MATEWAN BANCSHARES INC, 10-K, 1997-03-28

MATEWAN BANCSHARES INC
10-K, 1997-03-28
NATIONAL COMMERCIAL BANKS

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<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, 1996
------------------

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 held by nonaffiliates of the
registrant as of January 31, 1997 was $40,567,874 based on $17.75 per share.

The number of shares of the registrant's common stock, par value $1.00 per
share, issued and outstanding January 31, 1997 was 3,660,151.
<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into the Annual Report on
Form 10-K:

Part of Form 10-K into
DOCUMENT which document is
- -------- incorporated
------------

Portions of the Registrant's Annual Report to Parts I, II, III, and IV
Shareholders for the year ended December 31, 1996

Portion of the Registrant's Proxy Statement for Part III
its 1997 Annual Meeting of Shareholders to be held
April 8, 1997

FORM 10-K CROSS-REFERENCE INDEX
Annual
Report
Pages
Part I Item 1 Business.......................................... 51-53
Item 2 Properties........................................ 54
Item 3 Legal Proceedings................................. 54
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................... 12
Item 6 Selected Financial Data........................... 10-11
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 8-31
Item 8 Financial Statements and Supplementary Data....... 32-49
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)

(a) Except as set forth herein, incorporated by reference from the Company's
Proxy Statement for the Annual Meeting of Shareholders on April 8, 1997.

(b) Incorporated by reference from the Company's Proxy Statement for the Annual
Meeting of Shareholders on April 8, 1997.

Part IV Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................(c)

Report of Independent Auditors..... ................... 32
Consolidated Balance Sheets as of December 31, 1996
and 1995.............................................. 33
Consolidated Statements of Income for the three years
in the period ended December 31, 1996................. 34
Consolidated Statements of Shareholders' Equity for the
three years in the period ended December 31, 1996..... 35
Consolidated Statements of Cash Flows for the three
years in the period ended December 31, 1996........... 36
<PAGE>

(c) Financial Statement schedules have been omitted due to the required
information being provided in the consolidated financial statements or
notes thereto.

Exhibits:
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, Inc. (7)
10.9 Lease Agreement dated December 6, 1994 between K-VA-T Food Stores,
Inc. and Matewan BancShares, Inc. (7)
10.10 Lease Agreement dated February 7, 1994 between Betty O. Rosen and
Matewan National Bank (7)
10.11 Facility Construction and Consulting Agreement MNB-01 between
International Banking Technologies, Inc. and Matewan BancShares,
Inc. (7)
10.12 Facility Construction and Consulting Agreement MNB-02 between
International Banking Technologies, Inc. and Matewan BancShares,
Inc. (7)
10.13 Matewan BancShares, Inc. Employee Retirement Plan (7)
10.14 Agreement dated February 14, 1995 between Electronic Data Systems
Corporation and Matewan BancShares, Inc. (8)
10.15 Lease Agreement dated September 1, 1996 between K-VA-T Food Stores,
Inc. and Matewan Bank FSB (9)
10.16 Lease Agreement dated December 16, 1996 between K-VA-T Food Stores,
Inc. and Matewan Bank FSB (9)
10.17 Lease Agreement dated December 6, 1996 between First Union National
Bank of Virginia and Matewan BancShares, Inc. (9)
10.18 Lease Agreement dated October 15, 1996 between Parkway Plaza
Associates and Matewan Bank FSB (9)
11.1 Computation of Per Share Earnings to Common Shareholders (9)
12.0 Computation of Ratios (9)
13.1 Annual Report to Shareholders for the fiscal year ended December 31,
1996 (9)
13.2 Proxy Statement to Shareholders for the Annual Meeting on April 8,
1997 (9)
22.1 Subsidiaries of Registrant
Matewan National Bank
Matewan Bank FSB
Matewan Venture Fund, Inc.
Matewan National Bank/Kentucky
23 Consent of Ernst & Young LLP (9)
27 Financial Data Schedule
<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 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
<PAGE>

Directors of Matewan BancShares, Inc.

NAME TITLE AGE
<S> <C> <C>
Dan R. Moore Chairman of the Board of Directors, 56
President and Chief Executive
Officer of Matewan BancShares, Inc.
and Matewan National Bank

James H. Harless Chairman of the Board of Directors of 77
Gilbert Imported Hardwoods, Inc.

Frank E. Ellis M.D. Physician, Frank Ellis & Associates, Inc. 70

Lafe P. Ward Attorney at Law, Ward & Associates, 71
General Counsel for Matewan BancShares, Inc.

Amos J. Hatfield Owner, Gilbert Furniture Company 70

George A. Kostas Pharmacist/President 67
Aracoma Drug Company, Inc.

Sidney Young, Jr. Mining Consultant 73

Betty Jo Moore President, Superior Ford Sales and 56
Moore Chevrolet

Douglas Hinkle President, Walter P. Walters Insurance Agency 62

</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, 1997.

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, 1997.

/s/ Dan R. Moore /s/ Lee M. Ellis
- ---------------- ----------------
Chairman of the Board, President, Vice President and
and Chief Executive Officer Chief Financial 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 /s/ Douglas Hinkle
- ------------------ ------------------
Director Director

<PAGE>

EXHIBIT 10.15
-------------

LEASE AGREEMENT
---------------

THIS INDENTURE made and entered into upon this 24th day of July, 1996, by
and between K-VA-T Food Stores, Inc., a corporation duly created, organized and
existing under and by virtue of the Laws of the commonwealth of Virginia, with
its registered office located at 329 North Main St., Grundy, Virginia,
(hereinafter called "Lessor") of the first part, and Matewan Bank, FSB, a
federal savings bank, with its registered office located at 4414 North Mayo
Trail, Pikeville, Kentucky, (hereinafter called "Lessee") of the second part,

WITNESSETH: That whereas Lessor presently operates a Food City Supermarket
(hereinafter referred to as the "Store") located at 396 Town Centre Drive, Towne
Centre Shopping Center, in the Town of Abingdon, Washington County, Virginia;
and

WHEREAS, Lessee desires to establish and operate banking and depository
facilities (hereinafter referred to as the "Banking Facility") in said Store on
terms and conditions hereinafter set forth; and

WHEREAS, Lessor desires that Lessee establish and operate such Banking
Facility in said Store on the terms and conditions hereinafter set forth:

NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements herein set forth and benefits accruing to the parties
hereto, other good and valuable considerations and the rentals to be paid by
Lessee to Lessor, the parties hereto agree as follows:

1. LEASE OF SPACE. Subject to the terms and conditions of this lease
--------------
agreement (hereinafter referred to as "lease"), Lessor hereby leases and rents
to Lessee and Lessee hereby rents and leases from Lessor a space containing
approximately 654 square feet of floor space in the building occupied by the
Store (hereinafter referred to as the "store building") which space hereinafter
referred to as (Premises") is designated "Bank" and outlined in red on the
diagram (floor plan) hereto attached, marked "Exhibit A" and made a part hereof
by reference. Lessee shall be granted ingress to and egress from said Premises
for Lessee, its officers, employees and customers, by and through the front
entrance, vestibules and sales area of the building occupied by the Store, and
Lessee shall have the right to install a night depository unit and automated
teller machine, the approximate locations of which are shown on said diagram
(floor plan).

1
<PAGE>

2. TERM. (a) This lease is made and accepted for a term which shall begin
----
on the Commencement Date, as hereinafter defined, and run until five (5) years
thereafter, unless extended as hereinafter provided.
(b) The Commencement Date shall be on the first (1st) day of the calendar
month coming next after the following conditions are satisfied:
(1) The Improvement Work, as such term is defined in Section 8 of this
lease, is substantially completed in accordance with the approved Plans and
Specifications; and
(2) All required consents or approvals of the Federal Reserve, the
Comptroller of the Currency, Federal Deposit Insurance Corporation, the
Commissioner of Banking for the state of Lessees's incorporation, or any other
Federal or State regulatory agency having jurisdiction over Lessee (the
"Regulatory Agency") shall have been obtained to open and maintain the Banking
Facility for banking business at the location of the premises hereby leased.
Lessee shall promptly make an application to any such Regulatory Agency for the
issuance of a permit to operate a retail banking and depository facility in the
Store; exercise due diligence to obtain same; and immediately give Lessor notice
when the permit has been issued.

(3) Pursuant to the provisions of Section 2, as hereinabove stated and in
accordance with section 8 hereof, Lessee shall complete all of the aforesaid
conditions and Lessee shall also open and begin normal banking business within
four (4) months from the date of this lease. Lessor has the exclusive option to
terminate said lease in the event Lessee does not comply completely with all of
the aforesaid provisions and conditions of said lease, by the above specified
time.
(c) As soon as the Commencement Date may be determined as hereinabove
provided, the parties hereto agree to execute and deliver in duplicate a
Commencement Date Agreement, using the form, a copy of which is hereto attached,
marked "Exhibit B", and made a part hereof by reference, for the purpose of
being attached to and becoming a part of their respective copy of this lease,
but failure of the parties, or either of them, to execute and deliver such
agreement shall not preclude establishing such date by appropriate evidence
should the need to do so arise.
(d) Lessee shall have the right to occupy the Premises prior to said
Commencement Date for the sole purpose of making the improvements hereinafter
referred to as the Improvement Work, as provided for in Section 8 hereof and not
for the conduct of Lessee's banking business, provided that if contingencies are
not met, Lessee shall be responsible for restoring Premises. Any such occupancy
of the Premises by Lessee shall be subject to the terms and conditions of the
lease. If Lessee begins to conduct business in the Premises prior to the
Commencement Date, Lessee shall pay rent, pro rata, according to the rent sated
in Section 3 hereof for the number of days which Lessee so conducts Lessee's
business.

3. Rent. Lessee shall pay to Lessor as rent for the
----

2
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Premises an amount equal to Twenty-Four Thousand Dollars ($24,000) per annum
-------
for the original term of this lease, which rent shall be payable in equal
monthly installments of Two Thousand Dollars ($2,000) each, in advance,
------
commencing on the Commencement Date and continuing to be due on the first day
and not later than the fifth day of each calendar month during the term of this
lease. All rent shall be payable to Lessor at its registered office shown above
or as otherwise directed by Lessor.

4. OPTION TO EXTEND. Lessee shall have the option to extend the term of
----------------
this lease for three (3) successive additional periods of five (5) years each.
Said options shall be exercised automatically unless Lessee, gives Lessor notice
of Lessee's desire not to exercise the option. Such extension rights are
further subject to Lessee's not being in default under any of the terms and
provisions of this lease. The notice not to exercise the option for any five
(5) year extension shall be given at least one-hundred eighty (180) days prior
to the end of the immediately preceding term of this lease. The first automatic
extension of this lease shall be upon the same rental, terms and conditions as
are set forth in this Lease Agreement. Rental for the second and third renewal
terms of this lease, shall be an amount equal to the original rental, as defined
in section 3 hereof, multiplied by a fraction. Said fraction shall be defined
as consisting of a numerator, which shall be the index number (the "Index
Number") indicated under the United States index column of the Consumer Price
Index for Urban Wage Earners and Clerical Workers (the "CPI") (1982-1984=100) as
promulgated by the United States Department of Labor, for the month immediately
preceding the month and year in which the said renewal term shall commence and a
denominator, which shall be the Index Number for the CPI for the month and year
in which the original commencement date of this Lease occurs. If there shall at
the time be no such CPI, the parties shall use the most comparable substitute
index in determining rent escalation for said renewal periods. Notwithstanding
the above, all other terms and conditions of this Lease Agreement shall remain
in full force and effect during the second and third renewal periods.

5. USE AND OCCUPANCY. (a) Lessee shall have the right to use and occupy
-----------------
the Premises for the sole purpose of establishing and operating a retail banking
and depository facility for the benefit and convenience of the public and for no
other use and purpose, except that Lessee may offer at the Banking Facility such
services or products as are customarily offered by Lessee at its other retail
banking facilities, provided that such services and products are not in
competition and do not compete with services and products customarily offered
for sale by Lessor in its stores. Lessee shall have the exclusive right to
provide or promote retail banking or other depository services in the Store.
Notwithstanding anything to the contrary stated herein, Lessee shall have the
non-exclusive right to provide or promote the following services in the Bank:
the sale of tickets to musical, theatrical, sporting, and

3
<PAGE>

other public events; financial planning; estate planning; sale of insurance; and
travel planning and reservation services, provided that such rights do not
violate any terms and conditions or any exclusive rights granted by Lessor's
Landlord in the Prime Lease. Lessee's exclusive right hereunder to provide
retail banking and other depository services in the Store shall not limit or
restrict Lessor's right to make change, cash checks, verity checks, arrange for
check verification, sell money orders, or to transact or conduct any other
commercial or financial activity or service which, in Lessor's sole discretion,
Lessor deems-necessary for the proper and adequate operation of the Store.
(b) In order to provide Lessee's customers with free and clear access to
the Banking Facility, Lessor shall not place any display case or other fixture
or articles within six (6) feed of the Banking Facility that would restrict free
and clear access to the Banking Facility.
(c) In the event that Lessee desires to include a night depository in the
operation of the Banking Facility, and said night depository is to be located in
an area outside the Banking Facility, then, in that event, Lessee shall acquire
written approval of Lessor regarding the proposed location of said night
depository prior to commencing any installation of said night depository. In
the event of the installation of a night depository it is agreed that Lessee
shall be responsible, at its sole cost and expense, for the installation,
maintenance, and operation of any such night depository, and the location of any
such night depository shall be deemed to be an appurtenance to the Premises and
a part of the Banking Facility for all purposes of this lease. The installation
of any such night depository shall be performed in accordance with the terms and
conditions of Section 8 hereof.
(d) If Lessee elects to include an automated teller machine in the
operation of the Banking Facility, Lessee shall be responsible, at its sole cost
and expense, for the installation, maintenance, and operation of any such
automated teller machine, and the location of any such automated teller machine
shall be deemed to be an appurtenance to the Premises and a part of the Banking
Facility for all purposes of this lease. The installation of any such automated
teller machine shall be performed in accordance with the terms and conditions of
Section 8 hereof. Lessee may make available to any one or more banking or
depository institutions, including savings and loan associations or credit
unions, the use of any such automated teller machine installed by Lessee, and
Lessor shall permit such other banking or depository institutions, including
savings and loan associations or credit unions, to share the use of any such
automated teller machine.
(e) Lessee shall have the right to use jointly with Lessor a sufficient
part of the parking area serving the building in which Premises are located for
the parking of vehicles of its employees and customers, and vehicles being used
in the normal course of Lessee's business, with the right of ingress to and
egress from said parking area. No additional rent shall be charged for use of
said parking area.

4
<PAGE>

(f) Lessee shall maintain and conduct the operation of the Banking Facility
in a first-class and proper manner. Lessee shall comply with all applicable
federal, state and local laws, rules, regulations, and ordinances governing or
regulating the establishment and operation of the Banking Facility. Lessee
shall not block or restrict the aisles, passageways, vestibules, entrances,
exits, or sidewalks of the Store so as to interfere with Lessor's business.
Lessee's operation of the Banking Facility shall be subject to such limitations,
restrictions, or rules as Lessor may form time to time impose, including,
without limitation, any rule pertaining to the parking of motor vehicles of
Lessee, its employees, agents or representatives, and any rule restricting the
Banking Facility's hours of operation to the same hours the Store is open to the
public. Lessee shall not have a key to the Store. When the Store is closed and
not open to the public for business, Lessee and its employees and agents shall
have access to the Store only with the consent of Lessor and only when an
employee or other representative of Lessor is present. Lessee shall not use the
Premises for any illegal purpose or violate any statute, regulation, rule or
order of any governmental body, nor create or allow to exist any nuisance or
trespass, nor use the Premises in any manner to vitiate Lessor's insurance or
increase the rate of Lessor's insurance premiums, nor deface or injure the
Premises nor overload the floor of the Premises. Lessee agrees that it shall
observe and comply with the "Rules and Regulations" hereto attached, marked
"Exhibit C", and made a part hereof by reference.

6. EMPLOYEES. (a) Lessee shall cause its employees to comply with all
---------
reasonable rules and regulations from time to time prescribed by Lessor
pertaining to employee ingress, egress, and parking. All persons employed by
Lessee in connection with the operation of the Banking Facility shall be and
remain Lessee's employees for all purposes, and Lessee shall, at its own cost
and expense, maintain worker's compensation coverage, unemployment compensation
coverage, and any other insurance which may be required by law with respect to
such employees. Lessee's employees, while working at the Banking Facility,
shall be entitled to use the toilet facilities and break room or lounge provided
by Lessor for the convenience of Lessor's employees. Lessee shall be solely
responsible for all acts and omissions of its employees. Lessor shall provide
an adequate number of parking spaces at the Store for employees of Lessee
working at the Banking Facility. Lessee shall employ all persons necessary for
the operation and maintenance of the Banking Facility and such employees of
Lessee shall at all times conduct themselves toward the customers and employees
of Lessor, and toward all other persons in the Store courteously and in a manner
to promote the best interest of the Store.

(b) Lessee shall be solely responsible for providing security for the
Banking Facility, and acknowledges that Lessor is not an insurer for the Banking
Facility and that Lessor does not undertake

5
<PAGE>

to provide any security for the Banking Facility. Subject to reasonable rules
and regulations of Lessor, lessee shall have the right to have a security guard
in the Banking Facility at times that Store is open for business andy any such
security guard shall be and remain an employee or contractor of Lessee only.

7. NON-EMPLOYEE SERVICES. It is contemplated that persons not employed by
---------------------
Lessee must have access to the Banking Facility from time to time for the
purpose of servicing, maintaining, and otherwise performing services in
connection with the Banking Facility. Any such non-employee shall have access
to the Store and the Banking Facility during the Store's normal business hours,
provided that such non-employees shall not block or restrict the aisles,
passageways, vestibules, entrances, exits or sidewalks of the Store so as to
interfere with Lessor's business.

8. IMPROVEMENT WORK. (a) Lessee shall have the right to improve (herein
----------------
referred to as the "Improvement Work") the Premises by installing banking and
depository facilities therein so that the Premises may be used for the operation
of a retail banking and depository facility in accordance with Section 5 hereof.
The Improvement Work shall be in accordance with the terms and conditions of
this Section 8 of this lease.
(b) The Improvement Work shall be done in accordance with plans and
specifications (hereinafter referred to as the "Plans and Specifications")
provided by Lessee for the use and benefit of Lessor and Lessee. Lessee, within
thirty (30) days from the date of this lease, shall furnish Lessor with said
Plans and Specifications for Lessor's review and approval. The Plans and
Specifications shall be subject to the prior approval of Lessor. Lessor shall
promptly, and not later than five (5) days after receipt of a set thereof,
approve or reject the Plans and Specifications submitted to Lessor by Lessee.
Lessee, within thirty (30) days after the approval of the Plans and
Specifications by Lessor, shall begin the work to improve the Premises, and the
Improvement Work shall be completed by Lessee in accordance with the approved
Plans and Specifications within four (4) months form the date of this lease. In
connection with the Improvement Work, Lessee specifically agrees that
improvements shall not affect the structure, roof, or floor of the store
building except in connection with the installation of a vault, night depository
unit or any automated teller machine, or otherwise adversely affect any area of
the store building other that the Premises, or affect the peaceful enjoyment of
Lessor.
(c) Lessee shall, at its sole cost and expense, pay the cost of the
Improvement Work, including the cost of the Plans and Specifications therefor.
Neither Lessee nor nay contractor engaged by Lessee shall have any right to
create any charge or lien against the store building or the land on which the
store building is located on account of the Improvement Work, and this lease
shall not be construed to authorize any charge of lien against the store
building or the land on which the store building is located on

6
<PAGE>

account of the Improvement Work or any work, services, materials relating
hereto. Lessee covenants and warrants unto Lessor that Lessee will discharge of
record, within ten (10) days following actual notice by Lessee, from whatever
source, of its filing, any mechanic's, or materialmen's or other similar lien
against the Premises, the store building or the land on which the store building
is located for work or material claimed to have been furnished to Lessee or the
Premises.
(d) Lessor shall have the right to approve the contractor or contractors,
as the case may be, selected by Lessee to perform the Improvement Work, but such
approval shall not be arbitrarily nor unreasonably withheld.
(e) Lessor shall have the right to inspect the construction of the
Improvement Work from time to time.
(f) The Plans and Specifications and the contract for the Improvement Work
may contain such other terms and provisions not in conflict with nor contrary to
this Section 8 as Lessee may elect.
(g) Lessee, at its sole cost and expense, shall furnish all improvements,
fixtures, equipment, and furnishings which it deems necessary or desirable for
the establishment and operation of the Banking Facility, and shall pay all costs
of improvement of the Premises necessary for the installation of such items.
Notwithstanding any attachment or affixation of the Banking Facility or any part
thereof to the Premises, or the manner, mode, extent, or nature of any such
attachment or affixation, the Banking Facility and each part thereof will be,
and shall at all times continue to be, personal property, and shall not at any
time become or be deemed to be fixtures or in any other manner a part of the
Premises or the store building. All permits, licenses and authorizations
required in connection with the Improvement work shall be obtained and paid for
by Lessee as the same are required.
(h) Lessee shall make no alterations or additions of any kind in or to the
Premises or the Banking Facility without first obtaining Lessor's written
consent, and all such work shall be subject to the provisions of this Section 8.
(i) In the event of disagreement between Lessor and Lessee as to whether
any construction complies with the Plans and Specifications or whether any
construction is complete and ready for use and occupancy, the disagreement shall
be determined by any architect selected by Lessee, representing Lessee, and any
architect selected by Lessor, representing Lessor. If said two architects
cannot agree, the two shall select a third person who shall also be an
architect, and the decision of the three, by a majority vote, shall terminate
the disagreement. All of said architects shall be licensed to practice
architecture in the state in which the store building is located. Each party
shall pay its architect and the expense of the third architect shall be shared
equally.
(j) Times stated in this Section 8 shall not be of the essence of the
contract so long as the work or obligation concerned is carried on with
reasonable diligence and without unreasonable daily delays (caused by acts of
God or material shortages beyond

7
<PAGE>

the control of the party obligated are recognized as reasonable).
(k) Lessor shall not be liable for any damage to Lessee's property arising
from the operations of the contractor relating to the Improvement Work. Said
contractor shall provide public liability and property damage insurance for the
protection of Lessor and Lessee on account of injuries to persons or damage to
such persons' property (including property of Lessor and Lessee) arising form
the contractor's operations in the amount of One Million Dollars ($1,000,000)
for property damage; One Million Dollars ($1,000,000) for injuries to any one
person; and One Million Dollars ($1,000,000) for injuries occurring in any one
accident. The contractor shall furnish builders' risk insurance on the work
covered by the contract.

9. MAINTENANCE. (a) Lessee shall, at its sole cost and expense, maintain
-----------
the Banking Facility in good order and repair, including, without limitation,
telephone or other lines for computer/data processing and transmission for the
Banking Facility, and shall, at its sole cost and expense, provide and maintain
janitorial services for the Premises.
(b) Lessee shall be liable for and shall repair or restore any loss or
damage of the Premises or store building caused by the negligence or intentional
acts of Lessee, or by the negligence or intentional acts of its agents,
employees, or representatives when acting in the course of their employment,
except that Lessee shall not be liable for nor required to restore loss or
damage caused by fire or explosion, or resulting r\from any casualty which
normally many be insured against by fire insurance with extended coverage.
Fire and extended coverage insurance shall be carried and maintained on the
store building pursuant to the terms and conditions of the Prime Lease as that
term is defined in Section 18 thereof.
(c) Anytime that an Automatic Teller or Night Depository shall malfunction,
Lessee shall affect repairs on same within twenty-four (24) hours of
notification of said malfunction.

10. UTILITIES. Lessor agrees to furnish to the Banking Facility at
---------
Lessor's sole cost and expense all overhead lighting, electricity, heat and air
conditioning for the operation of the Banking Facility. Lessee shall furnish at
Lessee's sole cost and expense all telephone and computer/data processing and
transmission services, including all lines, cables and connections necessary for
the operation of the Banking Facility.

11. INSURANCE. Lessee shall maintain, with respect to the Premises,
---------
Comprehensive General Liability Insurance with a combined single limit of at
least Five Million Dollars ($5,000,000) and Employer's liability insurance of
not less than One Million Dollars ($1,000,000) and Lessor shall be made an
additional insured under the Comprehensive General Liability policy. Evidence
of such coverage shall be furnished to Lessor at the commencement date. Lessee
shall provide fire insurance and extended coverage for

8
<PAGE>

itself on the modular banking unit, equipment, furnishings, and other items of
personalty which places in the premises. In the event that Lessor's insurance
is increased at said location because of Lessee's bank facility being located
inside said store, then Lessee agrees to pay the amount of said increase.

12. INDEMNITY. (a) Lessee shall indemnify, protect, and save harmless
---------
Lessor from damage, loss, liability, or expense, including attorneys fees and
court costs, on account of injuries to persons or damage to property arising or
resulting from the ownership or operation of the Banking Facility during the
term of this lease, except such injuries or damage arising from negligence of
Lessor, its agents, or employees.
(b) Lessor shall indemnify, protect, and save harmless Lessee from damage,
loss, liability, or expense, including attorneys fees and court costs, on
account of injuries to persons or damage to property arising or resulting from
the operation of the Store during the term of this lease, except such injuries
or damage arising from negligence of Lessee, its agents, or employees.
(c) In the event of concurring negligence of Lessor and Lessee, Lessor and
Lessee shall shard liabilities and expenses arising thereunder in proportion to
their negligence.

13. TAXES. Lessee shall pay and ad valorem taxes levied or assessed
-----
against its modular banking unit and other property located in said Premises.
Lessor shall pay all ad valorem taxes levied or assessed against the Premises.

14. SURRENDER. Lessee agrees that it shall, before the termination of
---------
this lease, remove its modular banking unit, furnishings, equipment, and all
other personal property belonging to and being the property of Lessee from the
premises, provided that at the time of removal Lessee is not in default in the
payment of rent or any other term or provision of this lease, and restore the
Premises to as good a condition as Lessee received same from Lessor, loss or
damage by fire, storm, earthquake, or other casualty, and ordinary wear and tear
from reasonable use excepted. Lessee shall pay Lessor for any physical damage
caused by the installation or removal of Lessee's improvements, fixtures,
furnishings,equipment, or personal property, and surrender peaceful possessio of
the Premises to Lessor at the termination of this lease.

15. DEFAULT. (a) In event Lessee shall be in default in the payment of
-------
rent hereunder in full and shall not cure such default within twenty (20) days
after receipt of written notice from Lessor specifying the default, Lessor shall
have the right, without further notice and legal process (but only during the
continuance of such default), of terminating this lease. Thereupon, this lease
shall be at an end, except for the purposes of enforcing the rights then accrued
hereunder and rights to future rentals to accrue hereunder, and Lessee will at
once surrender, release and turn over

9
<PAGE>

possession of said Premises to Lessor. If such possession is not immediately
surrendered, Lessor may re-enter said Premises and take possession thereof,
removing all persons and property therefrom, using such force as may be
necessary without being deemed guilty of any manner of trespass, or forcible
entry, or detainer, all other notice provided by law for the termination of
tenancy and all legal process being hereby expressly waived.

(b) If Lessee shall default in the performance or observance of any
covenant, agreement or condition contained in this lease to be performed or
observed by Lessee, other than an obligation to pay rent, and shall not cure
such default within thirty (30) days after receipt of written notice from Lessor
specifying the default, or shall not within said period commence to cure such
default and thereafter prosecute the curing of such default to completion with
due diligence, Lessor may, at its option, at once, without notice to Lessee or
anyone else, terminate this lease, and upon the termination hereof at the option
of Lessor as aforesaid, or at the expiration, by lapse of time, of the term
hereby demised, Lessee will, at once, surrender, release and turn over
possession of said Premises to Lessor and, if such possession is not immediately
surrendered, Lessor may re-enter said Premises and take possession thereof
removing all persons and property therefrom, using such force as may be
necessary without being deemed guilty of any manner of trespass, or forcible
entry, or detainer, all other notice provided by law for the termination of
tenancy and all legal process being hereby expressly waived; or Lessor may, at
its option, without waiving any right to terminate this lease or any claim for
breach of contract, at any time thereafter cure such default for the account of
Lessee and Lessee shall, on demand, reimburse Lessor therefor and save lessor
harmless therefrom, provided that Lessor may cure any such default prior to the
expiration of said waiting period, but after notice to Lessee, if the curing of
such default prior to the expiration of said waiting period, but after notice to
Lessee if the curing of such default prior to the expiration of said waiting
period is reasonable necessary to protect Lessor, or to prevent injury or damage
to persons or property.

(c) In case of any default, whether or not this Lease is terminated,
Lessee will indemnify Lessor against all loss of rent and other payments
provided herein, if any, to be paid by Lessee to Lessor between the time of
default or termination and the expiration of the term of this Lease. It is
understood that at the time of termination or reentry, or any time thereafter,
Lessor may rent the Premises for a term which may expire after the expiration of
the term of this Lease without releasing Lessee from any liability whatsoever;
that Lessee shall be liable for w\expenses incurred by Lessor in connection with
obtaining possession of the Leased Premises and in connection with any re-
letting, including without limitation, reasonable attorney fees and reasonable
brokers' fees; and that any monies collected for said re-letting

10
<PAGE>

shall be applied first to the foregoing expenses and then to payment of rental
and all other payment which may be due to Lessor from Lessee. Said
indemnification of Lessor by Lessee shall be accomplished by payments made on
the days on which said Rentals andy other payments would have been due and
payable hereunder if this agreement had not terminated.

