10-K 1 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, 1994 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) West Virginia 55-0609408 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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. [ ] 124 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 $365,570,407 March 7, 1995 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 7, 1995 Common Stock ($10.00 par value) 17,004,868 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. Document Part of the Form 10-K into which the Document is Incorporated Portions of One Valley Bancorp of West Part I, Item 1; Part II, Items 5, 6, 7 Virginia, Inc., 1994 Annual Report to and 8; Part III, Item 13; and Part Shareholders for the year ended IV, Item 14 December 31, 1994 Portions of One Valley Bancorp of West Part III, Items 10, 11, 12 and 13 Virginia, Inc., Proxy Statement for the 1995 Annual Meeting of Shareholders 2 One Valley Bancorp of West Virginia, Inc. Form 10-K INDEX Page Part I Item 1. Business ......................................... 4 Item 2. Properties ...................................... 15 Item 3. Legal Proceedings ................................ 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 4A. Executive Officers of the Registrant ............. 16 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .................... 19 Item 6. Selected Financial Data .......................... 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............ 19 Item 8. Financial Statements and Supplementary Data ..... 19 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 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, 1994, One Valley owned eleven operating banking subsidiaries (the "Banking Subsidiaries") including: One Valley Bank, National Association; One Valley Bank of Huntington, Inc.; One Valley Bank of Mercer County, Inc.; One Valley Bank - East, National Association; One Valley Bank of Oak Hill, Inc.; One Valley Bank of Ronceverte, National Association; One Valley Bank of Morgantown, Inc.; One Valley Bank of Summersville, Inc.; One Valley Bank - North, Inc.; One Valley Bank of Clarksburg, National Association; and One Valley Bank of Marion County, National Association. In addition, One Valley owns 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 Banking Subsidiaries, are collectively referred to as the "Subsidiaries".) One Valley's principal activities consist of owning and supervising its Subsidiaries. At December 31, 1994, One Valley had consolidated assets of $3,673,241,000, deposits of $2,926,479,000, and shareholders' equity of $321,867,000. 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 September 2, 1994, One Valley announced the execution of an Agreement and Plan of Merger to acquire Point Bancorp, Inc. ("Point"). Point owns 100% of the outstanding shares of common stock of Point Pleasant Federal Savings Bank. The 4 transaction was consummated on March 15, 1995. As of December 31, 1994 assets of Point were $57,063,000 and its deposits were $42,734,000. Following consummation of the Point acquisition, the name of the federal savings bank will be changed to One Valley Bank, F.S.B., and it will continue to be operated as a federally-chartered savings bank. 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, One Valley adopted a common corporate identity, 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 1911 State Morgantown 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 5 Year in Currently Name Which Organized Chartered As One Valley Bank - East 1865 National One Valley Bank of 1903 National Clarksburg One Valley Bank of Marion 1939 National County One Valley Bank - North 1903 State OPERATIONS OF THE BANKING SUBSIDIARIES 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 Banking Subsidiaries constitute less than 5% of One Valley's total loans outstanding. Ten of the 23 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 or transfer funds between deposit accounts at those locations. Customers of any Banking Subsidiary may conduct transactions at any One Valley ATM and, by means of the MAC system, a regional ATM system, through the CIRRUS ATM network, can conduct ATM transactions nationwide. Customers of any of the Banking Subsidiaries may 6 also make deposits or withdrawals at any of One Valley's 80 statewide main office and branch locations. As of March 1, 1995, One Valley and its Subsidiaries had approximately 1990 full-time equivalent employees. 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. Statewide 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") 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. In 1994, Congress passed the Riegle-Neal Interstate Banking and Branching Efficiency Act. Under this Act, absent action to opt out or limit interstate branching by the West Virginia Legislature, interstate branch banking may occur after June 1, 1997. States are permitted: (i) to opt into interstate branch banking prior to June 1, 1997; (ii) to opt out of interstate bank branching prior to that date; (iii) to allow only acquisitions of branches; (iv) to opt into de novo interstate branch banking; and (v) to allow the acquisition of a branch of a bank without acquiring the bank itself. It is too early to determine what option(s), if any, will be adopted by the West Virginia Legislature. 7 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 revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and 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 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, 8 "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 directed that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to 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 Governors") 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 implemented a variety of other provisions that affected the operations of One Valley's Banking Subsidiaries, including additional 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. 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. 9 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 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 has 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. The Riegle- Neal Interstate Banking and Branching Efficiency Act will also increase competition among banks. With its acquisition of Point, One Valley gained the ability to engage in interstate branching on a nationwide basis through that subsidiary. 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., one of the largest bank holding companies 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, 1994, there were 16 multi-bank holding companies and 33 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. 10 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 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 11 all depository institutions in the State of West Virginia. The total deposits of the Banking Subsidiaries were approximately 15% 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. It has recently been proposed by the FDIC that the BIF assessment rate should be substantially decreased, however it is uncertain whether that proposal will utimately be adopted. It is also possible, but less likely, that BIF insurance assessments will be increased. A large special assessment or substantial increase in the assesment rate could have an adverse impact on One Valley's results of operations. 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. Following the acquisition of Point Bancorp, Inc., the operations of the federal savings bank will continue to be subject to regulation by the Office of Thrift Supervision and its deposits will be insured by the Savings Association Insurance Fund ("SAIF"). It is anticipated the SAIF insurance assessment will remain at 0.23%. 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. 12 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. 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 and certain other intangible assets. 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 13 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, 1994, the Tier 1 risk-based ratio, total risk-based ratio and total assets leverage ratio for One Valley were as follows: Regulatory Requirement One Valley Tier 1 Risk-Based Ratio 4.00% 14.21% Total Risk-Based Ratio 8.00% 15.46% Total Assets Leverage Ratio 3.00% 8.80% As of December 31, 1994 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. 14 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. 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. 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 six through 22 of One Valley's 1994 Annual Report to Shareholders for the fiscal year ended December 31, 1994. 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 non-affiliated tenants. Upon expiration of the land 15 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 21 branch locations throughout Kanawha, Putnam, Jackson, and Wood Counties. OTHER AFFILIATE BANKS The properties owned or leased by the other Banking Subsidiaries consist generally of 11 main bank offices, related drive-in facilities, 47 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 None Item 4A. Executive Officers of the Registrant The executive officers of One Valley are: Name Age Banking Experience and Qualifications Robert F. Baronner 68 1991 to Present, Chairman of the Board, One Valley. 1971 to 1991, One Valley Bank. Previously, President and Chief Executive Officer, One Valley. 16 J. Holmes Morrison 54 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 46 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. 56 1968 to present, One Valley Bank. Senior Vice President and Senior Trust Officer, 1982; Executive Vice President, 1986. Executive Vice President, One Valley, 1994. James L. Whytsell 55 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 48 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. 17 Brent D. Robinson 47 1978 to 1994, Mountaineer Bankshares, Inc. and its predecessors. Executive Vice President, One Valley, 1994. James A. Winter 42 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. 18 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters During 1994, 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 7, 1995, the total number of holders of One Valley Common Stock was approximately 8,400, 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 18 of One Valley's 1994 Annual Report to Shareholders is incorporated herein by reference. Notes M and Q of Notes to the Consolidated Financial Statements appearing at pages 38 and 40 of One Valley's 1994 Annual Report to Shareholders are incorporated herein by reference. Table 1 "Six-Year Selected Financial Summary" on page six of One Valley's 1994 Annual Report to Shareholders is incorporated herein by reference. Item 6. Selected Financial Data Table 1 "Six-Year Selected Financial Summary" on page six of One Valley's 1994 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 six through 22 of One Valley's 1994 Annual Report to Shareholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The information contained on pages 23 through 40 of One Valley's 1994 Annual Report to Shareholders is incorporated herein by reference. See Item 14 for additional information regarding the financial statements. The report of Crowe, Chizek and Company, independent auditors of Mountaineer Bankshares of W.Va., Inc., and subsidiaries, for the years ended December 31, 1993 and 1992, is included as Exhibit 99.2 and incorporated herein by reference. 19 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 two through six and page 19 of One Valley's definitive Proxy Statement dated March 20, 1995, 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 20, 1995, 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 eight through 11 of One Valley's definitive Proxy Statement dated March 20, 1995, 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 20, 1995, and Note E of the Notes to the Consolidated Financial Statements appearing at page 32 of One Valley's 1994 Annual Report to Shareholders is incorporated herein by reference. 