<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM - 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
Commission file number 33-17172
--------
Matewan BancShares, Inc.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 55-0639363
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Box 100
Second Avenue and Vinson Street
Williamson, West Virginia 25661
------------------------- --------
(Address of principal executive offices) (Zip Code)
304 235-1544
------------
(registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
-----------------------------------------------------------
Common Stock, par value $1.00 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file reports), Yes X No , and (2) has been subject to such
--- ---
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of the voting stock, based on $20.50 per share held
by nonaffiliates of the registrant as of January 31, 1996 was $46,154,869.
The number of shares of the registrant's common stock, par value $1.00 per
share, issued and outstanding January 31, 1996 was 3,667,251.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the Annual Report on
Form 10-K:
<TABLE>
<CAPTION>
Part of Form 10-K into
DOCUMENT which document is
- -------- incorporated
------------
<S> <C>
Portions of the Registrant's Annual Report to Shareholders for Parts I, II, III, and IV
the year ended December 31, 1995
Portion of the Registrant's Part III
Proxy Statement for its 1996
Annual Meeting of Shareholders
to be held April 9, 1996
</TABLE>
FORM 10-K CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
Annual
Report
Pages
<S> <C> <C> <C>
Part I Item 1 Business................................................................. 48-51
Item 2 Properties............................................................... 52
Item 3 Legal Proceedings........................................................ 52
Item 4 Submission of Matters to a Vote of Shareholders.......................... (b)
Part II Item 5 Market for the Registrant's Common Stock
and Related Shareholder Matters.......................................... 9
Item 6 Selected Financial Data.................................................. 7-8
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 6-27
Item 8 Financial Statements and Supplementary Data.............................. 28-45
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................................... None
Part III Item 10 Directors and Executive Officers of the Registrant....................... (a)
Item 11 Executive Compensation................................................... (b)
Item 12 Security Ownership of Certain Beneficial Owners
and Management........................................................... (b)
Item 13 Certain Relationships and Related Transactions........................... (b)
</TABLE>
(a) Except as set forth herein, incorporated by reference from the Company's
Proxy Statement for the Annual Meeting of Shareholders on April 9, 1996.
(b) Incorporated by reference from the Company's Proxy Statement for the Annual
Meeting of Shareholders on April 9, 1996.
<TABLE>
<S> <C> <C>
Part IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... (c)
Report of Independent Auditors........................................... 45
Consolidated Balance Sheets as of
December 31, 1995 and 1994.............................................. 28
Consolidated Statements of Income for the years
ended December 31, 1995, 1994, and 1993................................. 29
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1994, and 1993........................... 30
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994, and 1993........................... 31
</TABLE>
<PAGE>
(c) Financial Statement schedules have been omitted due to the required
information being provided in the consolidated financial statements or
notes thereto.
<TABLE>
<CAPTION>
Exhibits:
<S> <C>
3.1 Certificate of Incorporation of Registrant, as amended (1)
3.2 By-laws of Registrant (1)
10.1 Voting and First Refusal Agreement, dated August 6, 1987 between Dan
R. Moore and James H. Harless (1)
10.2 Lease Agreement dated August 1, 1984 between Matewan National Bank
and Harrison and Dora Jude (2)
10.3 Lease Agreement, dated March 5, 1986, between Matewan National Bank
and Mingo Bottling Company (1)
10.4 Lease Agreement, dated December 1, 1988 between Matewan National Bank
and Josephine Hope (3)
10.5 Purchase and Assumption Agreement, dated December 29, 1989, between
Matewan National Bank and the Bank of Danville and First Center
Bancshares, Inc. (4)
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 (7)
10.9 Lease Agreement, dated December 6, 1994 between K-VA-T Food Stores,
Inc. and Matewan BancShares (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 For Information Technology Services between Electronic
Data Systems Corporation and Matewan BancShares, Inc. (8)
11.1 Computation of Per Share Earnings (5)
12.0 Computation of Ratios (9)
13.1 Annual Report to Shareholders for the fiscal year ended December 31,
1995 (9)
13.2 Proxy Statement to Shareholders for the Annual Meeting on April 9,
1996 (9)
22.1 Subsidiaries of Registrant
Matewan National Bank
Matewan Bank FSB
Matewan Venture Fund, Inc.
</TABLE>
<PAGE>
(1) Filed as an exhibit of the same number to the Company's Registration
Statement on Form S-1 under the Securities Act of 1933, Registration No.
33-17172, and incorporated herein by reference.
(2) Filed as an exhibit of the same year to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1987 and incorporated herein by
reference.
(3) Filed as an exhibit of the same year to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1988 and incorporated herein by
reference.
(4) Filed as exhibit 2.01 to the Company's Current Report on Form 8-K, dated
January 10, 1990 and incorporated herein by reference.
(5) Filed as an exhibit of the same year to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 and incorporated herein by
reference.
(6) Filed as an exhibit of the same year to the Company'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 the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's Pre-effective Amendment No. 1 to Form
S-1 Registration Statement on February 16, 1996 (Registration No. 333-367)
and incorporated herein by reference.
(9) Filed herewith.
Reports on Form 8-K
The following reports on Form 8-K were filed in 1995 and are incorporated
herein by reference:
(a) Date of Report of October 13, 1995
<PAGE>
Directors of Matewan BancShares, Inc.
<TABLE>
<CAPTION>
NAME TITLE AGE
<S> <C> <C>
Dan R. Moore Chairman of the Board of Directors, 55
President and Chief Executive
Officer of Matewan BancShares, Inc.
and Matewan National Bank
James H. Harless Chairman of the Board of Directors of 76
Gilbert Imported Hardwoods, Inc.
Frank E. Ellis M.D. Physician, Frank Ellis & Associates, Inc. 69
Lafe P. Ward Attorney at Law, Ward & Associates, 70
General Counsel for Matewan BancShares, Inc.
Amos J. Hatfield Owner, Gilbert Furniture Company 69
George A. Kostas Pharmacist/President 66
Aracoma Drug Company, Inc.
Sidney Young, Jr. Mining Consultant 72
Betty Jo Moore President, Moore Ford Sales and 55
Moore Chevrolet
</TABLE>
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto authorized March 1, 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 Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities listed on March 1, 1996.
/s/Dan R. Moore /s/Lee M. Ellis
- ---------------------------------- -------------------------------------------
Chairman of the Board, Vice President &
President, and Chief Chief Financial Officer
Executive Officer
/s/James H. Harless /s/Frank E. Ellis
- ---------------------------------- -------------------------------------------
Director Director
/s/Lafe P. Ward /s/Amos J. Hatfield
- ---------------------------------- -------------------------------------------
Director Director
/s/George A. Kostas /s/Sidney Young, Jr.
- ---------------------------------- -------------------------------------------
Director Director
/s/Betty Jo Moore
- ----------------------------------
Director
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIOS
NET INCOME PER SHARE = NET INCOME / AVERAGE COMMON SHARES
OUTSTANDING
CASH DIVIDEND PER SHARE = DIVIDENDS PAID / AVERAGE SHARE
OUTSTANDING
BOOK VALUE PER SHARE = TOTAL SHAREHOLDERS' EQUITY/ AVERAGE SHARES
OUTSTANDING
RETURN ON AVERAGE ASSETS = NET INCOME / AVERAGE ASSETS
RETURN ON AVERAGE SHAREHOLDERS' EQUITY = NET INCOME / AVERAGE
SHAREHOLDERS' EQUITY
NET INTEREST MARGIN = NET INTEREST INCOME / AVERAGE EARNING
ASSETS
NON-INTEREST EXPENSE TO AVERAGE ASSETS = NON-INTEREST EXPENSE /
AVERAGE ASSETS
EFFICIENCY RATIO = TOTAL EXPENSES / (NET INTEREST INCOME PLUS
NON-INTEREST INCOME)
AVERAGE LOANS TO DEPOSITS = AVERAGE NET LOAN / AVERAGE DEPOSITS
OUTSTANDING
DIVIDEND PAYOUT = DIVIDENDS PAID / NET INCOME
AVERAGE SHAREHOLDERS' EQUITY TO AVERAGE ASSETS = AVERAGE
SHAREHOLDERS' EQUITY /AVERAGE ASSETS
TIER I CAPITAL = SHAREHOLDERS' EQUITY - GOODWILL - SECURITIES
MARK-TO-MARKET CAPITAL RESERVE
TOTAL CAPITAL = TIER 1 CAPITAL PLUS ALLOWANCE FOR LOAN LOSSES
LEVERAGE RATIO = TOTAL CAPITAL / TOTAL ASSETS
NET CHARGE-OFFS TO AVERAGE LOANS = (GROSS CHARGE-OFFS LESS
RECOVERIES)/AVERAGE NET LOANS
NON-PERFORMING LOANS TO PERIOD END LOANS = (NONACCRUAL LOANS PLUS
LOANS PAST DUE 90 DAYS OR
GREATER)/(GROSS LOANS NET
UNEARNED INTEREST)
NON-PERFORMING ASSETS TO PERIOD END ASSETS = (NONACCRUAL LOANS
PLUS LOANS PAST DUE 90
DAYS OR GREATER PLUS OTHER
<PAGE>
REAL ESTATE)/TOTAL ASSETS
ALLOWANCE FOR LOAN LOSSES TO PERIOD END LOANS = LOAN LOSS
RESERVE/ (GROSS LOANS LESS
UNEARNED INTEREST)
ALLOWANCE FOR LOAN LOSSES TO NON-PERFORMING LOANS = LOAN LOSS
RESERVE / (NONACCRUAL
LOANS PLUS LOANS PAST DUE
90 DAYS OR GREATER)
<PAGE>
EXHIBIT 13.1
1995 ANNUAL REPORT
[LOGO OF MATEWAN BANCHSHARES, INC.]
[PHOTO OF GOLD EGG]
IF YOU KNOW
WHERE TO LOOK,
GOLDEN
OPPORTUNITIES ABOUND.
AT MATEWAN BANCHSHARES,
WE'RE POSITIONING
OURSELVES FOR
GROWTH,
PROFITABILITY
AND INVESMENT.
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Message From The President
- --------------------------------------------------------------------------------
To Our Shareholders:
I am pleased to submit this annual report which highlights
the successful results of our operation for 1995 as well
as other developments which will be significant to the
future growth of our company.
Matewan BancShares enjoyed a very successful year in 1995
in both growth and earnings. The Company ended the year
with total assets of $401,034,000. This is an increase of
$29,624,000 or nearly 8% over the total of $371,410,000
reported at the end of 1994. The growth occurred
throughout our market and in every area of our core
business.
Total deposits increased nearly 8% during 1995, which
follows a 7% increase in 1994. The total of net loans grew
6-1/2% during 1995 compared to a growth rate of nearly 10%
in 1994. The flatter growth in 1995 can be partly
attributed to restructuring the loan portfolio and the
Company's desire to develop a slightly different mix in
both the commercial and consumer portfolios. The loan-to-
deposit ratio for 1995 ended at 69% compared to 70% for
1994.
Net earnings for 1995 totalled $5,220,000 after paying
income taxes of $2,983,000. This compares to $5,005,000
and $2,876,000 respectively for 1994. Earnings per share
of common stock was $1.42 for 1995 compared to $1.36 for
1994.
The ratio which measures the return on average assets is
an indication of how effectively the assets of the Company
are employed. The ratio for 1995 was 1.38% and mirrors the
average ratio of 1.42% that the Company has reported for
the five year period since 1991.
The ratio measuring the return on equity indicates how
effectively management has leveraged the equity of the
Company. The ratio for 1995 was 12.09% and compares to a
five year average of 13.52%. The current return on equity
is less than the target of 15.0% that management has
established, but the lagging ratio is more an indication
of an over-capitalized company than of weak earnings. The
average of shareholders' equity to average assets
increased to 11.40% for 1995 from 11.27% in 1994. The
ratio for 1995 is up over 21% from the five year low of
9.39% in 1991.
I expect that the financial performance of the Company for
1995 will be viewed as positive. However, I believe that
it is even more meaningful when a few specific issues are
considered. First, management has successfully maintained
the net interest margin at a very healthy level. The ratio
of 5.78% for 1995 is ahead of our five year average of
5.63% which has consistently ranked above our peers.
Secondly, non-interest income as a percentage of average
assets has increased each year from a low of .64% in 1991
to a high of .87% in 1995.
A third ratio which needs to be discussed is non-interest
expenses as a percentage of average assets. This ratio is
3.43% for 1995 and is an increase over the previous four
year average of 3.11%. The increase last year can be
attributed to non-recurring expenses that were related to
start-up costs for three new offices as well as data
processing costs associated with our conversion to
Electronic Data Services.
Additionally, the 1995 earnings total includes an increase
in the provision for loan losses which resulted from the
Company's aggressive liquidation of problem credits in
both the commercial and consumer loan portfolio. The loan
loss provision for 1995 was $1,908,000 compared to
$1,643,000 for 1994. The allowance for loan losses was
$2,973,000 at the end of 1995 compared to $2,932,000 at
year end 1994. The adequacy of the allowance is assessed
by senior management on a regular basis and maintained at
a level to provide for potential credit losses. Management
considers economic factors as well as other relative
issues including delinquency rates, non-performing loans
and specific credit relationships in setting the allowance
for loan losses.
1
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
During 1995, the board of directors increased the
dividend payout to its highest level ever. The
dividend was increased to $.10 per share of common
stock for the last two quarters, which made a total
dividend of $.38 for 1995. This compares to a total
of $.31 for 1994 and an average of $.30 for the
previous four years. The dividend payout for 1995
"The events of 1995... was 27% of net income and was a 17% increase over the
1994 payout.
place Matewan
1995 was the first full year for Matewan BancShares
as the leading common stock to be listed on the NASDAQ National
Market (NASDAQ). The stock is traded under the symbol
provider of financial "MATE" and traded in a range from $15.23 in the first
quarter to $21.38 in the last quarter of the year.
services in its market." The performance of Matewan stock as well as the
current dividend stream should serve to foster
continued interest in the Company's stock by the
investment community.
Over a decade ago, when the Company was very small, its
management staff agreed that its mission was to become
the leading financial services company in our market.
To memorialize its goal, management officially adopted
the following statement which was agreed to by the
board of directors and communicated to the employees
and shareholders:
The mission of Matewan BancShares will be to become the
leading provider of financial services in southern West
Virginia and eastern Kentucky.
By being very focused over this period of time, the
Company has managed to annually increase its share of
the market while maintaining acceptable levels of
profitability.
How did we succeed? Simply - we worked very diligently
to understand the financial needs of the marketplace
and, more specifically, our customers. We set a goal of
meeting these needs and of surpassing the customers'
expectations where possible.
We have become a student of change in our industry, and
our strategic planning has centered around developing
strategies for anticipating the changes and developing
systems that allow us to deliver "state of the art"
products and services.
We have developed a competitive edge by using
technology to develop delivery systems that
differentiate us in our market. Our goal has been to
use technology for more efficient delivery of our
services and to allow for profitable growth.
We know that traditional methods of delivery are
rapidly becoming the "hype" of the past. We see
increased use of our services daily through telephone,
personal computers, and other automated methods.
However, we continue to service many customers who want
to do banking in a traditional manner, and part of our
strategy has been to use technology in such a way that
the evolution from the past to the future will be a
pleasant experience.
As we look at the past performance of our Company, it
is evident that we have successfully increased our
share of the market. Several happenings in 1995 will
move us into a position to gain market share at an even
greater rate.
First, our new Paintsville office that opened near the
end of 1994 had a very successful first full year.
Second, we opened two full-service offices in Food City
stores at Goody and Pikeville, Kentucky. Third, the
biggest event of the year occurred when we entered into
a stock purchase agreement with Banc One Corporation to
purchase 100% of the outstanding capital stock of Bank
One, Pikeville, N.A.
The purchase will include the entire Pikeville,
Kentucky, operation which includes all of the branch
offices of Bank One, Pikeville, N.A. A pro forma
statement of Pikeville and Matewan prepared on a
consolidated basis shows total assets of over
$615,000,000. The acquisition, which will be final in
March, 1996, will increase Matewan's market share of
deposits from fourth to second in Pike County and from
third to first in the overall market area, which
includes the counties of Boone, Logan and Mingo in West
Virginia and Pike, Floyd, Johnson and Martin in
Kentucky.
2
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------
The acquisition is important for Matewan because of the
attractiveness of the Pikeville market. Pike County is one
of the highest populated counties and is in one of the
largest financial markets in Kentucky.
The acquisition will allow Matewan to create operating
efficiencies by consolidating several "back room"
functions and by consolidating some of the existing
Matewan and Pikeville branch offices. The purchase will
allow Matewan to leverage its management talent, its
technological capabilities and will result in improved
utilization of its capital base. Additionally, Matewan
will take to Pikeville its philosophy on customer service
that includes extended banking hours and modern customer
delivery systems.
The events of 1995, coupled with the diligence and
visionary planning of the past, inarguably place Matewan
as the leading provider of financial services in its
market.
Management is planning for a busy year in 1996. Our
biggest challenge is to finalize the Pikeville acquisition
and to blend it into the existing Matewan structure.
Several operation enhancements are planned during the year
including automation of the consumer loan collection
department. The upgrade will allow for more effective
collection results as well as to support future growth in
the consumer loan portfolio.
As we move forward into 1996 and to the end of the decade,
we see many challenges on the horizon. The paradigms
reflecting the banking industry are changing. It is our
belief that the ways of banking in the past may not
necessarily be the ways of the future.
We believe that for us to be successful in the future, we
must diversify our delivery systems. We must recognize the
needs of customers and make available the appropriate
systems.
Matewan's goal is to strengthen its sales culture. We
continue to increase our specialized sales force that
includes trained and licensed personnel to sell investment
products, life insurance products, annuities, and mortgage
products as well as commercial services.