(d) The rights and remedies herein given Lessor on account of default or
breach by Lessee under this lease are cumulative and in addition to the rights
and remedies afforded Lessor by law and/or equity for such defaults or breaches.

16. DAMAGE. If by fire, storm, earthquake, or other casualty, the
------
Premises or any other part of the store building are destroyed or damaged to the
extent that Lessee is deprived of occupancy or use of the Premises, and if such
damage or destruction can be substantially repaired within thirty (30) days from
the date of such damage or destruction, then such damage or destruction shall be
substantially repaired pursuant to the terms and conditions of the Prime Lease
(as such term is defined in Section 18 hereof) within thirty (30) days from the
date of such damage or destruction and all rent payable hereunder by Lessee
shall be abated to the extent that Lessee is unable to occupy and use the
Premises. In the event such damage or destruction cannot be substantially
repaired within such thirty-day period, Lessee and Lessor shall each have the
right and option to terminate this lease by giving ten (10) days' prior written
notice to the other. Notwithstanding anything herein to the contrary, in the
event of any destruction or damage to the store building or the Premises, Lessee
shall be solely responsible for repairing and/or restoring, at its sole cost and
expense, the modular banking unit, furnishings, equipment and all other property
of Lessee located in the Premises and used in connection with the operation of
the Banking Facility.

17. CONDEMNATION. If a material part of the store building shall be taken
------------
or condemned under the power of eminent domain or is conveyed or leased in lieu
of such taking, this lease shall terminate as of the date title vests in the
condemning authority. If any portion of the Store parking area is taken or
condemned under the power of eminent domain or is conveyed or leased in lieu of
such taking and, in the opinion of Lessor, continuance of the operation of the
Store is undesirable as result thereof, Lessor may elect to terminate this lease
concurrently with Lessor's closing of the Store, and if Lessor elects to so
terminate this lease, then this lease shall terminate and all rights and
liabilities of the parties thereafter accruing shall cease and terminate as if
the date of such termination were the date originally set for the expiration of
the terms of this lease. Lessee hereby assigns to Lessor any and all right,
title, or interest it may have in and to any award made in any such condemnation
proceeding, except if any award includes an amount in compensation for loss of
business profits by Lessee or for moving the property of Lessee, that part

11
<PAGE>

of such award is not hereby assigned to Lessor and Lessee will be entitled to
the amount paid for Lessee's loss of profits and for the moving of Lessee's
property.

18. PRIME LEASE. (a) The term "Prime Lease", as such term is referred to
-----------
in this lease, means that certain Lease Agreement entered into by and between
Marathon Realty Corporation, as Landlord, and K-VA-T Food Stores, Inc., as
Tenant, covering the land and building occupied by Store in which Premises are
located, and dated August 1, 1987.
(b) This lease is executed by Lessor and Lessee as a sublease under said
Prime Lease, and shall be subject and subordinate to all of the terms and
conditions of said Prime Lease. Subject to the provisions of Section 4 hereof,
upon the termination of said Prime Lease for any reason, this lease shall
terminate. In the event that said Prime Lease is terminated and Lessor
continues to occupy said store building and operate said store, whether as
tenant or owner, this lease shall not terminate, but remain in effect until the
earlier of: 1. Cessation of operation of said store by Lessor, or, 2. Its term,
including any extension thereof, expires. In the event that Lessor ceases
operations in said store and relocates within a one-mile radius of the store
building within one year of cessation of operations, Lessee shall have the
opportunity to relocate with Lessor. The relocation of Lessee with Lessor shall
be contingent upon: 1. The approval by Lessor of Lessees's bank facility plans,
2. Where applicable, Lessees's maintaining operations at both the old and new
facilities, 3. Monthly rental from Lessee in the new store building shall
increase in proportion to Lessor's increased occupancy costs and, 4. Said
relocation does not violate any terms and conditions or any exclusive rights
granted previously by Lessor's landlord, pursuant to the Prime Lease for the new
store building.

(c) Lessee agrees that this lease is and shall be subordinate and subject
to the lien of any first mortgage, deed to secure debt, deed of trust, or other
instrument in the nature thereof which may now or hereafter affect or encumber
the fee title to the Premises and the land upon which the store building is
located. The preceding sentence pertaining to the subordination of this lease
to any first mortgage, security deed, or other instrument in the nature thereof
shall be self-operative, and no further instrument or subordination shall be
required by the holder of any such instrument affecting or encumbering the fee
title of the Premises or the land upon which the store building is located. In
confirmation of such subordination, Lessee shall, upon demand, at any time or
times, execute, acknowledge, and deliver to Lessor or the holder of any such
mortgage, deed to secure debt, deed of trust, or other instrument, without
expense, any and all instruments that may be requested by Lessor or such holder
to evidence the subordination of this lease and all rights hereunder to the lien
of any such mortgage, deed to secure debt, deed of trust, or other instrument,
and each renewal, modification, consolidation, replacement, and extension
thereof.

12
<PAGE>

(d) Lessor covenants and warrants that it has obtained all requisite
consent to the subletting of Premises to Lessee, and that it has the unqualified
right to enter into this lease agreement and sublet Premises to Lessee.

19. ASSIGNMENT. Lessee shall not, without the prior written consent of
----------
Lessor, assign, hypothecate, or otherwise transfer this lease or any interest
hereunder, or sublease the Premises or any part thereof, or permit the use of
the Premises by any party other that Lessee, except that the automated teller
machine may be used by persons other than the Lessee as such sharing is
permitted by Section 5(d) hereof. Any consent to an assignment or sublease
shall not nullify this provision, and all later assignments or subleases shall
be made likewise only after the prior written consent of Lessor is obtained in
each instance. Unless otherwise expressly agreed to by Lessor in writing, no
sublease or assignment by Lessee shall relieve Lessee of any liability
hereunder.

20. BANKRUPTCY. (a) For the purpose of this lease, bankruptcy of Lessee
----------
shall mean and include any one or more of the following events or conditions:
(1) Lessee is adjudicated a bankrupt;
(2) A receiver is appointed for Lessee or a major part of Lessee's
property, including Lessee's interest in Premises, and such receivership is not
vacated and discharged within ninety (90) days;
(3) Lessee shall seek reorganization, arrangement, composition,
readjustment, compromise, or similar debtor relief with respect to its debts or
obligations under any federal or state bankruptcy, insolvency, or debtor relief
statute;
(4) Lessee, whether voluntarily or involuntarily, takes advantage of any
debtor relief proceedings under any present or future law, whereby the rent or
any part thereof is, or is proposed to be reduced, or payment thereof is, or is
proposed to be deferred;
(5) Lessee makes an assignment for the benefit of its creditors;
(6) Lessee's interests hereunder shall be levied upon or sold under
execution or other legal process;
(7) Lessee is found to be insolvent in any proceedings other than
bankruptcy; or
(8) Lessee is closed or taken over by any Regulatory Agency.

(b) Subject to the terms and conditions of subsection (c) of this section,
in the event of bankruptcy of Lessee, Lessor, at any time after the occurrence
of the bankruptcy and during the continuation of the bankruptcy and on thirty
(30) days notice to Lessee and to Lessee's legal representative (which shall
include a trustee in bankruptcy, receiver, or other like officer), if any, may
terminate this lease and retake possession of the Premises.

(c) Notwithstanding any other provision of this lease, in the event the
Lessee or its successors or assignees shall become insolvent, bankrupt, or make
an assignment for the benefit of

13
<PAGE>

creditors, or if it or their interests hereunder shall be levied upon or sold
under execution or other legal process, or in the event the bank to be operated
on the premises is closed, or is taken over by the banking authority of the
State of other bank supervisory authority, the Lessor may terminate the lease
only with the concurrence of said State banking authority or other bank
supervisory authority, and any such authority shall in any event have the
election to either continue or terminate the lease, provided, that in the vent
this lease is terminate, the maximum claim of Lessor for damages or indemnity
for injury resulting from the rejection or abandonment of the unexpired lease
shall in no event be in an amount exceeding the rent reserved by the lease,
without acceleration, for the year next succeeding the date of the surrender of
the premises to the landlord, or the date of re-entry of the landlord, whichever
first occurs, whether before or after the closing of the bank, plus an amount
equal to the unpaid rent accrued, without acceleration, up to such date.

21. TRADE NAME. Lessee shall buy and pay for its own supplies and other
----------
items of personalty in its own trade name and upon its own credit and shall make
no contract of any kind or nature whatsoever in the name of Lessor or in the
name of any other business entity or enterprise owned in whole or in part by
Lessor. Nothing herein contained shall constitute the parties as partners or
co-venturers to render either party liable for the debts or liabilities of the
other.

22. SUPPORT GROUP. The Lessee shall use the services of a retail banking
-------------
support group such as International Banking Technologies for a minimum of five
(5) years. However, Lessee shall not use the support services of the National
Commerce Bank of Memphis, Tennessee or any of its affiliates of franchises.

23. USUFRUCT. This lease shall create the relationship of landlord and
--------
tenant between Lessor and Lessee; no estate shall pass out of Lessor, and Lessee
has only a usufruct which is not subject to levy and sale and may not be
assigned except by Lessor's consent.

24. CAPTIONS. Section captions used in this lease are for the convenience
--------
of reference only and do not constitute a substantive part of this lease.

25. GOVERNING LAW. This lease is deemed to have been executed in the
-------------
state in which the Store is located and shall be governed by and construed in
accordance with the laws of such state.

27. ENTIRE AGREEMENT. This lease constitutes the sole and entire
----------------
agreement between the parties hereto with respect to Lessee's leasing of the
Premises and its establishment and operation of the Banking Facility, and no
amendment or modification

14
<PAGE>

of this lease shall be binding unless it is reduced to writing and signed by
both parties hereto. No representation, inducement, promise, understanding, or
agreement regarding such matters not included in this lease shall be binding
upon the parties hereto or either of them. If any term or provision of this
lease shall be invalid or unenforceable, the remaining terms and provisions
hereof shall not be affected thereby. If the application of any term or
provision of this lease to any person or circumstance shall to any extent be
invalid or unenforceable, such term or provision shall remain applicable as to
those persons or circumstances to which it shall be valid and enforceable and
each term and provision of this lease shall be valid and enforceable to the
fullest extent permitted by law.

28. EXECUTION. This lease may be executed in any number of counterparts,
---------
each of which shall be deemed an original and any of which shall be deemed to be
complete in itself and may be introduced into evidence or used for any purpose
without the production of the other counterparts.

29. NOTICES. Any notice herein provided for may be delivered personally
-------
to an officer or the registered agent of the party to be notified, or by United
States certified or registered mail directed as follows:

To Lessor: K-VA-T Food Stores, Inc.
P.O. Box 769
Grundy, Virginia 24614
Attention: Mr. Jack C. Smith

To Lessee: Matewan Bank, FSB
P.O. Box 100
Second Ave. and Vinson Street
Williamson, West Virginia 25661
Attention: Mr. Lee Ellis

30. SUCCESSORS AND ASSIGNS. Each of the provisions of this agreement
----------------------
shall extend to, and shall, as the case may require, bind or inure to the
benefit of not only the Lessor and Lessee, but also their respective successors
and assigns, and any bank or other corporation with which Bank may be merged or
consolidated.

15
<PAGE>

IN WITNESS WHEREOF, Lessor and Lessee have executed this agreement by and
trough their duly authorized officers and caused their seals to be hereunto
affixed, upon the day and year first above written.

Signed, sealed, and delivered By:__________________
by the officer of Lessor in __________________
the presence of: Title

___________________________ Attest:______________
Unofficial Witness Secretary

Lessor
___________________________
Notary Public (CORPORATE SEAL)

(NOTARY SEAL)

My commission expires _____

Signed, sealed, and delivered By:__________________
by the officers of Lessee in __________________
the presence of: Title

___________________________ Attest:______________
Unofficial Witness Secretary

Lessee
___________________________
Notary Public (BANK/ASSOCIATION SEAL)

(NOTARY SEAL)

My commission expires _____

16
<PAGE>

"EXHIBIT A"
(TO BE ATTACHED LATER)

17
<PAGE>

"EXHIBIT B"
COMMENCEMENT DATE AGREEMENT
---------------------------

_____________________, __________________ COUNTY

THIS AGREEMENT made and entered into upon this 1st day of September,
------- ----------
1996, by and between K-va-t (Hereinafter referred to as "Lessor") and
-- -----------------
Matewan Bank, FSB (Hereinafter referred to as "Lessee").
- --------------------

WITNESSED: That whereas Lessor and Lessee entered into a lease agreement
(hereinafter referred to as "lease"), dated July 24 , 1996, for the use and
-------------- --
occupancy of the Premises therein described and located in the building occupies
by the Store operated by Lessor at Abingdon, Virginia and all conditions
--------------------------
for determination of the Commencement Date of the term of said lease have been
met.

NOW, THEREFORE, pursuant to the provisions of the Section 2 of said lease,
Lessor and Lessee mutually agree that the Commencement Date of the term of said
lease is September 1, 19__, and that said term of said lease shall expire at
------------
midnight Eastern Standard Time on August 31 , 2001, unless extended or earlier
----------------- ----------------
terminated as provided for in said lease.

IN WITNESS WHEREOF, Lessor and Lessee have executed this agreement by and
through their duly authorized officers and caused their seals to be hereunto
affixed upon the day and year first above written.

By:______________________ By:______________________

- -------------------------- -------------------------
(Title) (Title)

Attest:__________________ Attest:__________________
Secretary Secretary

Lessor Lessee
(Corporate Seal) (Corporate Seal)

18
<PAGE>

"EXHIBIT C"
RULES AND REGULATIONS
---------------------

1. Lessee shall keep open for business and operate the Banking Facility
during such days and hours as have been agreed upon in writing by Lessor and
Lessee under Schedule 1 of this Exhibit C and make no subsequent changes in
store days or hours without Lessor's prior written consent which consent shall
not be arbitrarily nor unreasonably withheld by Lessor.

2. The sidewalks and public portions of the store building such as
entrances, passages, vestibules, and aisles, shall not be obstructed or
encumbered by Lessee or used for any purpose other than ingress and egress to
and from the Premises.

3. No projections shall be attached by Lessee to the outside walls of the
store building without the prior written consent of Lessor.

4. No sign, advertisement, notice, or other lettering shall be exhibited,
inscribed, painted or affixed by Lessee on any part of the outside or interior
walls of the store building without obtaining the prior written consent of
Lessor. Signs on doors to the Premises shall, at Lessee's expense, be
inscribed, painted, or affixed by a sign maker approved by Lessor. In the event
of the violation of the foregoing by Lessee, Lessor may remove same without any
liability and may charge the expenses incurred by such removal to Lessee.
Lessee may display on the exterior of the Banking Facility temporary, tasteful
signs giving notice of holidays and such other information as is required to be
posted in the Banking Facility by any Regulatory Agency.

5. No display cases or other articles shall be put in front of or affixed
to any part of the exterior of the store building, nor placed in the interior of
the Store without the prior written consent of Lessor.

6. Lessee shall not in any way deface any part of the Premises or the
store building.

7. No cooking shall be done or permitted by Lessee in the Premises.

8. No part of the Premises shall be used for manufacturing, distribution,
or the storage of merchandise, or for the sale of merchandise, goods or property
of any kind at auction.

9. Lessee shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with shoppers in the Store.

19
<PAGE>

10. Neither Lessee, nor nay of Lessee's servants, employees, agents,
visitors, or licenses, shall at any timer bring or keep in the Premises any
inflammable, combustible or explosive fluid, or chemical substance other than
reasonable amounts of cleaning fluids or solvents required in the normal
operation of Lessee's business.

11. With the exception of daily money shipments and deliveries, the moving
in or out of any safes, freight, furniture, or bulky matter of any description
must take place during the hours which Lessor or its agent may determine from
time to time.

12. Lessor shall have the right to prohibit any advertising by Lessee
which, in Lessor's opinion, tends to impair the reputation of the Store or its
desirability as a Store for the public to shop, and upon written notice from
Lessor, Lessee shall refrain from or discontinue such advertising.

20
<PAGE>

SCHEDULE 1

EXHIBIT C
---------

DAYS AND HOURS BANKING FACILITY WILL BE OPEN FOR THE
CONDUCT OF BUSINESS

1. The Banking Facility will be open for the conduct of business on the days
and no less than the hours hereinafter specified:

Monday 10 a.m. - 7 p.m.
------------------------------
Tuesday 10 a.m. - 7 p.m.
------------------------------
Wednesday 10 a.m. - 7 p.m.
------------------------------
Thursday 10 a.m. - 7 p.m.
------------------------------
Friday 10 a.m. - 7 p.m.
------------------------------
Saturday 10 a.m. - 7 p.m.
------------------------------
Sunday to be determined by Banking Facility
---------------------------------------

2. The Banking Facility will be closed for business on the following holidays:

The Bank shall be closed for no more than those holidays observed by the
Banking Industry as set by the Federal Reserve System of the United States.

Note: If a holiday mentioned above is on a Sunday, then the Banking
-----
Facility may be closed for business on the immediately succeeding Monday.

The foregoing is hereby approved by LESSOR and LESSEE.

On behalf of LESSOR: On behalf of LESSEE:

- -------------------- --------------------
Title Title

Date________________ Date________________

<PAGE>

EXHIBIT 10.16
-------------
LEASE AGREEMENT
---------------

THIS INDENTURE made and entered into upon this _____ day of ______, 1996,
by and between K-VA-T Food Stores, Inc., a corporation duly created, organized
and existing under and by virtue of the Laws of the commonwealth of Virginia,
with its registered office located at 329 North Main St., Grundy, Virginia,
(hereinafter called "Lessor") of the first part, and Matewan Bank, FSB, a
federal savings bank incorporated under the laws of the United States, with its
registered office located at Second Avenue and Vinson Street, Williamson, West
Virginia, (hereinafter called "Lessee") of the second part,

WITNESSETH: That whereas Lessor presently operates a Food City Supermarket
(hereinafter referred to as the "Store") located at 377-C Hazard Road, Food City
Shopping Center, in the Town of Whitesburg, Letcher County, Kentucky; and

WHEREAS, Lessee desires to establish and operate banking and depository
facilities (hereinafter referred to as the "Banking Facility") in said Store on
terms and conditions hereinafter set forth; and

WHEREAS, Lessor desires that Lessee establish and operate such Banking
Facility in said Store on the terms and conditions hereinafter set forth:

1. LEASE OF SPACE. Subject to the terms and conditions of this lease
--------------
agreement (hereinafter referred to as "lease"), Lessor hereby leases and rents
to Lessee and Lessee hereby rents and leases from Lessor a space containing
approximately 745 square feet of floor space in the building occupied by the
Store (hereinafter referred to as the "store building") which space hereinafter
referred to as ("Premises") is designated "Bank" and outlined in red on the
diagram (floor plan) hereto attached, marked "Exhibit A" and made a part hereof
by reference. Lessee shall be granted ingress to and egress from said Premises
for Lessee, its officers, employees and customers, by and through the front
entrance, vestibules and sales area of the building occupied by the Store, and
Lessee shall have the right to install a night depository unit and automated
teller machine, the approximate locations of which are shown on said diagram
(floor plan).

1
<PAGE>

3. Rent. Lessee shall pay to Lessor as rent for the
----

2
<PAGE>

Premises and amount equal to Twenty-Four Thousand Dollars ($24,000) per annum
-------
for the original term of this lease, which rent shall be payable in equal
monthly installments of Two Thousand Dollars ($2,000) each, in advance,
------
commencing on the Commencement Date and continuing to be due on the first day
and not later than the fifth day of each calendar month during the term of this
lease. All rent shall be payable to Lessor at its registered office shown above
or as otherwise directed by Lessor.

3
<PAGE>

other public events; financial planning; estate planning; sale of insurance; and
travel planning and reservation services, provided that such rights do not
violate any terms and conditions or any exclusive rights granted by Lessor's
Landlord in the Prime Lease. Lessee's exclusive right hereunder to provide
retail banking and other depository services in the Store shall not limit or
restrict Lessor's right to make change,, cash checks, verity checks, arrange for
check verification, sell money orders, or to transact or conduct any other
commercial or financial activity or service which, in Lessor's sole discretion,
Lessor deems-necessary for the proper and adequate operation of the Store.
(b) In order to provide Lessee's customers with free and clear access to
the Banking Facility, Lessor shall not place any display case or other fixture
or articles within six (6) feed of the Banking Facility that would restrict free
and clear access to the Banking Facility.
(c) In the event that Lessee desires to include a night depository in the
operation of the Banking Facility, and said night depository is to be located in
an area outside the Banking Facility, then, in that event, Lessee shall acquire
written approval of Lessor regarding the proposed location of said night
depository prior to commencing any installation of said night depository. In
the event of the installation of a night depository it is agreed that Lessee
shall be responsible, at its sole cost and expense, for the installation,
maintenance, and operation of any such night depository, and the location of any
such night depository shall be deemed to be an appurtenance to the Premises and
a part of the Banking Facility for all purposes of this lease. The installation
of any such night depository shall be performed in accordance with the terms and
conditions of Section 8 hereof.
(d) If Lessee elects to include an automated teller machine in the
operation of the Banking Facility, Lessee shall be responsible, at its sole cost
and expense, for the installation, maintenance, and operation of any such
automated teller machine, and the location of any such automated teller machine
shall be deemed to be an appurtenance to the Premises and a part of the Banking
Facility for all purposes of this lease. The installation of any such automated
teller machine shall be performed in accordance with the terms and conditions of
Section 8 hereof. Lessee may make available to any one or more banking or
depository institutions, including savings and loan associations or credit
unions, the use of any such automated teller machine installed by Lessee, and
Lessor shall permit such other banking or depository institutions, including
savings and loan associations or credit unions, to share the use of any such
automated teller machine.
(e) Lessee shall have the right to use jointly with Lessor a sufficient
part of the parking area serving the building in which Premises are located for
the parking of vehicles of its employees and customers, and vehicles being used
in the normal course of Lessee's business, with the right of ingress to and
egress from said parking area. No additional rent shall be charged for use of
said parking area.

4
<PAGE>

(b) Lessee shall be solely responsible for providing security for the
Banking Facility, and acknowledges that Lessor is not an insurer for the Banking
Facility and that Lessor does not undertake

5
<PAGE>

6
<PAGE>

account of the Improvement Work or any work, services, materials relating
hereto. Lessee covenants and warrants unto Lessor that Lessee will discharge of
record, within ten (10) days following actual notice by Lessee, from whatever
source, of its filing, any mechanic's, or materialmen's or other similar lien
against the Premises, the store building or the land on which the store building
is located for work or material claimed to have been furnished to Lessee or the
Premises.
(d) Lessor shall have the right to approve the contractor or contractors,
as the case may be, selected by Lessee to perform the Improvement Work, but such
approval shall not be arbitrarily nor unreasonably withheld.
(e) Lessor shall have the right to inspect the construction of the
Improvement Work from time to time.
(f) The Plans and Specifications and the contract for the Improvement Work
may contain such other terms and provisions not in conflict with nor contrary to
this Section 8 as Lessee may elect.
(g) Lessee, at its sold cost and expense, shall furnish all improvements,
fixtures, equipment, and furnishings which it deems necessary or desirable for
the establishment and operation of the Banking Facility, and shall pay all costs
of improvement of the Premises necessary for the installation of such items.
Notwithstanding any attachment or affixation of the Banking Facility or any part
thereof to the Premises, or the manner, mode, extent, or nature of any such
attachment or affixation, the Banking Facility and each part thereof will be,
and shall at all times continue to be, personal property, and shall not at any
time become or be deemed to be fixtures or in any other manner a part of the
Premises or the store building. All permits, licenses and authorizations
required in connection with the Improvement work shall be obtained and paid for
by Lessee as the same are required.
(h) Lessee shall make no alterations or additions of any kind in or to the
Premises or the Banking Facility without first obtaining Lessor's written
consent, and all such work shall be subject to the provisions of this Section 8.
(i) In the event of disagreement between Lessor and Lessee as to whether
any construction complies with the Plans and Specifications or whether any
construction is complete and ready for use and occupancy, the disagreement shall
be determined by any architect selected by Lessee, representing Lessee, and any
architect selected by Lessor, representing Lessor. If said two architects
cannot agree, the two shall select a third person who shall also be an
architect, and the decision of the three, by a majority vote, shall terminate
the disagreement. All of said architects shall be licensed to practice
architecture in the state in which the store building is located. Each party
shall pay its architect and the expense of the third architect shall be shared
equally.
(j) Times stated in this Section 8 shall not be of the essence of the
contract so long as the work or obligation concerned is carried on with
reasonable diligence and without unreasonable daily delays (caused by acts of
God or material shortages beyond

7
<PAGE>

8
<PAGE>

9
<PAGE>

10
<PAGE>

11
<PAGE>

of such award is not hereby assigned to Lessor and Lessee will be entitled to
the amount paid for Lessee's loss of profits and for the moving of Lessee's
property.

12
<PAGE>

(c) Notwithstanding any other provision of this lease, in the event the
Lessee or its successors or assignees shall become insolvent, bankrupt, or make
an assignment for the benefit of

13
<PAGE>

24. CAPTIONS. Section captions used in this lease are for the convenience
--------
of reference only and do not constitute a substantive part of this lease.

14
<PAGE>

To Lessor: K-VA-T Food Stores, Inc.
P.O. Box 769
Grundy, Virginia 24614
Attention: Mr. Jack C. Smith

To Lessee: Matewan Bank, FSB
P.O. Box 100
Second Ave. and Vinson Street
Williamson, West Virginia 25661
Attention: Mr. Lee Ellis

15
<PAGE>

Signed, sealed, and delivered By:__________________
by the officer of Lessor in __________________
the presence of: Title

___________________________ Attest:______________
Unofficial Witness Secretary

Lessor
___________________________
Notary Public (CORPORATE SEAL)

(NOTARY SEAL)

My commission expires _____

Signed, sealed, and delivered By:__________________
by the officers of Lessee in __________________
the presence of: Title

___________________________ Attest:______________
Unofficial Witness Secretary

Lessee
___________________________
Notary Public (BANK/ASSOCIATION SEAL)

(NOTARY SEAL)

My commission expires _____

16
<PAGE>

"EXHIBIT A"
(TO BE ATTACHED LATER)

17
<PAGE>

"EXHIBIT B"
COMMENCEMENT DATE AGREEMENT
---------------------------

_____________________, __________________ COUNTY

NOW, THEREFORE, pursuant to the provisions of the Section 2 of said lease,
Lessor and Lessee mutually agree that the Commencement Date of the term of said
lease is September 1,19 __, and that said term of said lease shall expire at
------------
midnight Eastern Standard Time on August 31 , 2001, unless extended or earlier
----------------- ----------------
terminated as provided for in said lease.

By:______________________ By:______________________

______________________ ______________________
(Title) (Title)

Attest:__________________ Attest:__________________
Secretary Secretary

Lessor Lessee
(Corporate Seal) (Corporate Seal)

18
<PAGE>

"EXHIBIT C"
RULES AND REGULATIONS
---------------------

3. No projections shall be attached by Lessee to the outside walls of the
store building without the prior written consent of Lessor.

6. Lessee shall not in any way deface any part of the Premises or the
store building.

7. No cooking shall be done or permitted by Lessee in the Premises.

8. No part of the Premises shall be used for manufacturing, distribution,
or the storage of merchandise, or for the sale of merchandise, goods or property
of any kind at auction.

9. Lessee shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with shoppers in the Store.

19
<PAGE>

20
<PAGE>

SCHEDULE 1

EXHIBIT C
---------

DAYS AND HOURS BANKING FACILITY WILL BE OPEN FOR THE
CONDUCT OF BUSINESS

1. The Banking Facility will be open for the conduct of business on the days
and no less than the hours hereinafter specified:

2. The Banking Facility will be closed for business on the following holidays:

The Bank shall be closed for no more than those holidays observed by the
Banking Industry as set by the Federal Reserve System of the United States.

Note: If a holiday mentioned above is on a Sunday, then the Banking
-----
Facility may be closed for business on the immediately succeeding Monday.

The foregoing is hereby approved by LESSOR and LESSEE.

On behalf of LESSOR: On behalf of LESSEE:

- -------------------- ----------------------
Title Title

Date________________ Date________________

21
<PAGE>

COMMENCEMENT LETTER

Reference is made to that certain Lease Agreement dated the 15 th day of
October, 1996, by and between K-VA-T FOOD STORES, INC., as Landlord, and Matewan
Bank, FSB, as Tenant.

WHEREAS Landlord leased to Tenant certain store space located at 377-C
-----
Hazard Road, Food City Shopping Center in the Town of Whitesburg , County of
- -------------------------------------- -----------
Letcher, Commonwealth of Kentucky, and;
- ------- --------

WHEREAS the parties above desire to establish the date upon which said
Lease Agreement commenced, and;

WHEREAS the parties above desire to establish the final size and rental
payments for the Premises Leased in said Lease Agreement.

NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration recited in the above referenced Lease Agreement the following is
acknowledged and agreed to by Landlord and Tenant:

(1) The term of this lease shall be considered to have commenced on the 15th
----
day of December, 1996.
--------

(2) The final size of the Leased shall be established as 745 square feet with a
---
monthly rental of TWO THOUSAND DOLLARS, ($2,000.00), to be paid in accordance
-------------------- --------
with the terms and conditions recited in the above referenced Lease Agreement.

