Other liabilities
decreased $120,000, or 3.5%, over the same time period.
22
<PAGE>
Internal capital retention has allowed for growth in shareholders' equity of
$2.7 million, or 8.5% annualized, and $3.5 million, or 8.6% annualized, in the
nine months ended September 30, 1995 and September 30, 1994, respectively.
Equity capital as a percentage of total assets was 11.4% and 11.2% at
September 30, 1995, and September 30, 1994, respectively. The Company is also
required to meet certain regulatory capital requirements for capital on a
risk-adjusted basis. See "Supervision and Regulation--Capital Adequacy."
On January 10, 1995, the Board of Directors authorized the Company to
purchase an additional 100,000 shares of Common Stock. During the nine-months
ended September 30, 1995, the Company repurchased 1,700 shares of Common Stock
for a total purchase price of $46,000 and resold 3,000 shares for a total
sales price of $57,000. The Company may repurchase its own shares from time to
time, subject to regulatory requirements, in the open market or in privately
negotiated transactions. Treasury shares may be resold from time to time for
various corporate purposes.
On January 18, 1995, the Thrift filed applications with the OTS to establish
branch offices in two supermarkets in Pikeville and Goody, Kentucky, which
were approved on June 26 and November 19, 1995, respectively.
On February 14, 1995, the Company executed a contract with EDS. Although the
immediate objective of the agreement was the outsourcing of the core back-
office and data processing operations of the Company, the strategic
implications of the association with EDS for the Company and will enable the
Company to provide greater services to its customers.
RESULTS OF OPERATIONS
Net interest income was $14.6 million for the nine-month period ended
September 30, 1995, versus $13.1 million for the nine-month period ended
September 30, 1994. This increase of $1.5 million, or 10.8%, was attributable
to the improvement in the Company's net interest margin. The net interest
margin (net interest income divided by average earning assets) for the nine
months ended September 30, 1995, was 5.75%, versus 5.46% for the same period
in 1994. Improved yields on the loan portfolio, combined with relatively
stable costs of funds, served to increase the net interest margin over the
nine-month prior year period.
The Company's provision for loan losses for the nine months ended September
30, 1995, was approximately $32,000 lower than for the same period in 1994,
despite a higher level of non-performing assets in the more recent period.
Non-performing loans (nonaccrual loans and loans past due greater than 90-
days) were $3.1 million at September 30, 1995, versus $2.4 million at
September 30, 1994. The percentage of allowance for loan losses to total non-
performing loans was 84.2% and 130.3% at September 30, 1995 and 1994,
respectively.
23
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Balance at beginning of period.................. $ 2,932 $ 2,961
------------- -------------
Loans charged-off............................... (1,938) (1,390)
Recoveries...................................... 385 251
------------- -------------
Net charge-offs................................. (1,553) (1,139)
Provision for loan losses....................... 1,261 1,293
------------- -------------
Balance at the end of period.................... $ 2,640 $ 3,115
============= =============
Non-performing loans............................ $ 3,136 $ 2,391
Ratio of allowance for loan losses to non-
performing loans............................... 84.18% 130.28%
Ratio of allowance for loan losses to total
loans.......................................... 1.14 1.46
</TABLE>
Starting in the fourth quarter of 1994 and continuing throughout 1995, the
Company began a comprehensive program to restructure or dispose of problem or
higher risk loans. At the implementation of this program, management recognized
that the adoption of such an aggressive posture could entail having to absorb
some additional charges to the allowance for loan losses that could be higher
than historical levels. Management also recognized that these charges would be
incurred over a period of time in which continuing provisions for loan losses
would need to be made to reflect any additional credit exposure in the loan
portfolio. Management, however, determined at the outset of the program that
there existed sufficient coverage in the allowance for loan losses to absorb
the effect of these anticipated charge-offs without requiring any additional
reserves, and, on an ongoing basis, provisions for loan losses would continue
to be made to reflect any ongoing additional exposure to the loan portfolio.
The result of this disposition program was an increase in charge-offs, but a
decline in the loan loss provision for the nine months ended September 30,
1995. Management does not anticipate this level of net charge-offs or level of
additions to non-performing loans to continue.
Non-interest income increased $168,000, or 8.0%, during the first nine months
of 1995 when compared to the same period in 1994. Service fees and other fees
generally increased in the current year due to an update in the service fee
schedule and normal business growth. Income attributable to sales of other
financial services increased $249,000 in the first nine months of 1995 over
same period in 1994, due predominantly to the growth in the Bank's financial
services division. Sales of credit insurance reflected a decline in commission
income of $133,000 in 1995 from 1994, due to the credit insurance underwriters
tightening their eligibility standards, thereby adversely affecting sales
volumes.
Non-interest expenses increased $1.6 million, or 18.5%, for the first nine
months of 1995 over the same period in 1994. Most of these increases were
related to start-up and operating expenses incurred in 1995 in opening the
second full service office of the Thrift and its two supermarket offices.
Higher personnel, marketing and occupancy expenses, in particular, were
experienced. Offsetting in part the higher non-interest expense was the refund
by the FDIC of assessments paid on deposits insured by the Bank Insurance Fund
(the "BIF") of $189,000, which was realized in the third quarter of 1995.
In comparing the nine-month periods ended September 30, 1995, and September
30, 1994, net income before taxes increased $70,000, or 1.3%. For the third
quarter of 1995, net income before taxes was $71,000 lower than for the same
quarter of 1994. Applicable income taxes increased by $9,000, or 0.5%, in the
nine-month period ended September 30, 1995, over the same period in 1994. The
effective income tax rate for the first nine months of 1995 was 35.8%, versus
36.1% for the first nine months of 1994. Effective rates for the quarters were
36.0% and 36.6% for 1995 and 1994, respectively. These decreases reflect both
changes in composition of the Company's earnings and favorable tax effects
attributable to the Thrift. Net income after
24
<PAGE>
income taxes increased $61,000, or 1.7%, for the nine months ended September
30, 1995, over the same period for 1994, a consequence of a less favorable
interest rate environment and operating expenses connected with opening new
offices of the Thrift. Conversely, net income after income taxes for the third
quarter of 1995 was approximately $35,000 lower than for the third quarter of
1994, due to the same reasons noted above.
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1994
SUMMARY FINANCIAL RESULTS
Matewan's net income of $5.0 million, or $1.36 per share, earned in 1994
represents an approximate 2.3% decrease from the $5.1 million, or $1.40 per
share, earned in 1993. This decline in net income is attributable to a higher
provision for loan losses, higher operating costs primarily associated with
organizing the Thrift and the relocation of the corporate offices of Matewan
from Matewan, West Virginia, to Williamson, West Virginia.
Matewan's net income of $5.1 million, or $1.40 per share, in 1993 represents
an approximate 1.2% increase over the $5.0 million, or $1.38 per share, earned
in 1992. This increase in net income is attributable to growth of
approximately $13.8 million in Matewan's balance sheet, a decline in the cost
of funds during 1993 and an increase in the net interest margin. The benefits
of both the 5.0% growth in net interest income and the 4.3% reduction in the
provision for loan losses during 1993 were offset somewhat by a 0.5% decrease
in non-interest income, a 4.8% increase in non-interest operating expense and
a 12.0% increase in income tax expense.
Matewan's return on average assets for 1994 was 1.40% compared to 1.56% for
1993 and 1.57% for 1992. Matewan's 1994 return on average equity was 12.39%
compared to 14.12% in 1993 and 16.44% in 1992. It has been Matewan's policy to
retain a substantial portion of earnings to help fund Matewan's internal
growth and future expansion.
25
<PAGE>
TABLE I--FIVE YEAR SELECTED FINANCIAL SUMMARY
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................ $371,410 $342,949 $329,156 $323,627 $301,923
Total earning assets........ 332,371 309,627 298,162 295,884 275,988
Total deposits.............. 310,647 291,153 281,116 271,271 252,512
Shareholders' equity........ 41,803 38,032 33,951 29,959 27,124
INCOME FOR THE PERIOD:
Total interest income....... 28,524 27,428 28,444 29,853 28,067
Total interest expense...... 10,543 9,774 11,631 15,234 15,403
Net interest income......... 17,981 17,654 16,813 14,619 12,664
Provision for loan losses... 1,643 1,285 1,343 1,507 1,203
Non-interest income......... 2,802 2,395 2,409 1,959 1,805
Non-interest expense........ 11,259 10,372 9,897 9,391 8,238
Applicable income taxes..... 2,876 3,269 2,919 2,068 1,538
Net income.................. 5,005 5,123 5,063 3,612 3,490
PER SHARE DATA:
Net income.................. 1.36 1.40 1.38 0.98 0.95
Book value.................. 11.40 10.37 9.25 8.17 7.40
Cash dividends.............. 0.31 0.28 0.28 0.23 0.16
KEY RATIOS:
Return on average assets.... 1.40% 1.56% 1.57% 1.18% 1.28%
Return on average
shareholders' equity....... 12.39 14.12 16.44 12.56 13.01
Average shareholders' equity
to average assets.......... 11.27 11.07 9.55 9.39 9.85
OTHER SIGNIFICANT MEASURES:
Dividend payout............. 22.82 20.34 20.58 23.08 17.02
Percentage change in
dividend................... 9.60 .00 25.00 40.35 21.28
Percentage change in net
income..................... (2.30) 1.18 40.19 3.47 28.32
Percentage change in total
assets..................... 8.30 4.19 1.71 7.19 32.67
Percentage change in
equity..................... 9.92 12.02 13.22 10.45 11.79
AVERAGE BALANCE SHEET DATA:
ASSETS
Cash and due from banks..... $ 16,891 $ 12,555 $ 11,797 $ 10,253 $ 8,758
Interest bearing deposits... 3,584 209 123 28 1,320
Investment securities....... 104,686 106,122 104,650 95,107 73,665
Federal funds sold.......... 13,710 11,723 17,256 15,202 17,477
Loans--net.................. 203,278 181,996 171,605 168,993 158,439
Premises and equipment...... 8,364 7,139 7,335 7,448 6,875
Other assets................ 8,161 7,985 9,650 9,243 5,725
-------- -------- -------- -------- --------
Total assets................ $358,674 $327,729 $322,416 $306,274 $272,259
======== ======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Transaction accounts...... $ 82,048 $ 74,280 $ 73,547 $ 64,614 $ 56,970
Savings deposits.......... 52,551 43,947 43,817 36,806 34,844
Time deposits............. 168,162 163,067 160,107 161,519 142,059
Borrowed funds.............. 13,098 7,706 10,994 11,862 8,676
Accrued liabilities and
other....................... 2,404 2,458 3,159 2,714 2,889
-------- -------- -------- -------- --------
Total liabilities........... 318,263 291,458 291,624 277,515 245,438
Shareholders' equity........ 40,411 36,271 30,792 28,759 26,821
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity....... $358,674 $327,729 $322,416 $306,274 $272,259
======== ======== ======== ======== ========
</TABLE>
26
<PAGE>
See the discussion of "Expansion Activity" below for matters that affect the
comparability of the above information.
The growth in both total assets and equity from 1990 through 1994 reflected
in Table I is attributable to a management plan that has expanded the market
area in which Matewan operates. Matewan acquired a new office in Danville,
West Virginia, pursuant to a purchase and assumption transaction in 1990. In
1994, Matewan formed the Thrift and opened offices in Coal Run and
Paintsville, Kentucky. These acquisitions and increased market penetration
have accounted for much of this five-year growth.
EXPANSION ACTIVITY
On January 3, 1994, Matewan contributed capital of $4.0 million to form the
Thrift, which commenced operations on that date. The Thrift's operations
contributed 57.0% of the asset growth that Matewan experienced in 1994 over
1993 and did not have a material impact on Matewan's results of operations in
1994.
In April 1990, the Bank acquired $43.0 million in assets (including $2.7
million in intangible assets) and assumed $43.0 million in liabilities,
consisting of the principal assets and liabilities of the Danville, West
Virginia branch of the Bank of Danville at a purchase price of $1.4 million.
This transaction was accounted for as a purchase and, accordingly, the results
of operations of the Danville branch of the Bank of Danville have been
included in the consolidated results of operations from the date of
consummation.
FINANCIAL CONDITION
Matewan's primary revenues are generated by its earning assets, while its
primary expenses incurred to fund these assets are its various interest
bearing liabilities. Average earning assets increased approximately $25.2
million, or 8.4%, in 1994 over 1993. Average net loans outstanding increased
$21.3 million, or 11.7%, while average investment securities decreased $1.4
million, or 1.4%, and average interest bearing deposits in banks increased
$3.3 million, or 1,614.8%. Average federal funds sold increased $2.0 million,
or 16.9%. The majority of the increase in average assets is attributable to
the Thrift.
27
<PAGE>
TABLE II--ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------------ ------------------------------ ------------------------------
AVERAGE AVERAGE AVERAGE
BALANCE (1) INTEREST YIELD (2) BALANCE (1) INTEREST YIELD (2) BALANCE (1) INTEREST YIELD (2)
----------- -------- --------- ----------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans:
Commercial.......... $ 65,186 $ 6,168 9.46% $ 67,749 $ 6,452 9.52% $ 63,296 $ 6,572 10.38%
Real estate......... 70,119 7,023 10.02 58,025 6,374 10.98 49,361 5,718 11.58
Installment......... 67,973 8,371 12.32 56,222 7,240 12.88 58,948 7,703 13.07
-------- ------- -------- ------- -------- -------
Total loans.......... 203,278 21,562 10.61 181,996 20,066 11.03 171,605 19,993 11.65
Securities:
Taxable............. 103,759 6,205 5.98 105,016 6,923 6.59 101,911 7,646 7.50
Tax-exempt.......... 927 58 6.26 1,106 85 7.69 2,739 214 7.81
-------- ------- -------- ------- -------- -------
Total securities..... 104,686 6,263 5.98 106,122 7,008 6.60 104,650 7,860 7.51
Federal funds sold... 13,710 551 4.02 11,723 348 2.97 17,256 585 3.39
Interest bearing
deposits in banks... 3,584 148 4.13 209 6 2.87 123 6 4.88
-------- ------- -------- ------- -------- -------
Total earning
assets.............. 325,258 28,524 8.77 300,050 27,428 9.14 293,634 28,444 9.69
------- ----- ------- ----- ------- -----
Non-earning assets... 33,416 27,679 28,782
-------- -------- --------
Total assets......... $358,674 $327,729 $322,416
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing
liabilities:
Transaction accounts $ 37,592 $ 1,142 3.04 $ 34,183 $ 993 2.90 $ 35,375 $ 1,251 3.54
Savings deposits.... 52,551 1,817 3.46 43,947 1,564 3.56 43,817 1,801 4.11
Time deposits....... 168,162 7,137 4.24 163,067 6,982 4.28 160,107 8,202 5.12
Purchased funds..... 13,098 447 3.41 7,706 235 3.05 10,994 377 3.43
-------- ------- -------- ------- -------- -------
Total interest
bearing liabilities. 271,403 10,543 3.88 248,903 9,774 3.93 250,293 11,631 4.65
------- ----- ------- ----- ------- -----
Non-interest bearing
liabilities and
shareholders' equity:
Demand deposits..... 44,456 40,097 38,172
Accrued expenses and
other.............. 2,404 2,458 3,159
Total shareholders'
equity............. 40,411 36,271 30,792
-------- -------- --------
Total non-interest
bearing liabilities
and shareholders'
equity.............. 87,271 78,826 72,123
-------- -------- --------
Total liabilities and
shareholders'
equity.............. $358,674 $327,729 $322,416
======== ======== ========
Net interest income.. $17,981 $17,654 $16,813
======= ======= =======
Spread.............. 4.89% 5.21% 5.04%
===== ===== =====
Net interest
margin............. 5.53% 5.88% 5.73%
===== ===== =====
</TABLE>
- --------
(1) Non-accrual loans are included in average balances.
(2) Yields on tax-exempt securities are on a pre-tax basis and do not
represent tax equivalent yields.
Average earning assets increased $6.4 million, or 2.2%, in 1993 over 1992.
Average net loans outstanding increased $10.4 million, or 6.1%, while average
investment securities volume increased $1.4 million, or 1.4%. This increase is
attributable to core growth within Matewan's Market. Average federal funds
sold decreased $5.5 million, or 32.0%.
Average interest bearing liabilities are the primary source of funds that
support Matewan's earning assets. In 1994, average interest bearing
liabilities increased $22.5 million, or 9.0%. Average transaction accounts
28
<PAGE>
increased $3.4 million, or 10.0%, average savings deposits increased $8.6
million, or 19.6%, average time deposits increased $5.1 million, or 3.1%, and
average purchased funds, primarily commercial repurchase agreements, increased
$5.4 million, or 70.0%, from 1994 to 1993. In 1993, average interest bearing
liabilities decreased $1.4 million, or 0.6%. Average time deposits and savings
deposits increased $3.1 million, or 1.5%, over 1992. Average transaction
accounts and purchased funds, primarily commercial repurchase agreements,
declined $4.5 million, or 9.7%, versus 1992.
LOAN PORTFOLIO
Matewan offers a variety of lending services, including commercial and
financial, real estate and consumer loans. Matewan, similar to other financial
institutions, also offers off-balance sheet instruments to its customers to
aid them in meeting their requirements for liquidity, credit enhancement and
interest rate protection.
Matewan has no foreign loans or loan concentrations to individual or related
borrowers which exceed 10% of total loans. Matewan grants loans to customers
primarily in southwestern West Virginia and eastern Kentucky. Although Matewan
has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their obligations is directly and indirectly dependent upon
the coal industry. Accordingly, a downturn in the coal industry could impact
the value of collateral held as security for the loan portfolio and the
ability of the borrowers to repay in accordance with original terms.
Historically, management has closely monitored coal-related credits and has
been successful in limiting credit exposure during times of downward economic
trends in the industry.
LOAN PORTFOLIO ANALYSIS
The Company's lending philosophy is to maintain a strategic asset mix
wherein the loan portfolio comprises approximately 65.0% of the Company's
total assets. More specifically, the targeted mix of the loan portfolio is
equally distributed among the real estate, commercial, and consumer
categories. By policy, the Company strives to achieve and maintain a loan-to-
deposit ratio of between 70.0% to 75.0%. The primary geographic focus for all
categories of lending is the Market.
Real estate loans represent the largest component of the Company's loan
portfolio at December 31, 1994, and September 30, 1995. The dollar volume of
real estate loans outstanding made within this market area is in excess of
91.0% of the total real estate portfolio. One-to-four family residential real
estate represents most of the collateral for this category. Matewan's loan
policy contains uniform and minimum standards for determining creditworthiness
of potential real estate borrowers, requiring conformity to FNMA and FHLMC
requirements, including debt to worth and loan-to-appraised value ratios.
Maximum standards for loan-to-value ratios for the majority of real estate
lending are 80.0% for one-to-four family residences, 75.0% for land
development, and 65.0% for raw, unimproved land. In addition, minimum
standards regarding downpayment, loan term, and risk-based loan rates are
employed by the Company.
Individually, commercial loans represent the largest and most concentrated
risks in the loan portfolio. In terms of geographic concentration, the dollar
volume of outstanding loans in this portfolio made within the Company's Market
is in excess of 92.0% of the commercial loans outstanding. The majority of the
loans in this category are collateralized with commercial real estate and
equipment. Minimum commercial loan underwriting and documentation standards
include, among other requirements, current financial information,
demonstration of sufficient cash flow to service the loan, adequate and
perfected lien position and sufficient collateral coverage. Minimum standards
similarly exist for downpayment, term of loan, and risk-based interest rate
determination, all dependent on the nature and type of credit involved. Loan
policy prescribes, for the most part, variable-rate pricing on a predetermined
and prominently recognized index.
Consumer loans represent the second largest component of the loan portfolio
in terms of dollar volume. The dollar volume of consumer loans made within the
Company's Market represent in excess of 91.0% of the consumer loan portfolio.
Automobile loans comprise the largest single type of consumer credit, or
approximately one-half of the total consumer portfolio. Matewan's loan policy
mandates minimum underwriting standards
29
<PAGE>
based upon the nature of credit involved, including the applicant's employment
history, disposable income and debt-to-income ratios, credit score,
downpayment requirement, loan term, and collateral. While Company policy
emphasizes secured lending, unsecured consumer credits within established
guidelines are permitted by policy.
By definition, credit concentrations consist of direct, indirect and
contingent liabilities exceeding 25.0% of the Company's capital base.
Concentrations are considered to involve a single borrower, affiliated
borrowers, or a group of borrowers engaged in, or dependent on, a single
industry.
Two major types of credit concentrations exist for the Company: those
delineated by loan category and those of a single-industry concentration. Loan
categories having concentrations in excess of 25.0% of the Company's capital
base are: (i) those secured by one-to-four family residences; (ii) those
secured by automobiles, (iii) those secured by commercial real estate and
equipment; and (iv) those characterized as unsecured consumer loans. The other
major type of concentration relates to the general overall reliance on the
coal industry. The Company attempts to diversify somewhat by: (i) avoiding
concentration of, or reliance on, one company and its employees or suppliers;
(ii) avoiding concentration of, a reliance on, one or a few independent coal
operators or contractors; and (iii) spreading the commercial portfolio
throughout western West Virginia and eastern Kentucky.
Over 68.0% of those households in the market own their domiciles, which have
a median dwelling value of $40,489. Median household income for the market
area is $18,888 with approximately 40.0% of the households having incomes in
excess of $25,000. Mining is the dominant industry in the local economy,
followed by, in no particular order, education, government services and health
care. Blue collar occupations dominate employment, representing nearly 56.0%
of the work force.
At December 31, 1994, one-to-four family residential real estate secured
35.0% of the loan portfolio, commercial equipment and vehicles secured 12.0%,
automobiles secured 17.0% and commercial real estate secured 11.0%.
Principally all of the commercial real estate securing the loans noted above
is within Matewan's Market, where such real estate values have not been
significantly affected by the substantial fluctuations that have caused
collateral value problems in other regions of the country. No other individual
category makes up 10.0% or more of the loan portfolio. The following table
shows the components of Matewan's loan portfolio:
TABLE III--CONSOLIDATED SUMMARY OF LOANS AND NON-PERFORMING ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial loans................... $ 64,821 $ 69,372 $ 65,144 $ 65,970 $ 69,577
Real estate loans.................. 76,908 66,638 54,225 45,711 42,101
Consumer loans..................... 77,564 65,107 57,963 60,436 62,361
-------- -------- -------- -------- --------
Gross loans........................ 219,293 201,117 177,332 172,117 174,039
Less: Unearned income............. 1,617 2,303 2,098 2,014 1,839
-------- -------- -------- -------- --------
Total loans........................ 217,676 198,814 175,234 170,103 172,200
Less: Allowance for loan losses... 2,932 2,961 2,470 2,006 1,857
-------- -------- -------- -------- --------
Net loans.......................... $214,744 $195,853 $172,764 $168,097 $170,343
======== ======== ======== ======== ========
</TABLE>
From December 31, 1993, to December 31, 1994, real estate loans increased
$10.3 million, or 15.4%, due to increased origination of residential loans.
Consumer loans increased $12.4 million, or 19.1%, due largely to
30
<PAGE>
increased purchases of dealer paper for automobiles and consumer goods, while
commercial loans declined $4.6 million, or 6.6%, reflecting the Company's de-
emphasis of lending to customers engaged directly in the coal industry.
At December 31, 1993, net loans were $195.9 million, as compared to $172.8
million at December 31, 1992. Commercial loans remained generally flat,
increasing $4.2 million, or 6.1%. Real estate loans increased $12.4 million,
or 22.9%, and consumer loans increased $7.1 million, or 12.3%.
As Table III illustrates, Matewan has a relatively balanced loan portfolio,
with an increasing proportion of the portfolio in consumer and residential
real estate loans. The maturity distribution of Matewan's gross loans as of
December 31, 1994, is summarized in the following table:
TABLE IV--REMAINING MATURITIES OF LOANS
(IN THOUSANDS)
<TABLE>
<CAPTION>
LOANS MATURING OR REPRICING
WITHIN
-----------------------------
BALANCE AFTER
DECEMBER 31, ONE YEAR ONE TO FIVE FIVE
1994 OR LESS YEARS YEARS
------------ -------- ----------- --------
<S> <C> <C> <C> <C>
Commercial loans.................... $ 64,821 $ 44,124 $ 19,034 $ 1,663
Real estate loans................... 76,908 11,589 58,984 6,335
Consumer loans...................... 77,564 30,821 39,141 7,602
-------- -------- -------- --------
Gross loans........................ $219,293 $ 86,534 $117,159 $ 15,600
======== ======== ======== ========
Loans due after one year:
With floating rates............... $ 1,092
========
With predetermined rates.......... $131,667
========
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based upon senior management's review of
the loan portfolio, historical charge-off experience, composition of the loan
portfolio, loan volume, current economic conditions and other relevant
factors. The provision for loan losses in a period, less net charge-offs in a
period, represents the change in the allowance for loan losses in that period.
In management's judgment, the allowance for loan losses is maintained at a
level adequate to provide for potential losses on existing loans and loan
commitments.
Accrual of interest is generally discontinued when a loan becomes 90 days
past due as to principal or interest. When interest accruals are discontinued,
unpaid interest credited to income in the current year is reversed, and
interest accrued in prior years is charged to the allowance for loan losses.
Management may elect to continue the accrual of interest when the estimated
net realizable value of collateral is sufficient to cover the principal
balance and accrued interest and the loan is in the process of collection. A
non-accrual loan may be restored to an accrual basis when interest and
principal payments are brought current and prospects for future payments are
no longer in doubt.
The allowance for loan losses at December 31, 1994, was $2.9 million
compared to $3.0 million at December 31, 1993, a decrease of approximately
0.1%. This decrease reflects higher net charge-offs on the loan portfolio in
1994 as management focused on problem credits in the consumer and commercial
sector. Net charge-offs increased 110.6% in 1994 from 1993 levels. Based upon
economic expectations, reviews of credit relationships by management and the
level of non-performing assets, management continued aggressive charge- offs
of potentially uncollectible loans. The allowance for loan losses at December
31, 1993, was $3.0 million compared with $2.5 million at December 31, 1992, an
increase of 20.0%. Net charge-offs decreased 9.7% in 1993 over 1992. This
charge-off posture is reflected in increased recoveries in 1993 and 1994.
31
<PAGE>
The following tables show the analysis of the allowance for loan losses and
the allocation of allowance for loan losses:
TABLE V--ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding
at end of period........... $214,744 $195,853 $172,764 $168,097 $170,343
Average loans outstanding
during period.............. 203,278 181,996 171,605 168,993 158,439
Balance of allowance for
loan losses at beginning of
period..................... 2,961 2,470 2,006 1,857 1,132
Net charge-offs:
Commercial................ 854 318 477 653 572
Real estate............... 69 92 163 197 160
Consumer.................. 1,205 804 634 911 448
-------- -------- -------- -------- --------
Total loans charged off..... 2,128 1,214 1,274 1,761 1,180
Recoveries of loans
previously charged off:
Commercial................ 107 156 192 176 161
Real estate............... 55 36 26 32 11
Consumer.................. 294 228 177 195 242
-------- -------- -------- -------- --------
Total recoveries............ 456 420 395 403 414
-------- -------- -------- -------- --------
Net charge-offs............. 1,672 794 879 1,358 766
Additions to allowance:
Provision for loan
losses................... 1,643 1,285 1,343 1,507 1,203
Increase incident to
acquisition.............. -- -- -- -- 288
-------- -------- -------- -------- --------
Balance at end of period.... $ 2,932 $ 2,961 $ 2,470 $ 2,006 $ 1,857
======== ======== ======== ======== ========
Ratio of net charge-offs
during period
to average loans........... 0.82% 0.44% 0.51% 0.80% 0.48%
======== ======== ======== ======== ========
Ratio of the allowance to
non-performing loans....... 125.14 230.79 80.35 97.66 71.09
======== ======== ======== ======== ========
Ratio of allowance to
period-end loans........... 1.35 1.49 1.41 1.18 1.08
======== ======== ======== ======== ========
</TABLE>
TABLE VI--ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1991 DECEMBER 31, 1990
------------------- ------------------- ------------------- ------------------- -------------------
ALLOCATION CATEGORY ALLOCATION CATEGORY ALLOCATION CATEGORY ALLOCATION CATEGORY ALLOCATION CATEGORY
OF AS OF % OF AS OF % OF AS OF % OF AS OF % OF AS OF %
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
---------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial......... $2,106 29.5% $2,150 34.5% $1,438 36.7% $1,000 38.3% $ 735 40.4%
Real estate........ 210 35.1 305 33.1 315 30.6 300 26.6 453 24.5
Consumer........... 616 35.4 506 32.4 717 32.7 706 35.1 669 35.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$2,932 100.0% $2,961 100.0% $2,470 100.0% $2,006 100.0% $1,857 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
CONSOLIDATED SUMMARY OF NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, loans more than 90 days
past due and other real estate owned. In 1994, Matewan's non-performing loans
increased by $1.0 million, or 72.3%, to 1.08% of total loans.
32
<PAGE>
Matewan's collateral position on these credits provides a basis to work
through collection efforts of delinquent loans in an orderly fashion. The 1994
increase in non-performing loans is not related to any one significant credit
relationship or industry downturn. Management continues to monitor these types
of assets to evaluate, control and ensure that their ultimate disposition does
not have a material negative impact on Matewan's financial position. The gross
interest income that would have been recorded on non-accrual loans during
1994, if the loans had been current in accordance with their original terms
and outstanding throughout the period, was $141,000. The amount of interest
income on those loans that was included in net income during 1994 was
$161,000.
The following table depicts the relative levels of non-performing assets for
the last five years:
TABLE VII--CONSOLIDATED SUMMARY OF NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Non-performing assets:
Non-accrual loans.................... $1,743 $1,037 $2,838 $1,969 $1,676
Loans past due 90 days............... 600 246 236 85 936
------ ------ ------ ------ ------
Total non-performing loans.......... 2,343 1,283 3,074 2,054 2,612
Other real estate owned.............. 137 156 352 446 972
------ ------ ------ ------ ------
Total non-performing assets......... $2,480 $1,439 $3,426 $2,500 $3,584
====== ====== ====== ====== ======
Non-performing loans as a percentage
of total loans....................... 1.08% 0.65% 1.75% 1.21% 1.52%
====== ====== ====== ====== ======
Non-performing assets as a percentage
of total assets...................... 0.67% 0.42% 1.04% 0.77% 1.19%
====== ====== ====== ====== ======
</TABLE>
Matewan adopted Financial Accounting Standards Board Statement No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), effective
January 1, 1995. SFAS 114 requires that impaired loans be measured at the
present value of expected future cash flows discounted at the loan's original
effective interest rate or, as a practical expedient, at the loan's observable
market price of the fair value of the collateral if the loan is collateral
dependent. The adoption of SFAS 114 has not had a material effect on Matewan's
financial statements, accounting policies, income recognition or the
comparability of its Industry Guide 3 disclosures.
INVESTMENT PORTFOLIO AND OTHER EARNING ASSETS
The second-largest component of earning assets is investment securities.
Matewan's investment portfolio consists primarily of United States government
and federal agency obligations. Matewan's portfolio is designed to enhance
liquidity while providing acceptable rates of return.
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and Matewan has the ability at
the time of purchase to hold debt securities to maturity, such securities are
classified as investments held-to-maturity and carried at amortized cost. Debt
securities purchased for an indefinite period of time, including securities
that management intends to utilize as part of its asset/liability strategy, or
which may be sold for various reasons, and marketable equity securities are
classified as available-for-sale and carried at fair value. Unrealized holding
gains and losses on securities classified as available-for-sale, net of the
related tax effect, are carried as a separate component of shareholders'
equity.
Matewan does not hold investment securities for trading purposes. Matewan
adopted the provisions of Financial Accounting Standards Board Statement No.
115 ("SFAS 115"), the new standard for investments held as of or acquired
after January 1, 1994. In accordance with SFAS 115, prior period financial
statements have not been restated to reflect the change in accounting
principle. The balance of the shareholders' equity account at January 1, 1994,
was increased approximately $127,000 (net of deferred income taxes) to reflect
the unrealized
33
<PAGE>
holding gains on securities classified as available-for-sale previously
carried at amortized cost. At December 31, 1994, unrealized holding losses on
available-for-sale securities, net of deferred income taxes, of $143,000 have
been recorded as a separate component of shareholders' equity.
TABLE VIII--INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
U.S. FEDERAL STATE AND OTHER WEIGHTED
TREASURY AGENCIES MUNICIPAL SECURITIES TOTAL YIELD
-------- -------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994
Maturity:
Within 1 year........... $16,469 $17,698 $ 102 $ 399 $ 34,702 5.56%
After 1 year through 5
years................ 11,958 57,879 1,196 -- 70,999 6.11
After 5 years through
10 years............. -- 1,911 10 -- 1,921 9.53
After 10 years........ -- 256 4 2,099 2,359 6.03
------- ------- ------ ------ --------
Total carrying value
(1).................... $28,427 $77,744 $1,312 $2,498 $109,981 5.99
======= ======= ====== ====== ========
Market value............ $28,001 $75,156 $1,299 $2,499 $106,955
Purchase yield.......... 5.25% 6.28% 5.23% 5.92% 5.99%
Average maturity (in
years)................. 1.05 2.47 2.96 16.81 2.09
DECEMBER 31, 1993
Amortized cost.......... $30,020 $67,003 $ 538 $1,253 $ 98,814 6.16
Market value............ 30,493 68,424 566 1,253 100,736
Purchase yield.......... 5.36% 6.49% 7.12% 6.00% 6.16%
Average maturity (in
years)................. 1.41 2.21 1.69 20.00 2.36
DECEMBER 31, 1992
Amortized cost.......... $20,006 $81,543 $1,442 $ 272 $106,263 6.98
Market value............ 23,514 83,330 1,507 272 108,623
Purchase yield.......... 6.20% 7.20% 7.05% 6.00% 6.98%
Average maturity (in
years)................. 1.35 3.37 1.82 20.00 3.01
</TABLE>
- --------
(1) Available-for-sale securities are carried at fair value, and held-to-
maturity securities are carried at amortized cost.
During 1994, Matewan increased its investment holdings by $11.2 million, or
11.3%. Investment in United States Treasury issues declined $1.6 million to
26.0% of the total portfolio (down from 30.0% in 1993). In contrast, given
attractive yields, investment in federal agency issues, state and municipal
issues and other securities increased in 1994 in terms of both volume and
proportion of the investment portfolio. Federal agency investments increased
approximately $10.7 million (representing 71.0% of the portfolio, as compared
to 68.0% in 1993). Investments in state and municipal issues increased
$750,000 and investments in other securities increased $1.2 million in 1994,
representing 3.0% of the investment portfolio as compared to 2.0% in 1993.
During 1993, Matewan decreased its investment holdings by $9.4 million, or
7.0%. Most of this decrease was directed towards funding increased loan
commitments. Holdings of United States Treasury issues increased in terms of
both dollar volume (by $8.0 million, or 35.0%) and portfolio mix (from 21.0%
to 30.0%) at December 31, 1993, as compared to December 31, 1992, levels.
Conversely, United States agency and state and municipal issues experienced
declines in both volume ($15.4 million) and portfolio mix (to 68.0% from
78.0%).
Although Matewan's year-end investment in federal funds sold decreased $9.3
million in 1994 from prior year levels, average federal funds sold for the
year were $2.0 million higher in 1994 than in 1993. Core deposit growth
provided Matewan the majority of the funds available for these investments.
Matewan's activity in federal funds investments should be assessed in the
context of evolving economic market forces and Matewan's overall
asset/liability management. Management desires to keep federal funds sold
levels high enough to maintain sufficient liquidity, while balancing these
liquidity needs with a desire to maintain
34
<PAGE>
an adequate return on earning assets. As interest rates declined throughout
1993, the differential between yields on federal funds sold and on investment
securities falling within the parameters of Matewan's investment policy
narrowed, providing less incentive to commit substantial amounts of funds to
either alternative. At the same time, loan demand in most of Matewan's Market
picked up appreciably. Despite the fact that market rates for most loan
categories were likewise declining, the differential between market yields on
loans and yields on either federal funds sold or most investment securities
was much wider. Given the combination of strong local loan demand and the
yields available on those loans within parameters defined in Matewan's
asset/liability policy, management chose to reduce its investment in federal
funds sold over the course of 1993. Conversely, the combination of increasing
interest rates experienced in 1994 and greater liquidity provided by Matewan's
expanding deposit base made purchases of both investment securities and
federal funds more attractive.
DEPOSITS
Matewan primarily uses deposits to fund its lending activities and
investment portfolio. Deposit accounts, including checking, savings,
certificates of deposit and short-term borrowings, are obtained primarily from
Matewan's Market.
Average deposits and short-term borrowings increased $26.9 million, or 9.3%,
in 1994 from 1993 levels. The increasing interest rate environment prevalent
during much of 1994 and Matewan's growth efforts in its core markets combined
to produce significant increases across every deposit and borrowing category.
In contrast, in the declining interest rate environment of 1993, average
deposits and short-term borrowings increased by $500,000, or an annual growth
rate of 0.2%. Average transaction accounts decreased by $1.1 million, or 3.4%,
and average borrowed funds decreased by $3.3 million, or 29.9%, from 1992
levels, while average savings deposits increased by $130,000, or 0.3%, and
average time deposits increased by $3.0 million, or 1.9%, over 1992 average
levels. Matewan also experienced growth of average demand deposit accounts of
$1.9 million, or 5.0%, in 1993.
SHORT-TERM BORROWINGS
Short-term borrowings consist of the Treasury tax and loan account and
commercial repurchase agreements. The amount in the Treasury tax and loan
account is directly related to the amount of payroll in the Market and the
frequency of government withdrawals. Commercial repurchase agreements
represent overnight transactions whereby certain commercial customers invest
in liquid interest bearing liabilities. Average commercial repurchase
agreements increased $5.9 million, or 123.0%, in 1994, after decreasing $2.5
million, or 34.0%, in 1993. As a general rule, an increasing interest rate
environment and generally better liquidity characteristics made commercial
repurchase agreements a much more attractive investment alternative during
1994.
TABLE IX--SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
------------ ----------- ------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- ---- ------ ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Treasury tax and loan account:
As of year-end...................... $ 2,908 3.65% $5,714 2.76% $ 6,836 2.65%
Average balance..................... 2,346 2.69 2,881 2.97 3,402 2.98
Maximum month-end................... 5,577 -- 6,954 -- 6,866 --
Commercial repurchase agreements:
As of year-end...................... $12,089 3.14% $5,876 2.64% $ 5,096 2.81%
Average balance..................... 10,752 3.79 4,825 3.14 7,293 3.55
Maximum month-end................... 14,934 -- 5,885 -- 14,659 --
</TABLE>
35
<PAGE>
ASSET/LIABILITY MATURITY AND INTEREST RATE SENSITIVITY
Asset/liability management is the planning, implementation and control
process for determining asset mix and maturity features relative to liability
maturities. A major goal of asset/liability management is to maximize the net
interest margin within acceptable levels of risk of changes in interest rates.
The principal tool for such a process is management of Matewan's interest-
sensitive assets to interest-sensitive liabilities.
Matewan is liability sensitive in the "one-year-and-under" category.
Accordingly, a decrease in interest rates should benefit Matewan while an
increase in interest rates should adversely impact the net interest margin.
However, it has been management's experience that relatively modest movements
in interest rates have not had a material effect on Matewan's net interest
margin.
Matewan's management recognizes the exposure that exists from the
concentration of large "jumbo" certificates of deposit, and as part of the
asset/liability policy matches both rates and maturities so Matewan will not
have a liquidity problem or allow income to be significantly affected by a
change in interest rates. Management feels that Matewan's cash position is
sufficient to cover any payments necessary on "jumbo" certificates. In
addition, a major portion of the transaction accounts have attributes of core
deposits and, therefore, are not extremely interest-sensitive.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest-rate sensitive" and
by monitoring an institution's interest-rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest-rate-
sensitivity gap is defined as the difference between the amount of interest
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that time
period. A gap is considered positive when the amount of interest-rate-
sensitive assets exceeds the amount of interest-rate-sensitive liabilities. A
gap is considered negative when the amount of interest-rate-sensitive
liabilities exceeds the amount of interest-rate-sensitive assets. During a
period of rising interest rates, a negative gap would be expected to adversely
affect net interest income, while a positive gap would be expected to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would be expected to result in an increase in net
interest income while a positive gap would be expected to adversely affect net
interest income.
The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1994, which are
estimated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown. The amounts of assets and
liabilities which reprice or mature during a particular period were determined
in accordance with the earlier of the term to repricing or the contractual
terms of the asset.
The table is intended to provide an approximation of the projected repricing
of assets and liabilities at December 31, 1994, on the basis of contractual
maturities, anticipated repayments and scheduled rate adjustments within a
three-month period and subsequent selected time intervals. The loan amounts in
the table reflect principal balances expected to be redeployed and/or repriced
as a result of contractual amortization and anticipated early payoffs of
adjustable-rate loans and fixed-rate loans and as a result of contractual rate
adjustments on adjustable-rate loans. For loans on one-to-four-family
residential properties, projected annual repayment rate was projected to be
8.67% annually. Commercial loans have a projected payment rate of 8.85% of the
portfolio within one year. Consumer loans have a projected payment rate of
23.9% of the portfolio for one year.