We are excited about the future for our Company and the
potential to grow our franchise. The changing culture in
our organization is driven by the changes that are
apparent in our market and the industry. Our goal is to
respond to the changes in customers' values as they occur.
As a shareholder, I solicit your support as we move
Matewan BancShares forward. We are comfortable that the
future will bring continued success for our Company and a
rewarding experience to our shareholders.
[PHOTO OF DAN R. MOORE] Sincerely,
/s/ Dan R. Moore
Dan R. Moore
President and Chairman of the Board
3
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
The Markets We Serve With ValuBanking
- --------------------------------------------------------------------------------
[LOGO OF MATEWAN BANCSHARES, INC.] Matewan BancShares, Inc. [MAP OF LOCAL AREA]
2nd Avenue and Vinson Street, Williamson, WV
[LOGO OF MATEWAN BANCSHARES, INC.] Matewan Banks
Matewan National Bank
Helena Avenue, Delbarton, WV
Eastgate Shopping Center, Kermit, WV
2nd Avenue and Vinson Street, Williamson, WV
Main Street, Gilbert, WV
149 Smoot Avenue, Danville, WV
25 Stratton Street, Logan, WV
Logan/Triangle, 80 Riverview Drive, Logan, WV
600 Mate Street, Matewan, WV
[LOGO OF MATEWAN BANCSHARES, INC.] Matewan Banks
Matewan Bank, FSB
1086 North Mayo Trail, Pikeville, KY
300 North Mayo Trail, Paintsville, KY
Express Bank Office, 150 Town Mountain Road, Pikeville, KY
Express Bank Office, Thompson Plaza, Goody, KY
[LOGO OF MATEWAN BANCSHARES, INC.] Matewan Banks
The Money Center
249 Second Avenue, Williamson, WV
[LOGO OF MATEWAN BANCSHARES, INC.] Matewan Banks
Insurance & Investment Division
249 Second Avenue, Williamson, WV
[PHOTO OF LOGS] [PHOTO OF GIRL WITH RABBIT] [PHOTO OF TRUCK]
4
<PAGE>
[MAP OF LOCAL AREA]
[PHOTO OF BOY] [PHOTO OF CONSTRUCTION] [PHOTO OF WORKMAN]
5
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Net Income Matewan BancShares, Inc. ("the Company") is a bank holding
- -------------------- company headquartered in Williamson, West Virginia. The
[GRAPH APPEARS HERE] Company subsidiaries consist of a commercial bank (Matewan
Millions of Dollars National Bank or the "Bank"), a federally chartered "de
1991 3.612 novo" savings bank (Matewan Bank FSB or "FSB"), and a
1992 5.063 venture capital company (Matewan Venture Fund, Inc. or the
1993 5.123 "Fund"). The Company considers all of its principal
1994 5.005 business activities to be banking related. The Company
1995 5.220 identifies as its core market area the seven county region
consisting of Mingo, Logan and Boone counties in West
Virginia and Pike, Floyd, Johnson, and Martin counties in
Kentucky. The Bank has eight full service offices and one
loan office providing services to customers in southern
West Virginia and eastern Kentucky. FSB, which is
domiciled in Kentucky, commenced business on January 3,
1994 and presently has four offices in eastern Kentucky.
It is authorized to engage in all permissible thrift-
related activities in any of its offices. The Fund was
formed to develop new business, rehabilitate and expand
existing businesses, and expand the economic stability of
southern West Virginia. As of December 31, 1995, the
Company had assets in excess of $401 million, total net
loans in excess of $228 million, and total deposits in
excess of $334 million.
Return On Average The accompanying consolidated financial statements have
Assets been prepared by the management of the Company in
- -------------------- conformity with generally accepted accounting principles.
[GRAPH APPEARS HERE] Financial information appearing throughout this annual
1991 1.18% report is consistent with that reported in the
1992 1.57% consolidated financial statements. The following is
1993 1.56% designed to assist readers of the consolidated financial
1994 1.40% statements in understanding the significant changes in the
1005 1.38% Company's financial condition and results of operation.
SUMMARY FINANCIAL RESULTS
The Company's net income for 1995 was approximately $5.220
million. This represents both a record year for Company
earnings and an improvement of approximately 4.3% from the
previous year. Net income of $5.005 million in 1994
decreased approximately 2.3% from the $5.123 million
realized in 1993. Improved performance for the Company in
1995 was largely a function of the increases in net
interest margin ($1.817 million or 10.1%) and non-interest
income ($500 thousand or 17.8%) more than compensating for
the increases in the provision for loan losses ($265
thousand or 16.1%) and non-interest expenses ($1.730
million or 15.4%). Improved and disciplined pricing by the
Company produced a net interest margin for 1995 of 5.78%
versus 5.53% for 1994.
The decrease in net income in 1994 was largely
attributable to a higher provision for loan losses, higher
Total Assets operating costs primarily associated with commencing and
- -------------------- maintaining business for FSB and the relocation of the
[GRAPH APPEARS HERE] corporate offices of the Company and the Bank, and a
Million of Dollars decrease in the net interest margin from 5.88% in 1993 to
1991 323 5.53% in 1994. The benefits of the growth experienced in
1992 329 both net interest income ($327 thousand or 1.9%) and non-
1993 343 interest income ($407 thousand or 17.0%) and lower income
1994 371 tax provision ($393 thousand or 12%) were not sufficient
1995 401 to offset the increases in the provision for loan losses
($358 thousand or 27.9%) and non-interest expenses ($887
thousand or 8.6%).
Return on average assets (ROA) measures how effectively
the Company utilizes its assets to produce its net income.
The Company's ROA for 1995 was 1.38% compared to 1.40% for
1994 and 1.56% for 1993. Return on average equity (ROE)
reveals how much income is earned in relation to the
equity of the Company. The Company's 1995 ROE was 12.09%
compared to 12.39% in 1994 and 14.12% in 1993. The
declines in both 1995 and 1994 are more a function of the
Company's capital structure than any significant weakness
in earnings. As can be seen, ROE will not fluctuate
proportionally with net income due to changes in the
equity structure of the Company. It has been the Company's
policy to retain a substantial portion of earnings to help
fund the growth the Company is experiencing and fund
future expansion.
6
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table I represents a summary of certain financial data of the Company.
Table I - Five Year Selected Financial Summary
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993 1992 1991
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period end balances:
Total assets............................... $401,034 $371,410 $342,949 $329,156 $323,627
Total earning assets....................... 357,237 332,371 309,627 298,162 295,884
Total deposits............................. 334,387 310,647 291,153 281,116 271,271
Shareholders' equity....................... 45,817 41,803 38,032 33,951 29,959
Income for the period:
Total interest income...................... 32,442 28,524 27,428 28,444 29,853
Total interest expense..................... 12,644 10,543 9,774 11,631 15,234
Net interest income........................ 19,798 17,981 17,654 16,813 14,619
Provision for loan losses.................. 1,908 1,643 1,285 1,343 1,507
Non-interest income........................ 3,302 2,802 2,395 2,409 1,959
Non-interest expense....................... 12,989 11,259 10,372 9,897 9,391
Net income before taxes.................... 8,203 7,881 8,392 7,982 5,680
Applicable income taxes.................... 2,983 2,876 3,269 2,919 2,068
Net income................................. 5,220 5,005 5,123 5,063 3,612
Per share data:
Net income................................. $ 1.42 $ 1.36 $ 1.40 $ 1.38 $ .98
Shareholders' equity....................... 12.49 11.40 10.37 9.25 8.17
Cash dividends............................. 0.38 0.31 0.28 0.28 0.23
Key performance ratios:
Net income to:
Average assets............................. 1.38% 1.40% 1.56% 1.57% 1.18%
Average shareholders' equity............... 12.09 12.39 14.12 16.44 12.56
Average shareholders' equity to average
assets.................................... 11.40 11.27 11.07 9.55 9.39
Net interest margin........................ 5.78 5.53 5.88 5.73 5.23
Non-interest income to average assets...... .87 .78 .73 .75 .64
Non-interest expense to average assets..... 3.43 3.14 3.16 3.07 3.07
Efficiency ratio........................... 56.23 54.17 51.73 51.49 56.65
Risk-based capital measures:
Tier 1 risk-based ratio.................... 17.86% 17.98% 17.63% 17.61% 15.05%
Total risk-based ratio..................... 19.06 19.23 18.88 18.86 16.15
Leverage capital ratio..................... 10.97 10.76 10.49 9.63 8.50
Other significant measures:
Dividend payout............................ 26.82% 22.82% 20.34% 20.58% 23.08%
Percent change in dividend................. 22.59 9.60 .00 25.00 40.35
Percent change in net income............... 4.30 (2.30) 1.18 40.19 3.47
Percent change in total assets............. 7.98 8.30 4.19 1.71 7.19
Equity growth.............................. 9.60 9.92 12.02 13.22 10.45
Asset quality:
Net charge-offs to average loans
outstanding............................... .84% .82% .44% .51% .80%
Non-performing loans to total year-end
loans..................................... 1.13 1.08 .65 1.75 1.21
Non-performing assets to total year-end
assets.................................... .78 .67 .42 1.04 .77
Allowance for loan losses to total
year-end loans............................ 1.28 1.35 1.49 1.41 1.18
Allowance for loan losses to
non-performing loans...................... 113.78 125.14 230.79 80.35 97.66
</TABLE>
7
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- -------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks...................................................... $ 17,391 $ 16,891 $ 12,555 $ 11,797 $ 10,253
Interest bearing deposits.................................................... 683 3,584 209 123 28
Investment securities........................................................ 108,634 104,686 106,122 104,650 95,107
Federal funds sold........................................................... 11,613 13,710 11,723 17,256 15,202
Loans - net.................................................................. 221,844 203,278 181,996 171,605 168,993
Bank premises and equipment.................................................. 9,412 8,364 7,139 7,335 7,448
Other assets................................................................. 9,156 8,161 7,985 9,650 9,243
-----------------------------------------------------
Total assets................................................................. $378,733 $358,674 $327,729 $322,416 $306,274
=====================================================
Liabilities and shareholders' equity
Deposits:
Transaction accounts........................................................ $ 83,135 $ 82,048 $ 74,280 $ 73,547 $ 64,614
Savings deposits............................................................ 52,624 52,551 43,947 43,817 36,806
Time deposits............................................................... 180,518 168,162 163,067 160,107 161,519
Borrowed funds.............................................................. 15,885 13,098 7,706 10,994 11,862
Accrued liabilities and other............................................... 3,392 2,404 2,458 3,159 2,714
-----------------------------------------------------
Total liabilities............................................................ 335,554 318,263 291,458 291,624 277,515
Shareholders' equity......................................................... 43,179 40,411 36,271 30,792 28,759
-----------------------------------------------------
Total liabilities and equity................................................. $378,733 $358,674 $327,729 $322,416 $306,274
=====================================================
</TABLE>
See the discussion of expansion activity for matters that affect the
comparability of the above information.
Table I portrays consistent growth in both total assets
and equity from 1991 through 1995. This growth can be
attributed to a management plan that has expanded the
market area in which the Company operates. In 1994, the
Company formed Matewan Bank FSB, a "de novo" thrift
subsidiary, and opened offices in Pikeville and
Paintsville, Kentucky. In 1995, Matewan Bank FSB opened
two additional offices located in supermarkets in
Pikeville and Goody, Kentucky. This expansion, along with
increased market penetration, has accounted for this five
year growth.
Table I also depicts that both pretax income and aftertax
income experienced growth of approximately 4.00% in 1995.
Net earnings for 1995 represent the highest annual level
realized in the history of the Company. Net earnings for
Earnings Per Share 1994 regressed slightly after experiencing growth in the
- -------------------- preceding three years. Net earnings experienced a 2.30%
[GRAPH APPEARS HERE] decline in 1994 after experiencing increases of 1.18% in
Dollars 1993 and 40.19% in 1992. In terms of earnings per share,
1991 $0.98 this represents a $.06 increase in the current year,
1992 $1.38 following a $.04 decline in 1994. Increases of $.02 per
1993 $1.40 share and $.40 per share were experienced in 1993 and
1994 $1.36 1992, respectively. Over the past four years, book value
1995 $1.42 per share has increased steadily from $8.17 per share in
1991 to $12.49 at the end of 1995.
Management is not aware of any trends, events, or
uncertainties, either favorable or unfavorable, that are
reasonably likely to have a material effect on the
Company's liquidity, capital resources, or results of
operations. There are no current recommendations by
regulatory authorities which, if implemented, would have a
material effect on the Company. The Company has no
outstanding loans that have been classified for regulatory
purposes as loss, doubtful, substandard, or special
mention that result from trends or uncertainties which
management reasonably expects to materially impact future
operating results, liquidity, or capital resources.
8
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Book Value Per Share MARKET FOR COMPANY'S COMMON STOCK
- --------------------
[GRAPH APPEARS HERE] The Company's common stock (symbol: "MATE") is listed for
trading on the National Association of Securities Dealers
Dollars Automated Quotation System - National Market System. Prior
1991 $8.17 to its listing on June 1, 1994, there existed no trading
1992 $9.25 market for the Company's common stock.
1993 $10.37
1994 $11.40 The following table sets forth the high and low sales
1995 $12.49 prices of common stock for each quarterly period during
1995 and 1994. Transactions bearing the asterisk (*)
represent historical prices based upon information
furnished to the Company by one or more parties involved
in privately negotiated purchases and sales and may not be
representative of all trades during the time periods
selected. No attempt was made by the Company to verify the
accuracy of sales information provided herein. High and
low sales prices for all of 1995 and for the third and
fourth quarters of 1994 as well as the high for the second
quarter of 1994 are as reported by the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------------
High Low Dividend High Low Dividend
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fourth Quarter......................... $21.38 $19.50 $.100 $18.86 $14.09 $.127
Third Quarter.......................... 20.50 18.50 .100 20.00 17.27 .064
Second Quarter......................... 19.09 17.27 .091 24.55 5.68* .064
First Quarter.......................... 17.73 15.23 .091 5.68* 5.68* .057
</TABLE>
Dividends Per Share At December 31, 1995, there were 610 holders of record of
- ------------------- the Company's stock.
[GRAPH APPEARS HERE] The Company intends to pay regular quarterly cash
dividends on its common stock, subject to the Company's
Dollars needs for funds. However, the Company's dividend policy is
1991 $0.23 subject to the discretion of the Board of Directors. In
1992 $0.28 determining whether to continue such dividend payments and
1993 $0.28 in establishing the amount of any dividends to be paid,
1994 $0.31 the Board will consider the Company's earnings, capital
1995 $0.38 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 the Company.
As discussed below in "Expansion Activity," the Company
expects to acquire all of the outstanding common stock of
Bank One, Pikeville, N.A. for $28.6 million. The Company
will fund this acquisition with proceeds from a
convertible preferred stock offering ($16.1 million),
long-term debt ($12 million), and available cash ($.5
million). After this acquisition is consummated, the
Company will be required to fund the preferred stock
dividends and debt service on the long-term debt. However,
this additional use of funds is not expected to impair the
Company's ability to pay its regular quarterly cash
dividends on its common stock.
On January 10, 1995, the Company's Board of Directors
authorized the repurchase of up to 100,000 shares of its
common stock. 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.
EXPANSION ACTIVITY
On September 28, 1995, the Company entered into a
definitive agreement (Agreement) with Banc One Corporation
and Banc One Kentucky Corporation under which the Company
agreed to purchase from Banc One Kentucky Corporation one
hundred percent (100%) of the voting stock of the Bank
One, Pikeville N.A. franchise ("Pikeville"), subject to
the appropriate regulatory approvals. At December 31,
1995, Pikeville had total assets in excess of $224
9
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
million and deposits in excess of $190 million. The
transaction is expected to close by the end of the first
quarter of 1996 with a purchase price of $28.6 million.
Based on the most current available deposit data, the
acquisition of Pikeville would result in the Company
possessing the leading market share of all of the
financial institutions operating in its seven county core
market area.
On January 3, 1994, the Company contributed capital of $4
million to form Matewan Bank FSB, a wholly-owned federal
savings bank subsidiary of the Company. Matewan Bank FSB
commenced operations on January 3, 1994. Its operations
contributed approximately 71% of the asset growth that the
Company experienced in 1995 over 1994 and contributed
approximately 4% of the Company's net income. Its
operations contributed approximately 57% of the asset
growth that the Company experienced in 1994 over 1993 but
it did not have a material impact on the Company's results
of operations in 1994.
FINANCIAL CONDITION
The Company's primary sources of revenue are generated by
its earning assets, while its primary expenses are
incurred by the funding of these assets with various
interest bearing liabilities. Following is a discussion of
earning assets and interest bearing liabilities for the
three years in the period ended December 31, 1995.
Average earning assets increased approximately $17.5
million or 5.4% in 1995 over 1994. Average net loans
outstanding increased approximately $18.6 million (9.1%)
while average investment securities increased
approximately $3.9 million (3.8%) and average interest
bearing deposits decreased approximately $2.9 million
(80.9%). Average federal funds sold decreased
approximately $2.1 million (15.3%). Average non-earning
assets increased approximately 7.6% in 1995 due to the
Company's expansion efforts and relocation of its
corporate offices.
Average earning assets increased approximately $25.2
million or 8.4% in 1994 over 1993. Average net loans
outstanding increased approximately $24.1 million (13.2%)
while average investment securities volume decreased
approximately $1.4 million (1.4%) and average interest
bearing deposits increased approximately $3.3 million.
Average federal funds sold increased approximately $2.0
million (16.9%).
Average interest bearing liabilities are the primary funds
that support the Company's earning assets. In 1995,
average interest bearing liabilities increased
approximately $17.2 million (6.4%). Average transaction
accounts increased approximately $896 thousand (2.4%),
average savings deposits increased $158 thousand (.3%),
average time deposits increased $13.4 million (8.0%), and
average purchased funds, primarily commercial repurchase
agreements, increased approximately $2.8 million (21.3%)
in 1995 over 1994. In 1994, average interest bearing
liabilities increased approximately $22.5 million or 9.0%.