Landlord and Tenant have executed this letter affirming the above as of the
dates set forth below.

LANDLORD: K-VA-T FOOD STORES, INC. TENANT: Matewan Bank FSB

By:__________________________ By:_____________________
Its__________________________ Its:____________________
Date:________________________ Date:___________________

<PAGE>

EXHIBIT 10.17
-------------

LEASE AGREEMENT
---------------

THIS LEASE AGREEMENT is made and entered into this _____day of
____________, 1996, by and between FIRST UNION NATIONAL BANK OF VIRGINIA, a
national banking association, whose address is Attn: Corporate Real Estate
Division, 1420 Two First Union Center, Charlotte, North Carolina 20200-0340
("Landlord"), and MATEWAN BANCSHARES, whose address is P.O. Box 100, Williamson,
West Virginia ("Tenant").

NOW, THEREFORE, in consideration of the foregoing Premises, the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant,
intending to be legally bound, hereby agree as follows:

1. REPRESENTATIONS, PREMISES. Landlord, in consideration of the rentals
hereinafter reserved to be paid and of the covenants, conditions and agreements
to be kept and performed by Tenant, hereby leases, lets and demises to the
Tenant, and Tenant hereby leases and hires from Landlord that certain space,
hereinafter called the Leased Premises, consisting of approximately 2,600 square
feet on the second floor located in the building at 201 Suffolk Avenue,
Richlands, Virginia 24641.

2. TERM. The Term of this Lease shall begin on the 1st day of July, 1996,
(the "Commencement Date") and shall continue for TWO (2) years, ending on the
30th day of June, 1998, on which date the tenancy created hereunder shall
terminate without notice.

3. OPTION TO EXTEND TERM. Negotiable after one (1) year.

4. BASE RENT. In consideration for the use of the Leased Premises, Tenant
shall pay to Landlord without set off, counterclaim, or abatement of any nature
whatsoever, as Base Monthly Rent during the period July 1, 1996 through June 30,
1998, the sum of Two Thousand and 00/100 Dollars ($2,000.00), payable on the
first day of each month. ALL RENT CHECKS ARE TO BE MADE PAYABLE TO FIRST UNION
NATIONAL BANK AND MAILED TO FUNB/VA PROPERTIES, P.O. BOX 85080, RICHMOND,
VIRGINIA 23285-4066.

5. USE. The Leased Premises shall be occupied and used solely for
financial services including lending, annuities and insurance, etc., and for no
other purposes whatsoever.

6. UTILITIES AND OTHER SERVICES; REPAIRS. Landlord shall furnish on or
near the office space a reasonable amount of water, electricity, air
conditioning and heat for Tenant's use during ordinary business hours in a
manner customary to similar office buildings in the same locale. The heating
and air conditioning system in said building shall be operated only when
Landlord, in
<PAGE>

its sole judgment, considers that the weather requires it. Tenant agrees to and
shall keep all plumbing, electrical, and heating in good repair. In addition,
Tenant shall maintain and make all other repairs in or to the Leased Premises
and any equipment located therein.

(a) If the building is equipped with elevator(s), Landlord shall furnish
elevator service (self-service or otherwise) to all floors of the building
during ordinary business hours, but shall not be liable for damages nor shall
the rental hereinabove stipulated be abated for failure to furnish such service
when such failure is not due to Landlord's negligence.

(b) Tenant shall be responsible for its own janitorial services.

7. ALTERATIONS. Tenant shall accept the Leased Premises in "as is"
condition. Tenant shall make no alterations, additions or improvements to the
office space (such as subdividing partitions of installing walls, paneling,
bookshelves, floor covering, cabinets, and similar items) without obtaining the
prior written consent of Landlord. Such consent shall not be unreasonably
withheld in the case of minor alterations to conform the office space to the use
of Tenant. Tenant shall bear the cost and be solely responsible for the
property damage or bodily injury resulting from any alterations which are
permitted by Landlord hereunder. When made, such additions or improvements made
by Tenant (except only moveable office furniture, book shelves and similar
equipment) shall become the property of Landlord and shall remain upon and be
surrendered with the office space at the termination of this Lease or upon
Tenant's vacating said premises. Landlord may, at its option, however, require
Tenant to remove any such additions or improvements which Landlord designates in
written notice, delivered to Tenant specifying the items to be removed. Upon
receipt of such notice Tenant shall complete the removal of the designated items
not later than the date of the expiration or earlier termination of this Lease
or five (5) days after receiving such notice, whichever is later. Tenant agrees
to and shall promptly reimburse Landlord for any expenses which Landlord incurs
in connection with removing such items (if Tenant fails to do so) and restoring
the office space to its original condition. Tenant, at its sole cost and
expense, shall comply with all applicable laws, rules and regulations relating
to the Leased Premises.

8. FIRE AND OTHER CASUALTY. Landlord covenants and agrees to keep the
said building insured against loss by fire, with extended coverage, along with
any and all contents being the property of Landlord. In no event shall Landlord
be liable for fire and extended coverage insurance covering the property of
Tenant located in the Leased Premises. Tenant covenants and agrees to keep the
said personal property owned by Tenant insured against loss by fire, with
extended coverage, along with any and all contents being the property of the
Tenant. If the Leased Premises are damaged by fire or any other casualty
covered under Landlord's insurance policy, Landlord agrees to repair such
damage, provided
<PAGE>

if such damage deprives Tenant of the use and occupancy of more than half of the
leased space for a period grater than ninety (90) days, then either Landlord or
Tenant shall have the option, exercisable within thirty (30) days after the date
such damage occurs, to terminate this Lease by written notice to the other,
effective as of a date not less than thirty (30) days after the date such notice
is mailed to such party.

9. INDEMNITY. Tenant shall indemnify, defend and save Landlord harmless
against and from any and all claims or causes (whether groundless or otherwise)
by or on behalf of any person, firm or corporation for personal injury or
property damage occurring in the office space or building, or upon the parking
lot or any other facility or appurtenance used in connection with the office
space occasioned in whole or in part by any of the following: (a) any act or
omission on the part of Tenant or any employee (whether or not acting within the
scope of employment), agent, invitee or guest, assignee or subtenant; (b) any
misuse, neglect or unlawful use of the office space, the building or any of its
facilities; (c) any breach, violation or non-performance of any undertaking of
Tenant under this Lease; or (d) anything growing out of the use and occupancy of
the office space by the Tenant or anyone holding or claiming to hold through or
under Tenant.

10. PERSONAL PROPERTY. All personal property of any kind or description
whatsoever in or near the office space, building or parking lot, shall be at the
Tenant's sole risk, and the Landlord shall not be liable for any damage done to
or loss of such personal property. Landlord shall not be liable for damage or
loss suffered by the business or occupation of the Tenant arising from any act
or omission of co-tenants or other occupants of or visitors to the building, the
employees or agents of Landlord or of other persons. Neither shall Landlord be
liable for such personal property loss or damage due to the bursting,
overflowing or leaking of water, sewer or steam pipes, or from the heating or
plumbing fixtures, or from electric wires, or from gas or odors, or caused in
any other manner whatsoever.

11. TAXES. Landlord shall make timely payment of all real property (ad
valorem) taxes and assessments levied against the office space. Tenant shall
make timely payment of all taxes and assessments levied against Tenant's stock
of merchandise, furniture, equipment, supplies and other like property incident
to Tenant's occupancy of the office space, and of all privilege and business
licenses, taxes and similar charges for which Tenant is primarily responsible.
Tenant's obligation to pay taxes and assessments shall include (but shall not be
limited to) those assessed against trade furnishings, fixtures and equipment
which Tenant may be privileged to remove upon termination of this Lease.

12. INSURANCE.

(a) Tenant shall be responsible for keeping all furniture,
<PAGE>

fixtures, equipment and other property incident to Tenant's use of the office
space insured against loss or damage by fire, and shall hold Landlord harmless
against any liability for such loss.

(b) Tenant shall provide and keep in force, for the protection of Tenant
and Landlord, general public liability insurance against claims for property
damage, bodily injury or death upon or near the office space or near any other
facility used in connection with Tenant's occupancy of the office space in
amount of not less than $2,000,000 in respect to bodily injury or death to any
one person and for bodily injury or death to more than one person arising out of
one accident or disaster and property damage insurance with limits of not less
than $2,000,000. Tenant shall also carry, at its own expense, plate glass
insurance, where appropriate. Upon request by Landlord, Tenant shall furnish
Landlord satisfactory evidence of such coverage.

13. RIGHT OF ENTRY. Landlord shall have the right to enter the office
space at any time for the following purposes:
(a) To examine the premises.

(b) To make such repairs, additions, or alterations to the office space or
to the building as may be deemed necessary for the safety and comfort of the
occupants of the building or the preservation of said building (including the
right, during the progress of such alterations or repairs, to keep and store
within or near the office space, all necessary materials, tools, equipment,
etc.).

(c) To show to prospective tenants during the last six months of the lease
term.
(d) To show to prospective purchasers of the building.

(e) For any purpose which Landlord may deem necessary or useful to the
operation and maintenance of the building. The right of entry shall likewise
exist for the purpose of removing placards, signs, fixtures, alterations or
additions which do not conform to this Lease or the Rules and Regulations of the
building; and for Landlord to abate at Tenant's sole cost and expense any of
the Rules and Regulations herein referred to if Landlord shall see fit to do so.
No such entry shall render Landlord liable to any claim or cause of action for
loss or damage to property Tenant occasioned by such entry or shall in any
manner affect any other obligations and covenants of this lease.

14. EMINENT DOMAIN. In the event more than half of the building in which
the office space is located or more than half of such office space shall be
taken by any public authority under the power of eminent domain, or like power,
or upon sale of the building to any public authority under threat of a public
taking, this Lease shall terminate as of the date possession thereof shall be
required to be delivered to the appropriate authority. If this Lease is not
terminated as hereunder provided, Landlord shall make such structural repairs to
the building as may be appropriate and Tenant shall make such repairs to the
Leased Premises as may be appropriate. In no event may Tenant make any claim
against the public authority in connection with any taking if the result of
<PAGE>

such claim, if granted, would reduce Landlord's claim.

15. SIGNS AND ADVERTISING. Without the prior written consent of Landlord,
Tenant shall not permit the painting or display of any signs, placard, lettering
or advertising material of any kind on or visible from the exterior of the
office space.

16. ASSIGNMENT AND SUBLETTING. Without Landlord's prior consent, Tenant
shall not assign this Lease, or sublet any part of the office space, or
otherwise transfer any right or interest hereunder. If Landlord gives its
consent, such approval shall not release Tenant form Tenant's duties and
obligations hereunder and shall be limited only to the particular instance
described in the consent upon such terms and conditions and for such purposes as
stated therein.

17. REMOVAL OF EQUIPMENT AND FIXTURES. All trade furnishings, fixtures
and equipment in the office space which are supplied and installed at the sole
expense of Tenant shall remain Tenant's property. Tenant may remove these items
after termination of the Lease provided:

(a) Tenant is not in default hereunder at the time of termination;
(b) Removal of the items can be accomplished without major damage to the
office space or building; and
(c) Tenant immediately repairs or reimburses Landlord for the cost of
repairing all resulting damage or defacement to the office space or building due
to such removal.

18. SURRENDER OF POSSESSION. Tenant shall deliver up and surrender to
Landlord possession of the office space at the expiration or termination of this
Lease by lapse of time or otherwise in as good repair and condition as when
Tenant was first put into possession of the office space, reasonable wear and
tear alone excepted.

19. LATE FEES. Any installments of Base Monthly Rent or additional rent
remaining unpaid for five (5) days after the date when due shall be subject to a
late charge equal to five percent (5%) of such installment. In addition to the
forgoing, and without regard to whether this Lease has been terminated, Tenant
shall pay to Landlord all costs incurred by Landlord, including reasonable
attorneys' fees, disbursements and actual costs, with respect to any lawsuit or
action instituted or taken by Landlord to enforce the provisions of this Lease.

20. EVENTS OF AND REMEDIES UPON DEFAULT. As used in this Lease, the term
"Event of Default" shall mean any of the following:
(a) Tenant's failure to make payment of any rental installment within ten
(10) days after same is due and payable;
(b) Tenant vacates the Leased Premises, becomes bankrupt, makes an
assignment for the benefit of creditors or becomes insolvent;
<PAGE>

(c) Tenant's failure within ten (10) days after receipt of demand from
Landlord to fulfill any obligation imposed on Tenant by this Lease;
(d) A receiver is appointed for Tenant, Tenant's property or Tenant's
leasehold interest hereunder;
(e) Tenant's personal property used in connection with the office space is
taken on execution or similar process; or
(f) Failure of Tenant to discharge any mechanic's lien filed against the
Leased Premises as a result of any work performed at the Leased Premises for
Tenant within thirty (30) days after the filing thereof.

Upon the happening of an Event of Default, Landlord, at its option, may:
(a) Terminate this Lease;
(b) If default consist in whole or in part of Tenant's failure to expend
funds, make the necessary expenditures for the account of Tenant which
expenditures shall be deemed additional rent due and payable with the next
rental payment thereafter falling due;

(c) Terminate Tenant's right to possession of the office space without
terminating the term of its Lease, Tenant to continue to be liable to Landlord
hereunder for all rental and other charges payable hereunder for the remainder
of the lease term; or

(d) Exercise any other remedies available to Landlord at law, equity, or
otherwise.

21. WAIVER. Failure of the Landlord to insist, at any time or times, upon
strict performance of this Lease, or its failure to exercise any option
hereunder, shall not be construed as a waiver of such covenant or option, but
the same shall continue and remain in full force. Landlord's receipt of rent,
with knowledge of Tenant's default, shall not be deemed a waiver of such
default, and no waiver of any provision hereof shall be deemed to have been made
unless expressed in writing and signed by Landlord. If Tenant makes any payment
of amount less than due hereunder, Landlord may without notice accept the same
as payment on account and Landlord shall not be bound by any notation on any
check involving such payment or any statement in any accompanying letter or
other writing. The receipt by Landlord of any rent or any other sum of money or
any other consideration paid by Tenant after the termination in any manner of
the term herein granted, or after the giving by Landlord of any notice as
provided herein to effect such termination, shall not reinstate, continue, or
extend the term herein granted or destroy, or in any manner impair the efficacy
of any such notice of termination as may have been given hereunder by Landlord
to the Tenant prior to the receipt of any such sum or money or other
consideration, unless so agreed to in writing and signed by the Landlord. The
delivery of the keys to the office space to any officer or employee of Landlord
shall not operate as a termination of this Lease or as a surrender of the office
space. Waiver by Landlord of any covenant or agreement set forth in this Lease
shall not be deemed to be a waiver of any subsequent breach or any other
covenant or agreement of the Lease. No act or conduct
<PAGE>

of any nature or character on the part of Landlord, its agent, representative or
employee, other than by an agreement in writing signed by Landlord, shall be
construed as a waiver of the provisions set forth herein, irrespective of any
circumstances existing at the time of any such acts or conduct.

22. COST AND COUNSEL FEES. To the extent permitted by law, Tenant shall
pay all costs and reasonable attorney's fees incurred by Landlord in the
enforcement of this Lease arising out of any default on the part Tenant.

23. POSSESSION. (a) Early possession. If the office space is ready for
occupancy prior to the date set forth above. Tenant may elect (but shall not be
required) to accept possession before that day, in which event the period of
early possession shall be added to the term of this Lease and the rental for
the office space shall be added to the term of the Lease and the rental for the
office space shall begin immediately. (b) Delayed possession. If the office
space is not ready for occupancy and possession is not tendered or delivered to
Tenant until after the date set forth above, the term of this Lease shall begin
on the date when said office space is ready and possession is tendered or
delivered and the rental shall be abated proportionately.

24. NOTICE. Any notice or demand which under the terms of this Lease or
by reason of any law must or may be given or made shall be in writing and may be
given or mad by mailing same by registered or certified mail, to the Landlord at
Barnes, Morris, Pardoe & Foster Management Services, LLC, 1150 18th Street,
N.W., Suite 1050, Washington, D.C. 20036, Attention: Jennifer A. Redmond, and to
Tenant, at the address on Lease. Either party, however, may designate in
writing such new or other address to which such notice or demand shall
thereafter be made or mailed. Any notice given hereunder by mail shall be
deemed delivered when deposited in a United States post office box, postage
prepaid.

25. MECHANIC'S LIEN. Tenant shall not do or suffer anything to be done
wherby the land or building of which the office space is a part may be
encumbered by any mechanic's or materialman's lien. Whenever and as often as
any mechanic's lien is filed against said land or building purporting to be for
labor or material furnished or to be furnished to the Tenant, Tenant shall
discharge same of record within ten (10) days after the date of filing. Notice
is hereby given that Landlord shall not be liable for any labor or materials
furnished or materialman's lien or other security interest of any kind
whatsoever for any such labor or materials shall attach to or affect Landlord's
interest in and to the land or building of which the office space herein leased
to Tenant is a part.

26. REMEDIES CUMULATIVE. The remedies given to Landlord herein are
cumulative and not alternative and are in addition to any other rights Landlord
may have at law or in equity or
<PAGE>

otherwise.

27. BINDING EFFECT. The covenants and agreements contained herein shall
apply to and inure to the benefit of and be binding upon the parties hereto,
their respective successors and assigns.

28. CONTRACT MADE. Tenant acknowledged that none of Landlord's agents,
employees, or other representatives, have the power or authority to modigy or
accept a surrender of this lease, and that such power and authority is rested
solely in the officers of the Landlord. Landlord has made no representations or
promises in respect to the office space except those contained herein, and
those, if any, contained in some written communication to Tenant signed by an
officer of Landlord.

29. QUIET ENJOYMENT. Provide Tenant has performed all of the terms,
covenants, agreements, and conditions of this Lease, including the payment of
Rental and all other sums due hereunder, Tenant shall peaceably and quietly hold
and enjoy the Leased Premises against landlord and all persons claiming by,
through or under Landlord, for the term herein described subject to the
provisions and conditions of this Lease.

30. HOLDING OVER. In the event that Tenant shall not immediately
surrender the Leased Premises on the date of expiration of the term hereof,
Tenant shall, by virtue of the provisions hereof, becomea a Tenant by the month
at a monthly rent equal to the greater of (a) the then fair market rental value
of the Leased Premises or (b) two (2) times the monthly rental in effect during
the last month of the term of this Lease, which said monthly tenancy shall
commence with the first day next after the expiration of the term of this
Lease. The Tenant as a monthly Tenant shall be subject to all of the conditions
and covenants of this Lease at least thirty (30) days written notice of any
intention to quit the Leased Premises, and Tenant shall be entitled to thirty
(30) days written notice to quit the Leased Premises, and Tenant shall be
entitled to rent in advance or of the breach of any other covenant by the
Tenant, in which event Tenant shall not be entitled to any notice to quit, the
usual thirty (30) days notice to quit being hereby expressly waived.
Notwithstanding the foregoing provisions of this Paragraph 30, in the event that
Tenant shall hold over after the expiration of the term of this Lease, then at
any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant
hereunder, Landlord at its option, may forthwith re-enter and take possession of
the Leased Premises without process, or by any legal process in force in the
jurisdiction in which the Leased Premises are located.

31. RIGHT OF TERMINATION. Should Landlord sell or transfer the ownership
of the building, Landlord shall have the right to terminate this Lease, subject
to the terms and conditions hereinafter act forth. Landlord may exercise such
right by delivering notice to Tenant at least one-hundred twenty (120) days
<PAGE>

prior to the termination date. If Landlord elects to terminate the Lease in
accordance with this Section 31, Tenant shall not be entitled to receive any
cancellation fee or other compensation from Landlord, and Tenant shall not be
obligated to pay any termination fee to Landlord.

32. ENTIRE AGREEMENT. This Lease includes all of the understandings and
agreements of the parties, and its terms shall not be changed or varied except
in writing signed by both parties.

IN WITNESS WHEREOF, this lease is duly executed by Landlord and Tenant.

WITNESS/ATTEST: TENANT: MATEWANBANC
SHARES

______________________ _________________________
By: Dan R. Moore
Its: President

WITNESS/ATTEST: LANDLORD: FIRST UNION
NATIONAL BANK OF VIRGINIA

______________________ _________________________
By: William S. Transou
Its: Vice President

<PAGE>

EXHIBIT 10.18
-------------

LEASE
-----

THIS AGREEMENT OF LEASE ("Lease") is made and entered into this ________ day of
- -----------------------
___________, 1996, by and between PARKWAY PLAZA ASSOCIATES, a Tennessee Limited
------------------------
Partnership ("Landlord") and MATEWAN BANK, FSB, a federal savings bank
-----------------
("Tenant").

W I T N E S S E T H:

1. Demised Premises. Landlord, for the term and subject to the provisions
----------------
and conditions hereof, leases to Tenant, and Tenant rents from Landlord, certain
space (the "Demised Premises") containing 1400+/- rentable square feet, as shown
-------
on the plot plan provided by Frank M. White and included on Exhibit A attached
hereto and made a part hereof, in the building known as Building __________ (the
"Building") located in a shopping center situate on SR 114 in the City of
Prestonsburg, Kentucky, and a 25' right of way adjacent to the Building for use
by the Tenant for its drive through facility, all of which is shown on Exhibit A
("Shopping Center") and the legal description of which is described on Exhibit B
attached hereto and made a part hereof, together with rights of ingress and
egress thereto, and with the right in common with others to use, to the extent
applicable, the common areas and to pass over and park on that portion of
Shopping Center owned by Landlord and designated by the Landlord for parking on
Exhibit A.

2. Lease Term. The lease term (the "Lease Term") shall commence on the
----------
commencement date (the "Commencement Date") which shall be the earlier of (a)
the date Tenant opens for the transaction of business, or (b) ninety (90) days
following the date of this Lease and shall continue for a period of three (3)
years thereafter unless extended or sooner terminated as provided herein. Upon
actual determination by Landlord and Tenant of the Commencement Date and,
consequently, the Lease Term, Landlord and Tenant shall confirm in writing the
Commencement Date and the termination date of the Lease and Tenant's acceptance
of the Demised Premises in the form attached hereto as Exhibit C. Landlord
shall deliver possession of the Demised Premises prior to the Commencement Date
to Tenant to permit Tenant to make the initial improvements. No rent of
additional rent shall be charged prior to the Commencement Date.

Tenant is granted the right and option (the "Renewal Option") to extend the
term of this Lease for five (5) additional periods of three (3) years, and, if
such renewal is effectively exercised, such renewal term (the "Renewal Term")
shall commence upon the expiration of the previous term of this Lease, provided,
that:

1
<PAGE>

a. Such option must be exercised, if at all, by written notice from Tenant
to Landlord given at least thirty (30) days prior to the expiration of the then
current term; and

b. At the time of exercising such option, this Lease shall be in full
force and effect and there shall exist no default by Tenant which remains
uncured beyond any applicable period of grace.

In the event the foregoing option is effectively exercised, all the terms
and conditions contained in this Lease shall continue to apply.

3. Rent.
----
a. Initial Term. Tenant agrees to pay to Landlord a fixed rent for the
------------
Demised Premises during the initial term of this Lease the sum of Twelve
Thousand Dollars ($12,000.00) per annum, such rental to be paid in advance
without demand on the first day of each and every month in twelve (12) equal
monthly installments of One Thousand Dollars ($1,000.00) per month. The first
monthly payment of rent shall include any prorated rental for the period from
the Commencement Date of the Lease Term to the first day of the first full
calendar month in the Lease Term. Rent will be made payable to Parkway Plaza,
537 Market St. Suite 400, Chattanooga, Tennessee 37402.

b. Extended Terms. The yearly rental to be paid during each extended term
--------------
of this Lease shall be adjusted to reflect changes in the cost of living in the
manner hereinafter set forth. As used herein, Price Index shall mean the
Consumer Price Index, All Urban Consumers (CPI-U) [1982-84=100] (All Cities),
as complied and published by the Bureau of Labor Statistics of the United States
Department of Labor. In the event the Price Index should be computed on a
different basis, appropriate adjustments shall be made for the purpose of the
computations hereunder. If the Department of Labor should discontinue
publishing the Price Index, then a comparable index published by another branch
or department of the federal government or by a recognized financial institution
shall be used as the basis for such adjustments. The yearly rental for each
extended term of this Lease shall be determined by multiplying $12,000 by the
quotient resulting from the division of the index number for the month of the
expiring term by the corresponding index number for the month in which
"Commencement Date" begins.

4. Use of Demised Premises. Tenant covenants and agrees to use and occupy
-----------------------
the Demised Premises for the operation of a federal savings bank and other uses
incidental thereto.

5. Repairs, Alterations and Improvements. Tenant shall, at its own cost
-------------------------------------
and expense, make the initial improvements to the Demised Premises which are
described on Exhibit D attached hereto.

Tenant shall, throughout the term of this Lease and any extensions or
renewals thereof, keep the Demised Premises

2
<PAGE>

(including the interior surface of the exterior walls and the exterior and
interior portions of all windows, doors, and plate glass) in as good a repair
and condition as the same are in upon the commencement of this Lease, reasonable
wear and tear and damage caused by fire or other casualty excepted. Landlord
shall throughout the term of this Lease and any extensions or renewals thereof,
maintain and cause to be kept in good repair the foundation, the roof,
structural soundness of the floor, the exterior walls of the Building (excluding
the interior surface of the exterior walls and excluding the exterior and
interior portions of all window, doors and plate glass), the exterior water,
sewage and gas and electrical services up to the point of entry to the Demised
Premises caused by the failure to maintain the exterior and structural
components shall not be the responsibility of the Tenant. Tenant shall be
responsible for providing all repairs and replacements to the plumbing,
electrical and heating and air conditioning system for the Building. Landlord
shall at its expense put the heating and air conditioning system in proper
working order before delivery to Tenant.

Tenant shall have the right, at its own expense (subject to the prior
written consent of Landlord for substantial improvements), to make any
additional improvements, repairs or alterations to the Demised Premises which it
deems advisable so long as such improvements, repairs or alterations shall not
lessen the value of the Demised Premises or weaken the structural strength of
the Building. Tenant shall keep the Demised Premises free and clear of all
liens of contractors, materialmen, laborers and suppliers with whom it shall
contract for the furnishing of goods and services for the Demised Premises and
shall indemnify and save harmless Landlord from any claims resulting therefrom.
Any improvements made by Tenant which become affixed to the Demised Premises
shall become a part thereof and shall become and remain the property of Landlord
upon the termination of this Lease.

6. Completion of Demised Premises. Tenant agrees to accept possession of
------------------------------
the Demised Premises in an "AS IS" condition. Tenant shall be responsible for
all improvements to be made to the Demised Premises to enable Tenant to conduct
its business.

7. Common Area Maintenance. Landlord shall be responsible for the prompt
-----------------------
maintenance of all common areas of the Shopping Center including, but not
limited to, cleaning, lighting, removal of snow and ice, maintenance of
landscape areas, resurfacing, stripping and general maintenance. Tenant agrees
to pay Landlord as additional rental in the manner set forth in paragraph 9 its
proportionate share, based on square footage, of the cost of keeping and
maintaining the common areas, including a fifteen percent (15%) administrative
fee based on actual maintenance expense to be paid Landlord. Notwithstanding
anything set forth in this Lease, the common area maintenance fee paid shall not
increase by more than ten percent (10%) over the common area maintenance fee
paid in the prior year. Upon request of Tenant, Landlord agrees to

3
<PAGE>

exhibit to Tenant true copies of paid invoices and statements and the
calculation of the common area maintenance fee.

8. Taxes and Insurance. During the term of this Lease, Tenant agrees to
-------------------
pay and reimburse to Landlord as additional rental the amount of Tenant's
proportionate share of ad valorem real estate taxes, special assessments and
improvements liens levied against the Demised premises as assessed as completed.
Further, Tenant agrees to pay its proportionate share of the annual premium cost
of fire and extended coverage insurance on the Demised Premises and public
liability insurance on the common areas of the Shopping Center. Upon request of
Tenant, Landlord agrees to exhibit to Tenant true copies of paid tax statements
and insurance premium statements as evidence of charges payable by Tenant. In
the event that taxes, insurance or other charges payable by Tenant under this
paragraph are assessed against the entire Shopping Center rather than the
Demised Premises, Tenant agrees to pay the portion of the total amount which is
equal to the percentage of which the total square foot floor area of all store
buildings covered by such assessment of premium charge.

9. Payment of Taxes, Insurance and Common Area Maintenance Fees. For each
------------------------------------------------------------
calendar year and partial lease year, the additional rental provided for in
paragraphs 7 and 8 herein shall be estimated by Landlord, provided to Tenant and
shall be paid by Tenant, in advance, in monthly installments on the first day of
each calendar month. Subsequent to the end of each calendar or partial year,
Landlord shall furnish Tenant with a statement of the actual amount of Tenant's
proportionate share of such costs and expenses for such period. If the total
amount paid by Tenant under paragraphs 7 and 8 for any calendar year shall be
less than the actual amount due from Tenant for such year as shown on such
statement, Tenant shall pay to Landlord the difference between the amount paid
within thirty (30) days after the furnishing of each such statement, provided,
however, in no event shall the common area maintenance fee exceed $200 per
month; and, if the total amount paid by Tenant hereunder for any such calendar
year shall exceed such actual amount due from against subsequent installments
due form Tenant to Landlord or, at the expiration of this Lease, repaid to
Tenant.