36
<PAGE>
TABLE X--ASSET AND LIABILITY MATURITY AND RATE SENSITIVITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
0-90 91-180 181-365 TOTAL 1-5 OVER
DAYS DAYS DAYS 1 YEAR YEARS 5 YEARS TOTAL
--------- --------- --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans................... $ 53,340 $ 11,788 $ 21,406 $ 86,534 $117,159 $15,600 $219,293
Investments............. 15,731 7,507 13,699 36,937 72,783 261 109,981
Interest-bearing
deposits............... 2,876 -- -- 2,876 -- -- 2,876
Federal funds sold and
other.................. 4,770 -- -- 4,770 -- -- 4,770
--------- --------- --------- --------- -------- ------- --------
Total earning assets.... 76,717 19,295 35,105 131,117 189,942 15,861 336,920
LIABILITIES:
Savings and transaction
accounts............... 128,638 -- -- 128,638 -- -- 128,638
CD's $100,000 and over.. 17,978 11,718 16,846 46,542 13,591 -- 60,133
Other time.............. 21,188 15,971 14,100 51,259 26,487 -- 77,746
--------- --------- --------- --------- -------- ------- --------
Total deposits.......... 167,804 27,689 30,946 226,439 40,078 -- 266,517
Other borrowings........ 14,597 -- 400 14,997 -- -- 14,997
--------- --------- --------- --------- -------- ------- --------
Total interest bearing
liabilities............ 182,401 27,689 31,346 241,436 40,078 -- 281,514
--------- --------- --------- --------- -------- ------- --------
Interest sensitivity
gap.................... $(105,684) $ (8,394) $ 3,759 $(110,319) $149,864 $15,861 $ 55,406
========= ========= ========= ========= ======== ======= ========
Cumulative gap.......... $(105,684) $(114,078) $(110,319) $(110,319) $ 39,545 $55,406 $ 55,406
========= ========= ========= ========= ======== ======= ========
Cumulative gap as a
percentage of earning
assets................. (31.37)% (33.86)% (32.74)% (32.74)% 11.74% 16.44% 16.44%
========= ========= ========= ========= ======== ======= ========
</TABLE>
Management believes that the simulation of net interest income in different
interest rate environments provides a more meaningful measure of interest rate
risk. Income simulation analysis captures not only the potential of all assets
and liabilities to mature or reprice, but also the probability that they will
do so. Income simulation also addresses the relative interest-rate
sensitivities of these items, and projects their behavior over an extended
period of time. Finally, income simulation permits management to assess the
probable effects on the balance sheet not only of changes in interest rates,
but also of proposed strategies for responding to them.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net interest income over the next 12 months. Holding prevailing
rates constant, the model projects the mix of accounts within the loan
portfolio and deposit base. In addition to projecting the mix of accounts
within the loan portfolio and deposit base, the Company must also make certain
assumptions regarding the movement of the rates on its assets and liabilities,
especially in its deposit rates.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to satisfy demands for deposit withdrawals, lending
commitments and other needs. Matewan's liquidity is based on a stable deposit
base. Matewan holds certain liquid assets such as cash and federal funds sold
to help meet certain liquidity needs. In addition, Matewan holds other
marketable assets (over $11.0 million of available-for-sale investments at
December 31, 1994) which can easily be converted to cash if the need arises.
Matewan continues to have the ability to attract short-term sources of funds
such as repurchase agreements to help meet its liquidity needs.
In December 1993, the Bank joined the FHLB of Pittsburgh. In January 1994,
the Thrift joined the FHLB of Cincinnati. The FHLBs provided an alternative
source of borrowings for the Banking Subsidiaries, thereby providing
additional sources of liquidity.
37
<PAGE>
Matewan's cash and cash equivalents, represented by cash and due from banks
and federal funds sold, are a product of its operating, investing and
financing activities. Cash and cash equivalents from operating activities $8.2
million, $7.3 million and $7.5 million in 1994, 1993 and 1992. Net cash used
in investing activities increased significantly from $7.2 million in 1992 to
$18.1 million in 1993 and to $36.3 million in 1994. These increases primarily
relate to the net increase in lending activities. Net cash provided by
financing activities related primarily to the net increase in deposits for all
three years presented, while 1992's increase was offset by a decrease in
short-term borrowings. Over the past three years, Matewan has reduced its cash
and cash equivalents by 25.0% in an effort to maximize earnings, without
sacrificing liquidity.
A central principle in Matewan's capital planning process is to attain
sufficiently high levels of profitability to ensure that capital adequacy is
maintained while generating a consistent flow of dividends. Both Matewan and
the Banking Subsidiaries are required to meet certain regulatory requirements
for capital on a risk-adjusted basis. See "Supervision and Regulation--Capital
Adequacy."
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, the amount by which the interest income generated from
earning assets exceeds the interest expenses associated with funding those
assets, is the most significant component of net income. Net interest income
in 1994 was $18.0 million, up 2.0% from the 1993 level. Net interest income
for 1993 was $17.6 million, a 5.0% increase over 1992. As Table XI below
illustrates, the 1994 increase was primarily a function of Matewan's growth in
earning assets. Despite a short-term liability-sensitive position, Matewan
also managed to decrease its cost of average interest bearing liabilities in
1994 over 1993. In 1994, the yield on average earning assets for Matewan
declined 37 basis points from 1993 levels, while the cost of average interest
bearing liabilities declined 5 basis points from 1993 levels, resulting in a
32 basis point decrease in the spread during the period.
The 1993 increase was due to both changes in volume and in rate. Declining
interest rates throughout 1993 influenced interest income on earning assets
more significantly than interest expense for interest bearing liabilities,
despite the fact that Matewan, as a liability sensitive company, did realize
substantial cost savings due to declining costs of funds. Overall market rates
began to decline in 1991. Possessing a negative short-term liability gap,
Matewan was able to reprice its funds more rapidly than it was required to
reprice its assets. In 1993, with rates stabilizing, the ability of Matewan to
generate additional cost savings through further deposit rate reductions
diminished. The gap between the decline in yield on average earning assets and
decline in cost of average interest bearing liabilities began to decrease. In
1993, the yield on average earning assets for Matewan declined 55 basis points
from 1992 levels, while the cost of average interest bearing liabilities
declined 72 basis points from 1992 levels, resulting in a 17 basis point
increase in the spread during the period.
38
<PAGE>
TABLE XI--VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTEREST INCOME/EXPENSE
-----------------------
1994 VS. 1993 1993 VS. 1992
FOR THE YEAR ENDED INCREASE (DECREASE) INCREASE (DECREASE)
DECEMBER 31, DUE TO CHANGE IN DUE TO CHANGE IN
----------------------- ----------------------- ------------------------
1994 1993 1992 VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------- ------- ------ ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans:
Commercial............. $ 6,168 $ 6,452 $ 6,572 $ (243) $ (41) $ (284) $ 445 $ (565) $ (120)
Real estate............ 7,023 6,374 5,718 1,242 (593) 649 964 (308) 656
Consumer............... 8,371 7,240 7,703 1,458 (327) 1,131 (352) (111) (463)
------- ------- ------- ------ ------- ------ ------ ------- -------
Total loans............. 21,562 20,066 19,993 2,457 (961) 1,496 1,057 (984) 73
Securities:
Taxable................ 6,205 6,923 7,646 (82) (636) (718) 227 (950) (723)
Tax-exempt............. 58 85 214 (13) (14) (27) (126) (3) (129)
------- ------- ------- ------ ------- ------ ------ ------- -------
Total securities........ 6,263 7,008 7,860 (95) (650) (745) 101 (953) (852)
Federal funds sold...... 551 348 585 66 137 203 (170) (67) (237)
Interest bearing
balances with other
banks.................. 148 6 6 137 5 142 2 (2) --
------- ------- ------- ------ ------- ------ ------ ------- -------
Total earning assets.... 28,524 27,428 28,444 2,565 (1,469) 1,096 990 (2,006) (1,016)
Interest bearing
liabilities:
Demand deposits........ 1,142 993 1,251 101 48 149 (41) (217) (258)
Savings deposits....... 1,817 1,564 1,801 298 (45) 253 5 (242) (237)
Time deposits.......... 7,137 6,982 8,202 220 (65) 155 149 (1,369) (1,220)
Purchase funds......... 447 235 377 181 31 212 (104) (38) (142)
------- ------- ------- ------ ------- ------ ------ ------- -------
Total interest bearing
liabilities............ 10,543 9,774 11,631 800 (31) 769 9 (1,866) (1,857)
------- ------- ------- ------ ------- ------ ------ ------- -------
Net interest income..... $17,981 $17,654 $16,813 $1,765 $(1,438) $ 327 $ 981 $ (140) $ 841
======= ======= ======= ====== ======= ====== ====== ======= =======
</TABLE>
Note: The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
During 1994, interest income increased 4.0% over prior-year levels. This
increase was realized primarily due to 15.6% and 10.2% increases in interest
on consumer and real estate loans, respectively. In contrast, commercial loan
income was 4.4% lower in 1994. Average investment securities decreased as did
the yields realized on the investment portfolio for 1994. Consequently,
investment income declined 10.6% from 1993. In contrast, average federal funds
sold and interest earned on federal funds sold increased 16.9% and 58.3%,
respectively, in 1994. Substantially higher levels for average interest
bearing deposits and the interest earned on such deposits contributed
approximately $142,000 more to interest income in 1994 than in the prior year.
During 1993, interest income declined 3.6% from 1992. This decline was
realized despite growth of 6.1% in average loans outstanding and of 0.4% in
loan income. Average investment securities increased 1.4% and related
investment income declined 10.8% over the same period. Management continued to
reduce its tax-exempt holdings due to limitations imposed by the Tax Reform
Act of 1986. Likewise, average federal funds sold and interest earned on
federal funds sold declined 32.1% and 40.5%, respectively, in 1993.
Interest expense increased 7.9% in 1994 after declining 16.0% in 1993.
Average interest bearing liabilities increased approximately 9.0% in 1994
after decreasing 0.6% in 1993. The increase in interest expense is due to the
significant growth in interest bearing liability volumes for 1994. Interest
expense declined 16.0% in 1993 after declining 23.0% in 1992. Average interest
bearing liabilities declined approximately 0.6% in 1993 after increasing 3.0%
in 1992. The decline in interest expense was due to the significant decline in
interest rates during 1993 and 1992.
While Matewan experienced an increase in net interest income in 1994, it
also realized a decrease in the net yield on earning assets (net interest
margin) for the first time since 1988. The net yield on earning assets for
1994 was 5.53% as compared to 5.88% for 1993. A 37 basis point decline in the
yield on average earning assets was partially offset by a decline in the cost
of average interest bearing liabilities of 5 basis points. In addition,
average non-interest bearing deposits grew $4.4 million in 1994, providing an
additional source of low-cost funds. The net interest margin in 1993 was 5.88%
as compared to 5.73% for 1992. A 55 basis point decline in
39
<PAGE>
the yield on average earning assets was exceeded by a 72 basis point decrease
in the cost of interest bearing liabilities.
OTHER INCOME
TABLE XII--OTHER INCOME
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------
YEAR ENDED DECEMBER 31, 1994 OVER 1993 1993 OVER 1992
----------------------- -------------- ---------------
1994 1993 1992 AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service fees............ $ 1,624 $ 1,504 $ 1,252 $120 7.98% $ 252 20.13%
Other income............ 371 222 181 149 67.11 41 22.65
Commissions on credit
life insurance......... 690 637 740 53 8.32 (103) (13.92)
Gain on sale of assets.. 117 32 236 85 265.63 (204) (86.44)
------- ------- ------- ---- ------ ----- ------
Total other income...... $ 2,802 $ 2,395 $ 2,409 $407 16.99% $ (14) (0.58)%
======= ======= ======= ==== ====== ===== ======
</TABLE>
Non-interest income increased approximately 17.0% in 1994 over 1993 levels.
For 1994, service fee income increased approximately 8.0% due to increased
volumes corresponding to the growth in deposit levels. Other income increased
approximately 67.0% in 1994, with most of the gain attributable to sales by
Matewan's financial services division. Commission income on credit insurance
products increased approximately 8.3% due to normal growth in the consumer
loan portfolio. Gain on sale of assets increased more than twofold due to
gains realized on the sale of repossessed properties.
Non-interest income decreased in 1993 after experiencing annual increases in
the prior two years. For 1993, service fee income increased due to generally
higher operating volumes. Commission income decreased by approximately 13.9%,
due primarily to lower commission rates paid on credit insurance products.
Other income increased in 1993 due to the incidental nature of the sort of
transactions involved and not due to any fundamental economic reason. Gain on
sales of assets decreased in 1993 due to the inclusion in prior year totals of
several transactions that were realized in 1992 reflecting final sale of
certain Matewan properties through eminent domain proceedings. These
transactions were of an extraordinary and non-recurring nature and not
reflective of typical activity in this income category.
OTHER EXPENSES
TABLE XIII--OTHER EXPENSES
<TABLE>
<CAPTION>
INCREASE (DECREASE)
------------------------------
YEAR ENDED DECEMBER 31, 1994 OVER 1993 1993 OVER 1992
------------------------- -------------- ---------------
1994 1993 1992 AMOUNT PERCENT AMOUNT PERCENT
-------- -------- ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits............... $ 4,991 $ 4,880 $ 4,275 $111 2.27% $ 605 14.15%
Net occupancy........... 626 481 556 145 30.15 (75) (13.49)
Advertising............. 543 485 463 58 11.96 22 4.75
Federal deposit
insurance and
regulatory assessments. 757 718 691 39 5.43 27 3.91
Other................... 4,342 3,808 3,912 534 14.02 (104) (2.66)
-------- -------- ------- ---- ----- ----- ------
$ 11,259 $ 10,372 $ 9,897 $887 8.55% $ 475 4.80%
======== ======== ======= ==== ===== ===== ======
</TABLE>
Total other expenses increased approximately 8.6% from 1993 to 1994 and 4.8%
from 1992 to 1993. The majority of the increase in 1994 was related to start-
up costs of $350,000 associated with the organization of the
40
<PAGE>
Thrift. The majority of the increase for 1993 was due to start-up expenses
related to the formation of Matewan Financial Services, the Bank's insurance
and investment division.
Tightening of net interest spreads requires heavier emphasis on both
maintaining control of non-interest expenses and leveraging these expenses
over a wider range of business volume, and thereby maximizing the efficiency
of such expenses. The "efficiency ratio" is calculated by dividing total non-
interest expenses by the sum of net interest income and non-interest income.
Matewan realized efficiency ratios of 54.2%, 51.7% and 51.5% for 1994, 1993
and 1992, respectively. The increase in 1994 is largely a function of
increased costs related to the Thrift as mentioned previously and narrowing
interest margins.
Salaries and employee benefits increased only 2.3% in 1994, after rising
14.2% in 1993. Staffing expenses related to the Company's financial services
division, increasing health-care benefit expenses and normal salary increases
were the primary reasons for the increases. The increases were $111,000 and
$605,000 from 1993 to 1994 and from 1992 to 1993, respectively. The relatively
modest growth rates are a further reflection of management's ongoing
commitment to controlling non-interest expenses. Net occupancy expenses,
relatively constant in 1993 and 1992, increased approximately 30.2% in 1994.
Capital expenditures related to the Thrift, the relocation of the corporate
and administrative offices to Williamson and the construction activity of the
Money Center office were the primary reasons for the increase.
Advertising costs fluctuate with management's evaluation of the benefit to
be gained from additional media exposure. Management determined that
additional advertising would be beneficial, leading to increases of $58,000
for 1994 and $22,000 for 1993.
Premiums and assessments paid to the FDIC, OCC and OTS increased $39,000, or
5.4%, in 1994, due to higher deposit volumes. The same premiums increased only
$27,000 in 1993 due to the risk level assigned to the Bank.
Consistent with the overall impact of the various projects undertaken by
Matewan in 1994, other operating expenses increased $534,000, or 14.0%, in
1994 after posting a decrease of $104,000, or 2.7%, in 1993. Other operating
expenses consist of several components, most of which (such as telephone,
postage and data processing expense) have shown increases that are
attributable to expansion of the Company's activities, market area and
customer base.
APPLICABLE INCOME TAXES
Income tax expense was $2.9 million in 1994, $3.3 million in 1993 and $2.9
million in 1992, for effective tax rates of 36.5% in 1994, 39.0% in 1993 and
36.6% in 1992. Matewan's inability to find immediate and viable tax-free
investment alternatives was the major factor behind the increase in the
effective tax rate in 1993. Management is actively pursuing tax favored
investments which carry attractive yields in an attempt to maximize earnings
and reduce Matewan's effective tax rate.
EFFECTS OF CHANGING PRICES
The consolidated financial statements and related data included herein have
been prepared in accordance with generally accepted accounting principles
which require the measurement of Matewan's financial position and results of
operations in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Virtually all
of Matewan's assets and liabilities are monetary in nature. As a result,
levels of and changes in interest rates have a more significant impact on
Matewan's performance than the effects of general levels of inflation.
41
<PAGE>
BUSINESS
COMPETITION
The Market is characterized by intense competition in all aspects and areas
of its business from commercial banks, savings and loan associations, mutual
savings banks and other financial institutions, many of which have greater
financial resources than Matewan and the Banking Subsidiaries. After giving
effect to the Acquisition, Matewan will have a 20.5% deposit share of the
Market. Matewan's management believes that it is able to compete with other
institutions by providing innovative products through convenient delivery
systems and a well-trained, sales oriented work force supported by
sophisticated technology.
PROPERTIES
Matewan maintains its executive offices in Williamson, West Virginia. The
Bank and the Thrift operate 13 offices throughout Matewan's Market. Seven of
these offices are owned and six are leased. Pikeville's principal offices are
located in Pikeville, Kentucky, in a six-story, steel frame building with
approximately 74,000 square feet of space. Additionally, Pikeville operates
seven branch banking facilities, six of which are owned.
LEGAL PROCEEDINGS
Neither Matewan nor any of its subsidiaries is a party to any litigation
other than litigation which is routine in the business of Matewan, and which,
if decided adversely to Matewan, would materially adversely affect the
financial condition of Matewan.
Pikeville is a party to ordinary routine litigation incidental to its
business and is a party to certain litigation. In connection with the
Acquisition, Banc One will, pursuant to the terms of the Purchase Agreement,
retain certain of this litigation. Additionally, Banc One will also provide
limited indemnification of Matewan and Pikeville in connection with certain
remaining litigation. Accordingly, if the Acquisition is consummated, an
unfavorable decision to Pikeville would not have a material adverse effect on
Pikeville (or ultimately, Matewan).
EMPLOYEES
At September 30, 1995, Matewan and Pikeville had 231 and 110 full-time
equivalent employees, respectively.
42
<PAGE>
MANAGEMENT
DIRECTORS
Matewan's Board of Directors currently consists of seven persons. Each of
the directors of Matewan is also a director of each of the Banking
Subsidiaries. The following table sets forth the names of the members of the
Board of Directors of Matewan, their ages, the year in which each became a
director of Matewan and the amount of Common Stock and the percent thereof
beneficially owned by each director on December 31, 1995.
<TABLE>
<CAPTION>
BENEFICIAL
DIRECTOR OWNERSHIP PERCENT
NAME AGE SINCE OF SHARES OF CLASS
---- --- -------- ---------- --------
<S> <C> <C> <C> <C>
James H. Harless....................... 76 1960 433,670(1) 11.83%
Dan R. Moore........................... 55 1979 735,385(1)(2) 20.05
Frank E. Ellis......................... 68 1988 251,986(3) 6.87
Lafe P. Ward........................... 70 1968 107,900 2.94
George A. Kostas....................... 65 1988 110,210(4) 3.01
Amos J. Hatfield....................... 69 1988 87,787(5) 2.39
Sidney R. Young, Jr.................... 71 1978 20,521 0.56
Betty Jo Moore......................... 55 1994 343,145(6) 9.36
All directors and officers as a group
(12 persons).......................... 1,429,399 38.98
</TABLE>
- --------
(1) Includes 392,240 shares as to which Mr. Moore has sole voting power
pursuant to an agreement dated August 6, 1987, entered into between Mr.
Moore and Mr. Harless in connection with the merger of Matewan and Guyan
Bancshares, Inc., pursuant to which Mr. Harless granted Mr. Moore an
irrevocable proxy to vote shares held of record or beneficially by Mr.
Harless at all meetings of shareholders of Matewan for so long as Mr.
Moore remains Chairman of Matewan.
(2) Includes 343,145 shares held of record by Mr. Moore and his wife, members
of their family and affiliates.
(3) Includes 203,500 shares held of record by the Frank Ellis Trust.
(4) Includes 65,964 shares of record held by Mr. Kostas and his wife.
(5) Includes 70,188 shares of record held by Mr. Hatfield and his wife, and
7,920 shares of record held by his wife and son as to which Mr. Hatfield
disclaims beneficial ownership.
(6) Includes 343,145 shares held by Mrs. Moore and her husband, members of
their family and affiliates, but excludes shares subject to the voting
agreement between Messrs. Moore and Harless.
The respective addresses of Mr. and Mrs. Moore, Mr. Harless and Mr. Ellis
are Box 26, Matewan, West Virginia, 25678, Drawer H, Gilbert, West Virginia,
25621, and 4 Tanglewood, Cincinnati, Ohio, 45221.
EXECUTIVE OFFICERS
The following table sets forth certain information about the principal
executive officers of Matewan, each of whom is selected by the Board of
Directors and each of whom holds office at the discretion of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dan R. Moore............ 55 Chairman of the Board, President and Chief Executive Officer
Pauline Roberson........ 72 Vice President and Secretary
Tim Edwards............. 46 Chief Operations Officer
Lee M. Ellis............ 40 Vice President and Chief Financial Officer
Anna Ward............... 36 Vice President of Administration
</TABLE>
43
<PAGE>
BIOGRAPHICAL INFORMATION
The following is a brief description of the principal occupation and
business experience for the last five years of each director and executive
officer of Matewan named above.
Dan R. Moore is the Chairman of the Board, President and Chief Executive
Officer of Matewan and the Bank and has acted in these capacities for Matewan
since 1979 and Thrift since 1993.
James H. Harless is Chairman of the Board of International Industries, Inc.,
a holding company for various industrial companies, primarily mining and
timbering.
Frank E. Ellis is President of Frank Ellis, M.D. Associates, Inc.
Lafe P. Ward is an attorney with Ward and Associates, L.L.P., and general
counsel for Matewan.
George A. Kostas is President of Aracoma Drug Company, Inc., a pharmacy.
Amos J. Hatfield is the owner of Gilbert Furniture Company.
Sidney R. Young, Jr. retired in 1986 as President and Chief Operating
Officer for McNamee Resources, Inc., a position he held for the previous seven
years.
Betty Jo Moore is President of Moore Ford, Lincoln, Mercury, Inc., Moore
Chevrolet, Inc., and Moore Chrysler, Inc.
Pauline Roberson was appointed Vice President and Secretary of Matewan and
the Bank in 1984 and the Thrift in 1993.
Tim Edwards was appointed Chief Operations Officer in 1993, and prior to
that was the President of United National Bank, Webster Springs, West
Virginia, a position he held for three years.
Lee M. Ellis became Vice President of the Bank in 1988 and Vice President
and Chief Financial Officer of Matewan in 1992 and the Thrift in 1993.
Anna Ward was appointed Vice President of Administration for Matewan in 1993
and the Bank in 1992. Prior to that time, she was an auditor for the Bank.
Dan R. Moore and Betty Jo Moore are married. Anna Ward is Lafe P. Ward's
daughter-in-law. Lee M. Ellis is Frank E. Ellis' son. Other than the
foregoing, no directors or executive officers are related.
EXECUTIVE OFFICERS' COMPENSATION
The following table sets forth information about aggregate compensation
received from Matewan and its subsidiaries by the chief executive officer of
Matewan, who was the only executive officer who received aggregate
compensation in excess of $100,000 during the fiscal years ended December 31,
1994, 1993 and 1992. Matewan does not have stock option or stock award plans.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION ($)
- --------------------------- ----------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Dan R. Moore 1994 180,508 27,667 --
Chairman of the Board,
President 1993 166,265 33,119 --
and Chief Executive Officer 1992 152,810 19,628 --
</TABLE>
44
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The following table indicates, for purposes of illustration, the approximate
annual retirement benefits (including qualified plan and supplemental plan)
upon retirement to participants at December 31, 1994, at selected remuneration
and years of service classifications, at age 65:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
ON CREDITED YEARS OF SERVICE
MONTHLY COMPENSATION ON ---------------------------------------
AN ANNUALIZED BASIS 15 20 25 30 35
----------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$160,000 $36,000 $48,000 $60,000 $72,000 $84,000
140,000 31,500 42,000 52,500 63,000 73,500
120,000 27,000 36,000 45,000 54,000 63,000
100,000 22,500 30,000 37,500 45,000 52,500
80,000 18,000 24,000 30,000 36,000 42,000
60,000 13,500 18,000 22,500 27,000 31,500
40,000 9,000 12,000 15,000 18,000 21,000
</TABLE>
At the end of fiscal year 1994, Mr. Moore had 31 years of credited service
under the Plan.
For the 1995 plan year, the normal retirement benefit under the Plan is
0.85% of average monthly compensation up to covered compensation plus 1.5% of
average monthly compensation in excess of covered compensation times years of
employment up to a maximum of 35 years. Benefits are not subject to deduction
for Social Security or other offset amounts.
CERTAIN TRANSACTIONS
The Bank has made various loans to its directors and officers and to
directors and officers of Matewan and the Banking Subsidiaries. Loans to this
group and their related entities totalled $4,208,000, $3,633,000 and
$2,448,000 at December 31, 1994, 1993 and 1992, respectively. These loans were
made in the ordinary course of business, were made on substantially the same
terms, including interest rate and collateral, as those prevailing at the same
time for comparable transactions with persons other than directors or
officers, and did not involve more than the normal risk of collectibility or
present other unfavorable features.
During the years ended December 31, 1994, 1993 and 1992, Matewan and its
subsidiaries paid legal fees of approximately $36,000, $16,732 and $23,159,
respectively, to the law firm of Ward and Associates, L.L.P. Mr. Ward, a
director of Matewan, is a principal in the firm and as a result may receive an
indirect benefit from the payment of legal fees.
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<PAGE>
SUPERVISION AND REGULATION
The following discussion sets forth certain of the material elements of the
regulatory framework applicable to banks and thrifts and their bank holding
companies and provides certain specific information related to Matewan.
Supervision, regulation, and examination of Matewan, the Bank, the Thrift and
Pikeville by the bank regulatory agencies are intended primarily for the
protection of depositors rather than holders of Matewan's capital stock. Any
change in applicable law or regulation may have a material effect on Matewan's
business.
GENERAL
Matewan is a bank holding company registered with the Federal Reserve under
the Bank Holding Company Act of 1956, as amended ("BHC Act"). As such, Matewan
and its non-bank subsidiaries are subject to the supervision, examination and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve. In addition, as a savings and loan holding company, Matewan is also
registered with the OTS and is subject to regulation, supervision, examination
and reporting requirements of the OTS.
The BHC Act requires every bank holding company to obtain the prior approval
of the Federal Reserve before: (i) it may acquire direct or indirect ownership
or control of any voting shares of any bank if, after such acquisition, the
bank holding company will directly or indirectly own or control more than 5.0%
of the voting shares of the bank; (ii) it or any of its subsidiaries, other
than a bank, may acquire all or substantially all of the assets of any bank;
or (iii) it may merge or consolidate with any other bank holding company.
Similar federal statutes require savings and loan holding companies and other
companies to obtain the prior approval of the OTS before acquiring direct or
indirect ownership or control of a savings association.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the
bank holding companies and banks concerned and the convenience and needs of
the community to be served. Consideration of financial resources generally
focuses on capital adequacy which is discussed below.
The BHC Act was amended by the interstate banking provisions of the Riegle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking Act"), which became effective on September 29, 1995. The Interstate
Banking Act repealed the prior statutory restrictions on interstate
acquisitions of banks by bank holding companies, such that Matewan and any
other bank holding company located in West Virginia or Kentucky may now
acquire a bank located in any other state, and any bank holding company
located outside West Virginia or Kentucky may lawfully acquire any West
Virginia-based bank or Kentucky-based bank, regardless of state law to the
contrary in either case subject to certain deposit-percentage, aging
requirements, and other restrictions. The Interstate Banking Act also
generally provides that, after June 1, 1997, national and state-chartered
banks may branch interstate through acquisitions of banks in other states. By
adopting legislation prior to that date, a state has the ability either to
"opt in" and accelerate the date after which interstate branching is
permissible or "opt out" and prohibit interstate branching altogether. As of
the date of this Prospectus, neither West Virginia nor Kentucky has "opted in"
or "opted out." Assuming no state action prior to June 1, 1997, Matewan would
be able to consolidate the Banking Subsidiaries and Pikeville into a single
bank with interstate branches following that date.
The BHC Act generally prohibits Matewan from (i) engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and (ii) acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by
the Federal Reserve to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In determining
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<PAGE>
whether a particular activity is permissible, the Federal Reserve must
consider whether the performance of such an activity reasonably can be
expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting discount securities brokerage activities, performing
certain data processing services, acting as agent or broker in selling credit
life insurance and certain other types of insurance in connection with credit
transactions and performing certain insurance underwriting activities all have
been determined by the Federal Reserve to be permissible activities of bank
holding companies. The BHC Act does not place territorial limitations on
permissible non-banking activities of bank holding companies. Despite prior
approval, the Federal Reserve has the power to order a bank holding company or
its subsidiaries to terminate any activity or to terminate its ownership or
control of any subsidiary when it has reasonable cause to believe that
continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness or stability of any bank
subsidiary of that bank holding company.
Matewan is required to register annually with the Commissioner of Banking of
West Virginia (the "Commissioner") and to pay a registration fee to the
Commissioner based on the total amount of bank deposits in banks with respect
to which Matewan is a bank holding company. Although legislation allows the
Commissioner to prescribe the registration fee, it limits the fee to ten
dollars per million dollars of deposits rounded off to the nearest million
dollars. Matewan is also subject to regulation and supervision by the
Commissioner.
Matewan is required to secure the approval of the West Virginia Board of
Banking before acquiring ownership or control of more than 5.0% of the voting
shares or substantially all of the assets of any institution, including
another bank located in West Virginia. West Virginia and Kentucky banking laws
prohibit any bank or bank holding company from acquiring shares of a bank if
the acquisition would cause the combined deposits of all banks in West
Virginia or Kentucky, with respect to which it is a bank holding company, to
exceed 20.0% and 15.0%, respectively, of the total deposits of all depository
institutions in that state. As of June 30, 1994, the total deposits of the
Banking Subsidiaries in West Virginia were less than 2.0% of the total
deposits in West Virginia. As of June 30, 1994, giving effect to the
Acquisition, Pikeville and the Thrift would have held less than 1.0% of the
total deposits in Kentucky.
Each of the bank and thrift subsidiaries of Matewan is a member of the FDIC,
and as such, its deposits are insured by the FDIC to the maximum extent
provided by law. Each such subsidiary is also subject to numerous state and
federal statutes and regulations that affect its business, activities, and
operations, and each is supervised and examined by one or more state or
federal bank regulatory agencies.
The Bank is subject to regulation, supervision and examination by the OCC
and the FDIC. The Thrift is subject to regulation, supervision and examination
by the OTS and the FDIC. The OCC and the OTS regularly examine the respective
operations of the Bank and the Thrift and are given authority to approve or
disapprove mergers, consolidations, the establishment of branches and similar
corporate actions. The federal banking regulators also have the power to
prevent the continuance or development of unsafe or unsound banking practices
or other violations of law.
PAYMENT OF DIVIDENDS
Matewan is a legal entity separate and distinct from its Banking
Subsidiaries and other subsidiaries. The principal sources of cash flow of
Matewan, including cash flow to pay dividends to its stockholders, are
dividends from the Banking Subsidiaries. There are statutory and regulatory
limitations on the payment of dividends by these depository institution
subsidiaries to Matewan, as well as by Matewan to its stockholders.
Both the Bank and Pikeville are required by federal law to obtain the prior
approval of the OCC for the payment of dividends if the total of all dividends
declared by the bank in any year would exceed the total of (i)
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<PAGE>
the bank's net profits (as defined and interpreted by regulation) for that
year, plus (ii) the retained net profits (as defined and interpreted by
regulation) for the proceeding two years, less any required transfers to
surplus. In addition, national banks may only pay dividends to the extent that
their retained net profits (including the portion transferred to surplus)
exceed statutory bad debts (as defined by regulation). The Thrift is subject
to the OTS' regulations governing dividend payments and other capital
distributions. Under those regulations, a savings association that is well
capitalized is permitted to declare dividends of up to the greater of (i) the
sum of 100.0% of its current net income plus one-half of its capital in excess
of the minimum regulatory requirements or (ii) 75.0% of its net income during
the most recent four-quarter period.
If, in the opinion of a federal banking regulator, a bank or thrift under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an
inadequate level would be an unsafe and unsound banking practice. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a
depository institution may not pay any dividend if payment would cause it to
become undercapitalized or if it already is undercapitalized. See "--Prompt
Corrective Action." Moreover, the federal banking regulators have issued
policy statements that provide that bank holding companies and insured banks
should generally only pay dividends out of current operating earnings.
At September 30, 1995, under dividend restrictions imposed under federal
laws and regulations, the Banking Subsidiaries, without obtaining governmental
approvals, could declare aggregate dividends to the Bank and subsequently paid
to Matewan of approximately $5.2 million. On December 28, 1995, a dividend of
$5.0 million was declared by Matewan. Of this amount, $3.2 million will be
used to fund a portion of the purchase price of the Acquisition and related
expenses.
CAPITAL ADEQUACY
Matewan, the Banking Subsidiaries and Pikeville are required to comply with
the capital adequacy standards established by the Federal Reserve in the case
of Matewan, the OCC in the case of the Bank and Pikeville and the OTS in the
case of the Thrift. There are three basic measures of capital adequacy for
bank holding companies that have been promulgated by the Federal Reserve; two
of which are risk-based measures and one of which is a leverage measure. All
applicable capital standards must be satisfied for a bank holding company to
be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and
bank holding companies, to account for off-balance-sheet exposure and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories, each with appropriate weights.
The resulting capital ratios represent capital as a percentage of total risk-
weighted assets and off-balance-sheet items.
The minimum guideline for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as
standby letters of credit) ("Total Capital Ratio") is 8.0%. At least one-half
of Total Capital must consist of common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock and a
limited amount of loan loss reserves ("Tier 2 Capital"). At September 30,
1995, Matewan's consolidated Total Capital Ratio and its Tier 1 Capital Ratio
(i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 19.29% and
18.17%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and certain other
intangible assets (the "Tier 1 Leverage Ratio"), of 3.0% for bank holding
companies that meet
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<PAGE>
certain specified criteria, including having the highest regulatory rating.
All other bank holding companies generally are required to maintain a Tier 1
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200
basis points. Matewan's Leverage Ratio at September 30, 1995, was 11.01%. The
guidelines also provide that bank holding companies experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve
has indicated that it will consider a "tangible Tier 1 Capital Leverage Ratio"
(deducting all intangibles) and other indicia of capital strength in
evaluating proposals for expansion or new activities.
The Bank, the Thrift and Pikeville are subject to risk-based and leverage
capital requirements adopted by their respective federal banking regulator,
which are substantially similar to those adopted by the Federal Reserve for
bank holding companies. Each of the Banking Subsidiaries and Pikeville was in
compliance with applicable minimum capital requirements as of September 30,
1995. Neither Matewan, any of it Banking Subsidiaries or Pikeville has been
advised by any federal banking agency of any specific minimum capital ratio
requirement applicable to it.
Failure to meet capital guidelines could subject a depository institution to
a variety of enforcement remedies, including issuance of a capital directive,
the termination of deposit insurance by the FDIC, a prohibition on the taking
of brokered deposits, and other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"--Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve, the OCC and the FDIC have,
pursuant to FDICIA, proposed an amendment to the risk-based capital standards
that would calculate the change in an institution's net economic value
attributable to increases and decreases in market interest rates and would
require banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures. The OTS has already included an
interest-rate risk component in its risk-based capital guidelines for the
savings associations that it regulates.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve policy, Matewan is expected to act as a source of
financial strength for, and to commit resources to support, each of the
Banking Subsidiaries and Pikeville after the Acquisition. This support may be
required at times when, absent such Federal Reserve policy, Matewan may not be
inclined to provide it. In addition, any capital loans by a bank holding
company to any of its banking subsidiaries are subordinate in right of payment
to deposits and to certain other indebtedness of such institutions. In the
event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of
a banking subsidiary will be assumed by the bankruptcy trustee and entitled to
a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(i) the default of a commonly controlled FDIC-insured depository institution
or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-
insured depository institution "in danger of default." "Default" is defined
generally as the appointment of a conservator or receiver, and "in danger of
default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. The FDIC's claim for damages is superior to claims of stockholders
of the insured depository institution or its holding company, but is
subordinate to claims of depositors, secured creditors, and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The Banking Subsidiaries are, and Pikeville after the
Acquisition will be, subject to these cross-guarantee provisions. As a result,
any loss suffered by the FDIC in respect of any of these subsidiaries would
likely result in assertion of the cross-guarantee provisions, the assessment
of such estimated losses against the
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<PAGE>
subsidiary's depository institution affiliates, and a potential loss of
Matewan's investments in such other subsidiaries.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions
in the three undercapitalized categories, the severity of which will depend
upon the capital category in which the institution is placed. Generally,
subject to a narrow exception, FDICIA requires the banking regulator to
appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation
the relevant capital level for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution is deemed to be well capitalized if the institution
(i) has a Risk-Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based
Capital Ratio of 6.0% or greater, and a Leverage Ratio of 5.0% or greater and
(ii) is not subject to any written agreement, order, capital directive or
prompt corrective action directive issued by the appropriate federal banking
agency. An institution with a Risk-Based Capital Ratio of 8.0% or greater, a
Tier 1 Risk-Based Capital Ratio of 4.0% or greater and a Leverage Ratio of
4.0% or greater is considered to be adequately capitalized. A depository
institution that has a Risk-Based Capital Ratio of less than 8.0%, a Tier 1
Risk-Based Capital Ratio of less than 4.0% or a Leverage Ratio of less than
4.0% is considered to be undercapitalized. A depository institution that has a
Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio
of less than 3.0% or a Leverage Ratio of less than 3.0% is considered to be
significantly undercapitalized, and an institution that has a tangible equity
capital to assets ratio equal to or less than 2.0% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1 Capital for purposes of the
risk-based capital standards, plus the amount of outstanding cumulative
perpetual preferred stock (including related surplus), minus all intangible
assets with certain exceptions. A depository institution may be deemed to be
in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meets its capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under FDICIA
to fund a capital restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of
the FDIC. In addition, the appropriate federal banking agency is given
authority with respect to any undercapitalized depository institution to take
any of the actions described below, if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the
appropriate federal banking agency must require the institution to take one or
more of the following actions: (i) sell enough shares, including voting
shares, to become adequately capitalized; (ii) merge with (or be sold to)
another institution (or holding company), but only if grounds exist for
appointing a conservator or receiver; (iii) restrict certain transactions with
banking affiliates as if the "sister bank" exception to the requirements of
Section 23A of the Federal Reserve Act did not exist; (iv) otherwise restrict
transactions with bank or non-bank affiliates; (v) restrict interest rates
that the institution pays on deposits to "prevailing rates" in the
institution's "region;" (vi) restrict asset growth or reduce total assets;
(vii) alter, reduce or terminate activities; (viii) hold a new election of
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directors; (ix) dismiss any director or senior executive officer who held
office for more than 180 days immediately before the institution became
undercapitalized, provided that in requiring dismissal of a director or senior
officer, the agency must comply with certain procedural requirements,
including the opportunity for an appeal in which the director or officer will
have the burden of proving his or her value to the institution; (x) employ
"qualified" senior executive officers; (xi) cease accepting deposits from
correspondent depository institutions; (xii) divest certain nondepository
affiliates which pose a danger to the institution; or (xiii) be divested by a
parent holding company. In addition, without the prior approval of the
appropriate federal banking agency, a significantly undercapitalized
institution may not pay any bonus to any senior executive officer or increase
the rate of compensation for such an officer.
At September 30, 1995, each of the Banking Subsidiaries and Pikeville had
the requisite capital levels to qualify as well capitalized.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994 and replaces a transitional
system that the FDIC had utilized for the 1993 calendar year, assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based
on a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator, information which the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to
which it is assigned. Under the final risk-based assessment system, as well as
the prior transitional system, there are nine assessment risk classifications
(i.e., combinations of capital groups and supervisory subgroups) to which
different assessment rates are applied.
Assessment rates for the first half of 1995 for members of both the BIF and
the Savings Association Insurance Fund (the "SAIF"), as they had been during
1994, ranged from 23 basis points (0.23% of deposits) for an institution in
the highest category (i.e., "well capitalized" and financially sound) to 31
basis points (0.31% of deposits) for an institution in the lowest category
(i.e., "undercapitalized" and "substantial supervisory concern").