Transaction accounts increased approximately $3.4 million
(10.0%), savings deposits increased $8.6 million (19.6%),
time deposits volume increased approximately $5.1 million
(3.1%), and purchased funds, primarily commercial
repurchase agreements, increased approximately $5.4
million or 70% in 1994 over 1993.
The primary reason for the Company's growth over the past
three years is core growth in its West Virginia market and
expansion activities in its Kentucky market.
10
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table II - Analysis of Earning Assets and Interest Bearing Liabilities
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
------------------------------------------------------------------------------------------
Average Yield Average Yield Average Yield
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Loans:
Commercial.............. $ 65,091 $ 6,851 10.53% $ 65,186 $ 6,168 9.46% $ 67,749 $ 6,452 9.52%
Real estate............. 80,683 8,470 10.50 70,119 7,023 10.02 58,025 6,374 10.98
Consumer................ 76,070 10,003 13.15 67,973 8,371 12.32 56,222 7,240 12.88
------------------------------------------------------------------------------------------
Total loans................ 221,844 25,324 11.42 203,278 21,562 10.61 181,996 20,066 11.03
Securities:
Taxable................... 106,138 6,272 5.91 103,759 6,205 5.98 105,016 6,923 6.59
Tax-exempt................ 2,496 146 5.85 927 58 6.26 1,106 85 7.69
------------------------------------------------------------------------------------------
Total securities........... 108,634 6,418 5.91 104,686 6,263 5.98 106,122 7,008 6.60
Federal funds sold......... 11,613 660 5.68 13,710 551 4.02 11,723 348 2.97
Interest bearing
deposits in banks......... 683 40 5.86 3,584 148 4.13 209 6 2.87
------------------------------------------------------------------------------------------
Total earning assets....... 342,774 32,442 9.46% 325,258 28,524 8.77% 300,050 27,428 9.14%
----- ---- ----
Non-earning assets:
Other assets.............. 35,959 33,416 27,679
-------- -------- --------
Total assets............... $378,733 $358,674 $327,729
======== ======== ========
Liabilities and
shareholders' equity
Interest bearing
liabilities:
Transaction accounts...... $ 38,488 $ 1,185 3.08% $ 37,592 $ 1,142 3.04% $ 34,183 $ 993 2.90%
Savings deposits.......... 52,709 1,770 3.36 52,551 1,817 3.46 43,947 1,564 3.56
Time deposits............. 181,554 9,112 5.02 168,162 7,137 4.24 163,067 6,982 4.28
Purchased funds........... 15,885 577 3.63 13,098 447 3.41 7,706 235 3.05
------------------------------------------------------------------------------------------
Total interest bearing
liabilities............... 288,636 12,644 4.38 271,403 10,543 3.88 248,903 9,774 3.93
---- ---- ----
Non-interest bearing
liabilities
and capital:
Demand deposits......... 43,526 44,456 40,097
Accrued expenses and
other.................. 3,392 2,404 2,458
Total shareholders'
equity................. 43,179 40,411 36,271
-------- -------- --------
Total non-interest bearing
liabilities and capital.. 90,097 87,271 78,826
-------- -------- --------
Total liabilities and
capital................... $378,733 $358,674 $327,729
======== ======== ========
Net interest income........ $ 19,798 $ 17,981 $ 17,654
======= ======= ========
Spread..................... 5.08% 4.89% 5.21%
==== ==== ====
Net interest margin........ 5.78% 5.53% 5.88%
==== ==== ====
</TABLE>
Nonaccrual loans are included in average balances.
Yields on tax-exempt securities are on a pretax basis and do not represent tax
equivalent yields.
11
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
LOAN PORTFOLIO
The Company offers a variety of lending services,
including commercial and financial, real estate and
consumer loans. The Company, 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.
The Company's philosophy with regard to the lending
function is to maintain a strategic asset mix wherein the
loan portfolio represents approximately sixty-five percent
(65%) 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. At December 31, 1995, the actual
distribution was 38% in real estate loans, 35% in consumer
loans, and 27% in commercial loans. The primary focus for
all categories of lending is the seven county market area
that the Company has identified as its core market.
By definition, credit concentrations consist of direct,
indirect, or contingent liabilities exceeding twenty-five
percent (25%) of the Company's capital base.
Concentrations are considered to involve a single
borrower, an affiliated borrower, a group of borrowers
engaged in or dependent on a single industry, or a group
of borrowers within similar credit categories. The Company
has no foreign loans or loan concentrations to individual
or related borrowers which exceed 10% of total loans. By
definition, two major concentrations exist for the
Company: (i) those delineated by loan category and (ii)
that of a single industry concentration. Loan categories
having in excess of twenty-five percent (25%) 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
loans. The other type of concentration relates to the
general overall reliance on the coal industry prevalent
throughout the Company's market area. Given the market
area's dependence on this industry, the Company's
avoidance of concentration is neither likely nor
practical.
Although the Company has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their
obligations is dependent 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. The Company attempts to
diversify this particular concentration somewhat by (i)
avoiding concentration of or reliance on one company or
one company and its employees, suppliers, or independent
coal operators or contractors, (ii) spreading the
commercial portfolio throughout southern West Virginia,
eastern Kentucky and western Virginia, and (iii) engaging
in business involving different coal companies and
different types of coal. 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. The direct coal
related credits in the Company's loan portfolio represent
less than 6% of the total portfolio.
The majority of loans outstanding are collateralized by
real estate, commercial equipment, and personal consumer
goods. At December 31, 1995, one-to-four family
residential real estate secured approximately 37% of the
loan portfolio, commercial equipment and vehicles secured
approximately 13%, automobiles secured approximately 17%,
and commercial real estate secured approximately 10%.
Principally all of the commercial real estate securing the
loans noted above is within the market area served by the
Company, where such real estate values have not been
significantly affected by the significant fluctuations
which have caused the collateral value problems in other
regions of the country. No other individual category makes
up 10% or more of the loan portfolio.
12
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Real estate loans represent the largest component of the
Company's loan portfolio. The actual dollar volume of real
estate loans outstanding made within the identified core
market area is in excess of ninety-one percent (91%) of
the Company's real estate loan portfolio. One-to-four
family residential real estate represents most of the
collateral for this category. The Company's loan policy
contains uniform and minimum standards for determining
creditworthiness of potential real estate borrowers,
requires conformity to FNMA and FHLMC standard
requirements, including debt/worth and loan/appraised
value ratios. Maximum allowable levels for loan/value
ratios for the most prevalent types of real estate lending
are eighty percent (80%) for one-to-four family
residences, seventy-five percent (75%) for land
development, and sixty-five percent (65%) for raw,
unimproved residential land. In addition, minimum standard
parameters regarding downpayment, loan term, and risk-
based determined loan rates are employed by the Company.
Consumer loans represent the second largest component of
the Company's loan portfolio in terms of dollar volume.
The dollar volume of the Company's consumer loans made
within the Company's core market area represents in excess
of ninety-one percent (91%) of the overall consumer loan
portfolio. Automobile loans comprise the largest single
type of consumer credit category, approximating one-half
of the total consumer portfolio. Loan policy mandates
minimum underwriting standards depending on the nature of
credit involved, including the applicant's employment
history, disposable, income and debt/income ratios, net
worth, credit score, downpayment requirements, loan terms,
and collateral. While Company policy emphasizes secured
lending, unsecured consumer credits within established
guidelines is permitted.
Commercial loans represent both the smallest component of
the Company's loan portfolio and the largest and most
concentrated risks found therein. In terms of geographic
concentration, the dollar volume of outstanding loans in
this portfolio category made within the Company's core
market area is in excess of ninety-two percent (92%) of
the commercial loans outstanding. The majority of the
loans in this category are collateralized with either coal
mining equipment and/or coal trucks or other commercial
real estate and equipment. Minimum commercial loan
underwriting and documentation standards include among
other requirements, current financial information,
demonstration of adequate cash flow, adequate and
perfected lien positions, and sufficient collateral
coverage. Minimum standards similarly exist for
downpayment and/or equity coverage, loan term, 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 based on some
predetermined and prominently recognized index - usually
Wall Street Journal Prime.
The population of the seven county core market area
declined substantially during the decade of 1980 to 1990,
before reversing course in the early 1990s. Total
households, which tend to be larger in this market than
most national averages, similarly fell over the same time
period, although not as drastically as population readings
would suggest. A majority of these households (over 68%)
own their domiciles which have a median dwelling value in
excess of $40 thousand. Median household income for the
area is $19 thousand, with approximately forty percent
(40%) of the households having incomes in excess of $25
thousand. Mining, of course, is the dominant industry in
the local economy, however, the dominant employers in the
market - in no particular order - are education,
government services, and health care services. Blue collar
occupations dominate employment representing nearly fifty-
six percent (56%) of the work force. It is important to
reiterate that the single most powerful industrial factor
operating in the core market area relates to the
dependence - directly and indirectly - on the coal
industry.
13
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
Loans Outstanding The following table shows the composition of the
- ----------------- Company's loan portfolio:
[GRAPH APPEARS HERE]
Millions of Dollars
1991 168
1992 173
1993 196
1994 215
1995 229
Table III - Consolidated Summary of Loans and
---------------------------------------------------------
Non-Performing Assets
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993 1992 1991
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans................. $ 63,581 $ 64,821 $ 69,372 $ 65,144 $ 65,970
Real estate loans................ 88,197 76,908 66,638 54,225 45,711
Consumer loans................... 80,796 77,564 65,107 57,963 60,436
------------------------------------------------
Subtotal......................... 232,574 219,293 201,117 177,332 172,117
Less: Unearned income............ 1,033 1,617 2,303 2,098 2,014
------------------------------------------------
Subtotal......................... 231,541 217,676 198,814 175,234 170,103
Less: Allowance for loan losses.. 2,973 2,932 2,961 2,470 2,006
------------------------------------------------
Net loans........................ $228,568 $214,744 $195,853 $172,764 $168,097
================================================
</TABLE>
At December 31, 1995, net loans approximated $229 million
as compared to $215 million at December 31, 1994. Real
estate loans increased approximately $11.3 million
(14.7%), consumer loans increased approximately $3.2
million (4.2%), and commercial loans decreased
approximately $1.2 million (1.9%) from December 31, 1994.
At December 31, 1994, net loans approximated $215 million
as compared to $196 million at December 31, 1993. Real
estate loans increased approximately $10.3 million
(15.4%), consumer loans increased approximately $12.4
million (19.1%), and commercial loans decreased
approximately $4.6 million (6.6%) from December 31, 1993.
The increase in loans over the three year period is due to
core growth in the Company's market.
As Table III illustrates, the Company has a relatively
balanced loan portfolio with increasing emphasis being
placed on the consumer and real estate markets. The
maturity distribution of the Company's gross loans at
December 31, 1995 is summarized as follows in Table IV:
Table IV - Remaining Maturities of Loans
---------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance After
December 31 One Year 1 to 5 Five
1995 or Less Years Years
------------------------------------------------
<S> <C> <C> <C> <C>
Commercial loans........... $63,581 $ 43,043 $18,455 $ 2,083
Real estate loans.......... 88,197 13,574 67,775 6,848
Consumer loans............. 80,796 34,914 41,683 4,199
------------------------------------------------
Total loans................ $232,574 $91,531 $127,913 $13,130
================================================
Loans due after one year:
With floating rates...... $ 1,370
=========
With predetermined rates. $139,673
=========
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the
allowance for loan losses, and subsequent recoveries, if
any, are credited to the allowance.
On January 1, 1995, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 114,
"Accounting by Creditors for Impairment of a Loan," as
amended by FASB Statement No. 118. Under this standard,
the 1995 allowance for loan losses related to loans
14
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Loan Coverage that are identified for evaluation in accordance with
- ------------- Statement 114 is based on discounted cash flows using the
[GRAPH APPEARS HERE] loan's initial effective interest rate or the fair value
Ratio of Allowance of the collateral for certain collateral dependent loans.
for Loan Losses of Prior to 1995, the allowance for loan losses related to
Non-Performing Loans these loans was based on undiscounted cash flows or the
1991 97.66% fair value of the collateral for collateral dependent
1992 80.35% loans. The adoption of this pronouncement did not
1993 230.79% materially impact the Company's financial statements,
1994 125.14% accounting policies, nonperforming loans, or determination
1995 113.78% of the adequacy of the allowance for loan losses.
The allowance for loan losses is maintained at a level
believed adequate by management to absorb estimated loan
losses. Management's periodic evaluation of the adequacy
of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability
to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition
of the loan portfolio, current economic conditions, and
other relevant factors. This evaluation is inherently
subjective as it requires material estimates including the
amounts and timing of future cash flows expected to be
received on impaired loans that may be susceptible to
significant change.
Accrual of interest is generally discontinued when a loan
becomes ninety 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. Loans in foreclosure and
liquidation proceedings are immediately placed on
nonaccrual status. A nonaccrual loan may be restored to an
accrual basis when interest and principal payments are
made current, has performed in accordance with contractual
terms for a reasonable period of time and prospects for
future payments are no longer in doubt.
The allowance for loan losses at December 31, 1995 was
approximately $2.973 million compared to approximately
$2.932 million at December 31, 1994, an increase of
approximately 1.4%. This increase occurred despite gross
charge-offs of the loan portfolio for 1995 being
approximately $266 thousand higher than for the prior
year. Recoveries were approximately $71 thousand higher
than for 1994 producing a net charge-off level
approximately $195 thousand higher for 1995. The ratio of
net charge-offs to average net loans was .84% in 1995 as
compared to .82% in 1994. The ratio of allowance for loan
losses to non-performing loans, the "coverage ratio,"
provides a quantifiable estimate of the coverage available
in the allowance for loan loss towards problem credits.
The coverage ratio was 113.78% and 125.14% at December 31,
1995 and 1994, respectively. The ratio of non-performing
loans to total year end loans was 1.13% and 1.08% at
December 31, 1995 and 1994, respectively. The ratio of
provision for loan losses to net charge-offs was 102.2%
and 98.3% for 1995 and 1994, respectively.
Starting in late 1994 and continuing throughout 1995,
management moved to position the loan portfolio for the
future by aggressively working out potential problem
credits, particularly in the consumer and commercial
sector. Over this period of time, the Company has
undertaken a comprehensive program of restructuring or
disposing of problem or higher risk credits. At the
implementation of this program, management recognized that
the adoption of such an aggressive posture would entail
having to absorb some charges to the allowance for loan
losses that could, at least initially, be higher than
historical charge-off ratios. Management also recognized
that dealing with some of these potential problem credits
in this aggressive manner would result in some credits
becoming classified assets and being reported as
classified assets that in prior years may not have been
recognized as such. Accordingly, non-performing levels
were anticipated to be higher than prior periods and
management believes that these higher levels of non-
performing loans do not contain significantly higher
levels of credit exposure than prior periods.
15
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
Management determined at the outset of this program that (i)
the allowance for loan losses was sufficient to absorb the
effect of anticipated higher charge-offs and (ii) on an
ongoing basis, provisions for loan losses would continue to
be made to reflect any additional exposure identified by
management in the loan portfolio. Management is confident
that the Company's asset quality at December 31, 1995, is
better than in prior periods. Management believes that the
aggressive program undertaken related to the commercial and
consumer loan portfolios will allow the Company to spend its
time pursuing additional business opportunities as opposed
to working out higher risk credits.
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
1995 1994 1993 1992 1991
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at end of period.................... $228,568 $214,744 $195,853 $172,764 $168,097
========================================================
Daily average amount of loans................................... $221,844 $203,278 $181,996 $171,605 $168,993
========================================================
Balance of allowance for loan losses at beginning of period..... $2,932 $ 2,961 $ 2,470 $ 2,006 $ 1,857
Loans charged off:
Commercial..................................................... 533 854 318 477 653
Consumer....................................................... 1,724 1,205 804 634 911
Real estate.................................................... 137 69 92 163 197
--------------------------------------------------------
Total loans charged off......................................... 2,394 2,128 1,214 1,274 1,761
Recoveries of loans previously charged off:
Commercial..................................................... 104 107 156 192 176
Consumer....................................................... 411 294 228 177 195
Real estate.................................................... 12 55 36 26 32
--------------------------------------------------------
Total recoveries................................................ 527 456 420 395 403
--------------------------------------------------------
Net loans charged off........................................... 1,867 1,672 794 879 1,358
Provision for loan losses....................................... 1,908 1,643 1,285 1,343 1,507
--------------------------------------------------------
Balance at end of period........................................ $2,973 $ 2,932 $ 2,961 $ 2,470 $ 2,006
========================================================
Ratio of net charge-offs during period to average loans......... 0.84% 0.82% 0.44% 0.51% 0.80%
========================================================
Ratio of provision for loan losses to net charge-offs........... 102.2% 98.3% 161.8% 152.8% 111.0%
========================================================
</TABLE>
Table VI - Allocation of Allowance for Loan Losses
- -------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992 December 31, 1991
Allocation Category Allocation Category Allocation Category Allocation Category Allocation Category
of as a % of as a % of as a % of as a % of as a %
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..... $ 955 27.3% $2,106 29.5% $ 2,150 34.5% $ 1,438 36.7% $1,000 38.3%
Real estate.... 638 37.9 210 35.1 305 33.1 315 30.6 300 26.6
Consumer....... 1,380 34.8 616 35.4 506 32.4 717 32.7 706 35.1
--------------------------------------------------------------------------------------------------------------------
$2,973 100.0% $2,932 100.0% $ 2,961 100.0% $ 2,470 100.0% $2,006 100.0%
====================================================================================================================
</TABLE>
16
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED SUMMARY OF NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, loans
more than ninety days past due which continue to accrue
interest, and other real estate owned.
