SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [(check mark) ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended DECEMBER 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to . Commission file number 0-10042 One Valley Bancorp of West Virginia, Inc. (Exact name of registrant as specified in its charter) <TABLE> <S> <C> West Virginia 55-0609408 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) </TABLE> One Valley Square, Summers and Lee Streets, P.O. Box 1793 Charleston, West Virginia 25326 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (304) 348-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered None None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock ($10.00 par value) (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes (Check Mark) 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 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. [ ] 106 Total Pages Continued . . . State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing: Aggregate of market value of voting stock Based upon reported closing price on $340,694,524 March 8, 1994 Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding at March 8, 1993 Common Stock ($10.00 par value) 17,255,784 DOCUMENTS INCORPORATED BY REFERENCE The following lists the documents which are incorporated by reference in the Form 10-K Annual Report, and the Parts and Items of the Form 10-K into which the documents are incorporated. Part of the Form 10-K into which the Document Document is Incorporated Portions of One Valley Bancorp of West Part I, Item 1; Part II, Items 5, 6, 7 Virginia, Inc., 1993 Annual Report to and 8; Part III, Item 13; and Part Shareholders for the year ended IV, Item 14 December 31, 1993 Portions of One Valley Bancorp of West Part III, Items 10, 11, 12 and 13 Virginia, Inc., Proxy Statement for the 1994 Annual Meeting of Shareholders 2 One Valley Bancorp of West Virginia, Inc. Form 10-K <TABLE> INDEX Page <S> <C> <C> <C> Part I Item 1. Business ............................................................................................. 4 Item 2. Properties .......................................................................................... 16 Item 3. Legal Proceedings ................................................................................... 17 Item 4. Submission of Matters to a Vote of Security Holders ................................................. 17 Item 4A. Executive Officers of the Registrant ................................................................ 18 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ....................................................................... 20 Item 6. Selected Financial Data ............................................................................. 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................................... 20 Item 8. Financial Statements and Supplementary Data ......................................................... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................................... 20 Part III Item 10. Directors and Executive Officers of the Registrant ................................................. 21 Item 11. Executive Compensation ............................................................................. 21 Item 12. Security Ownership of Certain Beneficial Owners and Management ....................................................................................... 21 Item 13. Certain Relationships and Related Transactions ..................................................... 21 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......................................................................... 22 Signatures................................................................................................................... 24 Index to Exhibits............................................................................................................ 28 </TABLE> 3 PART I Item 1. Business ONE VALLEY BANCORP OF WEST VIRGINIA, INC. The Board of Directors of One Valley Bank, National Association, formerly Kanawha Valley Bank, National Association ("One Valley Bank"), caused One Valley Bancorp of West Virginia, Inc. ("One Valley"), a West Virginia corporation, to be formed, through a corporate reorganization, as a single bank holding company holding all of the common stock of One Valley Bank. On September 4, 1981, the effective date of the reorganization, the shareholders of One Valley Bank exchanged their shares of Kanawha Valley Bank common stock for shares of One Valley common stock, $10 par value ("One Valley Common Stock"), and became shareholders of One Valley, and One Valley Bank became a wholly-owned subsidiary of One Valley. As of December 31, 1993, One Valley owned eight operating banking subsidiaries (the "Existing Banking Subsidiaries") including: One Valley Bank, National Association; One Valley Bank of Huntington, Inc.; One Valley Bank of Mercer County, Inc.; One Valley Bank of Martinsburg, National Association; One Valley Bank of Oak Hill, Inc.; One Valley Bank of Ronceverte, National Association; One Valley Bank of Morgantown, Inc.; and One Valley Bank of Summersville, Inc. In addition, One Valley owns 100% of the outstanding stock of One Valley Services, Inc., which, until December, 1993, provided data processing services to the Banking Subsidiaries and other non affiliated banks, and 100% of the outstanding stock of One Valley Square, Inc., a Texas corporation, which owns the office building in which One Valley Bank and One Valley are located. (All of these subsidiaries, including the Existing Banking Subsidiaries, are collectively referred to as the "Subsidiaries".) One Valley's principal activities consist of owning and supervising its Subsidiaries. At December 31, 1993, One Valley had consolidated assets of $2,774,359,000, deposits of $2,328,644,000, and shareholders' equity of $242,590,000. One Valley has, from time to time, engaged in merger or acquisition discussions with other banks and financial institutions both within and outside of West Virginia, and it is anticipated that such discussions will continue in the future. RECENT DEVELOPMENTS On January 28, 1994, One Valley consummated its merger with Mountaineer Bankshares of W.Va., Inc., and as a result acquired ownership of 100% of the outstanding stock of the following seven banking subsidiaries: Old National Bank, 4 Martinsburg; The Empire National Bank of Clarksburg; City National Bank of Fairmont; The Bank of Wadestown, Fairview; Mercantile Banking & Trust Company, Moundsville; The Bank of Cameron, Inc.; and The Sunshine Bank of Wheeling (the "New Banking Subsidiaries") (the Existing Banking Subsidiaries and the New Banking Subsidiaries are collectively referred to as the "Banking Subsidiaries"). The resulting company has total assets of more than $3,500,000,000 and total deposits of $2,900,000,000 making it the largest bank holding company in the State of West Virginia. Except as specifically noted, the information set forth in this Annual Report on Form 10-K includes all of the Banking Subsidiaries. In September 1993, M & I Data Services, Inc., of Milwaukee, Wisconsin, began providing data processing services for the Existing Banking Subsidiaries. It is anticipated that the New Banking Subsidiaries will use data processing services from M & I Data Services, Inc., beginning in 1995. The information set forth in the section captioned "Acquisition Activity" on page 7 of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. HISTORY OF THE BANKING SUBSIDIARIES One Valley Bank, the principal Banking Subsidiary of One Valley, was incorporated in 1867 as a state bank under the laws of West Virginia, with the name "The Kanawha Valley Bank". On February 10, 1975, Kanawha Valley Bank converted from a state bank to a national banking association, and on September 1, 1987, adopted its present corporate name. The other Banking Subsidiaries were incorporated or chartered as state or national banks in the years indicated in the chart below. In September 1987, all Existing Banking Subsidiaries adopted a common corporate identity utilizing "One Valley Bank." Those name changes were undertaken primarily to promote a single corporate image for One Valley's diverse banking operations. Year in Currently Name Which Organized Chartered As One Valley Bank of 1892 National Martinsburg One Valley Bank of 1911 State Morgantown 5 Year in Currently Name Which Organized Chartered As One Valley Bank of 1906 State Mercer County One Valley Bank of 1904 State Oak Hill One Valley Bank of 1956 State Huntington One Valley Bank of 1900 National Ronceverte One Valley Bank of 1910 State Summersville One Valley Bank-East, 1865 National (formerly Old National Bank) The Empire National Bank of 1903 National Clarksburg One Valley Bank of Marion 1939 National County, National Association (formerly City National Bank of Fairmont) The Bank of Wadestown 1905 State Mercantile Banking & Trust 1903 State Company The Bank of Cameron, Inc. 1903 State The Sunshine Bank of Wheeling 1965 State 6 OPERATIONS OF THE BANKING SUBSIDIARIES Following consummation of the Mountaineer merger, and in conjunction with an orderly transition in each market, One Valley will undertake certain inter- company transactions among the Banking Subsidiaries to simplify its organizational structure. During the first half of 1994, the two banks in Martinsburg will be merged, and One Valley will operate one subsidiary bank (with branch offices) in each of the Fairmont, Martinsburg, Clarksburg and Moundsville areas. Applications seeking approval of these transactions have been filed with the appropriate regulatory agencies. All offices formerly operated by Mountaineer will be operated under the title "One Valley Bank." The Banking Subsidiaries offer all services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts, commercial and individual loans, credit card (MasterCard and Visa) and drive-in banking services. In addition, One Valley Bank is active in correspondent banking services. Trust services are offered on a statewide basis. No material portion of any of the Banking Subsidiaries' deposits has been obtained from a single or small group of customers, and the loss of any one customer's deposits or a small group of customers' deposits would not have a material adverse effect on the business of any of the Banking Subsidiaries. Although the market areas of several of the Banking Subsidiaries encompass a portion of the coal fields located in southern West Virginia, an area of the State which has been economically depressed, the coal-related loans in the loan portfolios of the Existing Banking Subsidiaries constitute less than 5% of One Valley's total loans outstanding. Ten of the 22 counties within One Valley's market areas rank among the State's top ten counties in household income, and the Banking Subsidiaries generally serve the stronger economic areas of the State. The Banking Subsidiaries also offer services to customers at various locations within their service areas by use of automated teller machines ("ATMs"). The ATMs allow customers to make deposits and withdrawals at convenient locations. Customers may also borrow against their revolving lines of credit at those locations. Customers of any Banking Subsidiary may conduct transactions at any One Valley ATM and, by means of the OWL/MAC system, a regional ATM system, through the CIRRUS ATM network, can conduct ATM transactions nationwide. Customers of any of the Banking Subsidiaries may also make deposits or withdrawals at any of One Valley's 80 statewide main office and branch locations. As of March 1, 1994, One Valley and its Subsidiaries had approximately 2013 full time equivalent employees. 7 LEGISLATION The 1980s was a period of significant legislative change in West Virginia for banks and bank holding companies. During the 1980s, West Virginia converted from a unit banking state to permit unlimited branch banking and the interstate acquisition of banks and bank holding companies on a reciprocal basis. State-wide unlimited branch banking commenced on and after January 1, 1987. Interstate banking activities became permissible on January 1, 1988. The entry by out-of-state bank holding companies is permitted only by the acquisition of an existing institution which has operated for two years prior to acquisition, but not by the chartering and acquisition of de novo banks in West Virginia by out- of-state bank holding companies or the establishment of branch banks across state lines (either de novo or by acquisition or merger). West Virginia also allows reciprocal interstate acquisitions by thrift institutions such as savings and loan holding companies, savings and loan associations, savings banks, and building and loan associations. Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), enacted in 1989, One Valley is subject to provisions which among other things create a so-called "cross guarantee" liability on the part of insured depository institutions which are "commonly controlled." This liability permits the Federal Deposit Insurance Corporation ("FDIC"), as receiver of a failed insured depository institution, to assert claims against other commonly controlled insured depository institutions for losses suffered or reasonably anticipated to be suffered by the FDIC with respect to such failed depository institution. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 In December 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), which substantially revises the bank regulatory and funding provisions of the Federal Deposit Insurance Act and makes revisions to several other federal banking statutes. Among other things, FDICIA requires federal bank regulatory authorities to take "prompt corrective action" with respect to depository institutions that do not meet minimum capital requirements. For these purposes, FDICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The Office of the Comptroller of the Currency ("OCC") and the Office of Thrift Supervision ("OTS") have adopted regulations to implement the prompt corrective 8 action provisions of FDICIA. Among other things, the regulations define the relevant capital measures for the five capital categories. An institution is deemed to be "well capitalized" if it has a total risk-based capital ratio of 10% or greater, Tier 1 risk-based capital ratio of 6% or greater and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure. An institution is deemed to be "adequately capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and, generally, a Tier 1 leverage ratio of 4% or greater and the institution does not meet the definition of a "well capitalized" institution. An institution that does not meet one or more of the "adequately capitalized" tests is deemed to be "undercapitalized". If the institution has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3%, it is deemed to be "significantly undercapitalized". Finally, an institution is deemed to be "critically undercapitalized" if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%. "Undercapitalized" institutions are subject to growth limitations and are required to submit a capital restoration plan. If an "undercapitalized" institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. "Significantly undercapitalized" institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. "Critically undercapitalized" institutions may not, beginning 60 days after becoming "critically undercapitalized" make any payment of principal or interest on their subordinated debt. In addition, "critically undercapitalized" institutions are subject to appointment of a receiver or conservator. Under FDICIA, a depository institution that is not "well capitalized" is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. Each of One Valley's Banking Subsidiaries currently meet the FDIC's definition of a "well capitalized" institution for purposes of accepting brokered deposits. For the purposes of the brokered deposit rules, a bank is defined to be "well capitalized" if it maintains a ratio of Tier 1 capital to risk-adjusted assets of at least 6%, a ratio of total capital to risk-adjusted assets of at least 10% and a Tier 1 leverage ratio of at least 5% and is not otherwise in a "troubled condition" as specified by its appropriate federal regulatory agency. FDICIA directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to 9 internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly- traded shares and such other standards as the agency deems appropriate. In December, 1993, the FDIC adopted final rules to implement these provisions of FDICIA. The rules set forth general standards to be observed, but in most instances do not specify operating or managerial procedures to be followed. The Board of Governors of the Federal Reserve System ("Board of Govenors") and the OCC are in the process of issuing rules implementing various aspects of FDICIA. At this time, One Valley believes that the rules will not have a material adverse effect on its operations. FDICIA also contains a variety of other provisions that may affect the operations of One Valley's Banking Subsidiaries, including new reporting requirements, revised regulatory standards for real estate lending, "truth in savings" provisions and the requirement that a depository institution give 90 days' prior notice to customers and regulatory authorities before closing any branch. In addition to FDICIA, there have been a number of legislative and regulatory proposals designed to strengthen the federal deposit insurance system and to improve the overall financial stability of the United States banking system. These include proposals to increase capital requirements above presently published guidelines, to place assessments on depository institutions to increase funds available to the FDIC and to allow national banks to branch on an interstate basis. It is impossible to predict whether or in what form these proposals may be adopted in the future and, if adopted, what their effect would be on One Valley. It is likewise impossible to predict what the competitive effect will be as a result of action by the OTS allowing certain thrift institutions to engage in interstate branching on a nationwide basis. COMPETITION Vigorous competition exists in all areas where One Valley and the Banking Subsidiaries are engaged in business. The primary market areas served by the Banking Subsidiaries are generally defined as West Virginia and certain adjoining areas in Kentucky, Maryland, Ohio, Pennsylvania and Virginia. For most of the services which the Banking Subsidiaries perform, they compete with commercial banks as well as other financial institutions. For instance, savings banks, savings and loan associations, credit unions, stock brokers, and issuers of commercial paper and money market funds actively compete for funds and for various types of loans. In addition, insurance companies, investment counseling 10 firms and other business firms and individuals offer personal and corporate trust and investment counseling services. The opening of branch banks within One Valley's market areas has increased competition for the Banking Subsidiaries. Although the bank legislation has provided an opportunity for One Valley to acquire banking subsidiaries in other attractive banking areas of the State, it will likely result in increased competition for One Valley in its market areas, and, with reciprocal interstate banking, One Valley faces additional competition in efforts to acquire other subsidiaries throughout West Virginia and in neighboring states. Until 1993, the various banks and bank-holding companies operating in West Virginia were predominantly owned by shareholders in West Virginia and were financed by operations arising principally in West Virginia. During 1993, Banc One Corp., the seventh largest bank holding company in the United States, consummated its acquisition of Key Centurion Bancshares Inc., and Huntington Bankshares Incorporated consummated its acquisitions of Commerce Banc Corporation and CB&T Financial Corp. It is anticipated that other large out-of-state banks will, over time, expand their operations into West Virginia. While One Valley believes that it can compete effectively with out-of-state banks, One Valley will face larger competitors which have access to increased capital resources and which have relatively sophisticated bank holding companies and marketing structures in place. As of December 31, 1993, there were 18 multi-bank holding companies and 32 one-bank holding companies in the State of West Virginia registered with the Federal Reserve System and the West Virginia Board of Banking and Financial Institutions ("Board of Banking"). These holding companies are headquartered in various West Virginia cities and control banks throughout the State of West Virginia, including banks which compete with the Banking Subsidiaries in their market areas. One Valley has actively competed with some of these bank holding companies to acquire its Banking Subsidiaries. SUPERVISION AND REGULATION One Valley is a bank holding company within the provisions of the Bank Holding Company Act of 1956, is registered as such, and is subject to supervision by the Board of Governors. The Bank Holding Company Act requires One Valley to secure the prior approval of the Board of Governors before One Valley acquires ownership or control of more than five percent (5%) of the voting shares or substantially all of the assets of any institution, including another bank. As a bank holding company, One Valley is required to file with the Board of Governors an annual report and such additional information as the Board of 11 Governors may require pursuant to the Bank Holding Company Act. The Board of Governors may also make examinations of One Valley and of the Banking Subsidiaries. Furthermore, under Section 106 of the 1970 Amendments to the Bank Holding Company Act and the regulations of the Board of Governors, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or any provision of credit, sale or lease of property or furnishing of services. In addition, the Banking Subsidiaries are subject to certain restrictions under federal law that limit the transfer of funds by the Banking Subsidiaries to One Valley and its nonbanking subsidiaries, whether in the form of loans, other extensions of credit, investments or asset purchases. Such transfers by any Banking Subsidiaries to One Valley or any nonbanking subsidiary are limited in amount to 10% of such Banking Subsidiary's capital and surplus and, with respect to One Valley and all nonbanking subsidiaries, to an aggregate of 20% of such Banking Subsidiary's capital and surplus. Furthermore, such loans and extensions of credit are required to be secured in specified amounts and must be fully collateralized. One Valley is required to register annually with the Commissioner of Banking of West Virginia ("Commissioner") and to pay a registration fee to the Commissioner based on the total amount of bank deposits in banks with respect to which One Valley is a bank holding company. Although legislation allows the Commissioner to prescribe the registration fee, it limits the fee to ten dollars per million dollars of deposits rounded off to the nearest million dollars. One Valley is also subject to regulation and supervision by the Commissioner. One Valley is required to secure the approval of the West Virginia Board of Banking before acquiring ownership or control of more than five percent of the voting shares or substantially all of the assets of any institution, including another bank. West Virginia banking law prohibits any West Virginia or non- West Virginia bank or bank holding company from acquiring shares of a bank if the acquisition would cause the combined deposits of all banks in the State of West Virginia, with respect to which it is a bank holding company, to exceed 20% of the total deposits of all depository institutions in the State of West Virginia. The total deposits of the Banking Subsidiaries upon consummation of the Mountaineer merger, were approximately 15.5% of the total deposits in the State of West Virginia. BANKING SUBSIDIARIES The Banking Subsidiaries are subject to FDIC deposit insurance assessments. The FDIC set an assessment rate for the Bank Insurance Fund ("BIF") of 0.23% which became effective on July 1, 1991. Because of decreases in the reserves of the BIF due to the increased number of bank failures in recent years, it is possible that 12 BIF insurance assessments will be increased, and it is also possible that there may be a special additional assessment. A large special assessment could have an adverse impact on One Valley's results of operations. The information set forth in paragraph number seven in the subsection captioned "Income Statement Analysis - Non-Interest Income and Expense" on page 21 of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. The operations of the Banking Subsidiaries are subject to federal and state statutes, which apply to national and state banks. The operations of the Banking Subsidiaries may also be subject to regulations of the OCC, the Board of Governors, the Board of Banking and the FDIC. The primary supervisory authority of One Valley's national Banking Subsidiaries is the OCC while the primary supervisory authority of its state chartered Banking Subsidiaries is the Commissioner. These two authorities regularly examine such areas as reserves, loans, investments, management practices and other aspects of the operations of the Banking Subsidiaries. One Valley's nationally chartered Banking Subsidiaries are chartered under the laws of the United States and, as such, are member banks of the Federal Reserve System. Its state chartered Banking Subsidiaries are non-member banks of the Federal Reserve except for One Valley Bank of Summersville, which is a member bank. The regulation and examination of One Valley and its Banking Subsidiaries are designed primarily for the protection of depositors and not One Valley or its shareholders. CAPITAL REQUIREMENTS The Board of Governors has issued risk-based capital guidelines for bank holding companies, including One Valley. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures into explicit account in assessing capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Under the guidelines and related policies, bank holding companies must maintain capital sufficient to meet both a risk-based asset ratio test and leverage ratio test on a consolidated basis. The risk- based ratio is determined by allocating assets and specified off- balance sheet commitments into four weighted categories, with higher levels of capital being required for categories perceived as representing greater risk. The leverage ratio is determined by relating core capital (as described below) to total assets adjusted as specified in the guidelines. 13 All of One Valley's Banking Subsidiaries are subject to substantially similar capital requirements adopted by applicable regulatory agencies. Generally, under the applicable guidelines, the financial institution's capital is divided into two tiers. "Tier 1", or core capital, includes common equity, noncumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts or consolidated subsidiaries, less goodwill. Bank holding companies, however, may include cumulative perpetual preferred stock in their Tier 1 capital, up to a limit of 25% of such Tier 1 capital. "Tier 2", or supplementary capital, includes, among other things, cumulative and limited-life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan losses, subject to certain limitations, less required deductions. "Total capital" is the sum of Tier 1 and Tier 2 capital. Financial institutions are required to maintain a risk-based ratio of 8%, of which 4% must be Tier 1 capital. The appropriate regulatory authority may set higher capital requirements when an institution's particular circumstances warrant. Financial institutions that meet certain specified criteria, including excellent asset quality, high liquidity, low interest rate exposure and the highest regulatory rating, are required to maintain a minimum leverage ratio of 3%. Financial institutions not meeting these criteria are required to maintain a leverage ratio which exceeds 3% by a cushion of at least 100 to 200 basis points. The guidelines also provide that financial institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the Board of Governors' guidelines indicate that the Board of Governors will continue to consider a "tangible Tier 1 leverage ratio" in evaluating proposals for expansion or new activities. The tangible Tier 1 leverage ratio is the ratio of an institution's Tier 1 capital, less all intangibles, to total assets, less all intangibles. Failure to meet applicable capital guidelines could subject the financial institution to a variety of enforcement remedies available to the federal regulatory authorities, including limitations on the ability to pay dividends, the issuance by the regulatory authority of a capital directive to increase capital and the termination of deposit insurance by the FDIC, as well as to the measures described under FDICIA as applicable to undercapitalized institutions. As of December 31, 1993, the Tier 1 risk-based ratio, total risk-based ratio and total assets leverage ratio for One Valley were as follows: 14 Regulatory Requirement One Valley Tier 1 Risk-Based Ratio 4.00% 12.69% Total Risk-Based Ratio 8.00% 13.94% Total Assets Leverage Ratio 3.00% 8.57% As of December 31, 1993 all of One Valley's Banking Subsidiaries had capital in excess of all applicable requirements. The Board of Governors, as well as the FDIC, the OCC and the OTS, have adopted changes to their risk-based and leverage ratio requirements that require that all intangible assets, with certain exceptions, be deducted from Tier 1 capital. Under the Board of Governors' rules, the only types of intangible assets that may be included in (i.e., not deducted from) a bank holding company's capital are readily marketable purchased mortgage servicing rights ("PMSRs") and purchased credit card relationships ("PCCRs"), provided that, in the aggregate, that total amount of PMSRs and PCCRs included in capital does not exceed 50% of Tier 1 capital. PCCRs are subject to a separate sublimate of 25% of Tier 1 capital. The amount of PMSRs and PCCRs that a bank holding company may include in its capital is limited to the lesser of (i) 90% of such assets' fair market value (as determined under the guidelines), or (ii) 100% of such assets' book value, each determined quarterly. Identifiable intangible assets (i.e., intangible assets other than goodwill) other than PMSRs and PCCRs, including core deposit intangibles, acquired on or before February 19, 1992 (the date the Board of Governors issued its original proposal for public comment), generally will not be deducted from capital for supervisory purposes, although they will continue to be deducted for purposes of evaluating applications filed by bank holding companies. GOVERNMENTAL POLICIES In addition to the effect of general economic conditions, the earnings and future business activities of the Banking Subsidiaries, both members and non- members of the Federal Reserve, are affected by the fiscal and monetary policies of the federal government and its agencies, particularly the Board of Governors. The Board of Governors regulates the national money supply in order to mitigate recessionary and inflationary pressures. The techniques used by the Board of Governors include setting the reserve requirements of member banks, establishing the discount rate on member bank borrowings and conducting open market operations in United States government securities to exercise control over the supply of money and credit. 