21 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 1994 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. Report of Independent Auditors 23 Consolidated Balance Sheets at 24 December 31, 1994 and 1993 Consolidated Statements of Income 25 for the years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Share- 26 holders' Equity for the years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows 27 for the years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial 28-40 Statements Report of Crowe, Chizek and Company, Exhibit 99.2 independent auditors of Mountaineer Bankshares (Form 10-K) of W.Va., Inc., and subsidiaries, for the years ended December 31, 1993 and 1992 22 (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. (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 28 (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 21, 1995 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 22, 1995 PHYLLIS H. ARNOLD /s/ Charles M Avampato Director March 21, 1995 CHARLES M. AVAMPATO /s/ Robert F. Baronner Chairman of the Board March 21, 1995 ROBERT F. BARONNER /s/ C. Michael Blair Director March 21, 1995 C. MICHAEL BLAIR 24 /s/ James K. Brown Director March 21, 1995 JAMES K. BROWN /s/ John T. Chambers Director March 21, 1995 JOHN T. CHAMBERS /s/ Nelle Ratrie Chilton Director March 21, 1995 NELLE RATRIE CHILTON Director March __, 1995 RAY M. EVANS, JR. Director March __, 1995 JAMES GABRIEL /s/ Phillip H. Goodwin Director March 21, 1995 PHILLIP H. GOODWIN Director March __, 1995 THOMAS E. GOODWIN Director March __, 1995 CECIL B. HIGHLAND, JR. /s/ Laurance G. Jones Treasurer and Chief March 20, 1995 LAURANCE G. JONES Financial Officer (Principal Financial Officer) /s/ Robert E. Kamm, Jr. Director March 22, 1995 ROBERT E. KAMM, JR. /s/ David E. Lowe Director March 21, 1995 DAVID E. LOWE 25 Director March __, 1995 JOHN D. LYNCH /s/ Edward H. Maier Director March 21, 1995 EDWARD H. MAIER /s/ J. Holmes Morrison Chief Executive Officer, March 21, 1995 J. HOLMES MORRISON Director and President Director March __, 1995 CHARLES R. NEIGHBORGALL, III /s/ Robert O. Orders, Sr. Director March 21, 1995 ROBERT O. ORDERS, SR. /s/ John L. D. Payne Director March 21, 1995 JOHN L. D. PAYNE /s/ Angus E. Peyton Director March 21, 1995 ANGUS E. PEYTON Director March __, 1995 LACY I. RICE, JR. /s/ Brent D. Robinson Director March 22, 1995 BRENT D. ROBINSON Director March __, 1995 JAMES W. THOMPSON Director March __, 1995 J. LEE VAN METRE, JR. 26 Director March __, 1995 RICHARD B. WALKER Director March __, 1995 H. BERNARD WEHRLE, III /s/ John H. Wick, III Director March 21, 1995 JOHN H. WICK, III /s/ Thomas D. Wilkerson Director March 21, 1995 THOMAS D. WILKERSON /s/ James A. Winter Vice President and March 21, 1995 JAMES A. WINTER Chief 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 Amendment to the Bylaws of One Valley dated April 26, 1994, and a complete copy of One Valley's Bylaws as amended. 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 8 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 part of 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 47 herein. (12) Statement Re Computation of Ratios -- found at page 48 herein. (13) 1994 Annual Report to Security Holders -- found at page 49 herein. (21) Subsidiaries of Registrant -- found at page 97 herein. (23.1) Consent of Ernst & Young, LLP -- found at page 98 herein. (23.2) Consent of Crowe, Chizek and Company -- found at page 99 herein. (27) Financial Data Statement -- Edgar filing only (99.1) Proxy Statement for the 1995 Annual Meeting of One Valley __ found at page 100 herein. (99.2) Report of Independent Auditors - Crowe, Chizek and Company -- found at page 124 herein. 30 EX-3 2 EXHIBIT 3.7 Exhibit 3.7 BYLAWS OF ONE VALLEY BANCORP OF WEST VIRGINIA, INC. ARTICLE I. OFFICES The principal offices of the Corporation shall be located in the City of Charleston, County of Kanawha, State of West Virginia. The Corporation may have such other offices, either within or without the State of West Virginia, as the Board of Directors may designate or as the business of the Corporation may require from time to time. ARTICLE II. SHAREHOLDERS Section 1. Annual Meeting. The annual meeting of the shareholders shall be held on the fourth Tuesday in the month of April in each year, at the hour of 12:00 noon, local time, or at such other time on such other day within such month as shall be fixed by the Board of Directors. If the day fixed for the annual meeting shall be a legal holiday in the State of the principal office of the Corporation, such meeting shall be held on the next succeeding business day. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 40 days prior to the meeting; provided, however, that in the event that less than 50 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 8th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be 31 brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (d) any material interest of the shareholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 2. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, may be called by the Chairman of Board, if any, President, Secretary, or by the Board of Directors, and shall be called by the President at the request of the holders of not less than one-tenth of all outstanding shares of the Corporation entitled to vote at the meeting. Section 3. Place of Meeting. The Board of Directors may designate any place, either within or without the State of West Virginia, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the Corporation. Section 4. Notice of Meeting. Written notice stating the place, day and hour of the meeting and, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, President, Secretary or the officer of other persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. Section 5. Closing of Transfer Books or Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, fifty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of 32 shareholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to received payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. Section 6. Voting Record. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make a complete record of the shareholders entitled to vote at each meeting of shareholders or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. Such record shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. Section 7. Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 8. Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. 33 Section 9. Voting of Shares. Subject to the provisions of Section 12 of this Article II, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. Section 10. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such other corporation may determine. Shares held by an administrator, executor, guardian, committee, curator, or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the Corporation nor shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. Section 11. Informal Action by Shareholders. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Section 12. Cumulative Voting. At each election for directors every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of his shares shall equal, or by distributing such votes on the same principle among any number of such candidates. 34 Section 13. Nominations for election to the Board of Directors. The nominations for election to the Board of Directors other than those made by or on behalf of the existing management of the Corporation, shall 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 shall 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 shall include to the extent known: (a) name and address of proposed nominee(s); (b) principal occupation of nominee(s); (c) total shares to be voted for each 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 and in such case the votes cast for each such nominee shall likewise be disregarded. Section 14. Rules of Conduct at the Annual Meeting. The chairman of the annual meeting of shareholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation: maintenance of order; safety; limitations on the time allotted to questions or comments on the affairs of the corporation; ruling motions or comments out of order (i) as a in poor taste, unworkable, moot, repetitious of another proposal on the agenda, or otherwise; restrictions on entry to the meeting after the time prescribed for the commencement thereof; and the opening and closing of the voting polls. ARTICLE III. BOARD OF DIRECTORS Section 1. General Powers. The business and affairs of the Corporation shall be managed by its 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 35 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. Section 3. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this bylaw, immediately after, and at the same place as, the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of West Virginia, for the holding of additional regular meetings without other notice than such resolution. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, if any, the President or the majority of the directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of West Virginia, as the place for holding any special meeting of the Board of Directors called by them. Section 5. Notice. Notice of any special meeting shall be given at least three days previously thereto by written notice delivered personally or mailed to each director at his business address, or by telegram. If mailed at least five days prior to the date of meeting, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except as otherwise provided by statute. 36 Section 6. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at the meeting a majority of the directors present may adjourn the meeting from time to time without further notice. Section 7. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 8. Action Without a Meeting. Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the directors. Section 9. Newly created directorships and vacancies. Except as otherwise provided for or 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 directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence to fill a vacancy resulting from the death, resignation, disqualification, removal or other cause shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until such director's successor shall have been elected and qualified, and any director elected in accordance with the preceding sentence by reason of an increase in the number of directors shall hold office only until the next election of directors by shareholders and until his successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 10. Compensation. By resolution of the Board of Directors, each director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors, or committee thereof, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the Board of Directors or committee thereof or both. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 11. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his 37 dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 12. Committees. (a) Appointment. The Board of Directors, by resolution adopted by a majority of the full board, may establish an Executive Committee and such other standing or special committees of the board as it may deem advisable, each of which shall consist of two or more members of the Board of Directors. The designation of a committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law. (b) Authority. The Executive committee, when the Board of Directors is not in session shall have and may exercise all of the authority of the Board of Directors except to the extent, if any, that such authority shall be limited by the resolution appointing the Executive Committee and except also that the Executive Committee shall not have the authority of the Board of directors in reference to amending the Articles of Incorporation, adopting a plan of merger or consolidation, recommending to the shareholders the sale, lease or other disposition of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof, or amending the bylaws of the Corporation. The authority of other committees of the board shall be set forth in the resolutions, as amended from time to time, establishing the same. (c) Tenure and Qualifications. Committees of the board shall consist only of members of the Board of Directors. Each member of the Executive Committee shall hold office until the next regular annual meeting of the Board of Directors following his designation and until his successor is designated as a member of the Executive Committee and is elected and qualified. The tenure of members of other committees of the board shall be set forth in the resolutions, as amended from time to time, establishing the same. (d) Meetings. Regular meetings of the committees of the board may be held without notice at such times and places as each committee may fix from time to time by resolution. Special meetings of the committee may be called by any member thereof upon not less than the one day's notice stating the place, date and hour of the meeting, which notice may be written or oral, and if mailed at least five days prior to the date of the meeting, shall be deemed to be delivered when deposited in the United States mail addressed to the member of the committee at his 38 business address. Any member of a committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of a committee need not state the business proposed to be transacted at the meeting. (e) Quorum. A majority of the members of a committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. (f) Action Without a Meeting. Any action required or permitted to be taken by a committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the committee. (g) Vacancies. Any vacancy in a committee may be filled by a resolution adopted by a majority of the full Board of Directors. (h) Resignations and Removal. Any member of a committee may be removed at any time with or without cause by resolution adopted by a majority of the full Board of Directors. Any member of a committee may resign from the committee at any time by giving written notice to the President or Secretary of the Corporation, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. (i) Procedure. A committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these bylaws. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken. Section 13. Removal. Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under the specified circumstances, any director may be removed from office, with or without cause and only by the affirmative vote of the holders of 80% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. Section 14. Participation in Meetings by Means of Conference Telephone or Similar Instrument. Any or all directors may participate in a meeting of the Board of Directors or in a meeting of a committee of the Board of Directors by means of a conference telephone or any similar electronic communications equipment by which all persons participating in the meeting can hear each other. 