At December 31, 1995, non-performing assets increased by
approximately 26.5% over prior year levels, or approximately
$657 thousand to .78% of total assets as compared to .67% at
December 31, 1994. Management's increasingly aggressive
posture in dealing with potential high risk credits (i.e.
management is granting very few extensions of loan payments)
is the prime reason for the increase. Management continues
to monitor higher risk credits to evaluate, control, and
insure that their ultimate disposition does not have a
material negative impact on the Company's financial
position. Of the loans held in non-accrual status in 1995,
if interest had been accrued on these loans based upon their
original terms, interest income would have increased by
approximately $373 thousand. A total of approximately $447
thousand in interest was actually received on these
accounts.
Other real estate owned, which is recorded at the lower of
cost or market minus estimated costs to sell, represents the
real estate of which the Company has taken ownership in full
or partial satisfaction of loans. Approximately 57% of the
other real estate owned is of a nonresidential nature.
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>
1995 1994 1993 1992 1991
------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-performing assets:
Non-accruing loans........................................ $1,995 $1,743 $1,037 $2,838 $1,969
Loans past due 90 days.................................... 618 600 246 236 85
------------------------------------------
Total non-performing loans................................. 2,613 2,343 1,283 3,074 2,054
Other real estate owned................................... 524 137 156 352 446
------------------------------------------
Total non-performing assets................................ $3,137 $2,480 $1,439 $3,426 $2,500
==========================================
Non-performing loans as a percentage of total loans........ 1.13% 1.08% 0.65% 1.75% 1.21%
==========================================
Non-performing assets as a percentage of total assets...... 0.78% 0.67% 0.42% 1.04% 0.77%
==========================================
</TABLE>
At December 31, 1995, the recorded investment in impaired
loans under Statement No. 114 was $6.5 million (of which
$278 thousand was on a nonaccrual basis). Included in this
amount was $863 thousand of impaired loans for which the
related allowance for loan losses is $274 thousand and $5.7
million of impaired loans that, as a result of write-downs
or being well secured, do not have a specific allowance for
loan losses. The average recorded investment in impaired
loans for the year ended December 31, 1995 approximated $5.7
million. For the year ended December 31, 1995, the Company
recognized interest income on those impaired loans of $852
thousand, which included $842 thousand of interest income
recognized using the cash basis method of income
recognition.
The Company's loan portfolio contained immaterial levels of
loans that would be characterized as renegotiated troubled
debt in periods reported in Table VII.
17
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO AND OTHER EARNING ASSETS
The second largest component of earning assets is investment
securities. The Company's investment portfolio is comprised
primarily of United States Government and Federal Agency
obligations. The Company'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 the Company has the ability at the time of
purchase to hold securities to maturity, they 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 income tax effect, are carried as a separate
component of shareholders' equity. The Company does not hold
investment securities for trading purposes.
At December 31, 1995 unrealized holding gains on available-
for-sale securities, net of deferred income taxes, of
approximately $53 thousand have been recorded as a separate
component of shareholders' equity. This reflects an increase
of $196 thousand from the unrealized holding losses of $143
thousand at December 31, 1994. This positive change was
primarily caused by declining interest rates in 1995.
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, 1995
Maturity:
Within 1 year................... $ 7,203 $19,300 $ 943 $ -- $ 27,446 5.98%
After 1 year through 5 years.... 4,729 67,215 2,365 -- 74,309 6.29
After 5 years through 10 years.. -- 1,298 161 -- 1,459 9.06
After 10 years.................. -- 236 7 2,271 2,514 5.99
-----------------------------------------------------------
Total carrying value (1)............... $11,932 $88,049 $3,476 $ 2,271 $105,728 6.24
===========================================================
Estimated fair value................... $12,015 $88,492 $3,490 $ 2,271 $106,268
Purchase yield......................... 5.62% 6.39% 4.74% 6.00% 6.24%
Average maturity (in years)............ 97 2.50 2.06 20.00 2.09
December 31, 1994
Total carrying value (1)............... $28,427 $77,744 $1,312 $ 2,498 $109,981 5.99%
Estimated fair 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%
Estimated fair 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
</TABLE>
(1) Available-for-sale securities are carried at fair value and held-to-maturity
securities are carried at amortized cost.
18
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
During 1995, the Company decreased its investment holdings
by approximately $4.3 million. Investment in U.S. Treasury
issues declined approximately $16.5 million to
approximately 11% of the total portfolio (down from 26% in
the prior year). In contrast, investment in Federal Agency
issues, State & Municipal issues, and other securities
increased in terms of both volume and proportion of the
investment portfolio in 1995 from prior year levels.
Federal Agency investments increased approximately $10.3
million (representing 83% of the portfolio versus 71% in
1994). Investments in State and Municipal issues increased
approximately $2.2 million and investments in other
securities decreased approximately $227 thousand in 1995,
collectively representing approximately 5% of the
investment portfolio as compared to 3% in the prior year.
The decrease in investments was a function of higher loan
demand and liquidity planning. The increase in municipal
securities is an effort to increase tax-exempt income .
During 1994, the Company increased its investment holdings
by approximately $11.2 million. Investment in U.S.
Treasury issues declined approximately $1.6 million to
approximately 26% of the total portfolio (down from 30% in
prior year). In contrast, investment in Federal Agency
issues, State & 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% of
the portfolio versus 68% in 1993). Investments in State
and Municipal issues increased approximately $750 thousand
and investments in other securities increased
approximately $1.2 million in 1994, representing
approximately 3% of the investment portfolio as compared
to 2% in the prior year.
Federal funds sold increased approximately $12.5 million
in 1995 from prior year levels. Average federal funds sold
for the year were approximately $2 million lower in 1995
than in 1994. Strong core deposit growth for the Company
provided the bulk of the funds available for this sort of
investment. In addition, improved loan demand helped
reduce federal funds sold.
Any assessment of the Company's activity in federal funds
investments needs to be evaluated in the context of
evolving economic market forces and the Company's overall
asset/liability management. Management desires to maintain
federal funds sold levels high enough to maintain
sufficient liquidity, while balancing these liquidity
needs with a desire to maintain an adequate return on
earning assets. As interest rates declined during 1995,
the differential between yields on federal funds sold and
on investment securities falling within the parameters of
the Company'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 the
Company's market area increased. Despite the fact that
market rates for most loan categories were decreasing, the
differential between market yields on loans and yields on
Total Deposits either federal funds sold or most investment securities
- -------------- was much wider. Given the combination of increasing local
[GRAPH APPEARS HERE] loan demand and higher yields available on those loans,
Millions of Dollars adherence to parameters defined in the Company's
1991 271 asset/liability policy, lower federal funds sold position
1992 281 over the course of 1995 were inevitable. Conversely, the
1993 291 combination of increasing interest rates experienced in
1994 311 1994 and greater liquidity provided by the Company's
1995 334 expanding deposit base made purchases of both investment
securities and federal funds more attractive.
DEPOSITS
The Company 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 the
Company's market.
Average deposits and short-term borrowings increased
approximately $16.3 million or 5% in 1995 from 1994
levels. The Company's cost of funds increased on most
interest bearing deposit categories, even though interest
rates declined during 1995, due to certain repricing
developments in 1994, aggressive growth campaigns the
Company undertook with regard to some of its newer
offices, and more intensive competitive pressures.
19
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
Average deposits and short-term borrowings increased
approximately $26.9 million or 9% in 1994 from 1993
levels. The increasing interest rate environment prevalent
during much of 1994 and the Company's aggressive growth
efforts in its core markets combined to produce
significant increases across every deposit and borrowing
category.
SHORT-TERM BORROWINGS
Short-term borrowings consist of the Treasury Tax and Loan
Account, Commercial Repurchase Agreements, and Borrowings
from the Federal Home Loan Bank (FHLB) and others. The
amount in the Treasury Tax and Loan account is directly
related to the amount of payroll in the market area 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 approximately $1.5 million
in 1995, an approximate 14% increase, after increasing
approximately $5.9 million (or 123%) in 1994. As a general
rule, an increasing interest rate environment and
generally better liquidity characteristics make Commercial
Repurchase Agreements a much less attractive and less
viable investment alternative. In the economic environment
experienced in 1995 compared to 1994 Repurchase Agreements
continued to be attractive. Average Borrowings from FHLB
were insignificant for nearly all of 1995. The Bank did
have an overnight draw outstanding on its Flexline at FHLB
of Pittsburgh at December 31, 1995, which it repaid during
the first week of 1996.
Table IX - Short-Term Borrowings
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
Amount Rate Amount Rate Amount Rate
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Treasury tax and loan account:
As of year-end................................ $ 3,349 5.15% $ 2,908 3.65% $5,714 2.76%
Average balance............................... 2,807 4.08 2,346 2.69 2,881 2.97
Maximum month-end............................. 6,615 -- 5,577 -- 6,954 --
Commercial repurchase agreements:
As of year-end................................ $ 9,361 4.20% $12,089 3.14% $5,876 2.64%
Average balance............................... 12,863 3.71 10,752 3.79 4,825 3.14
Maximum month-end............................. 14,695 -- 14,934 -- 5,885 --
FHLB borrowings and other:
As of year-end................................ $ 5,000 6.05% -- -- -- --
Average balance............................... 69 5.95 -- -- -- --
Maximum month-end............................. 5,000 -- -- -- -- --
</TABLE>
ASSET/LIABILITY MATURITY AND RATE SENSITIVITY
Asset/liability management is responsible for the
planning, implementation, and control processes 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.
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
20
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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 Company is liability sensitive in the one year and
under category, or "negatively gapped." Accordingly, a
decrease in interest rates should benefit the Company
while an increase in interest rates should adversely
impact the net interest margin. The earnings of the
Company are sufficient to withstand the short-term
negative gap position, should a moderate increase in
interest rates occur. Should a large rate increase occur,
management would consider liquidating available-for-sale
investments or borrowing from the FHLB. These proceeds
would be placed in short-term investments.
The Company'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 the Company will not have a liquidity problem or allow
income to be significantly affected by a change in
interest rates. Management believes that the Company's
cash position is sufficient to cover any payments
necessary on "jumbo" certificates. In addition, management
believes that a major portion of the transaction accounts
have attributes of core deposits and, therefore, are not
extremely interest sensitive.
The following table sets forth the amount of interest
earning assets and interest bearing liabilities
outstanding at December 31, 1995, 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.
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................................ $ 54,727 $ 11,322 $ 25,482 $ 91,531 $127,913 $13,130 $232,574
Investments.......................... 11,313 7,222 8,911 27,446 74,309 3,973 105,728
Interest-bearing deposits............ 5,704 -- -- 5,704 -- -- 5,704
Federal funds sold and other......... 17,237 -- -- 17,237 -- -- 17,237
-------------------------------------------------------------------------------
Total earning assets.................. 88,981 18,544 34,393 141,918 202,222 17,103 361,243
Liabilities:
Savings and transaction accounts..... 124,175 -- -- 124,175 -- -- 124,175
CD's $100,000 and over............... 13,948 12,348 17,054 43,350 24,838 -- 68,188
Other time deposits.................. 20,194 22,189 17,728 60,111 36,932 64 97,107
-------------------------------------------------------------------------------
Total deposits........................ 158,317 34,537 34,782 227,636 61,770 64 289,470
Other borrowings..................... 17,710 -- -- 17,710 -- -- 17,710
-------------------------------------------------------------------------------
Total interest bearing liabilities.... 176,027 34,537 34,782 245,346 61,770 64 307,180
-------------------------------------------------------------------------------
Interest sensitivity GAP.............. $(87,046) $ (15,993) $ (389) $(103,428) $140,452 $17,039 $ 54,063
===============================================================================
Cumulative GAP........................ $(87,046) $(103,039) $(103,428) $(103,428) $ 37,024 $54,063 $ 54,063
===============================================================================
Cumulative GAP as a percentage
of earning assets.................... (24.10)% (28.52)% (28.63)% (28.63)% 10.25% 14.97% 14.97%
===============================================================================
</TABLE>
21
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
The Company does not manage its interest rate risk simply
by employing static maturity and repricing reports. The
Company employs a dynamic modeling process that projects
the impact of different interest rate scenarios on
earnings and Return on Average Assets over a twelve month
period. A substantial portion of the Company's loans and
deposits comes from its retail base and does not
automatically reprice due to changes in interest rates.
Accordingly, the Company has not experienced the earnings
volatility indicated by its liability sensitive gap
position depicted above. The Company has maintained a net
interest margin in excess of 5.00% in each of the last six
years and has been able to maintain adequate liquidity to
provide for changes in interest rates and for changes in
loan and deposit demands.
The earnings simulation models that the Company employs
incorporate assumptions based on historical experiences
involving customer behavior and funds disintermediation in
a variety of interest rate environments. They also reflect
the Company's pricing position versus both local in-market
competition and broader out-of-market alternatives.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to satisfy demands for deposit
withdrawals, lending commitments, and other needs. The
Company's liquidity is based on a stable deposit base.
Additionally, the Company holds certain liquid assets such
as cash and federal funds sold to help meet certain
liquidity needs. In addition, the Company holds other
marketable assets (over $32.4 million of available-for-
sale investments at December 31, 1995) which can easily be
converted to cash if the need arises. The Company
continues to have the ability to attract short-term
sources of funds such as repurchase agreements to help
meet its liquidity needs.
Two of the Company's subsidiaries are members of the FHLB
(Pittsburgh and Cincinnati). The FHLBs provide an
alternative source of borrowings for the subsidiaries,
thereby providing additional sources of liquidity.
The Company'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 for the last three years have remained
relatively stable and approximated $6.2 million, $8.2
million, and $7.3 million in 1995, 1994, and 1993. Net
cash used in investing activities approximated $15.4
million, $36.3 million and $18.1 million in 1995, 1994,
1993. These increases primarily relate to the net increase
in lending activities. Net cash provided by financing
activities approximated $25.1 million, $21.7 million, and
$8.7 million in 1995, 1994, and 1993. The net cash
Capital Ratios provided by financing activities related primarily to
- -------------- increases in deposits.
[GRAPH APPEARS HERE]
Risk Based Capital A central principle in the Company's capital planning
Ratio process is to attain sufficiently high levels of
1991 16.15% profitability to insure that capital adequacy is
1992 18.86% maintained while generating a consistent flow of
1993 18.88% dividends. The FDIC Improvement Act of 1991 (the "Act")
1994 19.23% mandates minimum levels of capital required for an
1995 19.06% institution to be rated on the basis of capital. Under
Tier/Risk Based final agency rules, an institution will be deemed to be
Capital "well capitalized," the highest rating attainable, if it
1991 15.05% maintains (i) a Risk-Based Capital Ratio in excess of 10%,
1992 17.61% (ii) a Tier 1 Risk-Based Capital Ratio in excess of 6%,
1993 17.63% and (iii) a Leverage Ratio in excess of 5%. On December
1994 17.98% 31, 1995 total equity as a percent of total assets, the
1995 17.86% "Leverage Ratio," for the Company approximated 10.97%. For
Leverage Capital Matewan National Bank and Matewan Bank FSB, the Leverage
1991 8.50% Ratio approximated 9.01% and 9.83% at December 31, 1995.
1992 9.63% All measures are substantially in excess of minimum levels
1993 10.49% required under the Act. In addition, both the Company and
1994 10.76% its banking subsidiaries are now required to meet certain
1995 10.97% regulatory capital requirements for capital on a risk-
adjusted basis. The Company must maintain an 8% level of
capital to risk-adjusted assets. Risk adjustment allows
for inclusion of off-balance sheet items such as unused
commitments to extend credit, exclusion of certain no-risk
assets, as well as inclusion of other factors that may
increase risk for the Company. The Company's Risk-Based
Capital Ratio at December 31, 1995 was 19.06% compared to
19.23% on December 31, 1994. The chart to the left depicts
the levels of the Company's three major regulatory capital
ratios for each of the last five years, as well as the
minimum level required for each ratio to maintain status
as a
22
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
"well capitalized" institution. In each year, the Company
has substantially exceeded the minimum regulatory capital
standards required to maintain "well capitalized" status.
Increases in capital levels in the past several years have
been due to the substantial accumulation of income
retained after the payment of dividends.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the amount by which the interest
generated from earning assets exceeds the expense
associated with funding those assets, is the most
significant component of net income. Net interest income
in 1995 was $19.8 million, up approximately 10% from the
1994 level. Net interest income for 1994 was $18.0
million, a 2% increase over the prior year. As Table II
illustrates, the 1995 increase was predominantly a
function of an increased yield on earning assets of 69
basis points over prior year levels. The most significant
contribution came from loan yields, which increased 81
basis points in 1995 over 1994. Cost of funds increased 50
basis points over the same period. Despite generally
decreasing interest rates in the credit markets in 1995
and the Company's liability-sensitive position in the
under one year period, the Company actually experienced
higher costs on most categories of interest-bearing
liabilities. Most of this was a consequence of 1994
deposit pricing decisions intended to extend the term of
the deposit portfolio. Time deposits experienced the most
significant increase over 1994, showing a 78 basis point
increase.
Net interest income in 1994 was $18.0 million, up
approximately 2% from the 1993 level. Net interest income
for 1993 was $17.7 million, a 5% increase over the prior
year. As Table XI illustrates, the 1994 increase was
primarily a function of Company growth levels increasing
at a pace more than adequate to compensate for generally
lower rate contributions. Despite generally increasing
interest rates in the credit markets in 1994, the Company
actually experienced lower yields on both its loan and
investment portfolios in 1994. This was a direct
consequence of the Company's general short-term liability
sensitive gap position, which enabled the Company to
reprice relatively less of its earning asset base to
market conditions and in fact required it to carry a
substantial portion of this base at yields that had been
priced in the declining interest rate environment of 1991
through 1993. On the other hand, despite a short-term
liability sensitive position, the Company actually managed
to slightly decrease its cost on interest bearing
liabilities over prior year. In 1994, the yield on average
earning assets for the Company declined 37 basis points
from prior year levels, while the cost on interest bearing
liabilities declined 5 basis points from 1993 levels,
producing a net gap of 32 basis points.