The FDIA requires that the SAIF and BIF funds each be recapitalized until
reserves reach a designated ratio of at least 1.25% of the deposits insured by
that fund. The SAIF is not expected to be recapitalized until 2002. SAIF
reserves have not grown as quickly as the BIF reserves due to a number of
factors, including the fact that a significant portion of SAIF premiums have
been and are currently being used to make payments on the FICO bonds issued in
the late 1980s by the Financing Corporation to recapitalize the now defunct
Federal Savings and Loan Insurance Corporation.
The designated reserve ratio for the BIF was reached in May 1995. In August
1995, the FDIC reduced the assessment rates for BIF members. Under the revised
assessment schedule, which became effective on June 1, 1995, BIF-insured
institutions were to pay assessments ranging from 0.04% of deposits to 0.31%
of deposits, with an average assessment rate of 4.5 basis points. Refunds,
with interest, were paid to BIF-insured institutions for assessments they had
paid for the period beginning on June 1, 1995, and the Bank received $189,601.
Subsequently, on November 14, 1995, the FDIC voted to reduce annual
assessments to the legal minimum of $2,000 for all BIF-insured institutions
except those that are not well capitalized and are assigned to the higher
supervisory risk categories.
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At the same time, the FDIC elected to retain the existing assessment range
of 23 to 31 basis points for SAIF members for the foreseeable future given the
undercapitalized nature of that insurance fund. As a result of the BIF premium
reduction, institutions that are required to pay SAIF premiums, such as the
Thrift, are likely to be subject to a significant competitive disadvantage
relative to BIF-insured institutions, pending any legislative action to remedy
the disparity. The FDIC has recognized that the disparity may have adverse
consequences for such institutions, including reduced earnings and an impaired
ability to raise funds in capital markets and to attract deposits. Further, it
is not currently known whether institutions that are required to pay SAIF
premiums will be required to pay higher deposit insurance premiums in the
future.
On July 28, 1995, the FDIC, the Treasury Department and the OTS released
statements outlining a proposed plan (the "Proposed Plan") to recapitalize the
SAIF, certain features of which were subsequently approved by the House of
Representatives and the Senate of the United States in bills that provided for
different resolutions of the BIF-SAIF disparity. In negotiations between
members of the Banking Committees of the House and Senate to reconcile the
differences in the two bills, it was agreed on November 7, 1995, that the
current Budget Reconciliation Package will focus on the financial problems of
the SAIF. Under the Committee Agreement, all SAIF-member institutions will pay
a special assessment to recapitalize the SAIF, and the assessment base for the
payments on the FICO bonds would be expanded to include the deposits of both
BIF- and SAIF-insured institutions. The amount of the special assessment
required to recapitalize the SAIF is currently estimated to be approximately
80 basis points (0.80% of deposits), somewhat less than the 85 basis point
assessment that had been previously estimated as necessary. The special
assessment would be payable some time in 1996 based on the amount of SAIF-
insured deposits held on March 31, 1995. The Committee Agreement will also
permit BIF-insured institutions holding deposits subject to SAIF assessments
to reduce such SAIF deposits by 20.0% in computing the institutions' special
assessment. There is some question as to whether either BIF-insured
institutions acquiring SAIF-insured institutions after March 31, 1995, or
SAIF-insured institutions that go out of existence prior to the enactment of
the Budget Reconciliation legislation will be required to pay any special
assessment under the current language of the legislation. If an 80 basis point
assessment were assessed against the Thrift's deposits as of March 31, 1995,
the thrift would be required to pay a special assessment on its SAIF-insured
deposits of $184,520. In accordance with generally accepted accounting
principles, the Thrift had not recorded an accrual for the special assessment
at December 31, 1995. If this amount had been assessed and paid as of
September 30, 1995, the Thrift's Tier 1 capital, Tier 1 risk-based capital,
and Total risk-based capital ratios on that date would have been 9.4%, 18.1%,
and 18.1%, respectively, down from 9.8%, 18.9%, and 18.9%, respectively. The
special assessment paid by the Thrift would be at least partially offset by a
reduction in insurance premiums paid by the thrift if, as expected, the FDIC
were to reduce SAIF premiums to BIF levels following payment of the special
assessment and recapitalization of the SAIF.
The members of the Banking Committees also agreed that the new legislation
will provide that an insurance fund cannot assess regular insurance
assessments when it has a reserve ratio of 1.25% or more except on those
member institutions that have been found to have "moderately severe" or
"unsatisfactory" financial, operational or compliance weaknesses. Neither of
the Banking Subsidiaries nor Pikeville has been so classified by the OCC or
the OTS. Accordingly assuming that the legislation is adopted as described
above and that the BIF and the SAIF maintain a 1.25% reserve ratio, the
Banking Subsidiaries and Pikeville would pay substantially reduced regular
deposit insurance assessments as long as they maintained their regulatory
status. The Budget Reconciliation Package would also provide for the merger of
the BIF and SAIF on January 1, 1998, with such merger being conditioned upon
the prior elimination of the thrift charter. The committee members also agreed
that, as early as possible in 1996, Congress should consider and act upon
separate legislation to eliminate the thrift charter and to abolish the OTS
and transfer its functions to the OCC, the FDIC, and the Federal Reserve. If
adopted, such legislation would require that Matewan, as a federal savings
bank, convert to a bank charter.
The management of Matewan cannot predict whether the above legislation or
any other legislative proposal will be enacted as described above or, if
enacted, the amount of any special SAIF assessment, whether ongoing SAIF
premiums will be reduced to a level equal to that of BIF premiums or whether,
if thrifts are required to convert to a bank charter, there will be any relief
from the additional tax liabilities that would be incurred upon
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the recapture of their bad debt reserves. It also cannot be predicted whether
some other legislative action will be taken to address the BIF-SAIF disparity
and what consequences such action could have for SAIF members. A significant
increase in SAIF insurance premiums, either absolutely or relative to BIF
premiums, a significant one-time fee to recapitalize the SAIF or a significant
tax liability associated with the recapture of the bad debt reserve could have
an adverse effect on the operating expenses and results of operations of
Matewan.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC.
SAFETY AND SOUNDNESS STANDARDS
The FDIA, as amended by FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits
and such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted, effective
August 9, 1995, a set of guidelines prescribing safety and soundness standards
pursuant to FDICIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth
and compensation, fees and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal stockholders. The federal banking agencies determined
that stock valuation standards were not appropriate. In addition, the agencies
adopted regulations that authorize, but do not require, an agency to order an
institution that has been given notice by an agency that it is not satisfying
any of such safety and soundness standards to submit a compliance plan. If,
after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the agency must issue an order directing action to correct
the deficiency and may issue an order directing other actions of the types to
which an undercapitalized association is subject under the "prompt correction
action" provisions of FDICIA. See "--Prompt Corrective Action." If an
institution fails to comply with such an order, the agency may seek to enforce
such order in judicial proceedings and to impose civil money penalties. The
federal bank regulatory agencies also proposed guidelines for asset quality
and earnings standards.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against
an insured depository institution would be afforded a priority over other
general unsecured claims against such an institution in the "liquidation or
other resolution" of such an institution by any receiver.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Matewan's authorized capital stock consists of 10,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock, par value $1.00 per share (the
"Preferred Stock"), issuable in one or more series. As of December 31, 1995,
there were 3,667,351 shares of Common Stock and no shares of Preferred Stock
issued and outstanding. After consummation of the Offering, there will be
600,000 shares of Convertible Preferred Stock oustanding, which is a series of
Preferred Stock. The capital stock of Matewan does not represent or constitute
a deposit account and is not insured by the FDIC.
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COMMON STOCK
Dividends. Matewan may pay dividends as declared from time to time by the
Board of Directors out of funds legally available therefor, subject to certain
restrictions. Although quarterly cash dividends have been paid on the Common
Stock since 1980, and the Board of Directors of Matewan has indicated its
intention to continue to pay cash dividends on the Common Stock, no assurance
can be given that any dividends will be declared or, if declared, what the
amount of the dividends will be or whether such dividends, once declared, will
continue. Payment of dividends on the Common Stock will also be subject to the
prior payment in full of the dividends payable on the Convertible Preferred
Stock. See "Common Stock Price Range and Dividends" and "--Convertible
Preferred Stock--Dividends."
Voting Rights. The holders of Common Stock are entitled to one vote per
share on all matters to be voted on by the stockholders. Such stockholders do
not have cumulative voting rights in the election of directors.
Liquidation. In the event of any liquidation, dissolution or winding up of
Matewan, the holders of the Common Stock would be entitled to receive, after
payment or provision for payment of all its debts and liabilities, all of the
assets of Matewan available for distribution. If Preferred Stock is issued, as
contemplated by the Offering, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution. See
"--Convertible Preferred Stock--Liquidation."
Preemptive Rights. Holders of the Common Stock are not entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock is not subject to redemption.
PREFERRED STOCK
Under the Certificate of Incorporation, the Board of Directors of Matewan or
a duly authorized committee thereof has the power, without further action by
the stockholders, to provide for the issuance of Preferred Stock in one or
more series and to fix the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, by adopting a resolution or resolutions
creating and designating such series. Variations between different series may
be created by the Board of Directors with respect to voting rights, if any;
the rate of dividends, if any; the priority of payment thereof and the right
to cumulation thereof, if any; redemption terms and conditions; and the right
of conversion, if any.
CONVERTIBLE PREFERRED STOCK
The following description of the material terms and provisions of the shares
of Convertible Preferred Stock to be issued in the Offering is subject and
qualified in its entirety by reference to the certificate to Matewan's
Certificate of Incorporation authorizing the Convertible Preferred Stock and
the resolutions of Matewan's Board of Directors setting forth the terms and
conditions of the Convertible Preferred Stock. Except as described below, the
Convertible Preferred Stock will rank on a parity with the Common Stock.
Dividends. Holders of shares of the Convertible Preferred Stock will be
entitled to receive, when and as declared by the Board of Directors of
Matewan, out of assets of Matewan legally available for payment, an annual
cash dividend of % of the stated value, or initially $ per share.
Dividends on the Convertible Preferred Stock will be cumulative from the date
of issue and will be payable quarterly on March 15, June 15, September 15, and
December 15 of each year commencing , 1996, at such annual rate. The
initial dividend for the period commencing , 1996 to, but not including,
, 1996 will be $ per share and will be payable on , 1996. Dividends
payable on the Convertible Preferred Stock for any period less than a full
dividend period shall be computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends payable on the Convertible Preferred Stock for
each full dividend period shall be computed by dividing the annual dividend
rate by four. Each such dividend will be payable to holders of record as they
appear on the stock register of Matewan on such record dates, not more than 60
days nor less than ten days preceding the payment dates, as shall be fixed by
the Board of Directors. In the event that full cumulative dividends on the
Convertible Preferred Stock have not been paid when due, Matewan may not
declare or pay
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any dividends or make other distributions (other than dividends payable in
shares of Common Stock or other capital stock of Matewan ranking junior to the
Convertible Preferred Stock with respect to the payment of dividends and upon
liquidation, dissolution or winding up, or options, warrants or rights to
subscribe for or purchase such shares) on its Common Stock. Additionally,
Matewan may not declare or pay dividends on any other capital stock of Matewan
ranking junior to the Convertible Preferred Stock with respect to the payment
of dividends, or purchase, redeem or otherwise acquire any shares of
Convertible Preferred Stock (other than with funds previously deposited in
trust for the redemption of shares of Convertible Preferred Stock pursuant to
any sinking fund) or any other shares of capital stock of Matewan ranking on a
parity with or junior to the Convertible Preferred Stock (except by conversion
into or exchange for capital stock of Matewan ranking junior to the
Convertible Preferred Stock as to payment of dividends and upon liquidation,
dissolution or winding up).
Conversion Rights. Each share of Convertible Preferred Stock will be
convertible into shares of Common Stock at $ , except that, if shares
of Convertible Preferred Stock are called for redemption, the conversion right
on such shares of Convertible Preferred Stock will terminate at the close of
business on the date fixed for redemption unless Matewan shall default in
making payment of the amount payable upon such redemption.
The price per share of Common Stock at which the Convertible Preferred Stock
is convertible is subject to adjustment in certain events, including: the
issuance of Common Stock as a dividend or distribution on the Common Stock;
the issuance to all holders of Common Stock of certain rights or warrants
entitling them to subscribe for or purchase Common Stock at less than the
current market price (as defined in the certificate); subdivisions and
combinations of the Common Stock; and the distribution to all holders of
Common Stock of capital stock (other than Common Stock) or evidences of
indebtedness of Matewan or assets (excluding cash dividends or distributions
from retained earnings) or rights or warrants to subscribe for or purchase any
of its securities (excluding those rights or warrants previously referred to
in this sentence).
In the case of any consolidation or merger to which Matewan is a party and
as a result of which holders of Common Stock shall be entitled to receive
securities, cash or other property with respect to or in exchange for such
Common Stock, or in case of any sale or conveyance to another corporation of
the property of Matewan as an entirety or substantially as an entirety, or in
case of any reclassification or change in outstanding shares of Common Stock
(other than a change in par value, or from par value to no par value or from
no par value to par value, or as a result of a subdivision or combination of
the Common Stock), there will be no adjustment of the conversion rate but the
holder of each share of Convertible Preferred Stock then outstanding will have
the right thereafter to convert such share into the kind and amount of
securities, cash or other property which such holder would have owned or have
been entitled to receive immediately after such consolidation or merger, sale
or conveyance or reclassification or change had such share been converted
immediately prior to the effective date of such consolidation or sale or
conveyance or reclassification or change. The adjustments described in this
paragraph shall be subject to further adjustments as appropriate that shall be
as nearly equivalent as may be practicable to the relevant adjustment provided
for in the preceding paragraph and in this paragraph. If, in the case of any
such consolidation, merger, sale or conveyance, the stock or other securities
and property receivable thereupon by a holder of shares of Common Stock
includes shares of stock, securities or other property or assets (including
cash) of any entity other than the successor or acquiring entity, as the case
may be, in such consolidation, merger, sale or conveyance, then Matewan shall
enter into an agreement with such other entity for the benefit of the holders
of Convertible Preferred Stock that shall contain such provisions to protect
the interests of such holders as the Board of Directors shall reasonably
consider necessary by reason of the foregoing.
No adjustment in the conversion rate will be required unless such adjustment
would require a change of at least $0.01 in the conversion rate then in
effect; provided, however, that any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment. Matewan reserves the right to make any reduction in the
conversion rate in addition to those required in the foregoing provisions as
Matewan in its discretion shall determine to be advisable in order that
certain stock-related distributions hereafter made by Matewan to its
stockholders shall not be taxable. Except as stated above, the
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conversion rate will not be adjusted for the issuance of Common Stock or any
securities convertible into or exchangeable for Common Stock or carrying the
right to purchase any of the foregoing.
No fractional shares of Common Stock or securities representing fractional
shares of Common Stock will be issued upon conversion. Any fractional interest
in a share of Common Stock resulting from conversion will be paid in cash
based on the current market price of Common Stock.
Upon conversion no adjustments will be made for accrued dividends and,
therefore, shares of Convertible Preferred Stock surrendered for conversion
during the period between the close of business on any dividend payment record
date and the opening of business on the corresponding dividend payment date
(except shares called for redemption on a date during such period) must be
accompanied by payment of an amount equal to the dividend payable on such
shares on such dividend payment date.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of Matewan, the holders of shares of
the Convertible Preferred Stock will be entitled to receive out of the assets
of Matewan available for distribution to stockholders, before any distribution
is made to holders of Common Stock or any other class of Matewan's capital
stock ranking junior to the Convertible Preferred Stock or any other class of
Matewan's capital stock ranking junior to the Convertible Preferred Stock as
to liquidation payments, liquidating distributions in the amount of $25.00 per
share of the Convertible Preferred Stock, plus accrued but unpaid dividends to
but excluding the date of final distribution, but the holders of the shares of
the Convertible Preferred Stock will not be entitled to receive the
liquidation price of such shares until the liquidation preference of any other
shares of Matewan's capital stock ranking senior to the Convertible Preferred
Stock with respect to the rights upon liquidation, dissolution or winding up
shall have been paid (or a sum set aside therefor sufficient to provide for
payment) in full. If upon any voluntary or involuntary liquidation,
dissolution or winding up of Matewan, the assets of Matewan shall be
insufficient to make such full payments to holders of the Convertible
Preferred Stock and any other preferred stock ranking on a parity with the
Convertible Preferred Stock with respect to rights upon liquidation,
dissolution or winding up, then such assets shall be distributed pro rata
among the holders of the Convertible Preferred Stock or any other such
preferred stock. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of the Convertible
Preferred Stock will not be entitled to any further participation in any
distribution of assets by Matewan. Neither a consolidation or merger of
Matewan with or into another corporation nor a merger of another company with
or into Matewan nor a sale, lease or conveyance of all or any part of
Matewan's property or business shall be considered a liquidation, dissolution
or winding up of Matewan; however, any reorganization of Matewan required by
any court or administrative body in order to comply with any provision of law
shall be deemed to be a liquidation, dissolution and winding up of Matewan
unless the preferences, limitations, rights and restrictions granted to or
imposed upon the Convertible Preferred Stock are not adversely affected by
such reorganization.
Because Matewan is a holding company, its rights, the rights of its
creditors and of its stockholders, including the holders of the shares of the
Convertible Preferred Stock offered hereby, to participate in the assets of
any subsidiary upon the latter's liquidation or recapitalization may be
subject to the prior claims of the subsidiary's creditors except to the extent
that Matewan may itself be a creditor with recognized claims against the
Subsidiary.
Optional Redemption. The Convertible Preferred Stock is not subject to any
mandatory redemption or sinking fund provision. The Convertible Preferred
Stock is redeemable as a whole or in part at the option of Matewan for cash on
at least 30 but not more than 60 days' notice at any time or from time to time
on or after months after the date of issuance. With respect to any such
redemption, the Convertible Preferred Stock will be redeemable at the
following redemption prices per share, together in each case with accrued but
unpaid dividends to but excluding the date fixed for redemption, if redeemed
during the 12-month period beginning on:
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<TABLE>
<CAPTION>
REDEMPTION PRICE
AS A PERCENTAGE
OF LIQUIDATION
VALUE
PER SHARE OF
CONVERTIBLE
YEAR PREFERRED STOCK
---- ----------------
<S> <C>
%
</TABLE>
If full cumulative dividends on the Convertible Preferred Stock have not
been paid, the Convertible Preferred Stock may not be redeemed in part and
Matewan may not purchase or acquire any shares of the Convertible Preferred
Stock other than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Convertible Preferred Stock. If fewer than all the
outstanding shares of the Convertible Preferred Stock are to be redeemed,
Matewan will select those to be redeemed by lot or on a pro rata basis or by
any other method deemed by Matewan to be equitable (with adjustments to avoid
fractional shares). Any shares of the Convertible Preferred Stock for which a
notice of redemption has been given may be converted into shares of Common
Stock at any time before the close of business on the date fixed for the
redemption. Any such redemption would require the prior approval of the
Federal Reserve Board. See "--Convertible Preferred Stock--Other Aspects."
Voting Rights. Holders of Convertible Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time
expressly required by law. So long as any shares of Convertible Preferred
Stock remain outstanding, Matewan shall not, without the affirmative vote of
the holders of at least a majority of the shares of Convertible Preferred
Stock outstanding at the time, given in person or by proxy, at a meeting
(voting separately as one class): (i) authorize, create or issue, or increase
the authorized or issued amount of, any class or series of stock ranking prior
to the Convertible Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up; (ii)
authorize, create or issue, or increase the authorized or issued amount of,
any class or series of stock (including any class or series of preferred
stock) which ranks on a parity with the Convertible Preferred Stock as to
dividends upon liquidation, dissolution or winding up ("Parity Stock") unless
the Certificate of Incorporation or certificate creating or authorizing such
class or series provide that if in any case the stated dividends or amounts
payable upon liquidation, dissolution or winding up are not paid in full on
the Convertible Preferred Stock and all outstanding shares of Parity Stock,
the shares of all Parity Stock shall share ratably in the payment of
dividends, including accumulations (if any) in accordance with the sums which
would be payable on all Parity Stock if all dividends in respect of all shares
of Parity Stock were paid in full, and on any distribution of assets upon
liquidation, dissolution or winding up ratably in accordance with the sums
which would be payable in respect of all shares of Parity Stock if all sums
payable were discharged in full; or (iii) amend, alter or repeal the
provisions of the Certificate of Incorporation, whether by merger,
consolidation or otherwise, so as to materially and adversely affect any
right, preference, privilege or voting power of such shares of Convertible
Preferred Stock or the holders thereof; provided, however, that any increase
in the amount of the authorized preferred stock or any outstanding series of
preferred stock or any other capital of Matewan, or the creation and issuance
of other series of preferred stock or any outstanding series of preferred
stock or any other capital of Matewan, or the creation and issuance of other
series of preferred stock including Convertible Preferred Stock, or of any
other capital stock of Matewan, in each case ranking on a parity with or
junior to the Convertible Preferred Stock with respect to the payment of
dividends and the distribution of assets upon liquidation, dissolution or
winding up shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Convertible Preferred Stock shall have
been redeemed or sufficient funds shall have been deposited in trust to effect
such redemption.
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Other Aspects. It is Matewan's intention that the Convertible Preferred
Stock offered hereby will qualify as Tier 1 capital under the Federal Reserve
Board's capital adequacy guidelines for bank holding companies. (See "Pro
Forma Financial Information.") Under regulations recently adopted by the
Federal Reserve Board, in order for perpetual preferred stock so to qualify,
any redemption of such stock by Matewan must be subject to prior Federal
Reserve Board approval unless the Federal Reserve Board determines that such
approval is not required.
Matewan has applied for listing of the Convertible Preferred Stock on the
Nasdaq SmallCap Market. Wachovia Bank of North Carolina, N.A., will serve as
transfer agent of the Convertible Preferred Stock.
CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS
There are provisions in Delaware law and in Matewan's Certificate of
Incorporation and Bylaws which are intended to discourage non-negotiated
takeover attempts. These provisions are intended to avoid costly takeover
battles and lessen Matewan's vulnerability to a hostile change in control,
thereby enhancing the possibility that the Board of Directors can maximize
stockholder value in connection with an unsolicited offer to acquire Matewan.
However, anti-takeover provisions can also have the effect of depressing
Matewan's stock price because they are an impediment to potential investors
and their ability to gain control of Matewan, and thus discourage activities
such as unsolicited merger proposals, acquisitions or tender offers by which
stockholders might otherwise receive enhanced consideration for their shares.
Authorized Capital Stock. Matewan's Certificate of Incorporation authorizes
10,000,000 shares of Common Stock, of which 3,667,531 shares were outstanding
at December 31, 1995. The Certificate of Incorporation also authorizes
1,000,000 shares of Preferred Stock, of which 600,000 shares of Convertible
Preferred Stock will be issued and outstanding upon consummation of the
Offering. The remaining shares of authorized but unissued Common Stock and
Preferred Stock may be issued by the Board without further stockholder
approval, except as may be required with respect to a particular transaction
by applicable law or by regulatory agencies having jurisdiction over Matewan
and could be utilized to deter future attempts to gain control of Matewan.
Vote Required for Certain Actions. Matewan's Certificate of Incorporation
contains a provision which provides that certain business combinations require
the affirmative vote of at least 66 2/3% of the Company's outstanding shares
of voting stock. These "supermajority" voting requirements could result in the
Company's Board and management exercising a stronger influence over any
proposed takeover by refusing to approve a business combination and by
obtaining sufficient additional votes, including votes obtained through the
issuance of additional shares to parties friendly to their interests, to
preclude the 66 2/3% stockholder approval requirement. Matewan's Certificate
of Incorporation also provides that the provisions designed to protect Matewan
from unfriendly takeover attempts can only be amended by an affirmative vote
of at least 66 2/3% of Matewan's outstanding shares of voting stock.
Constituency Provision. Another provision of Matewan's Certificate of
Incorporation requires the Company's Board of Directors, when evaluating
merger proposals, tender offers or similar proposals to consider factors other
than economic benefit to stockholders, examples of which include, without
limitation, the following: the social and economic impact the acquisition of
Matewan would have on the community it serves and the effect of the
acquisition upon employees, depositors, customers and vendors. Additionally,
provisions in the Certificate of Incorporation set forth certain actions which
Matewan's Board of Directors may take in opposition to an offer to acquire
Matewan. These provisions permit Matewan's Board of Directors to recognize its
responsibilities to these constituent groups, to Matewan and its subsidiaries
and to the communities they serve.
Section 203. Section 203 of the Delaware General Corporation Law ("Section
203") would prohibit a "business combination" (as defined in Section 203,
generally including mergers, sales and leases of assets, issuances of
securities, and similar transactions) by the Company or a subsidiary with an
"interested shareholder" (as defined in Section 203, generally the beneficial
owner of 15% or more of the Common Stock)
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within three years after the person or entity becomes an interested
shareholder, unless (i) prior to the person or entity becoming an interested
shareholder, the business combination or the transaction pursuant to which
such person or entity became an interested shareholder shall have been
approved by the Company's Board of Directors, (ii) upon consummation of the
transaction in which he became an interested shareholder, the interested
shareholder holds at least 85% of the Common Stock (excluding shares held by
persons who are both officers and directors and shares held by certain
employee benefit plans) or (iii) the business combination is approved by the
Company's Board of Directors and by the holders of at least two-thirds of the
outstanding Common Stock, excluding shares owned by the interested
shareholder.
One of the effects of Section 203 may be to prevent highly leveraged
takeovers, which depend upon getting access to the acquired corporation's
assets to support or repay the debt and to prevent certain coercive
acquisition tactics. By requiring approval of the holders of two-thirds of the
shares held by disinterested shareholders for business combinations involving
an interested shareholder, Section 203 may prevent any interested shareholder
from taking advantage of its position as a substantial, if not controlling,
shareholder and engaging in transactions with the Company that may not be fair
to the Company's other shareholders or that may otherwise not be in the best
interests of the Company, its shareholders, and other constituencies.
For similar reasons, however, these provisions may make more difficult or
discourage an acquisition of the Company, or the acquisition of control of the
Company by a principal shareholder, and thus the removal of incumbent
management, since a business combination within the specified three-year
period that is not approved by a majority of the Board of Directors prior to
the transaction in which a person becomes an interested shareholder will
require the approval of the Board of Directors and the holders of two-thirds
of the shares held by disinterested shareholders. In addition, to the extent
that Section 203 discourages takeovers that would result in the change of the
Company's management, such a change may be less likely to occur.
CERTAIN INCOME TAX CONSEQUENCES
GENERAL
The following summary of certain federal income tax consequences of the
purchase, ownership, and disposition of shares of the Convertible Preferred
Stock is for general information only, and is not tax advice. Except where
noted, the summary deals only with shares of Convertible Preferred Stock held
by United States holders and does not deal with special situations, including,
without limitation, the ownership of shares of Convertible Preferred Stock by
S corporations, exempt organizations, dealers in securities, insurance
companies, foreign persons, tax exempt organizations or financial
institutions. Furthermore, the discussion below is based upon the provisions
of the Code and regulations, rulings and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified so
as to result in federal income tax consequences different from those discussed
below. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF
CONVERTIBLE PREFERRED STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS,
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION AND ANY CHANGES IN APPLICABLE LAWS.
FEDERAL TAXES
Distributions. Distributions on the shares of Convertible Preferred Stock
(other than distributions of Common Stock pursuant to the exercise of
conversion rights and distributions in redemption of the shares of Convertible
Preferred Stock subject to section 302(b) of the Code) will constitute
dividends for federal income tax purposes to the extent paid from current or
accumulated earnings and profits of the Company (as determined under federal
income tax principles). In general, a corporate holder of preferred stock that
owns less than 20.0% of the stock of the issuer (excluding for purposes of
determining such percentage stock described in section 1504(a)94) of the Code)
may deduct from its income 70.0% of dividends received on such stock (the
"dividends received deduction"). Under pending legislative proposals, the
dividends received deduction would be reduced to 50.0% with respect to
dividends paid after January 31, 1996. Any corporate holder of shares of
Convertible
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Preferred Stock that is otherwise eligible for the dividends received
deduction will be allowed that deduction with respect to dividends paid on the
Convertible Preferred Stock.
Any distributions on the Convertible Preferred Stock in excess of the
Company's current and accumulated earnings and profits will, to that extent,
not be eligible for the dividends received deduction. Such excess will
generally be treated as a tax-free return of capital to the extent of a
holder's basis in its shares of Convertible Preferred Stock. Distributions
that are treated as a return of capital will reduce a holder's basis in the
shares of Convertible Preferred Stock and may subject the holder to tax, at
ordinary or capital gain rates, when distributions are made in excess of the
holder's remaining basis in its shares of Convertible Preferred Stock or if
there is a subsequent sale or redemption of the holder's shares of Convertible
Preferred Stock. Under present law, the net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) of an individual
taxpayer is subject to tax at a rate of 28.0% if that rate is lower than the
individual's regular tax rate, but the net capital gain of a corporation is
taxed at the same rate as ordinary income with graduated rates up to 35.0%.
Under pending legislative proposals, the net capital gain of a corporation
would be subject to an alternative rate of 28.0% if that rate is less than the
corporation's regular tax rate, and an individual taxpayer would be allowed a
deduction for 50.0% of net capital gain, so that the effective tax rate on the
net capital gain of an individual in the highest marginal rate bracket of
39.6% would be 19.8%.
The Code contains several limitations on the availability of the dividends
received deduction that would apply even if distributions on the Convertible
Preferred Stock do not exceed the Company's current or accumulated earnings
and profits. Section 246A of the Code reduces the dividends received deduction
allowed to a corporate holder that has incurred indebtedness "directly
attributable" to its investment in portfolio stock. Section 246(c) of the Code
requires that, in order to be eligible for the dividends received deduction, a
corporation must generally hold the shares of preferred stock for a 46-day
minimum holding period (91 days if the corporation receives dividends on
preferred stock which are attributable to a period or periods aggregating in
excess of 366 days). That section excludes from such holding period any period
during which a holder has certain options or contractual obligations with
respect to substantially identical stock and grants the Internal Revenue
Service broad authority to promulgate prospective regulations excluding from a
holding period any period during which a holder has diminished its risk of
loss by holding one or more other positions with respect to substantially
identical stock. Furthermore, section 1059 of the Code limits the benefit of
the dividends received deduction by requiring a corporate holder that receives
certain "extraordinary dividends" to reduce its basis in the shares of
preferred stock with respect to which the dividend was received by the untaxed
portion of the dividend. Under present law, if the reduction in basis of stock
exceeds the basis in the stock with respect to which an extraordinary dividend
is received, the excess is taxed as gain when such stock is sold or exchanged.
Under pending legislative proposals, such a reduction in basis would result in
immediate gain recognition.
Redemption Premium. Under section 305 of the Code and the Treasury
Regulations thereunder, if the redemption price of shares of preferred stock
exceeds the issue price by more than a de minimis amount, the excess may be
taxable as a constructive distribution of additional stock to the holder taken
into account under principles similar to those applicable to original issue
discount on debt instruments. If such a constructive distribution were to
occur, a holder could be required to recognize ordinary income for tax
purposes without receiving a corresponding distribution of cash. An issuer's
right to redeem stock results in constructive distribution treatment only if,
based on all the facts and circumstances as of the issue date, redemption
pursuant to the right is more likely than not to occur. Under a safe harbor in
the regulations, an issuer's right to redeem is not treated as more likely
than not to occur if (i) the issuer and the holder are not related by more
than 20.0% common ownership, (ii) there are no plans, arrangements or
agreements that effectively require or are intended to compel the issuer to
redeem and (iii) exercise of the right to redeem would not reduce the yield of
the stock, as determined under principles similar to those applicable to
original issue discount on debt instruments. However, even if redemption is
more likely than not to occur, constructive distribution treatment does not
apply if the redemption premium is solely in the nature of a penalty for
premature redemption and is paid as a result of changes in economic or market
conditions over which neither the issuer nor the holder has legal or practical
control. The Company believes that the redemption premium on the Convertible
Preferred Stock should not be
60
<PAGE>
considered to result in constructive distribution treatment. However, no
assurance can be given that such position will not be challenged, or, if
challenged, will be upheld. If the redemption premium were considered to
result in a constructive distribution, the amount deemed to be received by the
holder in any period would be treated as a dividend taxable as ordinary income
to the extent of the Company's earnings and profits, subject to the rules
relating to the dividends received deduction discussed above (including the
rules of section 1059 of the Code relating to extraordinary dividends), and
the excess would be treated as a return of capital to the extent of the
holder's tax basis in the Convertible Preferred Stock, and as a gain to the
extent it exceeds such basis.
Redemption. A redemption of shares of Convertible Preferred Stock for cash
will be a taxable event to a holder thereof. A redemption of shares of
Convertible Preferred Stock for cash will be treated as a distribution that is
taxable as a dividend to the extent of the Company's current or accumulated
earnings and profits under section 302 of the Code, unless, taking into
account the attribution of ownership rules of section 318 of the Code, the
redemption (i) results in a "complete redemption" of all of the stock of the
Company owned by the stockholder under section 302(b)(3) of the Code, (ii) is
"substantially disproportionate" with respect to the stockholder under section
302(b)(2) of the Code or (iii) is "not essentially equivalent to a dividend"
with respect to the stockholder under section 302(b)(1) of the Code. If any of
such tests is met, a redemption of the shares of Convertible Preferred Stock
will result in a gain or loss equal to the difference between the amount of
cash received (less any portion thereof attributable to declared but unpaid
dividends, which will generally be taxable as ordinary dividend income) and
the holder's tax basis in the shares of Convertible Preferred Stock redeemed.
Such gain or loss will be a capital gain or loss if the shares of Convertible
Preferred Stock were held as capital assets. If none of such tests is met, the
full amount received in the redemption will be treated as a dividend taxable
as ordinary income to the extent of the Company's earnings and profits,
subject to the rules relating to the dividends received deduction discussed
above (including the rules of section 1059 of the Code relating to
extraordinary dividends), and the excess will be treated as a return of
capital to the extent of the holder's tax basis in the Convertible Preferred
Stock, and as a gain to the extent it exceeds such basis.
Conversion to Common Stock. Except for cash paid in lieu of fractional
shares of Common Stock, no gain or loss will be recognized on a conversion of
shares of Convertible Preferred Stock into shares of Common Stock. Dividend
income may be recognized, however, to the extent cash or Common Stock is
received in payment of dividends in arrears. The tax basis for the shares of
Common Stock received upon conversion (other than shares, if any, taxed as a
dividend upon receipt) will be equal to the tax basis of the shares of
Convertible Preferred Stock converted, less the reduction in basis
attributable to fractional shares, and, provided that the shares of
Convertible Preferred Stock were held as capital assets, the holding period of
the shares of Common Stock will include the holding period of the shares of
Convertible Preferred Stock converted.
Adjustment of Conversion Price. Adjustments to the conversion price of the
shares of Convertible Preferred Stock to reflect certain distributions with
respect to the Common Stock may result in constructive distributions taxable
to the holders of the shares of Convertible Preferred Stock as a dividend. If
such a constructive distribution were to occur, a holder of Convertible
Preferred Stock could be required to recognize ordinary income for tax
purposes, without receiving a corresponding distribution of cash.
Backup Withholding. A holder of shares of Convertible Preferred Stock may be
subject to backup withholding at the rate of 31.0% with respect to dividends
or the proceeds of a sale, exchange or redemption of shares of Convertible
Preferred Stock if such holder fails to provide a taxpayer identification
number, fails to certify to exempt status or fails to report in full dividend
and interest income. Any amount withheld under the backup withholding rules
will be allowed as a refund or credit against such holder's federal income tax
liability, provided the required information is furnished to the Internal
Revenue Service.
STATE AND LOCAL TAXES
Persons purchasing Convertible Preferred Stock may be subject to state or
local taxation in various state or local jurisdictions, including those in
which they transact business or reside. The state and/or local tax treatment
of Persons purchasing Convertible Preferred Stock may not conform to the
federal income tax consequences
61
<PAGE>
discussed above. Consequently, prospective stockholders should consult their
own tax advisors regarding the effect of state and local tax laws on an
investment in Convertible Preferred Stock.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement between
Matewan and Wheat, First Securities, Inc. (the "Underwriter"), the Underwriter
has agreed to purchase from Matewan, and Matewan has agreed to sell to the
Underwriter, 600,000 shares of Convertible Preferred Stock.
The Underwriting Agreement provides that the obligations of the Underwriter
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the Underwriter's obligations is such
that it is committed to purchase and pay for all of the above shares of
Convertible Preferred Stock if any are purchased.
The Underwriter proposes to offer the shares of Convertible Preferred Stock
directly to the public at the public offering price set forth on the cover
page of this Prospectus and to certain securities dealers at such price less a
concession not in excess of $ per share of Convertible Preferred Stock. The
Underwriter may allow, and such selected dealers may re-allow, a concession
not in excess of $ per share of Convertible Preferred Stock to certain
brokers and dealers. After the Offering, the price to public, concessions and
reallowances to dealers may be changed by the Underwriter.
Matewan has granted the Underwriter an option, exercisable during the 30-day
period after the date of this Prospectus, to purchase up to a maximum of
90,000 additional shares of Convertible Preferred Stock to cover over-
allotments, if any, at the same price per share as the initial 600,000 shares
to be purchased by the Underwriter from Matewan. To the extent that the
Underwriter exercises this option, the Underwriter will be committed, subject
to certain conditions, to purchase such additional shares of Convertible
Preferred Stock. The Underwriter may purchase such shares only to cover over-
allotments made in connection with this Offering.
In connection with the Offering, the Underwriter may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in the Offering, in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Passive market making consists of displaying bids on the
Nasdaq National Market limited by the bid prices of independent market makers
and purchases limited by such prices and effected in response to order flow.
Net purchases by a passive market maker on each day are limited to a specific
percentage of the passive market maker's average daily trading volume in the
Common Stock during a specified prior period and must be discontinued when
such limit is reached. Passive market making may stabilize the market price of
the Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
The Company and the directors and executive officers of the Company have
agreed that, following the Offering, they will not dispose of any shares of
Common Stock or Convertible Preferred Stock (other than by gift to a person
who agrees not to sell or by operation of law) for a period of 180 days after
the date hereof without the prior written consent of the Underwriter.
Matewan has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), or to contribute to payments that the Underwriter may be
required to make in respect thereof.
The Underwriter provides investment banking and other services to the
Company on a regular basis. The Underwriter is acting as financial advisor to
the Company in connection with the Acquisition, for which services the
Underwriter will receive aggregate fees of $275,000, of which $50,000 has been
paid, and the remainder of which will be paid at consummation of the
Acquisition. The Company has also agreed to reimburse the Underwriter for its
reasonable out-of-pocket expenses in connection with such services, including,
without limitation, travel expenses and reasonable fees and disbursements of
its legal counsel.
62
<PAGE>
LEGAL MATTERS
The legality of the shares of the Convertible Preferred Stock offered hereby
will be passed upon by Jackson & Kelly, Charleston, West Virginia, counsel to
Matewan. Certain legal matters in connection with the Offering will be passed
on for the Underwriter by Alston & Bird, Washington, D.C.
EXPERTS
The consolidated financial statements of Matewan and its subsidiaries and of
Pikeville at December 31, 1994 and 1993 and for each of the three years in the
period ended December 31, 1994, included in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
Matewan is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments and supplements thereto, the "Registration
Statement") under the Securities Act, with respect to the Convertible
Preferred Stock. This Prospectus omits certain information contained in the
Registration Statement, certain items of which are contained in exhibits to
the Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
Convertible Preferred Stock, reference is made to the Registration Statement,
including the exhibits filed as a part thereof, which may be inspected at the
principal office of the Commission without charge at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at
its principal office at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed fees. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and, where the contract or the document has been filed
as an exhibit to the Registration Statement, each such statement is qualified
in all respects by reference to the applicable document filed with the
Commission.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993............. F-3
Consolidated Statements of Income for the Years Ended December 31, 1994,
1993 and 1992........................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992........................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Unaudited Interim Consolidated Financial Statements...................... F-18
Consolidated Balance Sheets as of September 30, 1995 and 1994
(Unaudited)............................................................. F-19
Consolidated Statements of Income for the Nine Months Ended September 30,
1995 and 1994 (Unaudited)............................................... F-20
Consolidated Statements of Shareholders' Equity for the Nine Months Ended
September 30, 1995 and 1994 (Unaudited)................................. F-21
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1995 and 1994 (Unaudited)........................................... F-22
Notes to Consolidated Financial Statements (Unaudited)................... F-23
</TABLE>
BANK ONE, PIKEVILLE, N.A.
<TABLE>
<S> <C>
Independent Auditors' Report............................................. F-25
Balance Sheets as of December 31, 1994 and 1993.......................... F-26
Statements of Income for the Years Ended December 31, 1994, 1993 and
1992.................................................................... F-27
Statements of Shareholder's Equity for the Years Ended December 31, 1994,
1993 and 1992........................................................... F-28
Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and
1992.................................................................... F-29
Notes to Financial Statements............................................ F-30
Unaudited Interim Financial Statements................................... F-39
Balance Sheets as of September 30, 1995 and 1994 (Unaudited)............. F-40
Statements of Income for the Nine Months Ended September 30, 1995 and
1994 (Unaudited)........................................................ F-41
Statements of Shareholder's Equity for the Nine Months Ended
September 30, 1995 and 1994 (Unaudited)................................. F-42
Statements of Cash Flows for the Nine Months Ended September 30, 1995 and
1994 (Unaudited)........................................................ F-43
Notes to Financial Statements (Unaudited)................................ F-44
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Matewan BancShares, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Matewan
BancShares, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Matewan
BancShares, Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for certain investment securities as of January 1, 1994.