39 ARTICLE IV. OFFICERS Section 1. Number. The officers of the Corporation shall be a President, one or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. A Chairman of the board of Directors and such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary. The President and the Chairman of the Board, if any, shall be elected from the membership of the Board of Directors. Section 2. Election and Term of Office. The officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Section 3. Removal. Any officer or agent may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. Section 5. Chairman of the Board and President. The Chairman of the Board or the President, as the Board of Directors may from time to time determine, shall be the principal executive officer of the Corporation. If a Chairman of the Board is not elected or appointed, the President shall be chief executive officer and shall act as chairman of all meetings of the Board of Directors and as chairman of all meetings of the Executive Committee. The principal executive officer of the Corporation shall in general supervise and control all of the business and affairs of the Corporation, subject to the control of the Board of Directors. He shall, when present, preside at all meetings of the shareholders. Whether the Chairman of the Board or the President be designated as the principal executive officer of the Corporation the other shall, in the absence or incapacity of the principal executive officer or by his 40 authority may, exercise any of the powers of the principal executive officer. The Chairman of the Board or the President may sign deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and executing thereof shall be expressly delegated by the Board or by these bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. The Chairman of the board and the President shall each, in general, perform all duties incident to their respective offices and shall perform such other duties as may be prescribed by the Board of Directors from time to time. Section 6. The Vice Presidents. In the absence of the Chairman of the Board and President or in the event of their death, inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chairman of the Board and President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board and President. Any Vice President may sign, with the Secretary or an Assistant Secretary, certificates for shares of the Corporation; and shall perform such other duties as from time to time may be assigned to him by the principal executive officer of the Corporation, the bylaws or the Board of Directors. Section 7. The Secretary. The Secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (d) keep a register of the post officer address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign with the President, or a Vice President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the Corporation; and (g) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the principal executive officer of the Corporation, the bylaws or by the Board of Directors. Section 8. The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Article V of these bylaws; and (c) in general perform all of the 41 duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the principal executive officer of the Corporation, the bylaws or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. Section 9. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries, when authorized by the Board of Directors, may sign with the President or a Vice President certificates for shares of the Corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the principal executive officer of the Corporation, the bylaws or by the Board of Directors. Section 10. Officers' Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. The Board of Directors may encumber and mortgage real estate and pledge, encumber and mortgage stocks, bonds and other securities and other personal property of all types, tangible and intangible, and convey any such property in trust to secure the payment of corporate obligations. Section 3. Checks, Drafts, etc.. All checks, drafts and other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. 42 Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary and sealed with the Corporate Seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the Corporation itself or one of its employees. Each certificate for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 2. Transfer of Shares. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. Section 3. Lost Certificates. Any person claiming a certificate of shares to be lost or destroyed shall made an affidavit or affirmation of that fact, and if requested do so by the Board of Directors of the Corporation shall advertise such fact in such manner as the Board of Directors may require, and shall give the Corporation a bond of indemnity in such sum as the Board of Directors may direct, but not less than double the value of shares represented by such certificate, in form satisfactory to the Board of Directors and with or without sureties as the Board of Directors may prescribe; whereupon the President and the Secretary may cause to be issued a new certificate of the same tenor and for the same number of shares as the one alleged to 43 have been lost or destroyed, but always subject to the approval of the Board of Directors. Section 4. Stock Transfer Books. The stock transfer books of the Corporation shall be kept in the principal office of the Corporation and shares shall be transferred under such regulations as may be prescribed by the Board of Directors. ARTICLE VII. FISCAL YEAR The fiscal year of the Corporation may be fixed and may be changed from time to time by resolution of the Board of Directors. Until the Board of Directors has acted to fix such fiscal year, the fiscal year of the Corporation shall begin on the first day of January and end on the thirty-first day of December in each year. ARTICLE VIII. DIVIDENDS The Board of Directors may, from time to time, declare and the Corporation may pay dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation. ARTICLE IX. CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation and the state of incorporation and the words "Corporate Seal". ARTICLE X. WAIVER OF NOTICE Whenever any notice is required to be given to any shareholder or director of the Corporation under the provisions of these bylaws or under the provisions of the Articles of Incorporation or by law, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI. AMENDMENTS Subject to the provisions of the Articles of Incorporation, these Bylaws may be altered, amended or repealed at any regular meeting of the shareholders (or at any 44 special meeting thereof duly called for that purpose) by a majority vote of the shares represented and entitled to vote at such meeting; provided that in the notice of such meeting notice of such purpose shall be given. Subject to the laws of the State of West Virginia, the Articles of Incorporation and these Bylaws, the Board of Directors may be majority vote of those present at any meeting at which a quorum is present amend these Bylaws, or enact such other bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation; provided, however, that, without the affirmative vote of two-thirds of all members of the Board, the Board may not amend the Bylaws to (i) change the principal office of the Corporation, (ii) change the number of directors, (iii) change the number of directors on the Executive Committee, or (iv) make a substantial change in the duties of the Chairman of the Board and the President. ARTICLE XII. VOTING SHARES OF OTHER CORPORATIONS Unless otherwise ordered by the Board of Directors, shares in other corporations held by this Corporation may be voted by the Chairman of the Board or the President of this Corporation. 45 AMENDMENT OF BYLAWS OF ONE VALLEY - ADOPTED April 26, 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. 46 EX-11 3 EXHIBIT 11 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
For The Three Months For The Year Ended December 31 Ended December 31 1994 1993 1994 1993 PRIMARY: Average Shares Outstanding 17,009,000 17,246,000 17,132,000 17,237,000 Net effect of the assumed exercise of stock options- based on the treasury stock method 112,000 103,000 103,000 111,000 Total 17,121,000 17,349,000 17,235,000 17,348,000 Net Income $11,532,000 $ 7,690,000 $46,211,000 $37,954,000 Per Share Amount $0.67 $0.44 $2.68 $2.19 FULLY DILUTED: Average Shares Outstanding 17,009,000 17,246,000 17,132,000 17,237,000 Net effect of the assumed exercise of stock options- based on the treasury stock method 112,000 103,000 118,000 117,000 Total 17,121,000 17,349,000 17,250,000 17,354,000 Net Income $11,532,000 $ 7,690,000 $46,211,000 $37,954,000 Per Share Amount $0.67 $0.44 $2.68 $2.19
EX-12 4 EXHIBIT 12 EXHIBIT 12 STATEMENT RE: COMPUTATION 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 dividend by net income per share. EX-13 5 EXHIBIT 13 One Valley Bancorp 1994 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: Allen E. Davis, Staff 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, Executive 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 Schatz, Assistant Secretary, at (304) 348-7023. NUMBER OF SHAREHOLDERS At December 31, 1994, there were approximately 5,904 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................................. 6 Consolidated Financial Statements ...................................23 Six-Year Financial Summaries ....................................... 41 Quality Council .................................................... 44 One Valley Bancorp Directors........................................ 44 Directors of Affiliate Banks......................... Inside Back Cover FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data) 1994 1993 % CHANGE FOR THE YEAR Net interest income....................... $ 156,486 $ 147,913 5.80% Net income................................ 46,211 37,954 21.76 Average Balances Total loans - net....................... 2,199,686 2,026,748 8.53 Total assets............................ 3,540,451 3,467,261 2.11 Deposits................................ 2,930,555 2,895,131 1.22 Equity.................................. 315,724 294,733 7.12 AT YEAR-END Year-end Balances Total loans - net....................... $ 2,335,519 2,132,888 9.50 Total assets............................ 3,673,241 3,512,876 4.57 Deposits................................ 2,926,479 2,936,735 (0.35) Equity.................................. 321,867 305,184 5.47 PER SHARE Net income................................ $ 2.70 $ 2.20 22.73 Cash dividends............................ 0.94 0.84 11.90 Book value................................ 18.93 17.70 6.95
REPORT TO CUSTOMERS, EMPLOYEES, OWNERS, AND FRIENDS In the face of the Federal Reserve increasing interest rates six times and 250 basis points during the year, One Valley realized record profitability in 1994. As previously announced, One Valley's performance reached record levels in net income per share, net income, loans and shareholders' equity while deposits were relatively flat for the year. Key asset quality measures also continued to improve in 1994. Net income per share rose to $2.70 in 1994, up 22.7% from the $2.20 earned in 1993. Net income for the year totaled $46.2 million versus $38.0 million for the prior year which resulted in record annual returns of 1.31% on average assets and 14.64% on shareholders' equity. Shareholders' equity increased 5.5% to $321.9 million at year-end giving One Valley an 8.9% average equity-to-asset ratio for the year. One Valley's risk based capital ratio, a regulatory measure of capitalization, ended the year at 15.5%, well above the regulatory requirement of 8.0%. Cash dividends declared in 1994 increased 11.9% to $0.94 per share versus $0.84 per share declared in 1993. The improvement in One Valley's earnings in 1994 was mainly attributable to higher net interest income, lower non-interest expense, and a lower provision for loan losses. Higher net interest income was reflected in the net interest margin, which rose to 4.98% in 1994 compared to 4.77% in 1993. Non-interest expense declined 3.7% from 1993 primarily due to the non-recurring expenses in the latter half of 1993 related to One Valley's data processing systems conversion and the Mountaineer Bankshares merger. The provision for loan losses declined to $4.8 million in 1994 versus $5.8 million in 1993 due to the continued improvement in the credit quality of the loan portfolio. The increase in net interest income and decrease in non-interest expense together with the lower provision for loan losses more than offset a decrease in non-interest income for 1994. One Valley's asset quality ratios continued to improve and remain among the best in the industry. Net loan charge-offs for the year decreased to $3.8 million versus $5.0 million in 1993. Net charge-offs as a percentage of average total loans decreased to 0.17% in 1994 compared to 0.24% in 1993. Although the provision for loan losses decreased in 1994 paralleling the improvement in the quality of the loan portfolio, the $37.4 million allowance for loan losses was 1.58% of year-end total loans. Non-performing assets plus loans 90 days past due at December 31, 1994 declined to $13.5 million or 0.57% of total loans compared to the $15.7 million or 0.73% of total loans at year- end 1993. The $13.5 million of non-performing assets and loans was covered 278% by the $37.4 million allowance for loan losses at year-end 1994, a very strong coverage