During 1995, interest income increased approximately 13.7%
over prior year levels. This increase was primarily due to
a contribution from the loan portfolio being approximately
17.4% more than prior year levels. Average loans
outstanding increased 9.1% in 1995 over 1994 and the yield
on this portfolio increased 81 basis points over the same
period. Average investment securities volume increased as
the yield realized on the investment portfolio decreased 7
basis points in 1995 from 1994. From this combination,
Net Interest Margin investment income increased approximately 2.5% from prior
- ------------------- period levels. Average federal funds sold decreased 15.3%
[GRAPH APPEARS HERE] and interest earned on federal funds sold increased 19.8%
1991 5.23% due to higher rates earned during 1995. Substantially
1992 5.73% lower levels for average interest bearing deposits
1993 5.88% resulted in a reduction of approximately 73.0% in interest
1994 5.53% income in 1995 from the prior year.
1995 5.78%
During 1994, interest income increased approximately 4.0%
over prior year levels. This increase was realized
primarily due to contributions from the consumer and real
estate loan portfolios of approximately 15.6% and 10.2%
more than prior year levels. In contrast, commercial loan
income was approximately 4.4% lower in 1994. Average
investment securities volume decreased as did the yields
realized on the investment portfolio for 1994.
Consequently, investment income declined approximately
10.6% from prior period levels. 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 these deposits
contributed approximately $142 thousand more to interest
income in 1994 than in the prior year.
23
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
Interest expense increased 19.9% in 1995 after increasing
7.9% in 1994. Average interest bearing liabilities
increased approximately 6.3% in 1995 after experiencing a
9.0% increase in 1994. The increase in interest expense is
due to both the significant growth in interest bearing
liability volume and a 50 basis point increase in cost of
funds for 1995. Interest expense increased 7.9% in 1994
after declining 16.0% in 1993. Average interest bearing
liabilities increased approximately 9.0% in 1994 after
experiencing a .6% decrease in 1993. The increase in
interest expense was due to the significant growth in
interest bearing liability volume for 1994. The decline in
interest expense for 1993 was due to the significant
decline in interest rates during this period.
The Company experienced an increase in net interest margin
in 1995 of approximately 25 basis points. The net interest
margin for 1995 was 5.78% as compared to 5.53% for 1994. A
69 basis point increase in the yield on average earning
assets outpacing an increase in the cost of average
interest bearing liabilities of 50 basis points was the
primary reason for the increase. Average non-interest
bearing deposits, traditionally a source of low cost
funds, declined 2.1% in 1995 from 1994. The net interest
margin in 1994 was 5.53% as compared to 5.88% for 1993.
This decrease was the result of a declining yield on
average earning assets of 37 basis points outpacing the
cost of interest bearing liabilities that decreased only 5
basis points.
As the graph for Net Interest Margin on the previous page
illustrates, the Company's net interest margin has not
fluctuated substantially since 1991. Further discussion of
net interest income or its components is included in the
sections titled "Summary Financial Results" and "Financial
Condition."
Table XI - Volume Analysis of Changes in Interest Income and Expense
- -------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease)
Interest Income/Expense Due to Change in Due to Change in
1995 1994 1993 Volume Rate Total Volume Rate Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings assets:
Loans:
Commercial............... $ 6,851 $ 6,168 $ 6,452 $ (9) $ 692 $ 683 $ (243) $ (41) $ (284)
Real estate.............. 8,470 7,023 6,374 1,098 349 1,447 1,242 (593) 649
Consumer................. 10,003 8,371 7,240 1,042 590 1,632 1,458 (327) 1,131
---------------------------------------------------------------------------------------------------
Total loans................ 25,324 21,562 20,066 2,131 1,631 3,762 2,457 (961) 1,496
Securities:
Taxable.................. 6,272 6,205 6,923 141 (74) 67 (82) (636) (718)
Tax-exempt............... 146 58 85 92 (4) 88 (13) (14) (27)
---------------------------------------------------------------------------------------------------
Total securities........... 6,418 6,263 7,008 233 (78) 155 (95) (650) (745)
Federal funds sold....... 660 551 348 (93) 202 109 66 137 203
Interest bearing balances
with other banks........ 40 148 6 (153) 45 (108) 137 5 142
---------------------------------------------------------------------------------------------------
Total earning assets....... 32,442 28,524 27,428 2,118 1,800 3,918 2,565 (1,469) 1,096
Interest bearing
liabilities:
Demand deposits........... 1,185 1,142 993 28 15 43 101 48 149
Savings deposits.......... 1,770 1,817 1,564 5 (52) (47) 298 (45) 253
Time deposits............. 9,112 7,137 6,982 597 1,378 1,975 220 (65) 155
Purchase funds............ 577 447 235 100 30 130 181 31 212
---------------------------------------------------------------------------------------------------
Total interest
bearing liabilities....... 12,644 10,543 9,774 730 1,371 2,101 800 (31) 769
---------------------------------------------------------------------------------------------------
Net interest income........ $19,798 $17,981 $17,654 $1,388 $ 429 $1,817 $1,765 $(1,438) $ 327
===================================================================================================
</TABLE>
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.
24
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
OTHER INCOME
Table XII - Other Income
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Increase (Decrease)
1995 Over 1994 1994 Over 1993
1995 1994 1993 Amount Percent Amount Percent
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service fees.......................... $2,050 $1,624 $1,504 $ 426 26.23% $120 7.98%
Other income.......................... 699 488 254 211 43.24% 234 92.13%
Commissions on credit life insurance.. 553 690 637 (137) (19.86) 53 8.32%
----------------------------------------------------------
Total other income.................... $3,302 $2,802 $2,395 $ 500 17.84% $407 16.99%
==========================================================
</TABLE>
Non-interest income increased approximately 18% in 1995
over 1994 levels. For 1995, service fee income increased
approximately 26% due to both increased volume associated
with the growth experienced by the Company on deposit
levels and higher service charges enacted in 1995 on
demand deposits. Other income increased approximately 43%
in 1995, with most of the gain attributable to sales by
the Company's financial services division. Commission
income on credit insurance products decreased
approximately 20% in 1995. High loss experiences by the
Company's credit insurance underwriters resulted in the
underwriters' companies tightening eligibility standards
Non-Interest Income for policies issued in the Company's market area in 1995.
- ------------------- Sales volumes declined accordingly.
[GRAPH APPEARS HERE]
Millions of Dollars Non-interest income increased approximately 17% in 1994
1991 1.959 over 1993 levels. For 1994, service fee income increased
1992 2.409 approximately 8% due to increased volumes associated with
1993 2.395 the growth experienced by the Company on deposit levels.
1994 2.802 Other income increased approximately 92% in 1994, with
1995 2.302 most of the gain attributable to sales by the Company's
Percentage of Average financial services division. Commission income on credit
Assets insurance products increased approximately 8% due to
1991 0.64% normal growth in the consumer loan portfolio.
1992 0.75%
1993 0.73%
1994 0.78%
1995 0.87%
25
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations, (Continued)
- --------------------------------------------------------------------------------
OTHER EXPENSES
Table XIII - Other Expenses
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Increase (Decrease)
1995 over 1994 1994 over 1993
1995 1994 1993 Amount Percent Amount Percent
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits........ $ 5,776 $ 4,991 $ 4,880 $ 785 15.73% $111 2.27%
Net occupancy................ 954 626 481 328 52.40 145 30.15
Advertising.................. 708 543 485 165 30.39 58 11.96
Regulatory assessments....... 480 757 718 (277) (36.59) 39 5.43
Data processing expense...... 563 200 147 363 181.50 53 36.05
Other........................ 4,508 4,142 3,661 366 8.84 481 13.14
---------------------------------------------------------------
$12,989 $11,259 $10,372 $1,730 15.37% $887 8.56%
===============================================================
</TABLE>
Total non-interest expenses increased approximately 15%
from 1994 to 1995 and approximately 9% from 1993 to 1994.
The increase for 1995 is attributable to several factors.
First, the Company opened two additional offices in 1995.
Secondly, incorporating into 1995 the effect of a full
year's worth of operations from two more offices that were
opened in mid-1994 contributed to this increase. The
increase realized in 1994 over 1993 was attributable
primarily to start-up costs connected with the
introduction of Matewan Bank FSB and its two Kentucky
offices. The ratio on noninterest expense to average
assets increased from 3.14% in 1994 to 3.43% in 1995. The
same ratio decreased to 3.14% from 3.16% in 1994 from
1993. This increasing ratio is due primarily to the
Company's expansion efforts.
The ability of the Company to maintain satisfactory profit
margins is dependent upon its ability to control
noninterest expenses. Increasing pressure on interest
spreads also places heavier reliance on maintaining
control of these noninterest expenses. Increasing
competitive pressures would tend to provide a greater
incentive for a company to leverage these expenses over a
wider range of business, therefore maximizing the
efficiency of such expenses. The "efficiency ratio" is
determined by dividing the total noninterest expenses by
the sum of net interest income and noninterest income.
Generally, a ratio in the 50% - 60% range is an indicator
of an efficient operation. For the past three years, the
Company has witnessed an increase in its efficiency ratio
from 51.7% in 1993 to 54.2% in 1994 to 56.2% in 1995. The
Efficiency Ratio increasing trend is largely a function of increased costs
- ---------------- related to the start-up of Matewan Bank FSB and subsequent
[GRAPH APPEARS HERE] opening of five new offices Company-wide in the last two
1991 56.65% years. Even with the increases, which management views as
1992 51.49% nonrecurring aberrations, the Company compares favorably
1993 51.73% with its peer group on efficiency ratio measures.
1994 54.17%
1995 56.23% Salaries and benefits increased approximately $785
thousand (16%) in 1995 after increasing approximately $111
thousand (2%) in 1994. Staffing expenses related to
Matewan Bank FSB and the new offices, increasing health-
care expenses, and normal salary increases were the
primary reason for the increases.
Net occupancy expenses increased approximately $328
thousand (52%) and $145 thousand (30%) in 1995 and 1994,
respectively. Capital expenditures related to Matewan Bank
FSB, the new offices opened, the relocation of the
corporate and administrative offices to Williamson, and
the construction activity on the Money Center, the
Company's centralized loan processing office, were the
primary reasons for the increase.
26
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Non-Interest Expense Advertising costs fluctuate with management's evaluation
- -------------------- of the benefit to be gained from additional media
[GRAPH APPEARS HERE] exposure. Management determined that additional
Millions of Dollars advertising would be beneficial, leading to increases of
1991 9.391 $165 thousand (30%) and $58 thousand (12%) for 1995 and
1992 9.897 1994, respectively.
1993 10.372
1994 11.259 Premiums and assessments for Federal Deposit Insurance
1995 12.989 Corporation, the Office of the Comptroller of the
Percentage of Average Currency, and the Office of Thrift Supervision decreased
Assets approximately $277 thousand (37%) in 1995 after increasing
1991 3.07% approximately $39 thousand (5%) in 1994. Due to the
1992 3.07% revision of the assessment schedule for institutions
1993 3.16% paying FDIC premiums into the BIF Fund, the Matewan
1994 3.14% National Bank incurred lower premium assessments for the
1995 3.43% last half of 1995. In addition, in the third quarter of
1995, the Bank received a refund of approximately $190
thousand on its 1995 premium. For 1996, the Bank expects
to pay an annual assessment of $2 thousand. Matewan Bank
FSB, as a SAIF institution, incurred no such 1995 annual
adjustment. The Company anticipates that Matewan Bank FSB
could incur a one-time special assessment of approximately
$186 thousand in 1996.
Data processing expense increased approximately $363
thousand (182%) in 1995 after experiencing an approximate
$53 thousand (36%) increase in 1994. The outsourcing of
the Company's data processing function to EDS and the
subsequent conversion process were the major reasons for
this increase. This outsourceing is expected to enable the
Company to provide an additional variety of services to
its customers.
Consistent with the overall impact of the expansion
projects undertaken by the Company in recent years, other
operating expenses increased $366 thousand (9%) in 1995
and $481 thousand (13%) in 1994. Other operating expenses
is comprised of several components, including telephone,
postage, equipment expense, and other miscellaneous
expenses. These items have increased due to the expansion
projects initiated by the Company.
APPLICABLE INCOME TAXES
Income tax expense was $2,983 thousand in 1995, $2,876
thousand in 1994 and $3,269 thousand in 1993. The
Company's effective tax rate for the past three years has
been 36.4% for 1995, 36.5% for 1994, and 39.0% for 1993.
Management is actively pursuing tax favored investments
which carry attractive yields in an attempt to maximize
earnings and reduce the Company's effective tax rate.
EFFECTS OF CHANGING PRICES
The consolidated financial statements and related data
included herein have been portrayed in accordance with
generally accepted accounting principles which require the
measurement of the Company'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 the Company's assets and liabilities are monetary in
nature. As a result, interest rates have a more
significant impact on the Company's performance than the
effects of general levels of inflation.
27
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31
1995 1994
--------------------
<S> <C> <C>
Assets
Cash and due from banks........................................... $ 23,881 $ 20,539
Federal funds sold................................................ 17,237 4,770
--------------------
Cash and cash equivalents......................................... 41,118 25,309
Interest bearing deposits in other banks.......................... 5,704 2,876
Investment securities:
Available-for-sale at fair value................................. 32,429 11,051
Held-to-maturity (approximate fair value of $73,839 and
$95,904 at December 31, 1995 and 1994)..................... 73,299 98,930
Loans, net........................................................ 228,568 214,744
Premises and equipment............................................ 9,692 9,252
Accrued interest receivable and other assets...................... 10,224 9,248
--------------------
Total assets...................................................... $401,034 $371,410
====================
Liabilities and shareholders' equity
Liabilities:
Deposits:
Non-interest bearing....................................... $ 44,917 $ 44,130
Interest bearing........................................... 289,470 266,517
--------------------
Total deposits.................................................... 334,387 310,647
Short-term borrowings:
Repurchase agreements............................................ 9,361 12,089
Other............................................................ 8,349 2,908
Accrued interest payable and other liabilities.................... 3,120 3,963
--------------------
Total liabilities................................................. 355,217 329,607
Shareholders' equity:
Preferred stock-$1 par value; 1,000,000 shares authorized;
none issued................................................... -- --
Common stock-$1 par value; 10,000,000 shares authorized;
3,684,104 shares outstanding at December 31, 1995, including
16,753 shares in treasury; 3,349,344 shares outstanding at
December 31, 1994, including 15,640 shares in treasury........ 3,684 3,349
Capital surplus.................................................. 12,182 6,460
Retained earnings................................................ 29,976 32,185
Treasury stock................................................... (78) (48)
Net unrealized gain (loss) on available-for-sale securities...... 53 (143)
--------------------
Total shareholders' equity........................................ 45,817 41,803
--------------------
Total liabilities and shareholders' equity........................ $401,034 $371,410
====================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
- --------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
---------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................ $25,324 $21,562 $20,066
Interest and dividends on investment securities:
Taxable............................................ 6,272 6,205 6,923
Tax-exempt......................................... 146 58 85
Federal funds sold and other.......................... 700 699 354
---------------------------
Total interest income.................................. 32,442 28,524 27,428
Interest expense:
Deposits.............................................. 12,067 10,096 9,539
Short-term borrowings................................. 577 447 235
---------------------------
Total interest expense................................. 12,644 10,543 9,774
---------------------------
Net interest income.................................... 19,798 17,981 17,654
Provision for loan losses.............................. 1,908 1,643 1,285
---------------------------
Net interest income after provision for loan losses.... 17,890 16,338 16,369
Other income:
Service charges and fees.............................. 2,050 1,624 1,504
Credit life insurance commissions..................... 553 690 637
Other................................................. 699 488 254
---------------------------
Total other income..................................... 3,302 2,802 2,395
Other expenses:
Salaries and employee benefits........................ 5,776 4,991 4,880
Net occupancy......................................... 954 626 481
Equipment............................................. 811 783 635
Outside data processing............................... 563 200 147
Advertising........................................... 708 543 485
Federal deposit insurance and regulatory assessments.. 480 757 718
Other................................................. 3,697 3,359 3,026
---------------------------
Total other expenses................................... 12,989 11,259 10,372
---------------------------
Income before income taxes............................. 8,203 7,881 8,392
Applicable income taxes................................ 2,983 2,876 3,269
---------------------------
Net income............................................. $ 5,220 $ 5,005 $ 5,123
===========================
Net income per common share............................ $ 1.42 $ 1.36 $ 1.40
===========================
Average common shares outstanding...................... 3,668 3,668 3,668
===========================
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
On
Available-
Common Capital Retained Treasury for-Sale
Stock Surplus Earnings Stock Securities Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993............ $ 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
Net income - 1995..................... -- -- 5,220 -- -- 5,220
Dividends on common stock
($ .38 per share)................... -- -- (1,400) -- -- (1,400)
Common stock dividend (10%)........... 335 5,691 (6,026) -- -- --
Cash paid on fractional shares........ -- -- (3) -- -- (3)
Change in net unrealized gain (loss)
on available-for-sale securities,
net of deferred income taxes........ -- -- -- -- 196 196
Acquisition of treasury shares........ -- -- -- (56) -- (56)
Sale of treasury shares............... -- 31 -- 26 -- 57
-------------------------------------------------------------------------------------
Balances at December 31, 1995.......... $3,684 $12,182 $29,976 $(78) $ 53 $45,817
=====================================================================================
</TABLE>
30
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
------------------------------
<S> <C> <C> <C>
Operating activities
Net income......................................................................... $ 5,220 $ 5,005 $ 5,123
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation...................................................................... 760 658 593
Amortization...................................................................... 508 547 480
Provision for loan losses......................................................... 1,908 1,643 1,285
Deferred income taxes (benefit)................................................... 70 140 (204)
Gain on sale of assets............................................................ (103) (117) (33)
Net change in accrued interest receivable and other assets........................ (1,354) (1,432) (6)
Net change in accrued interest payable and other liabilities...................... (843) 1,790 19
------------------------------
Net cash provided by operating activities.......................................... 6,166 8,234 7,257
Investing activities
Proceeds from maturities of available-for-sale securities.......................... 7,925 25,937 --
Purchases of available-for-sale securities......................................... (12,800) (5,971) --
Proceeds from maturities of held-to-maturity securities............................ 47,360 10,000 --
Purchases of held-to-maturity securities........................................... (38,236) (40,680) --
Proceeds from maturities of investment securities.................................. -- -- 52,567
Purchases of investment securities................................................. -- -- (45,382)
Net change in interest bearing deposits in other banks............................. (2,828) (2,874) 121
Net change in loans................................................................ (15,732) (20,535) (24,373)
Purchases of premises and equipment................................................ (1,371) (2,346) (1,028)
Proceeds from sale of premises and equipment....................................... 274 187 20
------------------------------
Net cash used in investing activities.............................................. (15,408) (36,282) (18,075)
Financing activities
Net change in deposits............................................................. 23,740 19,494 10,036
Net change in short-term borrowings................................................ 2,713 3,407 (342)
Cash paid on fractional shares from stock dividend................................. (3) -- --
Cash dividends paid................................................................ (1,400) (1,142) (1,042)
Purchase of treasury shares........................................................ (56) (18) --
Sale of treasury shares............................................................ 57 -- --
------------------------------
Net cash provided by financing activities.......................................... 25,051 21,741 8,652
------------------------------
Increase (decrease) in cash and cash equivalents................................... 15,809 (6,307) (2,166)
Cash and cash equivalents at beginning of year..................................... 25,309 31,616 33,782
------------------------------
Cash and cash equivalents at end of year........................................... $ 41,118 $ 25,309 $ 31,616
==============================
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies (Dollars in thousands)
Organization
Matewan BancShares, Inc. (the Company) is a bank holding company with three
financial institution subsidiaries engaged in community banking activities and
providing financial services to individuals and businesses throughout seven
counties in southern West Virginia and eastern Kentucky. The Company considers
all of its principal business activities to be banking related.