10. Inspection; Access. Landlord and its agents or other representatives
------------------
shall be permitted to enter the Demised Premises at reasonable times upon at
least twenty-four (24) hours advance notice to Tenant (i) to examine, inspect
and protect the Demised Premises and the Building and (ii) during the last three
(3) months of the original or any renewal term, to show it to prospective
tenants.

11. Surrender of Demised Premises. Tenant shall, at the end of the Lease
-----------------------------
Term, or any extension thereof, promptly surrender the Demised Premises in good
order and condition and in conformity with

4
<PAGE>

the applicable provisions of this Lease, excepting only reasonable wear and
tear.

12. Quiet Enjoyment. Landlord warrants that it is the owner of the
---------------
Demised Premises hereby leased and that Tenant upon paying the rent and
performing the covenants on its part to be kept and performed, as herein
contained, shall and may peaceably and quietly hold, use and enjoy the Demised
Premises during the term of this Lease.

13. Eminent Domain. If the Demised Premises (or the use, occupancy or
--------------
access to or of the Demised Premises) shall be taken or condemned by any
governmental or quasi-governmental authority for any public or quasi-public use
or purpose (including sale under threat of such a taking), or if the Landlord
elects to convey title to the condemnor by a deed in lieu of condemnation, or if
all or any portion of the Demised Premises are so taken, condemned or conveyed
and, as result thereof, in Tenant's reasonable economic judgment, the Demised
Premises cannot be used for Tenant's permitted use as set forth herein, then
this Lease shall cease and terminate as of the date when title vests in such
governmental or quasi-governmental authority and the Fixed Rent and Additional
Rent shall be abated on the date when such title vests in such governmental or
quasi-governmental authority.

14. Casualty Damage. In the event of damage to or destruction of the
---------------
Demised Premises caused by fire or other casualty, or any such damage or
destruction to the Building or the facilities necessary to provide services and
normal access to the Demised Premises in accordance herewith, Landlord shall
undertake to make repairs and restorations with reasonable diligence as
hereinafter provided, unless this Lease has been terminated by Landlord or
Tenant as hereinafter provided or unless any mortgagee which is entitled to
receive d\casualty insurance proceeds fails to make available to Landlord a
sufficient amount of such proceeds to cover the cost of such repairs and
restoration. If (i) the damage is of such nature or extent that, in Landlord's
and Tenant's reasonable judgment, more than ninety (90) days would be required
(with normal work crews and hours) to repair and restore the part of the Demised
premises or building which has been damage, or (ii) the Demised Premises or the
Building is so damaged that, in Landlord's reasonable judgment, it is
uneconomical to restore or repair the Demised Premises or the Building, as the
case may be, or (iii) less than one (1) year then remains on the current Lease
Term, Landlord shall so advise Tenant promptly, and either party, in the cases
described in clauses (i) and (iii) above, or Landlord, in the case described in
clause (ii) above, within thirty (30) days after any such damage or destruction
shall have the right to terminate this Lease by written notice to the other, as
of the date specified in such notice, which termination date shall be no later
than thirty (30) days after the date of such notice.

In the event of fire or other casualty damage, provided this

5
<PAGE>

Lease is not terminated pursuant to the terms of this paragraph and is otherwise
in full force and effect, Landlord shall proceed diligently to restore the
Demised Premises to substantially its condition prior to the occurrence of the
damage. Landlord shall not be obligated to repair or restore andy alterations,
additions, fixtures or equipment which Tenant may have installed (whether or not
Tenant has the right or the obligation to remove the same or is required to
leave the same on the Demised Premises as of the expiration or earlier
termination of this Lease) unless Tenant in a manner satisfactory to Landlord,
assures payment in full of all costs as may be incurred by Landlord in
connection therewith.

Tenant shall, at its sole expense, insure the value of its leasehold
improvements, fixtures, equipment and personal property located in or on the
Demised Premises. If there are any such alterations, fixtures or additions and
Tenant does not assure or agree to assure payment of the cost of restoration of
repair as aforesaid, Landlord shall have the right to restore the Demised
Premises to substantially the same conditions as existed prior to the damage
excepting such alterations, additions or fixtures.

The validity and effect of this Lease shall not be impaired in any way by
the failure of Landlord to complete repairs and restoration of the Demised
Premises or of the Building within ninety (90) days after commencement of the
work, even if Landlord had in good faith notified Tenant that the repair and
restoration could be completed within such period, provided that Landlord
proceeds diligently with such repair and restoration and provided, further, that
in the event andy such repairs delay Tenant from resuming its business at the
Demised Premises for more than one hundred twenty (120) days after the date of
casualty, for any reason, Tenant may terminate this Lease by giving written
notice thereof to Landlord. In the case of damage to the Demised Premises which
is of a nature or extent that Tenant's continued occupancy of all or a part of
the Demised Premises is substantially impaired to the extend that Tenant cannot
conduct its business therein, then the Fixed Rent and Additional Rent otherwise
payable by Tenant hereunder shall be equitably abated or adjusted from the date
of such casualty throughout the duration of such impairment.

15. Insurance; Indemnification; Waiver of Subrogation. Tenant covenants
-------------------------------------------------
and agrees to exonerate, indemnify, defend, protect and save Landlord, its
representatives and Landlord's managing agent, if any, harmless from and against
any and all claims, demands, expenses, losses, suits and damages as may be
occasioned by reason of (i) any accident or matter occurring on or about the
Demised Premises, causing injury to persons or damage to property (including,
without limitation, the Demised Premises), unless such accident or other matter
resulted in whole or in part from the negligence or otherwise tortious act of
Landlord or Landlord's agents, servants, invitees or employees, (ii) the failure
of Tenant fully and faithfully to perform the obligations and observe the
conditions of this Lease, and (iii) the negligence or otherwise tortious act of
Tenant, its agents, servants, invitees

6
<PAGE>

or employees. Tenant shall maintain in full force and effect, at its own
expense, comprehensive general liability insurance (including a contractual
liability and fire legal liability insurance endorsement) naming as an
additional insured Landlord and Landlord's managing agent, if any, against
claims for bodily injury, death or property damage in amounts not less than
$1,000,000.00. At or prior to the commencement Date, Tenant shall deposit
certificates evidencing the insurance coverage required by this paragraph and
shall deposit with Landlord renewals thereof within twenty (20) days of
Landlord's written request therefor. Said policy or policies of insurance or
certificates thereof shall have attached thereto an endorsement that such policy
shall not be cancelled without at least thirty (30) days prior written notice to
Landlord and Landlord's managing agent, if any, that no act or omission of
Tenant shall invalidate the interest of Landlord under said insurance and
expressly waiving all rights of subrogation as set forth below. At Landlord's
request, Tenant shall provide Landlord with a letter from and authorized
representative of its insurance carrier stating that Tenant's current and
effective insurance coverage complies with the requirements contained herein.

Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property covered by insurance
then in force, even if any such fire or other casualty occurrence shall have
been caused by the fault or negligence of the other party, or anyone for whom
such party may be responsible. Landlord and Tenant further agree to provide
such endorsements for said insurance policies required hereunder agreeing to the
waiver of subrogation as required herein.

Landlord covenants and agrees to exonerate, indemnify, defend, protect and
save Tenant, harmless from and against any and all claims, demands, expenses,
losses,suits and damages as may be occasioned by reason of (i) any accident or
matter occurring on or about the Building, causing injury to persons or damage
to property (excluding the Demised Premises), unless such accident or other
matter resulted from the negligence or otherwise tortious act of Tenant or
Tenant's agents, servants, invitees or employees, (ii) the failure of Landlord
fully and faithfully to perform the obligations and observe the conditions of
this Lease, and (iii) the negligence or otherwise tortious act of Landlord, its
agents, servants, invitees or employees. Landlord shall maintain in full force
and effect, at its own expense, comprehensive general liability insurance
(including a contractual liability and fire legal liability insurance
endorsement) against claims for bodily injury, death or property damage in
amounts not less than $1,000,000.00, and shall maintain in full force and effect
"all risk" property damage insurance in an amount equal to the full replacement
value of the Building, including the Demised Premises, as such may change from
time to time.

16. Signage. During the term of this Lease, Tenant shall be permitted to
-------
place a sign in the Shopping Center at the location to

7
<PAGE>

be determined in conformity with the sign specifications described on Exhibit E
and approved by the Landlord. Tenant shall remove said sign when the term of
this Lease shall terminate. Landlord consents to Tenant painting the canopy on
the building in which the premises are located-Matewan green.

17. Utilities. Tenant shall pay all charges for all utilities and
---------
services used by it and supplied by Landlord, public utility or public authority
or any other person, firm or corporation. Landlord shall maintain the necessary
mains, conduits, wires and cable to bring water, gas and electricity to the
Demised Premises.

18. Covenants of Landlord. Landlord warrants, represents and covenants as
---------------------
follows:

a. Landlord warrants that it is the owner of the Demised Premises and that
the same is free and clear of liens and encumbrances, except as provided in any
non-disturbance agreement delivered herewith.

b. Landlord has the authority to execute this Lease.
c. To the best of its knowledge, there are no known defects or structural,
electrical, plumbing, heating or air conditioning problems with the Demised
Premises.
d. To the best of its knowledge, the Demised Premises complies with all
federal, state and local laws, regulations, building and fire codes.

e. To the best of its knowledge, Landlord covenants and represents the
availability of all utilities, access, zoning or any other fact bearing upon the
suitability or adaptability of the Demised Premises for uses contemplated by the
Tenant.

f. Landlord covenants that it will no lease space in the Shopping Center,
during the term of this Lease, to another bank or financial institution, except
for the operation of a finance company.

19. Hazardous Substances. Tenant shall not, without Landlord's written
--------------------
consent, keep any substances designated as, or containing, components designated
as hazardous, dangerous, toxic, or harmful, and/or subject to regulation under
any federal, state or local law, regulation, or ordinance on or around the
premises, common areas, or Shopping Center. PROVIDED, HOWEVER, THE FOREGOING
SHALL NOT APPLY TO OR PREVENT SUCH CHEMICALS THAT TENANT MAY STORE AND USE ON
THE PROPERTY IN CONNECTION WITH TENANT'S USE OF THE PREMISES. TENANT MUST
DISCHARGE SAID CHEMICALS IN A LEGAL AND PROPER MANNER AND AGREES TO HOLD
LANDLORD HARMLESS FROM DAMAGE OR LIABILITY DUE TO ANY SUCH STORAGE USE OR
DISCHARGE. Tenant shall be fully and completely liable to Landlord for any and
all cleanup costs and any and all other charges, fees or penalties relating to
the use, disposal, transportation, generation or sale of hazardous substances on
the premises.

8
<PAGE>

20. Default: Termination of Lease. In the event that Tenant should
-----------------------------
default in the payment of the rent reserved herein, or in the event that Tenant
becomes bankrupt, insolvent or makes an assignment for the benefit of creditors,
or if a receiver is appointed for the business of Tenant, or in the event that
Tenant defaults in the performance of any of its other obligations hereunder,
then Landlord may, at its election, (1) terminate this Lease forthwith and/or
(2) reenter and repossess the Demised Premises without notice or demand therefor
other than as is hereinafter in this paragraph provided. Should default in the
payment of rent herein occur, then, in addition to its other rights hereunder,
Landlord may, at its election, declare all of the balance of the rental for the
remaining term of this Lease immediately due and payable. No default or breach
of any covenant hereunder shall be deemed to have occurred con the part of
Tenant until written notice of such default or breach shall have been given to
Tenant and the said Tenant shall have failed to remedy such default or breach
within fifteen (15) days after receiving said notice. Any waiver of any default
hereunder shall not be construed to be a waiver of the rights of Landlord in the
event of a subsequent or other default. Reentry and repossession by Landlord
shall not prejudice any remedies which Landlord may otherwise have under
appropriate state laws for the recovery of the arrears of rent or damages for
the breach of this Agreement.

In the event of a default by Landlord of its covenants and warranties set
forth herein, or Landlord defaults in the performance of its obligations
hereunder, or in the event the Food City Supermarket vacates its premises in the
Shopping Center, andy any of these events go unremedied within fifteen (15) days
after receiving notice thereof, Tenant may, at its option, terminate this Lease
forthwith.

21. Waste. Tenant shall not commit waste in or upon the Demised Premises,
-----
and, upon the expiration or termination of this Lease, will redeliver the
Demised Premises to Landlord in good condition and repair, subject only to
reasonable wear and tear.

22. Subordination; Non-Disturbance and Attornment. This Lease and the
---------------------------------------------
estate, interest and rights hereby created are subordinate to any mortgage now
or hereafter placed upon the Demised Premises, including, without limitation,
any mortgage on any leasehold estate, and to all renewals, modifications,
consolidations, replacements and extensions of same as well as any substitutions
therefor. Tenant agrees that in the event any person, firm, corporation or
other entity acquires the right to possession of the Demised Premises, including
any mortgagee or holder of any estate or interest having priority over this
Lease, Tenant shall, if requested by such person, firm, corporation or other
entity, attorn to and become the tenant of such person, firm, corporation or
other entity, upon the same terms and conditions as are set forth herein for the
balance of the Lease Term, provided, however, that Tenant receives a non-
disturbance agreement from any

9
<PAGE>

such mortgagee or holder of any estate or interest having priority over this
Lease. Tenant's obligation to subordinate its interest hereunder and to attorn
to such prior interest holder is expressly conditioned upon Tenant receiving the
foregoing non-disturbance agreement. Notwithstanding the foregoing, any
mortgagee may, at any time, subordinate its mortgage to this Lease, without
Tenant's consent, by notice in writing to Tenant, and thereupon this Lease shall
be deemed prior to such mortgage without regard to their respective dates of
execution and delivery, and, in that event, such mortgagee shall have the same
rights with respect to this Lease as through it had been executed prior to the
execution and delivery of the mortgage. Tenant, if requested by Landlord, shall
execute any such instruments in recordable form as may be reasonably required by
Landlord in order to confirm or effect the subordination or priority of this
Lease, as the case may be, and the attornment of Tenant to future landlords in
accordance with the terms of this paragraph.

Provided this Lease shall at all times be in full force and effect and
provided, further, that there shall exist no Event of Default by Tenant
hereunder, the right of possession by Tenant to possess and quietly enjoy the
Demised Premises and any or all of Tenant's rights under this Lease shall not be
affected in any way or disturbed by any lender doing business with Landlord in
the exercise of any such lender's rights under any formal agreements between
such lender and Landlord. Tenant shall not be named as a party defendant to any
foreclosure of any lien of any mortgage for the purpose of terminating this
Lease, and Tenant shall not, by an such foreclosure, be in any other way
foreclosed from its rights under this Lease.

In the event that any such lender or its successors or assigns comes into
possession of the Demised Premises or acquires the leasehold interest of
Landlord by foreclosure of any mortgage between any such lender and Landlord, or
by proceedings on any note executed by Landlord in favor of any such lender or
otherwise, this Lease shall not be terminated by any such foreclosure or
proceedings; and this Lease shall continue in full force and effect upon
Tenant's attornment, as provided herein, as a direct lease between Tenant and
any such lender upon the same terms, covenants, conditions and agreements set
forth in this Lease.

In the event that the Demised Premises or Landlord's leasehold interest
therein is sold or otherwise disposed of pursuant to any right or power
contained in any mortgage or any note t\between any such lender and Landlord, or
as a result of proceedings thereon, this Lease shall not be terminated or
affected thereby, and the purchaser of the Demised Premises or of Landlord's
leasehold interest therein or any person or entity acquiring title thereto shall
so acquire it, subject to this Lease; and this Lease shall continue in full
force and effect upon Tenant's attornment, as provided herein, as a direct lease
between Tenant and any party acquiring title to Landlord's leasehold interest
therein, as aforesaid, upon the same terms, covenants, conditions and agreements
set forth in this Lease.

10
<PAGE>

In the event that there is a current mortgagee or lender with an interest
in the Demised Premises which is superior to the interest of Tenant hereunder,
Landlord and Tenant hereby agree that on or before the date of execution of this
Lease by Tenant, Landlord shall deliver a non-disturbance agreement to Tenant in
a form and content reasonably acceptable to Landlord, executed by such mortgagee
or lender and expressly stating the agreement of such mortgagee or lender to
comply with the provisions of this paragraph.

23. Estoppel Certificate. Tenant shall, at any time and from time to
--------------------
time, execute, acknowledge and deliver to Landlord a statement in writing
certifying:
a. that this Lease is unmodified and in full force and effect (or if there
has been any modification thereof, that the same is in full force and effect
modified);
b. that Landlord is not in default under this Lease (or if any such
default exists the specific nature and extent thereof); and
c. that date to which rent and other charges have been paid in advance, if
any.

24. Brokers. The parties agree that Bill Gibson/Realty ("Broker") is the
-------
real estate broker who has brought the parties together in connection with the
transaction contemplated hereby (and Tenant shall be responsible for all
brokerage commissions to be paid to Broker according to the terms and conditions
set forth in a separate agreement between Tenant and Broker). Each party
represents and warrants to the other that they have not made any agreement or
taken any action which may cause anyone (other than Broker) and Frank White (to
be paid by the Landlord) to become entitled to a commission as a result of the
transaction contemplated by this Lease, and each will indemnify and defend the
other from any and all claims, actual or threatened, for compensation by any
such third person (other than Broker) by reason of such party's breach of their
representation or warranty contained in this paragraph.

25. Notice. Any notice to be given to Tenant hereunder may be given by
------
certified mail, return receipt requested, addressed to Tenant at:
Matewan Bank, FSB
4414 N. Mayo Trail
Pikeville, KY 41500

and such notice shall be deemed to have been given at the time of the positing
of such mail. Any notice to be given to the Landlord hereunder shall be given
in the same manner and to the same effect when addressed to Landlord in care of:

Fletcher Bright Company
537 Market Street, Suite 400
Chattanooga, TN 37402
Such addresses for notice may be changed from time to time by

11
<PAGE>

either party giving notice to the other party of such change as provided herein.

26. Liens. Tenant will keep the Demised Premises and the center free and
-----
clear of all mechanics' liens or other liens on account of work done for Tenant
or persons claiming under it.

27. Relationship of Parties. Nothing contained herein will be deemed or
-----------------------
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of rent, nor any other provision contained herein nor any
acts of the parties herein, will be deemed to create any relationship between
the parties hereto other than the relationship of Landlord and Tenant.

28. Non-Waiver or Defaults. No waiver of any default by Tenant to take
----------------------
any action on account of such default if such default persists or is repeated,
and no express waiver shall effect any default other than the default specified
in the express waiver, and that only for the time and to the extent therein
stated. The acceptance by Landlord of rent with knowledge of the breach of any
of the covenants of this Lease by Tenant shall not be deemed a waiver of any
such breach.

29. Binding Effect. The covenants and agreements herein contained shall
--------------
extend to and be binding upon the parties hereto, their respective heirs,
personal representatives, successors and assigns.

30. Marginal Titles. The marginal titles appearing in this Lease are for
---------------
reference only and shall no be considered a part of this Lease or in any way to
modify, amend or affect the provisions thereof.

31. Short Form Lease. the parties hereto agree that at or prior to the
----------------
commencement of the term, they will execute, acknowledge and deliver a short
form of Lease to the end that same may be recorded among the records of the
county in which the Demised Premises is located.

32. Governing Law. This Lease shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Kentucky.

33. Assignment and Subletting. Tenant shall no assign or sublet the
-------------------------
Demised Premises without the prior written consent of the Landlord, except that
Tenant may assign or sublet the Demised Premises to an affiliate of Bank and, in
the case of a Bank merger or asset purchase, to the surviving entity.

12
<PAGE>

IN WITNESS WHEREOF, the limited partnership, by its general partner, and
------------------
the corporate party, by its corporate officer thereunto duly authorized, hereto
have caused their names to be hereunto signed, all as of the day and date first
above written.

PARKWAY PLAZA ASSOCIATES,
a Tennessee Limited Partnership,

By______________________________
Its General Partner

MATEWAN BANK, FSB,
a federal savings bank,

By______________________________

Its______________________

13
<PAGE>

EXHIBIT A
(SEE PICTURE)

14
<PAGE>

EXHIBIT C
---------

FORM OF
CONFIRMATION OF LEASE TERM

THIS CONFIRMATION OF LEASE TERM is made this_______ day of
-------------------------------
________________, 199___, between PARKWAY PLAZA ASSOCIATES ("Landlord") and
------------------------
MATEWAN BANK, FSB ("Tenant").
- -----------------

Landlord and Tenant have entered into a certain Agreement of Lease (the
"Lease") dated ______________ ______, 1996, demising certain space consisting of
______________ rentable square feet in the Shopping Center. All of the
capitalized terms herein shall have the same respective definitions as set forth
in the Lease.

Pursuant to the provisions of paragraph 2 of the Lease, Landlord and
Tenant, intending to be legally bound hereby, acknowledge and agree that the
Commencement Date shall be the _____ day of __________, 199___, and that the
term of the Lease shall end on the _______ day of ___________, 199___, at 11:59
p.m., unless sooner terminated or extended, as provided in the Lease. As
supplemented hereby, the Lease shall continue in full force and effect.

IN WITNESS WHEREOF, the parties hereto have duly executed this Confirmation
------------------
of Lease Term this ______ day of ____________, 199___.

LANDLORD:
PARKWAY PLAZA ASSOCIATES

By___________________________
Its General Partner

TENANT:
MATEWAN BANK, FSB

By___________________________

Its_____________________

15
<PAGE>

EXHIBIT D
(SEE PICTURE)

<PAGE>

Exhibit 11

Computation of Earnings Per Share Available for Common Shareholders

For the Year
ended December 31

PRIMARY: 1996

Average shares outstanding 3,684,104

Impact of Treasury Shares 20,550
---------
Total 3,663,554
=========

Net Income $6,462,872
Less Preferred Dividends 1,236,446
---------
Net Income Available for Common Shareholders $5,226,426
==========
Net Income Per Share for Common Shareholders = $5,226,426 /
==========
3,663,554 =
$1.4266

<PAGE>

Exhibit 12

COMPUTATION OF RATIOS

NET INCOME PER SHARE AVAILABLE TO = NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS COMMON SHAREHOLDERS / AVERAGE
COMMON SHARES OUTSTANDING

CASH DIVIDEND PER SHARE = DIVIDENDS PAID / AVERAGE SHARE
OUTSTANDING

COMMON SHAREHOLDERS EQUITY PER SHARE = TOTAL SHAREHOLDERS' EQUITY
LESS PREFERRED EQUITY /
AVERAGE COMMON SHARES
OUTSTANDING

RETURN ON AVERAGE ASSETS = NET INCOME / AVERAGE ASSETS

RETURN ON AVERAGE SHAREHOLDERS' EQUITY = NET INCOME / AVERAGE
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)
<PAGE>

NON-PERFORMING ASSETS TO PERIOD END ASSETS = (NONACCRUAL LOANS
PLUS LOANS PAST DUE 90
DAYS OR GREATER PLUS OTHER
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

1996 Annual Report

[LOGO OF MATEWAN BANCSHARES, INC.]

[PHOTO OF GOLD EGG]

WHEN YOU FIND

GOLDEN

OPPORTUNITIES,

YOU HAVE TO

KNOW HOW TO

NUTURE, GROW AND

MULTIPLY THEM.

AT MATEWAN BANCSHARES,

WE KNOW.

TODAY, AS NEVER BEFORE,

GROWTH, PROFIT AND

INVESTMENT OPPORTUNITIES IN

WEST VIRGINIA, EASTERN KENTUCKY AND

WESTERN VIRGINIA ABOUND.

<PAGE>

MATEWAN BANCSHARES, INC. AND SUBSIDIARIES

Message From The President

- --------------------------------------------------------------------------------

TO OUR SHAREHOLDERS:

I am pleased to submit to you this annual report which
highlights the success of our company for 1996 as well
as other significant developments that are of
importance to our shareholders.

It is important to understand the expansion efforts and
the capital development activities that occurred during
the year before analyzing the financial results of the
operation. Many of the financial ratios which will be
presented in this letter and the following report have
been affected by these activities.
"THE MOST SIGNIFICANT
The most significant accomplishment during the year in
ACCOMPLISHMENT DURING terms of the overall financial impact on the company
was the completed acquisition of Bank One-Pikeville,
THE YEAR IN TERMS OF N.A. The transaction was finalized on March 15, 1996,
and added over two hundred million dollars to the
THE OVERAL FINANCIAL consolidated total assets of our company. This new
affiliate was renamed Matewan National Bank/Kentucky.
IMPACT ON THE COMPANY
This transaction was accounted for by using the
WAS THE COMPLETED purchase method of accounting. This was an important
acquisition because of the size of the transaction
ACQUISITION OF BANK relative to the size of our company. It immediately
moved our position in terms of market share from fourth
ONE-PIKEVILLE, N.A." in Pike County Kentucky, to second and from third to
first in the market area that includes the counties of
Boone, Logan and Mingo in West Virginia and Pike,
Floyd, Johnson and Martin counties in Kentucky.

A portion of the capital used to purchase the company
was raised through an offering of Cumulative
Convertible Preferred Stock with a dividend of 7.5%.
This offering involved the issuance of 805,000 shares
of stock with a par value of $25.00 and resulted in a
net capital infusion in the company of over
$18,000,000. This new class of stock trades on the
NASDAQ - Small Capitalization Market under the symbol
MATEP.

The Kentucky acquisition brought the total number of
banking affiliates operating under the Matewan
corporate structure to three. In addition to the
affiliate just discussed, the other subsidiaries are
identified as Matewan National Bank which is the West
Virginia operating affiliate and Matewan Bank, FSB,
which is a federal savings bank. It is chartered under
the Office of Thrift Supervision and operates in
Kentucky and Virginia. All of our offices operate and
market under the name of Matewan Banks.

Matewan Bank, FSB commenced operating in January of
1994 with a single office near Pikeville, Kentucky.
Additional offices have since opened in Paintsville and
Prestonsburg, Kentucky, and in Richlands, Virginia.
Additionally, through the end of 1996, we have opened
four new offices as Express banking offices in Food
City Stores located in South Williamson, Pikeville, and
Whitesburg, Kentucky, as well as in Abingdon, Virginia.
The Prestonsburg office was designed as an Express Bank
but is a stand alone unit. The Richlands, Virginia
office is located in the First Union Building and
features private banking with various loan, deposit,
investment and insurance products. Additional express
banking offices are planned for 1997.

The management of Matewan Bank, FSB expended a good bit
of their energy and resources during the year
positioning the company for future growth and
profitability. Four of the offices mentioned above were
built and opened during 1996. They feature quick
service and convenience for our customers. These
offices are designed to be very efficient and to
operate at a reduced overhead cost, relative to
traditional banking offices. These offices are
integrated into our central banking organization by
technology that includes a wide area network that
provides for centralized pricing and risk management.

The company has been extremely pleased with the initial
success of the federal savings bank affiliate. By the
end of 1996, this operation was reporting total assets
in excess of

1
<PAGE>

MATEWAN BANCSHARES, INC. AND SUBSIDIARIES

- --------------------------------------------------------------------------------

$60 million dollars. The fact that most of the
management and other support services are provided from
a centralized location allows these offices to become
profitable much quicker than traditional "brick and
mortar" offices.

The company ended the year with total assets of
$627,186,000. This total is up $226,152,000 for the
year. Approximately 84% of the increase can be
attributed to the Pikeville acquisition. The balance of
the growth occurred throughout the market and
principally in the Matewan Bank, FSB company.

"ONE IMPORTANT The total of deposits increased during the year from
$334,387,000 at the end of 1995 to $523,308,000 which
REQUIREMENT WHEN is an increase of $188,921,000 or 57% over 1995. The
total of loans outstanding increased from $228,568,000
THE COMPANY WAS EVAL- to $370,870,000 at the end of 1996 for an increase of
62%. Again, a significant amount of the increase in
UATING THE KENTUCKY deposits and loans resulted from the Pikeville
purchase.
ACQUISITION WAS THAT
Net income for the year was $6,462,000 after paying
THE TRANSACTION BE income taxes of $3,707,000. This compares to $5,220,000
and $2,983,000 respectively for 1995. The dividend on
STRUCTURED IN SUCH the preferred stock which was issued to finance the
Kentucky acquisition totaled $1,236,000 for the year,
A MANNER AS TO AVOID leaving net income of $5,226,000 available for common
shareholders.
DILUTING THE EARNINGS
Earnings per share available for common shareholders
OF OUR COMMON was $1.43 per share for 1996 compared to $1.42 per
share for 1995.
SHAREHOLDERS. IN
One important requirement when the company was
FACT, THE TRANSACTION evaluating the Kentucky acquisition was that the
transaction be structured in such a manner as to avoid
WAS ACCRETIVE." diluting the earnings of our common shareholders. The
earnings information that I have included demonstrates
that the company successfully accomplished this goal
and, in fact, the transaction was accretive to our
shareholders in less than one year of operation.

The return on assets was 1.15% for 1996 compared to
1.38% for the previous year. The ROA is an indication
of how effectively the assets of the company are
employed. Obviously, the much larger asset base in 1996
affected the outcome of this ratio. The company's
challenge for 1997 and future periods is to increase
earnings to the preacquisition level as a percent of
assets.

The return on equity ratio measures how effectively
management has leveraged the equity of the company.
This ratio was 10.37% for 1996 compared to 12.09% for
1995. The decline in this ratio is more reflective of
excessive levels of equity than of low earnings.
Average shareholder equity to average assets is 11.10%
compared to 11.40% for 1995. The level of equity
remained relatively high considering the substantial
increase in assets for the year.