15 Although it is difficult to assess the impact on One Valley of the change from the Bush administration to the Clinton administration, during 1993 there was an increase in corporate taxes, and in the future there may be increased costs for medical and other employee benefits, and a possible change in the regulatory climate for financial institutions. The policies of the Board of Governors have a direct and indirect effect on the amount of bank loans and deposits, and the interest rates charged and paid thereon. While the impact of current economic problems and the policies of the Board of Governors and other regulatory authorities designed to deal with these economic problems upon the future business and earnings of the Banking Subsidiaries cannot be accurately predicted, those policies can materially affect the revenues and income of the Banking Subsidiaries. The information set forth in paragraph number seven in the subsection captioned "Income Statement Analysis - Non-Interest Income and Expense" on page 21 of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES Statistical disclosures required by bank holding companies are included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth on pages 5 through 22 of One Valley's 1993 Annual Report to Shareholders for the fiscal year ended December 31, 1993. That information is incorporated herein by reference. Item 2. Properties ONE VALLEY AND ONE VALLEY BANK One Valley Bank owns the site of One Valley Bank's current banking quarters, One Valley Square in the City of Charleston, West Virginia. This property is leased by One Valley Bank to One Valley Square, Inc. One Valley Square, Inc., constructed a fifteen story (plus basement) office building on the site, and One Valley Bank leases a portion of the basement and seven floors of One Valley Square for its operations, consisting of approximately 130,000 square feet. In addition, One Valley Bank subleases a portion of the seventh floor to others. One Valley also conducts its operations from the space leased by One Valley Bank in One Valley Square. The remaining space is leased to various other tenants. Upon expiration of the land lease, all improvements will revert to the owner of the land. One Valley Bank also conducts operations at its operations center, also located in Charleston, and at 23 branch locations throughout Kanawha, Putnam, Jackson, and Wood Counties. 16 OTHER AFFILIATE BANKS The properties owned or leased by the other Banking Subsidiaries consist generally of fourteen main bank offices, related drive-in facilities, 42 branch offices and such other properties as are necessary to house related support activities of those banks. All of the properties of the Banking Subsidiaries are suitable and adequate for their current operations and are generally being fully utilized. Item 3. Legal Proceedings Various legal proceedings are presently pending to which the Banking Subsidiaries are parties; however, these proceedings are ordinary routine litigation incidental to the business of the Banking Subsidiaries. There are no material legal proceedings pending or threatened against One Valley or its Subsidiaries. Item 4. Submission of Matters to a Vote of Security Holders At a Special Meeting held on December 8, 1993, the shareholders of One Valley approved an Agreement and Plan of Merger whereby Mountaineer Bankshares of W.Va., Inc., was merged with and into One Valley. The terms and conditions of that Agreement and merger were fully described in One Valley's Registration Statement on Form S-4, Registration No. 33-50729, Filed October 22, 1993. At the Special Meeting that Agreement was approved as follows: FOR AGAINST ABSTAIN 10,332,995 (80.1%) 48,732 (.33%) 133,418 (1.03%) 17 Item 4A. Executive Officers of the Registrant The executive officers of One Valley are: Name Age Banking Experience and Qualifications Robert F. Baronner 67 1991 to Present, Chairman of the Board, One Valley. 1971 to 1991, One Valley Bank. Previously, President and Chief Executive Officer, One Valley. J. Holmes Morrison 53 1967 to present, One Valley Bank. Vice President and Trust Officer, 1970; Senior Vice President and Senior Trust Officer, 1978; Executive Vice President, 1982; President and Chief Operating Officer, 1985; President and Chief Executive Officer, 1988; Chairman of the Board, 1991. Vice President, One Valley, 1982; Senior Vice President, One Valley, 1984; Executive Vice President, One Valley, 1990; President and Chief Executive Officer, One Valley, 1991. Phyllis H. Arnold 45 1973-1979, One Valley Bank. Credit Officer, 1974-1977; Vice President, 1977- 1979. West Virginia State Banking Commissioner, 1979-1983. Executive Vice President, One Valley Bank, 1988; President and Chief Executive Officer, One Valley Bank, 1991; Executive Vice President, One Valley, 1994. Frederick H. Belden, Jr. 55 1968 to present, One Valley Bank. Senior Vice President and Senior Trust Officer, 1982; Executive Vice President, 1986. Executive Vice President, One Valley, 1994. 18 James L. Whytsell 54 1959 to present, One Valley Bank. Senior Vice President, 1977; Executive Vice President, 1986. Senior Vice President, One Valley, 1986. Data Processing. Laurance G. Jones 47 1969 to present, One Valley Bank. Controller, 1971; Vice President, Controller and Treasurer, 1979; Senior Vice President, 1980; Executive Vice President, 1992. Treasurer, One Valley, 1981; Treasurer and Chief Financial Officer, One Valley, 1984; Executive Vice President, One Valley, 1994. Finance and Accounting. Brent D. Robinson 46 1978 to 1994, Mountaineer Bankshares, Inc. and its predecessors. Executive Vice President, One Valley, 1994. James A. Winter 41 1975 to present, One Valley Bank. Vice President, Controller and Assistant Treasurer, 1982. Senior Vice President, 1991; Vice President and Chief Accounting Officer, One Valley, 1989. 19 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters During 1993, One Valley Common Stock was traded over the counter by Merrill Lynch, Pierce, Fenner & Smith, Inc.; Keefe, Bruyette & Woods, Inc.; Robinson-Humphrey Co. Inc.; Legg, Mason, Wood, Walker, Inc.; Wheat First Securities, Inc.; Rothschild, Inc.; Herzog, Heine, Geduld, Inc.; Mayer & Schweitzer, Inc.; McDonald & Company Sec., Inc.; and Sandler O'Neill & Partners. At March 8, 1994, the total number of holders of One Valley Common Stock was approximately 8,700, including shareholders of record and shares held in nominee name. The information set forth in paragraphs number two and three in the subsection captioned "Balance Sheet Analysis-Capital Resources" on page 17 of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. Notes N and Q of Notes to the Consolidated Financial Statements appearing at pages 38 and 39 of One Valley's 1993 Annual Report to Shareholders are incorporated herein by reference. Table 1 "Six-Year Selected Financial Summary" on page five of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. Item 6. Selected Financial Data Table 1 "Six-Year Selected Financial Summary" on page five of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information contained on pages 5 through 22 of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The information contained on pages 24 through 39 of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. See Item 14 for additional information regarding the financial statements. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 20 PART III Item 10. Directors and Executive Officers of the Registrant The information set forth in the sections captioned "Election of Directors", "Management Nominees to the Board of One Valley", "Directors Continuing to Serve Unexpired Terms," and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" on pages 2 through 6 and page 19 of One Valley's definitive Proxy Statement dated March 23, 1994, is incorporated herein by reference. Reference is also made to the information concerning One Valley's executive officers provided in Part I, Item 4A, of this report. Item 11. Executive Compensation The information set forth in the sections captioned "Executive Compensation", "Change of Control Agreements", and "Compensation of Directors" on pages 12 through 15 and page 19 of One Valley's definitive Proxy Statement dated March 23, 1994, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information set forth in the sections captioned "Principal Holders of Voting Securities" and "Ownership of Securities by Directors, Nominees and Officers" on pages 8 through 11 of One Valley's definitive Proxy Statement dated March 23, 1994, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information set forth in the sections captioned "Certain Transactions with Directors and Officers and Their Associates" and "Compensation Committee Interlocks and Insider Participation" on page 19 of One Valley's definitive Proxy Statement dated March 23, 1994, and Note E of the Notes to the Consolidated Financial Statements appearing at page 31 of One Valley's 1993 Annual Report to Shareholders is incorporated herein by reference. 21 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 1993 Annual Report to Shareholders Index Page(s) (a) 1. Financial Statements Consolidated Financial Statements of One Valley Bancorp of West Virginia, Inc. incorporated by reference in Part II, Item 8 of this report. Consolidated Balance Sheets at 24 December 31, 1993 and 1992 Consolidated Statements of Income 25 for the years ended December 31, 1993, 1992 and 1991 Consolidated Statements of Share- 26 holders' Equity for the years ended December 31, 1993, 1992 and 1991 Consolidated Statements of Cash Flows 27 for the years ended December 31, 1993, 1992 and 1991 Notes to Consolidated Financial 28-39 Statements Report of Independent Auditors 23 (a) 2. Financial Statement Schedules All schedules are omitted, as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related notes thereto. 22 (a) 3. Exhibits required to be Filed by Item 601 of Page(s) Regulation S-K and Item 14(c) of Form 10-K Form 10-K See Index to Exhibits (b) Reports on Form 8-K: None. (c) Exhibits See Item 14(a)3 above. (d) Financial Statement Schedules See Item 14(a)2 above. 23 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 duly authorized. ONE VALLEY BANCORP OF WEST VIRGINIA, INC. By: /s/ J. Holmes Morrison J. Holmes Morrison, President and Chief Executive Officer March 16, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the date indicated. Signature Title Date /s/ Phyllis H. Arnold Director March 16, 1994 PHYLLIS H. ARNOLD /s/ Charles M. Avampato Director March 16, 1994 CHARLES M. AVAMPATO /s/ Robert F. Baronner Chairman of the Board March 15, 1994 ROBERT F. BARONNER /s/ James K. Brown Director March 16, 1994 JAMES K. BROWN 24 /s/ John T. Chambers Director March 16, 1994 JOHN T. CHAMBERS /s/ Nelle Ratrie Chilton Director March 16, 1994 NELLE RATRIE CHILTON /s/ Ray M. Evans, Jr. Director March 16, 1994 RAY M. EVANS, JR. /s/ James Gabriel Director March 16, 1994 JAMES GABRIEL /s/ Phillip H. Goodwin Director March 16, 1994 PHILLIP H. GOODWIN /s/ Thomas E. Goodwin Director March 16, 1994 THOMAS E. GOODWIN /s/ Cecil B. Highland, Jr. Director March 16, 1994 CECIL B. HIGHLAND, JR. /s/ Laurance G. Jones Treasurer and Chief March 16, 1994 LAURANCE G. JONES Financial Officer (Principal Financial Officer) /s/ Robert E. Kamm, Jr. Director March 16, 1994 ROBERT E. KAMM, JR. /s/ David E. Lowe Director March 16, 1994 DAVID E. LOWE /s/ John D. Lynch Director March 16, 1994 JOHN D. LYNCH 25 /s/ Edward H. Maier Director March 15, 1994 EDWARD H. MAIER /s/ J. Holmes Morrison Chief Executive Officer, March 16, 1994 J. HOLMES MORRISON Director and President /s/ Charles R. Neighborgall, III Director March 16, 1994 CHARLES R. NEIGHBORGALL, III /s/ Robert O. Orders, Sr. Director March 16, 1994 ROBERT O. ORDERS, SR. /s/ John L. D. Payne Director March 15, 1994 JOHN L. D. PAYNE /s/ Angus E. Peyton Director March 15, 1994 ANGUS E. PEYTON /s/ Lacy I. Rice, Jr. Director March 16, 1994 LACY I. RICE, JR. /s/ James W. Thompson Director March 16, 1994 JAMES W. THOMPSON /s/ J. Lee Van Metre, Jr. Director March 15, 1994 J. LEE VAN METRE, JR. /s/ Richard B. Walker Director March 16, 1994 RICHARD B. WALKER /s/ H. Bernard Wehrle, III Director March 15, 1994 H. BERNARD WEHRLE, III 26 Director March , 1994 JOHN H. WICK, III /s/ Thomas D. Wilkerson Director March 16, 1994 THOMAS D. WILKERSON /s/ James A. Winter Vice President and Chief March 16, 1994 JAMES A. WINTER Accounting Officer (Principal Accounting Officer) 27 INDEX TO EXHIBITS Exhibit No. Description: (3) Articles of Incorporation and Bylaws Exhibit 3.1 Articles of Incorporation of One Valley, filed as part of One Valley's 1981 Annual Report on Form 10-K and incorporated herein by reference. Exhibit 3.2 Articles of Amendment of One Valley dated July 17, 1981, filed as part of One Valley's 1981 Annual Report on Form 10- K and incorporated herein by reference. Exhibit 3.3 Articles of Amendment of One Valley dated December 3, 1982, filed as part of One Valley's 1982 Annual Report on Form 10-K and incorporated herein by reference. Exhibit 3.4 Articles of Amendment of One Valley dated May 6, 1986, filed as part of One Valley's Registration Statement on Form S-4, Registration No. 33-5737, May 15, 1986, and incorporated herein by reference. Exhibit 3.5 Articles of Amendment of One Valley dated May 19, 1988, filed as part of One Valley's 1992 Annual Report on Form 10- K and incorporated herein by reference. Exhibit 3.6 Articles of Amendment of One Valley dated May 26, 1993, filed as part of One Valley's Registration Statement on Form S-4, Registration No. 33-50729, October 22, 1993, and incorporated herein by reference. Exhibit 3.7 Amendments to the Bylaws of One Valley dated June 20, 1990, and a complete copy of One Valley's Bylaws as amended, filed as part of One Valley's 1990 Annual Report on Form 10-K and incorporated herein by reference. 28 (10) Material Contracts. Exhibit 10.1 Indemnity Agreement between Resolution Trust Corporation and One Valley, filed as part of One Valley's Registration Statement on Form S-2, Registration No. 33- 43384, October 22, 1991, and incorporated herein by reference. Executive Compensation Plans and Arrangements. Exhibit 10.2 Agreement dated as of May 7, 1985, between One Valley and Thomas E. Goodwin, filed as part of One Valley's Registration Statement on Form S-4, Registration No. 2- 99417, August 5, 1985, and incorporated herein by reference. Exhibit 10.3 Form of Change of Control Agreement between One Valley and 7 of its Executive Officers, dated as of January 1, 1987, filed as part of One Valley's 1986 Annual Report on Form 10-K and incorporated herein by reference. Exhibit 10.4 One Valley Bancorp of West Virginia, Inc., 1983 Incentive Stock Option Plan, as amended, filed as Exhibit No. 4 to One Valley's Registration Statement on Form S-8, Registration No. 33-3570, July 2, 1990, and incorporated herein by reference. Exhibit 10.5 One Valley Bancorp of West Virginia, Inc., 1993 Incentive Stock Option Plan, filed as part of One Valley's Definitive Proxy Statement, Registration No. 0-10042, and incorporated herein by reference. Exhibit 10.6 One Valley Bancorp of West Virginia, Inc., Management Incentive Compensation Plan, as amended February, 1990, filed as part of One Valley's 1992 Annual Report on Form 10- K and incorporated herein by reference. Exhibit 10.7 One Valley Bancorp of West Virginia, Inc., Supplemental Benefit Plan, as amended April, 1990, filed as part of One Valley's 1992 Annual Report on Form 10-K and incorporated herein by reference. 29 (11) Computation of Earnings Per Share -- found at page 31 herein. (12) Statement Re Computation of Ratios -- found at page 32 herein. (13) 1993 Annual Report to Security Holders -- found at page 33 herein. (21) Consent of Ernst & Young -- found at page 82 herein. (23) Subsidiaries of Registrant -- found at page 81 herein. (99) Proxy Statement for the 1993 Annual Meeting of One Valley -- found at page 83 herein. 30 **************************************************************************** APPENDIX On Page 2 of Exhibit 13 a photo of J. Holmes Morrison appears in the upper right corner where indicated. On Page 3 of Exhibit 13 a bar graph appears where indicated. The plot points are listed as follows: Net Income and Dividends Per Share 1988 1989 1990 1991 1992 1993 Net Income $1.33 $1.48 $1.75 $1.93 $2.29 $2.52 Dividends $0.50 $0.56 $0.59 $0.62 $0.70 $0.84 On Page 4 of Exhibit 13 two bar graphs appear where indicated. The plot points for both are listed as follows: Return on Average Assets 1988 1989 1990 1991 1992 1993 0.91% 0.90% 1.00% 0.99% 1.10% 1.19% Return on Average Equity 1988 1989 1990 1991 1992 1993 11.54% 12.02% 13.15% 13.14% 13.92% 13.98 On page 9 of Exhibit 13 the Average Earning Assets bar chart appears where indicated. It will be sent under cover of Form SE. On Page 11 of Exhibit 13 the Total Loans bar chart appears where indicated. It will be sent under cover of Form SE. On Page 12 of Exhibit 13 the Non-performing Assets and Loans 90 Days Past Due bar chart and the Provision for Loan Losses and Net Charge-Offs bar chart appears where indicated. It will be sent under cover of Form SE. On Page 16 of Exhibit 13 the Average Deposits bar chart appears where indicated. It will be sent under cover of Form SE. On Page 18 of Exhibit 13 the Net Interest Margin line graph appears where indicated. It will be sent under cover of Form SE. On Page 19 of Exhibit 13 the Net Interest Income line graph appears where indicated. It will be sent under cover of Form SE. On Page 21 of Exhibit 13 the Net Overhead Ratio line graph appears where indicated.It will be sent under cover of Form SE. On Page 18 of Exhibit 99 the Performance Graph appears where noted. The plot points are listed in the table below that point. On Page 43 of Exhibit 13 a photo appears on the left hand side of the page. The people pictured in the photo are listed in the text on that page. On Page 44 of Exhibit 13 a photo appears in the center of the page. The people pictured in the photo are listed in the text on that page. On the Back Cover of Exhibit 13 the One Valley Bancorp logo appears where indicated.
Exhibit 11 Statement Re: Computation of Earnings per Share <TABLE> <CAPTION> For the Three Months For the Year Ended December 31 Ended December 31 1993 1992 1993 1992 <S> <C> <C> <C> <C> PRIMARY: Average Shares Outstanding 12,893,000 12,866,000 12,884,000 12,858,000 Net effect of the assumed exercise of stock options - based on the treasury stock method using average market price 77,000 78,000 85,000 66,000 Total 12,970,000 12,944,000 12,969,000 12,924,000 Net Income $ 8,209,000 $ 7,513,000 $32,469,000 $29,477,000 Per Share Amount $ 0.63 $ 0.58 $ 2.50 $ 2.28 FULLY DILUTED: Average Shares Outstanding 12,893,000 12,866,000 12,884,000 12,858,000 Net effect of the assumed exercise of stock options - based on the treasury stock method using average market price or period end market price, whichever is higher 77,000 98,000 90,000 107,000 Total 12,970,000 12,964,000 12,974,000 12,965,000 Net Income $8,209,000 $ 7,513,000 $32,469,000 $29,477,000 Per Share Amount $ 0.63 $ 0.58 $ 2.50 $ 2.27 </TABLE> 31
Exhibit 12 Statement Re: Computation of Ratios ROA-Return on Average Assets: Return on Average Assets is defined as net income divided by average total assets. ROE-Return on Average Equity: Return on Average Equity is defined as net income divided by average total equity. Dividend Payout Ratio: The Dividend Payout Ratio is defined as declared annual cash dividends per share divided by net income per share. 32
One Valley Bancorp 1993 Annual Report Shareholder Information Stock Listing Current market quotations for the common stock of One Valley Bancorp are available on the NASDAQ electronic quotation system for over-the-counter stocks, under the symbol OVWV. Registered NASDAQ market makers in One Valley stock include: Herzog, Heine, Geduld, Inc. Keefe, Bruyette & Woods, Inc. Legg, Mason, Wood, Walker, Inc. Mayer & Schweitzer, Inc. McDonald & Company Sec., Inc. Merrill Lynch, Pierce, Fenner & Smith, Inc. Robinson-Humphrey Co. Inc. Rothschild, Inc. Sandler O'Neill & Partners Wheat First Securities, Inc. Financial Statements During the year, One Valley distributes four interim quarterly financial reports and an annual report. Additionally, One Valley files an annual report to the Securities and Exchange Commission on Form 10-K and quarterly reports on Form 10-Q. A copy of the reports may be obtained without charge upon written request to: Brien M. Chase, Senior Accountant One Valley Bancorp P.O. Box 1793 Charleston, West Virginia 25326 Independent Auditor Ernst & Young 900 United Center Charleston, West Virginia 25301 Dividend Reinvestment Plan One Valley Bancorp maintains a dividend reinvestment plan. Shareholders may increase their ownership in One Valley by automatically reinvesting their quarterly dividends into additional shares of common stock. There are no commission costs or administration charges to the shareholder. Shareholders can enroll in the Dividend Reinvestment Plan by contacting Joan L. Schatz, Assistant Secretary, at (304) 348-7023. Stock Transfer Agent Harris Trust & Savings Bank 311 West Monroe Street Chicago, Illinois 60606 Contacts Analysts, portfolio managers, and others seeking financial information about One Valley Bancorp should contact Laurance G. Jones, Senior Vice President and Treasurer, at (304) 348-7062. News media representatives and others seeking general information should contact Lloyd P. Calvert, Vice President - Corporate Communications, at (304) 348-7207. Shareholders seeking assistance should contact Joan L. Schatz, Assistant Secretary, at (304) 348-7023. Number of Shareholders At December 31, 1993, there were approximately 3,242 shareholders of record of One Valley Common Stock. Contents Financial Highlights 1 Report to Customers, Employees, Owners and Friends 2 Management's Discussion and Analysis 5 Consolidated Financial Statements 23 Six-Year Financial Summaries 40 Quality Council 43 One Valley Bancorp Directors 44 Directors of Affiliate Banks Inside Back Cover Financial Highlights (Dollars in thousands, except per share data) 1993 1992 % Change For The Year Net interest income $ 116,912 $ 113,670 2.85 % Net income 32,469 29,477 10.15 Average Balances Total loans -- net 1,710,202 1,624,480 5.28 Total assets 2,731,752 2,678,965 1.97 Deposits 2,289,985 2,240,788 2.20 Equity 232,307 211,772 9.70 At Year-End Year-end Balances Total loans -- net $ 1,801,763 1,655,155 8.86 Total assets 2,774,359 2,706,994 2.49 Deposits 2,328,644 2,277,845 2.23 Equity 242,590 220,656 9.94 Per Share Net income $ 2.52 $ 2.29 10.04 Cash dividends 0.84 0.70 20.00 Book value 18.81 17.14 9.74 Report to Customers, Employees, Owners, and Friends (Photo of J. Holmes Morrison) J. Holmes Morrison, President and CEO On behalf of One Valley's employees, it is a pleasure to report that One Valley had another record setting year in 1993. As previously reported, One Valley attained record highs in net income per share, net income, assets, loans, deposits and shareholders' equity while key asset quality measures continued to improve to record levels. Net income per share increased to $2.52 per share in 1993 up 10.0% from the $2.29 per share earned in 1992. Net income for the year totalled $32.5 million versus $29.5 million for the prior year and represented record annual returns of 13.98% on shareholders' equity and 1.19% on assets. Shareholders' equity increased 9.9% to $242.6 million at year-end providing an 8.7% equity-to-asset ratio as well as a strong risk based capital ratio of 13.9%, which compares to the regulatory requirement of 8%. Cash dividends declared in 1993 increased 20% to $0.84 per share versus $0.70 per share declared in 1992. The improvement in One Valley's earnings in 1993 was primarily attributable to higher net interest income and non-interest income as well as a lower provision for loan losses. Higher net interest income was reflected in the net interest margin which was 4.76% in 1993 compared to 4.75% in 1992 and was based on a higher level of earning assets. Non- interest income increased 6.8% in 1993 to $36.2 million versus $33.9 million earned in 1992. The provision for loan losses declined to $4.8 million in 1993 versus $10.3 million in 1992 due to the continued improvement in the credit quality of the loan portfolio. Due to the improvement in the credit quality of the loan portfolio, One Valley's asset quality ratios continued to improve and remained very strong in 1993. Net charge-offs for the year decreased to $3.6 million versus $5.0 million in 1992. Net charge-offs as a percentage of average total loans improved to 0.21% in 1993 compared to 0.30% in 1992. Although the provision for loan losses decreased in 1993, the allowance for loan losses of $29.2 million was a strong 1.59% of year-end total loans. Non-performing assets plus loans 90 days past due declined $6.3 million to $9.0 million or 0.49% of total loans compared to the $15.3 million or 0.90% of total loans at year-end 1992. The $9.0 million of non- performing assets and loans was covered 325% by the $29.2 million allowance for loan losses at year- end 1993, a very strong coverage when compared to peer group banks. The "Management's Discussion and Analysis" section on pages 5 through 22 provides a detailed analysis of the financial condition and results of operations of One Valley Bancorp for 1993 and prior years and should be carefully read. Some of the highlights include: (bullet) Net income per share grew at a 13.6% compound annual rate over the past five years. During this same period, return on average assets averaged 1.04% while return on average equity averaged 13.24%. (bullet) Net interest income over the last five years grew at a 13.0% compound annual rate. Non-interest income (excluding securities transactions) had a five-year compound annual growth rate of 20.7% while non-interest expense grew at a compound rate of 12.9% during this same period. 