Principles of Consolidation
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and to general practices within the banking
industry. 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. All significant
intercompany balances and transactions have been eliminated in consolidation.
The following is a summary of the more significant policies.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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. 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.
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
The allowance for loan losses is established through provisions for loan losses
charged against income. Loans deemed to be uncollectible are charged against the
allowance for loan losses, and subsequent recoveries, if any, are credited to
the allowance.
On January 1, 1995, the Company adopted Financial Accounting Standards Board
Statement (FASB) No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by FASB Statement No. 118. Under this standard, the 1995 allowance for
loan losses related to loans that are identified for evaluation in accordance
with Statement 114 is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Prior to 1995, the allowance for loan losses related
to these loans was based on undiscounted cash flows or the fair value of the
collateral for collateral dependent loans. The adoption of this pronounce-
32
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ment did not materially impact the Company's financial statements, accounting
policies, nonperforming loans, or determination of the adequacy of the allowance
for loan losses.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated loan losses. Management's periodic evaluation of
the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
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 and amortization of unearned income are computed by methods
which generally result in level rates of return on principal amounts
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. Interest received on nonaccrual loans generally is either applied
against principal or reported as interest income, according to management's
judgment as to the collectibility of principal. Generally, loans are restored to
accrual status when the obligation becomes current, has performed in accordance
with the contractual terms for a reasonable period of time, and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
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 postemployment or postretirement 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. All share data have been
restated for the stock splits and dividends declared in each of the years
presented.
33
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements, (Continued)
- --------------------------------------------------------------------------------
2. Acquisition Activity (Dollars in thousands)
In September 1995, the Company entered into a definitive agreement with Banc One
Corporation and Bank One Kentucky Corporation under which the Company will
acquire all of the outstanding common stock of Bank One, Pikeville, N.A. for
$28,600. This transaction will be accounted for under the purchase method of
accounting. The Company will finance this transaction with the issuance of
convertible preferred stock with estimated proceeds of $16,050, long-term debt
of $12,000, and available cash of $550. The Company expects to finalize this
transaction during the first quarter of 1996.
Following is unaudited summarized financial information of Bank One, Pikeville,
N.A. at December 31, 1995:
<TABLE>
<S> <C>
Investments $ 11,921
Securities sold under agreement to repurchase.... 42,321
Loans, net....................................... 150,762
Total assets..................................... 224,874
Deposits......................................... 190,664
Shareholders' equity............................. 19,482
</TABLE>
In 1994, the Company contributed capital of $4,000 to form Matewan Bank, FSB, a
wholly-owned federal savings bank subsidiary of the Company. At December 31,
1995, FSB operates two traditional branch offices and two supermarket branch
offices, all located in eastern Kentucky, with total assets approximating
$41,700.
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 $1,070 and $875 at
December 31, 1995 and 1994, respectively.
3. Restrictions on Cash and Due From Bank Accounts (Dollars in thousands)
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, 1995,
approximated $2,770.
34
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
4. Investment Securities (Dollars in thousands)
The following is a summary of available-for-sale securities and held-to-maturity
securities:
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-Sale Securities
U.S. Treasury securities and obligations of
U.S. government agencies........................... $27,832 $181 $ (15) $27,998
Obligations of states and political subdivisions.. 2,134 26 -- 2,160
Other securities................................... 2,375 -- (104) 2,271
---------------------------------------------------
Total.............................................. $32,341 $207 $ (119) $32,429
===================================================
Held-to-Maturity Securities
U.S. Treasury securities and obligations of
U.S. government agencies........................... $71,983 $677 $ (151) $72,509
Obligations of states and political subdivisions... 1,316 16 (2) 1,330
---------------------------------------------------
Total.............................................. $73,299 $693 $ (153) $73,839
===================================================
December 31, 1994
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------
Available-for-Sale Securities
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
===================================================
Held-to-Maturity Securities
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>
On November 15, 1995, the FASB staff issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities. In accordance with provisions in that Special Report, the
Company chose to reclassify securities from held-to-maturity to available-for-
sale. At the date of transfer, the amortized cost of those securities was
$18,293 and the unrealized gain on those securities was $73 (net of $49 in
deferred income taxes), which is included in shareholders' equity.
The amortized cost and estimated fair values of investment securities at
December 31, 1995, 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.
35
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
(Notes To Consolidated Financial Statements, (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------------------
<S> <C> <C>
Available-for-sale
Due in one year or less................. $14,142 $14,210
Due after one year through five years... 15,824 15,948
Due after five years through ten years.. -- --
Due after ten years..................... -- --
Equity securities....................... 2,375 2,271
--------------------
$32,341 $32,429
====================
Held-to-maturity
Due in one year or less................. $13,236 $13,258
Due after one year through five years... 58,361 58,812
Due after five years through ten years.. 1,459 1,523
Due after ten years..................... 243 246
--------------------
$73,299 $73,839
====================
</TABLE>
The Company sold no investment securities during the three years in the period
ended December 31, 1995.
At December 31, 1995 and 1994, investment securities with carrying amounts of
$41,300 and $35,600, respectively, were pledged to secure public deposits and
for other purposes.
5. Loans (Dollars in thousands)
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
-------------------
<S> <C> <C>
Commercial and financial loans.................. $ 63,581 $ 64,821
Real estate loans............................... 88,197 76,908
Consumer loans.................................. 80,796 77,564
-------------------
232,574 219,293
Less unearned income............................ (1,033) (1,617)
-------------------
231,541 217,676
Less allowance for loan losses.................. (2,973) (2,932)
-------------------
Loans - net..................................... $228,568 $214,744
===================
</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.
36
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The following presents the activity with respect to related party loans:
<TABLE>
<S> <C>
Balance at January 1, 1995........................... $ 4,208
Loans made........................................... 792
Principal collected.................................. (1,608)
-------
Balance at December 31, 1995......................... $ 3,392
=======
</TABLE>
6. Allowance for Loan Losses (Dollars in thousands)
A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year.................................... $ 2,932 $ 2,961 $ 2,470
Loans charged off............................................... (2,394) (2,128) (1,214)
Loan recoveries................................................. 527 456 420
------- ------- -------
Net charge-offs................................................. (1,867) (1,672) (794)
Provision charged to expense.................................... 1,908 1,643 1,285
------- ------- -------
Balance at end of year.......................................... $ 2,973 $ 2,932 $ 2,961
======= ======= =======
</TABLE>
At December 31, 1995, the recorded investment in loans that is considered to be
impaired under Statement 114 was $6,520 (of which $278 was on a nonaccrual
basis). Included in this amount is $863 of impaired loans for which the related
allowance for loan losses is $274 and $5,657 of impaired loans that, as a result
of write-downs or being well secured, do not have an allowance for loan losses.
The average recorded investment in impaired loans during the year ended December
31, 1995, was approximately $5,713. The Company recognized interest income on
those impaired loans of $852, which included $842 of interest income recognized
using the cash basis method of income recognition.
7. Premises and Equipment (Dollars in thousands)
The major categories of premises and equipment and related accumulated
depreciation are summarized as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
-----------------
<S> <C> <C>
Land........................... $ 1,900 $ 1,992
Buildings and improvements..... 9,492 8,910
Furniture and equipment........ 4,363 3,680
-----------------
15,755 14,582
Less accumulated depreciation.. (6,063) (5,330)
-----------------
$ 9,692 $ 9,252
=================
</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: 1996-$375; 1997-$370; 1998-$280;
1999-$175; 2000-$110; with $1,190 of commitments extending beyond 2000.
Total rent expense, including cancelable and noncancelable leases, approximated
$450, $380, and $280 in 1995, 1994, and 1993.
37
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements, (Continued)
- --------------------------------------------------------------------------------
8. Short-Term Borrowings (Dollars in thousands)
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, 1995, approximates $78,000.
Short-term borrowings from the FHLB at December 31, 1995, approximated $5,000 at
an interest rate of 6.05%.
Short-term borrowings consist primarily of commercial repurchase agreements and
other short-term deposits. The weighted average interest rate on short-term
borrowings approximated 4.92% and 3.24% at December 31, 1995 and 1994. Interest
paid on deposits and short-term borrowings approximated $12,340, $10,365, and
$9,895 in 1995, 1994, and 1993.
9. Restrictions on Subsidiary Dividends (Dollars in thousands)
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 1996,
the Bank's net retained profits available for distribution to the Company as
dividends, without regulatory approval, approximate $1,000 plus net income for
the interim period through the date of declaration.
10. Income Taxes (Dollars in thousands)
The applicable income tax provision included in the consolidated statements of
income is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------
<S> <C> <C> <C>
Current:
Federal........ $2,520 $2,335 $2,994
State.......... 393 401 479
----------------------
Total current... 2,913 2,736 3,473
Deferred:
Federal........ 56 118 (173)
State.......... 14 22 (31)
----------------------
Total deferred.. 70 140 (204)
----------------------
Total........... $2,983 $2,876 $3,269
======================
</TABLE>
The Company incurred no taxes related to securities transactions during the
three year period ended December 31, 1995.
38
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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>
1995 1994 1993
Amount Percent Amount Percent Amount Percent
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory federal rate....... $2,789 34.0% $2,679 34.0% $2,853 34.0%
Plus: State income tax net of
federal tax benefits........................ 269 3.3 280 3.6 317 3.8
----------------------------------------------------
3,058 37.3 2,959 37.6 3,170 37.8
Increase (decrease) in taxes resulting from:
Tax-exempt interest.......................... (65) (.8) (34) (.5) (46) (.5)
Other........................................ (10) (.1) (49) (.6) 145 1.7
----------------------------------------------------
Actual tax expense............................ $2,983 36.4% $2,876 36.5% $ 3,269 39.0%
====================================================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses....... $ 647 $ 732
Accrued employee benefits....... 88 138
Available-for-sale investments.. - 74
Deferred revenue................ 175 -
Other........................... 16 7
------------
Total deferred tax assets........ 926 951
Deferred tax liabilities:
Intangible assets............... 353 347
Premises and equipment.......... 183 119
Available-for-sale investments.. 35 -
Other........................... 140 91
------------
Total deferred tax liabilities... 711 557
------------
Net deferred tax assets.......... $ 215 $ 394
============
</TABLE>
Income taxes paid approximated $3,775, $1,825, and $3,300 in 1995, 1994, and
1993.
39
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements, (Continued)
- --------------------------------------------------------------------------------
11. Employee Benefit Plan (Dollars in thousands)
The Company has a 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. The Company's funding policy
is to contribute annually the maximum amount that can be deducted for federal
income tax purposes. 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 following table sets forth the Plan's funded status and amounts recognized
in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
1995 1994
----------------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation............................................. $1,976 $1,624
Nonvested benefit obligation.......................................... 40 29
----------------
Accumulated benefit obligation.......................................... 2,016 1,653
Effect of estimated future pay increases.............................. 159 295
----------------
Projected benefit obligation............................................ 2,175 1,948
Plan assets at fair value............................................... 2,320 2,045
----------------
Projected benefit obligation less than plan assets...................... 145 97
Unrecognized prior service benefit...................................... (470) (275)
Unrecognized net asset at transition, net of amortization............... (271) (290)
Unrecognized net loss from past experience different from that assumed.. 369 370
----------------
Accrued pension cost included in other liabilities...................... $ (227) $ (98)
================
</TABLE>
Following is a summary of the components of net periodic pension cost:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period.. $ 151 $ 48 $ 44
Interest cost on projected benefit obligation..... 141 132 120
Actual (return) loss on plan assets............... (428) 93 (177)
Net amortization and deferral..................... 265 (285) 2
----------------------
Net periodic pension cost (benefit)............... $ 129 $ (12) $ (11)
======================
</TABLE>
At December 31, 1995 and 1994, 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, 1995, was 7%.
Plan assets consist principally of United States Treasury and Agency securities,
equity securities, mutual funds, and short-term investment funds.
The Company sponsors a defined contribution plan which covers substantially all
employees. Contributions to the plan are based on a percentage of the employees'
contributions to the plan. The Company contributed $130 to the plan during 1995.
12. Commitments and Contingent Liabilities (Dollars in thousands)
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. The Company's exposure to loss in the event of
nonperformance by the counterparty for commitments to extend credit and standby
letters of credit is the contract or notional amounts of these instruments.
Following is a discussion of these commitments and contingent liabilities:
40
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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 $9,200 and $8,600
as of December 31, 1995 and 1994.
Loan Commitments: At December 31, 1995 and 1994, the Company had commitments
outstanding to extend credit of approximately $13,600 and $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 (Dollars in thousands)
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 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.
41
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements, (Continued)
- --------------------------------------------------------------------------------
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
---------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................. $ 41,118 $ 41,118 $ 25,309 $ 25,309
Interest-bearing deposits in other banks.. 5,704 5,704 2,876 2,876
Investment securities..................... 105,728 106,268 109,981 106,955
Loans..................................... 228,568 232,598 214,744 214,696
Financial liabilities:
Deposits.................................. 334,387 335,901 310,647 310,540
Short-term borrowings..................... 17,710 17,710 14,997 14,997
</TABLE>
14. Stock Dividend
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. Average shares
outstanding and per share amounts included in the consolidated financial
statements and notes have been adjusted for this stock dividend.
15. Parent Company Only Condensed Financial Information (Dollars in thousands)
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
---------------------
<S> <C> <C>
Assets
Cash............................................................................ $ 185 $ 87
Investment securities - available for sale...................................... 2,160 --
Investment securities - held to maturity........................................ 29 1,380
Investment in banking subsidiaries.............................................. 36,646 38,328
Investment in non-bank subsidiary............................................... 903 1,658
Receivable from bank subsidiary................................................. 5,000 --
Premises and equipment.......................................................... 403 58
Other assets.................................................................... 1,063 917
---------------------
Total assets.................................................................... $46,389 $42,428
=====================
Liabilities and shareholders' equity
Liabilities:
Notes payable.................................................................. $ 137 $ 137
Note payable to non-bank subsidiary............................................ 300 400
Other liabilities.............................................................. 135 88
---------------------
Total liabilities............................................................... 572 625
Shareholders' equity............................................................ 45,817 41,803
---------------------
Total liabilities and shareholders' equity...................................... $46,389 $42,428
=====================
</TABLE>
42
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
---------------------------
<S> <C> <C> <C>
Income:
Dividends from bank subsidiary.................................................... $ 7,100 $ 2,008 $ 5,042
Dividends from non-bank subsidiary................................................ 58 64 255
Operating expenses, net............................................................ 18 59 1
---------------------------
Income before (excess dividends) equity in undistributed earnings of subsidiaries.. 7,140 2,013 5,296
(Excess dividends) equity in undistributed earnings of subsidiaries................ (1,920) 2,992 (173)
---------------------------
Net income......................................................................... $ 5,220 $ 5,005 $ 5,123
===========================
Condensed Statements of Cash Flows
Year Ended December 31
1995 1994 1993
---------------------------
Operating activities
Net income......................................................................... $ 5,220 $ 5,005 $ 5,123
Adjustments to reconcile net income to net cash provided by operating activities:
Excess dividends (equity in undistributed earnings) of subsidiaries............... 1,920 (2,992) 173
Depreciation expense.............................................................. 12 -- --
Change in other assets............................................................ (145) (27) (76)
Change in other liabilities....................................................... 47 45 22
Change in dividends receivable.................................................... (5,000) 3,800 (3,800)
---------------------------
Net cash provided by operating activities.......................................... 2,054 5,831 1,442
Investing activities
Maturity of interest-bearing deposit............................................... -- -- 122
Investment in subsidiary........................................................... -- (3,351) --
Return of investment from subsidiary............................................... 697 -- 400
Purchases of premises and equipment................................................ (358) -- (709)
Purchase of investment securities.................................................. (793) (1,380) --
---------------------------
Net cash used in investing activities.............................................. (454) (4,731) (187)
Financing activities
Cash dividends paid................................................................ (1,400) (1,142) (1,042)
Purchase of treasury stock......................................................... (56) (18) --
Sale of treasury stock............................................................. 57 -- --
Cash paid on fractional shares..................................................... (3) -- --
Payment of note payable............................................................ (100) -- (100)
---------------------------
Net cash used in financing activities.............................................. (1,502) (1,160) (1,142)
---------------------------
Increase (decrease) in cash........................................................ 98 (60) 113
Cash at beginning of year.......................................................... 87 147 34
---------------------------
Cash at end of year................................................................ $ 185 $ 87 $ 147
===========================
</TABLE>
43
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements, (Continued)
- --------------------------------------------------------------------------------
16. Quarterly Financial Data - Unaudited (Dollars in thousands)
Quarterly financial data for 1995 and 1994 is summarized below:
<TABLE>
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
----------------------------------------------------
<S> <C> <C> <C> <C>
1995
Interest income............ $7,605 $8,004 $8,289 $8,544
Interest expense........... 2,900 3,137 3,292 3,315
Net interest income........ 4,705 4,867 4,997 5,229
Provision for loan losses.. 345 484 432 647
Net income................. 1,239 1,165 1,201 1,615
Earnings per share......... .34 .32 .33 .44
1994
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......... .29 .34 .34 .40
</TABLE>
44
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
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, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Charleston, West Virginia
February 29, 1996
45
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Corporate Information
- --------------------------------------------------------------------------------
Annual Meeting
The Annual Meeting of the Shareholders of Matewan
BancShares, Inc. will be held at 11:00 a.m. on Tuesday,
April 9, 1996 at the Charleston Marriott, 200 Lee Street
East, Charleston, West Virginia. Shareholders of record of
March 1, 1996 will be eligible to vote on matters brought
before the shareholders at this time.