The excess equity in the company has resulted in part
from the accumulation of earnings. The board of
directors increased the dividend on common stock from
$.08 per share to $.10 per share for the last two
quarters of 1995 which made a payout of 27% of net
income for 1995. The dividend was subsequently raised
from $.10 to $.12 per share for the last two quarters
of 1996. This resulted in a total dividend of $.44 and
a payout of 31% for 1996. The increased dividend will
help to mitigate the excess equity position.
Concuurrently, in early 1997 the board of directors
authorized the repurchase of up to 120,000 shares of
the 7.5% Cumulative Convertible Preferred Stock, as
part of the initiative to reduce equity to a prudent
level.

The board of directors strategy for managing equity
will include maintaining an adequate level of equity to
support the company's growth, while taking measures to
manage excess levels as they occur.

2
<PAGE>

MATEWAN BANCSHARES, INC. AND SUBSIDIARIES

- --------------------------------------------------------------------------------

The following financial results generally compare
favorably to our peer companies. However, they are less
favorable than those reported for previous periods by
our company. The Pikeville acquisition and the
expansion program of Matewan Bank, FSB account for most
of the changes.

The net interest margin represents the amount of
interest earned on earning assets less the amount of
interest paid to fund the earning assets. The net
interest margin of 5.49% for 1996 is lower than the
margin of 5.78% which was reported for 1995. The 1996
margin is also slightly lower than the 5-year average
of 5.68% from 1992 to 1996, but it is at an acceptable
"AS SOON AS THE level when viewed in the context of the 1996 growth
pattern.
KENTUCKY ACQUISITION
The company has made substantial progress in
WAS FINALIZED, WE identifying and promoting sources of non-interest
income. The dollar amount of non-interest income in
BEGAN TO CONSOLIDATE 1996 was $4,699,000 compared with $3,302,000 for 1995
athich is an increase of 42%. However, the increase did
AND CENTRALIZE not equal the rate at which assets grew; consequently,
the ratio of non-interest income to average assets
VARIOUS SUPPORT decreased from .87% in 1995 to .84% for 1996.

FUNCTIONS IN AN EFFORT As soon as the Kentucky acquisition was finalized, we
began to consolidate and centralize various support
TO CREATE OPERATING functions in an effort to create operating
efficiencies. We closed two branch offices that were in
EFFICIENCIES." close proximity to existing Matewan offices. We seized
opportunities to centralize and leverage support
functions in an effort to improve the quality of the
operation as well as create a more efficient operation.
Therefore, we expect that the small improvement in non-
interest expense as a percentage of assets which fell
from 3.43% in 1995 to 3.40% for 1996 will show further
improvement as the full value of these changes is
realized. Additionally, several non-recurring expenses
in 1996 associated with the acquisition and expansion
program served to keep the ratio higher than normal.

The efficiency ratio measures the percentage of revenue
that is required to support operating expenses.
Matewan's 1996 level of 59% was artificially high
because of various acquisitions and start up costs
associated with our expansion program. This compares
with the five year average from 1992 through 1996 of
54.58%. Our objective is to manage the ratio in the low
50% range. We expect to reach this level as income from
the expansion efforts develop, and costs associated
with the program cease.

A total of $2,945,000 was charged against income as a
provision for loan losses in 1996. The current
provision provides coverage for the larger loan
portfolio at the end of 1996 and compares with the 1995
provision of $1,908,000. The consolidated allowance for
loan loss reserve totalled $5,986,000 at the end of
1996 compared to $2,973,000 for 1995. 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, nonperforming loans, and specific
credit relationships in setting the allowance for loan
losses.

This was the second full year for Matewan BancShares
common stock to be traded on the NASDAQ National Market
(NASDAQ). The stock is traded under the symbol MATE and
traded in a range from $21.50 to $18.50 during 1996.
Management believes that the stock continues to trade
at a level that makes it undervalued relative to
earnings and the year end book value of $13.42. The
performance of the company coupled with the potential
for future growth and profitability should foster
increased interest in the company's stock by the
investment community.

3
<PAGE>

MATEWAN BANCSHARES, INC. AND SUBSIDIARIES

- --------------------------------------------------------------------------------

1999 may have been the most challenging, as well as
productive, year in the company's history. The
successes of the year are cause for the optimism that
exists within the company for its future. Many years
ago the management of the company set as its mission to
become the leading provider of financial services in
our market. Each year the company has successfully
moved closer to its goal. The more we attain our
objective, the more we realize that each year requires
a new commitment to excellence in customer service and
innovative ways of providing that service.
"VALUEBANKING IS
At our annual planning retreat in late 1996, the
OUR BRAND. IT IS management of the company reiterated that the values of
this company continue to be commitment to customer
OUR PROMISE TO service, the welfare of our employees, and innovation.
We believe that a business plan built around these
CONSISTENTLY PROVIDE values will produce quality customer service, a high
performance workforce, and grow value for its
FOR OUR CUSTOMERS shareholders.

HIGH QUALITY FINANCIAL Our plans for 1997 will center around a primary
objective of optimizing the growth and profitability
SERVICES THAT ARE which should result from the expansion efforts of 1995
and 1996.
COMPETITIVELY PRICED."
We expect to expand the scope of products and services
that are offered by Matewan Insurance and Investments,
Inc. This is a subsidiary of Matewan National Bank and
is headquartered in Williamson. This subsidiary
operated successfully during 1996 with the sales of
various investment and insurance products. Its function
as a sales arm for our company continues to expand. The
sales staff continues to grow, and the menu of
insurance and financial products which are being
offered has also been expanded.

The 1997 plans include increased marketing of the
technology-driven services. These include the
ValueLine, a 24-hour telephone banking program that was
introduced in 1994, and our PC-based cash management
program for commercial clients which we began offering
in late 1994. Our newest service to be offered is our
PC Banking program for retail customers. We believe
that these technology-based services, coupled with a
moderate yet traditional line of banking services, will
continue to gain us market share.

We believe that the typical bank of ``yesterday'' will
not be the bank of the future. Your management
continues to promote the philosophy that change is
occurring very rapidly and that the financial services
company of the future will be built around a business
design that is able to anticipate the changes in
customer needs and to respond as those needs occur.
Some of those needs will be met with technology-driven
services, and others will be met with traditional
services delivered in ways that are convenient to the
customers.

ValleyBanking is our brand. It is our promise to
consistently provide for our customers high quality
financial services that are competitively priced.

The enthusiasm for the future of our company is further
justified by the increased economic strength that is
developing in our market place. Matewan's market
includes portions of southern West Virginia, eastern
Kentucky and southwestern Virginia. The entire market
area has seen a vast number of miles of new highways
completed. Major road projects are presently under
construction and more are planned for future building.
Many other infrastructure projects have been completed
while many more are in a construction phase.

4
<PAGE>

MATEWAN BANCSHARES, INC. AND SUBSIDIARIES

- --------------------------------------------------------------------------------

We presently have under construction two major retail
shopping centers and two major expansion projects to
area medical facilities. Several economic development
projects are being planned which will include coal
mining operations, wood processing facilities, a
regional prison, agriculture and aquaculture projects.
A modern indoor recreational facility was recently
completed and an even larger indoor facility has been
announced in another area of our market. Progress is
being made on a new trails system in southern West
Virginia. This system will contain several hundred
miles of recreational trails. This project is expected
to have a significant economic impact by increasing
tourism to the region.

We continue to experience improved housing and
increased educational opportunities throughout the
market area. We expect that these factors will serve as
an indication of an improved quality of life and will
contribute to the overall economic development of this
region.

Matewan's ultimate objective is to increase shareholder
value. We believe that our business design, business
philosophy, and our commitment to the basic values of
customer service, employee welfare, and innovation make
a good recipe for creating shareholder value.

Sincerely,

/s/ Dan R. Moore

[PHOTO OF DAN R. MOORE] Dan. Moore
President and Chairman of
the Board

5
<PAGE>

Matewan BancShares, Inc., continues to
expand its ValueBanking services throughout southern
West Virginia, eastern Kentucky and neighboring
southwestern Virginia--our three golden eggs.

What makes this region so desirable for expansion
and investment? It's hardworking people, rich natural
resources and a well-traveled network of highways and [MAP OF BANKING AREA]
interstates... to name only a few.

Today, individuals, families and businesses throughout
the tri-state are enjoying the many benefits of
ValueBanking at Matewan Banks.

The future of the tri-state is golden. Matewan Banks
will be there not only to share in its prosperity, but to
be a leader in fueling its growth.

Value

Our promise of advanced banking technology, unparalleled convenience and fair
pricing

6
<PAGE>

[MAP]

7
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- ------------------------------------------------------------------------------

[GRAPH OF INTRODUCTION
Composition by
Affiliation] Matewan BancShares, Inc. (The "Company") is a bank holding
company headquartered in Williamson, West Virginia. The
Company subsidiaries consist of two commercial banks
(Matewan National Bank or the "Bank" and Matewan National
Bank/Kentucky "Kentucky"), a federally chartered "de novo"
savings bank (Matewan Bank FSB or "FSB"), and a venture
capital company (Matewan Venture Fund, Inc. or the "Fund").
The Company considers all of its principal business
activities to be banking related. It identifies as its core
market area the thirteen county region consisting of Mingo,
Logan and Boone counties in West Virginia, Pike, Floyd,
[GRAPH OF Johnson, Letcher, and Martin counties in Kentucky, and
Deposit Buchanan, Tazewell, Wise, Washington, and Russell counties
Concentration in Virginia. The Bank has eight full service offices and one
By State] loan production office providing services to customers in
southern West Virginia and eastern Kentucky. Kentucky, which
operates in Pike County, Kentucky, has five full service
offices similarly providing service to eastern Kentucky
customers. FSB, which is also domiciled in Kentucky,
presently has six offices in eastern Kentucky and two in
western Virginia. 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,
1996, the Company had assets in excess of $627 million,
total net loans in excess of $370 million, and total
deposits in excess of $523 million.

[GRAPH OF The accompanying consolidated financial statements have been
Deposit prepared by management of the Company in conformity with
Concentration generally accepted accounting principles. Financial
By County] information appearing throughout this annual report is
consistent with that reported in the consolidated financial
statements. The following is designed to assist readers of
the consolidated financial statements in understanding the
significant changes in the Company's financial condition and
results of operation.

8
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

SUMMARY FINANCIAL RESULTS
[GRAPH OF
Net Income] Net income for 1996 was approximately $6.462 million, a
record level for Company earnings in terms of absolute
dollars. Net income available to common shareholders was
approximately $5.226 million. These results represent
increases of approximately 23.8% and .1% from the previous
year. In acquiring Kentucky, management first focused on
integrating it into the Company's systems and later in the
year took certain steps to improve the profitability of
Kentucky. During 1996, Kentucky generated sufficient
earnings to cover its operating costs but not the costs the
Company incurred in the acquisition. Accordingly, management
expects that future periods results of operations will be
positively impacted by this acquisition. Net income
available for common shareholders of $5.220 million in 1995
is a 4.3% increase from the $5.005 million earned in 1994.
Company performance in 1996 was significantly impacted by
both the acquisition and absorption of Kentucky and the
completion of a preferred stock offering in the first
quarter of the year. Company performance in 1996 was largely
a function of the increases experienced over the prior year
in net interest margin ($7.717 million or 39.0%) and non-
interest income ($1.397 million or 42.3%). This offset the
increases experienced over the prior year relative to loan
loss provision ($1.037 million or 54.4%), non-interest
expenses ($6.111 million or 47.0%), and income tax expense
($724 thousand or 24.3%). Net interest margin for 1996 was
5.49% versus 5.78% for 1995.

[GRAPH OF Except for the impact of a significant acquisition, the
Return on increase in net income in 1995 over 1994 was largely
Average Assets] attributable to many of the same factors prevalent in 1996.
Improved performance in 1995 was driven by increases in net
interest margin ($1.817 million or 10.1%) and non-interest
income ($500 thousand or 17.8%) exceeding prior year
increases in loan loss provision ($256 thousand or 16.1%),
non-interest expense ($1.730 million or 15.4%), and income
taxes ($107 thousand or 3.7%). Net interest margin was 5.78%
and 5.53% for 1995 and 1994, respectively.

[GRAPH OF Return on average assets (ROA) measures how effectively the
Total Assets] Company utilizes its assets to produce its net income. The
Company's ROA for 1996 was 1.15% compared to 1.38% for 1995,
and 1.40% for 1994. Return on average equity (ROE) reveals
how much income is earned in relation to the equity of the
Company. The Company's 1996 ROE was 10.37% compared to
12.09% in 1995 and 12.39% in 1994. The relative declines in
both 1996 and 1995 are more a function of the Company's
growth in assets and capital structure than any significant
weakness in earnings. The significant one-time charges
incurred in connection with the Kentucky acquisition
negatively impacted ROA and ROE. As can be seen, ROE will
fluctuate with earnings, however, 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. In addition, the impact of acquiring and
absorbing Kentucky into the Company has not had a positive
impact on ROA and ROE calculations.

9
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

Table I represents a summary of certain financial data of the Company.

Table I - Five Year Selected Financial Summary
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994 1993 1992
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period end balances:
Total assets............................ $627,186 $401,034 $371,410 $342,949 $329,156
Total earning assets.................... 553,743 357,237 332,371 309,627 298,162
Total deposits.......................... 523,308 334,387 310,647 291,153 281,116
Shareholders' equity.................... 67,578 45,817 41,803 38,032 33,951

Income for the period:
Total interest income................... 46,384 32,442 28,524 27,428 28,444
Total interest expense.................. 18,869 12,644 10,543 9,774 11,631
Net interest income..................... 27,515 19,798 17,981 17,654 16,813
Provision for loan losses............... 2,945 1,908 1,643 1,285 1,343
Non-interest income..................... 4,699 3,302 2,802 2,395 2,409
Non-interest expense.................... 19,100 12,989 11,259 10,372 9,897
Net income before taxes................. 10,169 8,203 7,881 8,392 7,982
Applicable income taxes................. 3,707 2,983 2,876 3,269 2,919
Net income.............................. 6,462 5,220 5,005 5,123 5,063
Net income available to common
shareholders........................... 5,226 5,220 5,005 5,123 5,063

Per share data:
Net income available to common
shareholders........................... $ 1.43 $ 1.42 $ 1.36 $ 1.40 $ 1.38
Common shareholders' equity............. 13.44 12.49 11.40 10.37 9.25
Common cash dividends................... 0.44 0.38 0.31 0.28 0.28
Preferred cash dividends................ 1.54 -- -- -- --

Key performance ratios:
Net income to:
Average assets......................... 1.15% 1.38% 1.40% 1.56% 1.57%
Average shareholders' equity........... 10.37 12.09 12.39 14.12 16.44
Average shareholders' equity to average
assets................................. 11.10 11.40 11.27 11.07 9.55
Net interest margin..................... 5.49 5.78 5.53 5.88 5.73
Non-interest income to average assets... .84 .87 .78 .73 .75
Non-interest expense to average assets.. 3.40 3.43 3.14 3.16 3.07
Efficiency ratio........................ 59.29 56.23 54.17 51.73 51.49

Risk-based capital measures:
Tier 1 risk-based ratio................. 13.87% 17.89% 17.98% 17.63% 17.61%
Total risk-based ratio.................. 15.63 19.09 19.23 18.88 18.86
Leverage capital ratio.................. 9.64 11.64 10.76 10.49 9.63

Other significant measures:
Dividend payout......................... 30.85% 26.82% 22.82% 20.34% 20.58%
Percent change in dividend.............. 15.79 22.59 9.60 -- 25.00
Percent change in net income (to common
shareholders).......................... .11 4.30 (2.30) 1.18 40.19
Percent change in total assets.......... 56.39 7.98 8.30 4.19 1.71
Equity growth........................... 47.50 9.60 9.92 12.02 13.22

Asset quality:
Net charge-offs to average loans
outstanding............................ .89% .84% .82% .44% .51%
Non-performing loans to total year-end
loans.................................. 1.45 1.14 1.08 .65 1.75
Non-performing assets to total year-end
assets................................. 1.01 .78 .67 .42 1.04
Allowance for loan losses to total
year-end loans......................... 1.59 1.28 1.35 1.49 1.41
Allowance for loan losses to
non-performing loans................... 109.63 113.78 125.14 230.79 80.35
</TABLE>

10
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

Average Balance Sheets
- -------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks................. $ 22,189 $ 17,391 $ 16,891 $ 12,555 $ 11,797
Interest bearing deposits............... 2,948 683 3,584 209 123
Investment securities................... 140,354 108,634 104,686 106,122 104,650
Federal funds sold...................... 18,439 11,613 13,710 11,723 17,256
Loans - net............................. 339,865 221,844 203,278 181,996 171,605
Bank premises and equipment............. 18,346 9,412 8,364 7,139 7,335
Other assets............................ 19,196 9,156 8,161 7,985 9,650
------------------------------------------------
Total assets............................ $561,337 $378,733 $358,674 $327,729 $322,416
================================================

Liabilities and shareholders' equity
Deposits:
Transaction accounts.................... $130,187 $ 83,135 $ 82,048 $ 74,280 $ 73,547
Savings deposits........................ 76,906 52,624 52,551 43,947 43,817
Time deposits........................... 262,271 180,518 168,162 163,067 160,107
Borrowed funds.......................... 23,119 15,885 13,098 7,706 10,994
Accrued liabilities and other........... 6,533 3,392 2,404 2,458 3,159
------------------------------------------------
Total liabilities....................... 499,016 335,554 318,263 291,458 291,624
Shareholders' equity.................... 62,321 43,179 40,411 36,271 30,792
------------------------------------------------
Total liabilities and equity............ $561,337 $378,733 $358,674 $327,729 $322,416
================================================
</TABLE>

See the discussion of acquisition activity for matters that affect the
comparability of the above information.

[GRAPH OF Table I portrays consistent growth in both total assets and
Earnings equity from 1992 through 1996. This growth can be attributed
Per Share] to a strategic plan that has systematically expanded the
market area in which the Company operates. In 1994, the
Company formed FSB, a "de novo" thrift subsidiary, and
opened two offices in Pikeville and Paintsville, Kentucky.
In 1995, FSB opened two more offices located in supermarkets
in Pikeville and Goody, Kentucky. In 1996, FSB opened
offices in Prestonsburg and Whitesburg, Kentucky and
Richlands and Abingdon, Virginia. In addition, in the first
quarter of 1996, the Company consummated the purchase of
Kentucky, providing an additional five offices in Pike
County, Kentucky. These acquisitions and increased market
penetration in the Company's core market area have accounted
for this five year growth.

Table I also depicts growth in pretax income and net income
of approximately 23.97% and 23.79% in 1996. After
subtracting the dividend on the preferred stock, earnings
available for common shareholders in 1996 were flat when
compared to 1995. Earnings available for common shareholders
for 1996 of $5.226 million represents the highest annual
level realized in the history of the Company. Earnings per
share available to common shareholders of $1.43 is a $.01
increase over the comparable prior year level. 1996 earnings
were negatively impacted by the one-time expenses incurred
in connection with the Kentucky acquisition. Net earnings
for 1995 increased 4.30%. Earnings per share increased $.06
in 1995, following a $.04 decline in 1994. Increases of $.02
per share and $.44 per share were experienced in 1993 and
1992, respectively. Over the past four years, book value per
common share has increased steadily from a level of $9.25
per share in 1992 to $13.44 at the end of 1996.

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

11
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

[GRAPH OF management reasonably expects to materially impact future
Book Value operating results, liquidity, or capital resources.
Per Share]
MARKET FOR COMPANY'S COMMON STOCK

The Company's common stock (symbol: "MATE") is listed for
trading on the National Association of Securities Dealers
Automated Quotation System - National Market System. Prior
to its listing on June 1, 1994, no trading market existed
for the Company's common stock.

In March of 1996, the Company successfully completed an
offering for a new class of 7.5% Cumulative Convertible
Preferred Stock, Series A. Concurrent with this closing and
the subsequent exercise of the underwriter's overallotment
option, the Company issued 805 thousand shares of preferred
stock generating a capital infusion of approximately $18.396
million from the net proceeds. The Company's new class of
preferred stock is currently traded on the National
Association of Securities Dealers Automated Quotation System
- Small Cap Market under the symbol MATEP. In addition to
providing capital, the preferred stock provides the Company
with flexibility for future expansion.

The following table sets forth the high and low sales prices
[GRAPH OF of common stock for each quarterly period during 1996 and
Dividends 1995 as reported by the National Association of Securities
Per Share] Dealers, Inc.

<TABLE>
<CAPTION>
1996 1995
------------------------ --------------------------
High Low Dividend High Low Dividend
------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
Fourth Quarter.. $18.50 $17.00 $.12 $21.38 $19.50 $.10

Third Quarter... 18.75 16.00 .12 20.50 18.50 .10

Second Quarter.. 19.00 16.25 .10 19.09 17.27 .09

First Quarter... 21.50 18.00 .10 17.73 15.23 .09
</TABLE>

The following table sets forth the high and low sales prices
of preferred stock for each quarterly period in 1996 as
reported by the National Association of Securities Dealers,
Inc.

<TABLE>
<CAPTION>
1996
------------------------
High Low Dividend
------------------------

<S> <C> <C> <C>
Fourth Quarter.. $25.75 $24.25 $.47

Third Quarter... 26.00 24.00 .47

Second Quarter.. 26.25 24.00 .47

First Quarter... 26.00 25.00 .14
</TABLE>

[GRAPH OF As of December 31, 1996, there were 679 holders of record of
Dividend Data] the Company's common stock and 72 holders of record of the
Company's preferred stock.

The Company currently intends to pay regular quarterly cash
dividends on its common stock, subject to its need for
funds. However, the Company's dividend policy is subject to
the discretion of the Board of Directors. In determining
whether to continue such dividend payments and in
establishing the amount of any dividends to be paid, the
Board will consider the Company's earnings, capital
requirements and financial condition, prospects for future
earnings, federal economic and regulatory policies, general
business conditions and other relevant factors, certain of
which are beyond the control of the Company.

On January 14, 1997, the Company's Board of Directors
authorized the repurchase of up to $3.0 million of its 7.5%
Cumulative Convertible Preferred Stock, Series A. On January
10,

12
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

1995, the Company's Board of Directors authorized the
repurchase of up to 100,000 shares of its common stock.
Purchases of preferred and common stock may be made, at the
discretion of management, 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 March 15, 1996, the Company purchased from Banc One
Kentucky Corporation one hundred percent (100%) of the
voting stock of the Bank One, Pikeville N.A. franchise
("Pikeville"). The acquisition was accounted for using the
purchase method of accounting. On March 18, 1996, Pikeville
resumed operations as Matewan National Bank/Kentucky
("Kentucky") adding total assets of approximately $204
million and deposits of approximately $183 million to the
consolidated totals of the Company. Operations of Kentucky
are included in the consolidated results of the Company from
the acquisition date. Kentucky contributed approximately 84%
of the asset growth experienced by the Company in 1996 and
29% of its consolidated net income.

On January 3, 1994, the Company contributed capital of $4
million to form FSB, a wholly-owned federal savings bank
subsidiary of the Company. FSB commenced operations on the
same date. Its operations contributed approximately 6% of
the growth that the Company experienced in 1996 over 1995
and approximately 71% of the growth that the Company
experienced in 1995 over 1994. FSB contributed approximately
6% and 4% of the Company's consolidated net income for the
years 1996 and 1995, respectively.

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, 1996.

Average earning assets increased approximately $158.8
million or 46.3% in 1996 over 1995. Consolidation of
Kentucky's average asset balances for the nine and one-half
month period that it was an affiliate of the Company
accounted for approximately 87.4% of the increase. Average
net loans increased approximately $118.0 million or 53.2%
(80.5% of which was attributable to Kentucky) while average
investment securities increased approximately $31.7 million
(29.2%, nearly all attributable to Kentucky) and average
interest bearing deposits in other banks increased
approximately $2.265 million (331.6%). Average federal funds
sold increased approximately $6.8 million (58.8%) due
primarily to the acquisition of Kentucky.

Average earning assets increased approximately $17.5 million
or 5.4% in 1995 over 1994. Average net loans 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 interest bearing liabilities are the primary source
of funds that support the Company's earning assets. In 1996,
average interest bearing liabilities increased approximately
$140.9 million (48.8%). Average transaction accounts
increased approximately $28.8 million (74.7%), average
savings deposits increased $24.2 million (45.9%), average
time deposits increased $80.7 million (44.5%), and average
borrowed funds, short-term and long-term borrowings,
increased approximately $7.2 million (45.5%) in 1996 over
1995. Most of the increases are attributable to Kentucky.

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 borrowed funds, primarily commercial repurchase
agreements, increased approximately $2.8 million (21.3%) in
1995 over 1994.

13
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

Table II - Analysis of Earning Assets and Interest Bearing Liabilities
- -------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
-------------------------- --------------------------- ---------------------------
Average Yield Average Yield Average Yield
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Loans:
Commercial........................... $ 95,230 $10,158 10.67% $ 65,091 $ 6,851 10.53% $ 65,186 $ 6,168 9.46%
Real estate.......................... 130,139 13,403 10.30 80,683 8,470 10.50 70,119 7,023 10.02
Consumer............................. 114,496 13,022 11.37 76,070 10,003 13.15 67,973 8,371 12.32
-------------------------- --------------------------- ---------------------------
Total loans............................. 339,865 36,583 10.76 221,844 25,324 11.42 203,278 21,562 10.61

Securities:
Taxable............................... 132,317 8,248 6.23 106,138 6,272 5.91 103,759 6,205 5.98
Tax-exempt............................ 8,037 419 5.21 2,496 146 5.85 927 58 6.26
-------------------------- --------------------------- ---------------------------
Total securities........................ 140,354 8,667 6.18 108,634 6,418 5.91 104,686 6,263 5.98
Federal funds sold...................... 18,439 994 5.39 11,613 660 5.68 13,710 551 4.02
Interest bearing deposits in banks...... 2,948 140 4.75 683 40 5.86 3,584 148 4.13
-------------------------- --------------------------- ---------------------------
Total earnings assets................... 501,606 46,384 9.25% 342,774 32,442 9.46% 325,258 28,524 8.77%

Non-earning assets:
Other assets.......................... 59,731 35,959 33,416
-------- -------- ---------
Total assets............................ $561,337 $378,733 $358,674
======== ======== =========

Liabilities and shareholders' equity
Interest bearing liabilities:
Transaction accounts.................. $ 67,256 $ 2,217 3.30% $ 38,488 $ 1,185 3.08% $ 37,592 $ 1,142 3.04%
Savings deposits...................... 76,906 2,321 3.02 52,709 1,770 3.36 52,551 1,817 3.46
Time deposits......................... 262,271 13,337 5.09 181,554 9,112 5.02 168,162 7,137 4.24
Borrowed funds........................ 23,119 994 4.30 15,885 577 3.63 13,098 447 3.41
-------------------------- --------------------------- ---------------------------
Total interest bearing liabilities...... 429,552 18,869 4.39 288,636 12,644 4.38 271,403 10,543 3.88
--------------- --------------- ----------------

Non-interest bearing liabilities and
capital:
Demand deposits...................... 62,931 43,526 44,456
Accrued expenses and other........... 6,533 3,392 2,404
Total shareholders' equity........... 62,321 43,179 40,411
---------- --------- ---------
Total non-interest bearing liabilities
and capital.......................... 131,785 90,097 87,271
---------- --------- ---------
Total liabilities and capital........... $561,337 $378,733 $358,674
========== ========= =========

Net interest income..................... $27,515 $19,798 $ 17,981
======= ======= ========
Spread.................................. 4.86% 5.08% 4.89%
===== ===== =======
Net interest margin..................... 5.49% 5.78% 5.53%
===== ===== =======
</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.

14
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

[GRAPH OF LOAN PORTFOLIO
Loans Outstanding]
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 lending philosophy is to maintain a strategic
asset mix wherein the loan portfolio comprises approximately
sixty-five percent (65%) of the Company's total assets. More
specifically, the mix of the loan portfolio is targeted for
equal distribution among the real estate, commercial, and
consumer categories. At December 31, 1996, the actual
distribution was 38% real estate, 33% consumer and 29%
commercial. The primary focus for all categories of lending
is the thirteen county market area that the Company has
identified as its core market.

[GRAPH OF By definition, credit concentrations consist of direct,
Loan Portfolio indirect, or contingent liabilities exceeding twenty-five
Distribution] 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 with similar credit
categorizations. The Company has no foreign loans or loan
concentrations to individual or related borrowers which
exceed 10% of total loans. By definition, two major types of
concentrations exist for the Company: (i) those delineated
by loan category and (ii) that of a single industry
concentration. Loan categories 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 consumer 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.

[GRAPH OF Although the Company strives to maintain a diversified loan
Loan Portfolio portfolio, a substantial portion of its debtors' ability to
Distribution honor their obligations is dependent upon the coal industry.
by Collateral] 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 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 actually represent less than 5% of the total net
portfolio.

The majority of loans outstanding are collateralized by real
estate, commercial equipment, and personal consumer goods.
At December 31, 1996, one-to-four family residential real
estate secured approximately 34% of the net loan portfolio,
commercial equipment and vehicles secured approximately 7%,
automobiles secured approximately 19%, and commercial real
estate secured approximately 13%. 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.