2 (bullet) The efficiency ratio (non-interest expense divided by the sum of fully tax-equivalent net interest income plus non-interest income) is a measure One Valley uses to evaluate its operational efficiency. Higher non-interest expense related to the conversion to new data processing systems and the previously announced Mountaineer Bankshares merger caused the efficiency ratio to increase slightly to 63.6% in 1993 versus 62.5% in 1992. (bullet) Major components of the balance sheet reflect five-year compound annual growth rates as follows: average total assets 11.1%; average net loans 11.8%; average deposits 10.9%; and average equity 12.9%. (bullet) One Valley's equity-to-average assets over the past five years averaged 7.8%. (bullet) Cash dividends declared per share grew at a 10.9% compound annual rate during the last five years. Other significant events for One Valley Bancorp during 1993 include: (bullet) The strategic decision in early 1993 to outsource its data processing systems to M&I Data Services integrated banking system. In addition, it was determined that the mortgage loan data processing and credit card data processing would also be outsourced to Computer Power, Inc. and First Data Resources, respectively. (bullet) The conversion during the third and fourth quarters of all affiliate banks and other One Valley units to the new data processing systems. These conversions had a significant impact on all of One Valley's employees and customers but were accomplished due to the extraordinary effort of One Valley's dedicated employees. (bullet) In August of 1993, One Valley received the results of a comprehensive study on the expectations of financial services consumers in West Virginia. This study will enable One Valley to establish a base line of customer expectations in an effort to increase customer satisfaction. (bullet) The establishment of new common statewide products, services and fee schedules with common documentation to uniformly enhance customer service statewide. (Net Income and Dividends Per Share bar graph appears here--see appendix) 3 Report to Customers, Employees, Owners, and Friends (bullet) The statewide One Financial Place trust and investment network, with assets of $2.6 billion, acquired 801 new account relationships in 1993. (bullet) Introduction of the OVB Funds, a family of proprietary mutual funds for which One Valley Bank, National Association, serves as Investment Adviser. The OVB Funds are available both as an institutional (trust) class and as an investment opportunity for retail customers. (bullet) The origination of $369.8 million of mortgage loans for homeowners throughout West Virginia and the servicing of $1.5 billion in mortgages for our customers. (bullet) Using a composite quality ranking, One Valley continued to be ranked as one of the top banking companies in the country by Keefe, Bruyette and Woods, Inc., in its December 1993 BankScan report, ranking One Valley 19th out of 131 banks nationwide. (bullet) In recognition of their hard work and dedication during 1993, each of the employees was awarded five shares of One Valley Bancorp stock in their 401(k) plan account. The employees' efforts were truly magnificent in the 1993 data processing conversion year. The merger with Mountaineer Bankshares was completed on January 28, 1994. Your management team looks forward to working with our new partners to successfully integrate these two fine companies during 1994. It is anticipated that 1994 will be another rewarding year for One Valley's customers, employees and owners, although our ability to adapt to change will continually be challenged. We will refocus and expand our efforts to provide quality service and products that meet or exceed our customers' expectations, create a challenging and rewarding environment for our employees, and return a reasonable profit for our shareholders. Respectfully yours, (Signature of J. Holmes Morrison) J. Holmes Morrison President and CEO (Return on Average Assets bar graph appears here--see appendix) (Return on Average Equity bar graph appears here--see appendix) 4 Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction One Valley Bancorp of West Virginia, Inc. (One Valley) is a multi-bank holding company headquartered in Charleston, West Virginia. It operates eight bank subsidiaries ranging in size from $95 million to $1.5 billion. Through these banks, One Valley serves 36 cities and towns with a full range of banking services in 57 locations strategically located throughout the state. One Valley is also the parent of a real estate management corporation that owns and operates a fifteen-floor office building in Charleston, West Virginia. This office building is the headquarters for One Valley Bancorp and the main location of its lead bank. At December 31, 1993, One Valley had approximately $2.8 billion in assets, $1.8 billion in total loans, and $2.3 billion in total deposits. The accompanying consolidated financial statements have been prepared by the management of One Valley in conformity with generally accepted accounting principles. The audit committee of the Board of Directors engaged Ernst & Young, independent certified public accountants, to audit the consolidated financial statements, and their report is included on page 23. Financial information appearing throughout this annual report is consistent with that reported in the consolidated financial statements. The following discussion is designed to assist readers of the consolidated financial statements in understanding significant changes in One Valley's financial condition and results of operations. Management's objective of a fair presentation of financial information is achieved through a system of strong internal accounting controls. The financial control system of One Valley is designed to provide reasonable assurance that assets are safeguarded from loss and that transactions are properly authorized and recorded in the financial records. As an integral part of that financial control system, One Valley maintains an internal audit staff at the parent company with audit responsibility for all of its subsidiaries. The activities of both the internal and external audit functions are reviewed by the audit committee of the Board of Directors. <TABLE> Six-Year Selected Financial Summary Table 1 (Dollars in thousands, except per share data) 5-Year Compound Growth 1993 1992 1991 1990 1989 1988 Rate <S> <C> <C> <C> <C> <C> <C> <C> Summary of Operations Interest Income $ 195,054 $208,081 $185,974 $178,979 $170,327 $141,315 6.66% Interest Expense 78,142 94,411 100,348 103,532 99,829 77,725 0.11 Net Interest Income 116,912 113,670 85,626 75,447 70,498 63,590 12.95 Provision for Loan Losses 4,815 10,273 4,862 5,295 7,598 5,200 (1.53) Non-Interest Income 36,235 33,926 22,099 17,137 15,122 14,145 20.70 Gross Securities Transactions (2) 1 (748) 114 243 406 Non-Interest Expense 99,373 94,022 71,772 61,418 57,172 54,134 12.92 Net Income 32,469 29,477 21,216 19,102 16,173 14,627 17.29 Per Share Data Net Income $ 2.52 $ 2.29 $ 1.93 $ 1.75 $ 1.48 $ 1.33 13.63% Cash Dividends 0.84 0.70 0.62 0.59 0.56 0.50 10.93 Book Value 18.81 17.14 15.58 14.00 12.82 11.81 9.76 Selected Average Balances Net Loans $1,710,202 $1,624,480 $1,266,173 $1,102,529 $1,042,760 $980,270 11.77% Investment Securities 726,433 737,533 568,050 511,881 440,386 374,750 14.15 Total Assets 2,731,752 2,678,965 2,133,841 1,902,591 1,795,818 1,614,709 11.09 Deposits 2,289,985 2,240,788 1,792,156 1,594,507 1,505,044 1,365,557 10.89 Long-Term Borrowings 9,816 13,469 14,345 21,342 22,489 22,715 (15.45) Equity 232,307 211,772 161,412 145,260 134,518 126,709 12.89 Selected Ratios Average Equity to Assets 8.50% 7.90% 7.56% 7.63% 7.49% 7.85% Return on Average Assets 1.19 1.10 0.99 1.00 0.90 0.91 Return on Average Equity 13.98 13.92 13.14 13.15 12.02 11.54 Dividend Payout Ratio 33.33 30.57 32.12 33.71 37.84 37.59 </TABLE> 5 Management's Discussion and Analysis Summary Financial Results One Valley earned $32.5 million in 1993, a 10.2% increase over the $29.5 million earned in 1992. The increase is primarily due to increased net interest income and non-interest income as well as a lower provision for loan losses. This increase in earnings follows an increase in 1992 of 38.9% over the $21.2 million earned in 1991. Earnings per share were $2.52 in 1993, an increase of 10.0% over the $2.29 earned in 1992, which compares to the 18.7% increase in 1992 over the $1.93 earned in 1991. As shown in Table 1, the five-year compound growth rate in earnings per share since 1988 has been 13.6%. This compound growth rate exceeds management's strategic goal of maintaining a range of 8% to 12% annual growth in net income per share. The increased earnings in both 1993 and 1992 resulted from increased net interest income and fee income which more than offset increased operating expenses. Table 1, Six-Year Selected Financial Summary, presents summary financial data for the past six years, 1988 through 1993, along with a five-year compound growth rate. This table shows the expansion of One Valley due to its growth in banking operations and its acquisition activity. Particular attention should be paid to the sustained growth rates in Equity, Assets, Net Income and Net Loans. The management of One Valley values balanced growth in its financial position rather than growth for growth's sake. A solid capital base is a key strength of One Valley. As shown in Table 1, the average equity-to-asset ratio has remained consistently strong over the past six years. During 1993 and 1992, this ratio significantly improved, a result of a record earnings performance and an additional public stock offering in December 1991. Table 2, Summary Statement of Net Income, presents three years of comparative income statement information. Return on average assets (ROA) measures how effectively One Valley utilizes its assets to produce net income. One Valley's ROA increased significantly in 1993 to 1.19%, up from 1.10% in 1992 and 0.99% in 1991. As shown in Table 3, Analysis of Return on Assets and Equity, the rise in ROA is attributed primarily to the decrease in the provision for loan losses and increase in non-interest income. Net credit income (net interest income less the provision for loan losses) significantly improved in 1993 as a percent of average earning assets to 4.57%, which compares to the previous two years at 4.33%. This highlights One Valley's ability to manage interest rate and credit risk. The increase in non-interest income in 1993 was exceeded by the increase in non-interest expense and thus One Valley's net overhead ratio (non-interest expense less non-interest income as a percentage of average earning assets) increased slightly to 2.50%. While this is slightly higher than the 2.45% ratio in 1992, it is still considerably better than the 2.58% ratio in 1991. Return on average equity (ROE), another measure of earnings performance, indicates the amount of net income earned in relation to the total equity capital invested. One Valley's 1993 ROE reached 13.98%, a new high for the corporation. This ratio compares favorably to the 13.92% earned in 1992 and the 13.14% reported in 1991. An increasing ROE indicates that One Valley's net income continues to grow at a faster pace than the equity invested in the company. Table 3 comparatively illustrates the components of ROA and ROE over the previous five years. <TABLE> Summary Statement of Net Income Table 2 (Dollars in thousands) Increase (Decrease) From Prior Year 1993 1992 1991 1993 1992 Amount Percent Amount Percent <S> <C> <C> <C> <C> <C> <C> <C> Interest Income * $195,054 $208,081 $185,974 $ (13,027) (6.26) $22,107 11.89 Interest Expense 78,142 94,411 100,348 (16,269) (17.23) (5,937) (5.92) Net Interest Income 116,912 113,670 85,626 3,242 2.85 28,044 32.75 Other Operating Income 36,235 33,926 22,099 2,309 6.81 11,827 53.52 Gross Securities Transactions (2) 1 (748) (3) 749 Total Operating Income 153,145 147,597 106,977 5,548 3.76 40,620 37.97 Provision for Loan Losses 4,815 10,273 4,862 (5,458) (53.13) 5,411 111.29 Other Operating Expenses 99,373 94,022 71,772 5,351 5.69 22,250 31.00 Income Before Taxes 48,957 43,302 30,343 5,655 13.06 12,959 42.71 Income Taxes 16,488 13,825 9,127 2,663 19.26 4,698 51.47 Net Income $ 32,469 $ 29,477 $ 21,216 $ 2,992 10.15 $ 8,261 38.94 * Fully tax-equivalent interest income using the rate of 35% for 1993 and 34% for 1992 and 1991 $ 198,135 $ 210,964 $ 189,769 $ (12,829) (6.08) $ 21,195 11.17 6 </TABLE> Acquisition Activity One Valley entered into a significant merger agreement with Mountaineer Bankshares of W.Va., Inc. (Mountaineer) in 1993. At December 31, 1993, Mountaineer had total assets of approximately $739 million and total deposits of approximately $608 million. The merger, which closed in January 1994 and will be accounted for as a pooling-of-interests, will increase One Valley's market presence in the northern and eastern panhandle regions of the State of West Virginia. Mountaineer operated seven affiliate banks, each with different names and no common corporate identity or product structure. Over the next several months, One Valley plans to consolidate backroom operations, change the names to a common "One Valley Bank" corporate identity, and merge some of the acquired affiliates together, which is anticipated to significantly reduce operating costs. The resulting One Valley will operate eleven subsidiary banks, have total assets in excess of $3.5 billion and total deposits in excess of $2.9 billion. In 1991, One Valley purchased certain assets and liabilities of Atlantic Financial Federal - West Virginia, F.S.A. (Atlantic) from the Resolution Trust Corporation (RTC). Accordingly, the earnings and balances are included in One Valley's financial information only from the date of acquisition. As a result of the purchase, One Valley assumed approximately $525 million in deposits in exchange for $339 million in net loans, $44 million in investment securities, $134 million in cash and cash equivalents, and certain other assets. The transaction increased One Valley's balance sheet by approximately 26%. As a result of the substantial increase in assets and deposits from the Atlantic acquisition, One Valley substantially improved its earning potential. The improvement is clearly demonstrated by the 38.9% increase in 1992 net income, entirely post-acquisition, over 1991 net income, mostly pre-acquisition. Through combining the operations of Atlantic into the operations of One Valley, many operating synergies were realized. Comparisons of average balances and income statement categories are all largely affected by the Atlantic acquisition. Throughout this discussion, many of the increases in balances and operations from 1991 to 1992 will be attributed to the Atlantic acquisition, while other changes will be mentioned only if significant in comparison. <TABLE> Analysis of Return on Assets and Equity Table 3 1993 1992 1991 1990 1989 <S> <C> <C> <C> <C> <C> As a percent of average earning assets: Fully taxable-equivalent net interest income * 4.76% 4.75% 4.58% 4.61% 4.64% Provision for loan losses (0.19) (0.42) (0.25) (0.30) (0.47) Net credit income 4.57 4.33 4.33 4.31 4.17 Non-interest income 1.44 1.38 1.09 0.99 0.94 Non-interest expense (3.94) (3.83) (3.67) (3.54) (3.50) Tax equivalent adjustment (0.12) (0.12) (0.19) (0.27) (0.32) Applicable income taxes (0.66) (0.56) (0.47) (0.39) (0.30) Return on average earning assets 1.29 1.20 1.09 1.10 0.99 Multiplied by average earning assets to average total assets 92.26 91.68 91.47 91.28 91.02 Return on average assets 1.19% 1.10% 0.99% 1.00% 0.90% Multiplied by average assets to average equity 11.75X 12.65X 13.22X 13.10X 13.35X Return on average equity 13.98% 13.92% 13.14% 13.15% 12.02% *Fully tax-equivalent using the rate of 35% for 1993 and 34% for earlier years. </TABLE> 7 Management's Discussion and Analysis Balance Sheet Analysis Summary A financial institution's primary sources of revenue are generated by its earning assets, while its major expenses are produced by the funding of these assets with interest bearing liabilities. Information on rate-related sources and uses of funds for each of the three years in the period ended December 31, 1993, is provided in Table 4, Average Balance Sheet / Net Interest Income Analysis. Effective management of these sources and uses of funds is essential in attaining a financial institution's maximum profitability while maintaining a minimum amount of interest rate and credit risk. In 1993, average earning assets grew by 2.62%, or $64.2 million, over 1992, following a 25.8% or $504.4 million increase in 1992 over 1991. Average interest bearing liabilities, the primary source of funds supporting earning assets, remained relatively flat in 1993. Average interest bearing liabilities rose by $14.4 million or 0.7% in 1993 when compared to 1992. This increase follows a $419.8 million or 24.6% increase over 1991. The relatively low growth in average interest bearing liabilities is attributed to the lower interest rate environment and the resulting high competition for funds, as more fully <TABLE> Average Balance Sheet / Net Interest Income Analysis Table 4 (Dollars in thousands) 1993 1992 1991 Average Yield/ Average Yield/ Average Yield/ Balance Interest (1) Rate (1) Balance Interest (1) Rate (1) Balance Interest (1) Rate (1) <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Assets Loans(2) Taxable $1,713,982 $150,836 8.80% $1,626,853 $156,357 9.61% $1,258,280 $133,514 10.61% Tax-exempt 25,277 2,594 10.26 22,901 2,368 10.34 24,761 2,942 11.88 Total Loans 1,739,259 153,430 8.82 1,649,754 158,725 9.62 1,283,041 136,456 10.64 Less: Allowance for losses 29,057 25,274 16,868 Total Loans-net 1,710,202 8.97 1,624,480 9.77 1,266,173 10.78 Investment Securities Taxable 666,731 36,003 5.40 682,332 42,877 6.28 495,590 37,835 7.63 Tax-exempt 59,702 6,208 10.40 55,201 6,111 11.07 72,460 8,218 11.34 Total Securities 726,433 42,211 5.81 737,533 48,988 6.64 568,050 46,053 8.11 Federal funds sold & other 83,782 2,494 2.98 94,165 3,251 3.45 117,578 7,259 6.17 Total Earning Assets 2,520,417 198,135 7.86 2,456,178 210,964 8.59 1,951,801 189,768 9.72 Other assets 211,335 222,787 182,040 Total Assets $2,731,752 $2,678,965 $2,133,841 Liabilities and Equity Interest bearing liabilities: Interest bearing demand deposits $1,953,735 71,713 3.67 $1,924,819 85,991 4.47 $1,551,503 91,322 5.89 Savings deposits 617,318 19,529 3.16 535,190 21,025 3.93 359,774 17,972 5.00 Time deposits 1,037,899 43,603 4.20 1,131,468 55,657 4.92 1,011,045 64,900 6.42 Total Interest Bearing Deposits 1,953,735 71,713 3.67 1,924,819 85,991 4.47 1,551,503 91,322 5.89 Short-term borrowings 179,373 5,173 2.88 190,267 7,122 3.74 142,945 7,647 5.35 Long-term borrowings 9,816 1,256 12.80 13,469 1,298 9.64 14,345 1,379 9.61 Total Interest Bearing Liabilities 2,142,924 78,142 3.65 2,128,555 94,411 4.44 1,708,793 100,348 5.87 Demand deposits 336,250 315,969 240,653 Other liabilities 20,271 22,669 22,983 Shareholders' equity 232,307 211,772 161,412 Total Liabilities & Equity $2,731,752 $2,678,965 $2,133,841 Net Interest Earnings $119,993 $116,553 $89,420 Net Yield on Earning Assets 4.76% 4.75% 4.58% (1) Fully tax-equivalent using the rate of 35% for 1993, and 34% for 1992 and 1991. (2) Non-accrual loans are included in average balances. </TABLE> 8 explained below. The growth in 1992 average balances is largely attributed to the Atlantic acquisition. Additional information on each of the components of earning assets and interest bearing liabilities is contained in the following sections of this report. Loan Portfolio One Valley's loan portfolio is its largest and most profit- able component of average earning assets, totaling 67.9% of average earning assets. One Valley continued to emphasize increasing its loan portfolio in 1993. Average net loans increased by $85.7 million or 5.3% in 1993. The increase in 1993 average loans was primarily attributable to an increase in residential real estate loans. Average net loans increased by $358.3 million, or 28.3%, in 1992. The increase in 1992 average loans is largely due to the Atlantic acquisition late in 1991. As a result, average net loans have increased as a percentage of average earning assets, from 64.9% in 1991, to 66.1% in 1992, to 67.9% in 1993. Similarly, One Valley's loan-to-deposit ratio con- tinued its upward trend in 1993, ending the year at 77.4%. This ratio compares to 72.7% at December 31, 1992 and 71.2% at December 31, 1991. Expanding affiliate markets, as well as One Valley's carefully planned acquisition activity, have contributed greatly to the growth in the loan portfolio . (Average Easrning Assets bar graph appears here -- see appendix) Total loans at December 31, 1993, increased by $147.8 million or 8.8% over the total at December 31, 1992, which compares to a $52.6 million, or 3.2% increase in 1992 over the total at December 31, 1991. The increase in 1993 is largely due to an increase in residential real estate loans. During 1993 and 1992, the banking industry was consumed with home mortgage refinancing due to the significant decline in home mortgage interest rates. One Valley competed aggressively for these refinancing mortgages and increased the residential real estate portfolio, including revolving home equity loans, by $90.3 million or 12.2% in 1993. One Valley also originated $138.7 million of new loans in 1993 to be sold in the secondary market, a new activity for One Valley since the Atlantic acquisition. This compares to approximately $185.0 million of new loan volume originated for sale in the secondary market in 1992. This activity generates considerable processing and servicing fee income, as discussed further in the "Income Statement Analysis" section of this report. Consumer installment loans increased by $7.5 million or 2.0% during 1993, following a $27.7 million, or 7.9%, increase in 1992. Commercial loans increased by $36.5 million, or 14.3%, during 1993, compared to a $21.0 million, or 9.0%, increase in 1992. Commercial real estate loans, including apartment buildings and complexes, increased by $22.0 million, or 8.0%, during 1993. This follows a $39.7 million, or 16.8%, increase in 1992. As shown in Table 5, commercial real estate loans have historically only averaged about one-sixth of the total loan portfolio, thus limiting One Valley's exposure to swings in commercial real estate values. Table 5, Loan Summary, presents a five-year comparison of loans by type. With the exception of those categories included in the comparison, there are no loan concentrations which exceed 10% of total loans. Addi-tionally, One Valley's loan portfolio contains no loans to foreign borrowers nor does it have any material volume of highly leveraged transaction lending. Over the past four years, total loans have increased $730 million, a result of acquisitions and internal growth. While loan growth has been substantial, One Valley imposes under-writing and credit standards which are designed to maintain a quality loan portfolio. One Valley com-pleted extensive due diligence on the Atlantic loan portfolio prior to the acquisition and rejected the purchase of some portions of the loan portfolio. One Valley continued its evaluation of the acquired portfolio throughout 1993 and 1992, and continued to conservatively assess the risk of loss within the portfolio. Loans secured by real estate, which in total constituted nearly 63% of One Valley's loan portfolio at December 31, 1993, consist of a diverse portfolio of predominantly single family residential loans and loans for commercial purposes where real estate is merely collateral, not the primary source of repayment. The majority of these loans is secured by property located within West Virginia, where real estate values have remained relatively stable over the past ten years. Significant fluctuations in real estate values have caused collateral value problems in other regions of the country. A portion of the loans acquired from the Atlantic acquisition is secured by real estate located outside of West Virginia. However, management believes that the allowance for loan losses is adequate to absorb any material losses that could result from these loans due to declines in real estate values. 9 Management's Discussion and Analysis <TABLE> Loan Summary Table 5 (Dollars in thousands) As of December 31 1993 1992 1991 1990 1989 <S> <C> <C> <C> <C> <C> Summary of Loans by Type Commercial, financial, agricultural, and other loans $ 292,005 $ 255,491 $ 234,467 $ 257,094 $ 247,344 Real estate: Construction loans 23,367 33,486 31,682 22,568 18,679 Revolving home equity 81,921 72,748 51,977 42,410 32,373 Single family residentials 746,393 665,248 697,327 371,256 330,420 Apartment buildings and complexes 40,062 44,562 36,287 23,805 19,808 Commercial 257,656 231,142 199,719 165,165 155,551 Bankers' acceptances 2,123 560 26,887 0 0 Consumer installment loans 387,420 379,903 352,180 308,168 297,140 Subtotal 1,830,947 1,683,140 1,630,526 1,190,466 1,101,315 Less: Allowance for loan losses 29,184 27,985 22,729 14,633 13,606 Net Loans $1,801,763 $1,655,155 $1,607,797 $1,175,833 $1,087,709 Percent of Loans by Category Commercial, financial, agricultural, and other 15.95% 15.18% 14.37% 21.59% 22.46% Real estate: Construction loans 1.28 1.99 1.94 1.90 1.70 Revolving home equity 4.47 4.32 3.19 3.56 2.94 Single family residentials 40.76 39.52 42.77 31.19 30.00 Apartment buildings and complexes 2.19 2.65 2.23 2.00 1.80 Commercial 14.07 13.73 12.25 13.87 14.12 Bankers' acceptances 0.12 0.03 1.65 0.00 0.00 Consumer installment loans 21.16 22.58 21.60 25.89 26.98 Total 100.00% 100.00% 100.00% 100.00% 100.00% Non-Performing Assets Non-accrual loans $ 5,048 $ 8,306 $ 9,944 $ 6,193 $ 7,794 Other real estate owned 1,524 3,593 4,914 5,415 4,316 Restructured loans 0 100 1,964 Total Non-Performing Assets $ 6,572 $ 11,999 $ 16,822 $ 11,608 $ 12,110 Non-performing assets as a % of total loans 0.36% 0.71% 1.03% 0.98% 1.10% Loans Past Due Over 90 Days $ 2,415 $ 3,251 $ 2,595 $ 3,328 $ 3,043 As a % of total loans 0.13% 0.19% 0.16% 0.28% 0.28% Allocation of Loan Loss Reserve by Loan Type Commercial, financial, and unallocated portion $ 11,561 $ 10,862 $ 6,990 $ 6,984 $ 6,415 Real estate construction loans 180 224 209 76 61 Real estate loans - other 7,207 7,236 6,661 1,640 1,427 Consumer installment loans 10,236 9,663 8,869 5,933 5,703 Total $ 29,184 $ 27,985 $ 22,729 $ 14,633 $ 13,606 </TABLE> 10 In addition to the loans reported in Table 5, One Valley also offers certain off-balance sheet products such as letters of credit, revolving credit agreements, and other loan commitments. These products are offered under the same credit standards as the loan portfolio and are included in the risk-based capital ratios used by the Federal Reserve to evaluate capital adequacy. Additional information on off- balance sheet commitments is contained in Note O to the consolidated financial statements. Table 5 also reports the level of non-performing assets and loans contractually past due over 90 days for the last five years. Total non-performing assets, which consist of past due loans on which interest is not being accrued, foreclosed properties in the process of liquidation, and loans the terms of which have been restructured to enable a delinquent borrower to repay, were $6.6 million or 0.36% of total loans at year-end 1993. This ratio is now at its lowest level since the formation of the company in 1981, and is exceptional when compared to peer group banks across the country. During 1993 and 1992, One Valley diligently worked to reduce its level of non-performing assets, which increased significantly in 1991 due to the Atlantic acquisition. (Total Loans Bar graph appears here -- see appendix) The amount of loans contractually past due over 90 days, but which continue to accrue interest, decreased in dollars as well as a percentage of year-end total loans. At December 31, 1993, these loans constituted only 0.13% of year-end loans, a decrease from the 0.19% at December 31, 1992, and, as shown in Table 5, a significant improvement over years 1989 through 1991. The consistently favorable ratio of problem loans to total loans has occurred while the loan portfolio has increased significantly over the last five years, and thus the favorable ratio is indicative of One Valley's commitment to a quality loan portfolio. Both the increase in the size and the credit quality of the loan portfolio have enabled One Valley to increase its net credit income by $8.7 million or 8.4% in 1993. It is One Valley's policy to place loans that are past due over 90 days on non-accrual status, unless the loans are adequately secured and in the process of collection. For real estate loans, upon repos-session (or substantive repossession), the balance of the loan is transferred to "Other Real Estate Owned" (OREO) and carried at the lower of the outstanding loan balance or the fair market value of the property based on current appraisals and other current market trends. If a writedown of the OREO property is necessary at the time of foreclosure, the amount is charged off against the allowance for loan losses. A quarterly review of the recorded property value is performed in conjunction with normal loan reviews, and if market conditions indicate that the recorded value exceeds the fair market value, additional write-downs of the property <TABLE> Remaining Maturities of Loans Table 6 (Dollars in thousands) Balance Projected Maturities* December 31 One Year One to Five Over Five 1993 or Less Years Years <S> <C> <C> <C> <C> Commercial, financial, and agricultural loans $264,362 $123,974 $103,578 $36,810 Real estate construction loans 23,367 18,401 1,782 3,184 Commercial real estate loans 297,718 59,267 146,411 92,040 Loans with: Floating rates $393,477 $142,181 $160,208 $91,088 Predetermined rates 191,970 59,461 91,563 40,946 *Based on scheduled or approximate repayments. </TABLE> 11 Management's Discussion and Analysis value are charged directly to operations. One Valley had no commitments to provide additional funds on non-accrual loans at December 31, 1993. During 1993, One Valley recognized less than $0.1 million of interest on non-accrual loans, while approximately $0.6 million would have been recognized on these loans had they been current throughout 1993 in accordance with their original terms. In comparison, during 1992, approximately $0.2 million was recognized on non-accrual loans, while approximately $0.9 million would have been recognized in accordance with their original terms. (Non-performing Assests and Loans 90 Days Past Due Bar graph appears here -- see appendix) In May 1993, the FASB issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan," which is effective for fiscal years beginning after December 15, 1994. The Statement requires that impaired loans be measured at the present value of expected future cash flows discounted at the loan's original effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The adoption of this Statement is not anticipated to have a material effect on One Valley's financial statements. (Provision for Loan Losses and Net Charge-offs bar graph appears here -- see appendix) The allowance for loan losses is maintained to absorb probable losses associated with lending activities. Factors considered in determining the adequacy of the loss reserve and the size of the provision each month include an individual assessment of risk on large commercial credits, historical charge-off experience, levels of non-performing loans, and an evaluation of current economic conditions. As a part of the holding company structure, One Valley maintains a loan analysis and review department to evaluate large commercial credit requests and to complete loan follow-up procedures. One Valley also maintains a loan administration function to continually identify and monitor problem loans. At December 31, 1993, the allowance for loan losses was $29.2 million or 1.59% of total year- end loans, which is sufficient to absorb over eight times the amount of net charge-offs experienced during 1993. The 1.59% ratio is a decrease from the prior year's 1.66% but is a substantial increase over the 1.39% in 1991 and 1.23% in 1990. In management's opinion, the allowance for loan losses is adequate to absorb the estimated risk of loss in the existing portfolio. The increase in 1992 is primarily the result of growth in the loan portfolio and a conservatively assessed risk of loss in the purchased Atlantic portfolio. Table 5 includes a summary of the allowance for loan losses allocated by loan type. Table 7, Comparative Loan Loss Information, provides a detailed history of the allowance for loan losses, illustrating charge-offs and recoveries by loan type, and the annual provision for loan losses over the past five years. The provision for loan losses in 1993 was $4.8 million, down significantly from the record $10.3 million provision in 1992 but relatively close to the $4.9 million provision in 1991. As mentioned earlier, the increase in 1992 was in response to growth in the loan portfolio and a continued conservative assessment of the remaining portion of the purchased Atlantic portfolio. Management has evaluated these loans conservatively because the loans were originated under the former Atlantic credit standards, rather than the stricter One Valley credit standards. While One Valley experienced greater loan growth in 1993, the credit risk of the portfolio has improved significantly, as evidenced by the historically low level of non-performing assets and the low level of net charge-offs during the year. Thus management was able to lower the provision for loan losses for the year and still maintain a relatively high ratio of the allowance for loan losses to the loan portfolio. Net charge-offs in 1993 decreased by $1.4 million or 27.9% from 1992 net charge-offs. This decrease follows an increase in 1992 of 40.0% or $1.4 million over 1991 net charge- offs. Net charge-offs as a percentage of average total loans declined to 0.21%, which compares to 0.30% in 1992 and 0.28% in 1991. All three of these ratios compare favorably to peer group institutions. Although the dollar amount of net charge-offs could increase in the coming months due to the increase in the total dollar amount of loans, management anticipates, based on the credit quality of the loan portfolio, that the ratio of net charge-offs to average total loans will continue to remain near the historically low level One Valley has experienced over the years. 