/s/ Ernst & Young LLP
Charleston, West Virginia
February 1, 1995, except for Note 14,
as to which the date is May 19, 1995
F-2
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks.................................... $ 20,539 $ 17,584
Federal funds sold......................................... 4,770 14,032
-------- --------
Cash and cash equivalents.................................. 25,309 31,616
Interest bearing deposits in other banks................... 2,876 2
Marketable equity securities (cost of $990)................ -- 921
Investment securities:
Available-for-sale at fair value......................... 11,051 --
Held-to-maturity (approximate fair value of $95,904 and
$100,736 at December 31, 1994 and 1993)................. 98,930 98,814
Loans, net................................................. 214,744 195,853
Premises and equipment..................................... 9,252 7,634
Accrued interest receivable and other assets............... 9,248 8,109
-------- --------
Total assets........................................... $371,410 $342,949
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing..................................... $ 44,130 $ 45,461
Interest bearing......................................... 266,517 245,692
-------- --------
Total deposits......................................... 310,647 291,153
Short-term borrowings:
Repurchase agreements.................................... 12,089 5,876
Other.................................................... 2,908 5,714
Accrued interest payable and other liabilities............. 3,963 2,174
-------- --------
Total liabilities...................................... 329,607 304,917
SHAREHOLDERS' EQUITY
Preferred stock--$1.00 par value; 1,000,000 shares
authorized; none issued...................................
Common stock--$1.00 par value; 10,000,000 shares
authorized; 3,349,344 shares outstanding at December 31,
1994, including 15,640 treasury shares; 837,336 shares
outstanding at December 31, 1993, including 3,660 treasury
shares.................................................... 3,349 837
Capital surplus............................................ 6,460 8,972
Retained earnings.......................................... 32,185 28,322
Treasury stock............................................. (48) (30)
Net unrealized loss on available-for-sale securities....... (143) (69)
-------- --------
Total shareholders' equity............................. 41,803 38,032
-------- --------
Total liabilities and shareholders' equity............. $371,410 $342,949
======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans........................... $21,562 $20,066 $19,993
Interest and dividends on investment securities:
Taxable.............................................. 6,205 6,923 7,646
Tax-exempt........................................... 58 85 214
Federal funds sold and other........................... 699 354 591
------- ------- -------
Total interest income.................................. 28,524 27,428 28,444
Interest expense:
Deposits............................................. 10,096 9,539 11,254
Short-term borrowings................................ 447 235 377
------- ------- -------
Total interest expense................................. 10,543 9,774 11,631
------- ------- -------
Net interest income.................................... 17,981 17,654 16,813
Provision for loan losses.............................. 1,643 1,285 1,343
------- ------- -------
Net interest income after provision for loan losses.... 16,338 16,369 15,470
Other income:
Service charges and fees............................. 1,624 1,504 1,252
Credit life insurance commissions.................... 690 637 740
Gain on sale of assets............................... -- 32 236
Other................................................ 488 222 181
------- ------- -------
Total other income..................................... 2,802 2,395 2,409
Other expenses:
Salaries and employee benefits....................... 4,991 4,880 4,275
Net occupancy........................................ 626 481 556
Advertising.......................................... 543 485 463
Federal deposit insurance and regulatory
assessments......................................... 757 718 691
Other................................................ 4,342 3,808 3,912
------- ------- -------
Total other expenses................................... 11,259 10,372 9,897
------- ------- -------
Income before income taxes............................. 7,881 8,392 7,982
Applicable income taxes................................ 2,876 3,269 2,919
------- ------- -------
Net income............................................. $ 5,005 $ 5,123 $ 5,063
======= ======= =======
Net income per common share............................ $ 1.36 $ 1.40 $ 1.38
======= ======= =======
Average common shares outstanding...................... 3,668 3,668 3,668
======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSS ON
AVAILABLE-
COMMON CAPITAL RETAINED FOR-SALE
STOCK SURPLUS EARNINGS TREASURY STOCK SECURITIES TOTAL
------ ------- -------- -------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1992................... $ 209 $9,600 $20,220 $(30) $ (39) $29,960
Net income--1992........ -- -- 5,063 -- -- 5,063
Dividends on common
stock ($.28 per
share)................. -- -- (1,042) -- -- (1,042)
Change in net unrealized
loss on marketable
equity securities...... -- -- -- -- (29) (29)
------ ------ ------- ---- ----- -------
Balances at December 31,
1992................... 209 9,600 24,241 (30) (68) 33,952
Net income--1993........ -- -- 5,123 -- -- 5,123
Dividends on common
stock ($.28 per
share)................. -- -- (1,042) -- -- (1,042)
Four-for-one stock split
in the form of a 300%
stock dividend......... 628 (628) -- -- -- --
Change in net unrealized
loss on marketable
equity securities...... -- -- -- -- (1) (1)
------ ------ ------- ---- ----- -------
Balances at December 31,
1993................... 837 8,972 28,322 (30) (69) 38,032
Adjustment to beginning
balance for change in
accounting method, net
of deferred income
taxes.................. -- -- -- -- 127 127
Net income--1994........ -- -- 5,005 -- -- 5,005
Dividends on common
stock ($.31 per
share)................. -- -- (1,142) -- -- (1,142)
Four-for-one stock split
in the form of a 300%
stock dividend......... 2,512 (2,512) -- -- -- --
Change in net unrealized
loss on available-for-
sale securities, net of
deferred income taxes.. -- -- -- -- (201) (201)
Acquisition of treasury
shares................. -- -- -- (18) -- (18)
------ ------ ------- ---- ----- -------
Balances at December 31,
1994................... $3,349 $6,460 $32,185 $(48) $(143) $41,803
====== ====== ======= ==== ===== =======
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 5,005 $ 5,123 $ 5,063
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 658 593 599
Amortization..................................... 547 480 472
Provision for loan losses........................ 1,643 1,285 1,343
Deferred income taxes (benefit).................. 140 (204) (145)
Gain on sale of assets........................... (117) (33) (236)
Net change in accrued interest receivable and
other assets.................................... (1,432) (6) 829
Net change in accrued interest payable and other
liabilities..................................... 1,790 19 (381)
------- ------- -------
Net cash provided by operating activities.......... 8,234 7,257 7,544
INVESTING ACTIVITIES
Proceeds from maturities of available-for-sale
securities........................................ 25,937 -- --
Purchases of available-for-sale securities......... (5,971) -- --
Proceeds from maturities of held-to-maturity
securities........................................ 10,000 -- --
Purchases of held-to-maturity securities........... (40,680) -- --
Proceeds from maturities of investment securities.. -- 52,567 45,928
Purchases of investment securities................. -- (45,382) (46,886)
Net change in interest bearing deposits in other
banks............................................. (2,874) 121 --
Net change in loans................................ (20,535) (24,373) (6,010)
Purchases of premises and equipment................ (2,346) (1,028) (497)
Proceeds from sale of premises and equipment....... 187 20 225
------- ------- -------
Net cash used in investing activities.............. (36,282) (18,075) (7,240)
FINANCING ACTIVITIES
Net change in deposits............................. 19,494 10,036 9,845
Net change in short-term borrowings................ 3,407 (342) (8,131)
Repayment of notes payable......................... -- -- (42)
Cash dividends paid................................ (1,142) (1,042) (1,042)
Purchase of treasury stock......................... (18) -- --
------- ------- -------
Net cash provided by financing activities.......... 21,741 8,652 630
------- ------- -------
(Decrease) increase in cash and cash equivalents... (6,307) (2,166) 934
Cash and cash equivalents at beginning of year..... 31,616 33,782 32,848
------- ------- -------
Cash and cash equivalents at end of year........... $25,309 $31,616 $33,782
======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Matewan BancShares, Inc. and its
Subsidiaries (the Company) conform to generally accepted accounting principles
and to general practices within the banking industry. The following is a
summary of the more significant policies.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Matewan BancShares, Inc. and its wholly-owned subsidiaries, Matewan National
Bank, Matewan Bank, FSB, and Matewan Venture Fund, Inc. The Company considers
all of its principal business activities to be bank related. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash and
due from banks and federal funds sold as cash and cash equivalents.
Investment Securities
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of
deferred income taxes, reported in a separate component of shareholders'
equity. The Company does not hold investment securities for trading purposes.
Marketable equity securities consist of an equity interest in mutual funds,
the assets of which are principally U. S. Government securities. To reduce the
carrying amount of the marketable equity securities to their fair value, a
valuation allowance representing the net unrealized loss on such securities
has been established as a component of shareholders' equity. During 1994, the
marketable equity securities, along with the corresponding unrealized loss,
have been reclassified as available-for-sale investment securities.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Realized gains and losses and declines in value
judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the specific identification
method.
Allowance for Loan Losses
In evaluating the adequacy of the allowance for loan losses, management
considers all significant factors that affect the collectibility of the loan
portfolio. The provision for loan losses included in the statements of income
is based upon senior management's review of the loan portfolio, historical
charge-off experience, composition and recent performance of the loan
portfolio, loan volume, current economic conditions, and other relevant
factors. These provisions, less net charge-offs, comprise the allowance for
loan losses. In management's judgment, the allowance for loan losses is
maintained at a level adequate to provide for potential losses on existing
loans.
F-7
<PAGE>
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed principally on the straight-line method over
the estimated useful lives of the assets.
Income Taxes
Deferred income taxes are provided for temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements at the statutory tax rate. The Company and its subsidiaries file
consolidated federal and state income tax returns. Each subsidiary provides
for income taxes on a separate return basis and remits amounts determined to
be currently payable to the Company.
Revenue Recognition
Interest on loans is accrued and credited to operations based upon the
principal amount outstanding. The accrual of interest income generally is
discontinued when a loan becomes 90 days past due as to principal or interest.
When interest accruals are discontinued, unpaid interest credited to income in
the current year is reversed, and interest accrued in prior years is charged
to the allowance for loan losses. Management may elect to continue the accrual
of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest, and the loan
is in the process of collection.
Credit life insurance commissions on loans (principally short-term
installment loans) are being recognized as collected. The use of this method
of recognition does not produce results which are materially different from
that which would have been produced if such commissions were deferred and
amortized as an adjustment of loan yield over the life of the related loan.
Employee Benefit Plan
The Company has a defined benefit pension plan covering substantially all
employees (see Note 11). Pension costs are actuarially determined and charged
to expense. The Company provides no post-employment or post-retirement
benefits other than pension benefits.
Net Income Per Common Share
Net income per common share is computed based on the weighted average number
of common shares outstanding during the applicable period.
2. ACQUISITION ACTIVITY
In 1994, the Company contributed capital of $4,000 to form Matewan Bank, FSB
(FSB), a wholly-owned federal savings bank subsidiary of the Company. FSB
began operations on January 3, 1994, and total assets approximated $21,300 at
December 31, 1994.
The Company has acquired banks in prior years in acquisitions accounted for
using the purchase method of accounting. The purchase prices were allocated to
the identifiable tangible and intangible assets acquired and liabilities
assumed based upon their estimated fair value at the date of consummation.
Intangible assets representing the present value of future net income to be
earned from deposits acquired of approximately $2,730 are being amortized on a
straight-line basis over a period approximating the expected run-off of the
related deposits. Accumulated amortization approximated $877 and $686 at
December 31, 1994 and 1993, respectively.
3. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The bank subsidiary of the Company is required to maintain average reserve
balances with the Federal Reserve Bank or as cash in its vault. The average
amount of those reserve balances for the year ended December 31, 1994,
approximated $3,100.
F-8
<PAGE>
4. INVESTMENT SECURITIES
The Company adopted the provisions of Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," as of January 1, 1994. In accordance with the Statement, prior
period financial statements have not been restated to reflect the change in
accounting principle. The balance of shareholders' equity was increased by
approximately $127, net of deferred income taxes to reflect the net unrealized
holding gains on securities classified as available-for-sale previously
carried at amortized cost or lower of cost or market.
The following is a summary of available-for-sale securities and held-to-
maturity securities:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury securities and
obligations of U.S. government
agencies........................ $ 8,988 $ -- $ (36) $ 8,952
Other securities................. 2,280 -- (181) 2,099
------- ------ ------- --------
Total.......................... $11,268 $ -- $ (217) $ 11,051
======= ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury securities and
obligations of U.S. government
agencies........................ $88,668 $ 12 $(2,849) $ 85,831
Mortgage-backed securities....... 8,551 41 (218) 8,374
Obligations of states and
political subdivisions.......... 1,312 10 (23) 1,299
Other securities................. 399 1 -- 400
------- ------ ------- --------
Total.......................... $98,930 $ 64 $(3,090) $ 95,904
======= ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U.S. Treasury securities and
obligations of U.S. government
agencies........................ $86,741 $1,660 $ (65) $ 88,336
Mortgage-backed securities....... 10,282 299 -- 10,581
Obligations of states and
political subdivisions.......... 538 28 -- 566
Other securities................. 1,253 -- -- 1,253
------- ------ ------- --------
Total.......................... $98,814 $1,987 $ (65) $100,736
======= ====== ======= ========
</TABLE>
F-9
<PAGE>
The amortized cost and estimated fair values of investment securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay the obligations without prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
AVAILABLE-FOR-SALE
Due in one year or less.................................. $ 7,969 $ 7,934
Due after one year through five years.................... 1,019 1,018
Due after five years through ten years................... -- --
Due after ten years...................................... -- --
Equity securities........................................ 2,280 2,099
------- -------
$11,268 $11,051
======= =======
HELD-TO-MATURITY
Due in one year or less.................................. $26,734 $26,533
Due after one year through five years.................... 70,015 67,171
Due after five years through ten years................... 1,921 1,946
Due after ten years...................................... 260 254
------- -------
$98,930 $95,904
======= =======
</TABLE>
The Company sold no investment securities during the three years in the
period ended December 31, 1994.
At December 31, 1994 and 1993, investment securities with carrying amounts
of $35,570 and $19,905, respectively, were pledged to secure public deposits
and for other purposes.
5. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Commercial and financial loans........................... $ 64,821 $ 69,372
Real estate loans........................................ 76,908 66,638
Consumer loans........................................... 77,564 65,107
-------- --------
219,293 201,117
Less unearned income..................................... (1,617) (2,303)
-------- --------
217,676 198,814
Less allowance for loan losses........................... (2,932) (2,961)
-------- --------
Loans--net............................................... $214,744 $195,853
======== ========
</TABLE>
The Company grants commercial and financial, real estate, and consumer loans
primarily to customers in southern West Virginia and eastern Kentucky.
Although the Company has a diversified loan portfolio, a substantial portion
of its debtors' ability to honor their obligations is either directly or
indirectly dependent upon the coal industry. Substantially all loans
outstanding are collateralized by real estate, equipment, and personal
consumer goods.
The Company's subsidiaries have granted loans to officers and directors of
the Company and its subsidiaries and to their associates. Related party loans
were made on substantially the same terms, including interest rate and
collateral, as those prevailing at the same time for comparable transactions
with unrelated persons and do not involve more than normal risk of
collectibility.
F-10
<PAGE>
The following presents the activity with respect to related party loans:
<TABLE>
<S> <C>
Balance at January 1, 1994.......................................... $ 3,633
Loans made.......................................................... 2,713
Principal collected................................................. (2,138)
-------
Balance at December 31, 1994........................................ $ 4,208
=======
</TABLE>
6. ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year...................... $ 2,961 $ 2,470 $ 2,006
Loans charged off................................. (2,128) (1,214) (1,274)
Loan recoveries................................... 456 420 395
------- ------- -------
Net charge-offs................................... (1,672) (794) (879)
Provision charged to expense...................... 1,643 1,285 1,343
------- ------- -------
Balance at end of year............................ $ 2,932 $ 2,961 $ 2,470
======= ======= =======
</TABLE>
The Company will adopt Financial Accounting Standards Board Statement No.
114, "Accounting by Creditors for Impairment of a Loan," effective January 1,
1995. As a result of applying the new rules, certain impaired loans will be
reported at the present value of expected future cash flows discounted at the
loan's original effective interest rate, or as a practical expedient, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. The adoption of this standard will not have a
material impact on the Company's financial statements.
7. PREMISES AND EQUIPMENT
The major categories of premises and equipment and related accumulated
depreciation are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1993
------- -------
<S> <C> <C>
Land....................................................... $ 1,992 $ 1,992
Buildings and improvements................................. 8,910 6,708
Furniture and equipment.................................... 3,680 2,921
Construction in progress................................... -- 711
------- -------
14,582 12,332
Less accumulated depreciation.............................. (5,330) (4,698)
------- -------
$ 9,252 $ 7,634
======= =======
</TABLE>
The Company has entered into noncancelable lease agreements (operating
leases) with respect to certain premises and equipment. The minimum annual
rental commitment under these operating leases is: 1995--$280; 1996--$280;
1997--$265; 1998--$130; 1999--$120; with $2,715 of commitments extending
beyond 1999.
Total rent expense, including cancelable and noncancelable leases,
approximated $380, $280, and $210 in 1994, 1993, and 1992.
F-11
<PAGE>
8. SHORT-TERM BORROWINGS
The Company's banking subsidiaries are members of the Federal Home Loan Bank
(FHLB) (Pittsburgh and Cincinnati). One benefit of the banking subsidiaries'
membership in the FHLB is the availability of short-term and long-term
funding, in the form of collateralized advances. The available line of credit
at prevailing market interest rates, at December 31, 1994, approximates
$80,000.
Short-term borrowings consist primarily of commercial repurchase agreements
and other short-term deposits. The weighted average interest rate on short-
term borrowings approximated 3.24% and 2.70% at December 31, 1994 and 1993.
Interest paid on deposits and short-term borrowings approximated $10,365,
$9,895, and $12,125 in 1994, 1993 and 1992.
9. RESTRICTIONS ON SUBSIDIARY DIVIDENDS
The primary source of funds for dividends paid by the Company to its
shareholders is dividends received from its bank subsidiary, Matewan National
Bank. Dividends paid by the Bank are subject to restriction by banking
regulations. The restrictive provision requires approval by the Comptroller of
the Currency if dividends declared in any year exceed the current year's net
income, plus the retained net profits of the two preceding years. During 1995,
the Bank's net retained profits available for distribution to the Company as
dividends, without regulatory approval, approximate $3,050 plus net income for
the interim period through the date of declaration.
10. INCOME TAXES
The income tax provision included in the consolidated statements of income
is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................. $2,335 $2,994 $2,682
State............................................... 401 479 382
------ ------ ------
Total current......................................... 2,736 3,473 3,064
Deferred:
Federal............................................. 118 (173) (115)
State............................................... 22 (31) (30)
------ ------ ------
Total deferred........................................ 140 (204) (145)
------ ------ ------
Total................................................. $2,876 $3,269 $2,919
====== ====== ======
</TABLE>
The Company incurred no taxes related to securities transactions during the
three year period ended December 31, 1994.
A reconciliation between the amount of reported income tax expense and the
amount computed by applying the statutory federal income tax rate to income
before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory
federal rate.............. $2,679 34.0% $2,853 34.0% $2,714 34.0%
Plus: State income tax net
of federal tax benefits... 280 3.6 317 3.8 232 2.9
------ ---- ------ ---- ------ ----
2,959 37.6 3,170 37.8 2,946 36.9
Increase (decrease) in
taxes resulting from:
Tax-exempt interest...... (34) (.5) (46) (.5) (89) (1.1)
Other.................... (49) (.6) 145 1.7 62 .8
------ ---- ------ ---- ------ ----
Actual tax expense......... $2,876 36.5% $3,269 39.0% $2,919 36.6%
====== ==== ====== ==== ====== ====
</TABLE>
F-12
<PAGE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1993
------ ------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................... $ 732 $ 788
Accrued employee benefits................................... 138 177
Available-for-sale investments.............................. 74 --
Other....................................................... 7 --
------ ------
Total deferred tax assets..................................... 951 965
Deferred tax liabilities:
Intangible assets........................................... 347 324
Premises and equipment...................................... 119 90
Other....................................................... 91 91
------ ------
Total deferred tax liabilities................................ 557 505
------ ------
Net deferred tax assets....................................... $ 394 $ 460
====== ======
</TABLE>
Income taxes paid approximated $1,825, $3,300, and $2,675 in 1994, 1993, and
1992.
11. EMPLOYEE BENEFIT PLAN
The Company has a contributory defined benefit pension plan (the Plan)
covering substantially all of its employees. The benefits are based on years
of service and the employee's compensation at the date of retirement.
Employees contribute 3% of their wages to the Plan. The Company's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation................................ $1,624 $1,590
Nonvested benefit obligation............................. 29 37
------ ------
Accumulated benefit obligation............................. 1,653 1,627
Effect of estimated future pay increases................. 295 289
------ ------
Projected benefit obligation............................... 1,948 1,916
Plan assets at fair value.................................. 2,045 2,265
------ ------
Projected benefit obligation less than plan assets......... 97 349
Unrecognized prior service benefit......................... (275) (289)
Unrecognized net asset at transition, net of amortization.. (290) (310)
Unrecognized net loss from past experience different from
that assumed.............................................. 370 136
------ ------
Accrued pension cost included in other liabilities......... $ (98) $ (114)
====== ======
</TABLE>
F-13
<PAGE>
Following is a summary of the components of net periodic pension cost:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Service cost--benefits earned during the period........ $ 48 $ 44 $ 22
Interest cost on projected benefit obligation.......... 132 120 108
Actual loss (return) on plan assets.................... 93 (177) (163)
Net amortization and deferral.......................... (285) 2 9
----- ----- -----
Net periodic pension benefit........................... $ (12) $ (11) $ (24)
===== ===== =====
</TABLE>
At December 31, 1994 and 1993, a 7% weighted average discount rate and a 3%
rate of increase in future compensation levels was used to determine the
actuarial present value of the projected benefit obligation. The expected
long-term rate of return on plan assets for the three years ended December 31,
1994, was 7%. Plan assets consist principally of United States Treasury and
Agency securities, equity securities, mutual funds, and short-term investment
funds.
In 1994, the Company amended the benefit formula of the defined benefit
pension plan effective January 1, 1995, in conjunction with the formation of a
defined contribution plan. The Company expects to have the defined
contribution plan operational in early 1995.
12. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company offers certain financial
products to its customers to aid them in meeting their requirements for
liquidity, credit enhancement, and interest rate protection. Generally
accepted accounting principles require that these products be accounted for as
contingent liabilities and, accordingly, they are not reflected in the
accompanying financial statements. Following is a discussion of these
products.
Standby Letters of Credit: These agreements are used by the Company's
customers as a means of improving their credit standing in their dealings with
others. Under these agreements, the Company guarantees certain financial
commitments in the event that its customers are unable to satisfy their
obligations. The Company has issued standby letters of credit of approximately
$8,640 as of December 31, 1994.
Loan Commitments: At December 31, 1994, the Company had commitments
outstanding to extend credit of approximately $11,495. These commitments
generally require the customers to maintain certain credit standards.
The Company evaluates each customer's credit worthiness on a case-by-case
basis. Management generally requires collateral to secure these commitments.
The amount of collateral obtained by the Company is based upon management's
credit evaluation of the counterparty. Collateral held varies, but may include
deposits in financial institutions, accounts receivable, inventory, equipment,
and real estate.
Management conducts regular reviews of these commitments and the results are
considered in assessing the adequacy of the Company's allowance for loan
losses. Management does not anticipate any material losses as a result of
these standby letters of credit and loan commitments.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. Statement 107
excludes certain financial instruments and all
F-14
<PAGE>
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the balance
sheets for cash and cash equivalents approximate those assets' fair value.
Interest-Bearing Deposits in Other Banks: The carrying amounts reported
in the balance sheets for interest-bearing deposits in other banks
approximate those assets' fair value.
Investment Securities: Fair values for investment securities are based on
quoted market prices where available. If quoted market prices are not
available, fair values are based on quoted market prices of similar
instruments.
Loans: The fair values of fixed rate commercial, real estate, and
consumer loans are estimated using discounted cash flow analysis, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. For variable rate loans that reprice
frequently and with no significant change in credit risk, fair values are
based on carrying values.
Deposits: The estimated fair values of demand deposits (i.e. interest and
non-interest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to their carrying amounts. Fair values
for fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates, currently being offered
on certificates, to a schedule of aggregated expected monthly maturities on
time deposits.
Short-Term Borrowings: The carrying amounts in the balance sheets for
repurchase agreements and other short-term borrowings approximate those
liabilities' fair values.
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents............ $ 25,309 $ 25,309 $ 31,616 $ 31,616
Interest-bearing deposits in other
banks............................... 2,876 2,876 2 2
Marketable equity securities......... -- -- 921 921
Investment securities................ 109,981 106,955 98,814 100,736
Loans................................ 214,744 214,696 195,853 203,960
Financial liabilities:
Deposits............................. 310,647 310,540 291,153 291,160
Short-term borrowings................ 14,997 14,997 11,590 11,590
</TABLE>
14. STOCK SPLITS
On May 19, 1995, the Company's Board of Directors authorized a 10% common
stock dividend payable to shareholders of record on June 1, 1995. On April 12,
1994, the Company's Board of Directors authorized a four-for-one stock split
of common shares effected in the form of a 300% stock dividend to shareholders
of record on May 1, 1994. On April 13, 1993, the Company's Board of Directors
authorized a four-for-one stock split of common shares effected in the form of
a 300% stock dividend to shareholders of record on May 28, 1993. Average
shares outstanding and per share amounts included in the consolidated
financial statements and notes have been adjusted for the stock splits.
F-15
<PAGE>
15. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1993
------- -------
<S> <C> <C>
ASSETS
Cash........................................................ $ 87 $ 147
Investment securities--held to maturity..................... 1,380 --
Investment in banking subsidiaries.......................... 38,328 35,202
Investment in non-bank subsidiary........................... 1,658 1,664
Premises and equipment...................................... 58 709
Other assets................................................ 917 890
------- -------
Total assets................................................ $42,428 $38,612
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $ 137 $ 137
Note payable to non-bank subsidiary....................... 400 400
Other liabilities......................................... 88 43
------- -------
Total liabilities........................................... 625 580
Shareholders' equity........................................ 41,803 38,032
------- -------
Total liabilities and shareholders' equity.................. $42,428 $38,612
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Income:
Dividends from bank subsidiary.................. $ 5,808 $ 1,242 $ 1,042
Dividends from non-bank subsidiary.............. 64 255 25
Operating expenses, net........................... 59 1 57
------- ------- -------
Income before (excess dividends) equity in
undistributed earnings of subsidiaries........... 5,813 1,496 1,010
(Excess dividends) equity in undistributed
earnings of subsidiaries......................... (808) 3,627 4,053
------- ------- -------
Net income........................................ $ 5,005 $ 5,123 $ 5,063
======= ======= =======
</TABLE>
F-16
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................... $ 5,005 $ 5,123 $ 5,063
Adjustments to reconcile net income to net cash
provided by operating activities:
Excess dividends (equity in undistributed
earnings) of subsidiaries.................... 808 (3,627) (4,053)
Change in other assets........................ (27) (76) 27
Change in other liabilities................... 45 22 2
------- ------- -------
Net cash provided by operating activities....... 5,831 1,442 1,039
INVESTING ACTIVITIES
Maturity of interest-bearing deposit............ -- 122 --
Investment in subsidiary........................ (3,351) -- --
Return of investment from subsidiary............ -- 400 --
Purchases of premises and equipment............. -- (709) --
Purchase of investment securities............... (1,380) -- --
------- ------- -------
Net cash used in investing activities........... (4,731) (187) --
FINANCING ACTIVITIES
Cash dividends paid............................. (1,142) (1,042) (1,042)
Purchase of treasury stock...................... (18) -- --
Payment of note payable......................... -- (100) --
------- ------- -------
Net cash used in financing activities........... (1,160) (1,142) (1,042)
------- ------- -------
(Decrease) increase in cash..................... (60) 113 (3)
Cash at beginning of year....................... 147 34 37
------- ------- -------
Cash at end of year............................. $ 87 $ 147 $ 34
======= ======= =======
</TABLE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1994 and 1993 is summarized below:
<TABLE>
<CAPTION>
1994
-----------------------------------------
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income.................... $6,771 $6,917 $7,169 $7,667
Interest expense................... 2,464 2,552 2,698 2,829
Net interest income................ 4,307 4,365 4,471 4,838
Provision for loan losses.......... 451 482 360 350
Net income......................... 1,079 1,229 1,236 1,461
Earnings per share................. 0.29 0.34 0.34 0.40
</TABLE>
<TABLE>
<CAPTION>
1993
-----------------------------------------
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income.................... $6,796 $6,774 $7,002 $6,856
Interest expense................... 2,484 2,489 2,368 2,433
Net interest income................ 4,312 4,285 4,634 4,423
Provision for loan losses.......... 325 329 303 328
Net income......................... 1,224 1,270 1,460 1,169
Earnings per share................. 0.34 0.35 0.40 0.32
</TABLE>
F-17
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets (Unaudited)................................... F-19
Consolidated Statements of Income (Unaudited)............................. F-20
Consolidated Statements of Changes in Shareholders' Equity (Unaudited).... F-21
Consolidated Statements of Cash Flows (Unaudited)......................... F-22
Notes to Consolidated Financial Statements (Unaudited).................... F-23
</TABLE>
F-18
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks.................................... $ 15,335 $ 13,521
Federal funds sold......................................... 20,503 14,519
-------- --------
Cash and cash equivalents.................................. 35,838 28,040
Interest bearing deposits in other banks................... 675 3,304
Investment securities:
Available-for-sale at fair value......................... 9,032 9,782
Held-to-maturity at cost (approximate fair value $97,208
at September 30, 1995; $95,904 at December 31, 1994; and
$95,422 at September 30, 1994).......................... 96,565 97,082
Loans--net................................................. 228,274 210,539
Premises and equipment..................................... 9,742 8,763
Accrued interest receivable and other assets............... 9,387 8,780
-------- --------
Total assets........................................... $389,513 $366,290
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing..................................... $ 42,722 $ 41,855
Interest bearing......................................... 281,317 264,508
-------- --------
Total deposits......................................... 324,039 306,363
Short-term borrowings:
Repurchase agreements.................................... 13,968 13,071
Other.................................................... 3,755 2,520
-------- --------
Total short-term borrowings............................ 17,723 15,591
Accrued interest payable and other liabilities............. 3,286 3,406
-------- --------
Total liabilities...................................... 345,048 325,360
SHAREHOLDERS' EQUITY
Preferred Stock--$1.00 par value; 1,000,000 shares
authorized; none issued...................................
Common Stock--$1.00 par value; 10,000,000 shares
authorized; 3,684,104 shares outstanding at September 30,
1995, and 3,349,344 shares outstanding December 31, 1994
and September 30, 1994, including 16,253, 16,104 and
14,640 treasury shares ................................... 3,684 3,349
Surplus.................................................... 12,182 6,460
Retained earnings.......................................... 28,727 31,190
Treasury stock............................................. (68) (30)
Net unrealized loss on available-for-sale securities, net
of income taxes........................................... (60) (39)
-------- --------
Total shareholders' equity............................. 44,465 40,930
-------- --------
Total liabilities and shareholders' equity............. $389,513 $366,290
======== ========
</TABLE>
See notes to consolidated financial statements
F-19
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Interest income:
Interest and fees on loans.................................. $ 18,719 $ 15,698
Interest and dividends on investment securities:
Taxable..................................................... 4,651 4,660
Tax-exempt.................................................. 96 41
Other interest income......................................... 432 458
-------- --------
Total interest income......................................... 23,898 20,857
Interest expense:
Deposits.................................................... 8,885 7,430
Short-term borrowings....................................... 444 283
-------- --------
Total interest expense........................................ 9,329 7,713
-------- --------
Net interest income........................................... 14,569 13,144
Provision for loan losses..................................... 1,261 1,293
-------- --------
Net interest income after provision for loan losses........... 13,308 11,851
Other income:
Service fees................................................ 1,273 1,221
Other....................................................... 574 325
Credit life insurance commissions........................... 420 553
-------- --------
Total other income............................................ 2,267 2,099
Other expenses:
Salaries and employee benefits.............................. 4,581 3,754
Net occupancy............................................... 747 623
Advertising................................................. 556 359
Federal deposit insurance and regulatory assessments........ 378 568
Other....................................................... 3,699 3,102
-------- --------
Total other expense........................................... 9,961 8,406
-------- --------
Income before income taxes.................................... 5,614 5,544
Applicable income taxes....................................... 2,009 2,000
-------- --------
Net income.................................................... $ 3,605 $ 3,544
======== ========
Net income per share.......................................... $ 0.98 $ 0.97
======== ========
Average common shares outstanding............................. 3,668 3,668
======== ========
</TABLE>
See notes to consolidated financial statements
F-20
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSS ON
AVAILABLE-
COMMON CAPITAL RETAINED TREASURY FOR-SALE
STOCK SURPLUS EARNINGS STOCK SECURITIES TOTAL
------ ------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994.. $ 837 $ 8,972 $28,322 $(30) $ (69) $38,032
Adjustment to beginning
balance for change in
accounting method, net
of income tax effect.... -- -- -- -- 127 127
Dividends on Common Stock
($0.17 per share)....... -- -- (676) -- -- (676)
Change in net unrealized
loss on available-for-
sale securities, net of
deferred income tax
effect.................. -- -- -- -- (97) (97)
Net income............... -- -- 3,544 -- -- 3,544
Four-for-one stock split
in the form of a 300%
stock dividend.......... 2,512 (2,512) -- -- -- --
------ ------- ------- ---- ----- -------
Balance September 30,
1994.................... $3,349 $ 6,460 $31,190 $(30) $ (39) $40,930
====== ======= ======= ==== ===== =======
Balance January 1, 1995.. $3,349 $ 6,460 $32,185 $(48) $(143) $41,803
Treasury Stock
Purchases............... -- -- -- (46) -- (46)
Treasury Stock Sales..... -- 31 -- 26 -- 57
Change in net unrealized
loss on available-for-
sale securities, net of
deferred income taxes... -- -- -- -- 83 83
Dividends on Common Stock
($0.28 per share)....... -- -- (1,034) -- -- (1,034)
Net income............... -- -- 3,605 -- -- 3,605
Common Stock Dividend
(10%)................... 335 5,691 (6,026) -- -- --
Cash paid on fractional
shares.................. -- -- (3) -- -- (3)
------ ------- ------- ---- ----- -------
Balance September 30,
1995.................... $3,684 $12,182 $28,727 $(68) $ (60) $44,465
====== ======= ======= ==== ===== =======
</TABLE>
See notes to consolidated financial statements
F-21
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 3,605 $ 3,544
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 521 485
Amortization.................................... 470 429
Provision for loan losses....................... 1,261 1,293
Provision for deferred taxes.................... 4 32
Net change in accrued interest receivable and
other assets................................... (349) (736)
Net change in accrued interest payable and other
liabilities.................................... (681) 1,199
------------ ------------
Net cash provided by operating activities......... 4,831 6,246
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securi-
ties............................................. -- --
Proceeds from maturities of available-for-sale
securities....................................... 8,261 7,000
Proceeds from maturities of held-to-maturity
securities....................................... 34,742 18,138
Purchases of available-for-sale securities........ (6,089) (4,951)
Purchases of held-to-maturity securities.......... (32,696) (27,650)
Net change in interest bearing deposits in other
banks............................................ 2,201 (3,302)
Net change in loans............................... (14,791) (15,979)
Purchases of premises and equipment............... (1,181) (1,636)
Proceeds from sale of premises and equipment...... 170 22
------------ ------------
Net cash used in investing activities............. (9,383) (28,358)
FINANCING ACTIVITIES
Net change in deposits............................ 13,392 15,211
Net change in short-term borrowings............... 2,726 4,001
Cash dividends paid............................... (1,037) (676)
------------ ------------
Net cash provided by financing activities......... 15,081 18,536
------------ ------------
Increase (decrease) in cash and cash equivalents.. 10,529 (3,576)
Cash and equivalents at beginning of year......... 25,309 31,616
------------ ------------
Cash and equivalents at end of period............. $ 35,838 $ 28,040
============ ============
</TABLE>
See notes to consolidated financial statements
F-22
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1994
(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, 1995. For further information, refer to Matewan's
consolidated financial statements and footnotes thereto for the year ended
December 31, 1994 included elsewhere in this Prospectus.
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. The Company adopted Financial Accounting Standards Board Statement No.
114, "Accounting by Creditors for Impairment of a Loan," on January 1, 1995.
Statement No. 114 requires that impaired loans be measured based upon present
value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or fair value of collateral if the loan is collateral dependent. The
adoption and implementation of this standard has not had a material effect on
the Company's financial statements.
At September 30, 1995, the recorded investment in impaired loans under
Statement No. 114 was $3,426 (of which $246 were on a nonaccrual basis).
Included in this amount is $1,096 of impaired loans for which the related
allowance for credit losses is $290 and $2,330 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, 1995
approximated $3,368.
The Company recognizes interest income on impaired loans using the cash
basis method. For the nine month period ended September 30, 1995, the Company
recognized interest income on impaired loans of $174.
4. On May 19, 1995, the Board of Directors of Matewan BancShares, Inc.
authorized a ten percent (10%) common stock dividend to shareholders of record
as of June 1, 1995. Average shares outstanding and per share amounts included
in the consolidated financial statements and footnotes thereto have been
adjusted to reflect this stock dividend.
5. On September 28, 1995, the Company entered into a definitive agreement
with Banc One Corporation and Bank One Kentucky Corporation under which
Matewan BancShares, Inc. will acquire via cash purchase all of the outstanding
common stock of Bank One, Pikeville N.A. Bank One, Pikeville N.A. operates
eight offices and has total assets of approximately $221,019 and total
deposits of approximately $181,509. Consummation of the transaction is
expected in the first quarter of 1996.
F-23
<PAGE>
BANK ONE, PIKEVILLE, N.A.
FINANCIAL STATEMENTS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-25
Balance Sheets as of December 31, 1994 and 1993.......................... F-26
Statements of Income for the Years Ended December 31, 1994, 1993 and
1992.................................................................... F-27
Statements of Shareholder's Equity for the Years Ended December 31, 1994,
1993 and 1992........................................................... F-28
Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and
1992.................................................................... F-29
Notes to Financial Statements............................................ F-30
Unaudited Interim Financial Statements................................... F-39
Balance Sheets as of September 30, 1995 and 1994 (Unaudited)............. F-40
Statements of Income for the Nine Months Ended September 30, 1995 and
1994 (Unaudited)........................................................ F-41
Statements of Shareholders Equity for the Nine Months Ended
September 30, 1995 and 1994 (Unaudited)................................. F-42
Statements of Cash Flows for the Nine Months Ended September 30, 1995 and
1994 (Unaudited)........................................................ F-43
Notes to Financial Statements (Unaudited)................................ F-44
</TABLE>
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
Bank One, Pikeville, N.A.
We have audited the accompanying balance sheets of Bank One, Pikeville, N.A.
(a wholly-owned second tier subsidiary of BANC ONE CORPORATION) as of December
31, 1994 and 1993, and the related statements of income, shareholder's equity,
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bank One, Pikeville, N.A.
at December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Bank changed its
method of accounting for certain investment securities as of January 1, 1994.
As discussed in Note 10 to the financial statements, the Bank changed its
method of accounting for income taxes as of January 1, 1993.