relative to peer group banking companies. The "Management's Discussion and Analysis" section on pages 6 through 22 provides a detailed analysis of the financial condition and results of operations of One Valley for 1994 and prior years and should be carefully read. Some of the highlights include: (Photo of J. Holmes Morrison appears here) J. HOLMES MORRISON, PRESIDENT AND CEO 2 (Bullet) Net income grew at a 19.3% compound annual rate over the past five years, while net income per share had a 16.7% compound growth rate during this same period. Additionally, the return on average assets averaged 1.08% over the past five years while the return on average equity averaged 13.09% (Bullet) Net interest income over the last five years grew at a 10.5% compound annual rate. Non-interest income (excluding security transactions) had a five-year compound annual growth rate of 17.6% while non-interest expense grew at a compound rate of 9.9% during the same period. (Bullet) One Valley's efficiency ratio goal (non-interest expense divided by the sum of fully taxable equivalent net interest income plus non-interest income) for 1994 was to be below 60% by year-end. This measure, which One Valley uses to evaluate its operational efficiency, was 60.1% in 1994 versus 65.4% in 1993 and reflects the synergies derived from the Mountaineer Bankshares merger. (Bullet) Major components of the balance sheet reflect five-year compound annual growth rates as follows: average total assets 8.3%; average net loans 10.3%; average deposits 7.7%; and average equity 11.3%. (Bullet) One Valley's equity-to-average assets over the past five years averaged 8.2%, which reflects a strong capital position in the industry. (Bullet) Cash dividends per share grew at a 10.9% compound annual rate during the last five years. (Bullet) Other significant events for One Valley Bancorp during 1994 include: (Bullet) The successful integration of Mountaineer Bankshares into One Valley Bancorp whereby most financial goals were achieved. Synergies from the merger included the sale of buildings, consolidation and renovation of offices, and the mergers of several affiliate banks resulting in eleven separate affiliate banks. NET INCOME AND DIVIDENDS PER SHARE (Bar graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 Net Income $1.25 $1.55 $1.72 $2.13 $2.20 $2.70 Dividends $0.56 $0.59 $0.62 $0.70 $0.84 $0.94 3 REPORT TO CUSTOMERS, EMPLOYEES, OWNERS, AND FRIENDS (Bullet) The announcement of the agreement to acquire Point Bancorp, Inc., a $57 million savings and loan holding company located in Mason County, West Virginia, with an anticipated closing in March 1995. (Bullet) The successful statewide introduction of four new full service checking account products (Valley Checking, Valley Checking Gold, Valley 50, and Valley 50 Gold) that are designed to fit our customers' lifestyles. (Bullet) With almost $300 million in total fund assets at year-end 1994, The OVB Funds, a family of proprietary mutual funds for which One Valley Bank, National Association serves as investment adviser, ranked 90th in size among bank and thrift advised mutual funds across the country. (Bullet) In connection with One Valley's pursuit to make The OVB Funds available to its customers, 37 employees passed their NASD Securities examination. (Bullet) One Valley expanded its international banking services statewide to meet the needs of its customers. In terms of manufacturing shipments, West Virginia is the sixth largest exporting state in the country. International banking will provide new sources of income to One Valley in future years. (Bullet) "One Financial Place," which provides consolidated trust services, expanded its statewide presence to eight locations with the addition of the Clarksburg/Fairmont and Wheeling/Moundsville offices. One Financial Place's 85 employees administer over $2.6 billion in trust assets. (Bullet) One Valley Bank of Morgantown was awarded Preferred Lender status by the Small Business Administration (SBA). As a Preferred Lender, the bank is able to underwrite, approve and close SBA loans and then simply report them to the SBA. This process provides customers with a quicker turnaround on their loan applications. (Bullet) One Valley continues to be ranked as one of the top banking companies in the country. Using a composite quality ranking, Keefe, Bruyette & Woods, Inc. ranked One Valley 19th out of the 133 commercial banks it follows nationwide in its December 1994 BANKSCAN report. In this report, One Valley was the highest ranked bank doing business in West Virginia, including our larger competitors who are headquartered out of state. We are proud of this recognition of our efforts to bring quality products and services to you our customers and shareholders. (Bullet) One Valley's 2,000 employees, through their hard work and dedication, brought about the successful integration of Mountaineer Bankshares and produced record financial results in 1994. In recognition of their efforts, the company awarded them a year-end bonus. While it is anticipated that the Federal Reserve will continue to nudge up interest rates in early 1995, One Valley's customers, employees and owners should experience another rewarding year in 1995. As our economy and society continue to undergo rapid change, One Valley must likewise continue to learn to not only survive, but thrive on this change to meet the challenges ahead. With our ongoing process of continuous improvement, we will 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 while giving back to the communities we serve. Respectfully yours, (Signature -- J. Holmes Morrison) J. Holmes Morrison President and CEO 4 FIVE-YEAR TOTAL RETURN* (Graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 One Valley Bancorp 100 88 177 276 263 275 S & P 500 100 97 126 136 150 152 All Banks 100 77 109 130 153 145 * Base period 12/31/89 =100. Dividends reinvested. BOOK VALUE PER SHARE (Graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 12.48 13.44 14.83 16.29 17.70 18.93 RETURN ON AVERAGE ASSETS (Graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 .80% .95% .95% 1.09% 1.09% 1.31% RETURN ON AVERAGE EQUITY (Graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 10.35% 12.07% 12.26% 13.62% 12.88% 14.64% 5 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 eleven bank subsidiaries ranging in size from $103 million to $1.6 billion. Through these banks, One Valley serves 50 cities and towns with a full range of banking services in 79 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, 1994, One Valley had approximately $3.7 billion in assets, $2.4 billion in total loans, and $2.9 billion in total deposits. 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 on January 28, 1994, increased One Valley's market presence in the northern and eastern panhandle regions of the State of West Virginia. This transaction has been accounted for as a pooling-of-interests and, accordingly, all prior period financial information has been restated, giving retroactive effect to the merger as though it had been consummated in the earliest period presented. 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 LLP, independent certified public accountants, to audit the consolidated financial statements, and their report is included herein. 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. SIX-YEAR SELECTED FINANCIAL SUMMARY TABLE 1 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5-Year Compound Growth 1994 1993 1992 1991 1990 1989 Rate SUMMARY OF OPERATIONS Interest income............................ $ 251,383 $ 247,699 $ 263,484 $ 242,792 $ 234,025 $ 226,249 2.13% Interest expense .......................... 94,897 99,786 120,039 130,913 134,462 131,335 (6.29) Net interest income........................ 156,486 147,913 143,445 111,879 99,563 94,914 10.52 Provision for loan losses ................. 4,788 5,788 11,389 6,671 7,884 12,404 (17.34) Non-interest income........................ 38,691 40,149 37,403 25,086 19,670 17,199 17.60 Gross securities transactions ............. (867) 113 (35) (730) (37) 265 Non-interest expense ...................... 121,402 126,107 116,140 92,429 79,201 75,676 9.91 Net income................................. 46,211 37,954 36,638 26,392 23,709 19,101 19.33 PER SHARE DATA Net income................................. $ 2.70 $ 2.20 $ 2.13 $ 1.72 $ 1.55 $ 1.25 16.65% Cash dividends............................. 0.94 0.84 0.70 0.62 0.59 0.56 10.91 Book value................................. 18.93 17.70 16.29 14.83 13.44 12.48 8.69 SELECTED AVERAGE BALANCES Net loans ................................. $2,199,686 $2,026,748 $1,926,773 $1,557,230 $1,384,035 $1,346,884 10.31% Investment securities...................... 1,050,980 1,074,467 1,049,459 834,820 745,063 657,578 9.83 Total assets .............................. 3,540,451 3,467,261 3,373,245 2,771,901 2,483,158 2,377,899 8.29 Deposits................................... 2,930,555 2,895,131 2,829,263 2,343,404 2,101,377 2,018,646 7.74 Long-term borrowings....................... 22,931 36,088 25,703 15,653 21,342 22,489 0.39 Equity..................................... 315,724 294,733 269,007 215,273 196,500 184,558 11.34 SELECTED RATIOS Average equity to assets................... 8.92% 8.50% 7.97% 7.77% 7.91% 7.76% Return on average assets .................. 1.31 1.09 1.09 0.95 0.95 0.80 Return on average equity .................. 14.64 12.88 13.62 12.26 12.07 10.35 Dividend payout ratio...................... 34.81 38.18 32.86 36.05 38.06 44.80
6 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. NET INTEREST INCOME AND NET INCOME Dollars in millions (Line graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 Net Interest Income 94.914 99.563 111.879 143.445 147.913 156.486 Net Income 19.101 23.709 26.392 36.638 37.954 46.211 SUMMARY STATEMENT OF NET INCOME TABLE 2 (DOLLARS IN THOUSANDS )
INCREASE (DECREASE) FROM PRIOR YEAR 1994 1993 1992 1994 1993 AMOUNT PERCENT AMOUNT PERCENT Interest Income *........................... $ 251,383 $ 247,699 $ 263,484 $ 3,684 1.49 $ (15,785) (5.99) Interest Expense............................ 94,897 99,786 120,039 (4,889) (4.90) (20,253) (16.87) Net Interest Income......................... 156,486 147,913 143,445 8,573 5.80 4,468 3.11 Other Operating Income...................... 38,691 40,149 37,403 (1.458) (3.63) 2,746 7.34 Gross Securities Transactions............... (867) 113 (35) (980) 148 Total Operating Income...................... 194,310 188,175 180,813 6,135 3.26 7,362 4.07 Provision for Loan Losses................... 4,788 5,788 11,389 (1,000) (17.28) (5,601) (49.18) Other Operating Expenses.................... 121,402 126,107 116,140 (4,705) (3.73) 9,967 8.58 Income Before Taxes......................... 68,120 56,280 53,284 11,840 21.04 2,996 5.62 Income Taxes................................ 21,909 18,326 16,646 3,583 19.55 1,680 10.09 Net Income.................................. $ 46,211 $ 37,954 $ 36,638 $ 8,257 21.76 $ 1,316 3.59 * FULLY TAX-EQUIVALENT INTEREST INCOME USING THE RATE OF 35% FOR 1994 AND 1993 AND 34% FOR 1992............................ $ 258,073 $ 252,344 $ 267,629 $ 5,729 2.27 $ (15,285) (5.71)
7 MANAGEMENT'S DISCUSSION AND ANALYSIS SUMMARY FINANCIAL RESULTS One Valley earned $46.2 million in 1994, a 21.8% increase over the $38.0 million earned in 1993. The increase is primarily due to increased net interest income and lower net overhead as well as a lower provision for loan losses. This increase in earnings follows an increase in 1993 of 3.6% over the $36.6 million earned in 1992. Earnings in 1993 were significantly impacted by expenses related to the Mountaineer merger and expenses associated with the conversion to an outsourced data processing system. Earnings per share were $2.70 in 1994, an increase of 22.7% over the $2.20 earned in 1993, which compares to the 3.3% increase in 1993 over the $2.13 earned in 1992. As shown in Table 1, the five-year compound growth rate in earnings per share since 1989 has been 16.7%. Table 1, Six-Year Selected Financial Summary, presents summary financial data for the past six years, 1989 through 1994, 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-average assets ratio has remained consistently strong over the past six years. Since 1991, this ratio has significantly improved, a result of record earnings performances and a public stock offering in December 1991. Table 2, Summary Statement of Net Income, presents three years of comparative income statement information. Table 3 comparatively illustrates the components of ROA and ROE over the previous five years. Return on average assets (ROA) measures how effectively One Valley utilizes its assets to produce net income. One Valley's 1994 ROA of 1.31% was a significant increase over the 1.09% ROA reported in 1993 and 1992. As shown in Table 3, the rise in ROA is attributed primarily to the increase in net credit income. Net credit income (net interest income less the provision for loan losses) significantly improved in 1994, as a percent of average earning assets, to 4.83%. This increase follows a similar increase in 1993 to 4.59%, up from 4.40% in 1992. This trend highlights One Valley's ability to manage interest rate and credit risk. The decrease in non-interest income in 1994 was less than the decrease 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) decreased to 2.55%. While this is lower than the 2.69% ratio in 1993, it is comparable to the 2.54% ratio in 1992. 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 1994 ROE was 14.64% compared to the 12.88% earned in 1993 and 13.62% reported in 1992.