12 <TABLE> Comparitive Loan Loss Information Table 7 (Dollars in thousands) For the Year Ended December 31 1993 1992 1991 1990 1989 <S> <C> <C> <C> <C> <C> Allowance for Loan Losses, Beginning of Period $ 27,985 $ 22,729 $ 14,633 $ 13,606 $11,863 Charge-offs: Commercial, financial, and agricultural loans 1,313 1,775 1,290 1,415 1,004 Real estate construction loans 0 0 0 0 0 Real estate loans - other 917 1,316 871 1,488 2,937 Installment loans 2,976 3,445 2,710 2,410 3,005 Total Charge-offs 5,206 6,536 4,871 5,313 6,946 Recoveries: Commercial, financial, and agricultural loans 446 389 512 272 263 Real estate construction loans 0 0 0 0 0 Real estate loans - other 344 362 143 146 135 Installment loans 800 768 627 627 693 Total Recoveries 1,590 1,519 1,282 1,045 1,091 Net Charge-offs 3,616 5,017 3,589 4,268 5,855 Provision for loan losses 4,815 10,273 4,862 5,295 7,598 Balance of acquired subsidiaries 0 0 6,823 0 0 Allowance for Loan Losses, End of Period $ 29,184 $ 27,985 $ 22,729 $ 14,633 $ 13,606 Average total loans $1,739,259 $1,649,754 $1,283,041 $1,116,943 $1,055,577 Total loans at year-end 1,830,947 1,683,140 1,630,526 1,190,466 1,101,315 As a Percent of Average Total Loans: Net charge-offs 0.21% 0.30% 0.28% 0.38% 0.55% Provision for loan losses 0.28 0.62 0.38 0.47 0.72 Allowance for loan losses 1.68 1.70 1.77 1.31 1.29 As a Percent of Total Loans at Year-end: Allowance for loan losses 1.59% 1.66% 1.39% 1.23% 1.24% As a Multiple of Net Charge-offs: Allowance for loan losses 8.07X 5.58X 6.33X 3.43X 2.32X Income before tax and provision for loan losses 14.87 10.68 9.81 7.31 4.90 </TABLE> Investment Portfolio and Other Earning Assets Investment securities averaged $726.4 million in 1993, a 1.5% decrease from the $737.5 million averaged in 1992. This slight decrease follows a 29.8% increase over the $568.1 million averaged in 1991. The decrease in the average balance during 1993 is primarily in response to the increased loan demand during the year, as One Valley was able to place maturing investments in its more profitable loan portfolio. The increase in 1992 was due largely to the investment securities and other highly liquid assets acquired through the Atlantic transaction, and the sale of $35.6 million of marketable equity securities in January 1992. These funds were originally invested in federal funds sold, which are short-term investments with other banks. During the first two quarters of 1992, as market conditions permitted, the funds were reinvested into the higher yielding investment portfolio. During the remaining part of 1992 and throughout most of 1993, the investment portfolio has, on average, declined as funds have been reinvested into the loan portfolio and used to maintain liquidity due to a decline in short- term repurchase agreements with corporate customers. As sources of funds (deposits, federal funds purchased, and repurchase agreements with corporate customers) fluctuate, excess funds are initially invested in federal funds sold and other short-term investments. Based upon continual analyses of asset/liability repricing, interest rate forecasts, and liquidity requirements, funds are periodically reinvested in high-quality debt securities, which typically mature over a 13 Management's Discussion and Analysis longer period of time (Table 8). At the time of purchase, management determines whether investment securities will be held for sale or held for investment. If held for investment, securities are recorded at historical cost and adjusted monthly over their remaining lives for the accretion or amortization of the difference between cost and maturity value of the investments. Thus at the time of maturity, the proceeds from maturity and the book value of the investment are equivalent and no gain or loss is recognized. One Valley, through its size and the stable nature of its deposit base, is able to purchase investment securities with a wide variety of maturities, a majority of which are short-term. Therefore, since One Valley's investment portfolio is constantly maturing and rolling over into new investments, investment portfolio sales are infrequent, as shown in the Statements of Cash Flows. In May 1993 the Financial Accounting Standards Board (FASB) issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994 for One Valley. Under this Statement, debt securities that One Valley has the positive intent and ability to hold to maturity are carried at amortized cost. Debt securities that One Valley does not have the positive intent and ability to hold to maturity are classified as available-for-sale or trading and carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are carried as a separate component of shareholders' equity, while unrealized holding gains and losses on securities classified as trading are reported in earnings. One Valley does not have any securities classified as trading and it has no plans to establish such classification at the present time. With the impending adoption of this new statement and the additional volume of investments to be managed after the Mountaineer merger, management has reevaluated its investment portfolio philosophies and assigned additional securities to the available-for-sale classification. Accordingly, management designated as available-for-sale at December 31, 1993 approximately $486,469 of securities which had unrealized appreciation of $5,701. The remaining is classified Investment Securities Analysis Table 8 (Dollars in thousands) As of December 31, 1993 Average Taxable Book Maturity Equivalent Value (Years/ Months) Yield* U. S. Treasury Securities Within one year $161,039 3.98% After one but within five years 218,624 4.52 After five but within ten years 27,211 7.12 Over ten years 21,351 7.06 Total U.S. Treasury Securities 428,225 1/11 4.61 U. S. Government Agencies Securities Within one year 51,008 8.87 After one but within five years 75,796 5.19 After five but within ten years 54,958 6.92 Total U.S. Government Agencies Securities 181,762 3/2 6.75 States and Political Subdivisions Securities Within one year 12,301 10.98 After one but within five years 16,859 11.01 After five but within ten years 11,215 9.66 After ten years 50,573 7.69 Total States and Political Subdivisions Securities 90,948 9/0 8.99 Other Securities 19,760 Total Investment Securities $720,695 3/2 5.57% *Fully tax-equivalent using the rate of 35%. 14 as held-to-maturity as management has the positive intent and ability to hold these securities to maturity. The effect on One Valley's financial statements of adopting Statement 115 will be to increase the opening balance of shareholders' equity as of January 1, 1994 by $3,478 (net of $2,223 in deferred income taxes) to reflect the net unrealized holding gains on securities classified as available- for-sale previously carried at amortized cost. Over the past three years, the market value of the investment portfolio has not materially varied from its historical amortized cost basis, and unrealized losses within the investment portfolio have been more than offset by unrealized gains. Similarly, realized investment securities gains and losses have not materially impacted the net income of One Valley over the past five years. Other information regarding investment securities may be found in Table 8, Investment Securities Analysis, and in Note D to the consolidated financial statements. Due to unfavorable laws relating to investments in tax- exempt assets and corporate minimum tax regulations, levels of tax-exempt securities held by One Valley, as well as their average maturity period, have declined over the last several years. However, due to the lower interest rate environment, overall yields on tax- exempt securities have become attractive once again. During 1993, One Valley increased its tax-exempt securities by $42.5 million, or 87.6%, over the level of tax-exempt securities held at December 31, 1992. Future investments in tax-exempt securities will be made if the related yield is greater than that available with a similar taxable investment. The average maturity of the investment portfolio lengthened during 1993 in response to the economic environment and the direction of interest rates. The average maturity period of the entire investment portfolio increased from approximately 2 years no months at the end of 1992 to 3 years 2 months at the end of 1993, somewhat the result of the purchase of typically longer term tax-exempt investments. The average maturity of the investment portfolio is managed at a level to maintain a proper matching with liability maturity patterns. One Valley's average investment in federal funds sold has remained relatively constant over the past three years, averaging $81.3 million in 1993, a slight decrease from the $89.5 million averaged during 1992, and the $82.8 million averaged during 1991. Fluctuations in federal funds sold and other short-term investments reflect management's goal to maximize asset yields while maintaining proper asset/liability structure, as discussed in greater detail above. In 1987, One Valley invested a portion of its funds in a mutual fund of securities guaranteed by the U.S. Government. At December 31, 1991, these assets were held for sale, and accordingly, approximately $753,000 was charged to operations in 1991 to reduce the carrying amount to market value. These securities were subsequently sold during the first part of January 1992. Funding Sources Over the past three years, declines in market interest rates have forced banks to reduce their rates paid on interest bearing deposits. Due to alternative sources of investment and an increasing sophistication of customers in funds management techniques to maximize return on their money, competition for funds has become more intense. In 1993, the average rate paid on interest bearing liabilities was 3.65%, down from the 4.44% average rate paid in 1992, and down further still from 5.87% paid in 1991. One Valley has offered new deposit products as well as slightly higher than market rates to attract additional deposits. One Valley's deposits, on average, increased by 2.2% or $49.2 million in 1993. This increase follows a 25.0% increase in 1992, largely due to the $525.2 million of deposits acquired through the Atlantic transaction, and a 12.4% increase in average deposits during 1991. During 1993, non-interest bearing deposits increased on average by 6.4% over 1992, while interest bearing deposits increased by only 1.5%. This trend is reflective of an increased customer base in the use of checking and other Maturity Distribution of Certificates of Deposit In Amounts of $100,000 or More Table 9 (Dollars in thousands) As of December 31, 1993 As of December 31, 1992 Amount Percent Amount Percent Three months or less $ 57,005 38.05 % $ 74,798 52.74% Three through six months 27,846 18.58 22,006 15.51 Six through twelve months 24,614 16.43 13,014 9.18 Over twelve months 40,358 26.94 32,009 22.57 Total $149,823 100.00 % $141,827 100.00% 15 non-interest bearing deposit products, and the stiff competition for interest bearing investments in a low interest rate environment. An illustration of the growth in deposit categories over the past five years is shown in the Average Deposits graph. (Average Deposits bar graph appears here -- see appendix) Short-term borrowings decreased, on average, by $10.9 million or 5.7% from 1992, following a 33.1% increase in 1992 over 1991. Passthrough federal funds purchased from corres- pondent banks increased, on average, by 1.0% in 1993 following a 5.6% increase in 1992. Fluctuations in federal funds purchased are considered normal and are generally influenced by market interest rates and the availability of funds. Repurchase agreements declined, on average, by 6.5% in 1993, primarily due to a lower level of public funds. The decrease follows a 37.1% increase in 1992, due primarily to an emphasis on cross-selling of products to commercial customers. On average, repurchase agreements grew by 37.1% in 1992, which follows a 24.1% increase in 1991. It should be noted that no federal funds purchased nor repurchase agreements were assumed in the Atlantic acquisition. Long-term borrowings, on average, declined by 27.1% in 1993, reflecting the payment of $4.0 million of parent company senior notes in November 1992 and the payoff of $10.0 million of debt incurred in the purchase of the headquarters of One Valley. As a result, One Valley now has little more than $0.1 million of long- term debt, with repayment schedules from one to four years. Other information regarding short- and long-term borrowings is contained in Notes I and J to the consolidated financial statements. Interest Sensitivity and Liquidity Asset/liability management is a means of maximizing net interest income while minimizing interest rate risk by planning and controlling the mix and maturities of interest related assets and liabilities. Several techniques are available to achieve a desired interest sensitivity position. Among these are the types of investments and loans made and the rate of interest paid on deposits for various terms. During most of 1993, One Valley maintained its gap sensitivity position in the zero to six- month category as primarily asset sensitive. As shown in Table 10, Comparative Rate Sensitivity Summary, One Valley's sensitivity gap ratio in the zero to six-month category was 1.04 at December 31, 1993. A sensitivity ratio greater than 1.00 indicates that the volume of earning assets which will be subject to interest rate repricing during a given period exceeds the volume of interest bearing liabilities which are subject to repricing during the same period. Thus, an increase in interest rates would tend to have a positive impact on net interest income, while a decline in rates would tend to have the opposite effect. One Valley's strategy is to continually maintain a rate sensitivity ratio of between 0.90 and 1.10 for the six- month time frame, allowing management flexibility in maximizing net interest earnings while minimizing overall interest rate risk. Liquidity is the ability to satisfy demands for deposit withdrawals, lending com-mitments, and other corporate needs. One Valley's liquidity is based on the stable nature of consumer core deposits held by the banking subsidiaries. Likewise, additional liquidity is available from holdings of investment securities and short-term investments which can be readily converted to cash. Furthermore, One Valley continues to have the ability to attract short-term sources of funds such as federal funds and repurchase agreements, and to arrange credit lines to meet its cash needs. Capital Resources One Valley's average equity-to-asset ratio increased to 8.50% during 1993, up from 7.90% during 1992 and 7.56% in 1991. The increase from 1992 to 1993 primarily resulted from the record earnings performance of One Valley for the year. The increase from 1991 to 1992 primarily resulted from the sale of new shares of common stock on the open market during December 1991 for the purpose of restoring the capital ratios after the Atlantic acquisition. Approximately $29.1 million of capital was raised from the sale of 1,035,000 shares. At year-end 1993, One Valley's primary capital ratio was 9.69% compared to 9.09% at year-end 1992. The Federal Reserve's Risk-Based Guidelines and leverage ratio measure the capital adequacy of banking institutions. The risk- based capital guidelines weight balance 16 sheet assets and off-balance sheet commitments by prescribed factors relative to credit risk, thus eliminating disincentives for holding low risk assets and requiring more capital for holding higher risk assets. At year-end 1993, One Valley's risk adjusted capital-to-assets ratio was 13.9% compared to 15.2% at December 31, 1992. The decline in the ratio is primarily due to an increase in securities loaned, an off-balance sheet factor, at the lead bank during the year. However, both of these ratios are well above the minimum level of 8.0% prescribed for bank-holding companies of One Valley's size. The leverage ratio is a measure of total tangible equity to total tangible assets. One Valley's leverage ratio at December 31, 1993 was 8.6% compared to 7.9% at December 31, 1992. Both of these ratios are well above the minimum 3.0% and the recommended 4.0 to 5.0% prescribed by the Federal Reserve. These healthy ratios are the direct result of management's desire to maintain a strong capital position. The primary source of funds for dividends paid by One Valley to its shareholders is the dividends received from its subsidiary banks. Federal regulatory agencies impose certain restrictions on the payment of dividends and the transfer of assets from the banking subsidiaries to the holding company. Historically, these restrictions have not had an impact on One Valley's dividend policy, and it is not anticipated that they will in the future. Additional information concerning dividend restrictions is discussed in Note N to the consolidated financial statements. In September 1988, the Board of Directors authorized management to repurchase up to 360,000 shares of One Valley Bancorp common stock in the open market. As of year-end 1993 and 1992, 270,000 shares had been repurchased. While the last purchase occurred in 1990, any additional purchases will depend upon future market conditions. <TABLE> December 31, 1993 0-3 Months 3-6 Months 6-12 Months Over 1 Year Total <S> <C> <C> <C> <C> <C> Earning Assets Loans $725,693 $95,481 $176,813 $ 832,960 $1,830,947 Investments 100,995 29,656 186,951 405,255 722,857 Other earning assets 21,000 0 0 0 21,000 Total Earning Assets 847,688 125,137 363,764 1,238,215 2,574,804 Interest Bearing Liabilities Interest bearing deposits 562,355 202,867 179,332 1,034,517 1,979,071 Short-term borrowings 171,899 1,972 4,289 579 178,739 Long-term borrowings 35 3 6 89 133 Total Interest Bearing Liabilities 734,289 204,842 183,627 1,035,185 2,157,943 Interest Sensitivity Gap for Period 113,399 (79,705) 180,137 203,030 416,861 Cumulative Interest Sensitivity Gap 113,399 33,694 213,831 416,861 Cumulative Rate Sensitivity Ratio 1.15 1.04 1.19 1.19 December 31, 1992 Earning Assets Loans $677,343 $112,829 $188,086 $ 704,882 $1,683,140 Investments 64,116 95,089 220,900 328,499 708,604 Other earning assets 102,275 0 0 0 102,275 Total Earning Assets 843,734 207,918 408,986 1,033,381 2,494,019 Interest Bearing Liabilities Interest bearing deposits 616,539 193,314 132,032 996,548 1,938,433 Short-term borrowings 168,332 2,720 2,044 563 173,659 Long-term borrowings 64 65 153 9,710 9,992 Total Interest Bearing Liabilities 784,935 196,099 134,229 1,006,821 2,122,084 Interest Sensitivity Gap for Period 58,799 11,819 274,757 26,560 371,935 Cumulative Interest Sensitivity Gap 58,799 70,618 345,375 371,935 Cumulative Rate Sensitivity Ratio 1.07 1.07 1.31 1.18 Averages are used when period-end balances would produce distorted results. This table includes various assumptions and estimates by management of maturity and repayment patterns. </TABLE> 17 Management's Discussion and Analysis Income Statement Analysis Net Interest Income Net interest income, the amount by which interest generated from earning assets exceeds the expense associated with funding those assets, is One Valley's most significant component of earnings. Net interest income on a fully tax- equivalent basis was $120.0 million in 1993, up 3.0% over the 1992 level, following a 30.3% increase in 1992 over 1991. When net interest income is presented on a fully tax- equivalent basis, interest income from tax-exempt earning assets is increased by the amount equivalent to the federal income taxes which would have been paid if this income were taxable at the statutory federal tax rate (35% for 1993, 34% for 1992 and 1991). The higher percentage increase in net interest income in 1992 is largely due to the increase in earning assets resulting from the Atlantic acquisition. As shown in Table 11, Rate Volume Analysis, increases in the volume of earning assets in both 1993 and 1992 have provided most of the increase in net interest income. In 1993, the increase in the volume of earning assets increased interest income by $7.5 million. This increase was more than offset by declines in interest yields on earning assets due to declines in the overall interest rate environment, and therefore, a decline in total interest income of $12.8 million occurred in 1993. Similarly, increased volume of interest bearing liabilities boosted interest expense by $0.5 million, but the lower cost of interest bearing liabilities resulted in an overall decline in total interest expense of $16.3 million. Due to the additional interest income provided by the higher volume of earning assets, the decline in total interest income was less than the decline in total interest expense, which resulted in a net increase in net interest income. In 1993, as net interest income increased, the net interest margin percentage on a fully tax-equivalent basis increased slightly. Rising to 4.76% in 1993, the net interest margin maintained its level when compared to the prior year's 4.75% net interest margin. In 1993, One Valley sought ways to maintain a proportional decline in rates paid on deposits with the declines in loan and other investment yields. When market rates on deposits fell more rapidly in 1992 than did rates on total earning assets, One Valley's net interest margin increased from the 4.58% margin realized in 1991 to 4.75% in 1992. It should be noted that during the time of declining interest rates, fixed-rate loans were not subject to interest rate repricing unless refinanced. Thus the yield on the total loan portfolio did not decline as rapidly as market rates paid for deposits. However, as shown in the Net Interest Margin graph, One Valley's net interest margin has not fluctuated substantially, up or down, over the past six years. Further discussion of net interest income is included in the section of this report entitled "Balance Sheet Analysis." (Net Interest Margin line and area graph appear here -- see appendix) 18 Non-interest Income and Expense Non-interest income has been and will continue to be an important factor for improving profitability. Recognizing this importance, management continues to evaluate areas where non-interest income can be enhanced. As shown in Table 12, Non-interest Income and Expense, non-interest income increased $2.3 million or 6.8% in 1993 compared to 1992. This followed a 58.9% increase in 1992 over 1991. A large portion of the increase in 1992 is due to the Atlantic transaction. In 1993, service charges on deposit accounts and credit card fees increased due to an increase in the number of customers, while service charges on deposit accounts also increased due to the adoption of a common fee and product structure at all One Valley Banks. Trust income increased significantly in 1993 to $6.7 million, a $1.2 million or 21.4% increase over 1992. This increase follows a 17.6% increase in 1992 over 1991. Trust revenues are increasing primarily due to new business over the past two years. Real estate loan processing fees declined by 4.6% in 1993 when compared to 1992, largely due to a lower volume of loans originated for sale during the year. This major source of non-interest income, acquired through the Atlantic transaction, increased over three-fold in 1992. One Valley generates fee income for the loan application processing as well as for servicing the debt payments over the life of the mortgage after it is transferred to the investor. In 1991, One Valley recognized a net securities loss of $748,000, primarily the writedown of marketable equity securities in anticipation of their sale, which occurred in the first part of January 1992. Immaterial securities gains and losses were realized in 1993 and 1992. Just as management continues to evaluate areas where non- interest income can be enhanced, it strives to find ways to improve the efficiency of its operations and thus reduce operating costs. However, with the increase in 1993 operating expenses primarily due to conversion costs for its data processing systems and other costs associated with the Mountaineer merger, One Valley's net overhead ratio increased for the first time in six years. As shown in the Net Overhead graph, One Valley's 1993 net overhead ratio, or non- interest expense less non-interest income excluding securities transactions to average earning assets, was 2.50%, a slight increase from the 2.45% ratio realized in 1992. For the year 1993, net overhead was $63.1 million, an increase of 5.1% over the 1992 net overhead of $60.1 million. By comparison, net overhead totaled $49.6 million in 1991, which did not include a full year of Atlantic operations. A lower net overhead ratio means more of the net interest margin flows through as net income. The net overhead ratio in 1993 was 2.50%, up slightly from 2.45% in 1992 but down from 2.54% in 1991. Over the past five years, net overhead has grown by a compound rate of 9.56% whereas average earning assets have grown by over 11.62%. (Net Interest Income line and area graph appear here -- see appendix) 19 Total non-interest expense increased by $5.4 million, or 5.7% over 1992. This compares to a 31.0% increase in 1992 versus 1991. Total staff costs rose by 11.1% in 1993, compared to a 23.3% increase in 1992. Normal salary and benefit increases as well as severance packages for employees of One Valley's data processing subsidiary, and additional expense associated with the adoption of FASB Statement 106 account for the growth in this expense. Additional information concerning the adoption of FASB Statement 106 is discussed in Note L to the consolidated financial statements. The increase in 1992 was largely attributable to the increase in the number of employees from the Atlantic transaction. In 1993, the FASB issued Statement No. 112, "Employers' Accounting for Postemployment Benefits," which is effective in 1994 for One Valley. This Statement requires employers to recognize the obligation to provide postemployment benefits if the obligation is attributable to employees' services already rendered, employees' rights to those benefits accumulate or vest, payment of the benefits is probable, and the amount of the benefits can be reasonably estimated. The adoption of this Statement will not be material to One Valley's financial statements. Advertising decreased by 8.9% in 1993 compared to 1992, due to the leveling off of an extensive advertising campaign in 1992. Advertising expense increased by 45.3% in 1992, due to increased local advertising in the early part of 1992 following the Atlantic acquisition and increased statewide advertising in the latter part of 1992 in response to the announced acquisition of the largest bank holding company in the state by an out-of- state institution. FDIC insurance increased by 7.0% in 1993 due to normal deposit growth and 37.4% in 1992 due to the deposits assumed in the Atlantic acquisition. Net occupancy expense remained virtually unchanged in 1993 when compared to 1992, while occupancy expense increased by 57.2% in 1992 over 1991 as a result of operating fourteen additional branch locations acquired in the Atlantic transaction. Equipment expenses increased by 1.9% in 1993 versus 1992, which compares to a 28.1% increase in 1992. The large increase in 1992 was largely due to the equipment bought in the Atlantic transaction. Outside data processing costs increased by 57.4% in 1993 compared to 1992, largely due to costs related to the conversion of One Valley's in house data processing system to M&I Data Services in Milwaukee, Wisconsin. Outside data processing costs <TABLE> Rate Volume Analysis of Changes in Interest Income and Expenses Table 11 (Dollars in thousands) 1993 vs 1992 1992 vs 1991 Increase (Decrease) Increase (Decrease) In Net Interest Income In Net interest Income Volume Rate Total Volume Rate Total <S> <C> <C> <C> <C> <C> <C> Earning Assets Loans: Taxable $ 8,100 $(13,621) $ (5,521) $36,320 $(13,477) $22,843 Tax-exempt 244 (18) 226 (210) (364) (574) Total Loans 8,344 (13,639) (5,295) 36,110 (13,841) 22,269 Investment Securities: Taxable (961) (5,913) (6,874) 12,540 (7,498) 5,042 Tax-exempt 481 (384) 97 (1,915) (192) (2,107) Total Investment Securities (480) (6,297) (6,777) 10,625 (7,690) 2,935 Federal funds sold & other (337) (420) (757) (1,247) (2,761) (4,008) Total Earning Assets 7,527 (20,356) (12,829) 45,488 (24,292) 21,196 Interest Bearing Liabilities Time and savings deposits 1,274 (15,552) (14,278) 19,328 (24,659) (5,331) Short-term borrowings (389) (1,560) (1,949) 2,133 (2,658) (525) Long-term borrowings (404) 362 (42) (84) 3 (81) Total Interest Bearing Liabilities 481 (16,750) (16,269) 21,377 (27,314) (5,937) Net Interest Earnings $ 7,046 $ (3,606) $ 3,440 $24,111 $ 3,022 $27,133 * Fully taxable equivalent using the rate of 35% for 1993 and 34% for 1992 and 1991. Note - Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis. </TABLE> 20 increased by 28.7% in 1992 compared to 1991 largely due to additional services needed as a result of the increased branch network and customer base after the Atlantic transaction. Taxes not on income increased by 10.4% in 1993 due to increases in equity based state and county taxes. Supplies and postage expense increased by 4.0% in 1993 versus 1992 due to data processing conversion. Supplies and postage expense increased by 43.4% in 1992 when compared to 1991 as a result of the increase in the number of customers and accounts from the Atlantic purchase. Other expenses declined by 8.0% in 1993, primarily due to declines in telephone costs, collection and OREO maintenance costs, professional fees, and intangible asset amortization. This decrease follows a 43.1% increase in 1992 versus 1991, largely due to increased operating costs associated with the Atlantic transaction. (Net Overhead Ratio line graph appears here -- see appendix) As noted above, the required payments for FDIC insurance assessments have increased significantly over the last several years. One Valley's assessment increased from $1.2 million in 1989 to $3.5 million in 1991 largely due to increases in rates, as a result of continued losses in the FDIC insurance fund from bank failures in other regions of the country. During 1992, in response to repeated appeals for a more equitable method of determining assessments, the FDIC announced a change in its insurance rate structure to a multi-rate system based on bank soundness and capitalization. Due to its strengths in asset quality and capitalization, One Valley was assessed at the lowest level possible during 1993, 1992, and 1991, and management anticipates that FDIC insurance rates will remain at that level during 1994. An analysis of the allowance for loan losses and related provision for loan losses is included as a portion of the Balance Sheet Summary, Loan Portfolio section of this report. Applicable Income Taxes Income tax expense in 1993 was $16.5 million compared to $13.8 million in 1992 and $9.1 million in 1991. The increase in 1993 is primarily due to increases in pretax earnings and an increase in corporate income tax rates. In addition to the increased pretax earnings, declining tax-exempt income also contributed to increases in income taxes in prior years. With the purchase of additional tax-exempt investments in 1993, discussed above, tax-exempt interest remained relatively unchanged in 1993 and is anticipated to increase in 1994. In 1993, One Valley's effective tax rate was 33.7%, up from 31.9% in 1992 and 30.1% in 1991. Additional information regarding income taxes is contained in Note K to the consolidated financial statements. Effects of Changing Prices The results of operations and financial condition presented in this report are based on historical cost, unadjusted for the effects of inflation. Inflation affects One Valley in two ways. One is that inflation can result in increased operating costs which must be absorbed or recovered through increased prices for services. The second effect is on the purchasing power of the corporation. Virtually all of a bank's assets and liabilities are monetary in nature. Regard-less of changes in prices, most assets and liabilities of the banking subsidiaries will be converted into a fixed number of dollars. Non-earning assets, such as premises and equipment, do not comprise a major portion of One Valley's assets; therefore, most assets are subject to repricing on a more frequent basis than in other industries. One Valley's ability to offset the effects of inflation and potential reductions in future purchasing power depends primarily on its ability to maintain capital levels by adjusting prices for its services and to improve net interest income by maintaining an effective asset/liability mix. Management's efforts to meet these goals are described in other sections of this report. 