/s/ Ernst & Young LLP
Charleston, West Virginia
December 29, 1995
F-25
<PAGE>
BANK ONE, PIKEVILLE, N.A.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,735 $ 8,879
Securities purchased under agreements to resell............. 1,123 --
-------- --------
Cash and cash equivalents................................... 7,858 8,879
Investment securities:
Available-for-sale at fair value.......................... 30,749 --
Held-to-maturity (approximate fair value of $10,646 and
$80,883 at
December 31, 1994 and 1993).............................. 10,666 78,282
Loans, net.................................................. 165,154 142,383
Premises and equipment...................................... 9,291 9,466
Accrued interest receivable and other assets................ 2,153 3,140
-------- --------
Total assets............................................ $225,871 $242,150
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deposits:
Non-interest bearing...................................... $ 27,497 $ 34,897
Interest bearing.......................................... 155,573 159,473
-------- --------
Total deposits.......................................... 183,070 194,370
Short-term borrowings:
Federal funds purchased and repurchase agreements......... 19,396 22,678
Other..................................................... 1,461 2,911
Accrued interest payable and other liabilities.............. 2,601 1,868
-------- --------
Total liabilities....................................... 206,528 221,827
Shareholder's equity:
Common stock--$10.00 par value; 500,000 shares authorized;
225,000
shares outstanding at December 31, 1994 and 1993.......... 2,250 2,250
Surplus.................................................... 4,436 4,436
Retained earnings.......................................... 12,760 13,637
Net unrealized loss on available-for-sale securities....... (103) --
-------- --------
Total shareholder's equity.............................. 19,343 20,323
-------- --------
Total liabilities and shareholder's equity.............. $225,871 $242,150
======== ========
</TABLE>
See notes to financial statements
F-26
<PAGE>
BANK ONE, PIKEVILLE, N.A.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans........................ $13,863 $11,925 $12,011
Interest and dividends on investment securities:
Taxable........................................... 3,096 4,755 5,139
Tax-exempt........................................ 346 500 482
Federal funds sold and securities purchased under
agreements to resell............................... 275 184 365
------- ------- -------
Total interest income............................... 17,580 17,364 17,997
Interest expense:
Deposits.......................................... 5,352 5,690 7,491
Short-term borrowings............................. 885 175 178
------- ------- -------
Total interest expense.............................. 6,237 5,865 7,669
------- ------- -------
Net interest income................................. 11,343 11,499 10,328
Provision for loan losses........................... 2,064 1,312 1,200
------- ------- -------
Net interest income after provision for loan
losses............................................. 9,279 10,187 9,128
Non-interest income:
Service charges and fees.......................... 826 809 812
Investment securities (losses) gains.............. (30) (1) 131
Other............................................. 333 418 344
------- ------- -------
Total non-interest income........................... 1,129 1,226 1,287
Non-interest expense:
Salaries and employee benefits.................... 3,708 3,969 4,266
Net occupancy..................................... 491 583 521
Equipment expense................................. 239 171 151
Supplies expense.................................. 173 173 147
Other taxes....................................... 226 228 205
Federal deposit insurance......................... 430 492 452
Outside services and processing................... 1,769 1,310 877
Communication and transportation.................. 282 286 312
Other............................................. 326 381 736
------- ------- -------
Total non-interest expense.......................... 7,644 7,593 7,667
------- ------- -------
Income before income taxes.......................... 2,764 3,820 2,748
Applicable income taxes............................. 840 1,200 800
------- ------- -------
Income before cumulative effect of a change in
accounting principle............................... 1,924 2,620 1,948
Cumulative effect on prior years (to December 31,
1992) of change in method of accounting for income
taxes.............................................. -- 272 --
------- ------- -------
Net income.......................................... $ 1,924 $ 2,348 $ 1,948
======= ======= =======
</TABLE>
See notes to financial statements
F-27
<PAGE>
BANK ONE, PIKEVILLE, N.A.
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
HOLDING
GAINS
(LOSSES) ON
AVAILABLE-
COMMON RETAINED FOR-SALE
STOCK SURPLUS EARNINGS SECURITIES TOTAL
------ ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1992....... $2,250 $4,436 $13,164 $ -- $19,850
Dividends on common stock......... -- -- (1,952) -- (1,952)
Net income--1992.................. -- -- 1,948 -- 1,948
------ ------ ------- ------- -------
Balances at December 31, 1992..... 2,250 4,436 13,160 -- 19,846
Dividends on common stock......... -- -- (1,871) -- (1,871)
Net income--1993.................. -- -- 2,348 -- 2,348
------ ------ ------- ------- -------
Balances at December 31, 1993..... 2,250 4,436 13,637 -- 20,323
Accounting change adjustment for
unrealized gains on securities
available for sale, net of taxes
at January 1, 1994............... -- -- -- 1,236 1,236
Dividends on common stock......... -- -- (2,801) -- (2,801)
Net income--1994.................. -- -- 1,924 -- 1,924
Change in unrealized holding
(losses) on securities, available
for sale, net of taxes........... -- -- -- (1,339) (1,339)
------ ------ ------- ------- -------
Balances at December 31, 1994..... $2,250 $4,436 $12,760 $ (103) $19,343
====== ====== ======= ======= =======
</TABLE>
See notes to financial statements
F-28
<PAGE>
BANK ONE, PIKEVILLE, N.A.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................... $ 1,924 $ 2,348 $ 1,948
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting for
income taxes................................. -- 272 --
Provision for loan losses..................... 2,064 1,312 1,200
Depreciation and amortization................. 537 527 605
Deferred income tax expense (benefit)......... 89 (87) (157)
Loss (gain) on sales of investment
securities................................... 30 1 (131)
Gain on sales of premises and equipment....... -- -- (16)
Decrease in accrued interest receivable and
other assets................................. 901 510 1,760
Increase (decrease) in accrued interest
payable and other liabilities................ 701 121 (951)
-------- -------- --------
Net cash provided by operating activities....... 6,246 5,004 4,258
INVESTING ACTIVITIES
Purchases of available-for-sale investment
securities..................................... (21,649) -- --
Proceeds from sales of available-for-sale
investment securities.......................... 41,519 -- --
Proceeds from maturities of available-for-sale
investment securities.......................... 12,334 -- --
Proceeds from maturities of held-to-maturity
investment securities.......................... 4,408 -- --
Purchases of investment securities.............. -- (23,465) (22,710)
Proceeds from sales of investment securities.... -- -- 9,839
Proceeds from maturities of investment
securities..................................... -- 19,744 7,478
Net (increase) decrease in loans made to
customers...................................... (24,689) (17,484) 471
Purchases of premises and equipment............. (357) (819) (257)
Proceeds from sales of premises and equipment... -- -- 24
-------- -------- --------
Net cash provided by (used in) investing
activities..................................... 11,566 (22,024) (5,155)
FINANCING ACTIVITIES
Net (decrease) increase in deposits............. (11,300) (12,507) 9,852
Net (decrease) increase in short-term
borrowings..................................... (4,732) 19,377 (1,409)
Cash dividends paid............................. (2,801) (1,871) (1,952)
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (18,833) 4,999 6,491
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents.................................... (1,021) (12,021) 5,594
Cash and cash equivalents at beginning of year.. 8,879 20,900 15,306
-------- -------- --------
Cash and cash equivalents at end of year........ $ 7,858 $ 8,879 $ 20,900
======== ======== ========
Supplemental information:
Interest paid................................. $ 6,119 $ 5,998 $ 8,193
Income taxes paid............................. 741 1,153 929
</TABLE>
See notes to financial statements
F-29
<PAGE>
BANK ONE, PIKEVILLE, N.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bank One, Pikeville, N.A. is a wholly-owned second tier subsidiary of BANC
ONE CORPORATION.
In 1989, the First National Bank of Pikeville was acquired by Key Centurion
Bancshares, Inc. (Key) in a purchase transaction. In May 1993, Key merged with
BANC ONE CORPORATION (the Parent) in a pooling of interests transaction. When
Key was merged into the Parent, the First National Bank of Pikeville was
renamed Bank One, Pikeville, N.A. (the Bank) and became a wholly-owned second
tier subsidiary of the Parent.
The accounting and reporting policies of the Bank conform to generally
accepted accounting principles and to general practices within the banking
industry. The Bank considers all of its principal business activities to be
bank related. The following is a summary of the more significant policies.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Bank considers cash and
due from banks and securities purchased under agreement to resell as cash and
cash equivalents.
Investment Securities
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of deferred income taxes, reported
in a separate component of shareholder's equity. The Bank does not hold
investment securities for trading purposes.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Realized gains and losses and declines in value
judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the security with the
highest cost basis unless the specific securities are identified.
Allowance for Loan Losses
In evaluating the adequacy of the allowance for loan losses, management
considers all significant factors that affect the collectibility of the loan
portfolio. The provision for loan losses included in the statements of income
is based upon senior management's review of the loan portfolio, historical
charge-off experience, composition and recent performance of the loan
portfolio, loan volume, current economic conditions, and other relevant
factors. These provisions, less net charge-offs, comprise the allowance for
loan losses. In management's judgment, the allowance for loan losses is
maintained at a level adequate to provide for potential losses on existing
loans.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed principally on the straight-line method over
the estimated useful lives of the assets.
F-30
<PAGE>
Income Taxes
Deferred income taxes are provided for temporary differences between the tax
basis of an asset or liability and its reported amount in the financial
statements at the statutory tax rate. The Parent and its subsidiaries file a
consolidated federal income tax return which includes the Bank. Each
subsidiary provides for income taxes on a separate return basis and remits
amounts determined to be currently payable to the Parent.
Revenue Recognition
Interest on loans is accrued and credited to operations based upon the
principal amount outstanding. Commercial loans are placed on nonaccrual at the
time the loan is 90 days delinquent unless the credit is well secured and in
the process of collection. Commercial loans are typically charged-off at the
time the loan becomes 180 days delinquent. Residential real estate loans are
typically placed on nonaccrual at the time the loan is 120 days delinquent.
Consumer loans are typically charged-off at 120 days delinquent. In all cases,
loans must be placed or nonaccrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful.
Interest Rate Swaps
Interest rate swap transactions are utilized as part of the Bank's interest
rate risk management strategy by hedging or synthetically altering on-balance
sheet instruments. The interest differential applicable to the interest rate
swaps which hedge or alter specific assets and liabilities is accrued over the
lives of the agreements and reported as an adjustment to the yield and rate of
the underlying assets and liabilities. Fees on interest rate swaps are
deferred and amortized over the lives of the agreements. If the instrument
being hedged or altered by a swap is disposed of, the swap agreement is marked
to market with any resulting gain or loss included in the determination of the
gain or loss from disposition. If the interest rate swap is terminated, the
gain or loss is deferred and amortized over the remaining life of the
terminated swap.
2. PENDING ACQUISITION
During the third quarter 1995, BANC ONE CORPORATION entered into a
definitive agreement to sell all of the outstanding stock of the Bank to
Matewan BancShares, Inc. for $28,600 in cash. It is anticipated that this
transaction will be completed during the first quarter of 1996.
3. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank or as cash in its vault. The average amount of those reserve
balances for the year ended December 31, 1994, approximated $2,937.
4. INVESTMENT SECURITIES
The Bank adopted the provisions of Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," as of January 1, 1994. In accordance with the Statement, prior
period financial statements have not been restated to reflect the change in
accounting principle. The balance of shareholder's equity was increased by
approximately $1,236, net of deferred income taxes to reflect the net
unrealized holding gains on securities classified as available-for-sale
previously carried at amortized cost or lower of cost or market.
F-31
<PAGE>
The following is a summary of available-for-sale securities and held-to-
maturity securities:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury and federal
agencies........................ $25,661 $ 15 $ (14) $25,662
Mortgage backed securities....... 5,108 -- (161) 4,947
Other............................ 140 -- -- 140
------- ------ ----- -------
Total.......................... $30,909 $ 15 $(175) $30,749
======= ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. Treasury and federal
agencies........................ $ 1,003 $ -- $ (3) $ 1,000
Obligations of states and
political subdivisions.......... 4,315 97 (13) 4,399
Mortgage backed securities....... 5,348 45 (146) 5,247
------- ------ ----- -------
Total.......................... $10,666 $ 142 $(162) $10,646
======= ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U.S. Treasury and federal
agencies........................ $52,750 $2,002 $ -- $54,752
Obligations of states and
political subdivisions.......... 5,319 381 (31) 5,669
Mortgage backed securities....... 20,073 272 (23) 20,322
Other............................ 140 -- -- 140
------- ------ ----- -------
Total.......................... $78,282 $2,655 $ (54) $80,883
======= ====== ===== =======
</TABLE>
The amortized cost and estimated fair values of investment securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay the obligations without prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
AVAILABLE-FOR-SALE
Due in one year or less.................................. $25,661 $25,662
Due after one year through five years.................... 5,108 4,947
Due after five years through ten years................... -- --
Due after ten years...................................... 140 140
------- -------
$30,909 $30,749
======= =======
HELD-TO-MATURITY
Due in one year or less.................................. $ 1,011 $ 1,032
Due after one year through five years.................... 6,866 6,768
Due after five years through ten years................... 2,169 2,185
Due after ten years...................................... 620 661
------- -------
$10,666 $10,646
======= =======
</TABLE>
F-32
<PAGE>
Gross gains of $387, $2, and $131 and gross losses of $417, $3, and $-0- for
1994, 1993, and 1992, respectively, were realized on sales of investment
securities.
At December 31, 1994 and 1993, investment securities with carrying amounts
of $27,685 and $29,566, respectively, were pledged to secure public deposits
and for other purposes.
5. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Commercial loans......................................... $ 60,057 $ 61,073
Real estate loans........................................ 51,775 54,005
Consumer loans........................................... 60,815 32,981
-------- --------
172,647 148,059
Less unearned income..................................... (2,472) (2,061)
-------- --------
170,175 145,998
Less allowance for loan losses........................... (5,021) (3,615)
-------- --------
Loans--net............................................... $165,154 $142,383
======== ========
</TABLE>
The Bank grants commercial, real estate, and consumer loans to customers in
eastern Kentucky. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their obligations is
either directly or indirectly dependent upon the coal industry. Substantially
all loans outstanding are collateralized by real estate, equipment, and
personal consumer goods.
The Bank has granted loans to officers and directors of the Bank and to
their associates. Related party loans were made on substantially the same
terms, including interest rate and collateral, as those prevailing at the same
time for comparable transactions with unrelated persons and do not involve
more than normal risk of collectibility.
The following presents the activity with respect to related party loans:
<TABLE>
<S> <C>
Balance at January 1, 1994....................................... $ 2,452
Loans made....................................................... 319
Principal collected.............................................. (554)
-------
Balance at December 31, 1994..................................... $ 2,217
=======
</TABLE>
6. ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year...................... $ 3,615 $ 2,622 $ 2,360
Loans charged off................................. (1,018) (682) (1,341)
Loan recoveries................................... 360 363 403
------- ------- -------
Net charge-offs................................... (658) (319) (938)
Provision charged to expense...................... 2,064 1,312 1,200
------- ------- -------
Balance at end of year............................ $ 5,021 $ 3,615 $ 2,622
======= ======= =======
</TABLE>
F-33
<PAGE>
The Bank adopted Financial Accounting Standards Board Statement No. 114,
"Accounting by Creditors for Impairment of a Loan," effective January 1, 1995.
As a result of applying the new rules, certain impaired loans will be reported
at the present value of expected future cash flows discounted at the loan's
original effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. The adoption of this standard did not have a material
impact on the Bank's financial statements, nonperforming assets, or income
recognition.
7. PREMISES AND EQUIPMENT
The major categories of premises and equipment and related accumulated
depreciation are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1993
------- -------
<S> <C> <C>
Land....................................................... $ 1,919 $ 1,919
Buildings and improvements................................. 9,815 9,769
Furniture and equipment.................................... 3,690 3,429
------- -------
15,424 15,117
Less accumulated depreciation.............................. (6,133) (5,651)
------- -------
$ 9,291 $ 9,466
======= =======
</TABLE>
The Bank has entered into a noncancelable lease agreement (operating lease)
with respect to certain premises and equipment. The minimum annual rental
commitment under this operating lease is $35 for 1995 and $6 for 1996.
Total rent expense, including cancelable and noncancelable leases, was $39,
$52, and $33 for 1994, 1993, and 1992, respectively.
8. SHORT-TERM BORROWINGS
Short-term borrowings consist primarily of federal funds purchased. The
weighted average interest rate on federal funds purchased approximated 6.52%
and 3.13% at December 31, 1994 and 1993.
9. DIVIDEND RESTRICTIONS
Dividends paid by the Bank are subject to restriction by banking
regulations. The restrictive provision requires approval by the Comptroller of
the Currency if dividends declared in any year exceed the current year's
retained net income, plus the retained net income of the two preceding years.
After December 29, 1995, Pikeville has no dividend paying capacity without
regulatory approval.
10. INCOME TAXES
Effective January 1, 1993, the Bank adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes." Under Statement 109,
the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of Statement 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the difference originated.
F-34
<PAGE>
As permitted by Statement 109, the Bank elected not to restate the financial
statements of any prior periods. The cumulative effect as of January 1, 1993
of adopting Statement 109 decreased net income by $272.
Income tax expense (benefit) included in the statements of income is
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ------- ----
<S> <C> <C> <C>
Current.................................................. $751 $ 1,287 $957
Deferred................................................. 89 (87) (157)
---- ------- ----
Total.................................................... $840 $ 1,200 $800
==== ======= ====
</TABLE>
Income tax expense (benefit) attributable to investment securities (losses)
gains was $(11), $(0), and $45 for 1994, 1993, and 1992, respectively.
A reconciliation between the amount of reported income tax expense and the
amount computed by applying the statutory federal income tax rate to income
before taxes is as follows:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
------------------------------ ---------------
1994 1993 1992
-------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory
federal rate............... $967 35.0% $1,337 35.0% $ 934 34.0%
Changes from statutory rate
resulting from:
Tax-exempt interest in-
come..................... (173) (6.3) (183) (4.8) (166) (6.0)
Other..................... 46 1.7 46 1.2 32 1.1
---- ---- ------ ---- ----- ----
Actual tax expense.......... $840 30.4% $1,200 31.4% $ 800 29.1%
==== ==== ====== ==== ===== ====
</TABLE>
Significant components of the Bank's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1993
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $ 1,757 $ 1,265
Accrued liabilities....................................... 51 42
Capitalized costs......................................... 142 165
Available-for-sale securities............................. 36 --
Other..................................................... -- 276
------- -------
Total deferred tax assets................................... 1,986 1,748
Deferred tax liabilities:
Premises and equipment.................................... 2,477 2,191
Other..................................................... 90 85
------- -------
Total deferred tax liabilities.............................. 2,567 2,276
------- -------
Net deferred tax liabilities................................ $ 581 $ 528
======= =======
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Bank's Parent has a noncontributory pension plan covering substantially
all employees of the Bank and other affiliates of the Parent. The retirement
benefits are based on length of service and the employee's highest five years
of compensation during the last ten years of service. The Parent's funding
policy is to contribute amounts necessary to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974.
F-35
<PAGE>
Employees of the Bank are eligible to participate in the Parent's pension
plan. The Bank's pension liability is limited to making annual payments to the
plan as calculated by its actuaries. Pension expense was $108, $53, and $35
for the years ended December 31, 1994, 1993, and 1992.
The Parent and the Bank sponsor a 401(k) plan which includes substantially
all of the Bank's employees. The Bank is required to make contributions to the
plan in varying amounts. For 1994, 1993, and 1992, expense related to this
plan was $73, $69, and $63, respectively.
In 1992, the Bank participated in Key's employee stock ownership plan which
covered substantially all employees. Contributions were based on salaries and
also included a discretionary component. Employee stock ownership expense
allocated to the Bank during 1992 approximated $475. After 1992, the employee
stock ownership plan was frozen and eventually merged into the Parent's 401(k)
plan.
POSTRETIREMENT BENEFITS OTHER THAN PENSION
The Parent currently sponsors a defined benefit postretirement plan that
covers salaried employees. The plan provides medical, dental, and life
insurance benefits. Benefits are available to retired employees with more than
ten years of service who retire under the normal or early retirement
provisions of the Parent's Retirement Plan. The medical and dental benefits
are contributory, while the life insurance is noncontributory.
Employees of the Bank were eligible to participate in the Parent's defined
postretirement benefit plan effective January 1, 1994. The Bank pre-funds
retiree medical benefits to the extent such benefits are deductible for
federal income tax purposes; however, these funds are not restricted as to use
for such benefits and, therefore, do not meet the definition of plan assets.
For 1994, the expense related to this plan was $37.
12. COMMITMENTS AND CONTINGENT LIABILITIES
During 1994, the Bank became a defendant in a lender liability lawsuit with
the plaintiff seeking unspecified actual, consequential, and punitive damages.
During 1993, the Bank became a defendant in a malicious prosecution lawsuit
with the plaintiff seeking damages for attorney fees, diminished earning
capacity, impairment to business and personal reputation, and mental anguish.
The plaintiff is seeking unspecified monetary damages and punitive damages.
The Bank vigorously disputes all charges in both of these lawsuits and
preliminary hearings and discovery proceedings are in progress. The ultimate
outcome of these lawsuits cannot presently be determined. Accordingly, no
provision for any liability that may result from these lawsuits has been made
in these financial statements.
In the normal course of business, the Bank offers certain financial products
to its customers to aid them in meeting their requirements for liquidity,
credit enhancement, and interest rate protection. Generally accepted
accounting principles require that these products be accounted for as
contingent liabilities and, accordingly, they are not reflected in the
accompanying financial statements. Following is a discussion of these
products.
Standby Letters of Credit: These agreements are used by the Bank's customers
as a means of improving their credit standing in their dealings with others.
Under these agreements, the Bank guarantees certain financial commitments in
the event that its customers are unable to satisfy their obligations. The Bank
has issued standby letters of credit of approximately $1,460 and $1,390 as of
December 31, 1994 and 1993.
Loan Commitments: At December 31, 1994 and 1993, the Bank had commitments
outstanding to extend credit of approximately $18,080 and $11,910. These
commitments generally require the customers to maintain certain credit
standards.
The Bank evaluates each customer's credit worthiness on a case-by-case
basis. Management generally requires collateral to secure these commitments.
The amount of collateral obtained by the Bank is based upon management's
credit evaluation of the counterparty. Collateral held varies, but may include
deposits in financial institutions, accounts receivable, inventory, equipment,
and real estate.
F-36
<PAGE>
Management conducts regular reviews of these commitments and the results are
considered in assessing the adequacy of the Bank's allowance for loan losses.
Management does not anticipate any material losses as a result of these
standby letters of credit and loan commitments.
Interest Rate Swaps: Interest rate swap transactions generally involve the
exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. The Bank uses interest rate swap
transactions as part of its interest rate risk management strategy. The
underlying principal amounts in interest rate swap transactions, or notional
amounts, express the volume of the transactions, but not the amounts subject
to credit risk. At December 31, 1994, the notional amount of interest rate
swap transactions was $48,000. The amount at risk, calculated by estimating
the cost of replacing at current market rates all the outstanding agreements
for which the Bank would incur a loss, was approximately $2,400 at December
31, 1994.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. Statement 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the balance
sheets for cash and cash equivalents approximate those assets' fair value.
Investment Securities: Fair values for investment securities are based on
quoted market prices where available. If quoted market prices are not
available, fair values are based on quoted market prices of similar
instruments.
Loans: The fair values of fixed rate commercial, real estate, and consumer
loans are estimated using discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
Deposits: The estimated fair values of demand deposits (i.e. interest and
non-interest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to their carrying amounts. Fair values for
fixed rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates, currently being offered on
certificates, to a schedule of aggregated expected monthly maturities on time
deposits.
Short-term Borrowings: The carrying amounts in the balance sheets for
repurchase agreements and other short-term borrowings approximate those
liabilities' fair values.
Interest Rate Swap Agreements: The fair values of interest rate swap
agreements are estimated using dealer quotes. These values represent the costs
to replace all outstanding interest rate swap agreements at current market
rates, taking into consideration the current creditworthiness of the
counterparties.
F-37
<PAGE>
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments..... $ 7,858 $ 7,858 $ 8,879 $ 8,879
Investment securities............... 41,402 41,382 78,339 80,940
Loans .............................. 165,154 165,880 142,433 144,959
Financial liabilities:
Deposits............................ 183,070 181,484 194,370 192,656
Short-term borrowings............... 20,857 20,857 25,589 25,589
Interest rate swap agreements....... -- (2,427) -- (238)
</TABLE>
F-38
<PAGE>
BANK ONE, PIKEVILLE, N.A. AND SUBSIDIARIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Balance Sheets as of September 30, 1995 and 1994 (Unaudited)............. F-40
Statements of Income for the Nine Months Ended September 30, 1995 and
1994 (Unaudited)........................................................ F-41
Statements of Shareholder's Equity for the Nine Months Ended
September 30, 1995 and 1994 (Unaudited)................................. F-42
Statements of Cash Flows for the Nine Months Ended September 30, 1995 and
1994 (Unaudited)........................................................ F-43
Notes to Interim Financial Statements (Unaudited)........................ F-44
</TABLE>
F-39
<PAGE>
BANK ONE, PIKEVILLE, N.A.
BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks.................................... $ 6,334 $ 6,797
Securities purchased under agreements to resell............ 25,674 12,047
Cash and cash equivalents..................................
Investment securities:
Available-for-sale at fair value......................... 3,567 21,674
Held-to-maturity......................................... 9,299 11,479
Loans, net................................................. 164,191 163,607
Premises and equipment..................................... 8,948 9,254
Accrued interest receivable and other assets............... 3,006 2,400
-------- --------
Total assets........................................... $221,019 $227,258
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deposits:
Non-interest bearing..................................... $ 24,540 $ 30,022
Interest bearing......................................... 156,969 155,738
-------- --------
Total deposits......................................... 181,509 185,760
Short-term borrowings:
Federal funds purchased and repurchase agreements........ 14,815 17,997
Other.................................................... 2,076 1,433
Accrued interest payable and other liabilities............. 3,250 2,205
-------- --------
Total liabilities...................................... 201,650 207,395
SHAREHOLDER'S EQUITY:
Common stock--$10.00 par value; 500,000 shares authorized;
225,000 shares outstanding at September 30, 1995 and
1994...................................................... 2,250 2,250
Surplus.................................................... 4,436 4,436
Retained earnings.......................................... 12,662 13,420
Net unrealized gain (loss) on available-for-sale
securities................................................ 21 (243)
-------- --------
Total shareholder's equity............................. 19,369 19,863
-------- --------
Total liabilities and shareholder's equity............. $221,019 $227,258
======== ========
</TABLE>
See notes to unaudited financial statements.
F-40
<PAGE>
BANK ONE, PIKEVILLE, N.A.
STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
-------- --------
<S> <C> <C>
Interest income:
Interest and fees on loans............................... $11,751 $10,148
Interest and dividends on investment securities:
Taxable.................................................. 1,184 2,687
Tax-exempt............................................... 205 270
Federal funds sold and securities purchased under
agreements to resell...................................... 461 120
-------- --------
Total interest income.................................. 13,601 13,225
Interest expense:
Deposits................................................. 4,978 3,918
Short-term borrowings.................................... 880 624
-------- --------
Total interest expense................................. 5,858 4,542
-------- --------
Net interest income........................................ 7,743 8,683
Provision for loan losses.................................. 675 1,524
-------- --------
Net interest income after provision for loan losses........ 7,068 7,159
Non-interest income:
Service charges and fees................................. 647 613
Investment securities (losses) gains..................... (32) 274
Other.................................................... 358 297
-------- --------
Total non-interest income.............................. 973 1,184
Non-interest expense:
Salaries and employee benefits........................... 3,334 2,790
Net occupancy............................................ 981 697
Other.................................................... 2,449 2,184
-------- --------
Total non-interest expense............................. 6,764 5,671
-------- --------
Income before income taxes................................. 1,277 2,672
Applicable income taxes.................................... 400 869
-------- --------
Net income................................................. $ 877 $ 1,803
======== ========
</TABLE>
See notes to unaudited financial statements.
F-41
<PAGE>
BANK ONE, PIKEVILLE, N.A.
STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
HOLDING
GAINS (LOSSES)
ON AVAILABLE-
COMMON RETAINED FOR-SALE
STOCK SURPLUS EARNINGS SECURITIES TOTAL
------ ------- -------- -------------- -------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994.... $2,250 $4,436 $13,637 $ -- $20,323
Accounting change adjustment
for unrealized gains
on securities available for
sale, net of taxes at
January 1, 1994............... 1,236 1,236
Dividends on common stock...... -- -- (2,020) -- (2,020)
Net income for nine months
ended September 30, 1994...... -- -- 1,803 -- 1,803
Changes in unrealized holding
gains (losses) on securities
available for sale, net of
taxes......................... (1,479) (1,479)
------ ------ ------- ------ -------
Balances at September 30,
1994.......................... 2,250 4,436 13,420 (243) 19,863
====== ====== ======= ====== =======
Balances at January 1, 1995.... $2,250 $4,436 $12,760 (103) 19,343
Dividends on common stock...... -- -- (975) -- (975)
Net income for nine months
ended September 30, 1995...... -- -- 877 -- 877
Change in unrealized holding
gains (losses) on securities
available for sale, net of
taxes......................... -- -- -- 124 124
------ ------ ------- ------ -------
Balances at September 30,
1995.......................... $2,250 $4,436 $12,622 $ 21 $19,369
====== ====== ======= ====== =======
</TABLE>
See notes to financial statements
F-42
<PAGE>
BANK ONE, PIKEVILLE, N.A.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30,
-----------------
1995 1994
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 877 $ 1,803
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses................................ 675 1,524
Depreciation and amortization............................ 911 417
Deferred income tax expense.............................. 68 67
Loss (gain) on sales of investment securities............ 31 (275)
(Increase) decrease in accrued interest receivable and
other assets............................................ (939) 654
Increase in accrued interest payable and other
liabilities............................................. 513 401
------- --------
Net cash provided by operating activities.................. 2,136 4,591
INVESTING ACTIVITIES
Purchases of available-for-sale investment securities...... (23,011) (8,584)
Proceeds from sales of available-for-sale investment
securities................................................ 8,247 36,553
Proceeds from maturities of available-for-sale investment
securities................................................ 42,039 12,535
Proceeds from maturities of held-to-maturity investment
securities................................................ 1,370 4,461
Net change in loans........................................ 288 (22,602)
Purchases of premises and equipment........................ (417) (200)
------- --------
Net cash provided by investing activities.................. 28,516 22,163
FINANCING ACTIVITIES
Net decrease in deposits................................... (1,561) (8,610)
Net decrease in short-term borrowings...................... (3,966) (6,159)
Cash dividends paid........................................ (975) (2,020)
------- --------
Net cash used in financing activities...................... (6,502) (16,789)
------- --------
Net increase in cash and cash equivalents.................. 24,150 9,965
Cash and cash equivalents at beginning of year............. 7,858 8,879
------- --------
Cash and cash equivalents at end of year................... $32,008 $ 18,844
======= ========
</TABLE>
See notes to financial statements
F-43
<PAGE>
BANK ONE, PIKEVILLE, N.A.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
(IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. 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 nine month period
ended September 30, 1995 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. For further information,
refer to the financial statements and footnotes of Bank One, Pikeville, N.A.
included elsewhere herein.
NOTE 2. CURRENT DEVELOPMENTS
During the third quarter of 1995, BANC ONE CORPORATION entered into a
definitive agreement to sell all of the outstanding stock of Bank One,
Pikeville, N.A. to Matewan BancShares, Inc. for $28,600 in cash. It is
anticipated that this transaction will be completed during the first quarter
of 1996. Prior to signing the definitive agreement, the Bank incurred
approximately $500 in retention and severance costs associated with a
restructuring plan. This plan was terminated once the definitive agreement was
signed.
During the nine month period ended September 30, 1995, the Bank revised the
useful lives of certain depreciable assets this change in estimate increased
depreciation expense by approximately $300.
NOTE 3. PENDING LITIGATION
During 1994, the Bank became a defendant in a lender liability lawsuit with
the plaintiff seeking unspecified actual, consequential, and punitive damages.
During 1993, the Bank became a defendant in a malicious prosecution lawsuit
with the plaintiff seeking damages for attorney fees, diminished earning
capacity, impairment to business and personal reputation, and mental anguish.
The plaintiff is seeking unspecified monetary damages and punitive damages.
The Bank vigorously disputes all charges in both of these lawsuits and
preliminary hearings and discovery proceedings are in progress. The ultimate
outcome of these lawsuits cannot presently be determined. Accordingly, no
provision for any liability that may result from these lawsuits has been made
in these financial statements.
F-44
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR
FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
The Company.............................................................. 10
The Acquisition.......................................................... 11
Use of Proceeds.......................................................... 13
Capitalization........................................................... 14
Common Stock Price Range and Dividends................................... 15
Pro Forma Financial Information.......................................... 17
Management's Discussion and Analysis of Financial Conditions
and Results of Operations............................................... 21
Business................................................................. 42
Management............................................................... 43
Supervision and Regulation............................................... 46
Description of Capital Stock............................................. 53
Certain Income Tax Consequences.......................................... 59
Underwriting............................................................. 62
Legal Matters............................................................ 63
Experts.................................................................. 63
Available Information.................................................... 63
Index to Consolidated Financial Statements............................... F-1
</TABLE>
600,000 SHARES
[LOGO of MATEWAN BANCSHARES]
% CUMULATIVE
CONVERTIBLE PREFERRED STOCK,
SERIES A
---------------
PROSPECTUS
---------------
WHEAT FIRST BUTCHER SINGER
, 1996
<PAGE>
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee and NASD Filing Fee) of the fees and expenses
payable in connection with the issuance and distribution of the securities
registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................ $ 5,950
NASD Filing Fee.................................................... 2,225
Blue Sky Qualification Fees and Expenses
(including legal fees and expenses)............................... 15,000
Legal Fees and Expenses............................................ 75,000
Accountants' Fees and Expenses..................................... 100,000
Printing and Engraving Fees and Expenses........................... 85,000
Transfer Agent and Registrar....................................... 5,000
Miscellaneous...................................................... 11,825
--------
Total Expenses................................................... $300,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Bylaws of Matewan contains the following indemnification
provisions.
Section 8.1. Indemnification. The Company shall indemnify and hold harmless
any person (the "Indemnitee"), and the heirs, executors and administrators of
an Indemnitee, who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether or
not in the right of the Company and whether civil, criminal, administrative or
investigative or otherwise, by reason of the fact that the Indemnitee is or
was a director, advisory director, officer, employee, agent or fiduciary of
the Company, or is or was serving at the written request of the Company as a
director, advisory director, officer, employee, agent, trustee or fiduciary of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, to the fullest extent permitted by law, against all
expenses (including but not limited to attorneys' and other experts' fees and
disbursements), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Indemnitee or his heirs, executors or
administrators in connection with any such action, suit or proceeding, or in
connection with any appeal therein, or otherwise; and no provision of these
Bylaws is intended to be construed as limiting, prohibiting, denying or
abrogating any of the general or specific powers or rights conferred under the
General Corporation Law of the State of Delaware upon the Company to furnish,
or upon any court to award, such indemnification, or indemnification as
otherwise authorized pursuant to the General Corporation Law of the State of
Delaware or any other law now or hereafter in effect.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 21, 1995, the Company sold 3,000 shares of common stock to Ferris
Baker Watts, Incorporated, for aggregate consideration of $56,996, in reliance
upon the exemption provided by Section 4(2) of the Securities Act of 1933.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (1)
2.1 Stock Purchase Agreement dated September 28, 1995, by and between Matewan
BancShares, Inc., Banc One Kentucky Corporation and Banc One Corporation
(schedules to this agreement are not included but will be provided on
request) (1)
3.1 Certificate of Incorporation (2)
3.2 Bylaws (2)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
5.1 Form of Opinion of Jackson and Kelly
7.1 Form of Opinion of Jackson and Kelly
10.1 Voting and First Refusal Agreement dated August 6, 1987, by and between
Dan R. Moore and James H. Harless (2)
10.2 Lease Agreement dated August 1, 1984, among between Matewan National
Bank and Harrison and Dora Jude (3)
10.3 Lease Agreement dated March 5, 1986, by and between Matewan National
Bank and Mingo Bottling Company (2)
10.4 Lease Agreement dated December 1, 1988, by and between Matewan National
Bank and Josephine Hope (4)
10.5 Purchase and Assumption Agreement dated December 29, 1989, among Matewan
National Bank and the Bank of Danville and First Center Bancshares, Inc.
(5)
10.6 Lease Agreement dated August 6, 1985, between Price M. Hager, Inc. and
Fae W. Ramsey, Et Al; Assignment Agreement between Matewan BancShares,
Inc. dated August 5, 1993; and Amended and Restated Agreement of Lease
dated July 27, 1993, between Fae W. Ramsey, Widow, and Citizens National
Bank of Paintsville (6)
10.7 Lease Agreement dated April 7, 1994, between Homer and Mary Short and
Matewan Bank FSB (7)
10.8 Lease Agreement dated December 6, 1994, between K-VA-T Food Stores, Inc.
and Matewan BancShares, Inc. (7)
10.9 Lease Agreement dated December 6, 1994, between K-VA-T Food Stores, Inc.
and Matewan BancShares, Inc. (7)
10.10 Lease Agreement dated February 7, 1994 between Betty O. Rosen and
Matewan National Bank (7)
10.11 Facility Construction and Consulting Agreement MNB- 01 between
International Banking Technologies, Inc. and Matewan BancShares, Inc. (7)
10.12 Facility Construction and Consulting Agreement MNB- 02 between
International Banking Technologies, Inc. and Matewan BancShares, Inc. (7)
10.13 Matewan BancShares, Inc. Employee Retirement Plan (7)
10.14 Agreement dated February 14, 1995, between Electronic Data Systems
Corporation and Matewan BancShares, Inc. (to be filed by amendment)
11.1 Computation of Per Share Earnings (1)
12.1 Computation of Ratios (1)
12.2 Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
21.1 Subsidiaries of Matewan BancShares, Inc. (1)
23.1 Consents of Ernst & Young LLP (1)
23.2 Consent of Ernst & Young LLP (1)
23.3 Consent of Jackson & Kelly (1)
24.1 Power of Attorney (to be filed by amendment)
</TABLE>
- --------
(1) Filed herewith.
(2) Filed as an exhibit to Matewan's Registration Statement on Form S-1 under
the Securities Act of 1933, Registration No. 33-17172, and incorporated
herein by reference.
II-2
<PAGE>
(3) Filed as an exhibit of the same year to Matewan's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, and incorporated herein
by reference.
(4) Filed as an Exhibit of the same year to Matewan's Annual Report on Form
10-K for the fiscal year ended December 31, 1988, and incorporated herein
by reference.
(5) Filed as Exhibit 2.01 to Matewan's Report on Form 8-K, dated January 10,
1990, and incorporated herein by reference.
(6) Filed as an exhibit of the same year to Matewan's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, and incorporated herein
by reference.
(7) Filed as an exhibit of the same year to Matewan's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and incorporated herein
by reference.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act"), may be permitted to directors, officers and
controlling persons of Matewan pursuant to the foregoing provisions, or
otherwise, Matewan has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Matewan of expenses incurred or paid by a director, officer or controlling
person of Matewan in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, Matewan will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Matewan pursuant to Rule 424(b)(1) or (4) or 497(b) under
the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
For the purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED DULY AUTHORIZED IN THE
CITY OF CHARLESTON, STATE OF WEST VIRGINIA, ON JANUARY 9, 1996.
Matewan BancShares, Inc.
/s/ Dan R. Moore
_____________________________________
DAN R. MOORE
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES LISTED ON JANUARY 9, 1996.
/s/ Dan R. Moore /s/ Lee M. Ellis
_____________________________________ _____________________________________
DAN R. MOORE LEE M. ELLIS
CHAIRMAN OF THE BOARD, PRESIDENT VICE PRESIDENT AND CHIEF
AND CHIEF EXECUTIVE OFFICER FINANCIAL OFFICER
_____________________________________ _____________________________________
JAMES H. HARLESS FRANK E. ELLIS
DIRECTOR DIRECTOR
/s/ Lafe P. Ward /s/ Amos J. Hatfield
_____________________________________ _____________________________________
LAFE P. WARD AMOS J. HATFIELD
DIRECTOR DIRECTOR
/s/ George A. Kostas /s/ Sidney Young, Jr.
_____________________________________ _____________________________________
GEORGE A. KOSTAS SIDNEY YOUNG, JR.
DIRECTOR DIRECTOR
/s/ Betty Jo Moore
_____________________________________
BETTY JO MOORE
DIRECTOR
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
<C> <S>
1.1 Form of Underwriting Agreement (1)
2.1 Stock Purchase Agreement dated September 28, 1995, by and between
Matewan BancShares, Inc., Banc One Kentucky Corporation and Banc One
Corporation (schedules to this agreement are not included but will be
provided on request) (1)
3.1 Certificate of Incorporation (2)
3.2 Bylaws (2)
5.1 Form of Opinion of Jackson and Kelly
7.1 Form of Opinion of Jackson and Kelly
10.1 Voting and First Refusal Agreement dated August 6, 1987, by and
between Dan R. Moore and James H. Harless (2)
10.2 Lease Agreement dated August 1, 1984, among between Matewan National
Bank and Harrison and Dora Jude (3)
10.3 Lease Agreement dated March 5, 1986, by and between Matewan National
Bank and Mingo Bottling Company (2)
10.4 Lease Agreement dated December 1, 1988, by and between Matewan
National Bank and Josephine Hope (4)
10.5 Purchase and Assumption Agreement dated December 29, 1989, among
Matewan National Bank and the Bank of Danville and First Center
Bancshares, Inc. (5)
10.6 Lease Agreement dated August 6, 1985, between Price M. Hager, Inc.
and Fae W. Ramsey, Et Al; Assignment Agreement between Matewan
BancShares, Inc. dated August 5, 1993; and Amended and Restated
Agreement of Lease dated July 27, 1993, between Fae W. Ramsey, Widow,
and Citizens National Bank of Paintsville (6)
10.7 Lease Agreement dated April 7, 1994, between Homer and Mary Short and
Matewan Bank FSB (7)
10.8 Lease Agreement dated December 6, 1994, between K-VA-T Food Stores,
Inc. and Matewan BancShares, Inc. (7)
10.9 Lease Agreement dated December 6, 1994, between K-VA-T Food Stores,
Inc. and Matewan BancShares, Inc. (7)
Lease Agreement dated February 7, 1994 between Betty O. Rosen and
10.10 Matewan National Bank (7)
10.11 Facility Construction and Consulting Agreement MNB-01 between
International Banking Technologies, Inc. and Matewan BancShares, Inc.