Stock Listing
The common stock of Matewan BancShares, Inc. trades on the
NASDAQ National Market System under the symbol "MATE." The
firms of Wheat, First Securities, Inc., Scott &
Stringfellow, Ferris Baker Watts, Inc., and Heine, Geduld,
Inc. currently make a market in the Company's common
stock.
Transfer Agent
Inquiries regarding shareholder records, stock transfers,
changes in ownership or address, and dividend payment
should be directed to the transfer agent at the following
address:
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P.O. Box 3001
Winston-Salem, North Carolina 27102
Independent Auditors
Ernst & Young LLP, Charleston, West Virginia
Executive Offices
Matewan BancShares, Inc.
Second Avenue and Vinson Street
Williamson, West Virginia 25661
(304)235-1544
46
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Directors Of Matewan BancShares, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DIRECTORS
Matewan BancShares, Inc.
Frank E. Ellis, M.D. Dan R. Moore Lafe P. Ward
Physician, Frank Ellis & Associates, Inc. President and Chairman of the Board Attorney at Law
James H. Harless Betty Jo Moore George Kostas
Chairman of the Board President & CEO Pharmacist/President
Gilbert Imported Hardwoods, Inc. Moore Ford, Moore Chevrolet Aracoma Drug Company, Inc.
Amos J. Hatfield Sidney R. Young, Jr.
Owner, Gilbert Furniture Company Mining Consultant
LOCATIONS
MATEWAN NATIONAL BANK
Full-Service Locations
Matewan * Williamson* Gilbert *
600 Mate Street Second Avenue and Vinson Street Main Street, Route 52
Matewan, West Virginia 25678 Williamson, West Virginia 25661 Gilbert, West Virginia 25621
Delbarton Danville * Kermit *
Helena Avenue 149 Smoot Avenue Eastgate Shopping Center
Delbarton, West Virginia 25670 Danville, West Virginia 25053 Kermit, West Virginia 25674
Logan Logan/Triangle *
325 Stratton Street 80 Riverview Drive
Logan, West Virginia 25601 Logan, West Virginia 25601
Loan and Investment Center
The Money Center *
249 Second Avenue
Williamson, West Virginia 25661
MATEWAN BANK, FSB
Full-Service Locations
Pikeville * Paintsville *
1086 North Mayo Trail 300 North Mayo Trail
Pikeville, Kentucky 41501 Paintsville, Kentucky 41240
Food City Express Bank Locations
Town & Country Plaza* Thompson Plaza*
150 Town Mountain Road Goody, Kentucky 41529
Pikeville, Kentucky 41501
</TABLE>
*Denotes 24 Hour ATM Location
47
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
Description of Business
- --------------------------------------------------------------------------------
GENERAL
Matewan BancShares, Inc. (the Company or Registrant) is a
registered bank holding company organized in 1984 for the
purpose of serving as the holding company for the Matewan
National Bank (the Bank) as a wholly-owned subsidiary. On
December 21, 1987, the Company merged with Guyan
Bancshares, Inc. and the Bank was merged with two Guyan
Bancshares' subsidiaries, Gilbert Bank and Trust and
American National Bank, with the Company and the Bank
being the surviving entities in the respective
transactions.
The Company organized a new entity, Matewan Venture Fund,
Inc. (the Fund), on December 16, 1988, as a wholly-owned
subsidiary of the Company for the purpose of making
venture capital loans and investments within West
Virginia. The Company contributed $1 million in capital to
the Fund at the date of formation. An additional capital
contribution of $1 million to the Fund was made during
1989.
The Company established Matewan Bank FSB (the FSB), a
wholly-owned federal savings bank on November 9, 1993.
FSB, headquartered in Pikeville, Kentucky and authorized
to engage in all permissible thrift related activities,
commenced business January 3, 1994. The Company provided
an initial $4 million capital infusion to FSB on the
commencement of business.
On September 28, 1995, the Company entered into a
definitive agreement with Banc One Corporation and Banc
One Kentucky Corporation under which the Company agreed to
purchase from Banc One Kentucky Corporation one hundred
percent (100%) of the voting stock of Bank One, Pikeville,
N.A. (Pikeville), subject to the appropriate regulatory
approvals. At December 31, 1995, Pikeville had total
assets in excess of $224 million and deposits in excess of
$190 million. The transaction is expected to close by the
end of the first quarter of 1996 with a purchase price of
$28.6 million. Based on the most current available deposit
data, the absorption of Pikeville would result in the
Company possessing the leading market share of all of the
financial institutions operating in its seven county core
market area. Pikeville would retain its separate bank
charter and operate as Matewan National Bank/Kentucky, a
wholly-owned subsidiary of the Company.
The Company considers its general market area to be
southern West Virginia and eastern Kentucky. More
specifically, the Company has identified as its core
market the seven county market area comprised of Mingo,
Logan, and Boone counties in West Virginia and Pike,
Floyd, Johnson, and Martin counties in Kentucky. At
December 31, 1995, the Company had consolidated assets of
approximately $401.0 million and shareholders' equity of
approximately $45.8 million.
Matewan National Bank
The Bank, organized as a national bank in 1913, maintained
its executive office in Matewan, West Virginia from that
time until the first quarter of 1994. Since that time it
has maintained its executive office in Williamson, West
Virginia. The Bank also conducts operations at its branch
offices in Matewan, Delbarton, Kermit, Williamson,
Gilbert, two locations in Logan, and Danville, West
Virginia. The Bank operates drive-in facilities at each of
its locations with the exception of its Stratton Street
office in Logan. In May of 1994, the Bank opened the Money
Center in Williamson, West Virginia. The Money Center, in
addition to serving as a centralized location for all of
48
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
the lending departments of the Bank, also serves as a loan
production office, a state-of-the-art loan support office,
and the headquarters for the financial services division
of the Bank.
The Bank provides a full range of commercial banking
services. It provides automobile, mobile home, personal
household, credit cards, commercial and small business,
construction and permanent real estate, student, and
various government-guaranteed loans, as well as commercial
equipment leasing. The Bank offers a variety of deposit
instruments to its customers, such as regular checking and
NOW accounts, regular and special passbook savings
accounts, money market deposit accounts, certificates of
deposit, and IRAs. In addition, certain non-deposit
investment alternatives, mainly commercial repurchase
agreements, are available. Other Bank services include
check cashing, check collection, letters of credit,
travelers checks, wire transfers, purchase and redemption
of U.S. Government savings bonds, purchase and redemption
of U.S. Government and agency obligations for Bank
customers, certified and cashier checks, notary public
services, safe deposit boxes, electronic income tax filing
capability, and credit life and disability insurance.
Through its financial services division, the Bank also
offers a wide range of nontraditional and uninsured
financial products and services, such as mutual fund
investments, sale and purchase of debt and equity
securities, annuities, and life insurance products.
Matewan Venture Fund
The Fund was formed on December 16, 1988 as a qualified
West Virginia Capital Company. Operations of the Fund are
housed in the Bank's Matewan office. The Fund was formed
primarily for the purpose of making "venture capital loans
and investments" in small and developing companies
situated in West Virginia. The Fund initially was
capitalized through the purchase of all (1,000 common
shares) of the Fund's authorized capital stock by the
Company for $1 million. An additional 1,000 shares was
authorized, issued, and purchased by the Company for $1
million in December of 1989. Under West Virginia law, the
Company's investment in the Fund has generated substantial
tax credits against West Virginia tax liabilities. These
credits were made available upon the formation of the
Fund. The principal activity of the Fund is making venture
capital loans to and investments in qualified companies.
Matewan Bank FSB
FSB was organized and established as a federally chartered
"de novo" savings bank on November 9, 1993. FSB
established corporate headquarters in Pikeville, Kentucky
and commenced business operations at its Pikeville office
on January 3, 1994. In November of 1994, FSB commenced
operations at a second office located in Paintsville,
Kentucky. In the second quarter of 1995, FSB established
two additional branch offices inside supermarkets in
Pikeville, Kentucky and Goody, Kentucky.
FSB is regulated by the Office of Thrift Supervision (the
OTS) and is authorized to conduct business that includes
providing services covering the full range of thrift
related activities. In addition, FSB's charter requires it
to maintain its status as a "Qualified Thrift Lender" by
maintaining an asset mix in which sixty-five percent (65%)
of the computed asset base of FSB is invested in
Qualifying Thrift Assets. Qualifying thrift assets include
home mortgages, any loan made on liens securing
49
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
residential real estate, mobile homes, and personal
household expenditures. It also includes any investments
in stock, deposits, or obligations of most federal and
local housing agencies, or any mortgage pool securities.
Fixed assets and repossessed real estate similarly
qualify.
FSB's product offerings also include a variety of deposit
instruments to its customers, such as regular checking and
NOW accounts, regular passbook savings accounts, money
market deposit accounts, certificates of deposit, and
IRAs. Other FSB services include check cashing, check
collection, letters of credit, travelers checks, wire
transfers, purchase and redemption of U.S. Government
savings bonds, purchase of U.S. Government and agency
obligations for FSB customers, certified and cashier
checks, notary public services, safe deposit boxes,
electronic tax filing capability, and credit life and
disability insurance.
FSB was initially capitalized in the amount of $4 million
by the Company. Operating losses for FSB have been
anticipated in the early periods of its operation as it
becomes established in its markets. The FSB's
contributions to the overall earnings of the Company were
approximately 4% in 1995 and immaterial in 1994.
Delivery Systems
The Company uses sophisticated technology to enhance its
delivery systems. The Company also maintains an integrated
PC-based server network system that provides immediate
interaction among all operating functions of its
subsidiaries, thereby enhancing internal communication and
customer service. The Company offers retail customers 24
hour banking via touch-tone telephone by means of an
interactive voice response system. In 1996, the Company
will also offer 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 commercial
customers to access cash management services via
interlinks with the Company's mainframe computer. In
addition, utilization of such technology enables the
Company to employ sophisticated credit rating and pricing
models at its subsidiaries for the purpose of pricing loan
products to reflect credit risk more accurately.
50
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Summary and Mission Statement
The following table depicts pertinent financial and
operational data of all of the subsidiaries of Matewan
BancShares, Inc. as of December 31, 1995 (in thousands of
dollars).
<TABLE>
<CAPTION>
Total Employees
Total Net Total Equity (Full-Time Total
Assets Loans Deposits Capital Equivalent) Offices
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Matewan National Bank $361,737 $205,620 $297,418 $32,487 198 9
Matewan Bank FSB 41,717 22,657 37,029 4,159 33 4
Matewan Venture Fund 901 291 0 901 na na
</TABLE>
As of December 31, 1995, the Company had five officers who
regularly provide services to the Bank, Fund, or FSB.
These officers are compensated by the Bank or FSB.
Subsidiaries of the Company had 231 full-time equivalent
employees as of the same date. Company subsidiaries
operated 12 full service offices and one loan production
office.
Through its mission statement, the Company's goal is being
the leading provider of financial services in the markets
in which it operates. Through its subsidiaries, the
Company is engaged in providing a full range of consumer
and commercial financial services throughout southern West
Virginia and eastern Kentucky.
In the course of its business, the Company competes for
loans, deposits, and other financial product offerings
with numerous other banks and financial institutions
throughout its market area, as well as numerous
nontraditional banking competitors such as brokerage
firms, mutual funds, finance companies, and other types of
financial service providers.
Regulation
The Company is a bank holding company within the meaning
of the Bank Holding Company Act of 1956, as amended, and
is registered as such with, and subject to supervision by
the Federal Reserve Board (the FRB). The FRB may make
examinations of the Company or any of its subsidiaries and
has the authority to regulate certain bank holding company
debt.
The Bank and Pikeville are national banks. The primary
regulator of national banks is the Office of the
Comptroller of the Currency (the OCC). FSB is a federal
savings bank. The principal regulator of federal savings
banks is the Office of Thrift Supervision. As federally
insured institutions and Federal Reserve members, both are
subject to regulation by the Federal Deposit Insurance
Corporation (the FDIC) and the FRB.
The Fund is a qualified West Virginia Capital Company. Its
principal regulator is the West Virginia Economic
Development Authority (the WVEDA). It is also subject to
regulation by the FRB.
51
<PAGE>
MATEWAN BANCSHARES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Properties
The Company and Matewan National Bank maintain executive
offices in Williamson, West Virginia in the Bank's main
building. The Company's subsidiaries operate thirteen
offices throughout the Company's market area. Seven of
these offices are owned and six are leased.
Legal Proceedings
Neither the Company nor any of its subsidiaries is a party
to any litigation other than litigation which is routine
in the business of the Company or its subsidiaries, and
which, if decided adversely to the Company or its
subsidiaries, would materially adversely affect the
condition, prospects, or assets of the Company or its
subsidiaries.
52
<PAGE>
Matewan BancShares 2nd Avenue and Vinson Street, P.O. Box 100,
Williamson, WV 25661
54
<PAGE>
EXHIBIT 13.2
MATEWAN BANCSHARES, INC.
Proxy Statement for Annual Meeting of Shareholders To Be Held April 9, 1996
This proxy statement is furnished to shareholders of Matewan BancShares, Inc.
(the "Company") in connection with the solicitation of proxies by the Board of
Directors of the Company for use at its Annual Meeting of Shareholders (the
"Annual Meeting") to be held at 11:00 a.m., local time on Tuesday, April 9, 1996
at the Charleston Marriott, 200 Lee Street, Charleston, West Virginia, for the
purposes set forth in the Notice of Annual Meeting of Shareholders.
This Proxy Statement and accompanying form of proxy are first being mailed or
given to shareholders of the Company on or about March 11, 1996.
The principal Executive offices of the Company are located at Second and Vinson
Street, Williamson, West Virginia.
VOTING RIGHTS AND PROXIES
Voting Rights
Only shareholders of record of the Company as of the close of business on March
1, 1996 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. On that date, 3,667,251 shares of the Company's common stock, par value
$1.00 per share (the "Common Stock"), were issued and outstanding and were held
by approximately 610 holders of record. On February 27, 1996, the Company issued
700,000 shares of Series A Convertible Cumulative Preferred Stock (the Preferred
Shares). Holders of the Preferred Shares are not entitled to vote in the
election of Directors. The Company had no other classes of equity securities
outstanding at that date. Each share of Common Stock is entitled to one vote on
all matters properly presented to the Annual Meeting. The affirmative vote of
the holders of a majority of Common Stock attending the meeting in person or
represented by proxy is necessary to elect the directors of the Company and,
except as otherwise provided, approve each of the other proposals set forth in
this proxy statement for consideration at the Annual Meeting. The presence, in
person or by proxy, of not less than a majority of the total number of
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting.
Proxies
Shares represented by proxies received by the Company will be voted in
accordance with the instructions contained therein. Shares represented by
proxies for which no instruction is given will be voted FOR election of the
directors specified herein and FOR each of the other proposals set forth in this
proxy statement for consideration at the Annual Meeting.
Shareholders are requested to sign, date, mark, and return promptly the enclosed
proxy card in the postage paid envelope provided for this purpose in order to
assure that their shares will be voted. A proxy may be revoked at any time prior
to exercise of the authority granted thereunder. Revocation may be accomplished
by the granting of a later dated proxy with respect to the same shares, by
written notice to the Secretary of the Company at any time prior to the voting
thereof, or by voting in person at the Annual Meeting. Attendance at the Annual
Meeting will not, by itself, revoke a proxy.
<PAGE>
The Board of Directors knows of no matters to be presented at the Annual Meeting
other than those described in this proxy statement. If other matters are
properly brought before the Annual Meeting, it is the intention of the persons
named in the proxies to vote the shares to which such proxies relate in
accordance with their best judgement.