ANALYSIS OF RETURN ON ASSETS AND EQUITY TABLE 3 1994 1993 1992 1991 1990 AS A PERCENT OF AVERAGE EARNING ASSETS: Fully taxable-equivalent net interest income *................... 4.98% 4.77% 4.77% 4.60% 4.62% Provision for loan losses............ (0.15) (0.18) (0.37) (0.26) (0.35) Net credit income................... 4.83 4.59 4.40 4.34 4.27 Non-interest income.................. 1.15 1.25 1.21 0.96 0.86 Non-interest expense................. (3.70) (3.94) (3.75) (3.64) (3.47) Tax equivalent adjustment............ (0.20) (0.15) (0.13) (0.20) (0.26) Applicable income taxes.............. (0.67) (0.57) (0.54) (0.42) (0.36) RETURN ON AVERAGE EARNING ASSETS....... 1.41 1.18 1.19 1.04 1.04 Multiplied by average earning assets to average total assets............. 92.59 92.33 91.78 91.59 91.74 RETURN ON AVERAGE ASSETS............... 1.31% 1.09% 1.09% 0.95% 0.95% Multiplied by average assets to average equity................... 11.21X 11.76X 12.54X 12.88X 12.64X RETURN ON AVERAGE EQUITY............... 14.64% 12.88% 13.62% 12.26% 12.07%
*FULLY TAX-EQUIVALENT USING THE RATE OF 35% FOR 1994 AND 1993 AND 34% FOR EARLIER YEARS. 8 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. 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. Information on rate-related sources and uses of funds for each of the three years in the period ended December 31, 1994, is provided in Table 4, Average Balance Sheet / Net Interest Income Analysis. In 1994, average earning assets grew by 2.4% or $76.5 million over 1993, following a 3.4% or $105.6 million increase in 1993 over 1992. Average interest bearing liabilities, the primary source of funds supporting earning assets, has remained relatively flat over the past three years. Average interest bearing liabilities rose by $34.8 million or 1.3% in 1994 when compared to 1993, which follows a $45.9 million or 1.7% increase in 1993 over 1992. The relatively low growth in average interest bearing liabilities is attributed to the lower interest rate environment over these periods and the resulting high competition for funds, as more fully explained below. AVERAGE BALANCE SHEET / NET INTEREST INCOME ANALYSIS TABLE 4 (DOLLARS IN THOUSANDS)
1994 1993 1992 AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST (1) RATE (1) BALANCE INTEREST (1) RATE (1) BALANCE INTEREST (1) RATE (1) ASSETS Loans(2) Taxable......................... $2,202,716 $189,040 8.58% $2,032,527 $179,971 8.85% $1,929,592 $186,681 9.67% Tax-exempt...................... 34,430 3,618 10.51 31,153 3,255 10.45 30,351 3,133 10.32 Total loans.................... 2,237,146 192,658 8.61 2,063,680 183,226 8.88 1,959,943 189,814 9.68 Less: Allowance for losses...... 37,460 36,932 33,170 Total loans-net................ 2,199,686 8.76 2,026,748 9.04 1,926,773 9.85 Investment securities Taxable......................... 874,901 48,881 5.59 973,890 55,868 5.74 966,198 64,466 6.67 Tax-exempt...................... 176,079 15,497 8.80 100,577 10,146 10.09 83,261 9,059 10.88 Total securities............... 1,050,980 64,378 6.13 1,074,467 66,014 6.14 1,049,459 73,525 7.01 Federal funds sold & other........ 27,363 1,037 3.79 100,270 3,104 3.10 119,696 4,290 3.58 Total earning assets........... 3,278,029 258,073 7.87 3,201,485 252,344 7.88 3,095,928 267,629 8.64 Other assets...................... 262,422 265,776 277,317 Total assets................... $3,540,451 $3,467,261 $3,373,245 LIABILITIES AND EQUITY Interest bearing liabilities: Interest bearing demand deposits....................... $ 451,718 10,832 2.40 $ 451,321 13,642 3.02 $ 401,804 14,304 3.56 Savings deposits................ 816,739 22,021 2.70 799,784 25,505 3.19 691,897 27,548 3.98 Time deposits................... 1,250,082 52,368 4.19 1,247,315 51,660 4.14 1,362,074 67,861 4.98 Total interest bearing deposits.................... 2,518,539 85,221 3.38 2,498,420 90,807 3.63 2,455,775 109,713 4.47 Short-term borrowings........... 242,304 8,491 3.50 214,460 6,270 2.92 221,601 8,203 3.70 Long-term borrowings............ 22,931 1,185 5.17 36,088 2,709 7.51 25,703 2,123 8.26 Total interest bearing liabilities.................. 2,783,774 94,897 3.41 2,748,968 99,786 3.63 2,703,079 120,039 4.44 Demand deposits................... 412,016 396,711 373,488 Other liabilities................. 28,937 26,849 27,671 Shareholders' equity.............. 315,724 294,733 269,007 Total liabilities and equity... $3,540,451 $3,467,261 $3,373,245 Net interest earnings............. $163,176 $152,558 $147,590 Net yield on earning assets....... 4.98% 4.77% 4.77%
(1) FULLY TAX-EQUIVALENT USING THE RATE OF 35% FOR 1994 AND 1993, AND 34% FOR 1992. (2) NON-ACCRUAL LOANS ARE INCLUDED IN AVERAGE BALANCES. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS 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 profitable component of average earning assets, totaling 67.1% of average earning assets. One Valley continued to emphasize increasing its loan portfolio in 1994. Average net loans increased by $172.9 million or 8.5% in 1994, following a 5.2% or $100.0 million increase in 1993. The increase in 1994 average loans was due to a balanced increase in the three major types of loans; commercial, real estate and consumer installment. The increase in 1993 average loans was primarily attributable to an increase in residential real estate loans. As a result of these increases, average net loans have increased as a percentage of average earning assets, from 62.2% in 1992 to 67.1% in 1994. Similarly, One Valley's loan-to-deposit ratio continued its upward trend in 1994, Loans ending the year at 79.8%. This ratio compares to 72.6% at December 31, 1993 and 68.1% at December 31, 1992. Expanding affiliate market share, as well as One Valley's carefully planned acquisition activity, have contributed greatly to the growth in the loan portfolio. Total loans at December 31, 1994, increased by $203.6 million or 9.4% over the total at December 31, 1993. This increase compares to a $171.5 million or 8.6% increase in 1993 over the total loans at December 31, 1992. As mentioned above, the increase in 1994 was in all areas of lending. Commercial loans increased by $64.0 million or 19.2% during 1994, compared to a $32.9 or 10.9% increase in 1993. Residential real estate loans including revolving home equity loans increased by $77.7 million or 8.0% during 1994, compared to a $101.6 million or 11.7% increase in 1993. Consumer installment loans increased by $67.0 million or 14.4% in 1994, following a $11.2 million or 2.5% increase during 1993. Commercial real estate loans, including apartment buildings and complexes, was the only category of loans to decrease in 1994. Declining by $13.0 million or 3.6%, commercial real estate loans have historically only averaged less than one-sixth of the total loan portfolio. This low concentration of such loans has limited One Valley's exposure to swings in commercial real estate values and the potential for related credit losses. 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. Additionally, 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 $908 million, a result of acquisitions and internal growth. While loan growth has been substantial, One Valley imposes underwriting and credit standards which are designed to maintain a quality loan portfolio. Loans secured by real estate, which in total constituted approximately 61% of One Valley's loan portfolio at December 31, 1994, 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. One Valley also originates residential real estate loans to be sold in the secondary market. In 1994, $50.8 million of loans were originated to be sold in the secondary market. This compares to approximately $163.8 million of new loan volume originated for sale in the secondary market in 1993 and $218.5 million in 1992. This activity generates considerable processing and servicing fee income for One Valley, as discussed further in the "Income Statement Analysis" section of this report. The decline in the volume of loans originated for sale in 1994 was due to the rising interest rate environment and the resulting lower volume of mortgage refinancings when compared to 1993 and 1992. 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 N 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. AVERAGE EARNING ASSETS Dollars in millions (Stacked bar graph appears here. The plot points are listed below). 1989 1990 1991 1992 1993 1994 Loans 1347 1384 1557 1927 2027 2200 Investment Securities & Other 832 894 981 1169 1175 1078 TOTAL LOANS Dollars in millions (Stacked bar graph appears here. The plot points are listed below). 1989 1990 1991 1992 1993 1994 Consumer 404 396 433 454 465 532 Commercial Real Estate 216 233 290 329 362 349 Residential Real Estate 466 512 872 871 972 1,050 Commercial, Financial & Other 317 325 339 345 370 442 10 LOAN SUMMARY TABLE 5 (DOLLARS IN THOUSANDS)