(7)
10.12 Facility Construction and Consulting Agreement MNB-02 between
International Banking Technologies, Inc. and Matewan BancShares, Inc.
(7)
10.13 Matewan BancShares, Inc. Employee Retirement Plan (7)
10.14 Agreement dated February 14, 1995, between Electronic Data Systems
Corporation and Matewan BancShares, Inc. (to be filed by amendment)
11.1 Computation of Per Share Earnings (1)
12.1 Computation of Ratios (1)
12.2 Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
21.1 Subsidiaries of Matewan BancShares, Inc.
23.1 Consent of Ernst & Young LLP (1)
23.2 Consent of Ernst & Young LLP (1)
23.3 Consent of Jackson & Kelly (1)
24.1 Power of Attorney (to be filed by amendment)
</TABLE>
<PAGE>
- --------
(1) Filed herewith.
(2) Filed as an exhibit to Matewan's Registration Statement on Form S-1 under
the Securities Act of 1933, Registration No. 33-17172, and incorporated
herein by reference.
(3) Filed as an exhibit of the same year to Matewan's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, and incorporated herein
by reference.
(4) Filed as an Exhibit of the same year to Matewan's Annual Report on Form
10-K for the fiscal year ended December 31, 1988, and incorporated herein
by reference.
(5) Filed as Exhibit 2.01 to Matewan's Report on Form 8-K, dated January 10,
1990, and incorporated herein by reference.
(6) Filed as an exhibit of the same year to Matewan's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, and incorporated herein
by reference.
(7) Filed as an exhibit of the same year to Matewan's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and incorporated herein
by reference.
E-2
<PAGE>
Exhibit 1.1
690,000 SHARES
MATEWAN BANCSHARES, INC.
CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
_____________________________
UNDERWRITING AGREEMENT
_____________________________
WHEAT, FIRST SECURITIES, INC.
As Underwriter
Riverfront Plaza
901 East Byrd Street
Richmond, Virginia 23219 _____________, 1996
Dear Sirs:
Matewan BancShares, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to you (the
"Underwriter") an aggregate of 600,000 shares of cumulative convertible
preferred stock, $1.00 par value, $25.00 stated value, of the Company (the
"Preferred Stock") and, at your election, an aggregate of 90,000 additional
shares of Preferred Stock. The 600,000 shares to be sold by the Company are
herein called the "Firm Securities," and the 90,000 additional shares to be sold
by the Company are herein called the "Optional Securities." The Firm Securities
and the Optional Securities that you elect to purchase pursuant to Section 2
hereof are collectively called the "Securities."
1. Representations and Warranties. The Company represents and warrants to, and
agrees with, the Underwriter that:
(a) A registration statement on Form S-1 (File No. 33-____) under the
Securities Act of 1933, as amended (the "Act"), and as a part thereof a
preliminary prospectus, in respect of the Securities has been filed with the
Securities and Exchange Commission (the "Commission") in the form heretofore
delivered to you, and, excluding exhibits thereto, for each of the other
Underwriters; such registration statement, as amended, has been declared
effective by the Commission; no other document with respect to such
registration statement has heretofore been filed with the Commission other
than in accordance with Section 5(a) of this Agreement; and no stop order
suspending the effectiveness of such registration statement has been issued
and no proceeding for that purpose has been instituted or threatened by the
Commission. As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion filed
with such registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared effective
but excluding the Preliminary Prospectus dated ________, 1996); the term
"Prospectus" means: (A) if the Company relies on Rule 434 under the Act, the
Term Sheet relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus identified
therein that such Term Sheet supplements; (B) if the Company does not rely on
Rule 434 under the Act, the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act; or (C) if the Company does not rely on
Rule 434 under the Act and if no prospectus is required to be filed pursuant
to Rule 424(b) under the Act, the prospectus included in the Registration
Statement; and the term "Term Sheet" means any term sheet that satisfies the
requirements of Rule 434 under the Act. Any reference to the "date" of a
Prospectus that includes a Term Sheet shall mean the date of such Term Sheet;
<PAGE>
(b) No order preventing or suspending the use of any Preliminary Prospectus
has been issued by the Commission, and each Preliminary Prospectus, at the
time of filing thereof, conformed in all material respects to the requirements
of the Act and the rules and regulations of the Commission thereunder, and did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by you
expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
amendments or supplements thereto will conform, in all material respects to
the requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not as of the applicable effective date as to
the Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by you expressly for use
therein;
(d) This Agreement has been duly authorized, executed and delivered by the
Company;
(e) Except as described in the Prospectus, the issue and sale of the
Securities by the Company and the performance of this Agreement and the
consummation by the Company of the other transactions herein contemplated will
not (i) conflict with or result in a breach of any of the terms or provisions
of, or constitute a default (or an event which with notice or lapse of time,
or both, would constitute a default) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company, any Subsidiary or Pikeville pursuant to any agreement,
instrument, franchise, license or permit to which the Company, any Subsidiary
or Pikeville is a party or by which any of them or their respective properties
or assets may be bound, or (ii) violate or conflict with any provisions of the
Certificate of Incorporation or Bylaws of the Company or the charter, articles
of incorporation, articles of association or bylaws of any of the Subsidiaries
or Pikeville, or any judgment, decree, order, statute, rule or regulation of
any court or any public, governmental or regulatory agency or body having
jurisdiction over the Company, any Subsidiary or Pikeville or any of their
respective properties or assets; and no consent, approval, authorization,
order, registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Securities or the
consummation by the Company of the transactions contemplated by this
Agreement, except such consents, approvals, authorizations, registrations or
qualifications as may be required under the Act and under state securities or
Blue Sky laws in connection with the purchase and distribution of the
Securities by the Underwriter;
(f) The Company has an authorized capitalization as set forth in the
Prospectus; all of the issued shares of capital stock of the Company have been
duly and validly authorized and issued, are fully paid and nonassessable and
conform to the description of the capital stock of the Company contained in
the Prospectus; except as described in the Prospectus, there are no preemptive
or other similar rights to subscribe for or to purchase any securities of the
Company; except as described in the Prospectus, no equity securities of the
Company are or may become required to be issued by reason of any options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of the Company, and there are no
contacts by which the Company is bound to issue additional shares of its
capital stock or options, warrants or rights to purchase or acquire any
additional shares of its capital stock; neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated by this
Agreement gives rise to any rights for or relating to the registration of any
securities of the Company with respect to such filing, offering or sale, other
than rights which have been waived;
(g) The Securities have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and nonassessable and will conform to the
description of the Securities contained in the Prospectus as amended or
supplemented;
2
<PAGE>
(h) The Securities have been approved for listing, subject to notice of
issuance, on The Nasdaq Stock Market's SmallCap Market;
(i) Exhibit 21 of the Registration Statement contains a complete and
correct list of the subsidiaries of the Company, which subsidiaries are the
Company's only active subsidiaries (the "Subsidiaries"); except for
investments made in the ordinary course of business by venture capital
companies pursuant to the laws of West Virginia, the Company and the
Subsidiaries do not own more than 5% of the equity interests of any other
business entities other than shares of publicly-held companies held solely
for investment; hereinafter, unless specifically indicated otherwise, all
references to the Company shall include and apply to the Company and the
Subsidiaries collectively;
(j) The Company has all requisite power and authority to execute, deliver
and perform its obligations under the Stock Purchase Agreement, dated as of
September 28, 1995 (the "Purchase Agreement"), with Banc One Corporation and
Banc One Kentucky Corporation, pursuant to which the Company has agreed to
acquire (the "Stock Purchase") from Banc One Kentucky Corporation all of the
outstanding shares of capital stock of Bank One Pikeville, N.A. ("Pikeville");
the Purchase Agreement and the transactions contemplated thereby have been
duly and validly authorized by the Company and the Purchase Agreement has been
duly and validly executed and delivered by the Company; except as described in
the Prospectus, the execution, delivery and performance of the Purchase
Agreement and the consummation by the Company of the other transactions herein
contemplated will not (i) conflict with or result in a breach of any of the
terms or provisions of, or constitute a default (or an event which with notice
or lapse of time, or both, would constitute a default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company, any Subsidiary or Pikeville pursuant to any agreement,
instrument, franchise, license or permit to which the Company, any Subsidiary
or Pikeville is a party or by which any of them or their respective properties
or assets may be bound, or (ii) violate or conflict with any provisions of the
Certificate of Incorporation or Bylaws of the Company or the charter, articles
of incorporation, articles of association or bylaws of any of the Subsidiaries
or Pikeville, or any judgment, decree, order, statute, rule or regulation of
any court or any public, governmental or regulatory agency or body having
jurisdiction over the Company, any Subsidiary or Pikeville or any of their
respective properties or assets; and all consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses or permits of or with
any court or any public, governmental or regulatory agency or body required
for the execution and delivery of the Purchase Agreement and the consummation
and performance of the transactions contemplated thereby have been obtained or
made and are in full force and effect and no such consent, approval,
authorization, order, registration, qualification, license or permit contains
a materially burdensome restriction not adequately disclosed in the
Registration Statement and the Prospectus;
(k) The consolidated financial statements of the Company, together with
related notes, as set forth in the Registration Statement present fairly the
financial position, the results of operations and the cash flows of the
Company at the indicated dates and for the indicated periods; such financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout the periods
presented except as noted in the notes thereon, and all adjustments necessary
for a fair presentation of results for such periods have been made; and the
selected financial information relating to the Company included in the
Prospectus presents fairly the information shown therein and has been compiled
on a basis consistent with the financial statements presented therein; and the
financial statements of Pikeville, together with related notes, as set forth
in the Registration Statement present fairly the financial position, the
results of operations and the cash flows of Pikeville at the indicated dates
and for the indicated periods; such financial statements of Pikeville have
been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods presented except as noted in the
notes thereon, and all adjustments necessary for a fair presentation of
results for such periods have been made; the selected financial information
relating to Pikeville included in the Prospectus presents fairly the
information shown therein and has been compiled on a basis consistent with the
financial statements presented therein; the supporting schedules and pro forma
financial information included in the Registration Statement and the
Prospectus present fairly the information required to be stated therein;
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(l) Ernst & Young LLP, independent auditors, who have certified certain
financial statements of the Company and Pikeville, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(m) Each of the Company, the Subsidiaries and Pikeville has been duly
incorporated and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation, with power and
authority (corporate and other) to own or lease their respective properties
and conduct their respective businesses as described in the Prospectus, and
each has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business, so as to require
such qualification, except where the failure to so qualify would not result in
a material adverse effect on the business, management, financial position,
shareholders' equity or results of operations of the Company; each of Matewan
National Bank, Matewan Bank, FSB and Pikeville is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured by the Bank Insurance Fund
or the Savings Association Insurance Fund;
(n) Except as described in the Prospectus, the Company owns, either
directly or through wholly-owned Subsidiaries, all outstanding shares of
capital stock of each of the Subsidiaries, free and clear of any perfected
security interest and any other security interest, claim, lien or
encumbrance; except as described in the Prospectus, upon consummation of the
Stock Purchase in accordance with the Purchase Agreement, the Company will
own directly all outstanding shares of capital stock of Pikeville, free and
clear of any perfected security interest and any other security interest,
claim, lien or encumbrance; there are no preemptive or other similar rights
to subscribe for or to purchase any securities of any Subsidiary or (except
for the rights granted to the Company pursuant to the Purchase Agreement)
Pikeville; no equity securities of any Subsidiary or of Pikeville are or may
become required to be issued by reason of any options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of any such Subsidiary or Pikeville, and there
are no contacts by which any Subsidiary or Pikeville is bound to issue
additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock or by which
any such Subsidiary or Pikeville is or may be bound to transfer any shares
of its capital stock;
(o) Each of the Company, the Subsidiaries and Pikeville has good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus,
including, without limitation, the financial statements included therein, or
such as do not materially affect the value of such property and do not
interfere with the use made of such property by it or proposed to be made of
such property by the Company; and any tangible property held under lease by
any of the Company, the Subsidiaries or Pikeville are held by it under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made of such property by it or proposed to be
made of such property and buildings by the Company;
(p) There are no legal or governmental proceedings pending to which the
Company, any Subsidiary or Pikeville is a party or of which any property of
the Company, any Subsidiary or Pikeville is the subject, other than as set
forth or contemplated in the Prospectus, which, if determined adversely to the
Company, such Subsidiary or Pikeville, would individually or in the aggregate,
have a material adverse effect on the business, prospects, properties,
operations, condition (financial or other) or results of operations of the
Company, the Subsidiaries and Pikeville, taken as a whole, or which is
required to be disclosed in the Registration Statement and the Prospectus and,
to the best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or by others; except as disclosed in
the Prospectus, neither the Company, any Subsidiary nor Pikeville (i) is in
violation of any laws, orders or permits applicable to its business or
employees conducting its business, except for violations which will not in the
aggregate have a material adverse effect on the Company, the Subsidiaries and
Pikeville, taken as a whole, (ii) has received any notification or
communication from any agency or department of federal, state or local
government or any federal or state regulatory authority (including, without
limitation, the SEC, the Office of the Comptroller of the Currency, the Office
of Thrift Supervision, the Federal Deposit Insurance Corporation or the Board
of Governors of the Federal Reserve System) or the staff thereof, (A)
asserting that the Company, any Subsidiary or Pikeville is not in compliance
with any of the material laws or material orders which such government or
regulatory authority enforces where such noncompliance will in the aggregate
have a material adverse effect on the Company, the Subsidiaries and Pikeville,
taken as a whole, (B) threatening to revoke any material permits the
revocation of which will in the aggregate have a material adverse effect on
the Company, the Subsidiaries and Pikeville, taken as a whole or (C) requiring
the Company, any Subsidiary
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or Pikeville to enter into or consent to the issuance of a cease and desist
order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any resolution or similar undertaking which
restricts materially the conduct of its business, or in any manner relates
to its capital adequacy, its management or the payment of dividends;
(q) All employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) established,
maintained or contributed to by the Company comply in all material respects
with the requirements of ERISA and no employee pension benefit plan (as
defined in Section 3(2) of ERISA) has incurred or assumed an "accumulated
funding deficiency" within the meaning of Section 302 of ERISA or has incurred
or assumed any material liability (other than for the payment of premiums) to
the Pension Benefit Guaranty Corporation;
(r) Each of the Company, the Subsidiaries and Pikeville has filed all
federal, state and foreign income tax returns which have been required to be
filed (or has received an extension with respect thereto), and has paid, or
made adequate reserves for, all taxes indicated by said returns and all
assessments received by them to the extent that such taxes have become due
and are not being contested in good faith;
(s) Except as described in the Prospectus, each of the Company, the
Subsidiaries and Pikeville, any facility in which the Company, any Subsidiary
or Pikeville participates in the management ("Participation Facility") and any
property owned by the Company, any Subsidiary or Pikeville are, and have been,
in compliance with all laws which are administered, interpreted or enforced by
the United States Environmental Protection Agency and state and local agencies
with jurisdiction over pollution or protection of the environment
("Environmental Laws"), except for violations which will not in the aggregate
have a material adverse effect on the Company, the Subsidiaries and Pikeville,
taken as a whole; to the knowledge of the Company, there is no litigation
pending or threatened before any court, governmental agency or authority or
other forum in which the Company, any Subsidiary or Pikeville or any
Participation Facility has been or, with respect to threatened litigation, may
be named as a defendant (i) for alleged non-compliance (including by any
predecessor) with any Environmental Law, or (ii) relating to the release into
the environment of any pollutant, contaminant or hazardous substance within
the meaning of the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601 et seq., or any similar federal, state
or local law ("Hazardous Material") or oil, whether or not occurring at, on,
under or involving a site owned, leased or operated by the Company, any
Subsidiary or Pikeville or any Participation Facility, except for such
litigation pending or threatened that will not in the aggregate have a
material adverse effect on the Company, the Subsidiaries and Pikeville, taken
as a whole; to the knowledge of the Company, there have been no releases of
Hazardous Materials or oil in, on, under or affecting any properties that are
or were owned or operated by the Company, any Subsidiary or Pikeville or any
Participation Facility, except such as will not in the aggregate have a
material adverse effect on the Company, the Subsidiaries and Pikeville, taken
as a whole;
(t) No relationship, direct or indirect, exists between or among the
Company, any Subsidiary or Pikeville, on the one hand, and the directors,
officers, shareholders, customers or suppliers of the Company, on the other
hand, that is required by the Act or by the rules and regulations under the
Act to be described in the Registration Statement and the Prospectus that is
not so described;
(u) The Company owns or possesses, or can acquire on reasonable terms and
within a reasonable time, adequate licenses, copyrights, trademarks, service
marks and trade names (collectively, "intellectual property") necessary to
carry on its business as presently operated by it, except where the failure to
own or possess or have the ability to acquire any such intellectual property
would not, individually or in the aggregate, have a material adverse effect on
the business, management, financial position, shareholders' equity or results
of operations of the Company, and the Company has not received any notice or
is otherwise aware of any infringement of or conflict with asserted rights of
others, including infringement by or conflict with the asserted rights of the
Company's distributors and licensees, with respect to any intellectual
property or of any facts which would
5
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render any intellectual property invalid or inadequate to protect the
interest of the Company therein and which infringement or conflict could
have a material adverse effect on the business, management, financial
position, shareholders' equity or results of operations of the Company;
(v) Any contract, agreement, instrument, lease or license to which the
Company, any Subsidiary or Pikeville is a party and which is required to be
described in the Registration Statement or Prospectus has been described
therein; any contract, agreement, instrument, lease or license required to be
filed as an exhibit to the Registration Statement has been filed with the
Commission as an exhibit to, or has been incorporated as an exhibit by
reference into, the Registration Statement;
(w) Neither Company, nor any director, officer, agent, employee or other
person acting on behalf of the Company has (i) used, or authorized the use of,
any corporate or other funds for unlawful payments, contributions, gifts or
entertainment, (ii) made unlawful expenditures relating to political activity
to government officials or others, or (iii) established or maintained any
unlawful or unrecorded funds in violation of Section 30A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), except where doing so
would not in the aggregate have a material adverse effect on the business,
management, financial position, shareholders' equity or results of operations
of the Company; neither Company, nor any director, officer, agent, employee or
other person acting on behalf of the Company has accepted or received any
unlawful contributions, payments, gifts or expenditures;
(x) Neither the Company, any Subsidiary nor Pikeville has sustained since
the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
outstanding capital stock or a material change in the long-term debt of the
Company, or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the business,
management, financial position, shareholders' equity or results of operations
of the Company, the Subsidiaries or Pikeville, otherwise than as set forth
or contemplated in the Prospectus;
(y) The Company has not taken and will not take, directly or indirectly,
any action that is designed to or that has constituted or that might
reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale
of the Securities; and
(z) The Company does not and has no intention of conducting its operations
in a manner that will subject it to registration as an investment company
under the Investment Company Act of 1940, as amended, and this transaction
will not cause the Company to become an investment company subject to
registration under such Act.
2. Purchase and Sale.
Subject to the terms and conditions herein set forth, (a) the Company agrees
to sell to you, and you agree to purchase from the Company, at a purchase price
per share of $[_____], the Firm Securities and (b) in the event and to the
extent that you shall exercise the election to purchase Optional Securities as
provided below, the Company agrees to sell to you, and you agree to purchase
from the Company, at the purchase price set forth in clause (a) of this Section
2, that portion of the number of Optional Securities as to which such election
shall have been exercised (to be adjusted by you so as to eliminate fractional
securities).
The Company hereby grants to you the right to purchase at your election up to
90,000 Optional Securities, at the purchase price per share set forth in the
paragraph above, for the sole purpose of covering over-allotments in the sale of
the Firm Securities. Any such election to purchase Optional Securities may be
exercised by written notice from you to the Company, given within a period of 30
days after the date of this Agreement, setting forth the aggregate amount of
Optional Securities to be purchased and the date on which such Optional
Securities are to be delivered, as determined by you but in no event earlier
than the First Delivery Date (as defined in Section 4 hereof)
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or, unless you otherwise agree in writing, no earlier than two or later than
ten business days after the date of such notice.
3. Offering by the Underwriter.
Upon the authorization by you of the release of the Firm Securities, you
propose to offer the Firm Securities for sale upon the terms and conditions set
forth in the Prospectus.
4. Delivery and Payment.
One or more certificates in definitive form for the Securities to be purchased
by you hereunder, and in such denominations and registered in such names as you
may request upon at least two business days' prior notice to the Company, shall
be delivered by or on behalf of the Company to Wheat, First Securities, Inc.,
for your account, against payment by you or on your behalf of the purchase price
therefor. Payment of the purchase price for the Securities shall be made by
certified or official bank check in next day funds (which shall mean immediately
available funds on the next business day) or, at the option of the Company, by
wire transfer of immediately available funds, all at the offices of Wheat, First
Securities, Inc., Riverfront Plaza, 901 East Byrd Street, Richmond, Virginia.
If payment is made in immediately available funds, the Company shall reimburse
you for your cost of delivering immediately available funds, such cost to be
computed at a daily rate equal to your cost of overnight borrowings for each day
from the Delivery Date to the immediately following business day. The time and
date of such delivery and payment shall be, with respect to the Firm Securities,
10:00 a.m., Richmond, Virginia time, on [_____________ ], 1996 or at such other
time and date as you and the Company may agree upon in writing, and, with
respect to the Optional Securities, 10:00 a.m., Richmond, Virginia time, on the
date specified by you in the written notice given by you of your election to
purchase such Optional Securities, or at such other time and date as you and the
Company may agree upon in writing. Such time and date for delivery of the Firm
Securities is herein called the "First Delivery Date," such time and date for
delivery of the Optional Securities, if not the First Delivery Date, is herein
called the "Second Delivery Date," and each such time and date for delivery is
herein called a "Delivery Date." Such certificates will be made available for
checking and packaging at least 24 hours prior to each Delivery Date at the
offices of Wheat, First Securities, Inc. at the address set forth above or such
other location designated by you to the Company.
5. Agreements of the Company.
The Company agrees with the Underwriter:
(a) To file with the Commission, not later than the Commission's close of
business on the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be required by the
Act then (i) if the Registration Statement, as it may have been amended, has
been declared by the Commission to be effective under the Act, either (A) if
the Company relies on Rule 434 under the Act, a Term Sheet relating to the
Securities that shall identify the Preliminary Prospectus that it supplements
containing such information as is required or permitted by Rules 434, 430A and
424(b) under the Act or (B) if the Company does not rely on Rule 434 under the
Act, a Prospectus in the form most recently included in an amendment to the
Registration Statement (or, if no such amendment shall have been filed, in the
Registration Statement), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act, and in the
case of either clause (i)(A) or (i)(B) of this sentence, as have been provided
to and approved by the Representatives prior to the execution of this
Agreement, or (ii) if the Registration Statement, as it may have been amended,
has not been declared by the Commission to be effective under the Act, an
amendment to the Registration Statement, including a form of Prospectus, a
copy of which amendment has been furnished to and approved by the
Representatives prior to the execution of this Agreement; to make no amendment
or supplement to the Registration Statement or Prospectus prior to any
Delivery Date which shall be reasonably disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction,
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of the initiation or threatening of any proceeding for any such purpose, of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to obtain
its withdrawal;
(b) Promptly from time to time to take such actions as you may reasonably
request to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws so
as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Securities but in no case for more than one year from the date hereof,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) Prior to 10:00 a.m., Richmond, Virginia time, on the business day next
succeeding the date of this Agreement, and from time to time to furnish you
with copies of the Prospectus in Richmond, Virginia in such quantities as you
may reasonably request at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering and
sale of the Securities, and, if the delivery of a prospectus is required
during this period and if at such time any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be necessary during such
period to amend or supplement the Prospectus to comply with the Act, to notify
you and upon your request to file such document and to prepare and furnish
without charge to you and to any dealer in securities as many copies as you
may from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or omission or
effect such compliance;
(d) As soon as practicable after the effective date of the Registration
Statement, to make generally available to its shareholders and to deliver to
you, an earnings statement of the Company, conforming with the requirements of
Section 11(a) of the Act and Rule 158 under the Act, covering a period of at
least 12 months beginning after the effective date of the Registration
Statement;
(e) For a period of 180 days from the date of the Prospectus, not to
directly or indirectly offer, sell or otherwise dispose of any shares of
Common Stock or Preferred Stock or any securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire shares
of Common Stock or Preferred Stock, or any other securities of the Company
(other than the Securities or pursuant to employee stock option plans or
pursuant to options, warrants or rights outstanding immediately following the
First Delivery Date or pursuant to bona fide gifts to persons who agree in
writing with the donor to be bound by this restriction), without your prior
written consent;
(f) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed;
and (ii) such additional information concerning the business and financial
condition of the Company as you may from time to time reasonably request;
(g) To apply the net proceeds from the sale of the Securities for the
purposes set forth in the Prospectus; and
(h) To cause the Securities to be duly included for quotation on The Nasdaq
Stock Market's SmallCap Market ("Nasdaq") prior to the First Delivery Date;
and to ensure that the Securities remain included for quotation on Nasdaq or a
national securities exchange following the First Delivery Date for a period
which is the earlier of 36 months or until such time as the Company no longer
has a class of equity securities registered under the Exchange Act.
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6. Payment of Expenses
The Company covenants and agrees with the Underwriter that: (i) the Company
will pay or cause to be paid the fees, disbursements and expenses of the
Company's counsel and accountants in connection with the registration of the
Securities under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and the
mailing and delivering of copies thereof to the Underwriter and dealers; (ii)
the Company will pay or cause to be paid the cost of reproducing this Agreement,
the Blue Sky Survey and Memorandum and any other documents in connection with
the offering, purchase, sale and delivery of the Securities; (iii) the Company
will pay or cause to be paid all expenses in connection with the qualification
of the Securities for offering and sale under state securities laws as provided
in Section 5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky Survey and Memorandum; (iv) the Company will pay or cause to be paid
the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the
Securities; (v) the Company will pay or cause to be paid the cost of preparing
stock certificates; (vi) the Company will pay or cause to be paid the costs or
expenses of any transfer agent or registrar; and (vii) the Company will pay or
cause to be paid all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section. It is understood, however, that except as provided in Section 8 and
Section 11 hereof, you will pay all your own costs and expenses, including the
fees of your counsel, stock transfer taxes on resale of any of the Securities by
them and any advertising expenses connected with any offers you may make.
7. Conditions to Obligations of Underwriter.
The obligations of the Underwriter hereunder, as to the Securities to be
delivered at each Delivery Date, shall be subject, in your discretion, to the
condition that all representations and warranties and other statements of the
Company herein are, at and as of such Delivery Date, true and correct, the
condition that the Company shall have performed all of its obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) If the Registration Statement or any amendment thereto filed prior to
the First Delivery Date has not been declared effective as of the time of
execution hereof, the Registration Statement or such amendment shall have been
declared effective not later than 11 A.M., Richmond time, on the date on which
the amendment to the Registration Statement containing information regarding
the initial public offering price of the Securities has been filed with the
Commission, or such later time and date as shall have been consented to by the
Representatives; if required, the Prospectus or any Term Sheet that
constitutes a part thereof and any amendment or supplement thereto shall have
been filed with the Commission in the manner and within the time period
required by Rules 434 and 424(b) under the Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall
have been issued, and no proceedings for that purpose shall have been
instituted or threatened or, to the knowledge of the Company or the
Underwriter, shall be contemplated by the Commission; and the Company shall
have complied with any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or otherwise);
(b) Alston & Bird, counsel for the Underwriter, shall have furnished to you
such opinion or opinions, dated such Delivery Date, with respect to the
incorporation of the Company, the validity of the Securities being issued at
such Delivery Date, the Registration Statement, the Prospectus, and other
related matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters (provided, that as to all matters governed by
West Virginia law, Alston & Bird shall be entitled to rely upon the opinion of
Jackson & Kelly);
(c) Jackson & Kelly, counsel for the Company, shall have furnished to you
their written opinion, dated such Delivery Date, in form reasonably
satisfactory to you, to the effect that:
(i) Each of the Company, the Subsidiaries and Pikeville have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, with
corporate power and authority to own or lease their respective properties
and conduct their respective businesses as described in the Prospectus;
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(ii) Each of the Company, the Subsidiaries and Pikeville have been duly
qualified as foreign corporations for the transaction of business and are
in good standing under the laws of every other jurisdiction in which they
own or lease properties, or, to such counsel's knowledge, conduct any
business, so as to require such qualification, except where the failure to
so qualify will not result in a material adverse effect on the business,
management, financial position, shareholders' equity or results of
operations of the Company;
(iii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
nonassessable and conform to the description of the capital stock contained
in the Prospectus; there are no preemptive or other similar rights to
subscribe for or to purchase any securities of the Company; to such
counsel's knowledge, except as described in the Prospectus, there are no
warrants or options to purchase any securities of the Company which are
currently outstanding or will be as of the Delivery Date; to such counsel's
knowledge, neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated by this Agreement gives
rise to any rights for or relating to the registration of any securities of
the Company with respect to such filing, offering or sale, other than
rights which have been waived; and the form of the certificates evidencing
the Securities complies with all formal requirements of Delaware law;
(iv) All of the issued shares of capital stock of the Subsidiaries and
of Pikeville have been duly and validly authorized and issued and are fully
paid and nonassessable; and except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the Subsidiaries are
owned by the Company either directly or through wholly-owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances
and, upon consummation of the Stock Purchase in accordance with the
provisions of the Purchase Agreement, all outstanding shares of capital
stock of Pikeville will be owned by the Company free and clear of any
security interests, claims, liens or encumbrances;
(v) The Securities have been duly and validly authorized and when
issued and delivered against payment therefor on the Delivery Date, will
be duly and validly issued and fully paid and nonassessable, and will
conform to the description of the Securities contained in the Prospectus
as amended or supplemented;
(vi) To such counsel's knowledge, neither the Company, any Subsidiary
nor Pikeville has sustained since the date of the latest audited financial
statements included in the Prospectus any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
there has not been any change in the outstanding capital stock or a
material change in the long-term debt of the Company or any material
adverse change, or any development involving a prospective adverse change,
in or affecting the business, management, financial position, shareholders'
equity or results of operations of the Company, the Subsidiaries or
Pikeville, otherwise than as set forth or contemplated in the Prospectus;
(vii) To such counsel's knowledge, there is no legal or governmental
proceeding pending to which the Company, any Subsidiary or Pikeville is a
party or of which any property of the Company, any Subsidiary or Pikeville
is the subject, other than as set forth or contemplated in the Prospectus,
that, if determined adversely, would individually or in the aggregate have
a material adverse effect on the business, management, financial position,
shareholders' equity or results of operations of the Company, and, to such
counsel's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(viii) The issue and sale of the Securities being issued at such
Delivery Date by the Company and the performance of this Agreement by the
Company and the consummation by the Company of the other transactions
herein contemplated will not conflict with or result in a breach or
violation of any terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company, any Subsidiary or Pikeville is a party
or by which
10
<PAGE>
the Company, any Subsidiary or Pikeville is bound or to which any of the
property or assets of the Company, any Subsidiary or Pikeville is subject,
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or Bylaws of the Company or the charter,
articles of incorporation, articles of association or bylaws of any of the
Subsidiaries or Pikeville or of any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company, any Subsidiary or Pikeville or
any of their respective properties;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Securities being issued at the
Delivery Date by the Company or the consummation by the Company of the
other transactions contemplated by this Agreement, except such as have been
set forth or contemplated in the Prospectus, such as have been obtained
under the Act and such as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the Securities
by the Underwriters;
(x) The Registration Statement and the Prospectus or the Term Sheet
and any further amendments and supplements thereto made by the Company,
including a registration statement filed pursuant to Rule 462(b) of the
Act, prior to such Delivery Date (other than the financial statements and
related schedules and data, as to which such counsel need express no
opinion) comply as to form in all material respects with the requirements
of the Act and the rules and regulations thereunder; such counsel has no
reason to believe that, as of the effective date of the Registration
Statement and as of such Delivery Date, either the Registration Statement,
the Prospectus or the Term Sheet (other than the financial statements and
related schedules and data) (or, as of its date, any further amendment or
supplement thereto, including a registration statement filed pursuant to
Rule 462(b) of the Act, made by the Company prior to such Delivery Date)
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and such counsel does not know of any contracts or
other documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement, the Prospectus or the Term Sheet which are not filed or
described as required;
(xi) The descriptions in the Registration Statement and Prospectus and
any further amendments or supplements thereto, including a registration
statement filed pursuant to Rule 462(b) of the Act, of statutes, and to
such counsel's knowledge, legal and governmental proceedings and contracts
and other documents are accurate and fairly present the information
required to be shown; and
(xii) This Agreement has been duly authorized, executed and delivered
by the Company.
Such opinion may be furnished subject to such stated assumptions, limitations
and qualifications as shall be acceptable to Alston & Bird, counsel for the
Underwriter.
(d) At 10:00 a.m., Richmond, Virginia time, on the date of this Agreement
and the effective date of the most recently filed post-effective amendment to
the Registration Statement and also at each Delivery Date, Ernst & Young LLP
shall have furnished to you a letter or letters, dated the respective date of
delivery thereof, in form and substance reasonably satisfactory to you,
containing statements and information of the type included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
other financial information relating to the Company and relating to Pikeville
contained in the Registration Statement and the Prospectus, in accordance with
the Statement on Auditing Standards No. 72, Letters for Underwriters and Other
Third Parties;
(e) Neither the Company nor Pikeville shall not have sustained, since the
date of the latest audited financial statements included in the Prospectus,
any loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set forth
or
11
<PAGE>
contemplated in the Prospectus, and, since the respective dates as of which
information is given in the Prospectus, there shall not have been any change
in the outstanding capital stock or a material change in the long-term debt of
the Company or any change, or any development involving a prospective change,
in or affecting the business, management, financial position, shareholders'
equity or results of operations of the Company or Pikeville otherwise than as
set forth or contemplated in the Prospectus, the effect of which, in any such
case described in clause (i) or (ii) is in your reasonable judgment so
material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities being delivered at
such Delivery Date on the terms and in the manner contemplated by the
Prospectus;
(f) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (ii) a general moratorium on
commercial banking activities in New York declared by either federal or New
York authorities; (iii) the outbreak or escalation of hostilities involving
the United States or the declaration by the United States of a national
emergency or war, if any such event specified in this clause (iii) would have
such a materially adverse effect, in your reasonable judgment, as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities being delivered at such Delivery Date on the terms
and in the manner contemplated in the Prospectus; or (iv) such a material
adverse change in general economic, political, financial or international
conditions affecting financial markets in the United States having a material
adverse impact on trading prices of securities in general, as, in your
reasonable judgment, makes it inadvisable to proceed with the payment for and
delivery of the Securities;
(g) The Company shall have furnished to you copies of agreements between
the Company and the directors and executive officers of the Company, in form
and content reasonably satisfactory to you, pursuant to which such persons
agree not to directly or indirectly offer, sell, or otherwise dispose of, any
shares of Common Stock or Preferred Stock or any securities convertible into,
or exercisable or exchangeable for, or any rights to purchase or acquire,
shares of Common Stock or Preferred Stock, on or before the 180th day after
the date of this Agreement without your prior written consent; and
(h) The Company shall have furnished or caused to be furnished to you at
such Delivery Date certificates of officers of the Company reasonably
satisfactory to you as to the accuracy of the respective representations and
warranties of the Company herein at and as of such Delivery Date, as to the
performance by the Company of all of its obligations hereunder to be performed
at or prior to such Delivery Date, as to the matters set forth in subsection
(a) and (e) of this Section and as to such other matters as you may reasonably
request.
8. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless the Underwriter against
any losses, claims, damages or liabilities, joint or several, to which the
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company in Section 1(a) of this Agreement; or
(ii) an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus; or
(iii) any amendment or supplement thereto, including a registration
statement filed pursuant to Rule 462(b) of the Act or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading;
and will promptly reimburse the Underwriter for any legal or other expenses
reasonably incurred by the Underwriter in connection with investigating,
preparing to defend or defending, or appearing as a third-party witness in
connection with, any such action or claim; provided, that the Company shall not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by you expressly for use therein; provided, further, that the foregoing
indemnity agreement with respect to any Preliminary Prospectus shall not inure
to the benefit of the Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Securities, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall
12
<PAGE>
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of the Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Securities to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities.
(b) The Underwriter will indemnify and hold harmless the Company, each of
its directors, and each of its officers who signed the Registration Statement
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, including a registration
statement filed pursuant to Rule 462(b) of the Act, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by you expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating, preparing to defend or defending, or
appearing as a third-party witness in connection with, any such action or claim.
The Company acknowledges that the statements set forth under the heading
"Underwriting" in the Preliminary Prospectus and the Prospectus constitute the
only information furnished in writing by or on behalf of the Underwriter for
inclusion in the Preliminary Prospectus or the Prospectus, and you confirm that
such statements are correct.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified
party otherwise than under such subsection. In case any such action shall be
brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party; provided, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have been advised by counsel
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. It is understood that the indemnifying party shall, in
connection with any such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys together with appropriate local counsel at
any time for all indemnified parties unless such firm of attorneys shall have
reasonably concluded that there may be legal defenses available to one
indemnified party which are different from or additional to those available to
another indemnified party. Upon receipt of notice from the indemnifying party
to such indemnified party of its election so to appoint counsel to defend such
action and approval by the indemnified party of such counsel, the indemnifying
party will not be liable for any settlement entered into without its consent
and will not be liable to such indemnified party under this Section 8 for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the next preceding
sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party; and except that,
if clause (i) or (iii) is applicable, such liability shall be only in respect
of the counsel referred to in such clause (i) or (iii). Notwithstanding the
immediately preceding sentence and the first sentence of this paragraph, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying
13
<PAGE>
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement.
(d) If the indemnification provided for in this Section 8 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company, on the one hand, and the
Underwriter, on the other, from the offering of the Securities. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company, on the one hand, and the Underwriter, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Underwriter, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering (after deducting the total underwriting discount, but before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriter, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or the
Underwriter, on the other, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriter agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls the Underwriter within the meaning of the Act; and the obligations of
the Underwriter under this Section 8 shall be in addition to any liability
which the Underwriter may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company and to each person,
if any, who controls the Company within the meaning of the Act.
9. Default of Underwriters.
(a) If you shall default in your obligation to purchase the Securities
that it has agreed to purchase hereunder at a Delivery Date, you may in your
discretion arrange for another party or other parties to purchase such
Securities on the terms contained herein. If within 36 hours after such
default you do not arrange for the purchase of such Securities, then the
Company shall be entitled to a further period of 36 hours within which to
procure another party or other parties to purchase such Securities on such
terms. In the event that, within the respective prescribed periods, you notify
the Company that you have so arranged for the purchase of such Securities, or
the Company notifies you that they have so arranged for the purchase of such
Securities, you or the Company shall have the right to postpone such Delivery
Date for a period of not more than seven days, in order to effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
to file promptly any amendments to the Registration Statement or the Prospectus
which in your opinion, exercised in consultation with Alston & Bird, may
thereby be made necessary.
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<PAGE>
The term "Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Securities.
(b) If, after giving effect to any arrangements for the purchase of the
Securities by you and the Company as provided in subsection (a) above, the
aggregate number of such Securities that remains unpurchased exceeds
one-eleventh of the aggregate number of all the Securities to be purchased at
such Delivery Date, then this Agreement (or, with respect to the Second Delivery
Date, the obligation of the Underwriter to purchase and of the Company to sell
the Optional Securities) shall thereupon terminate, without liability on the
part of the Company, except for the expenses to be borne by the Company and the
Underwriters as provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve the Underwriter
from liability for its default.
10. Representations and Indemnities to Survive.
The respective indemnities, agreements, representations, warranties and other
statements of the Company and the Underwriter, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement or any investigation (or any statement as to the results
thereof) made by or on behalf of the Underwriter or any controlling person of
the Underwriter, or the Company, or any officer or director or controlling
person of the Company, and shall survive delivery of and payment for the
Securities.
11. Termination and Payment of Expenses.
If this Agreement shall be terminated pursuant to Section 9 or Section 7(f)
hereof, the Company shall not then be under any liability to the Underwriter
except as provided in Section 6 and Section 8 hereof; but if for any other
reason any Securities are not delivered by or on behalf of the Company as
provided herein, the Company will reimburse you for all out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Securities not so delivered, but the Company shall then be under no further
liability to the Underwriter except as provided in Section 6 and Section 8
hereof.
12. Notices.
All statements, requests, notices and agreements hereunder shall be in
writing or by telegram if promptly confirmed in writing, and if to the
Underwriter shall be sufficient in all respects if delivered or sent by
reliable courier, first-class mail, telex or facsimile transmission to Wheat,
First Securities, Inc., at Riverfront Plaza, 901 East Byrd Street, Richmond,
Virginia 23219, Attention: Corporate Finance Department; if to the Company
shall be sufficient in all respects if delivered or sent by reliable courier,
first-class mail, telex, or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Dan R. Moore, with
a copy (which shall not constitute notice) to Jackson & Kelly. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13. Successors.
This Agreement shall be binding upon, and inure solely to the benefit of, the
Underwriter and the Company and, to the extent provided in Sections 8 and 10
hereof, the officers and directors of the Company and each person who controls
the Company or the Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from the Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time of the Essence.