21 <TABLE> Increase (Decrease) Over Prior Year 1993 1992 1991 1993 1992 Amount Percent Amount Percent <S> <C> <C> <C> <C> <C> <C> <C> Service Charges and Other Operating Income Trust income $ 6,716 $ 5,534 $ 4,706 $ 1,182 21.36 $ 828 17.59 Credit card fees 2,720 2,027 1,407 693 34.19 620 44.07 Service charges on deposit accounts 10,258 9,580 7,460 678 7.08 2,120 28.42 Insurance service fees 710 860 803 (150) (17.44) 57 7.10 Real estate loan processing & servicing fees 7,657 8,022 2,423 (365) (4.55) 5,599 231.08 Checkbook sales 2,468 2,623 1,866 (155) (5.91) 757 40.57 Securities transactions (2) 1 (748) (3) 749 Miscellaneous 5,706 5,280 3,434 426 8.07 1,846 53.76 Total Non-Interest Income $36,233 $33,927 $21,351 $ 2,306 6.80 $12,576 58.90 Staff and Other Operating Expenses Salaries & wages $40,075 $37,297 $29,592 $ 2,778 7.45 $ 7,705 26.04 Employee benefits 10,307 8,046 7,186 2,261 28.10 860 11.97 Total Staff Expenses 50,382 45,343 36,778 5,039 11.11 8,565 23.29 Other Operating Expenses Advertising 2,068 2,269 1,562 (201) (8.86) 707 45.26 FDIC insurance 5,153 4,816 3,506 337 7.00 1,310 37.36 Occupancy, net 4,849 4,822 3,067 27 0.56 1,755 57.22 Equipment 8,634 8,471 6,613 163 1.92 1,858 28.10 Outside data processing 3,018 1,917 1,489 1,101 57.43 428 28.74 Taxes not on income 2,159 1,955 1,697 204 10.43 258 15.20 Supplies and postage 5,492 5,281 3,682 211 4.00 1,599 43.43 All other 17,618 19,148 13,378 (1,530) (7.99) 5,770 43.13 Total Other Operating Expenses 48,991 48,679 34,994 312 0.64 13,685 39.11 Total Non-Interest Expense $99,373 $94,022 $71,772 $ 5,351 5.69 $22,250 31.00 </TABLE> Summary Results of Operations Fourth Quarter 1993 Net income for the three months ended December 31, 1993 was $8.2 million, up 9.3% from the $7.5 million earned during the same period in 1992. On a per share basis, fourth quarter earnings were $0.64 compared to $0.59 in 1992, an increase of 8.5%. The higher fourth quarter net income primarily resulted from continued growth in net interest income and non-interest income as well as a lower provision for loan losses. Net interest income increased by 7.3% when compared to the same three months of 1992. Non- interest income increased by 2.1%, excluding fourth quarter 1993 securities gains, primarily due to an increase in trust department revenue and deposit account fee income. The provision for loan losses declined by 61.0% when compared to the fourth quarter of 1992. These improvements more than offset a 12.2% increase in non-interest expense, when compared to the fourth quarter of 1992. Fourth quarter 1993 non-interest expenses include costs associated with the completed data processing conversion and the Mountaineer merger. Additional quarterly financial data is provided in Note Q to the consolidated financial statements. 22 Report of Ernst and Young, Independent Auditors The Board of Directors and Shareholders One Valley Bancorp of West Virginia, Inc. We have audited the accompanying consolidated balance sheets of One Valley Bancorp of West Virginia, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. 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 One Valley Bancorp of West Virginia, Inc. and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Charleston, West Virginia January 25, 1994 23 Consolidated Balance Sheets One Valley Bancorp of West Virginia, Inc. and Subsidiaries (Dollars in thousands) <TABLE> <CAPTION> December 31 1993 1992 <S> <C> <C> Assets Cash and due from banks--Note B $ 116,242 $ 128,301 Interest-bearing deposits in other banks 2,162 4,193 Federal funds sold 21,000 102,275 Cash and cash equivalents 139,404 234,769 Securities (fair value approximated $734,815 at December 31, 1993, and $718,761 at December 31, 1992)--Note D 720,695 704,411 Loans, net--Notes E and F 1,801,763 1,655,155 Premises and equipment--Note G 68,386 67,819 Accrued interest receivable 21,354 23,198 Other assets 22,757 21,642 Total Assets $2,774,359 $2,706,994 Liabilities Deposits--Note H: Non-interest bearing $ 349,573 $ 339,412 Interest bearing 1,979,071 1,938,433 Total deposits 2,328,644 2,277,845 Short-term borrowings--Note I: Federal funds purchased 14,012 17,718 Securities sold under agreements to repurchase and other 164,727 155,941 Total short-term borrowings 178,739 173,659 Long-term borrowings--Note J 133 9,992 Other liabilities 24,253 24,842 Total Liabilities 2,531,769 2,486,338 Shareholders' Equity Preferred Stock--$10 par value; authorized 1,000,000 shares; none issued Common Stock--$10 par value; authorized 40,000,000 shares; 13,163,766 and 13,140,490 shares outstanding at December 31, 1993 and 1992, including 270,000 shares in treasury at December 31, 1993 and 1992 131,638 131,405 Capital surplus 40,750 40,692 Retained earnings 73,331 51,688 Treasury stock (3,129) (3,129) Total Shareholders' Equity 242,590 220,656 Total Liabilities and Shareholders' Equity $2,774,359 $2,706,994 See notes to consolidated financial statements. </TABLE> 24 Consolidated Statements of Income One Valley Bancorp of West Virginia, Inc. and Subsidiaries (Dollars in thousands, except per share data) <TABLE> Year Ended December 31 1993 1992 1991 <S> <C> <C> <C> Interest Income Interest and fees on loans: Taxable $150,836 $156,357 $133,514 Tax-exempt 1,686 1,563 1,942 Total 152,522 157,920 135,456 Interest and dividends on securities: Taxable 36,003 42,877 37,835 Tax-exempt 4,035 4,033 5,424 Total 40,038 46,910 43,259 Other 2,494 3,251 7,259 Total interest income 195,054 208,081 185,974 Interest Expense Deposits 71,713 85,991 91,322 Short-term borrowings--Note I 5,173 7,122 7,647 Long-term borrowings--Note J 1,256 1,298 1,379 Total interest expense 78,142 94,411 100,348 Net Interest Income 116,912 113,670 85,626 Provision For Loan Losses--Note F 4,815 10,273 4,862 Net Interest Income After Provision For Loan Losses 112,097 103,397 80,764 Other Income Trust Department 6,716 5,534 4,706 Service charges on deposit accounts 10,258 9,580 7,460 Real estate loan processing and servicing fees 7,657 8,022 2,423 Other service charges and fees 3,300 3,659 3,137 Securities (losses) gains (2) 1 (748) Other--Note P 8,304 7,131 4,373 Total other income 36,233 33,927 21,351 Other Expenses Salaries and employee benefits--Note L 50,382 45,343 36,778 Net occupancy--Note G 4,849 4,822 3,067 Equipment 8,634 8,471 6,614 Federal deposit insurance assessments 5,153 4,816 3,506 Outside data processing 3,018 1,917 1,489 Other--Note P 27,337 28,653 20,318 Total other expenses 99,373 94,022 71,772 Income Before Income Taxes 48,957 43,302 30,343 Applicable Income Taxes--Note K 16,488 13,825 9,127 Net Income $ 32,469 $ 29,477 $ 21,216 Net Income Per Common Share $ 2.52 $ 2.29 $ 1.93 Average common shares outstanding 12,884 12,858 11,008 See notes to consolidated financial statements. </TABLE> 25 Consolidated Statements of Shareholders' Equity One Valley Bancorp of West Virginia, Inc. and Subsidiaries (Dollars in thousands, except per share data) <TABLE> Net Unrealized Loss on Marketable Common Capital Retained Treasury Equity Stock Surplus Earnings Stock Securities <S> <C> <C> <C> <C> <C> Balances at January 1, 1991 $ 61,627 $20,905 $75,389 $(3,129) $(3,302) Net income 21,216 Issuance of common stock: Public offering (1,035,000 shares) 10,350 18,757 Stock options exercised (56,955 shares)-- Note L 569 570 Cash dividends ($0.62 per share) (7,064) Change in net unrealized loss on marketable equity securities 3,302 Balances at December 31, 1991 72,546 40,232 89,541 (3,129) 0 Net income 29,477 Stock options exercised (50,423 shares)-- Note L 505 472 Three-for-two stock split in the form of a 50% stock dividend 36,453 (12) (36,461) Six-for-five stock split in the form of a 20% stock dividend 21,901 (21,901) Cash dividends ($0.70 per share) (8,968) Balances at December 31, 1992 131,405 40,692 51,688 (3,129) 0 Net income 32,469 Stock options exercised (24,280 shares)-- Note L 233 58 Cash dividends ($0.84 per share) (10,826) Balances at December 31, 1993 $131,638 $40,750 $73,331 $(3,129) $ 0 See notes to consolidated financial statements. </TABLE> 26 Consolidated Statements of Cash Flows One Valley Bancorp of West Virginia, Inc. and Subsidiaries (Dollars in thousands) <TABLE> Year Ended December 31 1993 1992 1991 <S> <C> <C> <C> Operating Activities Net income $ 32,469 $ 29,477 $ 21,216 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 4,815 10,273 4,862 Depreciation 5,755 6,520 4,969 Amortization, net of accretion 5,214 7,318 5,843 Deferred income taxes (benefit) (1,023) (1,683) (1,440) Loans originated for sale (138,682) (185,246) (39,199) Proceeds from loans sold 144,431 178,307 30,949 Net (gains) losses from sales of assets (926) (393) 1,235 Decrease (increase) in accrued interest receivable 1,844 2,659 (2,170) Decrease in accrued interest payable (2,978) (70) (1,051) Net change in other assets and other liabilities 2,406 (3,157) (2,629) Net cash provided by operating activities 53,325 44,005 22,585 Investing Activities Proceeds from sale of marketable equity securities 35,572 Proceeds from sales of securities 15,116 21,772 10,002 Proceeds from maturities of securities 379,035 493,286 383,545 Purchases of securities (418,960) (503,247) (553,198) Cash received in acquisition, net of cash paid 135,859 Sale of branch, net of deposits transferred and gain on sale (8,489) Net increase in loans (152,355) (53,036) (75,815) Purchases of premises and equipment (7,011) (6,281) (4,536) Net cash used in investing activities (184,175) (20,423) (104,143) Financing Activities Net increase in deposits 50,799 29,039 51,913 Net (decrease) increase in federal funds purchased (3,706) 4,607 (147) Net increase (decrease) in other short-term borrowings 8,786 (9,282) 47,168 Repayment of long-term borrowings (9,859) (4,256) (235) Proceeds from long-term borrowings 56 Proceeds from issuance of common stock 291 957 30,246 Cash dividends (10,826) (8,968) (7,064) Net cash provided by financing activities 35,485 12,097 121,937 (Decrease) increase in cash and cash equivalents (95,365) 35,679 40,379 Cash and cash equivalents at beginning of year 234,769 199,090 158,711 Cash and cash equivalents at end of year $139,404 $234,769 $199,090 See notes to consolidated financial statements. </TABLE> 27 Notes to Consolidated Financial Statements One Valley Bancorp of West Virginia, Inc. and Subsidiaries December 31, 1993 (Dollars in thousands, except per share data) Summary of Significant Accounting and Reporting Policies Note A The accounting and reporting policies of One Valley Bancorp of West Virginia, Inc. and its subsidiaries (One Valley) conform to generally accepted accounting principles and to general practices within the banking industry. The following is a summary of the more significant policies. Principles of Consolidation The accompanying consolidated financial statements include the accounts of One Valley Bancorp of West Virginia, Inc. and its wholly- owned subsidiaries. All significant inter-company balances and transactions have been eliminated. Cash and Cash Equivalents One Valley considers cash and due from banks, interest-bearing deposits in other banks, and federal funds sold as cash and cash equivalents. The carrying amounts reported in the December 31, 1993 and 1992, balance sheets for cash and cash equivalents approximate those assets' fair values. Securities Management determines the appropriate classification of securities at the time of purchase. If management has the intent and One Valley has the ability at the time of purchase to hold securities until maturity, they are classified as investments and carried at amortized historical cost adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income. Securities to be held for indefinite periods of time and not intended to be held-to-maturity are classified as available-for-sale and carried at the lower of cost or market value. Securities held for indefinite periods of time include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk, and other factors related to interest rate and resultant prepayment risk changes. The adjusted cost of the specific security sold is used to compute gain or loss on the sale of investment securities. Loans Held for Sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Allowance for Loan Losses In determining the adequacy of the allowance for loan losses, as well as the appropriate provision for loan losses, management takes into consideration the results of internal review procedures, historical loan loss experience, an assessment of the effect of current and anticipated future economic conditions on the loan portfolio, the financial condition of the borrower and such other factors which, in management's judgment, deserve recognition. In management's judgment, the allowance for loan losses is maintained at a level adequate to provide for probable losses on existing loans and commitments. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally on the straight-line method over the estimated useful lives of the assets. Income Taxes The consolidated provision for applicable income taxes is based upon reported income and expense. Deferred income taxes (included in other assets) 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. One Valley 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 parent company. Revenue Recognition Interest income on loans, amortization of unearned income, and accretion of discounts are computed by methods which generally result in level rates of return on principal amounts outstanding. The accrual of interest income generally is discontinued when a loan becomes 90 days past due as to principal or interest. When interest accruals are discontinued, unpaid interest recognized in 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 exceeds the principal balance and accrued interest, and the loan is in the process of collection. 28 Summary of Significant Accounting and Reporting Policies-continued Note A Loan Fees and Costs Loan origination and commitment fees and direct loan origination costs are being recognized as collected and incurred. The use of this method of recognition does not produce results that are materially different from results which would have been produced if such costs and fees were deferred and amortized as an adjustment of the loan yield over the life of the related loan. Net Income per Common Share Net income per common share is computed by dividing net income by the average common shares outstanding during the year. Options under the One Valley stock option plan are considered common stock equivalents for the purpose of net income per common share data but are excluded from the computation because they are immaterial. Restrictions on Cash and Due from Bank Accounts Note B Bank subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1993, was approximately $21,700. Merger and Acquisitions Note C In January 1994, One Valley acquired all of the outstanding common stock of Mountaineer Bankshares of W. Va., Inc. (Mountaineer) in exchange for 4,350,000 shares of One Valley common stock. This combination will be accounted for as a pooling of interests. The pooling of interests method combines the financial information of the merging companies as though they had always been combined. As of December 31, 1993, Mountaineer had total assets and deposits of approximately $738,500 and $608,100. Following is an analysis presenting the 1993, 1992, and 1991 income of the separate companies and as though the combination had been consummated at December 31, 1993. 1993 1992 1991 Net interest income: One Valley $116,912 $113,670 $ 85,626 Mountaineer 31,001 29,775 26,253 Consolidated $147,913 $143,445 $111,879 Net income: One Valley $ 32,469 $ 29,477 $ 21,216 Mountaineer 5,485 7,161 5,176 Consolidated $ 37,954 $ 36,638 $ 26,392 Net income per common share: One Valley $2.52 $2.29 $1.93 Mountaineer 1.89 2.48 1.79 Consolidated $2.20 $2.13 $1.72 In 1991, One Valley was declared the successful bidder for the purchase of certain assets and the assumption of the deposits and certain other liabilities of Atlantic Financial Federal - West Virginia, F.S.A. (AFF- WV) following its closure by the Office of Thrift Supervision. One Valley assumed deposits of approximately $525 million in exchange for net loans of $339 million, securities of $44 million, cash and cash equivalents of $134 million (including $41.2 million, which represents One Valley's negative bid for the acquired assets) and certain other assets. This acquisition was accounted for under the purchase method of accounting. 29 Notes to Consolidated Financial Statements (Dollars in thousands) Merger and Acquisitions--continued Note C In addition, One Valley has acquired several other banks in prior years in acquisitions accounted for using the purchase method of accounting. The purchase prices of all these acquisitions were allocated to the identifiable tangible and intangible assets acquired based upon their fair value at the acquisition date. 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 a ten-year period. Deposit intangibles included in other assets approximated $1,000 and $1,500 at December 31, 1993 and 1992. Deposit intangible amortization approximated $600 in 1993 and $700 in 1992 and 1991. The excess of purchase price over the fair market value of assets of subsidiary banks acquired (goodwill) is being amortized on a straight-line basis over periods ranging from 15 to 25 years. Goodwill, included in other assets, approximated $4,200 and $4,500 at December 31, 1993 and 1992. Goodwill amortization approximated $300 in 1993, 1992, and 1991. Securities Note D The amortized cost and estimated fair values of debt securities are summarized as follows: <TABLE> Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value <S> <C> <C> <C> <C> December 31, 1993 U.S. Treasury securities and obligations of U.S. government agencies and corporations $609,987 $10,681 $(364) 620,304 Obligations of states and political subdivisions 90,948 3,750 (608) 94,090 Other securities 19,760 662 (1) 20,421 Total securities $720,695 $15,093 $(973) $734,815 December 31, 1992 U.S. Treasury securities and obligations of U.S. government agencies and corporations $634,514 $10,761 $(233) $645,042 Obligations of states and political subdivisions 48,481 3,351 (11) 51,821 Other securities 21,416 484 (2) 21,898 Total securities $704,411 $14,596 $(246) $718,761 December 31, 1991 U.S. Treasury securities and obligations of U.S. government agencies and corporations $642,635 $15,894 $658,529 Obligations of states and political subdivisions 65,456 3,978 $ (30) 69,404 Other securities 11,281 (3) 11,278 Total securities $719,372 $19,872 $ (33) $739,211 </TABLE> In May 1993 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective for fiscal years beginning after December 15, 1993. With the impending adoption of this Statement, management has reevaluated its classification of securities and assigned an additional $446,140 of securities as available- for-sale. Securities designated as available-for-sale at December 31, 1993, approximated $486,469 and consisted primarily of U.S. Treasury securities and obligations of U.S. government corporations and agencies with remaining contractual maturities of less than five years. These securities had unrealized appreciation of approximately $5,701. One Valley will adopt the provisions of the new standard as of January 1, 1994. In accordance with the Statement, prior period financial statements will not be restated to reflect the change in accounting principle. The effect of adopting this Statement will be to increase the opening balance of shareholders' equity by $3,478 (net of $2,223 in deferred income taxes) to reflect the net unrealized holding gains on securities classified as available-for-sale previously carried at amortized cost. 30 Securities -- continued Note D The amortized cost and estimated fair value of debt securities at December 31, 1993, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Estimated Amortized Fair Cost Value Due in one year or less $224,348 $226,388 Due after one year through five years 311,279 316,508 Due after five years through ten years 93,384 98,120 Due after ten years 91,684 93,799 Total securities $720,695 $734,815 At December 31, 1993 and 1992, securities carried at $343,000 and $331,000, respectively, were pledged to secure public deposits, repurchase agreements, and for other purposes as required or permitted by law. Fair values for 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 comparable instruments. Loans Note E Loans are summarized as follows: December 31 1993 1992 Commercial, financial and agricultural $ 264,362 $ 240,868 Real estate: Revolving home equity 81,921 72,748 Single family residential 746,393 665,248 Apartment buildings and complexes 40,062 44,562 Commercial 257,656 231,142 Construction 23,367 33,486 Installment loans to individuals 387,420 379,903 Bankers' acceptances 2,123 560 Other 27,643 14,623 Total loans net of unearned income 1,830,947 1,683,140 Less allowance for loan losses 29,184 27,985 Loans - net $1,801,763 $1,655,155 Unearned income approximated $4,100 and $5,400 at December 31, 1993 and 1992, respectively. One Valley and its subsidiaries have granted loans to officers and directors of One Valley 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 time for comparable transactions with unrelated persons and did not involve more than normal risk of collectibility. The following presents the activity with respect to related party loans aggregating $60 or more to any one related party: 1993 1992 Balance, January 1 $60,562 $58,407 Additions 22,362 27,498 Amount collected (21,688) (25,343) Balance, December 31 $61,236 $60,562 In May 1993, the FASB issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," which is effective for fiscal years beginning after December 15, 1994. The Statement requires that impaired loans be measured at the present value of expected future cash flows discounted at the loan's original effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The adoption of this Statement is not anticipated to have a material effect on One Valley's financial statements. 31 Notes to Consolidated FInancial Statements (Dollars in thousands) Loans -- continued Note E The fair values for fixed-rate commercial, mortgage, and consumer loans are estimated using discounted cash flow analyses at 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. The carrying value of accrued interest approximates its fair value. The estimated fair value of loans at December 31, 1993 and 1992 approximated $1,837,000 and $1,693,000. One Valley originates and sells fixed-rate mortgage loans primarily to governmental agencies on a servicing retained basis. Interest rates are determined at the date of the commitment to sell the loans and the commitment period generally ranges from 60 to 90 days. At December 31, 1993, One Valley held loans for sale of approximately $14,300 and had commitments to originate and sell loans of approximately $13,100. The mortgage loan portfolio serviced by One Valley for the benefit of others approximated $780,000, $963,000, and $1,082,000 at December 31, 1993, 1992, and 1991, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing and One Valley's own mortgage loan portfolio were approximately $10,500 and $12,000 at December 31, 1993 and 1992. Allowance for Loan Losses Note F Changes in the allowance for loan losses for each of the three years in the period ended December 31, 1993, were as follows: 1993 1992 1991 Balance, January 1 $27,985 $22,729 $14,633 Charge-offs (5,206) (6,536) (4,871) Recoveries 1,590 1,519 1,282 Net charge-offs (3,616) (5,017) (3,589) Provision for loan losses 4,815 10,273 4,862 Balance of acquired subsidiaries 6,823 Balance, December 31 $29,184 $27,985 $22,729 Premises and Equipment Note G The major categories of premises and equipment and accumulated depreciation are summarized as follows: December 31 1993 1992 Land $ 11,934 $ 12,000 Buildings and improvements 59,749 59,215 Equipment 37,473 36,618 Total 109,156 107,833 Less accumulated depreciation (40,770) (40,014) Premises and equipment-net $ 68,386 $ 67,819 One Valley has entered into noncancelable lease agreements (operating leases) for certain premises and equipment and outside data processing services. The minimum annual rental commitment under these lease and service agreements, exclusive of taxes and other charges payable by the lessees, is: 1994--$3,100; 1995--$3,100: 1996--$3,000; 1997--$2,600; and 1998--$2,500, with $4,600 of commitments extending beyond 1998. Total expense under these lease agreements, including cancelable and noncancelable leases, was $2,900 in 1993, $1,500 in 1992, and $1,300 in 1991. 32 Deposit Liabilities Note H The fair values of demand deposits (i.e., interest and non-interest bearing checking, regular savings, and other types of money market demand accounts) are, by definition, equal to their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities of time deposits. The estimated fair value of total deposits at December 31, 1993 and 1992, approximated $2,337,000 and $2,286,000. FASB Statement No. 107 defines the fair value of demand deposits as the amount payable on demand, and prohibits adjusting fair value for any value derived from retaining those deposits for an unexpected future period of time (commonly referred to as a deposit base intangible). Accordingly, the deposit base intangible is not considered in the above estimated fair value of total deposits at December 31, 1993 and 1992. Interest paid on deposits, short-term borrowings, and long-term borrowings approximated $81,000 in 1993, $95,000 in 1992, and $101,000 in 1991. Short-term Borrowings Note I Federal funds purchased and securities sold under agreements to repurchase represent borrowings with maturities primarily from overnight to 90 days. The carrying amounts of short-term borrowings approximate their fair values. Additional details regarding short-term borrowings are set forth below: Federal Repurchase Funds Agreements Purchased and Other 1993 Average amount outstanding during year $19,313 $159,993 Maximum amount outstanding at any month-end 22,236 187,328 Weighted average interest rate: During year 3.17% 2.85% End of year 2.92 2.54 1992 Average amount outstanding during year $19,183 $171,084 Maximum amount outstanding at any month-end 42,366 186,992 Weighted average interest rate: During year 3.51% 3.76% End of year 2.92 3.32 1991 Average amount outstanding during year $18,159 $124,786 Maximum amount outstanding at any month-end 22,123 165,223 Weighted average interest rate: During year 5.72% 5.29% End of year 4.47 4.59 Long-term Borrowings Note J Long-term borrowings consist of mortgages payable of $133 and $9,992 at December 31, 1993 and 1992. The fair values of long-term borrowings are estimated using discounted cash flow analyses based on One Valley's current incremental borrowing rates for similar types of borrowing arrangements. The estimated fair value of long-term borrowings at December 31, 1993 and 1992 approximated $100 and $11,200. 