AS OF DECEMBER 31 1994 1993 1992 1991 1990 SUMMARY OF LOANS BY TYPE Commercial, financial, agricultural, and other loans.............. $ 398,105 $ 334,068 $ 301,155 $ 274,436 $ 298,857 Real estate: Construction loans.......................... 42,746 33,682 43,108 37,307 25,713 Revolving home equity....................... 113,142 102,648 93,092 70,927 57,539 Single family residentials.................. 936,698 869,502 777,428 801,525 454,345 Apartment buildings and complexes........... 37,475 41,465 45,798 37,490 25,306 Commercial.................................. 311,691 320,668 282,728 252,557 207,511 Bankers' acceptances.......................... 849 2,123 560 26,887 0 Consumer installment loans.................... 532,251 465,216 454,032 432,941 395,739 Subtotal.................................... 2,372,957 2,169,372 1,997,901 1,934,070 1,465,010 Less: Allowance for loan losses.............. 37,438 36,484 35,679 30,567 20,290 Net loans................................... $2,335,519 $2,132,888 $1,962,222 $1,903,503 $1,444,720 PERCENT OF LOANS BY CATEGORY Commercial, financial, agricultural, and other..................... 16.78% 15.40% 15.07% 14.19% 20.40% Real estate: Construction loans.......................... 1.80 1.55 2.16 1.93 1.76 Revolving home equity....................... 4.77 4.73 4.66 3.67 3.93 Single family residentials.................. 39.46 40.09 38.91 41.44 31.01 Apartment buildings and complexes........... 1.58 1.91 2.29 1.94 1.73 Commercial.................................. 13.14 14.78 14.15 13.06 14.16 Bankers' acceptances.......................... 0.04 0.10 0.03 1.39 0.00 Consumer installment loans.................... 22.43 21.44 22.73 22.38 27.01 Total....................................... 100.00% 100.00% 100.00% 100.00% 100.00% NON-PERFORMING ASSETS Non-accrual loans............................. $ 7,664 $ 8,819 $ 14,125 $ 18,202 $ 14,263 Other real estate owned....................... 1,436 3,124 8,853 10,630 10,877 Restructured loans............................ 552 597 131 1,964 0 Total non-performing assets................. $ 9,652 $ 12,540 $ 23,109 $ 30,796 $ 25,140 Non-performing assets as a % of total loans... 0.41% 0.58% 1.16% 1.59% 1.72% LOANS PAST DUE OVER 90 DAYS.................... $ 3,827 $ 3,180 $ 4,139 $ 3,628 $ 3,962 As a % of total loans......................... 0.16% 0.15% 0.21% 0.19% 0.27% ALLOCATION OF LOAN LOSS RESERVE BY LOAN TYPE Commercial, financial, and unallocated portion......................... $ 14,765 $ 16,698 $ 13,899 $ 12,873 $ 10,733 Real estate construction loans................ 220 180 224 209 76 Real estate loans - other..................... 8,036 8,277 9,179 7,411 2,263 Consumer installment loans.................... 14,417 11,329 12,377 10,074 7,218 Total....................................... $ 37,438 $ 36,484 $ 35,679 $ 30,567 $ 20,290
11 MANAGEMENT'S DISCUSSION AND ANALYSIS 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 $9.7 million or 0.41% of total loans at year- end 1994. Over the past three years One Valley has diligently worked to reduce its level of non-performing assets, which increased significantly in 1991 due to an acquisition. The amount of loans contractually past due over 90 days, but which continue to accrue interest, increased in dollars, but remained relatively flat as a percentage of year-end total loans. At December 31, 1994, these loans constituted only 0.16% of year-end loans, virtually unchanged from the 0.15% at December 31, 1993. 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 $9.6 million or 6.7% in 1994 and $10.1 million or 7.6% 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 repossession (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 COMPARATIVE LOAN LOSS INFORMATION TABLE 6 (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31 1994 1993 1992 1991 1990 ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD...... $ 36,484 $ 35,679 $ 30,567 $ 20,290 $18,993 Charge-offs: Commercial, financial, and agricultural loans..... 1,207 2,644 2,756 2,801 2,570 Real estate construction loans.................... 0 0 0 0 0 Real estate loans - other......................... 1,118 1,320 1,525 961 1,589 Installment loans................................. 3,660 3,417 4,280 3,826 4,276 Total charge-offs................................ 5,985 7,381 8,561 7,588 8,435 Recoveries: Commercial, financial, and agricultural loans..... 793 930 821 954 402 Real estate construction loans.................... 0 0 0 0 16 Real estate loans - other......................... 274 373 394 168 146 Installment loans................................. 1,084 1,095 1,069 988 1,284 Total recoveries................................. 2,151 2,398 2,284 2,110 1,848 Net charge-offs..................................... 3,834 4,983 6,277 5,478 6,587 Provision for loan losses........................... 4,788 5,788 11,389 6,671 7,884 Balance of acquired subsidiaries.................... 0 0 0 9,084 0 ALLOWANCE FOR LOAN LOSSES, END OF PERIOD............ $ 37,438 $ 36,484 $ 35,679 $ 30,567 $20,290 Average total loans................................. $2,237,146 $2,063,680 $1,959,943 $ 1,581,829 $1,404,196 Total loans at year-end............................. 2,372,957 2,169,372 1,997,901 1,934,070 1,465,736 AS A PERCENT OF AVERAGE TOTAL LOANS: Net charge-offs................................... 0.17% 0.24% 0.32% 0.35% 0.47% Provision for loan losses......................... 0.21 0.28 0.58 0.42 0.56 Allowance for loan losses......................... 1.67 1.77 1.82 1.93 1.44 AS A PERCENT OF TOTAL LOANS AT YEAR-END: Allowance for loan losses......................... 1.58% 1.68% 1.79% 1.58% 1.38% AS A MULTIPLE OF NET CHARGE-OFFS: Allowance for loan losses......................... 9.76X 7.32X 5.68X 5.58X 3.08X Income before tax and provision for loan losses... 19.02 12.46 10.30 8.00 6.06
12 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 value are charged directly to operations. One Valley had no commitments to provide additional funds on non-accrual loans at December 31, 1994. During 1994, One Valley recognized less than $0.1 million of interest on non-accrual loans, while approximately $0.7 million would have been recognized on these loans had they been current throughout 1994 in accordance with their original terms. In comparison, during 1993, approximately $0.3 million was recognized on non- accrual loans, while approximately $1.9 million would have been recognized in accordance with their original terms. In May 1993, the FASB issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan," which was amended by FASB Statement No. 118 and 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. One Valley will adopt this Statement on January 1, 1995, and it will not have a material effect on One Valley's financial statements. The allowance for loan losses is maintained to absorb probable losses associated with lending activities. Factors considered in determining the adequacy of the allowance 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 credit 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, 1994, the allowance for loan losses was $37.4 million or 1.58% of total year-end loans, which is sufficient to absorb nearly ten times the amount of net charge-offs experienced during 1994. The 1.58% ratio is a decrease from the prior year's 1.68% and a further decline from the 1.79% at the end of 1992. In management's opinion, the allowance for loan losses is adequate to absorb the current estimated risk of loss in the existing portfolio. Table 5 includes a summary of the allowance for loan losses allocated by loan type. Table 6, 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 1994 was $4.8 million, down from the $5.8 million provision in 1993 and down significantly from the $11.4 million provision in 1992. The increased provision in 1992 was in response to growth in the loan portfolio and a continued conservative assessment of $339 million in loans purchased from a thrift operated by Resolution Trust Corporation. Management evaluated the loans conservatively because the loans were originated under the former thrift's credit standards, rather than the stricter One Valley credit standards. While One Valley experienced considerable loan growth during 1994 and 1993, the credit quality of the portfolio has improved significantly, as evidenced by the low level of non-performing assets and the low level of net charge-offs during those years. Thus management was able to lower the provision for loan losses for those years and still maintain a relatively high ratio of the allowance for loan losses to non-performing assets. Net charge-offs in 1994 decreased by $1.1 million or 23.1% from 1993 net charge-offs. This decrease follows a $1.3 million or 20.6% decrease in 1993 from 1992 net charge-offs. Net charge-offs as a percentage of average total loans declined to 0.17%, which compares to 0.24% in 1993 and 0.32% in 1992. All three of these ratios compare favorably to peer group banks across the country. 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 for the near future, 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. NON-PERFORMING ASSET AND LOANS 90 DAYS PAST DUE AS A % OF TOTAL LOANS (Bar graph appears here. The plot points are listed below.) 1989 1990 1991 1992 1993 1994 Non-performing Assets 1.43% 1.72% 1.59% 1.16% 0.58% 0.41% Loans 90 Days Past Due 0.29% 0.27% 0.19% 0.21% 0.15% 0.16% PROVISION FOR LOAN LOSSES AND NET CHARGE-OFFS AS A % OF AVERAGE TOTAL LOANS (Bar graph appears here. The plot points are listed below.) 1989 1990 1991 1992 1993 1994 Net Charge-offs 0.73% 0.47% 0.35% 0.32% 0.24% 0.17% Provision 0.91% 0.56% 0.42% 0.58% 0.28% 0.21% 13 MANAGEMENT'S DISCUSSION AND ANALYSIS INVESTMENT PORTFOLIO AND OTHER EARNING ASSETS Investment securities averaged $1,051.0 million in 1994, a 2.2% decrease from the $1,074.5 million averaged in 1993. This slight decrease follows a 2.4% increase over the $1,049.5 million averaged in 1992. The decrease in the average balance during 1994 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 1993 was due largely to increases in sources of funds and a decline in the average balance of federal funds sold, which are short-term investments with other banks. 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 longer period of time (Table 8). At the time of purchase, management determines whether securities will be classified as available-for-sale or held-to-maturity (held-for-investment in 1993). If classified as held-to-maturity, 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 securities with a wide variety of maturities, the majority of which are short-term. One Valley adopted the provisions of Financial Accounting Standards Board (FASB) Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." for investments held as of or acquired after January 1, 1994. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect of adopting this Statement as of January 1, 1994, was to increase the opening balance of shareholders' equity by $4.8 million (net of $3.2 million in deferred income taxes) to reflect the net unrealized holding gains on securities classified as available-for-sale previously carried at amortized cost. Securities designated as available-for-sale at January 1, 1994, approximated $632 million. During 1994, One Valley sold a portion of the securities classified as available-for-sale as part of its management of interest rate risk, as shown in the Statements of Cash Flows. One Valley does not have any securities classified as trading and it has no plans to establish such classification at the present time. At year-end 1994, approximately 55% of the total investment portfolio was classified as available-for-sale, while 45% was classified as held-to-maturity. Other information regarding investment securities may be found in Table 8, Securities Maturity and Yield 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, declined in the years from 1986 to 1993. However, due to the lower interest rate environment, overall yields on tax-exempt securities have become attractive once again. During 1994, One Valley increased its tax-exempt securities by $41.7 million, or 30.3%, over the level of tax-exempt securities held at December 31, 1993. This increase followed an increase in 1993 of $54.0 million, or 64.6%, over the level held at December 31, 1992. Future investments in tax-exempt securities will generally be made if the related yield is greater than that available with a similar taxable investment. As shown in Table 8, the average maturity period of securities available- for-sale was 2 years while the average maturity period of securities held-to- maturity was 10 years 9 months at the end of 1994. The average maturity of mortgage-backed securities REMAINING MATURITIES OF LOANS TABLE 7 (DOLLARS IN THOUSANDS)
BALANCE PROJECTED MATURITIES* DECEMBER 31 ONE YEAR ONE TO FIVE OVER FIVE 1994 OR LESS YEARS YEARS Commercial, financial, and agricultural loans... $373,583 $157,603 $125,598 $ 90,382 Real estate construction loans.................. 42,746 27,317 5,923 9,506 Commercial real estate loans.................... 349,166 53,669 195,808 99,689 Loans with: Floating rates................................ $489,266 $155,820 $185,286 $148,160 Predetermined rates........................... 276,229 82,769 142,043 51,417
*BASED ON SCHEDULED OR APPROXIMATE REPAYMENTS. 14 SECURITIES MATURITY AND YIELD ANALYSIS TABLE 8 (DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1994 AVERAGE TAXABLE HELD-TO-MATURITY BOOK MATURITY EQUIVALENT VALUE (Years/ Months) YIELD* U. S. TREASURY SECURITIES After one but within five years........................ $ 25,576 7.12% After five but within ten years........................ 1,055 8.36 Over ten years......................................... 21,275 7.06 Total U.S. Treasury Securities....................... 47,906 7/3 7.12 U. S. GOVERNMENT AGENCIES SECURITIES After one but within five years........................ 21,011 4.87 After five but within ten years........................ 56,525 6.83 Over ten years......................................... 1,000 7.49 Total U.S. Government Agencies Securities............ 78,536 5/2 6.31 STATES AND POLITICAL SUBDIVISIONS SECURITIES Within one year........................................ 7,667 11.43 After one but within five years........................ 20,591 10.81 After five but within ten years........................ 20,181 8.08 Over ten years......................................... 130,907 8.06 Total States and Political Subdivisions Securities......................................... 179,346 15/2 8.52 MORTGAGE-BACKED SECURITIES** Within one year........................................ 458 7.01 After one but within five years........................ 6,414 6.75 After five but within ten years........................ 19,892 7.41 Over ten years......................................... 112,167 7.38 Total Mortgage-Backed Securities..................... 138,931 10/10 7.35 OTHER SECURITIES........................................ 439 TOTAL SECURITIES HELD-TO-MATURITY....................... $445,158 10/9 7.61%
AS OF DECEMBER 31, 1994 AVERAGE TAXABLE AVAILABLE-FOR-SALE FAIR MATURITY EQUIVALENT VALUE (Years/ Months) YIELD* U. S. TREASURY SECURITIES Within one year............................... $205,846 4.26% After one but within five years............... 210,276 5.72 After five but within ten years............... 975 6.29 Total U.S. Treasury Securities.............. 417,097 1/2 5.00 U. S. GOVERNMENT AGENCIES SECURITIES Within one year............................... 63,021 5.55 After one but within five years............... 12,012 6.85 Total U.S. Government Agencies Securities... 75,033 0/7 5.76 MORTGAGE-BACKED SECURITIES** After one but within five years............... 1,667 6.98 After five but within ten years............... 9,600 6.19 Over ten years................................ 23,575 6.26 Total Mortgage-Backed Securities............ 34,842 14/5 6.28 OTHER SECURITIES............................... 14,229 TOTAL SECURITIES AVAILABLE-FOR-SALE............ $541,201 2/0 5.06%
* FULLY TAX-EQUIVALENT USING THE RATE OF 35%. ** MATURITIES FOR MORTGAGE-BACKED SECURITIES ARE BASED ON CONTRACTUAL REPAYMENTS. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS included in the table was based on the contractual maturity. 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 and other short-term investments has declined over the past three years, averaging $27.4 million in 1994, a decrease from the $100.3 million averaged during 1993, and a further decrease from the $119.7 million averaged during 1992. 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. FUNDING SOURCES Over the past three years, declines in market interest rates have forced banks to reduce their rates paid on interest bearing deposits. In 1994, the average rate paid on interest bearing liabilities was 3.41%, down from the 3.63% average rate paid in 1993, and down further still from 4.44% paid in 1992. 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. One Valley has offered new deposit products as well as periodic special rate products to attract additional deposits. One Valley's deposits, on average, increased by 1.2% or $35.4 million in 1994. This increase follows a 2.3% increase in 1993. During 1994, non-interest bearing deposits increased on average by 3.9% over 1993, while interest bearing deposits increased by only 0.8%. This trend is reflective of an increased customer base in the use of checking and other non- interest bearing deposit products, and the stiff competition for interest bearing investments in a low interest rate environment. Short-term borrowings increased, on average, by $27.8 million or 13.0% from 1993, following a 3.2% decrease in 1993 from 1992. Pass-through federal funds purchased from correspondent banks increased, on average, by $5.8 million or 30.0% in 1994. This increase follows a 0.7% increase in 1993. Fluctuations in federal funds purchased are considered normal and are generally influenced by market interest rates and the availability of funds. Repurchase agreements and other short-term borrowings increased, on average, by $22.1 million or 11.3% in 1994, primarily to fund loan growth. This increase follows a 3.6% decrease in 1993. Long-term borrowings, on average, decreased by $13.2 million, or 36.5%, in 1994, following a $10.4 million increase in 1993. As a result, One Valley now has $19.5 million of long-term debt, primarily Federal Home Loan Bank (FHLB) borrowings, with repayment schedules from one to nine years. Other information regarding short- and long-term borrowings is contained in Notes H and I 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. One Valley has established an Asset/Liability Management Committee for the purpose of monitoring and managing interest rate risk. Interest rate risk is the earnings variation that could occur due to changes in market interest rates. AVERAGE DEPOSITS Dollars in millions (Stacked bar graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 Demand Deposits 262 273 296 373 397 412 Time Deposits 1084 1148 1265 1,401 1,247 1,453 Savings - Regular 463 450 511 692 800 614 Savings - Checking 210 230 271 363 451 452 MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT IN AMOUNTS OF $100,000 OR MORE TABLE 9 (DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1994 AS OF DECEMBER 31, 1993 AMOUNT PERCENT AMOUNT PERCENT Three months or less........ $ 83,923 44.90% $ 65,875 38.36% Three through six months.... 28,531 15.26 32,655 19.00 Six through twelve months... 32,919 17.61 28,556 16.63 Over twelve months.......... 41,530 22.22 44,662 26.00 Total...................... $186,903 100.00% $171,748 100.00%
16 One commonly used measure of interest rate risk is the gap report. A gap report identifies the ratio of earning assets to interest bearing liabilities that will mature or reprice within a given time period. A sensitivity ratio greater than 1.00 (positive gap) indicates that more earning assets will be subject to interest rate repricing during a given period than interest bearing liabilities 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. Table 10, Comparative Rate Sensitivity Summary shows One Valley's gap position as of December 31, 1994. The information presented includes various assumptions and estimates by management regarding maturity and repayment patterns. As shown in Table 10, One Valley's cumulative interest sensitivity ratio in the first six-month time frame is 1.03, a positive gap. As such, approximately $37.8 million more earning assets than interest bearing liabilities will be subject to interest rate repricing in the next six months. The information presented in the gap report (Table 10) represents a static view of One Valley. One Valley uses computer generated scenarios to simulate the future as a primary tool for analyzing interest rate risk and modeling business strategies in a dynamic framework. The simulations begin with the gap report information and use various assumptions, such as expected changes in the interest rate environment; the shape of the yield curve; pricing strategies for loans and deposits; the growth, volume and mix of interest sensitive assets and liabilities; and potential hedging strategies. These simulations assist management in minimizing risk and maintaining a conservative sensitivity position. One Valley's investments have been limited to traditional investment securities and the company does not currently have any investments in derivative instruments. However, One Valley continually evaluates all investment alternatives in its management of interest rate risk and asset/liability structure. COMPARATIVE RATE SENSITIVITY SUMMARY TABLE 10 (DOLLARS IN THOUSANDS)