Time shall be of the essence in this Agreement.
15
<PAGE>
15. Business Day.
As used herein, the term "business day" shall mean any day when the
Commission's office in Washington, D.C. is open for business.
16. Applicable Law.
This Agreement shall be construed in accordance with the laws of the State of
New York without regard to its conflicts of laws provisions.
17. Captions.
The captions included in this Agreement are included solely for convenience
of reference and shall not be deemed to be a part of this Agreement.
18. Counterparts.
This Agreement may be executed by any one or more of the parties in any
number of counterparts, each of which shall be deemed to be an original, but
all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us four counterparts hereof, and upon the acceptance hereof by you,
this letter and such acceptance hereof shall constitute a binding agreement
between the Underwriter and the Company.
Very truly yours,
MATEWAN BANCSHARES, INC.
By: _____________________________________
Dan R. Moore
President and Chief Executive Officer
Accepted as of the date hereof
at Richmond, Virginia:
WHEAT, FIRST SECURITIES, INC.
By: __________________________
16
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of September 28, 1995
between Banc One Kentucky Corporation, a Kentucky corporation ("BANC ONE
KENTUCKY") and Matewan BancShares, Inc., a Delaware corporation ("MATEWAN"), and
joined in by BANC ONE CORPORATION, an Ohio corporation ("BANC ONE").
WHEREAS, BANC ONE KENTUCKY owns all of the issued and outstanding capital
stock ("Stock") of Bank One, Pikeville, National Association (the "Bank"); and
WHEREAS, BANC ONE owns all of BANC ONE KENTUCKY's issued and outstanding
capital stock; and
WHEREAS, MATEWAN desires to purchase the Stock from BANC ONE KENTUCKY and
BANC ONE KENTUCKY desires to sell the Stock to MATEWAN upon the terms and
subject to the conditions hereinafter set forth (the "Acquisition"); and
WHEREAS, BANC ONE KENTUCKY, BANC ONE and MATEWAN desire to provide for
certain undertakings, conditions, representations, warranties and covenants in
connection with the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 "Bank Employees" shall mean all employees of the Bank together with any
person who works on Bank premises but who is technically an employee of
another affiliate of BANC ONE. A list of Bank Employees has been set forth
in Previously Disclosed.
<PAGE>
1.2 "Bank Holding Company Act" shall mean the Bank Holding Company Act of 1956,
as amended.
1.3 "Book Value" shall mean the dollar amount of any asset or liability
reflected on the Books of the Bank as of the date in question on an
unconsolidated basis increased or decreased, as the case may be, by any
interest earned or accrued, but not collected or paid, if any, all as
reflected on such Books as of such date.
1.4 "Books" shall mean the general ledger of the Bank and any subsidiary ledger
of the Bank.
1.5 "Buyer Indemnified Parties" means MATEWAN, affiliates of MATEWAN (as of the
Closing Date) and (after the closing) the Bank.
1.6 "Call Reports" shall mean those periodic reports of condition filed with
the Office of the Comptroller of the Currency pursuant to 12 U.S.C. (S)
161, in each case as of December 31, 1993 and 1994 and June 30, 1995 and
for the periods then ended, and as of and for the periods ending after June
30, 1995.
1.7 "Closing" shall mean the purchase and sale of the Stock as described in
Section 2.3 hereof.
1.8 "Closing Date" shall mean the date specified pursuant to Section 2.3 hereof
as the date on which the parties hereto shall close the transactions
contemplated herein.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.10 "Commissioner" shall mean the Department of Financial Institutions of the
Commonwealth of Kentucky.
1.11 "Employee Benefit Plan(s)" means any one or more of the following in which
a Bank Employee or dependent of Bank Employee is a participant in or
benefits from as a result
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<PAGE>
of his employment (whether current or past) with Bank, BANC ONE, and/or
BANC ONE KENTUCKY: (a) Employee Pension Benefit Plan, (b) Employee Welfare
Benefit Plan, or (c) any other deferred compensation plan, bonus plan,
incentive, disability or other group insurance plan, stock option plan,
employee stock purchase plan, vacation plan, severance plan, sick leave
plan or policy, holiday plan or policy, maternity leave plan or policy, or
any other benefit plan, program, agreement (including employment
agreements), arrangements or commitments of any kind, whether or not
subject to the requirements of ERISA.
1.12 "Employee Pension Benefit Plan" has the meaning set forth in ERISA
(S) 3(2).
1.13 "Employee Welfare Benefit Plan" has the meaning set forth in ERISA
(S) 3(1).
1.14 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
1.15 "Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System.
1.16 "Former Bank Employee" means an individual who worked for Bank, who is not
deemed actively at work on the Closing Date, and who is not Previously
Disclosed as a Bank Employee.
1.17 "Hazardous Substances" means, without limitation, any substance that is
toxic, ignitable, reactive, or corrosive and that is regulated by any local
government, state government, or the U.S. government. "Hazardous
Substances" also includes any and all material or substances that are
defined as "hazardous waste," "extremely hazardous waste," or a
"hazardous substance" pursuant to state, federal, or local governmental
law. "Hazardous Substances" also includes, but is not restricted to,
asbestos, polychlorobiphenyls (PCBs), and petroleum.
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<PAGE>
1.18 "Loan Schedule" shall mean each of the schedules of certain Loans
Previously Disclosed to MATEWAN as contemplated by Section 3.17 hereof.
1.19 "Loans" is defined in Section 3.17 hereof.
1.20 "MATEWAN Common Stock" shall mean MATEWAN's common stock with par value of
$1.00 per share.
1.21 "OCC" shall mean the Office of the Comptroller of the Currency.
1.22 "PBGC" shall mean the Pension Benefit Guaranty Corporation.
1.23 "Previously Disclosed" shall mean disclosed prior to the execution hereof
in a letter dated of even date herewith from the party making such
disclosure and delivered to the other party prior to the execution hereof.
1.24 "Purchase Price" shall mean the cash consideration to be paid by MATEWAN
for the Stock, which shall be in the amounts set forth in Section 2.2
hereof.
1.25 "Retained Litigation" shall mean that litigation currently pending in Pike
Circuit Court and consisting of cases styled The First National Bank of
--------------------------
Pikeville v. Coalfields Reclamation, Inc., et al. (Civil Action 92-CI-573);
-------------------------------------------------
The First National Bank of Pikeville v. Camp Fort Fuel Company, Inc., et
------------------------------------------------------------------------
al.
---
(Civil Action 93-CI-1152); and In Re Preece Coal Company (Civil Action 89-
-------------------------
20042).
1.26 "Rights" shall mean warrants, options, rights, convertible securities and
other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock.
1.27 "SEC Documents" shall mean all reports and registration statements filed,
or required to be filed, if any, by MATEWAN pursuant to the Securities
Laws.
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<PAGE>
1.28 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.29 "Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939, as amended; and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Other terms used herein are defined in the preamble and the recitals to the
Agreement or elsewhere in the Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase by MATEWAN. Upon the terms and subject to the conditions set forth
-------------------
in this Agreement, MATEWAN agrees to purchase all of the Stock from BANC
ONE KENTUCKY and BANC ONE KENTUCKY agrees to sell all of the Stock to
MATEWAN.
2.2 Purchase Price. The Purchase Price shall be cash in the amount of
--------------
$28,600,000.
2.3 Closing Date.
------------
(a) The sale and purchase of the Stock hereunder (the "Closing") shall
occur at the executive offices of MATEWAN in Williamson, West
Virginia, or at such other place as shall be mutually agreeable to the
parties, on the date designated by MATEWAN, which shall be not earlier
than the first business day following, or later than the 30th calendar
day of the month following the last to occur of (i) the date that
falls fifteen (15) days after the date of the order of the Federal
Reserve Board approving the Acquisition; (ii) as necessary, the
approval of the Commissioner; and (iii) any other required regulatory
approval and any related notice or waiting period; provided, however,
that the Closing shall occur not earlier than the day following the
date on which MATEWAN closes on the stock
-5-
<PAGE>
sale/financing referred to in Section 5.1(b) hereof (the date of the
Closing being referred to herein as the "Closing Date").
(b) On the Closing Date, the following actions shall be taken:
(i) MATEWAN shall pay the Purchase Price to BANC ONE KENTUCKY by
wire transfer of immediately available federal funds to such
bank account in the United States as BANC ONE KENTUCKY shall
designate;
(ii) BANC ONE KENTUCKY shall deliver certificates for the Stock to
MATEWAN, duly endorsed in blank or with stock powers duly
endorsed in blank, together with such other documents as MATEWAN
may reasonably request to evidence the transfer to MATEWAN of
good and marketable title in and to the Stock, free and clear of
any lien, security interest, pledge, charge, encumbrance or
restriction of any kind or nature; and
(iii) Each party shall take such other actions, and shall execute and
deliver such other instruments or documents as shall be required
under Section 5.6 and Article 6 hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
BANC ONE KENTUCKY AND BANC ONE
BANC ONE KENTUCKY and BANC ONE represent and warrant to MATEWAN as follows,
except as may be set forth in Previously Disclosed:
3.1 Organization. Standing and Authority of BANC ONE KENTUCKY. BANC ONE
---------------------------------------------------------
KENTUCKY is a duly organized corporation, validly existing and in good
standing under the laws of the Commonwealth of Kentucky with full
corporate power and authority to
-6-
<PAGE>
carry on its business as now conducted. BANC ONE KENTUCKY is registered as
a bank holding company under the Bank Holding Company Act.
3.2 Organization. Standing and Authority of the Bank. Bank is a duly organized
------------------------------------------------
national banking association, validly existing and in good standing under
the laws of the United States. The Bank (i) has full power and authority
to carry on its business as now conducted and (ii) is duly qualified to
do business in the states of the United States and foreign jurisdictions
where its ownership or leasing of property or the conduct of its business
requires such qualification and where failure to so qualify would have a
material adverse affect on the financial condition or results of
operations of the Bank.
3.3 Authorized and Effective Agreement.
----------------------------------
(a) BANC ONE KENTUCKY has all requisite corporate power and authority to
enter into and perform all of its obligations under this Agreement.
The execution and delivery of this Agreement and consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of
BANC ONE KENTUCKY. This Agreement constitutes a legal, valid and
binding obligation of BANC ONE KENTUCKY, enforceable against BANC ONE
KENTUCKY in accordance with its terms subject, as to enforceability,
to bankruptcy, insolvency and other laws of general applicability
relating to or affecting creditors rights and to general equity
principles.
(b) Neither the execution and delivery of this Agreement nor consummation
of the transactions contemplated hereby nor compliance by BANC ONE
KENTUCKY with any of the provisions hereof shall (i) conflict with or
result in a breach of any provision of the certificate of
incorporation, articles of association or similar charter document or
by-laws of BANC ONE KENTUCKY or the Bank, (ii) constitute or result in
a breach of any term, condition or provision of, or constitute a
default under, or give rise to any right of termination, cancellation
or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any
-7-
<PAGE>
property or asset of BANC ONE KENTUCKY or the Bank pursuant to, any
note, bond, mortgage, indenture, license, agreement or other
instrument or obligation, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to BANC ONE
KENTUCKY or the Bank, excluding from the foregoing clauses (ii) and
(iii) violations, breaches and defaults which, either individually or
in the aggregate, would not have a material adverse effect on the
Bank.
3.4 Capital Structure of the Bank.
-----------------------------
(a) The authorized capital stock of the Bank at June 30, 1995 consisted of
500,000 shares of common stock, par value $10 per share. At June 30,
1995 and as of the date hereof, 225,000 shares of the Bank's common
stock are validly issued, fully paid and, subject to 12 U.S.C. (S) 55,
nonassessable. No other class of capital stock of the Bank is
authorized, issued, or outstanding.
(b) Except as Previously Disclosed, all of the shares of Stock are owned
by BANC ONE KENTUCKY free and clear of all liens, claims and
encumbrances. No Rights are authorized, issued or outstanding with
respect to the capital stock of the Bank and there are no agreements,
understandings or commitments relating to the right of BANC ONE
KENTUCKY to vote or to dispose of said shares. No share of capital
stock of the Bank has been issued in violation of the preemptive
rights of any person.
3.5 Subsidiaries. The Bank does not own, directly or indirectly, any capital
------------
stock or other voting securities of any corporation, bank or other
organization.
3.6 Call Reports. The Call Reports for the Bank comply in all material respects
------------
with the rules, regulations and instructions applicable to the preparation
thereof and accurately refect the financial position and results of
operations as of the dates and for the periods applicable thereto in
accordance with OCC guidelines.
-8-
<PAGE>
3.7 Material Adverse Change. Except as Previously Disclosed, the Bank has not
-----------------------
suffered any material adverse change in its financial condition or results
of operations since June 30, 1995.
3.8 Allowance for Loan Losses. Except as Previously Disclosed, the allowance
-------------------------
for loan losses reflected in the quarterly loan loss reserve report of the
Bank as of August 31, l995, a copy of which has been Previously Disclosed,
has been recorded on the books of account of the Bank and is adequate in
all material respects as of such date under the requirements of generally
accepted accounting principles and standard banking practices to provide
for reasonably anticipated losses on outstanding loans net of recoveries.
3.9 Legal Proceedings. Except as Previously Disclosed, there are no actions,
-----------------
suits or proceedings instituted, pending or, to the best knowledge of BANC
ONE KENTUCKY, threatened against BANC ONE KENTUCKY or the Bank or against
any asset, interest or right of the Bank that is reasonably expected to
have a material adverse effect on the financial condition or results of the
operations of the Bank. To the knowledge of BANC ONE KENTUCKY, there are no
actual or threatened actions, suits or proceedings which present a claim to
restrain or prohibit the transactions contemplated herein.
3.10 Compliance with Laws.
--------------------
(a) The Bank is in compliance in all material respects with all statutes
and regulations applicable to the conduct of its business, the
violation of which, either individually or in the aggregate, would
have a material adverse effect on its financial condition or results
of its operations, and neither BANC ONE KENTUCKY nor the Bank has
received notification from any agency or department of federal, state
or local government (i) asserting a violation of any such statute or
regulation by the Bank, (ii) threatening to revoke any license,
franchise, permit or government authorization previously granted to
the Bank or (iii) restricting or in any way limiting the operations of
the Bank. Except as Previously Disclosed, neither BANC ONE KENTUCKY
nor the Bank has received written notification of, nor, to the
-9-
<PAGE>
knowledge of BANC ONE KENTUCKY or the Bank, do there exist, any
violations of applicable federal, state or local health, environmental
or safety laws, rules, regulations or orders with regard to the
operation of any real estate owned or leased by the Bank, whether
utilized as banking offices or otherwise, which violations, either
individually or in the aggregate, would have a material adverse effect
on the financial condition or results of operations of the Bank.
(b) To the best of the knowledge, without investigation, of BANC ONE
KENTUCKY and the Bank, all real estate owned or leased by the Bank,
whether utilized as banking offices or otherwise, is not contaminated
with any Hazardous Substances or other pollutants as of the date of
this Agreement, and no Hazardous Substances or other pollutants have
been transported from any such real estate or other locations.
(c) To BANC ONE and BANC ONE KENTUCKY's knowledge, there are no pending or
threatened claims, actions, investigations, notices of non-compliance,
information requests or notices of potential responsibility or
proceedings involving the Bank relating to and there is no reasonable
basis for the assertion of any claims, actions, investigations,
notices or proceedings with respect to:
(1) an asserted liability of the Bank or any of its subsidiaries or
any prior owner, occupier or user of real estate under any
environmental law or the terms and conditions of any permit,
license, authority, settlement, agreement, decree or other
obligation arising under any environmental law;
(2) the handling, storage, use, transportation, removal or disposal
of Hazardous Substances;
(3) the actual or threatened discharge, release or emission of
Hazardous Substances from, on or under or within any such
property into the air, water, surface water, ground water, land
surface or subsurface strata; or
-10-
<PAGE>
(4) personal injuries or damage to property related to or arising
out of exposure to Hazardous Substances.
3.11 Brokers and Finders. None of BANC ONE, BANC ONE KENTUCKY, the Bank, nor any
-------------------
of their respective officers, directors, employees or agents has employed
any broker, finder or financial advisor or incurred any liability for any
fees or commissions in connection with the transactions contemplated
hereby.
3.12 Taxes.
-----
(a) Except as Previously Disclosed, the Bank has timely filed all federal,
state and local (and, if applicable, foreign) tax returns required by
applicable law to be filed by it (including without limitation,
estimated tax returns, income tax returns, information returns and
withholding and employment tax returns) and have paid, or where
payment is not required to have been made, in accordance with
generally accepted accounting principles, have set up an adequate
reserve or accrual for the payment of, all taxes and penalties, if
any, required to be paid in respect of the periods covered by such
returns.
(b) All federal, state and local (and, if applicable, foreign) tax returns
filed by the Bank are complete and accurate in all material respects.
Except as Previously Disclosed, the Bank is not delinquent in the
payment of any tax, assessment or governmental charge, and has not
requested any extension of time within which to file any tax returns
in respect of any fiscal year or portion thereof which have not since
been filed. No deficiencies for any tax, assessment or governmental
charge have been proposed, asserted or assessed (tentatively or
otherwise) against the Bank which have not been settled and paid.
Except as Previously Disclosed, there are currently no agreements in
effect to extend the period of limitations for the assessment or
collection of any tax.
-11-
<PAGE>
3.13 Properties. The Bank has good and marketable title free and clear of all
----------
liens, encumbrances, charges, defaults or equities to all of the properties
and assets, real and personal, reflected on the statement of condition
included in its Call Report as of June 30, 1995 or acquired after such
date, except (i) liens for current taxes not yet due and payable or being
contested in good faith, (ii) pledges to secure deposits and other liens
incurred in the ordinary course of banking business, (iii) such
imperfections of title, easements and encumbrances, if any, as are not
material in character, amount or extent and (iv) dispositions and
encumbrances for adequate consideration in the ordinary course of business.
All material leases pursuant to which the Bank, as lessee, leases real or
personal property, are valid and enforceable in accordance with their
respective terms, subject, as to enforceability, to bankruptcy, insolvency
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
3.14 Certain Contracts.
-----------------
(a) Except as Previously Disclosed, the Bank is not a party to, bound or
affected by, and does not receive benefit under (i) any material
agreement, arrangement or commitment not made in the ordinary course
of business, (ii) any agreement, indenture or other instrument
relating to the borrowing of money by it or the guarantee by it of any
such obligation (other than instruments relating to transactions
entered into in the customary course of its banking business), (iii)
any agreement, arrangement or commitment relating to the employment of
a consultant or the employment, election or retention in office of any
present or former director or officer, or (iv) any contract, agreement
or understanding with a labor union.
(b) The Bank is not in default under any material order, writ, judgment,
decree, agreement, commitment, arrangement, lease, insurance policy,
or other instrument whether entered into in the ordinary course of
business or otherwise and whether written or oral, and there has not
occurred any event that, with the lapse of time or giving of notice or
both, would constitute such a default.
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<PAGE>
(c) From June 30, 1995 to the date hereof, the Bank has not taken any
action that, if taken after the date hereof, would breach any of the
covenants contained in Section 5.5 hereof.
3.15 Employee Benefit Plans.
----------------------
(a) Each of the Employee Benefit Plans has been administered in all
material respects in compliance with the applicable requirements of
ERISA, the Code, other federal statute, applicable federal
regulations, applicable state law (including without limitation state
insurance law) and in accordance with its terms. Each of the Employee
Benefit Plans may be terminated as to Bank Employees or amended to
exclude Bank Employees from future participation under such Employee
Benefit Plans by either Bank or BANC ONE. All reports required by any
governmental agency with respect to each such Employee Benefit Plan
has been timely and properly filed and to the extent required,
furnished to the participants in such plan. Except as Previously
Disclosed, no lawsuits or written complaints have been filed with
respect to any Employee Benefit Plan in connection with any Bank
Employee or any participant in such plan who participates as a result
of their relationship with a Bank Employee. None of BANC ONE KENTUCKY,
BANC ONE or Bank has engaged in a transaction that would subject the
Bank to any tax, penalty or liability for prohibited transactions
imposed by ERISA or by (S) 4975 of the Code. Except as contemplated by
this Agreement, neither BANC ONE KENTUCKY, BANC ONE nor the Bank has
filed with the PBGC or furnished to any participant, a notice of
intent to amend or terminate an Employee Benefit Plan. Neither Bank,
BANC ONE KENTUCKY or BANC ONE nor any fiduciary of any Employee
Welfare Benefit Plan or any Employee Pension Benefit Plan has engaged
in any transaction in violation of (S) 406(a) or (S) 406(b) of ERISA
(for which no exemption exists under (S) 408 of ERISA).
(b) There has not been any (i) termination of any "defined benefit plan"
within the meaning of ERISA maintained by either Bank or any person,
firm or corporation
-13-
<PAGE>
("affiliate") which is under "common control" (within the meaning of
(S) 400(b) of ERISA) with Bank or (ii) commencement of any proceeding
to terminate any such plan pursuant to ERISA, or otherwise, or (iii)
written notice given to Bank or any affiliate of the intention to
commence or seek the commencement of any such proceeding.
(c) Neither Bank nor any member of a controlled group of corporations or
other entity of which Bank is a member (determined in accordance with
(S) 414 of the Code) is or was at any time obligated to contribute to
or is or was otherwise a party or subject to any Employee Welfare
Benefit Plan or Employee Pension Benefit Plan that is or was a
multiemployer plan within the meaning of (S) 3(37) of ERISA.
(d) With the exception of Employee Pension Benefit Plans, none of the
benefits provided under any of the Employee Benefit Plans are vested.
3.16 Insurance. The Bank currently maintains insurance in amounts which are
---------
reasonable and customary for the operations of the Bank as a subsidiary of
BANC ONE and, to the best knowledge of BANC ONE KENTUCKY, to be similar in
scope and coverage to that maintained by other banks similarly situated.
The Bank has no liability for unpaid premiums or premium adjustments not
properly reflected on the Call Reports. Except as Previously Disclosed,
upon consummation of the Acquisition, the Bank will be deleted from the
BANC ONE or BANC ONE KENTUCKY insurance policies currently covering the
Bank.
3.17 Certain Loans. Except as Previously Disclosed in a Loan Schedule, (i) as of
-------------
August 31, 1995, the Bank is not a party as lender to any written or oral
loan agreement, note or borrowing arrangement, other than loans the unpaid
balance of which does not exceed $250,000 per loan (each such loan not so
excepted being referred to herein as a "Loan"), under the terms of which
the obligor is sixty (60) days delinquent in payment of principal or
interest or, to the best of BANC ONE KENTUCKY's knowledge, in default of
any other material provision as of the dates shown on the Loan Schedule;
(ii) as of August 31,
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<PAGE>
1995, no Loan has been classified as "substandard", "doubtful", "loss",
"other loans especially mentioned" or any comparable classification by BANC
ONE, BANC ONE KENTUCKY, the Bank or a banking regulator; and (iii) as of
September 22, 1995, the Bank is not a party to any Loan, including any loan
guaranty, with any director, executive officer or 10% shareholder of BANC
ONE, BANC ONE KENTUCKY or any person, corporation or enterprise
controlling, controlled by or under common control with any of the
foregoing.
3.18 Copy of all Contracts, Leases, etc. BANC ONE KENTUCKY has furnished to
----------------------------------
MATEWAN complete copies of all material contracts, leases and other
agreements to which the Bank is a party or by which it is bound and all
employment, pension, retirement, stock option, employee stock option,
profit sharing, deferred compensation, consultant, bonus, group insurance
or similar plans with respect to any of the directors, officers or other
employees of the Bank.
3.19 Undisclosed Liabilities. Except as Previously Disclosed, the Bank has no
-----------------------
material liabilities other than those liabilities disclosed on or provided
for in its Call Report as of June 30, 1995, and liabilities incurred since
such date in the ordinary course of business consistent with past
practices.
3.20 Absence of Regulatory Actions. The Bank is not a party to any cease and
-----------------------------
desist order, written agreement or memorandum of understanding with, or a
party to any commitment letter or similar undertaking to, or subject to
any order or directed by, or as a recipient of any extraordinary
supervisory letter from, federal governmental authorities charged with the
supervision or regulation of the operations of it, nor has the Bank been
advised by any such governmental authority that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or
requesting) any such order, directive, written agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
-15-
<PAGE>
3.21 Derivatives Contracts; Structured Notes, etc. Except as Previously
--------------------------------------------
Disclosed, as of the Closing, neither the Bank nor any subsidiary will be a
party to or have agreed to enter into an exchange-traded or over-the-
counter equity, interest rate foreign exchange or other swap, forward,
future, option, cap, floor or collar or any other contract that is a
derivative contract (including various combinations thereof) (each a
"Derivative Contract") or will own securities that (i) are referred to
generically as "structured notes," "high risk mortgage derivatives,"
"capped floating rate notes," or "capped floating rate mortgage
derivatives," or (ii) are likely to have changes in value as of the result
of interest or exchange rate changes that significantly exceed normal
exchanges in value attributable to interest or exchange rate changes,
except for those Derivative Contracts and other instruments legally
purchased or entered into in the ordinary course of business, consistent
with safe and sound banking practices and regulatory guidance, and
specifically approved by MATEWAN prior to closing.
3.22 Accounting Controls. The Bank has devised and maintained systems of
-------------------
internal accounting controls sufficient to provide reasonable assurances
that (i) all material transactions are executed in accordance with Bank
management's general or specific authorization; (ii) all material
transactions are recorded as necessary to permit the preparation of
financial statements in conformity with generally accepted accounting
principles, consistently applied with respect to banking organizations or
any other criteria applicable to such statements; (iii) access to the
material properties and assets of Bank is permitted only in accordance with
Bank management's general or specific authorization; and (iv) all material
asset and liability accounts on the general ledger of the Bank are
reconciled to the respective detail ledger(s) at reasonable intervals and
appropriate action is taken with respect to any differences.
3.23 Absence of Certain Changes. Since June 30, 1995:
--------------------------
(a) There has not been any damage, destruction or loss by reason of fire,
flood, accident or other casualty (whether insured or not insured)
materially and adversely affecting the assets, financial condition or
operations of the Bank;
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<PAGE>
(b) Except as Previously Disclosed and except in the ordinary course of
business, the Bank has not disposed of, or agreed to dispose of, any
of its material property or assets, nor has it leased to others, or
agreed to so lease, any of such material properties or assets;
(c) There has not been any change in the authorized, issued or outstanding
capital stock of the Bank;
(d) Except as Previously Disclosed, no material change has occurred in the
personnel who are responsible for management of key operations of the
Bank, nor has there been any increase in the compensation or fees
payable by the Bank to its directors or officers other than increases
in the ordinary course of business in accordance with the personnel
policies of BANC ONE, or any material increase in any bonus,
insurance, pension or other employee benefit plan, payment or
arrangement for or with any of such directors or officers;
(e) The Bank has not made any material loan or advance other than in the
ordinary course of business;
(f) The Bank has not made any expenditure or major commitment for the
purchase, acquisition, construction or improvement of any material
asset or assets which in the aggregate would be material;
(g) The Bank has not entered into any other material transaction, contract
or lease or incurred any other material obligation or liability; and
(h) Except as Previously Disclosed, the Bank has not incurred any unusual
or extraordinary loan losses.
3.24 Consents. Except for approvals by governmental banking authorities, no
--------
consent of any third party is necessary or required for the transactions
contemplated by this Agreement.
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<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF MATEWAN
MATEWAN represents and warrants to BANC ONE and BANC ONE KENTUCKY as follows:
4.1 Organization, Standing and Authority of MATEWAN. MATEWAN is a duly
-----------------------------------------------
organized corporation, validly existing and in good standing under the laws
of the State of Delaware with full corporate power and authority to carry
on its business as now conducted and is duly qualified to do business in
the states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires
such qualification. MATEWAN is registered as a bank holding company under
the Bank Holding Company Act.
4.2 Authorized and Effective Agreement.
----------------------------------
(a) MATEWAN has all requisite corporate power and authority to enter into
and perform its obligations under this Agreement. The execution and
delivery of this Agreement and consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of MATEWAN.
This Agreement constitutes the legal, valid and binding obligation of
MATEWAN enforceable against MATEWAN in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(b) Prior to the Closing Date, MATEWAN shall take all appropriate action
so that MATEWAN shall have all requisite corporate power and authority
to (i) issue additional shares of MATEWAN's capital stock and shall be
eligible to issue such capital stock either pursuant to a registration
statement to be filed by MATEWAN with the Securities and Exchange
Commission pursuant to the Securities Act or in a manner which shall
be exempt from registration pursuant to applicable provisions
-18-
<PAGE>
of the Securities Act and (ii) obtain other sources of financing to
complete the transaction as contemplated herein. The issuance by
MATEWAN of additional shares of MATEWAN's capital stock shall be duly
and validly authorized by all necessary corporate action in respect
thereof on the part of MATEWAN. Any such issuance shall be manifested
in a stock offering pursuant to which MATEWAN contemplates receiving
consideration for such shares which, in combination with funds which
MATEWAN shall borrow and other available resources, shall enable
MATEWAN to pay the Purchase Price to BANC ONE KENTUCKY.
(c) Neither the execution and delivery of this Agreement nor consummation
of the transactions contemplated hereby, nor compliance by MATEWAN
with any of the provisions hereof shall (i) conflict with or result in
a breach of any provision of the articles of incorporation or by-laws
of MATEWAN, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise
to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon
any property or asset of MATEWAN pursuant to any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation, or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to MATEWAN.
4.3 Capital Structure of MATEWAN. The authorized capital stock of MATEWAN
----------------------------
consists of (i) 10,000,000 shares of MATEWAN Common Stock, of which
3,684,104 shares were issued and outstanding as of June 30, 1995 and (ii)
1,000,000 shares of MATEWAN preferred stock, with par value of $1.00 per
share, of which no shares were issued and outstanding as of June 30, 1995.
4.4 SEC Documents. MATEWAN has filed all SEC Documents, if any, required to be
-------------
filed by MATEWAN by the Securities Laws, with respect to MATEWAN, and such
SEC Documents complied in all material respects with the Securities Laws.
Without limiting the generality of the preceding sentence, the
representation and warranty contained in this
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<PAGE>
Section 4.4 shall, with respect to the provisions set forth in Section 6.3
of this Agreement, apply to MATEWAN's registration statements, if any, and
to the SEC Documents incorporated by reference therein filed in connection
with the offering of additional shares of MATEWAN capital stock.
4.5 Financial Statements. The financial statements of MATEWAN included in its
--------------------
SEC Documents, if any, or as set forth in annual and quarterly reports
filed by MATEWAN with the Federal Reserve Board and/or provided to its
shareholders, fairly present or will fairly present, as the case may be,
the consolidated financial position or cash flows for the periods then
ended in conformity with generally accepted accounting principles
applicable to financial institutions applied on a consistent basis.
4.6 Material Adverse Change. MATEWAN has not, on a consolidated basis, suffered
-----------------------
any material adverse change in its financial condition or results of
operations since June 30, 1995.
4.7 Legal Proceedings. There are no actions, suits or proceedings instituted,
-----------------
pending or, to the best knowledge of MATEWAN threatened against MATEWAN, or
Matewan National Bank, its subsidiaries, or against any asset, interest or
right of either of them that is reasonably expected to have a material
adverse effect on the financial condition or results of operations of
MATEWAN on a consolidated basis. To the knowledge of MATEWAN, there are no
actual or threatened actions, suits or proceedings which present a claim to
restrain or prohibit the transactions contemplated herein.
4.8 Brokers and Finders. Neither MATEWAN nor any of its officers, directors or
--------------------
employees has employed any broker, finder or financial advisor or incurred
any liability for any fees or commissions in connection with the
transactions contemplated herein except for fees payable to Wheat First
Securities, Inc.
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<PAGE>
ARTICLE 5
COVENANTS
5.1 Applications and Stock Offering.
-------------------------------
(a) As promptly as practicable after the date hereof, but in no event
later than forty-five (45) days from the date hereof, MATEWAN shall
submit an appropriate application for prior approval of the
transaction contemplated herein pursuant to the Bank Holding Company
Act to the Federal Reserve Board and, if applicable, shall submit an
appropriate application to the Commissioner and if applicable, with
the West Virginia Board of Banking and Financial Institutions.
MATEWAN, BANC ONE and BANC ONE KENTUCKY represent and warrant to the
others that all information concerning it and its directors, officers
and shareholders included (or submitted for inclusion) in any such
applications shall be true, correct and complete in all material
respects.
(b) As promptly as practicable after the date hereof, MATEWAN shall make
every reasonable, good faith effort to obtain, not later than the day
before the Closing Date, the funds necessary to pay the Purchase
Price, from, in MATEWAN's discretion, a combination of the public or
private sale of capital stock and the borrowing of funds. Such efforts
will include, but shall not be limited to, the sale of capital stock
and/or the borrowing of funds on terms which, as of the times thereof,
are commercially reasonable to MATEWAN, in its good faith reasonable
judgment, under the circumstances, recognizing, for such purposes, the
usual and prevailing terms on similar equity issuances and borrowings
applicable, at such times, to entities similar to MATEWAN.
5.2 Best Efforts. BANC ONE KENTUCKY and MATEWAN shall each use its reasonable
------------
best efforts in good faith to (i) furnish such information as may be
required in connection with the preparation of the documents referred to in
Section 5.1 above, and (ii) take or cause to be taken all action necessary
or desirable on its part so as to permit consummation of the Acquisition by
March 31, 1996, or as soon thereafter as possible, (including without
limitation using its best reasonable efforts to obtain, without incurring
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<PAGE>
any additional obligation or expense and without the payment of
consideration other than governmental filing or application fees, all
permits, authorizations, consents, waivers and approvals from third parties
or governmental authorities required for the consummation of the
transactions contemplated hereby). Neither BANC ONE KENTUCKY nor MATEWAN
shall take, or cause or to the best of its ability permit to be taken, any
action that would substantially impair the prospects of completing the
Acquisition pursuant to this Agreement.
5.3 Investigation and Confidentiality. BANC ONE, BANC ONE KENTUCKY and MATEWAN
---------------------------------
each will keep the others advised of all material developments relevant to
consummation of the Acquisition, and each may make or cause to be made such
investigation of the financial and legal condition of the other as such
party reasonably deems necessary or advisable in connection with the
transactions contemplated herein; provided, however, that such
investigation shall be reasonably related to such transactions and shall
not interfere unnecessarily with normal operations. BANC ONE, BANC ONE
KENTUCKY and MATEWAN agree to furnish the other and the other's advisors
with such financial data and other information with respect to its business
and properties as such other party shall from time to time reasonably
request related to the transactions contemplated by this Agreement. No
investigation pursuant to this Section 5.3 shall affect or be deemed to
modify any representation or warranty made by, or the conditions to the
obligations to consummate the Acquisition of, any party hereto. Each party
hereto shall, and shall cause its directors, officers, attorneys and
advisors to, maintain the confidentiality of all information obtained in
such investigation which is not otherwise publicly disclosed by the other
parties, said undertaking with respect to confidentiality to survive any
termination of this Agreement pursuant to Section 7.1 hereof. No party
hereto will use any information obtained pursuant to this Section 5.3 for
any purpose unrelated to the consummation of the transactions contemplated
by this Agreement.
5.4 Press Release. MATEWAN, BANC ONE KENTUCKY and BANC ONE shall agree as to
-------------
the form and substance of any press release related to this Agreement or
the transactions contemplated hereby, and consult with each other as to the
form and
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<PAGE>
substance of other public disclosures related thereto, provided, however,
that nothing contained herein shall prohibit either party from making any
disclosure which its counsel deems necessary.
5.5 Forbearance. Except with the prior written consent of MATEWAN or unless
-----------
otherwise permitted by this Agreement, between the date hereof and the
Closing Date BANC ONE KENTUCKY shall cause the Bank not to:
(a) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as hereinbefore conducted;
(b) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock, except for cash dividends which may not
exceed, on a quarterly basis, prorated in the quarter in which the
Closing shall occur, the lesser of (i) $325,000 and (ii) the amount of
allowable dividend which may be declared and paid by the Bank pursuant
to federal banking law and regulation without the consent of the OCC;
provided further, however, that the total dividends which may be
declared and paid by the Bank from the date of this Agreement to the
Closing date shall include any sums not declared or paid in a given
quarter as a result of a restriction or prohibition related to federal
banking law and regulation to the extent that any amounts not so paid
may lawfully be paid in a subsequent quarter or subsequent quarters
consistent with applicable law;
(c) issue, sell or deliver, or redeem, purchase or otherwise acquire, any
shares of their capital stock; or impose, or suffer the imposition, on
any share of Stock of any lien, charge, or encumbrance, or permit any
such lien to exist;
(d) issue, grant or authorize any Rights or effect any recapitalization,
reclassification, stock dividend, stock split or like change in
capitalization;
(e) amend its articles of association or by-laws;
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<PAGE>
(f) merge or consolidate with any other corporation or bank; acquire
control over any other firm, bank, corporation or organization or
create any subsidiary; liquidate, sell or otherwise dispose of any
assets or acquire any assets, other than in the ordinary course of its
business consistent with past practice (except that this exception
shall not permit any capital expenditure in excess of $25,000 in any
instance) and other than pursuant to arrangements Previously
Disclosed; or establish new branches or other similar facilities;
(g) fail to comply in any material respect with any laws, regulations,
ordinances, or governmental actions applicable to it and to the
conduct of its business;
(h) increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees, except in the ordinary course of
business and consistent with past practices;
(i) enter into any employment contracts with any of its present or former
directors, officers or employees;
(j) enter into, substantially modify, create or sponsor (except as may be
required by applicable law or in connection with modifications
generally applicable to employees of BANC ONE and its subsidiaries)
any retirement, stock option, stock purchase, stock appreciation
right, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare
contract, plan or arrangement, or any trust agreement related thereto,
in respect of any of its directors, officers or other employees;
(k) solicit or encourage inquiries or proposals with respect to any
acquisition or purchase of all or a substantial portion of the assets
of, or a substantial equity interest in, the Bank or any business
combination with it other than as contemplated
-24-
<PAGE>
by this Agreement; or authorize or permit any officer, director, agent
or affiliate of the Bank to do any of the above;
(l) change its lending, investment, liability management or other material
banking policies in any material respect;
(m) change its methods of accounting in effect at December 31, 1994,
except as required by changes in generally accepted accounting
principles concurred with by Coopers & Lybrand and Ernst & Young, LLP,
or change any of its methods of reporting income and deductions for
federal income tax purposes from those employed in the preparation of
its federal income tax returns for the year ended December 31, 1994,
except as required by changes in law;
(n) pay any overhead allocation or management services fee to BANC ONE
KENTUCKY or BANC ONE (i) for each of the last four months of 1995 in
excess of $70,833 per month and (ii) for each month of 1996 an amount
per month in excess of the lessor of (x) that amount allocated by BANC
ONE and BANC ONE KENTUCKY consistent with past practices and (y)
$74,374 (with any such amount to be prorated for a partial month in
which the closing occurs, as appropriate);
(o) hire any permanent or part time employees, except in the ordinary
course of business and consistent with past practices;
(p) take any action materially and adversely affecting the transactions
contemplated hereby or this Agreement or the financial condition,
businesses, properties or results of operations of the Bank;
(q) take any other material action not in the ordinary course of business;
or
(r) agree to do any of the foregoing.
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<PAGE>
5.6 Employment and Employee Benefits After the Closing
--------------------------------------------------
(a) From and after the Closing Date, Bank Employees shall cease to be
active participants in, beneficiaries under, or entitled to any
benefits not earned as of the Closing Date from any Employee Benefit
Plan of Bank, BANC ONE KENTUCKY or BANC ONE in existence prior to the
Closing Date. Bank, BANC ONE KENTUCKY or BANC ONE shall by appropriate
corporate resolution coincident with the Closing Date cause each such
Employee Benefit Plan to be amended to this effect. BANC ONE KENTUCKY
and BANC ONE shall cause each Bank Employee to be deemed to be fully
vested with respect to all retirement and savings plan benefits
accrued as of the Closing Date under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan and to cause such benefits
to be paid when due in accordance with the terms of the applicable
Employee Pension Benefit Plan and as if such employee had terminated
employment as of the Closing Date.
(b) From and after the Closing, MATEWAN shall (i) cause Bank to continue
to employ Bank Employees at their current rate of cash compensation;
(ii) cause Bank to provide to Bank Employees retirement, savings, life
and disability insurance, health, welfare, vacation and other fringe
benefits of the type and in the amounts provided to other similarly
situated employees of MATEWAN; and (iii) credit, for purposes of
vesting, eligibility and computation of non-pension benefits under the
types of benefit plans described in (ii) above afforded to MATEWAN's
employees, any service that had been credited under benefit plans
provided to Bank Employees as of the Closing Date. It is specifically
understood, notwithstanding any provision hereof to the contrary, that
Bank Employees shall not be entitled to any past service for benefit
accrual purposes under any Employee Pension Benefit Plan of MATEWAN.
It is further specifically understood that, notwithstanding any
provision hereof to the contrary, Bank Employees shall be employees at
will and that after Closing, Bank or MATEWAN may alter, amend, or
terminate any of their
-26-
<PAGE>
benefit programs covering Bank Employees regardless of whether similar
changes are made to the benefit programs covering other employees of
MATEWAN.