33 Income Taxes Note K The income tax provisions (benefits) included in the consolidated statements of income are summarized as follows: 1993 1992 1991 Federal: Current $15,507 $14,090 $9,055 Deferred (1,023) (1,683) (1,440) State 2,004 1,418 1,512 Total $16,488 $13,825 $9,127 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> 1993 1992 1991 <S> <C> <C> <C> <C> <C> <C> Computed tax at statutory federal rate $17,135 35.0 % $14,723 34.0 % $10,317 34.0 % Plus: State income taxes, net of federal tax benefits 1,303 2.7 936 2.2 998 3.3 18,438 37.7 15,659 36.2 11,315 37.3 Increase (decrease) in taxes resulting from: Tax-exempt interest (1,908) (3.9) (1,874) (4.3) (2,256) (7.4) Other--net (42) (.1) 40 68 .2 Actual tax expense $ 16,488 33.7 % $13,825 31.9 % $9,127 30.1 % </TABLE> Significant components of One Valley's deferred tax assets and liabilities are as follows: December 31 1993 1992 Deferred tax assets: Allowance for loan losses $10,214 $ 9,515 Accrued employee benefits 1,850 1,700 Other accrued expenses 1,007 902 Total deferred tax assets 13,071 12,117 Deferred tax liabilities: Premises and equipment 2,628 2,513 Loans 3,439 3,623 Total deferred tax liabilities 6,067 6,136 Net deferred tax assets $ 7,004 $ 5,981 Income tax benefit related to securities losses approximated $299 in 1991. One Valley made tax payments of approximately $19,000 in 1993, $17,000 in 1992, and $9,500 in 1991. 34 Employee Benefit Plans Note L One Valley has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation during the last five years of employment. One Valley's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. The following table sets forth the plan's funded status and amounts recognized in the consolidated balance sheets at December 31: <TABLE> 1993 1992 <S> <C> <C> Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $14,720 in 1993 and $10,450 in 1992 $ 15,720 $ 10,600 Projected benefit obligation $ (23,687) $ (18,481) Plan assets at fair value, consisting primarily of cash, listed stocks, and U.S. bonds 18,167 14,695 Projected benefit obligation in excess of plan assets (5,520) (3,786) Unrecognized net asset at November 1, 1987, net of amortization (2,044) (2,229) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 5,391 3,468 Accrued pension cost included in other liabilities $ (2,173) $ (2,547) </TABLE> Following is a summary of the components of net periodic pension cost: 1993 1992 1991 Service cost--benefits earned during the period $ 1,185 $ 1,007 $ 883 Interest cost on projected benefit obligation 1,449 1,287 1,010 Actual return on plan assets (2,253) (1,019) (1,305) Net amortization and deferral 896 (24) 110 Early retirement benefits 326 Net periodic pension cost $ 1,277 $ 1,033 $ 1,024 The weighted-average discount rate used in determining the actuarial present value of projected benefit obligations was 7% and 8% at December 31, 1993 and 1992. The rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations was 5.5% in 1993 and 6% in 1992. The expected long-term rate of return on plan assets in 1993, 1992, and 1991 was 8.5%. During 1993, the unrecognized net loss increased due to the change in the weighted-average discount rate. This increase was partially offset by actuarial experience gains relating to the return on plan assets. In 1993, the FASB issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which is effective in 1994 for One Valley. This Statement requires employers to recognize the obligation to provide postemployment benefits if the obligation is attributable to employees' services already rendered, employees' rights to those benefits accumulate or vest, payment of the benefits is probable, and the amount of the benefits can be reasonably estimated. The adoption of this Statement will not be material to One Valley's financial statements. One Valley has a stock option plan for certain key employees. Pursuant to the Plan, an aggregate maximum of 960,000 shares of common stock was reserved for issuance, although no more than 96,000 shares may be issued in any calendar year. At December 31, 1993, there were outstanding and exercisable options for the purchase of 256,520 shares at prices ranging from $10.28 to $28.38 per share. During 1993, 24,280 shares were exercised at prices ranging from $10.28 to $15.00. 35 Notes to Consolidated Financial Statements (Dollars in thousands) Employee Benefit Plans -- continued Note L In 1993, One Valley adopted FASB No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." One Valley has a defined benefit postretirement plan covering all employees who qualify for and elect to retire with a normal or early retirement benefit under the defined benefit pension plan. The plan provides medical and dental benefits. This plan is contributory and contains cost sharing features such as deductibles and co-insurance. One Valley's policy is to fund the cost of the plan in amounts determined at the discretion of management. The effect of adopting Statement 106 increased 1993 net periodic postretirement benefit cost by approximately $400. Postretirement benefit costs for 1992 and 1991, which were recorded on a cash basis, have not been restated. The following table presents the plan's funded status and amounts recognized in the consolidated balance sheets at December 31: <TABLE> <CAPTION> 1993 1992 <S> <C> <C> Accumulated postretirement benefit obligation: Active plan participants fully eligible for benefits $ (54) $ (72) Other active participants (2,512) (1,472) Current retirees (2,700) (2,826) (5,266) (4,370) Plan assets 0 0 Accumulated postretirement benefit obligation in excess of plan assets (5,266) (4,370) Unrecognized transition obligation 4,151 4,370 Unrecognized prior service cost 245 0 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 467 0 Accrued postretirement benefit cost included in other liabilities $ (403) $ 0 Net periodic postretirement benefit cost included the following components: </TABLE> <TABLE> 1993 1992 1991 <S> <C> <C> <C> Service cost $ 141 Interest cost 350 Amortization of transition obligation over 20 years 218 Net periodic postretirement benefit cost $ 709 $ 261 $ 148 </TABLE> The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is 12% for 1994 (same as the rate previously assumed for 1993) and is assumed to decrease gradually to 5% in 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the plan as of December 31, 1993, by $358 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1993 by $68. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7% and 8% at December 31, 1993 and 1992. 36 Parent Company Condensed Financial Information Note M Condensed Balance Sheets December 31 Assets 1993 1992 Interest-bearing deposits in subsidiary bank $ 24,062 $ 14,031 Investment securities 1,486 1,408 Premises and equipment 375 418 Investment in subsidiaries: Banks 213,505 202,371 Non-banks 8,869 7,743 Other assets 16 5 Total Assets $248,313 $ 225,976 Liabilities Other liabilities $ 5,723 $ 5,320 Total Liabilities 5,723 5,320 Shareholders' Equity Common stock 131,638 131,405 Capital surplus 40,750 40,692 Retained earnings 73,331 51,688 Treasury stock (3,129) (3,129) Total Shareholders' Equity 242,590 220,656 Total Liabilities and Shareholders' Equity $248,313 $225,976 Condensed Statements of Income Year Ended December 31 1993 1992 1991 Income: Dividends from bank subsidiaries $26,415 $18,409 $14,028 Other income 2,341 1,934 1,787 Total income 28,756 20,343 15,815 Expenses: Salaries and employee benefits 4,845 4,178 3,430 Other expenses 3,183 3,434 1,604 Interest expense 2 404 458 Total expenses 8,030 8,016 5,492 Income before income taxes and equity in undistributed earnings of subsidiaries 20,726 12,327 10,323 Applicable income tax (benefit) (2,439) (2,954) (2,038) Income before equity in undistrib- uted earnings of subsidiaries 23,165 15,281 12,361 Equity in undistributed earnings of subsidiaries 9,304 14,196 8,855 Net Income $32,469 $29,477 $21,216 Condensed Statements of Cash Flows Year Ended December 31 1993 1992 1991 Operating Activities: Net income $32,469 $29,477 $21,216 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 185 617 209 Equity in undistributed earnings of subsidiaries (9,304) (14,196) (8,855) Net change in other assets and other liabilities 436 336 351 Net cash provided by operating activities 23,786 16,234 12,921 Investing Activities: Proceeds from maturities and sale of investment securities 2,520 Purchase of investment securities (78) (1,042) Investment in subsidiaries (3,000) (31,060) Purchase of equipment (142) (203) (106) Net cash (used in) provided by investing activities (3,220) 1,275 (31,166) Financing Activities: Repayment of long-term borrowings (4,000) Proceeds from issuance of common stock 291 957 30,246 Cash dividends paid (10,826) (8,968) (7,064) Net cash (used in) provided by financing activities (10,535) (12,011) 23,182 Increase in cash and cash equivalents 10,031 5,498 4,937 Cash and cash equivalents at beginning of year 14,031 8,533 3,596 Cash and cash equivalents at end of year $24,062 $14,031 $ 8,533 37 Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Restrictions on Subsidiary Dividends Note N The primary source of funds for the dividends paid by One Valley Bancorp is dividends received from its subsidiary banks. Dividends paid by the subsidiary banks are subject to restrictions by banking regulations. The most restrictive provision requires regulatory approval if dividends declared in any year exceed the year's retained net profits, as defined, plus the retained net profits of the two preceding years. During 1994, the retained net profits available for distribution to One Valley Bancorp as dividends without regulatory approval are approximately $26,000, plus retained net profits for the interim periods through the date of declaration. Commitments and Contingent Liabilities Note O In the normal course of business, One Valley offers certain financial products to its customers to aid them in meeting their requirements for liquidity and credit enhancement. 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. One Valley's exposure to loss in the event of nonperformance by the counterparty for commitments to extend credit and standby letters of credit is the contract or notional amounts of these instruments. Management does not anticipate any material losses as a result of these commitments and contingent liabilities. The fair values of commitments are estimated based on fees currently charged to enter into similar agreements, taking into consideration the remaining terms of the agreements and the counterparties' credit standing. The estimated fair value of these commitments at December 31, 1993 and 1992, approximates their carrying value. Following is a discussion of these commitments and contingent liabilities. Standby Letters of Credit These agreements are used by One Valley's customers as a means of improving their credit standing in their dealings with others. Under these agreements, One Valley guarantees certain financial commitments in the event that its customers are unable to satisfy their obligations. One Valley has issued standby letters of credit of $36,000 as of December 31, 1993. Management conducts regular reviews of these commitments on an individual customer basis, and the results are considered in assessing the adequacy of One Valley's allowance for loan losses. Loan Commitments As of December 31, 1993, the Bank had commitments outstanding to extend credit at prevailing market rates totaling $333,000. These commitments generally require the customers to maintain certain credit standards. The amount of collateral obtained, if deemed necessary by One Valley upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. Loans Sold with Recourse In the acquisition of AFF-WV, One Valley assumed a contingent liability relating to certain loans previously sold by AFF-WV subject to certain recourse provisions which requires it to repurchase these loans or repay any deficiencies on collateral sold in the event the borrower defaults on the original contract. At December 31, 1993, One Valley had approximately $60,000 in outstanding loans sold with recourse. The majority of these loans originated prior to 1980 and have an average balance of less than $20. In connection with its evaluation of AFF-WV, One Valley reviewed these loans utilizing the same lending policies and collateral evaluations that One Valley has historically used in the ordinary course of its business and does not anticipate any material losses as a result of these contingent liabilities. In addition, pursuant to the terms of an Indemnity Agreement with the Resolution Trust Corporation, the Resolution Trust Corporation agreed to indemnify any and all costs, losses, liabilities and expenses, including legal fees, resulting from certain third-party claims. 38 Other Income and Expenses Note P Included in other income are checkbook sales which approximated $2,468 in 1993, $2,623 in 1992, and $1,866 in 1991. Included in other expenses is supplies expense which approximated $2,938 in 1993, $2,832 in 1992, and $2,040 in 1991 and postage expense which approximated $2,554 in 1993, $2,699 in 1992 and $1,826 in 1991. Quarterly Financial Data (Unaudited) Note Q Quarterly financial data for 1993 and 1992 is summarized below: <TABLE> 1993 1992 Three Months Ended Three Months Ended March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 <S> <C> <C> <C> <C> <C> <C> <C> <C> Interest income $47,947 $48,750 $48,704 $49,653 $53,492 $53,047 $51,861 $49,681 Interest expense 20,148 19,626 19,104 19,264 25,783 24,175 23,092 21,361 Net interest income 27,799 29,124 29,600 30,389 27,709 28,872 28,769 28,320 Provision for loan losses 1,328 1,329 1,159 999 2,475 2,497 2,740 2,561 Net interest income after provision for loan losses 26,471 27,795 28,441 29,390 25,234 26,375 26,029 25,759 Other income, excluding securities gains 8,857 9,121 9,070 9,187 7,799 8,063 9,063 9,001 Securities transactions (5) 3 (72) 15 58 Other expenses 23,890 24,263 24,701 26,519 23,147 23,464 23,771 23,640 Income before income taxes 11,438 12,653 12,805 12,061 9,814 10,989 11,379 11,120 Applicable income taxes 3,820 4,234 4,581 3,853 3,008 3,488 3,722 3,607 Net Income $ 7,618 $ 8,419 $ 8,224 $ 8,208 $ 6,806 $ 7,501 $ 7,657 $ 7,513 Per Share Data: Average shares outstanding (in thousands) 12,875 12,884 12,884 12,893 12,844 12,858 12,865 12,866 Net income per share $ .59 $ .65 $ .64 $ .64 $ .53 $ .58 $ .59 $ .59 Dividends per share .20 .20 .22 .22 .17 .17 .18 .18 High bid/share 32.25 29.75 33.25 31.25 20.56 26.25 23.96 30.21 Low bid/share 28.25 25.25 26.75 27.00 19.58 19.73 21.46 26.25 </TABLE> 39 Six-Year Net Interest Income Summary One Valley Bancorp of West Virginia, Inc. and Subsidiaries (Dollars in thousands) <TABLE> 1993 1992 1991 1990 1989 1988 % of % of % of % of % of % of Total Total Total Total Total Total Interest Interest Interest Interest Interest Interest $ Income $ Income $ Income $ Income $ Income $ Income <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Interest Income: Loans: Taxable 150,836 76.1 156,357 74.1 133,514 70.3 122,808 66.9 116,247 66.2 101,858 69.4 Tax-exempt 2,594 1.3 2,368 1.1 2,942 1.6 4,111 2.2 4,908 2.8 4,729 3.2 Total loans 153,430 77.4 158,725 75.2 136,456 71.9 126,919 69.1 121,155 69.0 106,587 72.6 Securities Taxable 36,003 18.2 42,877 20.3 37,835 20.0 36,702 20.0 29,846 17.0 20,403 13.9 Tax-exempt 6,208 3.1 6,111 2.9 8,218 4.3 9,556 5.2 10,630 6.0 11,624 7.9 Total securities 42,211 21.3 48,988 23.2 46,053 24.3 46,258 25.2 40,476 23.0 32,027 21.8 Funds sold & other 2,494 1.3 3,251 1.5 7,259 3.8 10,449 5.7 13,979 8.0 8,261 5.6 Total interest income 198,135 00.0 210,964 100.0 189,768 100.0 183,626 100.0 175,610 00.0 146,875 100.0 Interest Expense Deposits 71,713 36.2 85,991 40.8 91,322 48.1 92,480 50.4 88,197 50.2 69,664 47.4 Short-term borrowings 5,173 2.6 7,122 3.4 7,647 4.1 8,877 4.8 9,329 5.3 5,737 3.9 Long-term borrowings 1,256 0.6 1,298 0.6 1,379 0.7 2,175 1.2 2,303 1.3 2,324 1.6 Total interest expense 78,142 39.4 94,411 44.8 100,348 52.9 103,532 56.4 99,829 56.8 77,725 52.9 Tax equivalent net interest income 119,993 60.6 116,553 55.2 89,420 47.1 80,094 43.6 75,781 43.2 69,150 47.1 Tax equivalent adjustment 3,081 1.6 2,883 1.4 3,794 2.0 4,647 2.5 5,283 3.1 5,560 3.8 Net interest income 116,912 59.0 113,670 53.9 85,626 45.1 75,447 41.1 70,498 40.1 63,590 43.3 Summary of Average Rates Earned & Paid* Taxable loans 8.80% 9.61% 10.61% 11.30% 11.38% 10.66% Tax-exempt loans 10.26 10.34 11.88 13.56 14.31 13.11 Net loans 8.97 9.77 10.78 11.51 11.62 10.87 Taxable securities 5.40 6.28 7.63 8.61 8.68 7.62 Tax-exempt securities 10.40 11.07 11.34 1.15 11.00 10.86 Total securities 5.81 6.64 8.11 9.04 9.19 8.55 Funds sold & deposits 2.98 3.45 6.17 8.54 9.23 8.29 Total earning assets 7.86% 8.59% 9.72% 10.57% 10.74% 9.82% Time & savings deposits 3.67 4.47 5.89 6.73 6.81 6.05 Short-term borrowings 2.88 3.74 5.35 7.27 8.18 6.82 Long-term borrowings 12.80 9.64 9.61 10.19 10.24 10.23 Total interest cost 3.65 4.44 5.87 6.82 6.98 6.17 Total cost of all funds 3.10 3.84 5.14 5.96 6.10 5.35 Net interest margin 4.76% 4.75% 4.58% 4.61% 4.64% 4.75% </TABLE> * Yields are computed on a fully taxable equivalent basis using the rates of 35% for 1993 and 34% for years earlier. 40 Six-Year Operating Income Summary One Valley Bancorp of West Virginia, Inc. and Subsidiaries (Dollars in thousands) <TABLE> 1993 1992 1991 1990 1989 1988 % of % of % of % of % of % of Adjusted Adjusted Adjusted Adjusted Adjusted Adjusted Operating Operating Operating Operating Operating Operating $ Income $ Income $ Income $ Income $ Income $ Income <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Interest income 195,054 84.3 208,081 86.0 185,974 89.7 178,979 91.2 170,327 91.7 141,315 90.7 Interest expense 78,142 33.8 94,411 39.0 100,348 48.4 103,532 52.8 99,829 53.7 77,725 49.9 Net interest income 116,912 50.5 113,670 47.0 85,626 41.3 75,447 38.4 70,498 38.0 63,590 40.8 Provision for loan losses 4,815 2.1 10,273 4.3 4,862 2.4 5,295 2.7 7,598 4.1 5,200 3.3 Net interest income after provision for loan losses 112,097 48.4 103,397 42.7 80,764 38.9 70,152 35.7 62,900 33.9 58,390 37.5 Other Income: Trust Department income 6,716 2.9 5,534 2.3 4,706 2.3 4,345 2.2 3,983 2.1 3,798 2.4 Service charges on deposit accounts 10,258 4.5 9,580 4.0 7,460 3.6 5,277 2.7 4,390 2.4 3,937 2.5 Other service charges and fees 10,957 4.7 11,681 4.8 5,560 2.7 4,054 2.1 3,491 1.9 3,282 2.1 Other operating income 8,304 3.6 7,131 2.9 4,373 2.1 3,461 1.8 3,258 1.8 3,128 2.0 Securities transactions (2) 0.0 1 0.0 (748) (0.4) 114 0.0 243 0.1 406 0.3 Total other income 36,233 15.7 33,927 14.0 21,351 10.3 17,251 8.8 15,365 8.3 14,551 9.3 Operating Expenses: Salaries & benefits 50,382 21.8 45,343 18.7 36,778 17.7 32,310 16.5 29,838 16.1 28,337 18.2 Occupancy expense 4,849 2.1 4,822 2.0 3,067 1.5 2,266 1.1 2,143 1.2 1,820 1.2 Equipment expense 8,634 3.7 8,471 3.5 6,614 3.2 4,971 2.5 5,110 2.7 5,055 3.3 External computer costs 3,018 1.3 1,917 0.8 1,489 0.7 1,549 0.8 1,535 0.8 1,862 1.2 Other expense 32,490 14.1 33,469 13.8 23,824 11.5 20,392 10.4 18,546 10.0 17,060 10.9 Total operating expenses 99,373 43.0 94,022 38.8 71,772 34.6 61,488 31.3 57,172 30.8 54,134 34.7 Income before tax 48,957 21.1 43,302 7.9 30,343 14.6 25,915 13.2 21,093 11.4 18,807 12.1 Applicable income taxes 16,488 7.1 13,825 5.7 9,127 4.4 6,813 3.5 4,920 2.7 4,180 2.7 Net income 32,469 14.0 29,477 12.2 21,216 10.2 19,102 9.7 16,173 8.7 14,627 9.4 * Adjusted operating income equals interest income plus other income. </TABLE> <TABLE> Per Share Summary (in dollars, except average shares) 1993 1992 1991 1990 1989 1988 <S> <C> <C> <C> <C> <C> <C> Net income 2.52 2.29 1.93 1.75 1.48 1.33 Cash dividends 0.84 0.70 0.62 0.59 0.56 0.50 Stock dividends 0 50%/20% 0 0 0 0 Average shares 12,884,000 12,858,000 11,008,000 10,906,000 10,942,000 11,034,000 </TABLE> 41 Six-Year Average Balance Sheet Summary One Valley Bancorp of West Virginia, Inc. and Subsidiaries (Dollars in thousands) <TABLE> 1993 1992 1991 1990 1989 1988 % of % of % of % of % of % of $ Total $ Total $ Total $ Total $ Total $ Total <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Assets Loans: Taxable 1,713,982 63 1,626,853 61 1,258,280 59 1,086,627 57 1,021,282 57 955,716 59 Tax-exempt 25,277 1 22,901 1 24,761 1 30,316 2 34,295 2 36,077 2 Total loans 1,739,259 64 1,649,754 62 1,283,041 60 1,116,943 59 1,055,577 59 991,793 61 Less: Allowance for losses 29,057 1 25,274 1 16,868 1 14,414 1 12,817 1 11,523 1 Total loans-net 1,710,202 63 1,624,480 61 1,266,173 59 1,102,529 58 1,042,760 58 980,270 60 Investment Securities: Taxable 666,731 24 682,332 25 495,590 23 426,179 22 343,784 19 267,745 17 Tax-exempt 59,702 2 55,201 2 72,460 3 85,702 5 96,602 6 107,005 7 Total securities 726,433 26 737,533 27 568,050 26 511,881 27 440,386 25 374,750 24 Federal funds sold & other 83,782 3 94,165 4 117,578 6 122,354 6 151,387 8 99,599 6 Total earning assets 2,520,417 92 2,456,178 92 1,951,801 91 1,736,764 91 1,634,533 91 1,454,619 90 Other assets 211,335 8 222,787 8 182,040 9 165,827 9 161,285 9 160,090 10 Total assets 2,731,752 100 2,678,965 100 2,133,841 100 1,902,591 100 1,795,818 100 1,614,709 100 Liabilities & Shareholders' Equity Interest Bearing Liabilities: Time & savings deposits 1,953,735 72 1,924,819 72 1,551,503 73 1,373,971 72 1,294,586 72 1,151,825 71 Short-term borrowings 179,373 6 190,267 6 142,945 6 122,064 6 114,109 6 84,168 6 Long-term borrowings 9,816 0 13,469 1 14,345 1 21,342 1 22,489 1 22,715 1 Total interest bearing liabilities 2,142,924 78 2,128,555 79 1,708,793 80 1,517,377 79 1,431,184 79 1,258,708 78 Demand deposits 336,250 12 315,969 12 240,653 11 220,536 12 210,458 12 213,732 13 Other liabilities 20,271 1 22,669 1 22,983 1 19,418 1 19,658 1 15,560 1 Total liabilities 2,499,445 91 2,467,193 92 1,972,429 92 1,757,331 92 1,661,300 92 1,488,000 92 Shareholders' equity 232,307 9 211,772 8 161,412 8 145,260 8 134,518 8 126,709 8 Total liabilities & Shareholders' equity 2,731,752 100 2,678,965 100 2,133,841 100 1,902,591 100 1,795,818 100 1,614,709 100 </TABLE> 42 One Valley Bancorp Quality Council Front row Robert E. Kamm, Jr. President & CEO, One Valley Bank of Summersville Second row left to right John L. Robertson President & CEO, One Valley Bank of Ronceverte Frederick H. Belden, Jr. Senior Vice President and Assistant Corporate Secretary Third row left to right John M. Frazier President & CEO, One Valley Bank of Oak Hill Phyllis H. Arnold Senior Vice President President & CEO, One Valley Bank, NA Fourth row left to right James W. Thompson President & CEO, One Valley Bank of Mercer County James L. Whytsell Senior Vice President - Data Processing J. Holmes Morrison President and Chief Executive Officer Fifth row left to right Laurance G. Jones Senior Vice President and Chief Financial Officer William D. Stegall President & CEO, One Valley Bank of Martinsburg J. G. Call President & CEO, One Valley Bank of Huntington Top row Kenneth R. Summers President & CEO, One Valley Bank of Morgantown 43 Directors of One Valley Bancorp Seated left to right John M. Wells, Sr. Honorary Member James R. McCartney Honorary Member Mary Price Ratrie Honorary Member Nelle Ratrie Chilton Director, Dickinson Fuel Company, Inc. and Terra Co., Inc. Standing front row left to right James W. Thompson President & Chairman of the Board, One Valley Bank of Mercer County Robert O. Orders, Sr. Chief Executive Officer, Orders Construction Company David E. Lowe President, Chesapeake and Potomac Telephone Company of West Virginia Angus E. Peyton Attorney, Brown & Peyton Phillip H. Goodwin President, CAMCARE & CAMC J. Holmes Morrison President & Chief Executive Officer, One Valley Bancorp of West Virginia, Inc. Chairman of the Board, One Valley Bank, N.A. Phyllis H. Arnold President, One Valley Bank, N.A. Robert F. Baronner Chairman of the Board, One Valley Bancorp of West Virginia, Inc. Robert E. Kamm, Jr. President & Chief Executive Officer, One Valley Bank of Summersville James K. Brown Attorney, Jackson & Kelly John L. Van Metre, Jr. Attorney, Steptoe & Johnson Standing second row left to right Charles R. Neighborgall, III President, Neighborgall Construction Co. John T. Chambers Commercial Realtor, President, Ravenswood Land Co. and Mt. Alpha Development Company James Gabriel President & CEO, Gabriel Brothers, Inc. John D. Lynch Vice President, Davis Lynch Glass Co. John L. D. Payne President, Payne-Gallatin Mining Co. Ray M. Evans, Jr. President, Dickinson Company and Quincy Coal Company Standing on stairs left to right Charles M. Avampato President, Clay Foundation, Inc. John Henry Wick, III Dickinson Fuel Co., Inc. H. Bernard Wehrle, III President, McJunkin Corporation Thomas E. Goodwin Chairman of the Board, One Valley Bank of Ronceverte, N.A. Not pictured Edward H. Maier President, General Corporation Richard B. Walker Chairman of the Board and CEO, Cecil I. Walker Machinery Co. Thomas D. Wilkerson General Agent, Northwestern Mutual Life Insurance Co. Honorary Members James F. Brown, III Charles T. Jones J. William Martin 44 Affiliate Directors ONE VALLEY BANK, National Association One Valley Square Charleston, WV 25326 Phyllis H. Arnold* Charles M. Avampato Robert F. Baronner James K. Brown John T. Chambers Nelle Ratrie Chilton Ray Marshall Evans, Jr. Robert F. Goldsmith Phillip H. Goodwin O. Nelson Jones Carl E. Little David E. Lowe Edward H. Maier John F. Mork J. Holmes Morrison Robert O. Orders, Sr. John L. D. Payne Angus E. Peyton K. Richard C. Sinclair James C. Smith James R. Thomas, II Edwin H. Welch John Henry Wick, III Thomas D. Wilkerson James D. Williams Honorary Members James F. Brown, III Charles T. Jones J. William Martin Mary Price Ratrie John M. Wells, Sr. ONE VALLEY BANK OF RONCEVERTE. N.A. 100 Maplewood Avenue Ronceverte, WV 24970 Richard Aide Gary M. Ambler Thomas E. Goodwin Norman O. Nutter Michael O'Brien Henry E. Riffe John L. Robertson* David Sebert Marion Shiflet Honorary Member George A. Aide ONE VALLEY BANK OF HUNTINGTON Sixth Ave. & First St. Huntington, WV 25701 J. G. Call* W. Dan Egnor Stephen G. Fox Henry M. Kayes Sara H. Lowe Charles R. Neighborgall, III Stephen G. Roberts Kevin D. Thompson David P. Reed J. Roger Smith ONE VALLEY BANK OF SUMMERSVILLE 811 Main Street Summersville, WV 26651 Roy V. Groves W. H. Henderson Charles H. Hinkle Robert E. Kamm, Jr.* David Lackey Glenn H. McMillion Robert C. Rader ONE VALLEY BANK OF MARTINSBURG, N.A. 110 West King Street Martinsburg, WV 25401 Walter Lee Butler Howard Newton Carper, Jr. F. Dennis Clarke Frank H. Fischer Charles A. Hensell Carol Fritts Kable Lucien G. Lewin Robert A. McMillan John M. Miller III Peter L. Mulford Bonn A. Poland, III William D. Stegall* Paul E. Tederick John L. Van Metre, Jr. Honorary Members Guy R. Avey T. Fred Hammond Floyd C. Odom Robert A. Sanders Clyde E. Smith, Jr. ONE VALLEY BANK OF OAK HILL 100 Main Street Oak Hill, WV 25901 John M. Frazier* George W. Jones III Elizabeth M. Lewis James E. Lively William E. Meador Marilyn T. Montgomery Donald C. Newell, Jr. Walter A. Noyes N. M. Steen ONE VALLEY BANK OF MERCER COUNTY Courthouse Square Princeton, WV 24740 Homer K. Ball Jerry L. Beasley Fred A. Bolton J. Richard Copeland Harry Finkelman H. Allen Griffith A. Glendon Hill M. D. Kirk, Jr. Joseph F. Marsh James L. Miller Charles W. Pace Dewey W. Russell Guy B. Scyphers James W. Thompson* Ted L. White H. Elwood Winfrey Honorary Members James W. Anderson John C. Anderson W. R. Cooke Richard V. Lilly Fred McKenzie Lawrence J. Pace Joseph C. Shaffer, Jr. ONE VALLEY BANK OF MORGANTOWN 496 High Street Morgantown, WV 26505 Iona L. Bucklew Samuel Chico, Jr. Laurence S. DeLynn George R. Farmer, Jr. Arthur Gabriel Kenneth Juskowich James L. Laurita, Sr. John D. Lynch Paul F. Malone Jordan C. Pappas James M. Stevenson Paul T. Swanson Kenneth R. Summers* Bernard G. Westfall Honorary Members James R. McCartney Glenn W. Thorne * President and CEO (One Valley Bancorp logo) P.O. Box 1793/Charleston, WV/25326/(304) 348-7000
Exhibit (21) SUBSIDIARIES OF REGISTRANT 1) One Valley Bank, National Association, a national banking association organized under the laws of the United States of America. 2) One Valley Bank of Huntington, Inc., a West Virginia banking corporation. 3) One Valley Bank of Mercer County, Inc., a West Virginia banking corporation. 4) One Valley Bank of Martinsburg, National Association, a national banking association organized under the laws of the United States of America. 5) One Valley Bank of Oak Hill, Inc., a West Virginia banking corporation. 6) One Valley Bank of Ronceverte, National Association, a national banking association organized under the laws of the United States of America. 7) One Valley Bank of Morgantown, Inc., a West Virginia banking corporation. 8) One Valley Bank of Summersville, Inc., a West Virginia banking corporation. 9) One Valley Bank - East, National Association, a national banking association organized under the laws of the United States of America. 10) The Empire National Bank of Clarksburg, a national banking association organized under the laws of the United States of America. 11) One Valley Bank of Marion County, National Association, a national banking association organized under the laws of the United States of America. 12) The Bank of Wadestown, a West Virginia banking corporation. 13) Mercantile Banking & Trust Company, a West Virginia banking corporation. 14) The Bank of Cameron, Inc., a West Virginia banking corporation. 15) The Sunshine Bank of Wheeling, a West Virginia banking corporation. 16) One Valley Services, Inc., a West Virginia corporation. 17) One Valley Square, Inc., a Texas corporation. 18) Sunrise Bancorp, Inc., a West Virginia corporation.
Exhibit (23) Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of One Valley Bancorp of West Virginia, Inc. of our report dated January 25, 1994, included in the 1993 Annual Report to Shareholders of One Valley Bancorp of West Virginia, Inc. We also consent to the incorporation by reference in the Registration Statements pertaining to the Amended 1983 Incentive Stock Option Plan (Form S-8, Number 2-90738) and pertaining to the 1993 Incentive Stock Option Plan (Form S-8, Number 33-66700) of One Valley Bancorp of West Virginia, Inc. of our report dated January 25, 1994, with respect to the consolidated financial statements of One Valley Bancorp of West Virginia, Inc. and Subsidiaries incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1993. /s/ Ernst & Young Charleston, West Virginia March 25, 1994