Real estate loans represent the largest component of the
Company's loan portfolio. The majority of real estate loans
outstanding in terms of both dollar volume and number of
loans have been made within the identified core market area
of the Company. One-to-four family residential real estate
represents most of the collateral for this category. Company
loan policy maintains uniform and minimum standards for
determining creditworthiness of potential real estate
borrowers, requiring conformity to FNMA and FHLMC standards,
including debt-to-worth and loan-to-appraised value ratios.
Maximum allowable levels for loan-to-value ratios for the
most prevalent types of real estate lending are eighty
percent (80%) for one-to-four family residences, seventy-
five (75%) for land development, and sixty-

15
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

five (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 comprise the second largest component of the
Company's loan portfolio in terms of dollar volume. The
majority of the Company's consumer loans have been made
within the Company's core market area. 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-to-income ratios, net worth, credit scores,
downpayment requirements, loan terms, and collateral. While
Company policy emphasizes secured lending, unsecured
consumer lending within established guidelines is permitted
by policy.

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 majority of the dollar volume of
outstanding loans in this portfolio category have been made
within the Company's core market area. The majority of the
loans in this category are collateralized with either coal
mining equipment and/or coal mining vehicles and equipment
or other commercial real estate or 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 and insurance. 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 provides for
variable rate pricing based upon some predetermined and
prominently recognized index - usually Wall Street Journal
Prime. However, management has not extensively used variable
rate pricing as the duration of the commercial portfolio is
not overly long.

The Company, as part of its asset/liability and risk
management processes, utilizes industry recognizable
standardized credit scoring models on most categories of
loans. As a consequence of this methodology, the Company is
able to employ tiered risk-based pricing as a mechanism to
further manage interest margins and credit quality.

The population of the thirteen county core market area
declined substantially during the decade of 1980 to 1990,
before a change in 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
dwelling with a median value in excess of $40 thousand.
Median household income for the area is just below $19
thousand, with approximately forty percent (40%) of the
households having incomes in excess of $25 thousand. Coal
mining remains the dominant industry in the local economy,
however, the dominant employers in the market are - in no
particular order - education, government services, and
health care services. Blue collar occupations dominate most
employment readings representing nearly fifty-six (56%) of
the work force. The single most powerful industrial
influence in the core market area is the dependence -
directly and indirectly - on the coal industry.

16
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

The following table shows the composition of the Company's
loan portfolio:

Table III - Consolidated Summary of Loans
- -------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994 1993 1992
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial loans........................ $108,240 $ 63,581 $ 64,821 $ 69,372 $ 65,144
Real estate loans....................... 144,693 88,197 76,908 66,638 54,225
Consumer loans.......................... 125,163 80,796 77,564 65,107 57,963
------------------------------------------------
Subtotal................................ 378,096 232,574 219,293 201,117 177,332
Less: Unearned income................... 1,309 1,033 1,617 2,303 2,098
------------------------------------------------
Subtotal................................ 376,787 231,541 217,676 198,814 175,234
Less: Allowance for loan losses......... 5,986 2,973 2,932 2,961 2,470
------------------------------------------------
Net loans............................... $370,801 $228,568 $214,744 $195,853 $172,764
================================================
</TABLE>

At December 31, 1996, net loans approximated $371 million as
compared to $229 million on December 31, 1995. Real estate
loans increased approximately $56.5 million (64.1%).
Approximately 80% or $45.2 million of this increase is
attributable to Kentucky. Consumer loans increased
approximately $44.4 million, of which approximately $35
million or 78.8% of the increase is attributable to
Kentucky. Commercial loans increased approximately $44.7
million or 70.2%. Kentucky accounted for approximately $34.5
million or 79% of the increase in volume.

At December 31, 1995, net loans approximated $229 million as
compared to $215 million on 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.

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,
1996 is summarized in Table IV:

Table IV - Remaining Maturities of Loans
- --------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
Balance After
December 31 One Year 1 to 5 Five
1996 or Less Years Years
----------------------------------------
<S> <C> <C> <C> <C>
Commercial loans........................ $108,240 $ 83,325 $ 22,572 $ 2,343
Real estate loans....................... 144,693 16,251 98,718 29,724
Consumer loans.......................... 125,163 51,101 72,291 1,771
----------------------------------------
Total loans............................. $378,096 $150,677 $193,581 $33,838
========================================

Loans due after one year:
With floating rates.................. $ 8,767
========
With predetermined rates............. $218,652
========
</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 are credited to
the allowance.

On January 1, 1995, the Company adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by FASB Statement No.
118. Under this standard, the allowance for loan losses
related to loans that are

17
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

[GRAPH OF identified for evaluation in accordance with Statement 114
Loan Coverage] 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 collateral
for collateral dependent loans. The adoption of this
pronouncement 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
experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' 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 of
impaired loans that is susceptible to significant change.

The allowance for loan losses is based upon senior
management's review of the loan portfolio, historical
charge-off experience, composition of the loan portfolio,
loan volume, current economic conditions and other relevant
factors. For a given period, the provision for loan losses,
less net charge-offs, comprises the allowance for loan
losses for that period. In management's judgment, the
allowance for loan losses is maintained at a level adequate
to absorb potential losses on existing loans and loan
commitments.

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, the credit performs 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, 1996 was
approximately $6.0 million compared to approximately $3.0
million in 1995, an increase of approximately $3.0 million
or 100%. The acquisition of Kentucky accounted for an
increase of approximately $3.2 million in the allowance for
loan losses at March 18, 1996. The ratio of net charge-offs
to average net loans was .89% in 1996 as compared to .84% in
1995. 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 losses against known problem credits. The
coverage ratio was 109.63% and 113.78% for the years 1996
and 1995, respectively. The ratio of non-performing loans to
total year end loans was 1.45% and 1.14% for 1996 and 1995,
respectively. The ratio of loan loss provision to net
charge-offs was 95.5% and 102.2% for 1996 and 1995,
respectively.

Starting in late 1994 and continuing throughout 1995 and
1996, management moved to position the loan portfolio for
the future by aggressively working out problem credits,
particularly in the consumer and commercial sector. Over
this period of time, the Company has undertaken a
comprehensive program concerning the restructuring of 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 loan loss allowance
that could, at least initially, be of a substantially
heavier volume than historical comparisons would suggest.
Management also recognized that dealing with some of these
problem credits in this aggressive manner would result in
some credits, that previously would not have been recognized
as such, becoming classified assets and being reported as
classified assets. Accordingly, non-performing levels were
anticipated to be much

18
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

heavier than prior period levels, although it was the
opinion of management that these higher levels of non-
performing loans did not contain an additional proportionate
level of credit exposure. Management further recognized that
these anticipated charges and reclassifications would be
occurring in a period of time in which normal and continuing
provisions to loan loss allowance to reflect and to cover
current period loan activity would also have to be made.
Management determined at the outset that (i) there existed
sufficient coverage in the loan loss allowance at that time
to absorb the effect of anticipated higher charge-offs
without any accompanying increase in the provision and (ii)
on an ongoing basis, provisions to loan loss allowance would
continue to be made to reflect any additional exposure to
the loan portfolio.

Consistent with national trends, the Company has experienced
higher delinquencies in consumer loans. Accordingly,
management has focused a significant amount of their time
toward reducing consumer delinquencies and losses. A
significant portion of the allowance for loan losses has
been allocated to the consumer portfolio to cover the
estimated exposure in the Company's consumer lending. As
noted in Table VI, consumer loans as a percent of total
loans have decreased over the past two years. This has been
done to help manage this segment of the portfolio.
Management believes the allocation of the allowance to the
consumer portfolio is adequate to absorb estimated losses in
this segment of the portfolio.

Based upon economic expectations, extensive reviews of
credit relationships by management, and the level of
nonperforming assets, management maintained its dual
posture throughout 1996 of strengthening the allowance and
aggressively liquidating problem credits. Management further
maintained its aggressive approach of identifying,
monitoring, and treating problem 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
1996 1995 1994 1993 1992
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at end of period................. $376,787 $231,541 $217,676 $198,814 $175,234
===========================================================

Daily average amount of loans................................ $345,062 $221,844 $203,278 $181,996 $171,605
===========================================================

Balance of allowance for loan losses at beginning of period.. $ 2,973 $ 2,932 $ 2,961 $ 2,470 $ 2,006
Loans charged off:
Commercial................................................ 436 533 854 318 477
Consumer.................................................. 2,996 1,724 1,205 804 634
Real estate............................................... 306 137 69 92 163
-----------------------------------------------------------
Total loans charged off...................................... 3,738 2,394 2,128 1,214 1,274
Recoveries of loans previously charged off:
Commercial................................................ 142 104 107 156 192
Consumer.................................................. 492 411 294 228 177
Real estate............................................... 20 12 55 36 26
-----------------------------------------------------------
Total recoveries............................................. 654 527 456 420 395
-----------------------------------------------------------
Net loans charged off........................................ 3,084 1,867 1,672 794 879
Additions to allowance charged to expense.................... 2,945 1,908 1,643 1,285 1,343
Incidental to acquisition.................................... 3,152 -- -- -- --
-----------------------------------------------------------
Balance at end of period..................................... $ 5,986 $ 2,973 $ 2,932 $ 2,961 $ 2,470
===========================================================
Ratio of net charge-offs during period to average loans...... 0.89% 0.84% 0.82% 0.44% 0.51%
===========================================================
Ratio of loan loss provision to net charge-offs.............. 95.5% 102.2% 98.3% 161.8% 152.8%
===========================================================

</TABLE>
19
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

Table VI - Allocation of Allowance for Loan Losses
- -------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992
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 Allocation of Loans
--------------------- --------------------- --------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial...... $1,996 28.63% $ 955 27.3% $2,106 29.5% $2,150 34.5% $1,438 36.7%
Real estate..... 1,141 38.27 638 37.9 210 35.1 305 33.1 315 30.6
Consumer........ 2,849 33.10 1,380 34.8 616 35.4 506 32.4 717 32.7
--------------------- ------------------ --------------------- --------------------- ----------------------
$5,986 100.00% $2,973 100.0% $2,932 100.0% $2,961 100.0% $2,470 100.0%
===================== ================== ===================== ===================== ======================
</TABLE>
CONSOLIDATED SUMMARY OF NON-PERFORMING ASSETS

Non-performing assets consist of non-accrual loans, loans
more than ninety days past due, and other real estate owned.

At December 31, 1996, non-performing assets increased by
approximately 102.1% over prior year levels, or
approximately $3.2 million to 1.01% of total assets as
compared to .78% of total assets at December 31, 1995. The
acquisition and consolidation of Kentucky accounted for
approximately $1.5 million or 47.3% of the increase. The
remaining increase was attributable to a combination of
management's increasingly aggressive posture in dealing with
problem credits, the desire for a conservatively valued loan
portfolio, overall collection efforts, and an increased
number of credits requiring management action. Management
believes they have adequately provided for losses related to
nonperforming assets at December 31, 1996. Of the loans held
in non-accrual status in 1996, if interest had been accrued
on these loans based upon their original terms, income
before taxes would have increased by approximately $458
thousand. A total of approximately $585 thousand in interest
was actually collected on these accounts.

Other real estate owned, which is recorded at the lower of
cost or market, represents the real estate which the Company
has taken ownership in full or partial satisfaction of
loans. Approximately 35.2% 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 Non-Performing Assets
- -------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-performing assets:
Non-accruing loans.................... $4,416 $1,995 $1,743 $1,037 $2,838
Loans past due 90 days................ 1,044 618 600 246 236
------------------------------------------
Total non-performing loans.............. 5,460 2,613 2,343 1,283 3,074
Other real estate owned............... 879 524 137 156 352
------------------------------------------
Total non-performing assets............. $6,339 $3,137 $2,480 $1,439 $3,426
==========================================

Non-performing loans as a percent of
total loans............................ 1.45% 1.13% 1.08% .65% 1.75%
==========================================

Non-performing assets as a percent of
total assets........................... 1.01% 0.78% 0.67% 0.42% 1.04%
==========================================
</TABLE>

20
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

The Company adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment
of a Loan," on January 1, 1995. Statement No. 114 requires
that impaired loans be measured based upon the present value
of expected future cash flows discounted at the loan's
original effective interest rate or, as a practical
expedient, at the loan's observable market price of the fair
value of the collateral if the loan is collateral dependent.
The adoption and implementation of this standard has not had
a material effect on the Company's financial statements.

At December 31, 1996, the recorded investment in impaired
loans was $10.9 million (of which $1.7 million was on a
nonaccrual basis). Included in this amount is $2.0 million
of impaired loans for which the related allowance for credit
losses is $.8 million and $8.9 million of impaired loans
that do not have a specific allocation of the allowance for
credit losses. The average recorded investment in impaired
loans for the year ended December 31, 1996 approximated $9.5
million. The increase in 1996 is due to the acquisition of
Kentucky. For the year ended December 31, 1996, the Company
recognized interest income on impaired loans of $1.2 million
of interest income using the cash basis method of income
recognition.

At December 31, 1995, the recorded investment in impaired
loans 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 credit
losses is $274 thousand and $5.7 million of impaired loans
that do not have a specific allocation of the allowance for
credit losses. The average recorded investment in impaired
loans for the year ended December 31, 1995 approximated $5.7
million.

[GRAPH OF INVESTMENT PORTFOLIO AND OTHER EARNING ASSETS
Loan Portfolio
Distribution] 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. By
achieving this, the investment portfolio helps promote the
Company's asset/liability management.

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 on a longer term
basis, they are classified as investments held-to-maturity
and carried at amortized historical 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 those that may be sold for
various reasons, and marketable equity securities are
classified as available for sale and carried at fair value.
Unrealized holding gains and losses on securities classified
as available-for-sale, net of the related tax effect, are
carried as a separate component of shareholders' equity.

The Company does not hold investment securities for trading
purposes. The Company adopted the provisions of Financial
Accounting Standards Board Statement No. 115 ("SFAS 115"),
the new standard for investments held as of or acquired
after January 1, 1994. The balance of the shareholders'
equity account at January 1, 1994 was increased
approximately $127 thousand (net of deferred income taxes of
$30 thousand) to reflect the unrealized holding gains on
securities classified as available-for-sale previously
carried at amortized cost. At December 31, 1996 unrealized
holding losses on available-for-sale securities, net of
deferred income taxes, of approximately $68 thousand, have
been recorded as a separate component of shareholders'
equity.

21
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

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, 1996
Maturity:
Within 1 year $ 2,000 $ 17,850 $ 2,151 $ -- $ 22,001 6.37%
After 1 year through 5 years 6,967 87,784 6,666 525 101,942 6.11
After 5 years through 10 years -- 12,906 861 -- 13,767 6.88
After 10 Years -- 4,327 1,164 4,779 10,270 8.08
--------------------------------------------- --------
Total carrying value $ 8,967 $122,867 $10,842 5,304 $147,980 6.36
============================================= ========
Estimated fair value $ 8,963 $122,657 $10,905 5,313 $147,838
Yield at purchase 5.61% 6.38% 5.93% 6.77% 6.36%
Average maturity (in years) 1.04 3.53 6.34 22.18 4.25

December 31, 1995
Total carrying value $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
Yield at purchase 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 $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
Yield at purchase 5.25% 6.28% 5.23% 5.92% 5.99%
Average maturity (in years) 1.05 2.47 2.96 16.81 2.09
</TABLE>

During 1996, the Company increased its investment holdings
by approximately $42.3 million. Approximately $40.7 million
of the increase was attributable to Kentucky. Investment in
U.S. Treasury issues declined approximately $3.0 million to
approximately 6% of the total portfolio (down from 11% 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 1996 from prior year levels. Federal
Agency investments increased approximately $34.9 million
(representing 83% of the portfolio for both 1996 and 1995).
Investments in State and Municipal issues increased
approximately $7.4 million and investments in other
securities increased approximately $3.0 million in 1996,
collectively representing approximately 10.9% of the
investment portfolio as compared to 5% in the prior year.
Kentucky accounted for most of the increases in absolute
dollar terms.

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 Company's investment in federal funds sold increased
approximately $11.7 million in 1996 from prior year levels.
Average federal funds sold for the year were approximately
$6.8 million higher in 1996 than in 1995. The Kentucky
acquisition and strong core deposit growth for the Company
provided the bulk of the funds available for this sort of
investment. In addition, improved loan demand utilized some
of the excess funds.

22
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

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 attempts to maintain
federal funds sold at levels sufficient to maintain adequate
liquidity, while balancing these liquidity needs with a
desire to maximize return on earning assets. At interest
rate levels prevalent in much of 1996, the differential
between yields on federal funds sold and investment
securities falling within the parameters of the Company's
investment policy was often minimal, providing little
incentive for committing substantial amounts of funds to
either alternative. In addition, despite generally lower
interest rate levels for 1996 and a more competitive lending
environment producing generally lower loan yields for the
same period, strong loan demand made lending a much more
attractive option in 1996 than most other investment
options. Most of the growth in federal funds sold and
investment securities in 1996 was a consequence of the
Kentucky acquisition. Except for the absorption of
Kentucky's securities into the investment portfolio of the
Company, much of 1996 investment activity involved little
more than replacing maturing securities with issues of a
similar maturity. Much of the lengthening of the average
maturity experienced in most investment portfolio categories
in 1996 was similarly a function of absorbing Kentucky's
investment portfolio into that of the Company.

DEPOSITS
[GRAPH OF
Total 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
market area that the Company serves.

Average deposits and short-term borrowings increased
approximately $160.2 million or 48.2% in 1996 from 1995
levels. Approximately $137 million of this increase, or 86%,
was a direct consequence of Kentucky's contribution to the
consolidated totals. The remainder was a consequence of
growth in the Company's established core market. Despite
increasingly aggressive competition for funds in its market
area, in 1996 the Company was able to maintain funds at a
level that was only one basis point more expensive than for
1995. Jumbo certificates of deposit are defined as deposits
with minimum denominations of $100 thousand and maximum
maturities of one year. The aggregate amount of jumbo
certificates of deposit in the Company was $65.4 million and
$43.0 million, at December 31, 1996 and 1995, respectively.
Kentucky was responsible for 97.8% of the increase
experienced in jumbo certificates of deposit at December 31,
1996.

Average deposits and short-term borrowings increased
approximately $16.3 million or 5% in 1995 from 1994 levels.
The decreasing interest rate environment prevalent during
much of 1995 did not provide the Company with as much
earnings relief as it had in the last general decline in
1992 and 1993. In fact, the Company's cost of funds actually
increased on most interest bearing deposit categories due to
carryover from the repricing developments in 1994, some
aggressive growth campaigns the Company undertook with
regard to some of its newer offices, and more intensive
competitive pressures.

[GRAPH OF OTHER BORROWINGS
Funds Distribution]
Short-term borrowings consist of the Treasury Tax and Loan
Account, Commercial Repurchase Agreements, and Borrowings
from the Federal Home Loan Bank (FHLB). The amount in the
Treasury Tax and Loan accounts 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 decreased
approximately $1.5 million (11.9%) in 1996, after increasing
approximately $1.5 million (14%) in 1995. As a general rule,
an increasing interest rate environment and generally better
liquidity characteristics make Commercial Repurchase
Agreements a less attractive investment alternative in the
type of economic environment experienced in the past two
years. Average Borrowings from FHLB were insignificant for
most of 1996. The Bank did have an overnight draw
outstanding on its Flexline at FHLB Pittsburgh at December
31, 1996, which management repaid during the first week of
1997.

23
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

Table IX - Short-Term Borrowings
- -------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
1996 1995 1994
Amount Rate Amount Rate Amount Rate
-------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Treasury tax and loan account:
As of year-end................... $ 8,101 3.62% $ 3,349 5.15% $ 2,908 3.65%
Average balance.................. 3,105 3.88 2,807 4.08 2,346 2.69
Maximum month-end................ 8,101 -- 6,615 -- 5,577 --

Commercial repurchase agreements:
As of year-end................... $10,118 3.19% $ 9,361 4.20% $12,089 3.14%
Average balance.................. 10,750 3.53 12,863 3.71 10,752 3.79
Maximum month-end................ 13,413 -- 14,695 -- 14,934 --

FHLB borrowings and other:
As of year-end................... $ 5,000 3.61% $ 5,000 6.05% $ -- -- %
Average balance.................. 41 5.78 69 5.95 -- --
Maximum month-end................ 5,000 -- 5,000 -- -- --
</TABLE>

On March 15, 1996, the Company executed a note payable for
$8.0 million to finance a portion of the Kentucky
acquisition. The 7.7% note is scheduled to be paid annually
over ten years. The loan will reprice only at its five year
anniversary date at a 200 basis point differential over the
five year Treasury Note at that date.

ASSET/LIABILITY MATURITY AND RATE SENSITIVITY

Asset and liability management is the planning,
implementation, and risk control processes for determining
asset pricing and mix and targeted liability maturities in
such a way that net interest margin will be maximized and
interest rate risk will be adequately managed. A major
subprocess is gap management of the Company's interest
sensitive assets to interest sensitive liabilities.

The matching of assets and liabilities involves estimating
the extent to which such assets and liabilities are
"interest rate sensitive" and monitoring the Company'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 and the amount of interest bearing
liabilities maturing or repricing within a specific 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 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
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 will benefit the Company while an increase in
interest rates will exert pressure on 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 and loans or borrowings from
FHLB. These proceeds would be placed in higher yielding
short-term investments.

The Company 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 to minimize interest rate and liquidity risk. In
addition, management estimates,

24
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

based upon history, 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 at December
31, 1996, distributed on the basis of contractual maturities
and/or scheduled rate adjustments in the periods of time
designated.

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................................. $ 99,581 $ 26,068 $ 25,028 $ 150,677 $193,581 $33,838 $378,096
Investments........................... 13,247 2,022 6,732 22,001 101,942 24,037 147,980
Interest-bearing deposits............. 6,034 -- -- 6,034 -- -- 6,034
Federal funds sold and other.......... 28,928 -- -- 28,928 -- -- 28,928
----------------------------------------------------------------------------
Total earning assets.................... 147,790 28,090 31,760 207,640 295,523 57,875 561,038

Interest bearing liabilities:
Savings and transaction accounts...... 148,680 -- -- 148,680 -- -- 148,680
CD's $100,000 and over................ 23,441 14,274 27,724 65,439 37,790 -- 103,229
Other time............................ 57,811 36,900 39,962 134,673 57,592 670 192,935
----------------------------------------------------------------------------
Total deposits.......................... 229,932 51,174 67,686 348,792 95,382 670 444,844
Other borrowings...................... 22,969 153 676 23,798 3,912 3,088 30,798
----------------------------------------------------------------------------
Total interest bearing liabilities...... 252,901 51,327 68,362 372,590 99,294 3,758 475,642
-----------------------------------------------------------------------------
Interest sensitivity GAP................ $(105,111) $ (23,237) $ (36,602) $(164,950) $196,229 $54,117 $ 85,396
=============================================================================
Cumulative GAP.......................... $(105,111) $(128,348) $(164,950) $(164,950) $ 31,279 $85,396 $ 85,396
=============================================================================
Cumulative GAP as a percentage of total
earning assets......................... (18.74)% (22.88)% (29.40)% (29.40)% 5.58% 15.22% 15.22%
=============================================================================
</TABLE>

[GRAPH OF The Company does not manage its interest rate risk simply by
Interest employing static maturity and repricing reports. The Company
Sensitivity employs a dynamic modeling process that projects the impact
Gap] of different interest rate scenarios on earnings and return
on 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 on a contractual
basis in reaction to changing interest rate levels.
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 seven 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 demand 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. The Company also holds other marketable
assets 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.

The Bank maintains membership in the FHLB of Pittsburgh.
This membership has had two significant benefits for the
Company. First, from an investment perspective, the equity
position

25
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

in FHLB will provide a strong and steady source of
dividend income. Second, membership in FHLB of Pittsburgh
improves the Company's ability to manage liquidity via
access to an immediate line of credit and other sources of
borrowings.

FSB maintains membership in the FHLB of Cincinnati. FSB's
charter under the Office of Thrift Supervision and
consequent status as a Qualified Thrift Lender mandated this
investment, but it will derive essentially the same benefits
in terms of income, liquidity, and asset/liability
management as those of the Bank.

In November of 1996, Kentucky filed an application to
acquire membership in the Federal Home Bank "FHLB" of
Cincinnati. At December 31, 1996, Kentucky's application was
still pending. Approval of the application would bring
Kentucky into conformance with the Company's overall
asset/liability management policies and practices and
provide it with virtually the same benefits as those
realized by the Bank and FSB via its FHLB investment.

The Company's cash and cash equivalents, represented by cash
and due from banks, interest bearing deposits in other
banks, and federal funds sold, are a product of its
operating, investing, and financing activities. Cash and
cash equivalents from operating activities have remained
relatively stable and approximated $10.9 million, $6.2
million, and $8.2 million in 1996, 1995, and 1994. Net cash
used in investing activities approximated $26.6 million,
$12.6 million, and $33.4 million in 1996, 1995, and 1994.
The net cash used in investing activities primarily relates
to the funding of loans, net of investment portfolio
activity. Net cash provided by financing activities
approximated $33.6 million, $25.1 million, and $21.7 million
in 1996, 1995, and 1994. In 1996, the net cash provided by
financing activities was due to increases in deposits and
short-term borrowings, normal operations of the Company, and
proceeds from long-term borrowings and the preferred stock
offering which were used to purchase Kentucky. In 1995 and
1994, the net cash provided by financing activities was
primarily due to increases in deposits.

A central principle in the Company's capital planning
process is to attain sufficiently high levels of
profitability to insure that capital adequacy is maintained
while generating a consistent flow of dividends. In December
1992 provisions of the FDIC Improvement Act of 1991 (the
"Act") related to measurement and monitoring of capital
levels became effective. It also mandated minimum levels of
capital required for an institution to be rated on the basis
of capital. Under final agency rules, an institution will be
deemed to be "well capitalized," the highest rating
attainable, if it maintains (i) Total Capital to Risk
Weighted Assets in excess of 10%, (ii) Tier One Capital to
Risk Weighted Assets in excess of 6%, and (iii) Tier One
Capital to Average Assets in excess of 5%. Following are
these ratios for the Company and its two significant
subsidiaries:

<TABLE>
<CAPTION>
Matewan
Matewan Matewan National To Be
BancShares, National Bank/ Well
Inc. Bank Kentucky Capitalized
-----------------------------------------------
<S> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets..... 15.63% 14.86% 17.87% 10.00%
Tier One Capital to Risk Weighted Assets.. 13.87 13.80 16.62 6.00
Tier One Capital to Average Assets........ 9.64 9.29 12.50 5.00
</TABLE>

[GRAPH OF All measures are substantially in excess of the levels to
Capital Ratios] remain a well capitalized institution. 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 "well capitalized" institution. In every year, the
Company has substantially exceeded the minimum regulatory
capital standards required to merit "well capitalized"
status. Increases in capital levels in the past several
years have been primarily due to the accumulation of income
retained after the payment of dividends.

On March 4, 1996, the Company completed a stock offering of
805 thousand shares of a new class of 7.5% Cumulative
Convertible Preferred Stock, Series A, resulting in a net
capital

26
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

[GRAPH OF infusion of approximately $18.396 million. This new
Net Interest class of stock may not be converted for four years.
Margin]
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 1996 was $27.5
million, up approximately 39% from the 1995 level.
Approximately $7.0 million or 91% of the increase was a
direct function of the Kentucky acquisition. Net interest
margin in 1996 was approximately 29 basis points lower than
1995. A twenty-one basis point decline in yield on average
assets accounted for most of the drop. Loan yields suffered
the biggest declines, with the overall yield on the loan
portfolio falling 66 basis points from 1995. Cost of funds
increased one basis point over prior year levels. Kentucky
had a beneficial effect on overall cost of funds. Without
the acquisition, cost of funds would have increased 8 basis
points.

Net interest income for 1995 was $19.8 million, a 10%
increase over the prior year. The most significant portion
of this increase 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 and the
carryover effect realized in 1995. Time deposits experienced
the most significant increase over the prior year period.

During 1996, interest income increased approximately 43.0%
over prior year levels. Kentucky accounted for 84.5% of the
increase. The remainder of the increase was from the loan
portfolio (ignoring the effect from Kentucky) of
approximately 8.4% higher than prior year levels. Average
loans outstanding without the Kentucky contribution
increased 9.4% in 1996 over 1995. Average investment
securities volumes increased less than 1% from the prior
year when the Kentucky effect is ignored. From this
combination, investment income increased approximately 2.5%
from prior period levels. Average federal funds sold
decreased 15.3% and interest earned on federal funds sold
increased 19.8% in 1995. Substantially lower levels for
average interest bearing deposits in other banks resulted in
a reduction of approximately 73.0% in interest income in
1995 from the prior year.

During 1995, interest income increased approximately 13.7%
over prior year levels. This increase was primarily from the
loan portfolio, which contributed 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 yields
realized on the investment portfolio decreased 7 basis
points in 1995 from 1994. From this combination, investment
income increased approximately 2.5% from prior period
levels. Average federal funds sold decreased 15.3% and
interest earned on federal funds sold increased 19.8% in
1995. Substantially lower levels for average interest
bearing deposits resulted in a reduction of approximately
73.0% in interest income in 1995 from the prior year.

Interest expense increased $6.2 million, or 49.2% in 1996
after increasing 19.9% in 1995. Approximately $4.8 million,
or 77.6% of the increase, was attributable to Kentucky.
Average interest bearing liabilities increased approximately
48.8% in 1996 after experiencing a 6.3% increase in 1995.
Approximately 85.7% of the increase in 1996 was a function
of the Kentucky acquisition. The increase in interest
expense is due to Kentucky acquisition, significant growth
in interest bearing liability volumes in normal core
markets, and a minor (1 basis point) increase in cost of
interest-bearing funds for 1996.