(c) BANC ONE and/or BANC ONE KENTUCKY (and not Bank or MATEWAN) or plans
sponsored by them shall be responsible for any benefits promised under
any Employee Benefit Plan of any Former Bank Employee or any
individual claiming a benefit through any Former Bank Employee.
(d) BANC ONE and/or BANC ONE KENTUCKY or the Employee Benefit Plans (but
not Bank or MATEWAN) shall be responsible for all benefits due a Bank
Employee or an individual claiming a benefit through a Bank Employee
and which claim arose or benefit accrued prior to the Closing Date and
neither Bank nor MATEWAN shall be required to make any contributions
to any Employee Benefit Plans after the Closing Date. By way of
example, the applicable Employee Benefit Plan (or BANC ONE and BANC
ONE KENTUCKY) shall be liable for all covered medical expenses
incurred by a participant or beneficiary prior to closing, all
disability payments resulting from a disability which commenced prior
to Closing, life insurance payments due to a death prior to Closing
and all pension or retirement benefits accrued prior to Closing.
(e) Subject to and in accordance with Section 7.3(d) (but not otherwise
subject to the provisions of Section 7.3), BANC ONE KENTUCKY and BANC
ONE shall indemnify Buyer Indemnified Parties against any damages,
costs, benefits or other amounts that any Buyer Indemnified Party may
incur in connection with Bank Employee or Former Bank Employee and
which arises as a result of such employee's employment prior to the
Closing Date and their participation in an Employee Benefit Plan or
otherwise regardless of whether such claim is asserted by such Former
Bank Employee, their dependent, an Employee Benefit Plan or someone on
behalf of an Employee Benefit Plan.
-27-
<PAGE>
5.7 Certain Transition Matters.
---------------------------
(a) From the date of this Agreement until the Closing Date, BANC ONE
KENTUCKY shall give or cause the Bank to give MATEWAN timely notice of
all meetings of the Board of Directors and all major committees
(including, without limitation, executive, loan, personnel, and audit
committees) of the Bank; provided, however, that if in attendance,
such MATEWAN representative shall excuse himself or herself when
matters relating to MATEWAN or its subsidiaries are entertained or
discussed. Prior to the Closing Date, BANC ONE KENTUCKY will promptly
advise MATEWAN in writing of all actions taken by the directors of the
Bank and will cause the Bank to furnish MATEWAN with copies of all
financial information of the Bank as it becomes available and advise
MATEWAN of all material developments concerning the business of the
Bank.
(b) On or before the Closing Date, the Bank shall pay to BANC ONE, BANC
ONE KENTUCKY and their affiliates the amounts reserved or accrued for
tax liabilities as contemplated by Section 3.12(a), that are
attributable to the Bank for periods ended on or before the Closing
Date and that remain unpaid by the Bank as of the Closing Date.
(c) After the execution of this Agreement and prior to the Closing Date,
BANC ONE and BANC ONE KENTUCKY will cause the Bank to cooperate, in a
manner that is not unduly burdensome to the Bank's continuing
operations, with MATEWAN to prepare for the conversion of the Bank's
banking products and services to reflect the terms, conditions,
pricing, and other attributes of banking products and services to be
offered by the Bank following the Acquisition. MATEWAN will be
responsible for all costs and expenses of such conversion.
(d) For a period of not less than seven years following the Closing Date,
MATEWAN will cause the Bank to retain their books, accounts, records
and files (including personnel files and employee health records) for
periods ended on or prior to the
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<PAGE>
Closing Date in accordance with MATEWAN's records retention policy in
effect on the date hereof, and will make available to BANC ONE or its
counsel and other representatives, at BANC ONE's expense, during
normal business hours (i) such books, accounts, records and files
(which may be copied by BANC ONE or its representatives) and (ii) the
officers and employees of the Bank (and any successors thereto).
(e) BANC ONE shall cause the name of the Bank to be changed effective upon
the Closing Date to a lawful name designated by MATEWAN that is not
confusingly similar to any name utilized by BANC ONE or BANC ONE
KENTUCKY or any of their affiliates. MATEWAN shall bear and pay the
costs of changing the name of the Bank on signage, stationery,
customer checks, and any and all other materials bearing the current
name of the Bank. From and after the Closing Date, the Bank shall not
have any right, title or interest in or to its present name or any
trademarks or service marks related to the names BANC ONE or Bank One.
Following the Closing, MATEWAN shall cause the Bank to take any action
reasonably requested by BANC ONE to implement the provisions of this
Section 5.7.
(f) Following the execution of this Agreement, BANC ONE KENTUCKY shall not
less frequently than monthly until the Closing Date review all
individual extensions of credit of $100,000 or more which have been
approved or closed by the Bank in the preceding month or applicable
shorter period to ensure that all such loans have been or will be made
pursuant to and consistent with BANC ONE policies and standards.
Following such reviews, and from time to time at MATEWAN's reasonable
request, BANC ONE KENTUCKY shall advise MATEWAN of matters related to
such new credits and to matters generally related to Bank's extensions
of credit.
(g) Prior to the Closing Date, BANC ONE and BANC ONE KENTUCKY shall cause
the derivatives portfolio of the Bank to be transferred to another
affiliate or other affiliates of BANC ONE or to be eliminated without
any cost, liability or expense
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<PAGE>
to the Bank, unless such cost, liability or expense is fully
recognized upon the financial statements of the Bank prior to the
Closing Date and MATEWAN is advised in writing of the amount of such
cost, liability or expense and consents to such elimination in its
discretion. BANC ONE shall reimburse Bank for expenses and/or losses
related to the instruments included in the derivatives portfolio from
the date of this Agreement to the earlier of (i) the date the
derivatives portfolio is removed in its entirety from the Bank and
(ii) the Closing Date.
(h) On or prior to the Closing Date BANC ONE and BANC ONE KENTUCKY shall
cause the Bank to transfer and pay over to BANC ONE all reserves
and/or accruals set up or established by the Bank for the payment of
all federal taxes for all periods prior to and through the Closing
Date (other than taxes arising from or attributable to any election
relating to the transactions contemplated hereby under Code Section
338 or under any similar or parallel provision of any applicable
state, local or other law). BANC ONE shall assume all responsibility
and obligation for federal taxes due and owing by the Bank for all
periods prior to and including the Closing Date and following the
Closing neither MATEWAN nor the Bank will have liability for any
federal taxes or penalties for periods on or prior to the Closing
Date.
(i) On or prior to the Closing Date, BANC ONE will pay to Bank a sum equal
to the balance (currently approximately $335,000) of the Bank's
prepaid pension account, general ledger account number 265168, as set
forth on the Books of the Bank at the time of such payment.
5.8 Asset Purchase Treatment; Transfer Taxes.
----------------------------------------
(a) MATEWAN and BANC ONE agree that, for federal income tax purposes, the
purchase and sale of the Stock pursuant to the Agreement shall be
treated as a purchase and sale of the assets of the Bank in accordance
with the provisions of Code Section 338. MATEWAN, at its expense,
shall retain the services of an
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<PAGE>
independent appraiser to make a determination of the fair market
values, as of the Closing Date, of all of the customer based and
similar intangible assets of the Bank and such other assets of the
Bank as MATEWAN may reasonably request. MATEWAN shall provide BANC ONE
with a copy of such appraisal promptly after receipt thereof and shall
be responsible for making the determination of the allocation of the
Purchase Price.
(b) MATEWAN and BANC ONE agree that, for state income tax purposes, the
purchase and sale of the Stock shall be treated as a purchase and sale
of the assets of the Bank to the greatest extent permitted by
applicable law. MATEWAN and BANC ONE agree to make timely all
elections necessary to carry out the provisions of this Section 5.8(b)
and to report the purchase and sale of the Stock consistent with the
preceding sentence and in accordance with the provisions of this
Agreement. In any state(s) where it is unclear whether applicable law
permits the purchase and sale of the Stock to be treated as a purchase
and sale of assets, MATEWAN and BANC ONE agree to treat the purchase
and sale of the Stock as a purchase and sale of assets.
Notwithstanding the preceding, MATEWAN agrees to cooperate with BANC
ONE to help minimize BANC ONE's state income tax liabilities arising
as a result of the provisions of this Section 5.8(b), provided that
any such cooperation does not have any adverse financial or economic
impact on MATEWAN or the Bank.
5.9 Audit Assistance/Amendment of Call Reports. BANC ONE KENTUCKY and the Bank
------------------------------------------
shall allow full access to personnel of, and independent accountants
designated by, MATEWAN and shall use their reasonable best efforts to
assist such personnel and accountants in the (i) preparation of and (ii)
conduct and completion of audits of the financial statements of the Bank
for such periods and as of such dates as such personnel and accountants
shall deem necessary or appropriate and to use their best efforts to assist
in the accumulation of all data necessary for presentation in a
registration statement filed under the Securities Act and any other
information necessary or desirable to carry out the
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<PAGE>
transactions contemplated hereby. The costs of such audits and accumulation
of information shall be borne by MATEWAN
5.10 Post-Closing Cooperation. Following Closing, BANC ONE and BANC ONE KENTUCKY
------------------------
shall cooperate with MATEWAN in the conversion of operations of the Bank as
an affiliate of BANC ONE to an affiliate of MATEWAN, and shall furnish such
services and advice as are reasonably requested by MATEWAN related thereto.
MATEWAN shall reimburse BANC ONE and its affiliates for the fair market
value of any services provided by BANC ONE and its affiliates with respect
to such conversion services at their fair market value. BANC ONE and BANC
ONE KENTUCKY will cooperate with MATEWAN to identify services presently
being provided to Bank by a BANC ONE affiliate. Subject to restrictions of
applicable law, systems limitations, third-party contracts and other
matters beyond the control of the parties, at MATEWAN's request BANC ONE
and BANC ONE KENTUCKY will endeavor to provide any such services to Bank
for a period of not to exceed six months following Closing at a cost to
Bank or MATEWAN which shall be consistent with prevailing industry charges
for similar services.
5.11 FIserv Contract. Bank and BANC ONE KENTUCKY, with assistance, as
---------------
appropriate from BANC ONE, other affiliates of BANC ONE and MATEWAN, will
make every reasonable good faith effort to cause Fiserve CIR, Inc. to
provide data processing and related services to the Bank on and after the
Closing Date on terms acceptable to MATEWAN.
5.12 Staffing. Until the Closing, BANC ONE KENTUCKY shall take all reasonable
--------
action to ensure that there are sufficient and qualified employees to staff
the operation of the Bank as such operations are currently being conducted.
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<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions Precedent - All Parties. The respective obligations of each of
----------------------------------
the parties to effect the Acquisition shall be subject to satisfaction or
waiver of the following conditions at or prior to the Closing Date:
(a) The parties hereto shall have received all regulatory approvals
required in connection with the transactions contemplated by this
Agreement, and all notice periods and waiting periods required after
the granting of any such approvals shall have passed;
(b) No party shall be subject to any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits
consummation of the transactions contemplated by this Agreement;
(c) BANC ONE shall have delivered to MATEWAN and MATEWAN shall have
delivered to BANC ONE a completed Form 8023, Corporate Qualified Stock
Election, signed by an authorized officer of each not later than the
Closing Date. Such form shall include a joint election under Code
Section 338(h) (10) and should be filed by MATEWAN within the time
prescribed by the Code; and
(d) Neither MATEWAN nor BANC ONE shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated by
this Agreement.
6.2 Conditions Precedent - MATEWAN. The obligations of MATEWAN to effect the
------------------------------
Acquisition shall be subject to satisfaction of the following additional
conditions at or prior to the Closing Date unless waived by MATEWAN
pursuant to Section 7.4 hereof:
(a) The representations and warranties of BANC ONE KENTUCKY and BANC ONE
set forth in Article 3 hereof shall be true and correct in all
material respects as of
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<PAGE>
the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date (or on the date when made in the case of
any representation and warranty which specifically relates to an
earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by MATEWAN;
(b) BANC ONE KENTUCKY and BANC ONE shall have in all material respects
performed all obligations and complied with all covenants required by
this Agreement;
(c) BANC ONE KENTUCKY shall have delivered to MATEWAN a certificate, dated
the Closing Date and signed by its President, Chairman, or any Vice
President, to the effect that the conditions set forth in this section
have been satisfied to the best knowledge of the officer executing the
same;
(d) MATEWAN shall have received an opinion of counsel for BANC ONE
KENTUCKY, which may be in-house counsel, dated as of the Closing Date,
substantially to the effect set forth in Exhibit 6.2 hereto;
(e) MATEWAN shall have the funds necessary to pay the Purchase Price, from
a combination, as MATEWAN shall determine, of the public or private
sale of capital stock; the borrowing of funds; and
(f) MATEWAN shall have received the resignation of all directors of the
Bank prior to the Closing.
6.3 Conditions Precedent - BANC ONE and BANC ONE KENTUCKY. The obligations of
-----------------------------------------------------
BANC ONE and BANC ONE KENTUCKY to effect the Acquisition shall be subject
to satisfaction of the following additional conditions at or prior to the
Closing Date unless waived by BANC ONE pursuant to Section 7.4 hereof:
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<PAGE>
(a) The representations and warranties of MATEWAN set forth in Article 4
hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date (or on the date when made in the case of
any representation and warranty which specifically relates to an
earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by BANC ONE;
(b) MATEWAN shall have in all material respects performed all obligations
and complied with all covenants required by this Agreement;
(c) MATEWAN shall have delivered to BANC ONE KENTUCKY and BANC ONE a
certificate, dated the Closing Date and signed by its President or
Executive Vice President, to the effect that the conditions set forth
in this section have been satisfied to the best knowledge of the
officer executing the same; and
(d) BANC ONE KENTUCKY and BANC ONE shall have received an opinion from the
law firm of Jackson & Kelly, dated as of the Closing Date,
substantially to the effect set forth in Exhibit 6.3 hereto.
ARTICLE 7
TERMINATION, WAIVER AND AMENDMENT
7.1 Termination. This Agreement may be terminated:
-----------
(a) at any time on or prior to the Closing Date, by the mutual consent in
writing of the parties hereto;
(b) at any time on or prior to the Closing Date, by either BANC ONE or
MATEWAN in writing, if the other party has, in any material respect,
breached any representation, warranty, covenant or undertaking
contained herein and such breach has not been cured by the earlier of
thirty (30) days after the date on which written notice of such breach
is given to the party committing such breach or the Closing Date;
-35-
<PAGE>
(c) on the Closing Date, by either BANC ONE or MATEWAN in writing, if any
of the conditions precedent to the obligations of such party to
consummate the Acquisition have not been satisfied or fulfilled;
(d) at any time, by either BANC ONE or MATEWAN in writing, if any
application for prior approval referred to in Section 5.1 hereof is
denied, and the time period for appeal and request for reconsideration
has run; or
(e) by either BANC ONE or MATEWAN in writing, if the Closing Date has not
occurred by the close of business on August 1, 1996.
7.2 Effect of Termination/Failure to Close.
--------------------------------------
(a) In the event this Agreement is terminated pursuant to Section 7.1
hereof, this Agreement shall become void and have no effect, except
that (i) the provisions relating to confidentiality and expenses set
forth in Sections 5.3 and 8.1, respectively, shall survive any such
termination and (ii) a termination pursuant to Section 7.1(b) shall
not relieve the breaching party from liability for an uncured breach
of the representation, warranty, covenant or undertaking giving rise
to such termination.
(b) In the event that, pursuant to an applicable provision of Section 7.1,
hereof, this Agreement is terminated by reason of MATEWAN's failure,
for any reason, to have the funds necessary to pay the Purchase
Price, immediately following such termination MATEWAN shall pay the
sum of $250,000 to BANK ONE KENTUCKY (the "Termination Penalty") by
wire transfer of immediately available federal funds to such bank
account in the United States as BANC ONE KENTUCKY shall designate.
This payment represents a separately negotiated provision to, in
part, compensate BANC ONE KENTUCKY and BANC ONE for a failure to
consummate the Acquisition as a result of MATEWAN not having the
Purchase Price, whether or not such failure is related to any breach
of this
-36-
<PAGE>
Agreement or fault by MATEWAN. The provisions of this Section 7.2(b)
and/or payment of the Termination Penalty shall not relieve MATEWAN,
as a breaching party, if applicable, pursuant to this Agreement, from
liability for an uncured breach of a representation, warranty,
covenant or undertaking giving rise to such termination or failure to
close for which BANC ONE and BANC ONE KENTUCKY may pursue all legal
and equitable remedies under this Agreement.
7.3 Survival of Representations. Warranties and Covenants; Indemnification;
-----------------------------------------------------------------------
Retained Litigation.
-------------------
(a) Except for the representations, warranties and covenants contained in
Sections 3.15 and 5.6, all representations, warranties and covenants
in this Agreement or in any instrument delivered pursuant hereto
(except covenants expressly relating to actions to be taken after the
Closing Date) shall expire on, and be terminated and extinguished at,
the third anniversary of the Closing Date, except as to matters
relating to federal, state or local income or other taxes, for which
warranties, representations and covenants will expire on the
expiration of the applicable statute of limitations.
(b) BANC ONE and BANC ONE KENTUCKY agree to indemnify MATEWAN against, and
MATEWAN agrees to indemnify BANC ONE and BANC ONE KENTUCKY against,
and each of them agrees to protect, to defend and to hold harmless
the other from all liability, damages, losses, fees, costs and
expenses (including attorneys' fees) arising out of or in connection
with any material inaccuracy in, failure to satisfy or comply with, or
breach of, any of the warranties, representations or covenants of each
of them contained herein; provided, except for the representations,
warranties, covenants and indemnities contained in Sections 3.15 and
5.6 hereof, no loss, liability, damage or expense incurred by either
BANC ONE and BANC ONE KENTUCKY, on one hand, or MATEWAN on the other
hand, as a result of any misrepresentation or breach of warranty
contained herein shall give rise to any claim for indemnification by
such other party
-37-
<PAGE>
unless such losses, liabilities, damages and expenses aggregate more
than $100,000 and, at the time a claim for indemnification is made,
each component of said claim shall not have been terminated and/or
extinguished pursuant to the terms of Section 7.3(a), above.
(c) Notwithstanding any inconsistent provision of Section 7.3(d) of this
Agreement, BANC ONE shall retain exclusive control and defense of the
Retained Litigation and shall hold Bank and MATEWAN harmless from all
costs, expenses, fees, attorney fees, judgments and settlements with
respect thereto from and after the Closing Date. Following the
Closing, neither MATEWAN nor Bank shall have any financial obligations
or responsibility with respect to the Retained Litigation; provided,
however, that MATEWAN and Bank shall cooperate, and MATEWAN shall
require that Bank and any successors to Bank shall cooperate, fully
and timely with BANC ONE and BANC ONE KENTUCKY and their counsel in
the defense and/or settlement of the Retained Litigation including,
but not limited to, providing records and Bank Employee assistance in
defending and settling such Retained Litigation as requested by BANC
ONE.
(d) In any case under this Agreement where one party has indemnified the
other against any claim or legal action, indemnification shall be
conditioned on compliance with the procedure outlined below. Provided
that prompt notice is given of a claim or suit for which
indemnification might be claimed, the indemnifying party promptly will
defend, contest, or otherwise protect against any such claim or suit
at its own cost and expense. The indemnified party may, but will not
be obligated to, participate at its own expense in a defense thereof
by counsel of its own choosing, but the indemnifying party shall be
entitled to control the defense unless the indemnified party has
relieved the indemnifying party from liability with respect to the
particular matter. In the event the indemnifying party fails to timely
defend, contest, or otherwise protect against any such claim or suit,
the indemnified party may, but will not be obligated to, defend,
contest, or otherwise protect against the same, and make any
compromise or settlement thereof and recover the entire costs
-38-
<PAGE>
thereof from the indemnifying party, including reasonable attorneys'
fees, disbursements and all amounts paid as a result of such claim or
suit or the compromise or settlement thereof; provided, however, that
if the indemnifying party undertakes the defense of such matter, the
indemnified party shall not be entitled to recover from the
indemnifying party for its costs incurred in the defense thereof other
than the reasonable costs of investigation undertaken by the
indemnified party and reasonable costs of providing assistance. The
indemnified party shall cooperate and provide such assistance as the
indemnifying party may reasonably request in connection with the
defense of the matter subject to indemnification.
7.4 Waiver. Except with respect to any required regulatory approval, BANC ONE
------
and MATEWAN, by written instrument signed by an executive officer of such
party, may at any time extend the time for the performance of any of the
obligations or other acts of such other party and may waive (i) any
inaccuracies of the other party in the representations or warranties
contained in this Agreement or any document delivered pursuant hereto, (ii)
compliance with any of the covenants, undertakings or agreements of the
other party, or satisfaction of any of the conditions precedent to its
obligations, contained herein or (iii) the performance by such other party
of any of its obligations set out herein.
7.5 Amendment or Supplement. This Agreement may be amended or supplemented at
-----------------------
any time by mutual written agreement of BANC ONE KENTUCKY, BANC ONE and
MATEWAN.
ARTICLE 8
MISCELLANEOUS
8.1 Expenses. Each party hereto shall bear and pay all costs and expenses
--------
incurred by it in connection with the transactions contemplated in this
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel. MATEWAN shall bear and pay all costs and expenses
incurred in connection with the filing of all regulatory
-39-
<PAGE>
applications, including SEC filings and matters related to its offering of
shares of MATEWAN capital stock.
8.2 Entire Agreement, Etc.
---------------------
(a) This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all
prior arrangements or understandings with respect thereto, written or
oral, other than documents referred to herein and the Confidentiality
Agreement between MATEWAN and BANC ONE dated August 4, 1995. The
parties hereto in executing and delivering, and in carrying out the
provisions of, this Agreement are relying solely on the
representations, warranties and covenants contained in this Agreement
or in any writing delivered pursuant to provisions of this Agreement
or at the Closing contemplated by Section 2.3(a), and not upon any
representation, warranty, covenant, or information, written or oral,
made by any person other than as specifically set forth herein or
therein.
(b) The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective
successors. Nothing in this Agreement, expressed or implied, is
intended to confer rights, remedies, obligations or liabilities upon
any party other than the parties hereto and their respective
successors and permitted assigns.
(c) Any information disclosed by one party to the other hereunder for any
purpose hereunder shall be deemed to be disclosed for all purposes
hereunder. The inclusion of any matter in information Previously
Disclosed by BANC ONE and/or BANC ONE KENTUCKY shall not be deemed an
admission or otherwise to imply that any such matter is material for
purposes of this Agreement.
-40-
<PAGE>
8.3 No Assignment. None of the parties hereto may assign any of its rights or
-------------
obligations under this Agreement to any other person, and any such
attempted assignment shall be void.
8.4 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered
personally or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If To MATEWAN:
Matewan BancShares, Inc.
250 East Second Avenue
Williamson, West Virginia 25661
Attn: Dan R. Moore
President
With a copy to:
Louis S. Southworth, II, Esq.
Charles D. Dunbar, Esq.
Jackson & Kelly
1600 Laidley Tower
Charleston, West Virginia 25322
If To BANC ONE:
BANC ONE CORPORATION
100 East Broad Street
Columbus, Ohio 43271
Attn: William P. Boardman
Senior Executive Vice President
If To Banc One Kentucky Corporation:
Banc One Kentucky Corporation
416 West Jefferson Street
Louisville, Kentucky 40202
Attn: William R. Hartman
President
-41-
<PAGE>
8.5 No Rule of Strict Construction. The parties acknowledge that the language
------------------------------
of this Agreement has been the subject of mutual negotiations and no rule
of strict construction shall apply thereto.
8.6 Captions. The captions contained in this Agreement are for reference
--------
purposes only and are not part of this Agreement.
8.7 Counterparts. This Agreement may be executed in any number of counterparts,
------------
and each such counterpart shall be deemed to be an original instrument, but
all such counterparts together shall constitute but one agreement.
8.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of West Virginia except to the extent
Federal law may be applicable.
-42-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in counterparts by their duly authorized officers and their corporate seal to be
hereunto affixed and attested by their officers thereunto duly authorized, all
as of the day and year first above written.
Matewan BancShares, Inc.
Attest:
------------------------------------
By: Dan R. Moore
- ------------------------------------
Title: President
Banc One Kentucky Corporation
Attest:
------------------------------------
By: William R. Hartman
- ------------------------------------
Title: President
BANC ONE CORPORATION
Attest: /s/ Phillip L. Weaver
------------------------------------
By: Phillip L. Weaver
- ------------------------------------
Assistant Secretary Title: Assistant Vice President
-43-
<PAGE>
EXHIBIT 6.2
MATTERS TO BE ADDRESSED IN
OPINION OF COUNSEL OF
BANC ONE KENTUCKY
1. BANC ONE KENTUCKY is a duly organized corporation, validly existing and in
good standing under the laws of the Commonwealth of Kentucky with full
corporate power and authority to carry on its business as now conducted.
BANC ONE KENTUCKY is registered as a bank holding company under the Bank
Holding Company Act.
2. Bank One, Pikeville, National Association is a duly organized national
banking association, validly existing and in good standing under the laws of
the United States. The Bank (i) has full power and authority to carry on its
business as now conducted and (ii) is duly qualified to do business in the
states of the United States where its ownership or leasing of property or
the conduct of its business requires such qualification and where failure to
so qualify would have a material adverse effect on the financial condition
or results of operations of the Bank.
3. BANC ONE KENTUCKY has all requisite corporate power and authority to enter
into and perform all of its obligations under the Agreement. The execution
and delivery of the Agreement and consummation of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of BANC ONE KENTUCKY. The
Agreement constitutes a legal, valid and binding obligation of BANC ONE
KENTUCKY, enforceable against BANC ONE KENTUCKY in accordance with its terms
subject, as to enforceability, to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
4. Neither the execution and delivery of the Agreement nor consummation of the
transactions contemplated thereby nor compliance by BANC ONE KENTUCKY with
any of the provisions thereof shall (i) conflict with or result in a breach
of any provision of the certificate of incorporation, articles of
association or similar charter document or by-laws of
<PAGE>
BANC ONE KENTUCKY or the Bank, (ii) to our knowledge constitute or result in
a breach of any term, condition or provision of, or constitute a default
under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge
or encumbrance upon any property or asset of BANC ONE KENTUCKY or of the
Bank pursuant to, any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation, or (iii) to our knowledge violate any order,
writ, injunction, decree, statute, rule or regulation applicable to BANC ONE
KENTUCKY or the Bank, excluding from the foregoing clauses (ii) and (iii)
violations, breaches and defaults which, either individually or in the
aggregate, would not have a material adverse effect on the financial
condition or results of operations of the Bank.
5. All of the shares of Stock are owned by BANC ONE KENTUCKY free and clear of
all liens, claims and encumbrances. No Rights are authorized, issued or
outstanding with respect to the capital stock of the Bank and there are no
agreements, understandings or commitments relating to the right of BANC ONE
KENTUCKY to vote or to dispose of said shares. No share of capital stock of
the Bank has been issued in violation of the preemptive rights of any
person.
6. I do not know of (and have made no independent investigation to determine
the existence of) any material breach of any representation or warranty
contained in the Agreement on the part of BANC ONE or BANC ONE KENTUCKY or
of any material failure on the part of BANC ONE or BANC ONE KENTUCKY to
perform its obligations under the Agreement.
<PAGE>
EXHIBIT 6.3
MATTERS TO BE ADDRESSED IN
OPINION OF COUNSEL OF
MATEWAN BANCSHARES, INC.
1. MATEWAN is a duly organized banking corporation, validly existing and in
good standing under the laws of the State of Delaware with full corporate
power and authority to carry on its business as now conducted and is duly
qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of
its business requires such qualification. MATEWAN is registered as a bank
holding company under the Bank Holding Company Act.
2. MATEWAN has all requisite corporate power and authority to enter into and
perform all of its obligations under the Agreement. The execution and
delivery of the Agreement and consummation of the transactions contemplated
thereby have been duly and validly authorized by all necessary corporate
action in respect thereof on the part of MATEWAN. The Agreement constitutes
a legal, valid and binding obligation of MATEWAN, enforceable against
MATEWAN in accordance with its terms subject, as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
3. Neither the execution and delivery of the Agreement nor consummation of the
transactions contemplated thereby nor compliance by MATEWAN with any of the
provisions thereof shall (i) conflict with or result in a breach of any
provision of the certificate of incorporation, articles of association or
similar charter document or by-laws of MATEWAN, (ii) to our knowledge
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of
any lien, charge or encumbrance upon any property or asset of MATEWAN
pursuant to, any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation, or (iii) to our knowledge violate any order,
writ, injunction, decree, statute, rule or regulation applicable to MATEWAN.
<PAGE>
4. All requisite regulatory approvals of the transactions contemplated by the
Agreement have been received and are in full force and effect.
5. I do not know of (and have no independent investigation to determine the
existence of) any MATEWAN breach of any representation or warranty contained
in the Agreement on the part of MATEWAN or of any material failure to
perform its obligations under the Agreement.
<PAGE>
Exhibit 5.1
Form of Opinion
, 1996
Matewan BancShares, Inc.
250 East Second Avenue
P. O. Box 100
Williamson, WV 25661
Re: 690,000 Shares of Cumulative Convertible Preferred Stock, Series
A, of Matewan BancShares, Inc., $1.00 Par Value Per Share
Gentlemen:
We have acted as counsel to Matewan BancShares, Inc., a Delaware
corporation ("Matewan"), with respect to its proposed issuance of up to 690,000
shares of its Cumulative Convertible Preferred Stock, Series A, par value $1.00
per share (the "Shares"). Of the Shares, 600,000 shares are being offered in a
firm commitment underwriting by Wheat First Butcher Singer (the
"Underwriter"). In addition, Matewan has granted to the Underwriter an
option, exercisable for thirty days from the date hereof, to purchase up to an
additional 90,000 of the Shares at the offering price less the underwriting
discount, for the purpose of covering over-allotments, if any. The offering of
the Shares is the subject of a Form S-1 Registration Statement filed with the
Securities and Exchange Commission by Matewan (the "Registration Statement").
We have examined originals, or copies certified to our satisfaction,
of such corporate records, agreements and other instruments of Matewan,
certificates of public officials or of officers of Matewan, and such other
documents as we have deemed necessary in rendering the opinions expressed
herein.
Based upon the foregoing, we are of the opinion that Matewan has been
duly incorporated and in good standing under the laws of the State of Delaware,
and that the Shares, when issued and sold as provided in the Registration
Statement, will be duly and validly issued shares of Matewan, fully paid and
non-assessable.
<PAGE>
Matewan BancShares, Inc.
, 1996
Page 2
We hereby consent to the inclusion of this opinion as an Exhibit to
the Registration Statement and all amendments thereto, and to the references
therein to Jackson & Kelly and its opinions.
Very truly yours,
JACKSON & KELLY
By
-----------------------------
Charles D. Dunbar, Partner
<PAGE>
Exhibit 7.1
Form of Opinion
, 1996
Matewan BancShares, Inc.
250 East Second Avenue
P. O. Box 100
Williamson, WV 25661
Gentlemen:
This opinion is given in connection with the filing by Matewan BancShares,
Inc., a corporation organized and existing under the laws of the State of
Delaware ("Matewan"), with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, of a Registration Statement on Form S-1
("Registration Statement"), with respect to the 600,000 shares of Cumulative
Convertible Preferred Stock, Series A, par value $1.00 per share (the "Preferred
Stock") to be issued in connection with the proposed transaction pursuant to
which Matewan will purchase Bank One, Pikeville, N.A. ("Pikeville") from Banc
One Corporation ("Banc One") pursuant to the terms of a stock purchase agreement
dated September 28, 1995, by and among Matewan, Banc One and Banc One Kentucky
Corporation.
The Preferred Stock will have a preference upon involuntary liquidation of
Matewan equal to its stated value of $25.00 per share plus an amount equal to
all accrued and unpaid dividends thereon to the date fixed for liquidation,
which preference exceeds its stated value (the "excess").
You have requested our opinion as to whether there are any restrictions
upon the surplus of Matewan available for the payment of dividends on any class
or series of Matewan's stock by reason of the excess and, if there are, as to
any remedies available to holders of such stock either before or after the
payment of any dividends when such payment would reduce or reduces surplus to an
amount less than the amount of the excess.
<PAGE>
Matewan BancShares, Inc.
, 1996
Page 2
In rendering this opinion, we have examined such corporate records and
documents as we have deemed relevant and necessary as a basis for the opinion
set forth herein, including the Certificate of Incorporation and Bylaws of
Matewan and the forms of the Certificate of Designation relating to the
Preferred Stock. In addition, although we are not admitted to practice law in
the state of Delaware, we have made such examination of relevant authorities as
we have deemed necessary.
Section 170 of the General Corporation Law of the State of Delaware
("Delaware GCL") authorizes a Delaware corporation to pay dividends out of its
surplus. Surplus is defined by Section 154 of the Delaware GCL as the amount by
which the net assets of a corporation exceed the capital of that corporation.
Both net assets, under Section 154, and capital, under Sections 154 and 244 of
the Delaware GCL, are calculated without reference to the liquidation preference
of any class or series of a corporation's stock. Accordingly, the authorization
in Section 170 of the Delaware GCL for payment of dividends out of surplus is
not in any way limited or restricted by the fact that a class or series of
stock, such as the Preferred Stock, has a liquidation preference in excess of
its stated value.
Based upon and subject to the foregoing, and subject to the limitations
stated herein, it is our opinion that, solely as a matter of law, under the
Delaware GCL as in effect on the date hereof: (i) prior to a liquidation,
dissolution, or winding up of the affairs of Matewan, there will be no
restriction upon the surplus of Matewan available for the payment of dividends
on any class of stock of Matewan solely by reason of the fact that the
liquidation preference relating to the shares of the Preferred Stock exceeds the
stated value of the Preferred Stock; and (ii) no remedy will be available to the
holders of the Preferred Stock, either before or after the payment of any
dividend, prior to a liquidation, dissolution, or winding up of Matewan, solely
by reason of the fact that payment of such dividend would reduce or reduces the
surplus of Matewan to an amount less than the excess of the liquidation
preference over the stated value of the Preferred Stock.
We have addressed herein only the question of whether, as a matter of
Delaware law, there exist any restrictions upon the surplus available for
payment of dividends solely by reason of the
<PAGE>
Matewan BancShares, Inc.
, 1996
Page 3
excess, and not the effect of charter restrictions on payment of dividends on a
junior stock prior to payment of all accumulated dividends on the redemption of
a senior stock or any other charter or contractual restriction on payment of
dividends.
Sincerely,
JACKSON & KELLY
By
-----------------------------
Charles D. Dunbar
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
<S> <C> <C>
NET INCOME PER SHARE = NET INCOME/AVERAGE COMMON SHARES
OUTSTANDING
CASH DIVIDENDS PER SHARE = DIVIDENDS PAID/AVERAGE COMMON SHARES
OUTSTANDING
BOOK VALUE PER SHARE = TOTAL SHAREHOLDERS' EQUITY/AVERAGE
COMMON SHARES OUTSTANDING
RETURN ON AVERAGE ASSETS = NET INCOME/AVERAGE ASSETS
RETURN ON AVERAGE SHAREHOLDERS' = NET INCOME/AVERAGE SHAREHOLDERS'
EQUITY EQUITY
NET INTEREST MARGIN = NET INTEREST INCOME/AVERAGE EARNING
ASSETS
NON-INTEREST EXPENSE TO AVERAGE = NON-INTEREST EXPENSE/AVERAGE ASSETS
ASSETS
EFFICIENCY RATIO = TOTAL EXPENSES/(NET INTEREST INCOME
PLUS NON-INTEREST INCOME)
AVERAGE LOANS TO DEPOSITS = AVERAGE NET LOANS/AVERAGE
DEPOSITS OUTSTANDING
DIVIDEND PAYOUT = DIVIDENDS DECLARED/NET INCOME
AVERAGE SHAREHOLDERS' EQUITY TO = AVERAGE SHAREHOLDERS' EQUITY/
AVERAGE ASSETS AVERAGE ASSETS
TIER 1 CAPITAL RATIO = SHAREHOLDERS' EQUITY--INTANGIBLE
ASSETS--SECURITIES MARK-TO-MARKET
CAPITAL RESERVE (TIER 1
CAPITAL)/RISK
ADJUSTED ASSETS
TOTAL CAPITAL RATIO = TIER 1 CAPITAL PLUS ALLOWANCE FOR
LOAN LOSSES/RISK ADJUSTED ASSETS
TIER 1 LEVERAGE RATIO = TIER 1 CAPITAL/TOTAL ASSETS
NET CHARGE-OFFS TO AVERAGE LOANS = (GROSS CHARGE-OFFS LESS RECOVERIES)/
AVERAGE NET LOANS
NON-PERFORMING LOANS TO PERIOD END = (NONACCRUAL LOANS PLUS LOANS PAST
LOANS DUE 90 DAYS OR GREATER)/(GROSS
LOANS NET OF UNEARNED INTEREST)
NON-PERFORMING ASSETS TO PERIOD END = (NONACCRUAL LOANS PLUS LOANS PAST
ASSETS DUE 90 DAYS OR GREATER PLUS OTHER
REAL ESTATE)/TOTAL ASSETS
ALLOWANCE FOR LOAN LOSSES TO PERIOD = LOAN LOSS RESERVE/(GROSS LOANS NET
END LOANS OF UNEARNED INTEREST)
ALLOWANCE FOR LOAN LOSSES TO NON- = LOAN LOSS RESERVE/(NONACCRUAL LOANS
PERFORMING LOANS PLUS LOANS PAST DUE 90 DAYS OR
GREATER)
</TABLE>
<PAGE>
EXHIBIT 12.2
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------------------ ------- ------------------ ------- ------- ------- -------
ACTUAL PRO FORMA ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL ACTUAL ACTUAL
------- --------- ------- ------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated pretax
earnings............... $ 5,614 $ 5,827 $ 5,544 $ 7,881 $ 9,226 $ 8,392 $ 7,982 $ 5,680 $ 5,028
Interest expense........ 9,329 $15,495 $ 7,713 $10,543 $17,191 $ 9,774 $11,631 $15,234 $15,403
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings................ $14,943 $21,322 $13,257 $18,424 $26,417 $18,166 $19,613 20,914 20,431
======= ======= ======= ======= ======= ======= ======= ======= =======
Interest expense........ $ 9,329 $15,495 $ 7,713 $10,543 $17,191 $ 9,774 $11,631 $15,234 $15,403
Preferred stock dividend
requirements........... N/A N/A N/A N/A N/A N/A N/A
------- ------- ------- ------- ------- ------- ------- ------- -------
Fixed Charges (A)....... $ 9,329 $ $ 7,713 $10,543 $ $ 9,774 $11,631 $15,234 $15,403
======= ======= ======= ======= ======= ======= ======= ======= =======
Interest on deposits.... $ 8,885 $13,496 $ 7,430 $10,096 $14,959 $ 9,539 $11,254 $14,494 $14,736
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges and
preferred stock
dividends:
Excluding interest on
deposits.............. 13.64x x 20.59x 18.63x x 36.71x 22.17x 8.68x 8.54x
======= ======= ======= ======= ======= ======= ======= ======= =======
Including interest on
deposits.............. 1.60x x 1.72x 1.75x x 1.86x 1.69x 1.37x 1.33x
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(A) Neither the registrant nor the company to be acquired has significant
rental expense, and accordingly the interest portion of such rentals is not
significant.
NOTE: MINOR DIFFERENCES MAY RESULT FROM ROUNDING.
1
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF MATEWAN BANCSHARES, INC.
<TABLE>
<CAPTION>
PERCENTAGE
NAME, INCLUDING NAME UNDER JURISDICTION OF HELD BY
WHICH DOING BUSINESS INCORPORATION OR ORGANIZATION MATEWAN
----------------------------------- ----------------------------- ----------
<C> <S> <C>
Matewan National Bank National Bank, Office of the Comptroller 100
of the Currency, Southeast District,
Atlanta, Georgia
Matewan Bank, FSB Thrift, Office of Thrift Supervision, 100
Chicago, Illinois
Matewan Venture Fund, Inc. West Virginia 100
Hampden Venture Limited Partnership West Virginia 49
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 1, 1995 (except Note 14, as to which the
date is May 19, 1995), in the Registration Statement (Form S-1) and related
Prospectus of Matewan BancShares, Inc. for the registration of up to 690,000
shares of its cumulative convertible preferred stock.
/s/ Ernst & Young LLP
Charleston, West Virginia
January 18, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 29, 1995, with respect to the financial
statements of Bank One, Pikeville, N.A. included in the Registration Statement
(Form S-1) and related Prospectus of Matewan BancShares, Inc. for the
registration of up to 690,000 shares of its cumulative convertible preferred
stock.
/s/ Ernst & Young LLP
Charleston, West Virginia
January 18, 1996
<PAGE>
EXHIBIT 23.3
CONSENT
We hereby consent to the references to our Firm and inclusion of our
opinions as Exhibits to the Registration Statement on Form S-1 and related
prospectus of Matewan BancShares, Inc., for the registration of 690,000 shares
of its Cumulative Convertible Preferred Stock, Series A.
JACKSON & KELLY
By /s/ Charles D. Dunbar
------------------------------------
Partner