ONE VALLEY BANCORP OF WEST VIRGINIA, INC. Charleston, West Virginia NOTICE OF REGULAR ANNUAL MEETING OF SHAREHOLDERS To be held April 26, 1994 To the Shareholders: The Regular Annual Meeting of Shareholders of One Valley Bancorp of West Virginia, Inc. ("One Valley"), will be held at the Charleston Town Center Marriott, 200 Lee Street, East, in Charleston, West Virginia, at 10:00 a.m. on Tuesday, April 26, 1994, for the purpose of considering and voting upon proposals: 1. To elect ten directors - eight to serve for a term of three years, one to serve for a term of two years, and one to serve for a term of one year, and until their successors are chosen and qualify. 2. To approve an amendment to the Bylaws to increase the maximum number of One Valley's directors from 27 to 33. 3. To approve the appointment by the Board of Directors of Ernst & Young as independent Certified Public Accountants for the year 1994. 4. To transact such other business as may properly be brought before the meeting or any adjournment thereof. Only those shareholders of record at the close of business on March 8, 1994, are entitled to notice of the meeting and to vote at the meeting. We hope that you will attend this meeting. By Order of the Board of Directors J. Holmes Morrison President PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE ANNUAL MEETING. March 23, 1994 ONE VALLEY BANCORP OF WEST VIRGINIA, INC. ONE VALLEY SQUARE CHARLESTON, WEST VIRGINIA PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS -- APRIL 26, 1994 This statement is furnished in connection with the solicitation of proxies for use at the Annual Meeting of Shareholders of One Valley Bancorp of West Virginia, Inc. ("One Valley"), to be held on Tuesday, April 26, 1994, at the time and for the purposes set forth in the accompanying Notice of Regular Annual Meeting of Shareholders. The approximate date on which this Proxy Statement and the form of proxy are to be first mailed to shareholders is March 23, 1994. The mailing address of the principal executive offices of One Valley is P. O. Box 1793, Charleston, West Virginia, 25326. Solicitation of Proxies The solicitation of proxies is made by management at the direction of the Board of Directors of One Valley. These proxies enable shareholders to vote on all matters which are scheduled to come before the meeting. If the enclosed proxy is signed and returned, it will be voted as directed; or if not directed, the proxy will be voted "FOR" the election of the ten management nominees as directors for the terms specified, "FOR" the approval of an amendment to the Bylaws to increase the maximum number of directors from 27 to 33, and "FOR" the approval of the appointment of Ernst & Young as independent Certified Public Accountants. A shareholder executing the proxy may revoke it at any time before it is voted by notifying One Valley in person, by giving written notice to One Valley of the revocation of the proxy, by submitting to One Valley a subsequently dated proxy, or by attending the meeting and withdrawing the proxy before it is voted at the meeting. The expense for the solicitation of proxies will be paid by One Valley. In addition to this solicitation by mail, officers and regular employees of One Valley and its subsidiaries may, to a limited extent, solicit proxies personally or by telephone or telegraph. In addition, Georgeson & Company Inc. will be engaged as proxy solicitation agent pursuant to an agreement which provides that One Valley will pay Georgeson & Company Inc. $10,000 plus expenses. It is anticipated that pursuant to that agreement Georgeson & Company Inc. will primarily solicit brokers, banks and other institutional holders to ensure that proxies are returned in a timely manner. One Valley is not aware of any person who intends to oppose the action proposed by management to be taken at the Annual Meeting. Because proposal number 2 (increasing the maximum size of the board) must be approved by the holders of at least 80% of the outstanding shares of One Valley's common stock, management has engaged an independent solicitation firm. Eligibility of Stock for Voting Purposes Pursuant to the Bylaws of One Valley, the Board of Directors has fixed March 8, 1994, as the record date for the purpose of determining the shareholders entitled to notice of, and to vote at, the meeting or any adjournment thereof, and only shareholders of record at the close of business on that date are entitled to notice of and to vote at the Annual Meeting of Shareholders or any adjournment thereof. As of the record date for the Annual Meeting, 17,255,784 shares of the common stock with a par value of Ten Dollars ($10.00) per share ("One Valley Common Stock") of One Valley were issued and outstanding and entitled to vote. One Valley's subsidiary banks hold of record as trustee, co-trustee, executor or co-executor, but not beneficially, 3,095,827 shares of stock representing 17.94% of the shares of One Valley outstanding. Of these shares, the banks hold 2,673,411 shares as co-trustee or co-executor and 422,396 shares as sole trustee or sole executor (other principal holders of One Valley's stock are discussed under "Principal Holders of Securities"). The 2,673,411 shares held as co-trustee or co-executor are voted by the individual co-trustee(s) or co-executor(s) and not by the banks. Of the remaining 422,396 shares held by the banks as sole trustee or sole executor, 372,423 shares (or 2.16% of the total shares outstanding) will be voted by the banks, as trustee or executor, "FOR" the election of the ten management nominees as directors, "FOR" the approval of an amendment to the Bylaws to increase the maximum number of directors of One Valley, and "FOR" the approval of the appointment of Ernst & Young as independent Certified Public Accountants. The remaining 49,973 shares are held by the banks as sole trustee or sole executor in personal trust and self-directed employee benefit accounts and will be voted by the banks at the direction of the grantor, settlor or beneficiary of those accounts. PURPOSE OF MEETING 1. ELECTION OF DIRECTORS The Bylaws of One Valley currently provide that the Board of Directors shall consist of not fewer than six nor more than 27 members, the exact number of directors within these minimum and maximum limits to be fixed and determined by resolution of a majority of the Board of Directors. There are presently 27 directors on the Board; and, at a meeting held February 16, 1994, the Board fixed at 27 the number of directors to constitute the full Board of Directors of One Valley effective April 26, 1994. One Valley's Articles of Incorporation authorize classification of the Board of Directors into three classes, each of which serves for three years, with one class being elected each year. Pursuant to this arrangement, eight nominees have been nominated for three-year terms, one nominee has been nominated for a two-year term, and one nominee has been nominated for a one-year term, and until their successors are chosen and qualify. This will result in a Board composed of three classes with nine directors in the class of 1995, ten directors in the class of 1996, and eight directors in the class of 1997. Management Nominees to the Board of One Valley Unless otherwise directed, the proxies will be voted "FOR" the election of the following ten directors to serve for terms expiring at the Annual Meeting of Shareholders in the years indicated in the table below, and until their successors are chosen and qualify. If proposal number 2 is adopted, then One Valley will elect C. Michael Blair and Brent D. Robinson to the Board of Directors for terms to expire at the 1995 Annual Meeting of Shareholders. (For a more complete discussion, see the section of this Proxy Statement captioned "Purpose of Meeting - Proposal to Approve an Increase in the Maximum Number of Directors.") The nominees have broad executive experience in a wide variety of businesses and are all currently members of the Board. Mr. Highland, who has served as a director or officer of Mountaineer Bankshares of W.Va., Inc. ("Mountaineer") or one of its subsidiaries since 1949, and Mr. Rice, who has served as a director or officer of Mountaineer or one of its subsidiaries since 1961, were elected to the Board in January, 1994, for terms expiring at the 1994 Annual Meeting. <TABLE> Served As A Family Director Relationship Principal of One With Directors Year In Occupation Valley and Other Which Term Or Employment Nominees Age Since Nominees Expires Last Five Years <S> <C> <C> <C> <C> <C> John T. Chambers 70 1981 None 1996 Commercial Realtor; Presi- dent-Ravenswood Land Co. and Mt. Alpha Development Co., Charles- ton, WV Served As A Family Director Relationship Principal of One With Directors Year In Occupation Valley and Other Which Term Or Employment Nominees Age Since Nominees Expires Last Five Years Cecil B. Highland, Jr. 75 (1) None 1997 Vice Chairman - Board of Directors, Mountaineer Bankshares of W.Va., Inc.; Chairman of the Board and Chief Executive Officer -The Empire National Bank of Clarksburg, Clarksburg, WV; President and General Manager - Clarksburg Publishing Co., Clarksburg, WV. Robert E. Kamm, Jr. 42 1987 None 1997 President and Chief Executive Officer-One Valley Bank of Summersville, Inc., Summersville, WV David E. Lowe 52 1993 None 1997 1993-President and Chief Executive Officer- Chesapeake and Potomac Telephone Company of West Virginia, Charleston, WV; 1990 to 1993, Vice President, Chesapeake and Potomac Telephone Company of Virginia, Richmond, VA; 1988 to 1990, Assistant Vice President, Bell Atlantic, Arlington, VA Edward H. Maier 50 1983 None 1997 President - General Corporation, Charleston, WV (Real Estate Investment, Natural Gas Production, Warehousing) Angus E. Peyton (2) 67 1981 None 1997 Attorney-Brown and Peyton, Charleston, WV Lacy I. Rice, Jr. 62 (3) None 1997 Chairman of the Board, Chief Executive Officer and Director - Mountaineer Bankshares of W.Va., Inc.; Chairman of the Board - Old National Bank, Martinsburg, WV; Partner - Bowles, Rice, McDavid, Graff & Love Law Firm. Served As A Family Director Relationship Principal of One With Directors Year In Occupation Valley and Other Which Term Or Employment Nominees Age Since Nominees Expires Last Five Years Richard B. Walker 55 1991 None 1997 Chairman of the Board and Chief Executive Officer- Cecil I. Walker Machinery H. Bernard Wehrle, III 42 1991 None 1995 President-McJunkin Corporation; Charleston, WV (Steel Fabricators) Thomas D. Wilkerson 65 1981 None 1997 General Agent-North- western Mutual Life Insurance Company, Charleston, WV Directors Continuing to Serve Unexpired Terms The following Directors will continue to serve until the expiration of their terms: Served As A Family Director Relationship Principal of One With Directors Year In Occupation Valley and Other Which Term Or Employment Nominees Age Since Nominees Expires Last Five Years Phyllis H. Arnold 45 1993 None 1996 1991 to present - President and Chief Executive Officer - One Valley Bank, National Association; formerly Executive Vice President - One Valley Bank, National Association, Charleston, WV Charles M. Avampato 55 1984 None 1996 President-Clay Found- ation, Inc., Charleston, WV (Charitable Foundation) Robert F. Baronner 67 1981 None 1995 Chairman of the Board- One Valley Bancorp of West Virginia, Inc., Charleston, WV; formerly President and Chief Executive Officer-One Valley Bancorp of West Virginia, Inc., Charleston, WV James K. Brown 64 1981 None 1995 Attorney - Jackson & Kelly, Charleston, WV Served As A Family Director Relationship Principal of One With Directors Year In Occupation Valley and Other Which Term Or Employment Nominees Age Since Nominees Expires Last Five Years Nelle Ratrie Chilton 54 1989 (4) 1995 Director and Vice President - Dickinson Fuel Co., Inc., Charleston, WV; TerraCo., Inc., Charleston, WV; Terra- Care, Inc., Terra Salis, Inc., TerraSod, Inc., Malden, WV (Landscaping) Ray M. Evans, Jr. 52 1984 (5) 1995 President-Dickinson Co., and Quincy Coal Co., Charleston, WV James Gabriel 63 1993 None 1996 President and Chief Executive Officer - Gabriel Brothers, Inc. (Retail Sales) Phillip H. Goodwin 53 1989 None 1995 President-CAMCARE and Charleston Area Medical Center, Charleston, WV Thomas E. Goodwin 64 1985 None 1996 Chairman of the Board - One Valley Bank of Ronceverte, National Association, Ronceverte, WV John D. Lynch 53 1986 None 1996 Vice President-Davis Lynch Glass Company, Star City, WV J. Holmes Morrison 53 1990 None 1995 1991 to present-President and Chief Executive Officer-One Valley Bancorp of West Virginia, Inc.; formerly Executive Vice President-One Valley Bancorp of West Virginia, Inc.; President and Chief Executive Officer-One Valley Bank, National Association, Charleston, WV Served As A Family Director Relationship Principal of One With Directors Year In Occupation Valley and Other Which Term Or Employment Nominees Age Since Nominees Expires Last Five Years Charles R. Neighborgall, III 52 1987 None 1996 President - The Neighborgall Construction Company, Huntington, WV (General Contractors) Robert O. Orders, Sr. 68 1989 None 1995 Chief Executive Officer- Orders Construction Co., St. Albans, WV John L. D. Payne 55 1981 (5) 1995 President - Payne-Gallatin Mining Co., Charleston, WV James W. Thompson 66 1983 None 1996 President and Chairman of the Board-One Valley Bank of Mercer County, Inc., Princeton, WV J. Lee Van Metre, Jr. 56 1986 None 1996 Attorney-Steptoe & Johnson; Secretary of the Board-One Valley Bank of Martinsburg, National Association, Martinsburg, WV John H. Wick, III 48 1993 (4) 1996 1992 to present - Vice President - Dickinson Fuel Co., Inc., Charleston, WV; 1980 to 1992 - Commercial Realtor, Harrison & Bates, Inc., Richmond, VA </TABLE> (1) Served as a director or officer of Mountaineer or one of its subsidiaries since 1949. (2) Angus E. Peyton is a member of the Board of Directors of American Electric Power Company, Inc. (3) Served as a director or officer of Mountaineer or one of its subsidiaries since 1961. (4) John H. Wick, III, is the brother-in-law of Nelle Ratrie Chilton. (5) Ray M. Evans, Jr. and John L. D. Payne are first cousins. General The Bylaws of One Valley provide that in the election of directors of One Valley each shareholder will have the right to vote the number of shares owned by that shareholder for as many persons as there are directors to be elected, or to cumulate such shares and give one candidate as many votes as the number of such directors multiplied by the number of shares owned will equal, or to distribute them on the same principle among as many candidates as the shareholder sees fit. For all other purposes, each share is entitled to one vote. If any shares are voted cumulatively for the election of directors, the Proxies, unless otherwise directed, will have full discretion and authority to cumulate their votes and vote for less than all such nominees. The Bylaws of One Valley provide that nominations for election to the Board of Directors, other than those made by or on behalf of the existing management of One Valley, must be made by a shareholder in writing delivered or mailed to the President not less than 14 days nor more than 50 days prior to the meeting called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to shareholders, the nominations must be mailed or delivered to the President not later than the close of business on the 7th day following the day on which the notice of meeting was mailed. The notice of nomination must contain the following information, to the extent known: (a) name and address of proposed nominee(s); (b) principal occupation of proposed nominee(s); (c) total shares to be voted for each proposed nominee; (d) name and address of notifying shareholder; and (e) number of shares owned by notifying shareholder. Nominations not made in accordance with these requirements may be disregarded by the Chairman of the meeting, in which case the votes cast for the proposed nominee will likewise be disregarded. One Valley commenced business on September 4, 1981, as a bank holding company. The financial operations of One Valley in 1993 primarily related to the ownership and the establishment of policies for the management and direction of One Valley Bank, National Association, One Valley Bank of Huntington, Inc., One Valley Bank of Mercer County, Inc., One Valley Bank of Martinsburg, National Association, One Valley Bank of Ronceverte, National Association, One Valley Bank of Morgantown, Inc., One Valley Bank of Oak Hill, Inc., and One Valley Bank of Summersville, Inc. On August 4, 1993 an Agreement and Plan of Merger was executed pursuant to which Mountaineer agreed to merge with and into One Valley. That merger was consummated on January 28, 1994. Committees of the Board One Valley has a standing Audit Committee, Compensation Committee and Nominating Committee. The Audit Committee of One Valley consists of six members, Charles M. Avampato, Robert F. Baronner, Edward H. Maier, John L. D. Payne, Richard B. Walker and H. Bernard Wehrle, Jr., and met four times in 1993. This Committee reviews and evaluates significant matters relating to audit and internal controls, reviews the scope and results of audits by independent auditors, reviews the activities of the internal audit staff, meets with the appropriate management personnel regarding internal and external audit results and reports its findings to the Board of Directors. The Compensation Committee of One Valley consists of six members, Charles M. Avampato, Nelle Ratrie Chilton, Phillip H. Goodwin, David E. Lowe, John L. D. Payne, and H. Bernard Wehrle, III, and met four times in 1993. The Compensation Committee administers the One Valley Bancorp of West Virginia, Inc., 1983 and 1993 Incentive Stock Option Plans. It also approves compensation levels for the executive management group of One Valley and its subsidiaries. The Nominating Committee of One Valley consists of five members, Robert F. Baronner, Nelle Ratrie Chilton, J. Holmes Morrison, John L. D. Payne and Angus E. Peyton and met once in 1993. The Nominating Committee recommends nominees to fill vacancies on the Board of Directors, although the President of One Valley will also entertain nominations made in accordance with the Bylaws of One Valley previously described. The Board of One Valley met 14 times in 1993, and there were numerous meetings of the Committees of the Board. During 1993, Directors Lowe, Orders, Walker, and Wehrle attended fewer than 75% of the aggregate of the total number of meetings of the Board of One Valley and the total number of meetings held by all Committees on which they served. Principal Holders of Voting Securities John L. Dickinson and C. C. Dickinson, sons of John Q. Dickinson, one of the original incorporators of One Valley Bank, National Association, formerly Kanawha Valley Bank, National Association (hereinafter "One Valley Bank"), each owned more than 10% of the issued and outstanding stock of One Valley Bank. Both John L. and C. C. Dickinson are deceased, and much of the stock formerly held by them is now held by family trusts created by them or their spouses. At the time of the formation of One Valley as a one bank holding company holding all of the stock of One Valley Bank, the shares of One Valley Bank were exchanged on a one for one basis for shares of One Valley. The John L. Dickinson Family Trusts collectively hold 1,291,301 shares, representing 7.5% of the issued and outstanding stock of One Valley. The C. C. Dickinson Family Trusts collectively hold 866,980 shares, representing 5.0% of the issued and outstanding stock of One Valley. The following table sets forth the names and addresses of those shareholders who own beneficially more than 5% of the outstanding One Valley Common Stock as of March 8, 1994, the amount and nature of the beneficial ownership, and the percentage of outstanding voting securities represented by the amount owned. The individuals named in the table are co-trustees of certain of the Dickinson Family Trusts and most of the shares owned by them are owned in their capacity as co- trustees. <TABLE> Title of Name and Address Amount and Nature of Percent of Class of Beneficial Owner Beneficial Ownership (1) Class <S> <C> <C> <C> Common Stock Mary Price Ratrie 979,151(2) 5.7% Kanawha Salines Malden, WV 25306 Common Stock Charles C. Dickinson, III 923,369(3) 5.4% 1111 City National Building Wichita Falls, Texas 76301 Common Stock Robert F. Goldsmith 865,020(4) 5.0% 1528 Dogwood Road Charleston, WV 25314 Common Stock Ray M. Evans, Jr. 1,435,871(5) 8.3% 3401 Northside Parkway Atlanta, GA 30327 </TABLE> (1) This table includes a duplication of beneficial ownership of securities in cases where the named individuals have overlapping co-trustee relationships. These four individuals hold, excluding duplication, a total of 2,498,442 shares, or 14.5% of the total 17,255,784 shares of One Valley Common Stock outstanding as of the record date. Although One Valley Bank, a subsidiary of One Valley, is a co-trustee of these various trusts, in all instances, the named individual co-trustees vote the stock of One Valley held in the trusts. (2) Consists of 41,060 shares owned of record; 866,980 shares held as co-trustee with Charles C. Dickinson, III, and One Valley Bank (in which trusts Mary Price Ratrie has a one-third beneficial interest); 756 shares owned by J. Q. Dickinson & Co., a sole proprietorship owned by Mary Price Ratrie; and 70,355 shares owned by Dickinson Property Limited Partnership in which Mary Price Ratrie is a beneficial owner. (3) Consists of 56,389 shares owned of record and 866,980 shares held as co-trustee with Mary Price Ratrie and One Valley Bank (in which trusts Mr. Dickinson has a one-fifth beneficial interest). (4) Consists of 24,698 shares owned of record; 2,331 shares owned of record by his wife; 837,991 shares held as co-trustee with Ray M. Evans, Jr., and One Valley Bank. Not included in this total amount are 36,643 shares held in trusts from which Mr. Goldsmith may, at the discretion of the co-trustees, receive distributions of income and, under certain circumstances, distributions of principal. (5) Consists of 837,991 shares held as co-trustee with Robert F. Goldsmith and One Valley Bank; 140,460 shares held as co-trustee with One Valley Bank and another individual co-trustee; 119,526 shares held with One Valley Bank as co-trustee; 23,131 shares held by his wife as trustee of trusts for the benefit of his children; 28,502 shares owned of record; 5,782 shares owned of record by his wife; and 280,479 shares owned by Dickinson Company, of which Mr. Evans is an executive officer. Not included in this total amount are 11,713 shares held in a trust from which Mr. Evans may, at the discretion of the co-trustees, receive distributions of income and, under certain circumstances, distributions of principal. Ownership of Securities by Directors, Nominees and Officers The following tabulation sets forth the number of shares of One Valley Common Stock beneficially owned by (i) each of the nominees and directors, (ii) each of the executive officers listed in the Summary Compensation Table, and (iii) the directors, nominees, and executive officers of One Valley as a group as of March 8, 1994, and indicates the percentages of common stock so owned. There is no other class of voting securities issued and outstanding. Amount and Nature of Beneficial Percent of Name of Beneficial Owner Ownership (1) Class Phyllis H. Arnold 34,088 Direct (2) 145 Indirect * Charles M. Avampato 16,580 Direct 2,808 Indirect * Robert F. Baronner 10,216 Direct 6,037 Indirect * Frederick H. Belden, Jr. 21,905 Direct (3) 136 Indirect * James K. Brown 2,487 Direct 1,165 Indirect * John T. Chambers 14,067 Direct 850 Indirect * Nelle Ratrie Chilton 41,075 Direct 52,513 Indirect * Amount and Nature of Beneficial Percent of Name of Beneficial Owner Ownership (1) Class Ray M. Evans, Jr. 28,502 Direct 1,407,369 Indirect (4) 8.3% James Gabriel 4,425 Direct 5,500 Indirect * Phillip H. Goodwin 920 Direct * Thomas E. Goodwin 14,904 Direct 145 Indirect * Cecil B. Highland, Jr. 339,582 Direct 7,207 Indirect 2.0% Laurance G. Jones 10,500 Direct (5) * 2,600 Indirect Robert E. Kamm, Jr. 273,967 Direct (6) 106,086 Indirect 2.2% David Lowe 700 Direct * John D. Lynch 18,000 Direct 28,806 Indirect * Edward H. Maier 5,780 Direct * J. Holmes Morrison 46,321 Direct (7) 782 Indirect * Charles R. Neighborgall, III 1,150 Direct 2,664 Indirect * Robert O. Orders, Sr. 13,543 Direct * John L. D. Payne 714 Direct 434,479 Indirect (8) 2.5% Angus E. Peyton 34,202 Direct 166,170 Indirect 1.2% Lacy I. Rice, Jr. 150,000 Direct * James W. Thompson 14,470 Direct (9) 4,325 Indirect * J. Lee Van Metre, Jr. 3,208 Direct * Richard B. Walker 1,724 Direct * H. Bernard Wehrle, III 1,180 Direct * Amount and Nature of Beneficial Percent of Name of Beneficial Owner Ownership (1) Class John H. Wick, III 8,754 Direct 39,575 Indirect * Thomas D. Wilkerson 1,800 Direct * All Directors, Nominees and Executive 1,149,511 Direct Officers as a Group (31 individuals) 1,988,883 Indirect 18.2% *Beneficial ownership does not exceed one percent of the class. (1) Share totals of directors include 100 directors' qualifying shares, which each director is required to own pursuant to One Valley's Bylaws. Shares held indirectly include shares held by family members and shares held through trusts or corporations which in turn hold shares of One Valley. (2) Includes options to purchase 23,310 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 5,040 shares pursuant to One Valley's 1993 Stock Option Plan. (3) Includes options to purchase 7,560 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 3,960 shares pursuant to One Valley's 1993 Stock Option Plan. (4) See Note (5) to Principal Holders of Voting Securities. (5) Includes options to purchase 3,420 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 3,480 shares pursuant to One Valley's 1993 Stock Option Plan. (6) Includes options to purchase 11,295 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 2,520 shares pursuant to One Valley's 1993 Stock Option Plan. (7) Includes options to purchase 31,320 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 9,000 shares pursuant to One Valley's 1993 Stock Option Plan. (8) Consists of 70,599 shares held in nine trusts of which John L. D. Payne is a co-trustee, 363,160 shares held by Dickinson Company, Payne-Gallatin Mining Company and Horse Creek Land and Mining Company (in which companies Mr. Payne is an executive officer), and 720 shares owned by his children; does not include 88,033 shares held in or through trusts in which John L. D. Payne, at the discretion of the trustees, is an income beneficiary. (9) Includes options to purchase 2,970 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 3,000 shares pursuant to One Valley's 1993 Stock Option Plan. Executive Compensation The following table sets forth the annual and long-term compensation for services in all capacities to One Valley for the fiscal years ended December 31, 1993, 1992, and 1991, of those persons who were, as of December 31, 1993, (i) the chief executive officer and (ii) the four other most highly compensated officers of One Valley. <TABLE> SUMMARY COMPENSATION TABLE Annual Compensation Long Term Compensation Awards Payouts Other Securities All Name Annual Restricted Under- Other and Compen- Stock lying LTIP Compen- Principal Salary Bonus sation Award(s) Options Payouts sation(1) Position Year ($) ($) ($) ($) (#) ($) ($) <S> <C> <C> <C> <C> <C> <C> <C> <C> J. Holmes Morrison 1993 275,000 114,297 0 0 9,000 0 5,263 President & CEO 1992 233,000 106,015 0 0 9,000 0 4,577 1991 185,602 81,250 - 0 5,940 0 3,763 Phyllis H. Arnold 1993 170,000 63,750 0 0 5,040 0 4,553 Senior Vice President 1992 150,000 58,500 0 0 5,040 0 3,890 1991 121,348 41,125 - 0 3,780 0 2,484 Frederick H. Belden, Jr.1993 148,000 50,875 0 0 3,960 0 4,550 Senior Vice President 1992 135,000 48,263 0 0 3,960 0 3,479 1991 120,330 33,758 - 0 3,780 0 2,444 Laurance G. Jones 1993 132,000 43,560 0 0 3,480 0 4,462 Senior Vice President 1992 117,000 41,828 0 0 3,420 0 3,017 1991 106,189 29,538 - 0 3,240 0 2,136 James W. Thompson 1993 127,000 38,100 0 0 3,000 0 4,251 President, One Valley 1992 120,000 34,500 0 0 2,970 0 3,609 Bank of Mercer 1991 114,000 30,075 - 0 1,525 0 3,414 County, Inc. </TABLE> (1) The amounts included in "All Other Compensation" consist of One Valley's contributions on behalf of the listed officers to the 401(k) Plan, pursuant to which all eligible employees receive up to a 50% matching contribution from One Valley for all amounts contributed to the 401(k) Plan by the employee, to a maximum of 5% of the employee's salary. In the case of Mr. Thompson, the amount reported for 1993 pertains to the 401(k) Plan, however, the amounts for 1992 and 1991 pertain to an Employee Stock Ownership Plan of Mercer County Bank, pursuant to which that Bank made an annual contribution of 2% of the Bank's total payroll, which was allocated to participating employees on the basis of the ratio of the employee's compensation to the total compensation of all participating employees. The following table sets forth further information on grants of stock options during 1993 to (i) the listed officers and (ii) all optionees as a group pursuant to One Valley's 1993 Incentive Stock Option Plan. The table also provides information concerning the potential gain to all shareholders at the designated rate of appreciation. No stock appreciation rights ("SARs") were awarded by One Valley. <TABLE> OPTION GRANTS IN LAST FISCAL YEAR Grant Date Individual Grants Value(1) % of Number of Total Potential Realizable Value Securities Options at Assumed Annual Rates Underlying Granted to Exercise of Stock Appreciation for Options Employees or Base Expira- Ten-Year Option Term Granted (2) in Fiscal Price tion 0% 5% 10% Name (#) Year ($/Sh) Date ($) ($) ($) <S> <C> <C> <C> <C> <C> <C> <C> J. Holmes Morrison 9,000 11.8% 28.50 4/28/03 0 161,280 408,780 Phyllis H. Arnold 5,040 6.6% 28.50 4/28/03 0 90,317 228,917 Frederick H. Belden, Jr. 3,960 5.2% 28.50 4/28/03 0 70,963 179,863 Laurance G. Jones 3,480 4.6% 28.50 4/28/03 0 62,362 158,062 James W. Thompson 3,000 3.9% 