The Company will bear the cost of the solicitation of proxies. In addition to
solicitation by mail, officers and regular employees of the Company, who will
receive no compensation in excess of their regular salaries for their services,
may solicit proxies by telephone, telegram, or otherwise. Brokerage firms,
fiduciaries, and other custodians who forward soliciting material to the
beneficial owners of shares of Common Stock held of record by them will be
reimbursed for their reasonable expenses incurred in forwarding such material.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information concerning the amount and
nature of beneficial ownership of the Company's Common Stock by persons known by
the Company to own 5% or more of such Common Stock, and by its directors, the
individuals nominated for director, and its directors and officers as a "group"
(as that term is used in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended) as of January 31, 1996. The amount and nature of beneficial
ownership, except as otherwise noted in the table, represents shares over which
a director, nominee, or officer has sole voting and sole investment power.
<TABLE>
<CAPTION>
Amount and Nature Percent
of Beneficial of
Beneficial Owner Interest Class
- ---------------------------------------------------------------
<S> <C> <C>
James H. Harless 418,670 (1)(2) 11.42%
Drawer H
Gilbert, West Virginia 25621
Dan R. Moore 689,409 (1)(3) 18.80%
Box 26
Matewan, West Virginia 25678
Frank E. Ellis 253,881 (4) 6.92%
3308 Jefferson Avenue
Cincinnati, Ohio 45220
Lafe P. Ward 107,900 (5) 2.94%
George A. Kostas 110,210 (6) 3.01%
Amos J. Hatfield 87,787 (7) 2.39%
Sidney R. Young, Jr. 20,521 (8) .56%
Betty Jo Moore 244,357 (9) 6.66%
All directors and officers
as a group (12 persons) 1,415,794 (10) 38.61%
</TABLE>
<PAGE>
(1) Includes 377,240 shares as to which Mr. Moore has sole voting power pursuant
to an agreement dated August 6, 1987, between Mr. Moore and Mr. Harless.
(2) Includes 364,326 shares held of record by Mr. Harless, members of his
family, and affiliates.
(3) Includes 330,632 shares held of record by Mr. Moore and his wife, members of
his family, and affiliates.
(4) Includes 203,500 shares of record held by Mr. Ellis, members of his family,
and affiliates as to which Mr. Ellis disclaims beneficial ownership.
(5) Includes 54,292 shares of record held by Mr. Ward's wife.
(6) Includes 83,018 shares of record held by Mr. Kostas and his wife.
(7) Includes 70,188 shares of record held by Mr. Hatfield and his wife, and
15,716 shares of record held by his wife and son as to which Mr. Hatfield
disclaims beneficial ownership.
(8) Includes 17,001 shares of record held by Mr. Young and his wife.
(9) Includes 231,844 shares held by Mrs. Moore and her husband, members of her
family, and affiliates.
(10) Excludes duplicate counting for shares subject to the voting agreement
between Messrs. Moore and Harless and for shares held by Mr. Moore, Mrs.
Moore, members of their family, and affiliates.
On August 6, 1987, Messrs. Moore and Harless entered into an agreement in
connection with the merger of the Company 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 the
Company for so long as Mr. Moore remains Chairman of the Company. Mr. Moore
intends to vote all such shares (377,240 shares) for the election of nominees
for Director specified herein.
The Company knows of no other person or persons who, beneficially or of record,
own in excess of five percent of the Company's Common Stock. The Company is not
aware of any other arrangements which at a subsequent date may result in a
change of control of the Company.
ELECTION OF DIRECTORS
Each of the nominees for election as a director currently serves as a director
for the Company and has been nominated by the Board of Directors for re-election
as director. The terms of each of the directors of the Company will expire at
the 1996 Annual Meeting. The number of directors of the Company is presently set
at eight, and the Company's Certificate of Incorporation and Bylaws provide that
all directors are to be elected for a term of one year or until their successors
are elected and qualified.
If any nominee is unable to serve, the shares represented by all valid proxies
will be voted for the election of such substitute nominee as the Board of
Directors may recommend, or the Board of Directors may amend the Bylaws and
reduce the size of the Board. At this time, the Board knows of no reason why any
nominee might be unable to serve.
The following table sets forth the names and certain information concerning the
Directors, nominees for Director, and the executive officers of the Company.
<PAGE>
<TABLE>
<CAPTION>
First Year Principal Occupation
Name Age as Director for the Past Five Years
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James H. Harless 76 1984 Chairman of the Board of Gilbert Imported
Hardwoods, Inc.; from 1984 through 1987
Chairman of the Board of Guyan Bancshares,
Inc.; Nominee for Director
Dan R. Moore 55 1984 Chairman of the Board of Directors,
President, and Chief Executive Officer of
the Company and Matewan National Bank;
Nominee for Director
Frank E. Ellis 69 1988 Physician, Frank Ellis & Associates, Inc.;
Nominee for Director
Lafe P. Ward 70 1984 Attorney at Law, Ward and
Associates L.C., General Counsel for the
Company; Nominee for Director
George A. Kostas 66 1988 Pharmacist, President of Aracoma Drug
Company, Inc.; Nominee for Director
Amos J. Hatfield 69 198 Owner, Gilbert Furniture Company;
Nominee for Director
Sidney R. Young, Jr. 72 1984 Semi-retired since April, 1986;
President and Chief Operating Officer for
McNamee Resources, Inc. since 1979;
Nominee for Director
Betty Jo Moore 55 1994 President of Moore Ford Sales and Moore
Chevrolet, Williamson, West Virginia;
Nominee for Director
Pauline Roberson 73 Vice President and Secretary of the Company,
Matewan National Bank since 1984, and
Matewan Bank FSB since 1993
Lee M. Ellis 41 Vice President of Matewan National Bank
since April, 1988; Vice President and Chief
Financial Officer of the Company and
Matewan National Bank from April, 1992 to
the present, and Matewan Bank FSB from
November, 1993 to present
Anna Ward 36 Vice President of Administration for Matewan
National Bank since August 1994, Vice
President of Audit Services for the Company
from April, 1993 until August 1994 and for
Matewan National Bank from April 1992
until August 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First Year Principal Occupation
Name Age as Director for the Past Five Years
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Timothy E. Edwards 46 Vice President of Operations for the Company
from April 1995 and for Matewan National
Bank since November 1992. Office Manager
of the Gilbert branch of Matewan National
from September 1991 until November, 1992.
President of United National Bank, Webster
Springs, WV for three years prior to September
1991.
</TABLE>
All executive officers of the Company serve at the pleasure of the Board of
Directors and may be removed by the Board at any time.
None of the members of the Board of Directors or any executive officers are
related except that Mr. Dan R. Moore and Ms. Betty Jo Moore are married, Mr. Lee
M. Ellis is the son of Dr. Frank E. Ellis, and Ms. Anna Ward is daughter-in-law
of Mr. Lafe P. Ward.
Meetings of the Board of Directors of the Company
The Company does not have a standing audit, nominating, or compensation
committee. The functions of these committees are performed by the Board of
Directors in its entirety. Directors Amos Hatfield, George Kostas, and Sidney
Young serve on the Audit Committee for Matewan National Bank.
During 1995, the Board of Directors met 13 times, while the Board of Directors
of Matewan National Bank and Matewan Bank FSB met 13 times. Director Kostas
missed four meetings. No other member of the Board of Directors attended less
than 75% of the meetings for 1995. Each director of the Company or Matewan
National Bank receives $750 for each monthly meeting of the Board of Directors
of the Company or Matewan National Bank attended. Matewan Bank FSB is prohibited
from paying any director fees until 1997. The Company paid an aggregate of
$67,147 in Director and Committee fees in 1995, on a consolidated basis.
EXECUTIVE OFFICERS' COMPENSATION
Compensation Overview
During fiscal 1995, no cash compensation was paid to any executive officer of
the Company in his or her capacity as such, although certain of the executive
officers received directors fees from the Company. Each of the executive
officers of the Company received compensation from Matewan National Bank or
Matewan Bank FSB for services rendered in their capacities as executive officers
of those subsidiaries.
The following table sets forth information concerning the Chief Executive
Officer, the only executive officer of the Company who received aggregate
compensation in excess of $100,000 during the fiscal year ended December 31,
1995. Comparative data is also provided for the previous two fiscal years.
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Other
Annual
Fiscal Salary Bonus Compensation
Name and Principal Position Year ($) ($) ($)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dan R. Moore (1) 1995 $192,008 $38,923 $0
Chairman & 1994 180,508 27,667 0
President 1993 166,265 33,119 0
</TABLE>
(1) Matewan National Bank has provided Mr. Moore with the use of an automobile
in the performance of his business duties. The value attributable to
personal use of this automobile is not ascertainable and therefore is not
included in this table.
Long-Term Compensation
The Company had no stock award, Options/SAR, LTIP Payouts, or any other form of
long-term compensation plans in place for fiscal years 1995, 1994, or 1993.
Stock Plans
The Company has no stock award, option, or appreciable rights plans in existence
and does not anticipate instituting any such plans in the foreseeable future.
Retirement Plans
The Company maintains an Employees' Retirement Plan (the "Plan") which is
available to any employee who has completed at least one year of continuous
service and is at least 21 years old and who elects to make the mandatory
contribution to the Plan. Employees who elect not to make the mandatory
contribution shall not be eligible to participate in the Plan.
The Plan provides for monthly payments upon normal retirement at age 65; there
is no early retirement provision under the Plan.
Contributions to the Plan by the the Company are those necessary to provide
benefits under the Plan as determined by the application of accepted actuarial
methods and assumptions.
Effective for the Plan years starting after December 31, 1994, mandatory
employee contributions were eliminated.
Monthly pension benefits under the Plan, effective January 1, 1995, are equal to
the sum of .85% of Average Monthly Covered Compensation (defined hereafter) plus
1.50% of Average Monthly Compensation in excess of Covered Compensation
multiplied by the number of years of employment, not to exceed 35 years. Monthly
Covered Compensation was defined as monthly compensation upon attainment of
normal retirement age of the employee receiving such compensation. Accruals on
December 31, 1994 are protected.
<PAGE>
The following table illustrates the estimated annual benefits from the Plan upon
retirement to participants at December 31, 1995, at selected remuneration and
years of service classifications.
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits
Monthly Compensation on Credited Years of Service
on an Annualized Basis 15 20 25 30 35
------------------------------------------------
<S> <C> <C> <C> <C> <C>
$160,000 $29,700 $39,500 $49,400 $59,300 $69,200
- -----------------------------------------------------------------------------
140,000 27,400 36,500 45,700 54,800 63,900
120,000 22,900 30,500 38,200 45,800 53,400
100,000 18,400 24,500 30,700 36,800 42,900
80,000 13,900 18,500 23,200 27,800 32,400
60,000 9,400 12,500 15,700 18,800 21,900
40,000 5,100 6,800 8,500 10,200 11,900
<CAPTION>
(WITH 31 YEARS PRIOR TO 1995)
-----------------------------
<S> <C> <C> <C> <C> <C>
150,000 N/A N/A N/A N/A 84,300
</TABLE>
A participant's vested interest in his accrued benefit under the Plan is
determined under a vesting schedule which provided for vesting of a
participant's accrued benefit beginning at 20% after three or more years of
service and gradually increasing to 100% after seven years of service. Employee
contributions vested immediately.
Effective January 1, 1995, the Company installed a 401(k) savings plan (401(k)
Plan) for all employees 21 years of age with one year of service to be operated
in tandem with its existing defined benefit pension plan. The 401(k) Plan allows
for voluntary pretax salary deferrals up to 15% of compensation.
The Company shall match employee salary deferrals at a rate of 25% on the first
4% of salary deferred. The vesting schedule for these matching contributions
shall begin with 20% after three years of service and increase in 20% increments
until fully vested after 7 years of service.
At the end of fiscal year 1995, Mr. Moore had 32 years of service, Mrs. Roberson
had 32 years, Mr. Ellis had 17 years, Mrs. Ward had 9 years, and Mr. Edwards had
4 years of credited service under the Plan.
Management Employment Contracts
The Company has no employment agreements with any of its executive officers.
Compensation Committee Report
The Company does not have a Compensation Committee. The Board of Directors as a
whole maintains responsibility for this function as it relates to the President
and Chief Executive Officer of the Company. The President, in conjunction with
the Company's Personnel Department and guided by the Company's Personnel
policies, determines the level of compensation for the other executive officers
of the Company.
<PAGE>
Compensation Philosophy
The Company's compensation philosophy is to provide executive officers with
salaries competitive with those paid by institutions of similar size,
performance, and circumstance.
Salaries
The compensation package for each executive officer is based upon a review of
selected local and national industry peer group data, evaluation of the
performance of the executive officer, and the annual financial performance of
the Company.
Bonus Awards
The Company's subsidiaries have paid in the last four fiscal years an annual
bonus to all employees based on the consolidated profitability of the Company as
a whole. Six percent of annual pretax earnings have been allocated to a bonus
pool and every employee in the Company shared in this pool, with each employee's
share calculated pursuant to a formula that incorporates years of service, the
prorated portion of the employee's salary to total Company salaries, and the
attainment of a certain level of productivity for each employee's office or
department. Executive management participated in the Company's plan under this
arrangement.
Conclusion
Under the compensation programs described above, a moderate portion of the
Company's executive compensation is linked directly to individual and corporate
performance. In the case of the Chief Executive Officer of the Company,
approximately 17% of his total 1995 compensation consisted of variable elements
linked to Company performance. The Board of Directors intends to continue the
policy of linking a portion of executive compensation to corporate performance.
<PAGE>
Performance Graph
Set forth below is a line graph comparing the yearly percentage change in
cumulative total shareholder return in the Company's Common Stock from December
31, 1990 through December 31, 1995. The Company's yearly percentage change in
total shareholder return is compared to the Standard & Poors 500 Index and a
related financial peer group index representing all banks.
The total annual return is computed based on the dual assumptions that each
dividend paid by the Company in the five year period depicted was reinvested in
shares of the Company's Common Stock at the market price on the day of dividend
payment and that the price per share of the Company's stock was that of closing
on December 31, 1995.
The Common Stock of Matewan BancShares, Inc. was listed initially for trading on
the NASDAQ National Market System on June 1, 1994. Prior to that time, there
existed no active market for the Company's Common Stock.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG MATEWAN, INDUSTRY INDEX AND BROADMARKET INDEX
<CAPTION>
Measurement period Industry Broadmarket
(Fiscal year Covered) Matewan Index Index
- --------------------- ------- -------- -----------
<S> <C> <C> <C>
Measurement PT -
12/31/90 $100 $100 $100
FYE 12/31/91 $111.40 $141.18 $130.48
FYE 12/31/92 $118.10 $168.20 $140.46
FYE 12/31/93 $146.80 $198.83 $154.62
FYE 12/31/94 $385.30 $188.63 $156.66
FYE 12/31/95 $550.70 $266.76 $215.54
</TABLE>
<PAGE>
This report has been prepared by the Board of Directors, James H, Harless, Dan
R. Moore, Frank E. Ellis, Lafe Ward, George Kostas, Amos Hatfield, Sidney Young,
and Betty Jo Moore.
Certain Transactions
Matewan National Bank has made various loans to its directors and officers and
to directors and officers of the Company and its subsidiaries. Loans to this
group and their related entities totalled $3,392,000, $4,208,000, and $3,633,000
at December 31, 1995, 1994, and 1993, 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 year ended December 31, 1995, the Company and its subsidiaries paid
legal fees in the amount of $103,753 to the law firm of Ward and Associates,
L.C. Mr. Ward, a director of the Company, is a principal in the firm and as a
result may receive an indirect benefit from the payment of legal fees.
APPOINTMENT OF AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP, certified
public accountants, to act as principal auditors for the Company for the year
ended December 31, 1996. Ernst & Young also served as principal auditors for the
Company for the year ended December 31, 1995. Although the selection and
appointment of independent accountants is not required to be submitted to a vote
of the shareholders, the Board has decided to ask the shareholders to approve
the appointment. If the shareholders do not approve such appointment, the Board
will reconsider its appointment. Approval of the appointment of accountants will
require the affirmative vote of a majority of the total votes cast on this issue
at the Annual Meeting. Representatives of Ernst & Young LLP are expected to be
at the Annual Meeting and will have the opportunity to make a statement if they
desire to do so. Such representatives are also expected to be available to
respond to appropriate questions.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for action at
the Annual Meeting other than those mentioned above. If any such matters
properly come before the meeting, it is the intention of the persons named in
the accompanying proxy to vote on such matters in accordance with their best
judgement.
Shareholder Proposals
Shareholders of the Company who desire to present proposals for consideration by
the Company's shareholders at the 1997 Annual Meeting of Shareholders will be
required to advise the Company in writing of the proposal on or prior to
November 1, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 23,881
<INT-BEARING-DEPOSITS> 5,704
<FED-FUNDS-SOLD> 17,237
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,429
<INVESTMENTS-CARRYING> 73,299
<INVESTMENTS-MARKET> 73,879
<LOANS> 228,568
<ALLOWANCE> 2,973
<TOTAL-ASSETS> 401,034
<DEPOSITS> 334,387
<SHORT-TERM> 17,710
<LIABILITIES-OTHER> 3,120
<LONG-TERM> 0
0
0
<COMMON> 3,684
<OTHER-SE> 42,133
<TOTAL-LIABILITIES-AND-EQUITY> 401,034
<INTEREST-LOAN> 25,324
<INTEREST-INVEST> 6,418
<INTEREST-OTHER> 700
<INTEREST-TOTAL> 32,442
<INTEREST-DEPOSIT> 12,067
<INTEREST-EXPENSE> 12,644
<INTEREST-INCOME-NET> 19,798
<LOAN-LOSSES> 1,908
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,989
<INCOME-PRETAX> 8,203
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,220
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
<YIELD-ACTUAL> 5.78
<LOANS-NON> 1,995
<LOANS-PAST> 618
<LOANS-TROUBLED> 70
<LOANS-PROBLEM> 6,520
<ALLOWANCE-OPEN> 2,932
<CHARGE-OFFS> 2,394
<RECOVERIES> 527
<ALLOWANCE-CLOSE> 2,973
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,640
</TABLE>