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

27
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

in 1994. The increase in interest expense is due to
both the significant growth in interest bearing liability
volumes and a 50 basis point increase in cost of funds for
1995.

The Company experienced a decrease in net interest margin in
1996 of approximately 29 basis points. The net yield on
earning assets in 1996 was 5.49% as compared to 5.78% in
1995. A 21 basis point decrease in the yield on average
earning assets combined with a 1 basis point increase in the
cost of average interest bearing liabilities was the reason
for the decrease. The decrease was caused primarily by the
Kentucky acquisition. Average non-interest bearing deposits,
traditionally a source of low cost funds, increased 44.6%
from 1995. Kentucky was responsible for 87.1% of the
increase. The net interest margin in 1995 was 5.78% as
compared to 5.53% in 1994. This increase was the result of
an increasing yield on average earning assets of 69 basis
points outpacing a 50 basis point increase in the cost of
interest bearing liabilities.

As the graph of Net Interest Margin at the beginning of this
section illustrates, the Company's net interest margin has
not fluctuated substantially since 1992. Further discussion
of net interest income or its components is included in the
sections titled "Summary Financial Results" or "Financial
Condition."

Table XI - Volume Analysis of Changes in Interest Income and Expense
- ------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
Interest Income/Expense Due to Change In Due to Change In
1996 1995 1994 Volume Rate Total Volume Rate Total
------------------------- --------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans:
Commercial.......................... $10,158 $ 6,851 $ 6,168 $ 3,215 $ 92 $ 3,307 $ (9) $ 692 $ 683
Real estate......................... 13,403 8,470 7,023 5,097 (164) 4,933 1,098 349 1,447
Consumer............................ 13,022 10,003 8,371 4,517 (1,498) 3,019 1,042 590 1,632
------------------------- --------------------------- -------------------------
Total loans............................. 36,583 25,324 21,562 12,829 (1,570) 11,259 2,131 1,631 3,762
Securities:
Taxable............................. 8,248 6,272 6,205 1,620 356 1,976 141 (74) 67
Tax-exempt.......................... 419 146 58 291 (18) 273 92 (4) 88
------------------------- --------------------------- -------------------------
Total securities........................ 8,667 6,418 6,263 1,911 338 2,249 233 (78) 155
Federal funds sold.................... 994 660 551 371 (37) 334 (93) 202 109
Interest bearing balances with other
banks................................ 140 40 148 109 (9) 100 (153) 45 (108)
------------------------- --------------------------- -------------------------
Total earning assets.................... 46,384 32,442 28,524 15,220 (1,278) 13,942 2,118 1,800 3,918

Interest bearing liabilities:
Demand deposits....................... 2,217 1,185 1,142 942 90 1,032 28 15 43
Savings deposits...................... 2,321 1,770 1,817 745 (194) 551 5 (52) (47)
Time deposits......................... 13,337 9,112 7,137 4,097 128 4,225 597 1,378 1,975
Borrowed funds........................ 994 577 447 297 120 417 100 30 130
------------------------- --------------------------- -------------------------
Total interest bearing liabilities...... 18,869 12,644 10,543 6,081 144 6,225 730 1,371 2,101
------------------------- --------------------------- -------------------------
Net interest income..................... $27,515 $19,798 $17,981 $ 9,139 $(1,422) $ 7,717 $1,388 $ 429 $1,817
========================= =========================== =========================
</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.

28
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

OTHER INCOME

Table XII - Other Income
- -------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
Increase (Decrease)
1996 Over 1995 1995 Over 1994
1996 1995 1994 Amount Percent Amount Percent
---------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>

Service fees.......................... $3,011 $2,050 $1,624 $ 961 46.88% $ 426 26.23%
Other income.......................... 839 596 371 243 40.77 225 60.65
Commissions on credit life insurance.. 484 553 690 (69) (12.48) (137) (19.86)
Gain on sale of assets................ 365 103 117 262 254.37 (14) 11.97
---------------------- ------------------ ------------------
Total other income.................... $4,699 $3,302 $2,802 $1,397 42.31% $ 500 17.84%
====================== ================== =================
</TABLE>

Non-interest income increased approximately 42% in 1996 over
[GRAPH OF 1995 levels. Kentucky contributions accounted for 66% of the
Non-interest increase. For 1996, service fee income increased
Income] approximately 47% due to increased volumes attendant with
the growth experienced by the Company on deposit levels.
Kentucky activity accounted for 53% of the increase. Other
income increased approximately 41% in 1996. Kentucky
accounted for most of the increase. Commission income on
credit insurance products decreased approximately 12% in
1996. High loss experiences by the Company's credit
insurance underwriters resulted in the underwriters'
companies tightening eligibility standards for policies
issued in the Company's market area in both 1996 and 1995
and sales volume declined accordingly. Gain on sale of
assets increased more than twofold due to higher gains
realized on the sale of repossessed properties and some
nonrecurring sales related to residuals on maturing lease
receivables.

Non-interest income increased approximately 18% in 1995 over
1994 levels. For 1995, service fee income increased
approximately 26% due to both increased volumes attendant
with the growth experienced by the Company on deposit levels
and higher service charges enacted in 1995 on demand
deposits. Other income increased approximately 61% 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 for
the same reasons enumerated above. Gain on sale of assets
increased more than twofold due to some heavy gains realized
on the sale of repossessed properties.

OTHER EXPENSES

Table XIII - Other Expenses
- ------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
Increase (Decrease)
1996 over 1995 1995 over 1994
1996 1995 1994 Amount Percent Amount Percent
------------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>

Salaries and benefits........ $ 7,877 $ 5,776 $ 4,991 $2,101 36.37% $ 785 15.73%
Net occupancy................ 1,254 954 626 300 31.45 328 52.40
Equipment and furniture...... 1,114 811 783 303 37.36 28 3.58
Advertising.................. 852 708 543 144 20.34 165 30.39
Regulatory assessments....... 206 480 757 (274) (57.08) (277) (36.59)
Data processing expense...... 1,121 563 200 558 99.11 363 181.50
Other........................ 6,676 3,697 3,359 2,979 80.58 338 10.06
------------------------- ------------------ -----------------
$19,100 $12,989 $11,259 $6,111 47.05% $1,730 15.37%
========================= ================== =================
</TABLE>

Total noninterest expense increased approximately 47% in
1996 from 1995 and approximately 15% in 1995 from 1994. The
increase for 1996 is attributable to several factors. The
conversion and subsequent consolidation of Kentucky
accounted for approximately 70% of the increase. In
addition, FSB opened four additional offices in 1996, none
of which are in the stage where the revenue generated is
sufficient to cover operating costs. Consequently most
measures of overhead for the Company are high by historical

29
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------

[GRAPH OF standards. The ratio of noninterest expense to average
Non-interest assets decreased from 3.43% in 1995 to 3.40% in 1996. The
Expense] same ratio increased to 3.43% from 3.14% in 1995 from 1994.

The ability of the Company to maintain satisfactory profit
margins is becoming increasingly dependent on its ability to
control noninterest expenses. Increasing pressure on
interest spreads would tend to place 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 - 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
of below 50% is indicative of an extremely efficient
operation. For the past three years, the Company has
witnessed an increase in its efficiency ratio from 54.2% in
1994 to 56.2% in 1995 to 59.3% in 1996. The increasing trend
is largely a function of increased costs related to the
acquisition and absorption of Kentucky, increased data
processing costs incurred to penetrate new markets, the
start-up of FSB, and subsequent opening of nine new offices
Company-wide in the last three years. Even with the
increases, which management views as a nonrecurring
aberration, the Company would compare favorably with its
peer group on efficiency ratio measures.

[GRAPH OF Salaries and benefits increased approximately $2.1 million
Efficiency Ratio] (36%) in 1996 after increasing approximately $785 thousand
(15%) in 1995. Approximately 79% of the 1996 increase was
attributable to Kentucky. Staffing expenses related to FSB
and the new offices, increasing health-care expenses, and
normal salary increases were other reasons for the
increases.

Net occupancy expenses increased approximately $300 thousand
(31%) and $328 thousand (52%) in 1996 and 1995,
respectively. Kentucky was accountable for approximately 64%
of the increase. Capital expenditures related to the new
offices opened by FSB were the other major items involved in
the increase.

Advertising costs fluctuate with management's evaluation of
the benefit to be gained from additional media exposure.
Management determined that additional advertising would be
beneficial, leading to increases of $144 thousand (20%) and
$165 thousand (30%) for 1996 and 1995, respectively.
Kentucky was responsible for 65% of the increase in 1996.

Equipment and furniture expense increased approximately $303
thousand (37%) from 1995 to 1996 and approximately $28
thousand (4%) from 1994 to 1995. Kentucky accounted for 76%
of the increases in 1996. Capital expenditures related to
the office openings account for most of the rest of the
increase experienced in 1996.

Premiums and assessments of Federal Deposit Insurance
Corporation, the Office of the Comptroller of the Currency,
and the Office of Thrift Supervision decreased approximately
$274 thousand (37%) in 1996 after decreasing approximately
$277 thousand (37%) in 1995. Nominal insurance assessments
for the BIF-insured institutions accounted for much of the
lower expense in 1996. For 1996, the Bank and Kentucky each
paid an annual assessment of $2 thousand. FSB, as a SAIF-
insured institution, incurred no such 1996 relief. FSB did
incur an exemption to the one-time special assessment levied
against SAIF insured institutions in 1996 that would have
otherwise resulted in an assessment of approximately $146
thousand. The negative impact of the exemption is that
exempt institutions will incur no rate relief for the next
two and one-half years, paying instead the SAIF insurance
rates that were in effect on June 30, 1995. Exempt
institutions may elect to pay the special assessment in 1997
after one semiannual assessment period has passed and then
be assessed at the lower prevalent SAIF rate on an ongoing
basis. Management has determined that it would be
advantageous to elect to pay the special assessment.
Accordingly, FSB will incur an additional $147 thousand in
regulatory assessments in 1997.

Data processing expense increased approximately $558
thousand, approximately 99% in 1996. Kentucky acquisition,
conversion, and consolidation account for most of the
increase. Expenses in 1995 increased approximately $363
thousand over 1994. The outsourcing of the

30
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- -------------------------------------------------------------------------------

Company's data processing function to EDS and subsequent
conversion were the major reasons.

Other expenses increased approximately $2.979 million or 81%
in 1996. Kentucky was responsible for approximately 62% of
the increase. Generally higher telephone, supplies, and
postage expenses accounted for much of the remaining
increase.

APPLICABLE INCOME TAXES

Income tax expense was $3.7 million in 1996, $3.0 million in
1995 and $2.9 million in 1994. The Company's effective tax
rate for the past three years has been 36.5% for 1996, 36.4%
for 1995, and 36.5% for 1994. 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 presented 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.

31
<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 at December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

Charleston, West Virginia /s/ Ernst & Young LLP
February 28, 1997

32
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Consolidated Balance Sheets
- ------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)

December 31
1996 1995
---------------------
<S> <C> <C>

Assets
Cash and due from banks................. $ 29,721 $ 23,881
Interest bearing deposits in other banks 6,034 5,704
Federal funds sold...................... 28,928 17,237
---------------------

Cash and cash equivalents............... 64,683 46,822

Investment securities:
Available-for-sale at fair value....... 25,411 32,429
Held-to-maturity (approximate fair
value of $122,427 and $73,839 at 122,569 73,299
December 31, 1996 and 1995)...........
Loans, net.............................. 370,801 228,568
Premises and equipment.................. 20,871 9,692
Accrued interest receivable and other 22,851 10,224
assets.................................
---------------------
Total assets............................ $627,186 $401,034
=====================

Liabilities and shareholders' equity
Liabilities:
Deposits:
Non-interest bearing.................. $ 78,464 $ 44,917
Interest bearing...................... 444,844 289,470
---------------------

Total deposits.......................... 523,308 334,387

Short-term borrowings:
Repurchase agreements.................. 10,118 9,361
Federal Home Loan Bank advances........ 5,000 5,000
Other.................................. 8,101 3,349
Long-term borrowings.................... 7,579 --
Accrued interest payable and other 5,502 3,120
liabilities............................
---------------------

Total liabilities....................... 559,608 355,217

Shareholders' equity:
Convertible preferred stock, Series A,
7.5%--$1 par value; 1,000,000 shares 805 --
authorized; 805,000 issued and
outstanding at December 31, 1996
($20,125 aggregate liquidation value)
Common stock--$1 par value; 10,000,000
shares authorized; 3,684,104 shares 3,684 3,684
issued, including 23,953 and 16,753
shares in treasury at December 31,
1996 and 1995.........................

Capital surplus........................ 29,773 12,182
Retained earnings...................... 33,590 29,976
Treasury stock at cost................. (206) (78)
Net unrealized (loss) gain on (68) 53
available-for-sale securities, net of
deferred taxes........................
---------------------
Total shareholders' equity.............. 67,578 45,817
---------------------
Total liabilities and shareholders' $627,186 $401,034
equity.................................
=====================
</TABLE>

See notes to consolidated financial statements.

33
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Consolidated Statements of Income
- -----------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............. $36,583 $25,324 $21,562
Interest and dividends on investment
securities:
Taxable............................... 8,248 6,272 6,205
Tax-exempt............................ 419 146 58
Federal funds sold and other........... 1,134 700 699
---------------------------

Total interest income................... 46,384 32,442 28,524

Interest expense:
Deposits............................... 17,875 12,067 10,096
Short and long-term borrowings......... 994 577 447
---------------------------
Total interest expense.................. 18,869 12,644 10,543
---------------------------

Net interest income..................... 27,515 19,798 17,981
Provision for loan losses............... 2,945 1,908 1,643
---------------------------

Net interest income after provision for
loan losses............................ 24,570 17,890 16,338

Other income:
Service charges and fees............... 3,011 2,050 1,624
Credit life insurance commissions...... 484 553 690
Other.................................. 1,204 699 488
---------------------------

Total other income...................... 4,699 3,302 2,802

Other expenses:
Salaries and employee benefits......... 7,877 5,776 4,991
Net occupancy.......................... 1,254 954 626
Equipment.............................. 1,114 811 783
Outside data processing................ 1,121 563 200
Advertising............................ 852 708 543
Federal deposit insurance and
regulatory assessments................ 206 480 757
Other.................................. 6,676 3,697 3,359
---------------------------
Total other expenses.................... 19,100 12,989 11,259
---------------------------

Income before income taxes.............. 10,169 8,203 7,881
Applicable income taxes................. 3,707 2,983 2,876
---------------------------
Net income.............................. 6,462 5,220 5,005
Preferred stock dividends............... 1,236 -- --
---------------------------
Net income available to common
shareholders........................... $ 5,226 $ 5,220 $ 5,005
===========================
Net income per common share............. $1.43 $1.42 $1.36
===========================
Average common shares outstanding (in
thousands)............................. 3,664 3,668 3,668
===========================

</TABLE>

See notes to consolidated financial statements.

34
<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-
Preferred Common Capital Retained Treasury for-Sale
Stock Stock Surplus Earnings Stock Securities Total
-------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994............. $ -- $ 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 1,000 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 on
available-for-sale securities, net of
deferred income taxes................. -- -- -- -- -- 196 196
Acquisition of 2,800 treasury shares... -- -- -- -- (56) -- (56)
Sale of 3,300 treasury shares.......... -- -- 31 -- 26 -- 57
-------------------------------------------------------------------------
Balances at December 31, 1995........... -- 3,684 12,182 29,976 (78) 53 45,817
Net income - 1996...................... -- -- -- 6,462 -- -- 6,462
Dividends on common stock ($.44 per
share)................................ -- -- -- (1,612) -- -- (1,612)
Issuance of preferred stock (805,000
shares)............................... 805 -- 17,591 -- -- -- 18,396
Dividends on preferred stock ($1.54
per share)............................ -- -- -- (1,236) -- -- (1,236)
Change in net unrealized loss on
available-for-sale securities, net of
deferred income taxes................. -- -- -- -- -- (121) (121)
Acquisition of 7,200 treasury shares... -- -- -- -- (128) -- (128)
-------------------------------------------------------------------------
Balances at December 31, 1996........... $805 $3,684 $29,773 $33,590 $(206) $ (68) $67,578
=========================================================================
</TABLE>

See notes to consolidated financial statements.

35
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>

Year Ended December 31
1996 1995 1994
--------------------------------

Operating activities
Net income.............................. $ 6,462 $ 5,220 $ 5,005
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................... 1,100 760 658
Amortization........................... 1,125 508 547
Provision for loan losses.............. 2,945 1,908 1,643
Deferred income taxes.................. 243 70 140
Gain on sale of premises and equipment. -- (103) (117)
Net change in accrued interest
receivable and other assets........... (825) (1,354) (1,432)
Net change in accrued interest payable
and other liabilities................. (181) (843) 1,790
--------------------------------

Net cash provided by operating
activities............................. 10,869 6,166 8,234

Investing activities
Proceeds from maturities of
available-for-sale securities.......... 21,275 7,925 25,937
Purchases of available-for-sale
securities............................. (12,130) (12,800) (5,971)
Proceeds from maturities of
held-to-maturity securities............ 39,794 47,360 10,000
Purchases of held-to-maturity securities (76,915) (38,236) (40,680)
Net change in loans..................... (12,741) (15,732) (20,535)
Purchases of premises and equipment..... (1,704) (1,371) (2,346)
Proceeds from the sale of premises and
equipment.............................. -- 274 187
Net cash received in acquisition of
subsidiary............................. 15,822 -- --
--------------------------------

Net cash used in investing activities... (26,599) (12,580) (33,408)

Financing activities
Net change in deposits.................. 5,559 23,740 19,494
Net change in short-term borrowings..... 5,033 2,713 3,407
Proceeds from long-term borrowings...... 8,000 -- --
Payments on long-term borrowings........ (421) -- --
Cash paid on fractional shares from
stock dividend......................... -- (3) --
Cash dividends paid..................... (2,848) (1,400) (1,142)
Proceeds from the sale of preferred
stock.................................. 18,396 -- --
Purchase of treasury stock.............. (128) (56) (18)
Sale of treasury stock.................. -- 57 --
--------------------------------
Net cash provided by financing
activities............................. 33,591 25,051 21,741
--------------------------------

Increase (decrease) in cash and cash
equivalents............................ 17,861 18,637 (3,433)
Cash and cash equivalents at beginning
of year................................ 46,822 28,185 31,618
--------------------------------
Cash and cash equivalents at
end of year............................ $ 64,683 $ 46,822 $ 28,185
================================

</TABLE>

See notes to consolidated financial statements.

36
<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 four
financial institution subsidiaries engaged in community banking activities and
providing financial services to individuals and businesses throughout southern
West Virginia, eastern Kentucky, and southwestern Virginia. 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 National Bank/Kentucky, 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, federal funds sold, and interest-bearing deposits in other banks 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.

The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated loan losses. Managements 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 borrowers 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.

37
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------

Intangible Assets

Intangible assets representing the present value of future net income to be
earned from deposits of acquired banks are being amortized on an accelerated
basis over an eight year period, approximating the expected run-off of the
related deposits. The excess of purchase price over the estimated fair value of
net assets acquired, goodwill, is being amortized on a straight-line basis over
a twenty year period. The carrying amount of goodwill is evaluated for
impairment if facts and circumstances suggest that it may be impaired. If this
evaluation indicates that goodwill will not be recoverable, as determined based
on the estimated undiscounted cash flows of the entity acquired over the
remaining amortization period, the carrying amount of goodwill will be reduced.

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. Amortization of premiums and accretion of discounts has been
deducted from and added to the related interest income.

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 managements
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.

38
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- --------------------------------------------------------------------------------

Employee Benefit Plan

The Company has a defined benefit pension plan covering substantially all
employees. Pension costs are actuarially determined and charged to expense. The
Company provides no postemployment or postretirement benefits other than pension
benefits. The Company also provides its employees with a defined contribution
plan and a match of employee contributions to such plan.

Net Income Per Common Share

Net income per common share is computed by dividing net income available to
common shareholders (net income less preferred stock dividends) by the weighted
average number of common shares outstanding during the applicable period.

New Accounting Standard

In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which is applicable to the Company effective
January 1, 1997. In October 1996, the FASB agreed to defer the effective date
for one year for the following transactions: securities lending, repurchase
agreements, dollar rolls, and other similar secured transactions. Statement No.
125 establishes standards for determining whether certain transfers of financial
assets should be considered sales of all or part of the assets or as secured
borrowings. Statement No. 125 also establishes standards for settlements of
liabilities through the transfer of assets to a creditor or obtaining an
unconditional release and whether these settlements should prove the debt
extinguished. The adoption of this standard is not expected to have a material
impact on the Company's financial statements.

2. Acquisition Activity (Dollars in Thousands, Except Per Share Data)

On March 16, 1996, the Company acquired for cash all of the outstanding common
stock of Bank One, Pikeville, NA (Kentucky) from Banc One Corporation. This
transaction was accounted for under the purchase method of accounting.
Accordingly, the consolidated financial statements include the operations of
Kentucky only from the date of acquisition. The aggregate purchase price was
approximately $29,350, which includes costs of acquisition. The Company financed
this transaction with proceeds from the issuance of convertible preferred stock
of $18,400, long-term debt of $8,000, and available cash of $2,900. The excess
of the purchase price over the estimated fair value of net tangible assets
acquired was allocated to deposit base intangibles of approximately $2,500 which
are being amortized on an accelerated method over eight years, and goodwill of
approximately $8,250 which is being amortized on a straight line method over
twenty years.

The following unaudited pro forma financial information presents a summary of
consolidated results of operations of the Company and Kentucky, adjusted for the
cost of funding, as if the acquisition has occurred at the beginning of each
period presented.

<TABLE>
<CAPTION>
Year Ended December 31
1996 1995
----------------------
<S> <C> <C>

Pro forma results of operations
(unaudited):
Net interest income.................... $26,270 $27,107
Net income available to common 5,175 4,195
shareholders..........................
Net income per common share............ 1.41 1.14
</TABLE>

In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of each period presented or of
future operations of the combined companies under the ownership and management
of the Company.

The Company has acquired banks in the current and 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
acquisition. Deposit base intangibles, included in other assets in the
consolidated balance sheets, approximated $5,250 and $2,730 at December 31, 1996
and 1995. Accumulated amortization approximated $1,740 and $1,070 at December
31, 1996 and 1995. Goodwill, included in other assets in the consolidated
balance sheets, approximated $8,250 at December 31, 1996. Accumulated
amortization approximated $310 at December 31, 1996. Amortization of deposit
base intangibles and goodwill approximated $980 in 1996, $200 in 1995, and $200
in 1994.

39
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------

3. Investment Securities (Dollars in Thousands)

The following is a summary of available-for-sale securities and held-to-maturity
securities:

<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
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...................... $ 18,926 $ 13 $ (15) $ 18,924
Obligations of states and political
subdivisions.................................. 3,890 27 - 3,917
Other securities............................... 2,709 - (139) 2,570
-----------------------------------------------
Total.......................................... $ 25,525 $ 40 $(154) $ 25,411
===============================================

Held-to-Maturity Securities
U.S. Treasury securities and
obligations of
U.S. government agencies...................... $112,910 $346 $(560) $112,696
Obligations of states and political
subdivisions.................................. 6,925 69 (6) 6,988
Other securities............................... 2,734 9 - 2,743
Total.......................................... $122,569 $424 $(566) $122,427
===============================================

December 31, 1995
-----------------------------------------------
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...................... $ 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
===============================================
</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, 1996, 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.

40
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
----------------------
<S> <C> <C>
Available-for-sale
Due in one year or less.................... $ 9,568 $ 9,573
Due after one year through five years...... 12,716 12,732
Due after five years through ten years..... 532 535
Due after ten years........................ - -
Equity securities.......................... 2,709 2,571
----------------------
$ 25,525 $ 25,411
======================

Held-to-maturity
Due in one year or less.................... $ 12,428 $ 12,485
Due after one year through five years...... 89,210 88,926
Due after five years through ten years..... 13,232 13,246
Due after ten years........................ 7,699 7,770
----------------------
$122,569 $122,427
======================
</TABLE>

The Company sold no investment securities during the three years in the period
ended December 31, 1996.

At December 31, 1996 and 1995, investment securities with carrying amounts of
$40,500 and $41,300, respectively, were pledged to secure public deposits and
for other purposes.

4. Loans (Dollars in Thousands)
Major classifications of loans are as follows:

<TABLE>
<CAPTION>
December 31
1996 1995
---------------------
<S> <C> <C>
Commercial and financial loans......... $108,240 $ 63,581
Real estate loans...................... 144,693 88,197
Consumer loans......................... 125,163 80,796
---------------------

Gross loans............................ 378,096 232,574
Less unearned income................... (1,309) (1,033)
---------------------

Total loans............................ 376,787 231,541
Less allowance for loan losses......... (5,986) (2,973)
---------------------
Net loans.............................. $370,801 $228,568
=====================
</TABLE>

The Company grants commercial and financial, real estate, and consumer loans
primarily to customers in southern West Virginia, eastern Kentucky, and
southwestern Virginia. 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 rates and collateral,
as those prevailing at the same time for comparable transactions with unrelated
persons and do not involve more than normal risk of collectibility.

The following presents the activity with respect to related party loans:

<TABLE>
<S> <C>
Balance at January 1, 1996.............. $ 3,392
Loans made.............................. 3,470
Principal collected..................... (3,547)
--------
Balance at December 31, 1996............ $ 3,315
========
</TABLE>

41
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------

5. Allowance for Loan Losses (Dollars in Thousands)

A summary of changes in the allowance for loan losses follows:

Balance at beginning of year......... $ 2,973 $ 2,932 $ 2,961
Loans charged off.................... (3,738) (2,394) (2,128)
Loan recoveries...................... 654 527 456
-----------------------------

Net charge-offs...................... (3,084) (1,867) (1,672)
Provision charged to expense......... 2,945 1,908 1,643
Balance of acquired subsidiary....... 3,152 - -
-----------------------------
Balance at end of year............... $ 5,986 $ 2,973 $ 2,932
=============================
</TABLE>

At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired was $10,922 and $6,520 (of which $1,733 and $278 were
on a nonaccrual basis). Included in this amount is $1,986 and $863 of impaired
loans for which the related allowance for loan losses is $756 and $274, and
$8,936 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 years ended December 31, 1996 and 1995
was approximately $9,525 and $5,713. During the years ended December 31, 1996
and 1995, the Company recognized interest income on impaired loans of $1,225 and
$852, which included $1,225 and $842 of interest income recognized using the
cash basis method of income recognition.

6. 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
1996 1995
-------------------
<S> <C> <C>
Land.................................... $ 4,273 $ 1,900
Buildings and improvements.............. 17,683 9,492
Furniture and equipment................. 6,068 4,363

28,024 15,755
Less accumulated depreciation........... (7,153) (6,063)
-------------------
$20,871 $ 9,692
===================
</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: 1997 - $590; 1998 - $480; 1999 -
$350; 2000 - $285; 2001 - $135; with $1,150 of commitments extending beyond
2001.

Total rent expense, including cancelable and noncancelable leases, net of rental
income of premises, approximated $300, $450, and $380 in 1996, 1995, and 1994.

7. Deposits (Dollars in Thousands)

Included in interest-bearing deposits are various time deposit products. Time
deposits with remaining terms of more than one year at December 31, 1996, have
aggregate maturities of $200,112 in 1997, $58,152 in 1998, $31,242 in 1999,
$5,988 in 2000, and $670 in 2001. At December 31, 1996 and 1995, time deposits
exceeding $100 approximated $103,229 and $67,786.

At December 31, 1996 and 1995, the Company held deposits from related parties of
$14,100 and $13,950. Interest paid on deposits, short-term borrowings, and long-
term borrowings approximated $18,130, $12,340, and $10,365 in 1996, 1995, and
1994.

8. Short-Term Borrowings (Dollars in Thousands)

Short-term borrowings consist primarily of commercial repurchase agreements,
short-term advances from the Federal Home Loan Bank (FHLB), and treasury tax and
loan account. The weighted average interest rate on short-term borrowings
approximated 4.04% and 4.92% at December 31, 1996 and 1995.

The Company's banking subsidiaries are members of the 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

42
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- --------------------------------------------------------------------------------

advances. The available line of credit at prevailing market interest rates, at
December 31, 1996, approximates $76,000. At December 31, 1996 and 1995, short-
term advances from the FHLB approximated $5,000 at an interest rate of 3.61% and
6.05%.

9. Long-Term Borrowings (Dollars in Thousands)

During 1996, the Company secured $8,000 of long-term borrowings to assist with
funding the acquisition of Kentucky. The long-term borrowing is secured by the
outstanding stock of the Company's primary subsidiary bank and is payable to a
financial institution through April 2006 at an interest rate of 7.7%. At
December 31, 1996, the outstanding balance approximated $7,579 and the Company
has complied with the restrictive covenants in the agreement. The principal is
payable over the next five years as follows: 1997 - $540; 1998 - $630; 1999 -
$680; 2000 - $730; and 2001 - $790.

10. Income Taxes (Dollars in Thousands)

The applicable income tax provision included in the consolidated statements of
income is summarized as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------
<S> <C> <C> <C>
Current:
Federal.................................... $3,116 $2,520 $2,335
State...................................... 348 393 401
------------------------
Total current............................... 3,464 2,913 2,736

Deferred:
Federal.................................... 227 56 118
State...................................... 16 14 22
------------------------
Total deferred.............................. 243 70 140
------------------------
Total....................................... $3,707 $2,983 $2,876
========================
</TABLE>

The Company incurred no taxes related to securities transactions during the
three years in the period ended December 31, 1996.