28.50 4/28/03 0 53,760 136,260 All Optionees (including the five listed above) 76,380 100% 28.50 4/28/03 0 1,368,730 3,469,180 All Shareholders - - - - 0 309,233,649 783,757,709 Optionee Gain as % of All Shareholders Gain - - - - 0 0.44% 0.44% </TABLE> (1) The actual value, if any, an executive may realize depends on the excess of the stock price over the exercise price on the date the option is exercised. (2) The exercise price is the fair market value of One Valley Common Stock on the date the options were granted. Options are exercisable immediately, and terminate upon termination of employment for reasons other than death or retirement, upon the expiration of three months after the date of retirement, upon the expiration of one year from the date of death, or ten years from the option date. The following table sets forth information concerning (i) the value realized upon the exercise of stock options during 1993 by the listed officers, and (ii) the number of unexercised options held by each listed officer as of December 31, 1993, and the market value of the underlying shares if the options had been exercised on that date. No SARs have been awarded by One Valley. <TABLE> AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Shares Acquired Value FY-End (#) FY-End ($) Name On Exercise (#) Realized ($)(1) Exercisable Exercisable <S> <C> <C> <C> <C> J. Holmes Morrison 0 0 40,320 379,524 Phyllis H. Arnold 0 0 28,350 306,262 Frederick H. Belden, Jr. 9,360 172,305 11,520 82,822 Laurance G. Jones 11,640 211,565 6,900 21,409 James W. Thompson 0 0 5,970 18,592 </TABLE> (1) Market value of underlying securities at exercise, minus the exercise or base price. The following table indicates, for purposes of illustration, the approximate annual retirement benefits (Qualified Plan and Supplemental Plan) that would be payable to an employee retiring on November 1, 1993, at age 65 on the full life annuity form under various assumptions as to salary and years of service. Benefits are not subject to deduction for Social Security or other offset amounts. PENSION PLAN TABLE Years of Service Remuneration 15 20 25 30 35 $125,000 $28,296 $37,728 $67,714 $67,714 $67,714 150,000 34,296 45,728 83,964 83,964 83,964 175,000 40,296 53,728 100,214 100,214 100,214 200,000 46,296 61,728 116,464 116,464 116,464 225,000 52,296 69,728 132,714 132,714 132,714 235,840** 54,898 73,197 139,760 139,760 139,760 250,000 54,898 73,197 148,964 148,964 148,964 300,000 54,898 73,197 181,464 181,464 181,464 400,000 54,898 73,197 246,464 246,464 246,464 450,000 54,898 73,197 278,964 278,964 278,964 500,000 54,898 73,197 311,464 311,464 311,464 **IRS Maximum for Qualified Plan. Compensation covered by the qualified pension plan is based on total pay, including all Management Incentive Compensation Plan payments, received during the sixty consecutive months of employment which results in the highest total divided by five. Such compensation is directly related to the total annual salary and bonus set forth in the Summary Compensation Table and does not vary by more than ten percent from that set forth therein, except that bonus payments listed in the table are actually paid to the recipient (and consequently included in determining plan benefits) in the year after that listed. As of November 1, 1993, the credited years of service under the retirement plan for the individuals named in the table shown under Executive Compensation were: Phyllis H. Arnold, 17.667 years; J. Holmes Morrison, 26.17 years; Frederick H. Belden, Jr., 26 years; Laurance G. Jones, 24.33 years; and James W. Thompson, 9.92 years. Change of Control Arrangements In January 1987, One Valley entered into agreements with the officers listed in the Summary Compensation Table, except Mr. Thompson, and with certain other officers to encourage those key officers not to seek other employment because of the possibility that One Valley might be acquired by another entity. The Board of Directors determined that such an arrangement was appropriate, especially in view of the volatile banking market anticipated in West Virginia with the advent of interstate banking. The agreements were not undertaken in the belief that a change of control of One Valley was imminent. The agreements are for a term of three years and on each anniversary date the term is automatically extended for an additional one-year period unless a 60-day prior written notice is given by either party. Generally, the agreements provide severance compensation to those officers if their employment should end under certain specified conditions after a change of control of One Valley. Compensation is paid upon any involuntary termination following a change of control unless the officer is terminated for cause. In addition, compensation will be paid after a change of control if the officer voluntarily terminates employment because of a salary reduction, reassignment without consent to an office more than 50 miles from the officer's location at the time of a change of control, failure by One Valley to obtain assumption of the contract by its successor, or termination of employment without a 30-day written notice. Under the agreements, a change of control is deemed to occur in the event of any business combination which would require a higher than majority vote of the shareholders under One Valley's Articles of Incorporation, or an occurrence of a nature that would be required to be reported to the Securities and Exchange Commission as a change of control. Severance benefits include: (a) a cash payment equal to the officer's monthly base salary multiplied by the number of full months between the date of termination and a date which is 30 months after the date on which the change of control occurs; (b) payment of the award due, if any, under One Valley's Management Incentive Compensation Plan for the year in which termination occurs; and (c) continuing participation in employee benefit plans and programs such as retirement, disability and medical insurance for a period of 30 months after the change in control. Board Compensation Committee Report on Executive Compensation The Compensation Committee ("Committee") of the Board of Directors establishes compensation policies, plans and programs which are intended to accomplish three objectives: to attract and retain highly capable and well-qualified executives; to focus executives' efforts on increasing long-term shareholder value; and to reward executives at levels which are competitive with the marketplace for similar positions and commensurate with performance of each executive and of One Valley. The Committee has determined that to accomplish these objectives, total compensation should be comprised of base salary, short-term incentive compensation, and long-term incentive compensation. The Committee meets several times annually with the Chief Executive Officer and senior human resources executives to review, modify as appropriate, and approve the compensation programs for executives, utilizing the services of outside compensation consultants when appropriate. In determining the salary budget for 1993 and in fixing levels of executive compensation, the Committee considered internal equity, external competitiveness of base compensation and total compensation, the inflation rate, and One Valley's performance relative to its long-range goals. In its evaluation of One Valley's corporate performance for the purpose of fixing base salary levels, the Committee does not attempt to assign specific weights to multiple factors which, taken together, constitute "corporate performance." Consequently, its evaluation of corporate performance is subjective to the extent that the Committee considers all aspects of corporate performance, including but not limited to long-range plan goals for earnings, asset quality, capital, liquidity and resource utilization; however, significant emphasis is given to the annual increase in One Valley's earnings per share. Base salaries for executive officers are determined first by an evaluation of the officer's success as measured against annually established goals for individual performance and the performance of the business unit(s) for which they have responsibility. Second, base salaries are measured against market place salaries of equivalent positions in financial institutions of comparable size. Marketplace information is determined using data from several recognized compensation survey services, specifically the 1993 Hay Compensation Report of Banks and Associated Financials produced by Hay Management Consultants, wherein participating financial institutions are grouped by size. One Valley's comparable group consists of twenty financial institutions having $800 million to $7 billion in assets, and the 1993 Financial Institutions Compensation Survey of Wyatt Data Services which covers the compensation practices of approximately 113 financial institutions having $2 billion to $5.9 billion in assets. This information was selected for comparison in 1993/1994 because of the formidable position that these surveys hold in the industry. Currently base compensation for executives of One Valley, while competitive, continues to be below the average for similar positions within comparable financial institutions. When One Valley executives, including the CEO and the officers listed in the Summary Compensation Table, were compared to the marketplace, their base salaries were, in the aggregate, well below the median of the marketplace. The Committee believes, philosophically, that compensation should, on the whole, be incentive driven, however base compensation should be reasonably competitive in the marketplace. To this end, the Committee has set a base salary range target for executives at the 37.5 percentile of the marketplace average. The Committee believes that the appropriate level of executive base compensation is primarily market-driven, although base compensation is also dependent on corporate performance and on each executive's progress toward individual goals. Thus, while the midpoint of the salary range is a corporate- wide target, base compensation for each executive is specifically determined by individual performance. The Committee believes that incentive compensation is an appropriate adjunct to base compensation which, together with base compensation, should approach the industry median for total compensation if established goals are met. Short-term incentive compensation is provided to key executives, as determined by the Compensation Committee pursuant to One Valley's Management Incentive Compensation Plan ("MICP"). Awards under MICP are granted based upon One Valley's earnings per share relative to a target level set by the Board of Directors. If the target is met, awards are calculated for each participant based upon the level of corporate performance relative to the target, upon performance of the executive and the unit he or she manages in meeting assigned objectives, and upon the executive's relative position within One Valley. The determination of corporate performance for this purpose is based solely upon earnings per share. Thus the level of annual performance of One Valley, determined in a manner which emphasizes factors which should have a positive impact upon total return to shareholders, has a significant impact upon total executive compensation. The Committee believes that shareholder value can be further enhanced by closely aligning the financial interests of One Valley's key executives with those of its shareholders. Awards of stock options pursuant to One Valley's Incentive Stock Option Plan ("ISOP") are intended to meet this objective and constitute the long-term incentive portion of executive compensation. Under the ISOP, the option price paid by the executive to exercise the option is the fair market value of the stock on the day the option is granted, and the option is freely exercisable within a ten-year period. The options attain value over that time only if the market price of the underlying stock increases, and the increase in value of the option is directly tied to the increase in the value of the stock. The Committee believes the ISOP focuses the attention and efforts of executive management upon increasing long-term shareholder value and the Committee periodically awards options to key executives in amounts it believes are adequate to achieve the desired objective. The total number of shares available for award in each plan year is specified in the ISOP. These shares are generally allocated based upon the Committee's subjective judgment, taking into account the historical levels of awards and the relative positions of the participants in the ISOP. Total compensation for the CEO is determined in essentially the same way as for other executives, recognizing that the CEO has overall responsibility for the performance of One Valley. Therefore, One Valley's performance has a direct impact upon the CEO's compensation in that its earnings per share determine the amount of base compensation increase and the MICP award, and, in addition, the market price of One Valley's Common Stock determines the value of options awarded during prior periods. The base compensation of the CEO in 1993 was based in large measure on the corporate results in 1992 relative to long-range plan goals for earnings, asset quality, capital, liquidity and resource utilization. As discussed above, no attempt is made by the Committee to assign relative weights to the various components of corporate performance in fixing the CEO's base compensation. The targeted earnings were $2.07 per share and actual earnings per share were $2.29, which was 10.6% higher than the targeted earnings per share, and 19% higher than 1991 earnings of $1.93 per share. This relative success of One Valley was a major consideration in establishing the base compensation for the CEO. Further, the CEO assumed this position in July 1991 and has a relatively low salary compared to the market place for this position, and this, too was taken into consideration in establishing the base compensation of the CEO for 1993. The MICP award for 1993 was based on the earnings per share performance in 1993 which was $2.52 versus targeted earnings of $2.47 per share. The ISOP awards to the CEO for 1993 were based on the historical level of awards and the Committee's determination of the appropriate level of prospective ownership necessary to motivate long-term performance. Recent revisions to the Internal Revenue Code disallow deductions in excess of $1,000,000 for certain executive compensation. The Committee has not adopted a policy in this regard since none of One Valley's executives receive compensation approaching the $1,000,000 level. The report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that One Valley specifically incorporates this report by reference, and shall not otherwise be filed under such Acts. The report is submitted by the Compensation Committee, which consists of Phillip H. Goodwin, Chairman Charles M. Avampato Nelle Ratrie Chilton David E. Lowe John L. D. Payne H. Bernard Wehrle, III Performance Graph The following graph compares the yearly percentage change in One Valley's cumulative total shareholder return on its Common Stock for the five-year period ending December 31, 1993, with the cumulative total return of the Standard & Poor's 500 Stock Index and the Media General Industry Group Index - 04, which consists of all banks and bank holding companies within the United States whose stock has been publicly traded for at least six years. There is no assurance that One Valley's stock performance will continue in the future with the same or similar trends as depicted in the graph. The graph shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that One Valley specifically incorporates this graph by reference, and shall not otherwise be filed under such Acts. (Performance Graph appears here, see appendix) 1988 1989 1990 1991 1992 1993 One Valley $ 0 $ 0 $102 $207 $323 $308 Standard & Poors 500 $100 $131 $128 $166 $179 $197 All Publicly Traded Banks $100 $117 $ 91 $129 $153 $181 (Media General Industry Group Index - 04) Compensation of Directors During 1993, each director who was not also an officer and full-time employee of One Valley received $300 for each meeting of the Board of Directors of One Valley attended and, as members of certain committees of the Board of Directors, received $250 for each meeting of a committee of the Board of Directors attended. In addition, Mr. Baronner received compensation in the amount of $18,000 for serving as Chairman of the Board of Directors. During 1993, there were no other arrangements pursuant to which any director of One Valley was compensated for services as a director. Directors of One Valley are eligible to defer fees pursuant to One Valley Deferred Compensation Plan, which was adopted in 1984, with respect to fees received in 1984 and thereafter for services rendered as a director of One Valley. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely upon review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the two fiscal years ended December 31, 1993, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were complied with, except that one report covering one transaction was filed late by Mr. Ray Marshall Evans, Jr. and one report covering one transaction was filed late by H. Bernard Wehrle, III. Certain Transactions with Directors and Officers and Their Associates One Valley and its various banking subsidiaries have had and expect to have in the future, transactions in the ordinary course of business with directors, officers, principal shareholders and their associates. During 1993, all of these transactions were made on substantially the same terms, including interest rates, collateral and repayment terms on extensions of credit, as those prevailing at the same time for comparable transactions with other unaffiliated persons. Such transactions, which at December 31, 1993, were, in the aggregate, 25.2% of total shareholders' equity, and in the opinion of the management of One Valley, did not involve more than the normal risk of collectibility or present other unfavorable features. Jackson & Kelly, a law firm in which Director James K. Brown is a partner, and Steptoe & Johnson, a law firm in which Director J. Lee Van Metre, Jr., is a partner, performed legal services for One Valley and its subsidiaries in 1993 and will perform similar services in 1994. On the basis of information provided by Mr. Brown and Mr. Van Metre, it is believed that less than five percent of the gross revenues of those law firms did in 1993, and will in 1994, result from payment for legal services by One Valley and its subsidiaries. In the opinion of One Valley, these transactions were on terms as favorable to One Valley as they would have been with third parties not otherwise affiliated with One Valley. Compensation Committee Interlocks and Insider Participation During 1993, One Valley's affiliate banks, and One Valley Square, Inc., paid $86,239 to TerraCare, Inc., for landscaping services. TerraCare, Inc., is a wholly-owned subsidiary of TerraCo, Inc. Mary Price Ratrie, a principal shareholder of One Valley, is the principal shareholder and President of TerraCo, Inc., and Director Nelle Ratrie Chilton is director of TerraCo, Inc. During 1993, The Neighborgall Construction Co. received payments of $72,893.71 from One Valley's affiliate, One Valley Bank of Huntington, Inc., for miscellaneous renovation and repair work to facilities owned by the bank. It is anticipated that additional payments will be made in 1994 to TerraCare, Inc., and to the Neighborgall Construction Co. In the opinion of One Valley, these transactions were on terms as favorable to One Valley as they would have been with third parties not otherwise affiliated with One Valley. The members of One Valley's Compensation Committee are Phillip H. Goodwin, Charles M. Avampato, Nelle Ratrie Chilton, David E. Lowe, John L. D. Payne, and H. Bernard Wehrle, III. 2. PROPOSAL TO APPROVE AN INCREASE IN THE MAXIMUM NUMBER OF DIRECTORS At a meeting held on February 16, 1994, a resolution was unanimously adopted by the Board of Directors of One Valley which approved for submission to a vote of the shareholders a proposal to amend Article III, Section 2 of the Bylaws of One Valley to provide that the Board of Directors may be comprised of up to thirty-three directors. Article V.1. of the Articles of Incorporation of One Valley, as amended, provides that the number of directors of One Valley is determined by the provisions of its Bylaws. Article III, Section 2 of the Bylaws provides that the number of the directors shall be fixed by the Board of Directors, but shall not be less than six nor more than twenty-seven. Generally, the Bylaws of One Valley can be amended by a vote of the Board of Directors. However, Article V.2. of the Articles of Incorporation of One Valley provides that an amendment of the Bylaws to increase the number of Directors to more than twenty-seven must be approved by the affirmative vote of the holders of at least 80% of the outstanding shares of One Valley. This provision requiring approval by more than a majority of One Valley's outstanding shares was adopted in 1986 as one of several amendments to One Valley's Articles of Incorporation and Bylaws. The intent of those amendments was to ensure that a party seeking control of One Valley will discuss its proposal with One Valley's Board of Directors. In all other respects, the provisions of Article III, Section 2 of the Bylaws would remain unchanged. The Board of Directors believes that the proposed amendment is appropriate for two reasons. First, it satisfies the contractual obligation One Valley made to Mountaineer Bankshares of W. Va., Inc. ("Mountaineer"), which was merged into One Valley on January 28, 1994. As part of its merger agreement with Mountaineer (the "Merger Agreement"), One Valley agreed that upon consummation of the merger the Board of Directors of One Valley would elect as directors two persons designated by Mountaineer. Pursuant to that agreement, effective January 28, 1994, the Board elected as directors Cecil B. Highland, Jr., and Lacy I. Rice, Jr., each to fill terms expiring at the 1994 Annual Meeting of Shareholders. As set forth above in the section of this Proxy Statement captioned "Purpose of Meeting - 1. Election of Directors," these two individuals have been nominated for election as directors, each to serve a full three-year term. Pursuant to the Merger Agreement, One Valley also agreed to seek to have two additional persons, also designated by Mountaineer, elected as directors at the earliest practicable date. Because of the maximum size limitation on the number of Directors imposed by Article III, Section 2 of the Bylaws, however, One Valley is unable to add those two additional persons to the Board without shareholder approval of an increase in the maximum number of Directors. One Valley's proposed amendment to its Bylaws will permit the addition of these two directors in accordance with the Merger Agreement. If One Valley shareholders approve the proposed amendment, C. Michael Blair and Brent D. Robinson, who were designated by Mountaineer, will be elected to the Board of Directors of One Valley at the May 1994, meeting of One Valley's Board of Directors, each for terms expiring at the 1995 Annual Meeting of Shareholders. Mr. Robinson, an executive vice president of One Valley, was previously a director, president, chief operating officer and chief financial officer of Mountaineer. He is 47 years old and had served as a director or officer of Mountaineer or one of its subsidiaries since 1978. He is the beneficial owner of 23,655 shares of One Valley Common Stock. Mr. Blair, Chairman of the Board and Chief Executive Officer of Mercantile Banking & Trust Company, is 51 years old and had served as an officer or director of Mountaineer or one of its subsidiaries since 1970. He is the beneficial owner of 52,327 shares of One Valley Common Stock. The Board has proposed this amendment to the Bylaws for a second reason. One Valley has had and will continue to have discussions with various banks and bank holding companies regarding the possible acquisition of additional banking subsidiaries and branch facilities. As part of those negotiations it is possible that the company to be acquired may request that it be represented on One Valley's Board of Directors following the acquisition. With the addition of the two additional former Mountaineer directors, One Valley's Board will be comprised of twenty-nine members. The proposed increase to a maximum of thirty-three members would provide One Valley with needed flexibility in future negotiations, when and if they occur. At the present time, One Valley has no intention of increasing the number of directors on its Board of Directors beyond twenty-nine and is not engaged in merger negotiations. Although a Board comprised of up to thirty-three directors is large, One Valley does not believe that it will be so large as to be unworkable or ineffective. To the contrary, One Valley has found that participation by Directors from various parts of the state following acquisitions has been helpful in planning and conducting post-merger operations, and it believes that the continuation of such an approach is prudent. The Board recommends that the following amendment to the first sentence of Section 2 of Article III of the Bylaws, unanimously approved by the Board of Directors at its February meeting, be approved by the shareholders. Section 2. Number, election and terms; nominations. Except as otherwise fixed by or pursuant to the provisions of Article VI of the Articles of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Corporation shall be fixed from time to time by resolution of the Board of Directors but shall not be less than six nor more than thirty-three. A copy of the entire text of Section 2 of Article III of the Bylaws is attached as Exhibit A to this Proxy Statement. The italicized portions of Section 2 of Article III in Exhibit A reflect the proposed amendment to be voted on at the Annual Meeting. Vote Required An affirmative vote of the holders of at least 80% of the outstanding shares of One Valley Common Stock is required to approve the amendment. Shares voted "ABSTAIN" and shares not voted will have the same effect as if the shares were voted "AGAINST" approval of the amendment. The Board of Directors unanimously recommends that shareholders vote "FOR" approval of this proposal. Unless otherwise directed, the enclosed proxy will be voted "FOR" the approval of the proposed increase in the maximum number of directors of One Valley from 27 to 33. 3. PROPOSAL TO APPROVE SELECTION OF AUDITORS The Board of Directors has selected the firm of Ernst & Young to serve as independent auditors for One Valley for the calendar year 1994 and proposes the approval by the shareholders at the Annual Meeting of Shareholders of that selection. If that selection does not receive the approval of a majority of the votes represented in person or by proxy, the Board will request a later approval of an alternate auditor. One Valley is advised that no member of this accounting firm has any direct or indirect material interest in One Valley, or any of its subsidiaries. A representative of Ernst & Young will be present at the Annual Meeting to respond to appropriate questions and to make a statement if desired. The enclosed proxy will be voted "FOR" the approval of the selection of Ernst & Young unless otherwise directed. The affirmative vote of a majority of the shares of One Valley Common Stock represented at the Annual Meeting of Shareholders is required to approve the selection of Ernst & Young. FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION Upon written request by any shareholder to Laurance G. Jones, Treasurer, One Valley Bancorp of West Virginia, Inc., P. O. Box 1793, Charleston, West Virginia 25326, a copy of One Valley's 1993 Annual Report on Form 10-K will be provided without charge. OTHER INFORMATION If any of the nominees for election as directors are unable to serve as directors by reason of death or other unexpected occurrence, proxies will be voted for a substitute nominee or nominees designated by the Board of One Valley unless the Board of Directors adopts a resolution pursuant to the Bylaws reducing the number of directors. The Board of Directors is unaware of any other matters to be considered at the meeting, but if any other matters properly come before the meeting, persons named in the proxy will vote such proxy in accordance with the recommendation of the Board of Directors. Shareholder Proposals for 1995 Any shareholder who wishes to have a proposal placed before the next Annual Meeting of Shareholders must submit the proposal to Merrell S. McIlwain II, Secretary of One Valley, at its executive offices, no later than November 22, 1994, to have it considered for inclusion in the proxy statement of the Annual Meeting in 1995. J. Holmes Morrison President Charleston, West Virginia March 23, 1994 ARTICLE III. BOARD OF DIRECTORS Section 2. Number, election and terms; nominations. Except as otherwise fixed by or pursuant to the provisions of Article VI of the Articles of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Corporation shall be fixed from time to time by resolution of the Board of Directors but shall not be less than six nor more than thirty-three. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as determined by the board of Directors of the Corporation, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1987, another class to be originally elected for a term expiring at the annual meeting of shareholders to be held in 1988, and another class to be originally elected for a term expiring at the annual meeting of shareholders to be held in 1989, with each class to hold office until its successor is elected and qualified. At each annual meeting of the shareholders of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election. Nominations for the election of directors shall be given in the manner provided in Article II, Section 13, of these bylaws. Directors need not be residents of the State of West Virginia, but shall hold not less than one hundred shares of the capital stock of the Corporation in order to be eligible to serve as a director of the Corporation.