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>
1996 1995 1994
-------------------- ------------------- ------------------
Amount Percent Amount Percent Amount Percent
-------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory federal rate................. $3,458 34.0% $2,789 34.0% $2,679 34.0%
Plus: State income tax net of federal
tax benefits.......................................... 240 2.4 269 3.3 280 3.6
-------------------- ------------------- ------------------
3,698 36.4 3,058 37.3 2,959 37.6

Increase (decrease) in taxes resulting
from:
Tax-exempt interest................................... (182) (1.8) (65) (.8) (34) (.5)
Other................................................. 191 1.9 (10) (.1) (49) (.6)
-------------------- ------------------- ------------------
Actual tax expense..................... $3,707 36.5% $2,983 36.4% $2,876 36.5%
==================== =================== ==================
</TABLE>

43
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------

Significant components of the Company's deferred tax assets and liabilities
are as follows:

<TABLE>
<CAPTION>
December 31
1996 1995
-----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses............................................ $1,705 $647
Deferred revenue..................................................... 285 175
Other liabilities.................................................... 340 -
Accrued employee benefits............................................ 87 88
Available-for-sale investments....................................... 45 -
Other................................................................ 18 16
-----------------
Total deferred tax assets............................................. 2,480 926

Deferred tax liabilities:
Intangible assets.................................................... 1,788 353
Capitalized costs.................................................... 399 140
Premises and equipment............................................... 246 183
Available-for-sale investments....................................... - 35
-----------------
Total deferred tax liabilities........................................ 2,433 711
-----------------
Net deferred tax assets............................................... $ 47 $215
=================
</TABLE>

Income taxes paid approximated $3,669, $3,775, and $1,825 in 1996, 1995, and
1994.

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. Effective January 1, 1995, the Company amended the benefit
formula of the defined benefit pension plan 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>
1996 1995
------------------
<S> <C> <C>
Projected benefit obligation:
Vested benefit obligation.......................................... $2,128 $1,976
Nonvested benefit obligation....................................... 42 40
------------------

Accumulated benefit obligation...................................... 2,170 2,016
Effect of estimated future pay increases........................... 120 159
------------------
Projected benefit obligation........................................ 2,290 2,175

Plan assets at fair value........................................... 2,489 2,320
------------------
Projected benefit obligation less than plan assets................. 199 145

Unrecognized prior service benefit.................................. (447) (470)
Unrecognized net asset at transition, net of
amortization....................................................... (251) (271)
Unrecognized net loss from past experience
different from that assumed........................................ 281 369
Accrued pension cost included in other ------------------
liabilities........................................................ $(218) $ (227)
==================
</TABLE>

Following is a summary of the components of net periodic pension cost:

Service cost - benefits earned during
the period........................................ $ 180 $ 151 $ 48
Interest cost on projected benefit
obligation........................................ 142 141 132
Actual (return) loss on plan assets................ (143) (428) 93
Net amortization and deferral...................... (57) 265 (285)
-------------------------
Net periodic pension cost (benefit)................ $ 122 $ 129 $ (12)
=========================
</TABLE>

44
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- --------------------------------------------------------------------------------

At December 31, 1996 and 1995, a 7% weighted average discount rate and a 3% rate
of increase in future compensation levels were 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 in the period ended December 31,
1996, 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 begun in 1995 which covers
substantially all employees. Contributions to the plan are based on a percentage
of the employees' contributions to the plan. The Company contributed $35 and $25
to the plan during 1996 and 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 Companys 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.

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 $10,300 and $9,200
as of December 31, 1996 and 1995.

Loan Commitments: At December 31, 1996 and 1995, the Company had commitments
outstanding to extend credit of approximately $22,000 and $13,600. 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. Shareholders' Equity (Dollars in Thousands, Except Per Share Data)

During 1996, the Company sold 805,000 shares of 7.5% Cumulative Convertible
Preferred Stock (preferred stock), with an aggregate liquidation value of
$20,125 to assist in funding the acquisition of Kentucky. The preferred stock
accrues an annual dividend of $1.875 per share, payable quarterly. In the event
that full cumulative dividends on the preferred stock have not been paid when
due, the Company may not declare or pay any dividends or make other
distributions on its common stock. At December 31, 1996, the Company has made
all of the required quarterly dividend payments on its preferred stock.

Each share of preferred stock is convertible into one share of common stock. The
value of the preferred stock is fixed at $22 per share upon conversion.
Preferred shareholders have no voting rights, except as required by law. The
preferred stock is not subject to any mandatory redemption or sinking fund
provision. The preferred stock is redeemable as a whole or in part at the option
of the Company for cash on or after March 15, 2000, at a price of $26.125 per
share, declining annually to $25 per share on March 15, 2006 and thereafter.

In January 1997, the Board of Directors of the Company approved the use of up to
$3,000 to repurchase outstanding preferred stock.

On May 19, 1995, the Company's Board of Directors authorized a 10% common stock
dividend payable to shareholders of record on June 1, 1995. On April 12, 1994,
the Companys Board of Directors authorized a four-for-one stock split of common
shares effected in the form of a 300% stock dividend to shareholders of record
on May 1, 1994. Average shares outstanding and per share amounts included in the
consolidated financial statements and notes have been adjusted for the stock
dividend and stock split.

The primary source of funds for dividends paid by the Company to its
shareholders is dividends received from its bank subsidiaries. Dividends paid by
banking subsidiaries 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 1997, net retained
profits available for distribution to the

45
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------

Company as dividends, without regulatory approval, approximate $1,865 plus net
income for the interim period through the date of declaration.

14. Regulatory Matters (Dollars in Thousands)

The Company and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agency. Under capital
adequacy guidelines, the Company and its banking subsidiaries must meet specific
capital guidelines that involve quantitative measures of the Company and its
banking subsidiaries' assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. The Company and its banking
subsidiaries' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures require the Company and its banking subsidiaries to
maintain minimum amounts and ratios (set forth in the table below) of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1996, that the Company and its banking
subsidiaries meet all capital adequacy requirements to which they are subject.

As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation and the Office of the Comptroller of the Currency
categorized the Company and its two significant subsidiaries, Matewan National
Bank and Matewan National Bank/Kentucky as well capitalized. To be categorized
as well capitalized, the Company and its banking subsidiaries must maintain
minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth
in the table below. There are no conditions or events since that notification
that management believes have changed the institution's category. However, the
volatility of the unrealized gain or loss on available-for-sale securities,
which is a component of capital, may significantly affect capital adequacy in
the future.

The Company and its two significant subsidiaries' actual capital amounts and
ratios are presented in the following table.

<TABLE>
<CAPTION>
For Capital
Adequacy To Be Well
Actual Purposes Capitalized
---------------- --------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Matewan BancShares, Inc.......................... $60,988 15.63 $31,219 >=8.00 $39,023 >=10.00
Matewan National Bank............................ 35,761 14.86 19,254 >=8.00 24,068 >=10.00
Matewan National Bank/Kentucky................... 21,903 17.87 9,805 >=8.00 12,257 >=10.00
Tier I Capital (to Risk Weighted Assets):
Matewan BancShares, Inc.......................... 54,108 13.87 15,609 >=4.00 23,414 >=6.00
Matewan National Bank............................ 33,220 13.80 9,627 >=4.00 14,441 >=6.00
Matewan National Bank/Kentucky................... 20,371 16.62 4,903 >=4.00 7,354 >=6.00
Tier I Capital (to Average Assets):
Matewan BancShares, Inc.......................... 54,108 9.64 22,453 >=4.00 28,067 >=5.00
Matewan National Bank............................ 33,220 9.29 14,310 >=4.00 17,888 >=5.00
Matewan National Bank/Kentucky................... 20,371 12.50 6,518 >=4.00 8,147 >=5.00
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Matewan BancShares, Inc.......................... 47,074 19.09 19,726 >=8.00 24,658 >=10.00
Matewan National Bank............................ 33,378 15.31 17,440 >=8.00 21,800 >=10.00
Tier I Capital (to Risk Weighted Assets):
Matewan BancShares, Inc.......................... 44,101 17.89 9,863 >=4.00 14,795 >=6.00
Matewan National Bank............................ 30,790 14.12 8,720 >=4.00 13,080 >=6.00
Tier I Capital (to Average Assets):
Matewan BancShares, Inc.......................... 44,101 11.64 15,149 >=4.00 18,937 >=5.00
Matewan National Bank............................ 30,790 8.73 14,111 >=4.00 17,638 >=5.00
</TABLE>

The banking subsidiaries of the Company are required to maintain average reserve
balances with the Federal Reserve Bank or as cash in their vault. The average
amount of those reserve balances for the year ended December 31, 1996,
approximated $3,975.

46
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- --------------------------------------------------------------------------------

15. 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 analyses, 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 short-
term borrowings approximate those liabilities' fair values.

Long-Term Borrowings: The fair values of long-term borrowings are estimated
using discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.

The estimated fair values of the Bank's financial instruments are as follows:

<TABLE>
<CAPTION>
1996 1996
-------------------- --------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
--------------------- ---------------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 58,649 $ 58,649 $ 41,118 $ 41,118
Interest-bearing deposits in other banks............ 6,034 6,034 5,704 5,704
Investment securities............................... 147,980 147,838 105,728 106,268
Loans............................................... 370,801 370,379 228,568 232,598
Financial liabilities:
Deposits............................................ 523,308 525,870 334,387 335,901
Short-term borrowings............................... 23,219 23,219 17,710 17,710
Long-term borrowings................................ 7,579 7,497 - -
</TABLE>

47
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------

16. Parent Company Only Condensed Financial Information (Dollars in Thousands)

Condensed Balance Sheets

<TABLE>
<CAPTION>
December 31
1996 1995
--------------------
<S> <C> <C>
Assets
Cash............................................................................ $ 59 $ 185
Investment securities - available for sale...................................... 3,766 2,160
Investment securities - held to maturity........................................ - 29
Investment in banking subsidiaries.............................................. 69,573 36,646
Investment in non-bank subsidiary............................................... 877 903
Receivable from bank subsidiary................................................. - 5,000
Loans........................................................................... 240
Premises and equipment.......................................................... 382 403
Other assets.................................................................... 887 1,063
--------------------
Total assets.................................................................... $ 75,784 $ 46,389
====================
Liabilities and shareholders' equity
Liabilities:
Notes payable.................................................................. $ 137 $ 137
Note payable to non-bank subsidiary............................................ 300 300
Long-term borrowings........................................................... 7,579 -
Other liabilities.............................................................. 190 135
-------------------
Total liabilities............................................................... 8,206 572
Shareholders' equity............................................................ 67,578 45,817
-------------------
Total liabilities and shareholders' equity...................................... $ 75,784 $ 46,389
===================
</TABLE>

Condensed Statements of Income

<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
---------------------------------
<S>
Income: <C> <C> <C>
Dividends from bank subsidiary............................ $ 2,200 $ 7,100 $ 2,008
Dividends from non-bank subsidiary........................ - 58 64
Operating expenses, net................................... 186 18 59
-----------------------------------
Income before equity in undistributed
earnings (excess dividends) of
subsidiaries.............................................. 2,014 7,140 2,013
Equity in undistributed earnings
(excess dividends) of subsidiaries........................ 4,448 (1,920) 2,992
------------------------------------
Net income................................................. 6,462 5,220 5,005
Preferred stock dividends.................................. 1,236 - -
------------------------------------
Net income available to common
shareholders.............................................. $ 5,226 $ 5,220 $ 5,005
====================================
</TABLE>

48
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- --------------------------------------------------------------------------------

Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Operating activities
Net income.......................................................................... $ 6,462 $ 5,220 $ 5,005
Adjustments to reconcile net income to net acash provided by operating activities:
(Equity in undistributed earnings)excess dividends of subsidiaries................. (4,448) 1,920 (2,992)
Depreciation expense............................................................... (9) 12 -
Change in other assets............................................................. (13) (145) (27)
Change in other liabilities........................................................ 55 47 45
Change in dividends receivable..................................................... 5,000 (5,000) 3,800
------------------------------
Net cash provided by operating activities........................................... 7,047 2,054 5,831

Investing activities
Investment in subsidiary............................................................ (28,600) - (3,351)
Return of investment from subsidiary................................................ 26 697 -
Purchases of premises and equipment................................................. (21) (358) -
Purchase of investment securities................................................... (1,577) (793) (1,380)
------------------------------
Net cash used in investing activities............................................... (30,172) (454) (4,731)

Financing activities
Cash dividends paid on common and preferred stock................................... (2,848) (1,400) (1,142)
Purchase of treasury stock.......................................................... (128) (56) (18)
Sale of treasury stock.............................................................. - 57 -
Cash paid on fractional shares...................................................... - (3) -
Payment of note payable............................................................. - (100) -
Proceeds from long-term borrowings.................................................. 8,000 - -
Payments on long-term borrowings.................................................... (421) - -
Proceeds from sale of preferred stock............................................... 18,396 - -
------------------------------
Net cash provided by (used in) financing activities................................. 22,999 (1,502) (1,160)
------------------------------
(Decrease) increase in cash........................................................ (126) 98 (60)
Cash at beginning of year........................................................... 185 87 147
---------------------------------
Cash at end of year................................................................. $ 59 $ 185 $ 87
=================================
</TABLE>

17. Quarterly Financial Data (Unaudited) (Dollars in Thousands, Except Per
Share Data)

Quarterly financial data for 1996 and 1995 is summarized below:

<TABLE>
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
------------------------------------------------------
<S> <C> <C> <C> <C>
1996 *
Interest income......................... $ 9,065 $ 12,459 $12,347 $ 12,513
Interest expense........................ 3,681 5,047 5,046 5,095
Net interest income..................... 5,384 7,412 7,301 7,418
Provision for loan losses............... 462 979 664 840
Net income.............................. 1,309 1,707 1,743 1,703
Net income available to common
shareholders........................... 1,193 1,331 1,383 1,319
Net income per common share............. .33 .36 .38 .36

1995
Interest income......................... $ 7,605 $ 8,004 $ 8,289 $ 8,554
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
Net income available to common
shareholders........................... 1,239 1,165 1,201 1,615
Net income per common share............. .34 .32 .33 .44
</TABLE>

* 1996 data includes the accounts of Kentucky since March 16, 1996, the date of
acquisition.

49
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Corporate Information
- --------------------------------------------------------------------------------

Annual Meeting

The Annual Meeting of the Shareholders of Matewan
BancShares, Inc. will be held at 1:00 p.m. on Tuesday, April
8, 1997 at the Charleston House Holiday Inn, Charleston, West
Virginia. Shareholders of record of March 1, 1997 will be
eligible to vote on matters brought before the shareholders at
that time.

Stock Listing

The common stock of Matewan BancShares, Inc. trades on the
NASDAQ National Market System under the symbol "MATE." The
Preferred Stock of the Company is listed for trading on the
NASDAQ Small-Cap Market system under the symbol "MATEP." The
firms of Wheat First Securities, Inc., Scott & Stringfellow,
Ferris Baker Watts, Inc., and Herzog, 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 addresses:

Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P. O. Box 3001
Winston-Salem, North Carolina 27102

For shareholder correspondence and requests for transfer:

Wachovia Shareholder Services
P. O. Box 8217
Boston, Massachusetts 02266-8217

Independent Auditors
Ernst & Young LLP, Charleston, West Virginia

Executive Offices
Matewan National Bank
Second Avenue and Vinson Street
Williamson, West Virginia 25661
(304)235-1544

50
<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. The
Company's flagship bank is Matewan National Bank (the Bank).

The Company established Matewan Bank FSB (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.

On March 15, 1996, the Company consummated the $29.35 million
acquisition of Bank One, Pikeville, N.A. (Pikeville) in a cash
purchase. Pikeville retained its separate bank charter and
resumed operations as Matewan National Bank/Kentucky
(Kentucky), a wholly-owned subsidiary of the Company.

The Company considers its general market area to be southern
West Virginia, eastern Kentucky and western Virginia. More
specifically, the Company has identified as its core market
the thirteen county market area comprised of Mingo, Logan, and
Boone counties in West Virginia, Pike, Floyd, Johnson, Martin,
and Letcher counties in Kentucky, and Buchanan, Tazewell,
Wise, Russell, and Washington counties in Virginia. At
December 31, 1996, the Company had consolidated assets of
approximately $627 million and shareholders' equity of
approximately $67.5 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, Danville, and
two locations in Logan, 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 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 free checking, regular checking and NOW
accounts, regular and special passbook savings accounts, money
market and index 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, and credit life
and disability insurance. Through its financial services
subsidiary, the Bank also offers a wide range on
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 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 of supermarkets in Pikeville and Goody, Kentucky. In
1996 FSB opened four additional offices: a full-service branch
in Prestonsburg, Kentucky; a financial services and business
development branch in

51
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Description of Business (continued)
- --------------------------------------------------------------------------------

Richlands, Virginia; and two additional supermarket branch
offices in Abingdon, Virginia and Whitesburg, Kentucky. An
additional branch application has been approved for another
supermarket office in Van Sant, Virginia.

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 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 free checking, regular
checking and NOW accounts, regular passbook savings accounts,
money market and index 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. The FSB's contribution to the overall earnings of
the Company was approximately 6% for 1996, approximately 4%
for 1995, and immaterial in 1994.

Matewan National Bank/Kentucky

Kentucky, organized and operated under a national bank
charter, maintains its executive office in Pikeville,
Kentucky. Kentucky also conducts operations at its branch
offices in Shelby Valley, Ferrell's Creek, Phelps and Sidney,
Kentucky. On June 30, 1996, Kentucky closed the offices in
Coal Run and South Williamson due to the overlap created
between these offices and existing offices of other Company
affiliates in the immediate communities. Kentucky operates
drive-in facilities at each of its locations.

Kentucky commenced operations as an affiliate of the Company
on March 18, 1996, with total assets of approximately $204
million, net loans of approximately $133 million, and total
deposits of approximately $183 million.

Kentucky provides the same full range of commercial banking
services as the other Company financial institutions. It
provides automobile, mobile home, personal household,
commercial and small business, construction and permanent real
estate, student, and various government-guaranteed loans, as
well as commercial equipment leasing. Kentucky offers a
variety of deposit instruments to its customers, such as free
checking, regular checking and NOW accounts, regular and
special passbook savings accounts, money market and index
deposit accounts, certificates of deposit, and IRAs. In
addition, certain non-deposit investment alternatives, mainly
commercial repurchase agreements, are available. Other
Kentucky 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
Kentucky customers, certified and cashier checks, notary
public services, safe deposit boxes, electronic income tax
filing capability, and credit life and disability insurance.

Kentucky retained core capital in the amount of
approximately $19.8 million at the time of its acquisition by
the Company. Kentucky's contribution to the overall earnings
of the Company was approximately 29% for 1996.

52
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

- --------------------------------------------------------------------------------

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 phone and an interactive voice response system. Company
affiliates maintain an Automated Teller Machine (ATM) network
of approximately 25 machines in the core market area. The
Company offers 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.

Summary and Mission Statement

The following table depicts pertinent financial and
operational data of the significant subsidiaries of Matewan
BancShares, Inc. as of December 31, 1996 (dollars in
thousands).

<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 $390,859 $223,174 $304,697 $34,612 208 9
Matewan Bank FSB 64,655 35,718 59,424 4,544 66 8
Matewan National Bank/Kentucky 203,846 111,495 162,128 30,418 71 5
</TABLE>

At December 31, 1996, the Company had six officers who
regularly provide services to the Bank, FSB, or Kentucky.
These officers are compensated by the Bank or FSB.
Subsidiaries of the Company had 345 full-time equivalent
employees as of the same date. Company subsidiaries operated
21 full service offices and one loan production office.

Through its mission statement, the Company's goal is to be
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, eastern
Kentucky, and southwestern Virginia.

In the course of its business, the Company competes for
loans, deposits, and other finacial product offerings with
numerous other banks and financial institutions throughout its
market area, as well as numerous nontraditional and often
nonregulated 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 Kentucky 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 (the OTS). As federally insured
institutions and Federal Reserve members, all are subject to
regulation by the Federal Deposit Insurance Corporation (the
FDIC) and the FRB.

53
<PAGE>

Matewan BancShares, Inc. and Subsidiaries

Description of Business (continued)
- --------------------------------------------------------------------------------

Properties

The Company and the Bank maintain executive offices in
Williamson, West Virginia in the Bank's main building. The
Company's subsidiaries operate twenty-two offices throughout
the Company's market area. Twelve of these offices are owned
and ten 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.

54
<PAGE>

MATEWAN BANKSHARES 2ND AVENUE AND VINSON STREET, P.O. BOX 100 WILLIAMSON,
WV 25661

<PAGE>

Exhibit 13.2
MATEWAN BANCSHARES, INC.

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 8, 1997

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 8, 1997 at the Charleston House, 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, 1997.

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, 1997 (the "Record Date") are entitled to notice of and to vote at the
Annual Meeting. On that date, 3,660,151 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 679 holders of record. On February 27, 1996, the
Company issued 805,000 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.

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

1
<PAGE>

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, 1997. 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...................................... 373,974(1)(2) 10.22%
Drawer H
Gilbert, West Virginia 25621
Dan R. Moore.......................................... 676,915(1)(3) 18.46%
Box 26
Matewan, West Virginia 25678
Frank E. Ellis........................................ 256,206(4) 6.99%
3308 Jefferson Avenue
Cincinnati, Ohio 45220
Lafe P. Ward.......................................... 101,936(5) 2.78%
George A. Kostas...................................... 110,210(6) 3.01%
Amos J. Hatfield...................................... 89,239(7) 2.43%
Sidney R. Young, Jr................................... 20,521(8) .56%
Betty Jo Moore........................................ 233,010(9) 6.37%
Doug Hinkle........................................... 1,500 .04%
All directors and officers
as a group (14 persons).............................. 1,374,637(10) 37.56%
</TABLE>
- --------
(1) Includes 332,544 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 348,384 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 207,415 shares of record held by Mr. Ellis, members of his
family, and affiliates as to which Mr. Ellis disclaims beneficial
ownership.

(5) Includes 50,160 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 71,640 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 233,010 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.

2
<PAGE>

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 (332,544 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 1997 Annual Meeting. The number of directors of the Company
is presently set at nine, 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.

<TABLE>
<CAPTION>
FIRST YEAR PRINCIPAL OCCUPATION
NAME AGE AS DIRECTOR FOR THE PAST FIVE YEARS
---- --- ----------- -----------------------
<S> <C> <C> <C>
James H. Harless........ 77 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............ 56 1984 Chairman of the Board of Directors, President, and Chief
Executive Officer of the Company and Matewan National
Bank; Vice President and Chairman of the Board of Matewan
National Bank/Kentucky; Nominee for Director
Frank E. Ellis.......... 70 1988 Physician, Frank Ellis & Associates, Inc.; Nominee for
Director
Lafe P. Ward............ 71 1984 Attorney at Law, Ward and Associates L.C., General Counsel
for the Company; Nominee for Director
George A. Kostas........ 67 1988 Pharmacist, President of Aracoma Drug Company, Inc.;
Nominee for Director
Amos J. Hatfield........ 70 1988 Owner, Gilbert Furniture Company; Nominee for Director
Sidney R. Young, Jr..... 73 1984 Semi-retired since April, 1986; President and Chief Operating
Officer for McNamee Resources, Inc. since 1979; Nominee
for Director
Betty Jo Moore.......... 56 1994 President of Moore Ford Sales and Moore Chevrolet,
Williamson, West Virginia; Nominee for Director
</TABLE>

3
<PAGE>

<TABLE>
<CAPTION>
FIRST YEAR PRINCIPAL OCCUPATION
NAME AGE AS DIRECTOR FOR THE PAST FIVE YEARS
---- --- ----------- -----------------------
<S> <C> <C> <C>
Douglas Hinkle.......... 62 1996 President of Walter P. Walters Insurance Agency;
Nominee for Director
Pauline Roberson........ 74 Vice President and Secretary of the Company, Matewan National
Bank since 1984, and Matewan Bank FSB since 1993;
Lee M. Ellis............ 42 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;
Vice President of Matewan National Bank/Kentucky from
April 1996 to present;
Anna Ward............... 37 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;
Timothy E. Edwards...... 47 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
Bank from September 1991 until November, 1992. President
of United National Bank, Webster Springs, WV for three
years prior to September 1991;
Michael Burke........... 43 Controller of Company from July 1996 to present; Vice
President and Controller of Matewan National Bank/Kentucky
from April 1996 to present; Vice President and Controller of
Bank One, Pikeville, N.A. from May 1993 to March 1996;
Vice President and Controller of First National Bank of
Pikeville for four years prior to May 1993.
</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 nominating or compensation committee.
The functions of these committees are performed by the Board of Directors in
its entirety. Directors Douglas Hinkle, Amos Hatfield, George Kostas, James H.
Harless, and Sidney Young serve on the Audit Committee for the Company.

During 1996, the Board of Directors met 9 times, while the Board of
Directors of Matewan National Bank and Matewan Bank FSB met 13 times. No
members of the Board of Directors attended less than 75% of the meetings for
1996. 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. External directors of Matewan National Bank/Kentucky
received $300 for each meeting attended. Director Hinkle was the only Director
of the Company to be paid any fees by Matewan National Bank/Kentucky. The
Company paid an aggregate of $98,853 in Director and Committee fees in 1996,
on a consolidated basis.

4
<PAGE>

EXECUTIVE OFFICERS' COMPENSATION

COMPENSATION OVERVIEW

During fiscal 1996, 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, Matewan Bank FSB, or Matewan National Bank/Kentucky 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,
1996. Comparative data is also provided for the previous two fiscal years.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION

<TABLE>
<CAPTION>
OTHER
NAME AND ANNUAL
PRINCIPAL FISCAL SALARY BONUS COMPENSATION
POSITION YEAR ($) ($) ($)
--------- ------ -------- ------- ------------
<S> <C> <C> <C> <C>
Dan R. Moore (1)........................... 1996 $204,008 $35,914 $0
Chairman & 1995 192,008 38,923 0
President 1994 180,508 27,667 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 1996, 1995, or 1994.

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.

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.

5
<PAGE>

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.

The following table illustrates the estimated annual benefits from the Plan
upon retirement to participants at December 31, 1996, at selected remuneration
and years of service classifications.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
ON CREDITED YEARS OF SERVICE
---------------------------------------
MONTHLY COMPENSATION
ON AN ANNUALIZED BASIS 15 20 25 30 35
- ---------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$160,000................................ $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. Prior
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 will 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 1996, Mr. Moore had 33 years of service, Mrs.
Roberson had 33 years, Mr. Ellis had 18 years, Mrs. Ward had 10 years, and Mr.
Edwards had 5 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.

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.

6
<PAGE>

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 six fiscal years an annual
bonus to certain management level employees based on various predefined levels
of performance, incorporating such measures as profitability and growth.

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 15% of his total 1996 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.

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 since
December 31, 1991 through December 31, 1996. 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, 1996.

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.

[CAPTION]
<TABLE>
FISCAL YEAR ENDING
COMPANY 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
MATEWAN BANCSHARES, INC. 100 106.00 131.80 345.90 494.30 450.50
INDUSTRY INDEX 100 119.14 140.83 133.61 188.94 261.26
BROAD MARKET 100 107.64 118.50 120.06 165.18 203.11
</TABLE>

7
<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, Betty Jo Moore, and Douglas Hinkle.

CERTAIN TRANSACTIONS

Company subsidiaries have 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 $3,315,000, $3,392,000, and
$4,208,000 at December 31, 1996, 1995, and 1994, 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 collectability or
present other unfavorable features.

During the year ended December 31, 1996, the Company and its subsidiaries
paid legal fees in the amount of $20,506 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, 1997. Ernst & Young also served as principal auditors for
the Company for the year ended December 31, 1996. Although the selection and
appointment of independent auditors 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 auditors
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 1998 Annual Meeting of
Shareholders will be required to advise the Company in writing of the proposal
on or prior to November 1, 1997.

<PAGE>

Exhibit 23

Consent of Independent Auditors

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Matewan BancShares, Inc. and Subsidiaries of our report dated February 28,
1997, included in the 1996 Annual Report to Shareholders of Matewan BancShares,
Inc. and Subsidiaries.

/s/Ernst & Young LLP

Charleston, West Virginia
February 28, 1997

<PAGE>

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996 ANNUAL
REPORT OF MATEWAN BANCSHARES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 29,721
<INT-BEARING-DEPOSITS> 6,034
<FED-FUNDS-SOLD> 28,928
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,411
<INVESTMENTS-CARRYING> 122,569
<INVESTMENTS-MARKET> 122,427
<LOANS> 376,787
<ALLOWANCE> 5,986
<TOTAL-ASSETS> 627,186
<DEPOSITS> 523,308
<SHORT-TERM> 15,118
<LIABILITIES-OTHER> 8,101
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0
805
<COMMON> 3,684
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<INTEREST-TOTAL> 46,384
<INTEREST-DEPOSIT> 17,875
<INTEREST-EXPENSE> 18,869
<INTEREST-INCOME-NET> 27,515
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<EXPENSE-OTHER> 19,100
<INCOME-PRETAX> 10,169
<INCOME-PRE-EXTRAORDINARY> 10,169
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<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
<YIELD-ACTUAL> 5.49
<LOANS-NON> 4,416
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<ALLOWANCE-DOMESTIC> 5,986
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,096

</TABLE>