DECEMBER 31, 1994 0-3 MONTHS 3-6 MONTHS 6-12 MONTHS OVER 1 YEAR TOTAL Earning Assets Loans.................................. $ 924,944 $168,432 $300,979 $ 978,602 $2,372,957 Investments............................ 100,979 102,101 110,810 676,766 990,656 Other earning assets................... 24,875 0 0 0 24,875 Total earning assets................. 1,050,798 270,533 411,789 1,655,368 3,388,488 Interest Bearing Liabilities Interest bearing deposits.............. 710,419 189,293 218,409 1,429,846 2,547,967 Short-term borrowings.................. 368,458 6,881 0 0 375,339 Long-term borrowings................... 5,505 3,005 3,029 7,911 19,450 Total interest bearing liabilities... 1,084,382 199,179 221,438 1,437,757 2,942,756 Interest sensitivity gap for period.... (33,584) 71,354 190,351 217,611 445,732 Cumulative interest sensitivity gap.... (33,584) 37,770 228,121 445,732 Cumulative rate sensitivity ratio...... 0.97 1.03 1.15 1.15 DECEMBER 31, 1993 Earning Assets Loans.................................. $ 793,684 $126,920 $239,693 $1,009,075 $2,169,372 Investments............................ 135,394 58,189 244,018 630,463 1,068,064 Other earning assets................... 31,145 0 0 0 31,145 Total earning assets................. 960,223 185,109 483,711 1,639,538 3,268,581 Interest Bearing Liabilities Interest bearing deposits.............. 599,075 239,420 252,436 1,433,487 2,524,418 Short-term borrowings.................. 194,497 6,374 13,091 4,458 218,420 Long-term borrowings................... 2,160 2,128 4,256 14,244 22,788 Total interest bearing liabilities... 795,732 247,922 269,783 1,452,189 2,765,626 Interest sensitivity gap for period.... 164,491 (62,813) 213,928 187,349 502,955 Cumulative interest sensitivity gap.... 164,491 101,678 315,606 502,955 Cumulative rate sensitivity ratio...... 1.21 1.10 1.24 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. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS Liquidity is the ability to satisfy demands for deposit withdrawals, lending commitments, 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. One Valley generated $76.3 million of cash from operations in 1994, which compares to $64.4 million in 1993 and $49.1 million in 1992. Additional cash of $120.3 million was generated through net financing activities in 1994, which compares to $48.5 million in 1993 and $67.6 million in 1992. These proceeds along with proceeds from the sale and maturity of securities were used to fund loans and purchase securities during the year. Net cash used in investing activities totaled $168.9 million in 1994, which compares to $224.0 million in 1993 and $71.5 million in 1992. Details on the sources and uses of cash can be found in the Statements of Cash Flows in the consolidated financial statements. CAPITAL RESOURCES One Valley's average equity-to-asset ratio increased to 8.92% during 1994, up from 8.50% during 1993 and 7.97% in 1992. The increases primarily resulted from the record earnings performances of One Valley. At year-end 1994, One Valley's primary capital ratio was 9.68% compared to 9.62% at year-end 1993. The Federal Reserve's risk-based capital guidelines and leverage ratio measure the capital adequacy of banking institutions. The risk-based capital guidelines weight balance 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 1994, One Valley's risk adjusted capital-to-assets ratio was 15.5% compared to 14.7% at December 31, 1993. The increase in the ratio is due to an increase in earnings performance and a decrease in securities loaned, an off-balance sheet factor, at the lead bank when compared to the prior year. 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, 1994 was 8.8% compared to 8.5% at December 31, 1993. 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 M to the consolidated financial statements. In April 1994, the Board of Directors authorized management to repurchase up to 400,000 shares of One Valley Bancorp common stock in the open market. During 1994, 263,500 shares were repurchased under this program. At December 31, 1994, One Valley held 533,500 shares in its treasury. Any additional purchases will depend upon future market conditions. NET INTEREST MARGIN Percent of earning assets Fully taxable equivalent (Line graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 Yield on Earning Assets 10.70 10.52 9.76 8.64 7.88 7.87 Cost of All Funds 6.04 5.90 5.16 3.87 3.11 2.89 Net Interest Margin 4.66 4.62 4.60 4.77 4.77 4.98 18 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 $163.2 million in 1994, up 7.0% over the 1993 level, following a 3.4% increase in 1993 over 1992. 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 1994 and 1993, 34% for 1992). The increase in net interest income in 1994 is largely due to the increase in the volume of earning assets, primarily loans. As shown in Table 11, Rate Volume Analysis, increases in the volume of earning assets in both 1994 and 1993 have provided a significant increase in net interest income. In 1994, the increase in the volume of earning assets increased interest income by $13.7 million. This increase was partially offset by declines in interest yields on earning assets due to declines in the overall interest rate environment on average for the entire year. As a result, total interest income increased by $5.7 million in 1994 over 1993. Similarly, increased volume of interest bearing liabilities boosted interest expense by $0.7 million, but the lower cost of interest bearing liabilities resulted in an overall decline in total interest expense of $4.9 million. The increase in total interest income coupled with the decline in overall interest expense resulted in a $10.6 million increase in fully tax-equivalent net interest income in 1994 over 1993. Similar trends were experienced in 1993 over 1992. The decline in interest expense in 1993 was greater than the decline in total interest income and, therefore, net interest income increased in 1993 over 1992. During both years, the increase in loan volume has been the most significant factor contributing to increased net interest income. In 1994, as net interest income increased due to increased investment in higher yielding loans, the net interest margin percentage on a fully tax- equivalent basis also increased. The relatively low market interest rates in the earlier months of 1994 kept the overall annual cost of funds down for the year. The combination of these two factors resulted in a 4.98% net interest margin in 1994, an increase over the 4.77% earned in 1993 and 1992. In 1993, during the time of declining interest rates, the yield on the total loan portfolio did not decline as rapidly as market rates paid for deposits and other funding sources. Fixed rate loans helped maintain the relatively high yield in the loan RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE TABLE 11 (DOLLARS IN THOUSANDS)
1994 VS 1993 1993 VS 1992 INCREASE (DECREASE) INCREASE (DECREASE) IN NET INTEREST INCOME IN NET INTEREST INCOME VOLUME RATE TOTAL VOLUME RATE TOTAL EARNING ASSETS Loans: Taxable................................ $ 14,730 $ (5,661) $ 9,069 $ 9,633 $ (16,343) $ (6,710) Tax-exempt............................. 344 19 363 83 39 122 Total loans.......................... 15,074 (5,642) 9,432 9,716 (16,304) (6,588) Investment Securities: Taxable................................ (5,561) (1,426) (6,987) 509 (9,107) (8,598) Tax-exempt............................. 6,786 (1,435) 5,351 1,782 (695) 1,087 Total investment securities.......... 1,225 (2,861) (1,636) 2,291 (9,802) (7,511) Federal funds sold & other.............. (2,644) 577 (2,067) (645) (541) (1,186) Total earning assets................. 13,655 (7,926) 5,729 11,362 (26,647) (15,285) INTEREST BEARING LIABILITIES Time and savings deposits............... 659 (6,245) (5,586) 346 (19,252) (18,906) Short-term borrowings................... 878 1,343 2,221 (257) (1,676) (1,933) Long-term borrowings.................... (795) (792) (1,524) 794 (208) 586 Total interest bearing liabilities... 742 (5,631) (4,889) 883 (21,136) (20,253) NET INTEREST EARNINGS..................... $ 12,913 $ (2,295) $ 10,618 $10,479 $ (5,511) $ 4,968
* FULLY TAXABLE EQUIVALENT USING THE RATE OF 35% FOR 1994 AND 1993 AND 34% FOR 1992. NOTE - CHANGES TO RATE/VOLUME ARE ALLOCATED TO BOTH RATE AND VOLUME ON A PROPORTIONATE DOLLAR BASIS. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS portfolio. 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." 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. However, as shown in Table 12, non-interest income decreased by $2.4 million or 6.1% in 1994 compared to 1993. The decrease is primarily due to a decline in real estate loan processing and servicing fees. As mortgage loan refinancings and sales in the secondary market have significantly declined from the level experienced in 1993 and 1992, One Valley's processing and servicing fees have also declined. The decrease in non-interest income in 1994 follows a 7.7% increase in 1993 over 1992. In 1994, service charges on deposit accounts declined slightly while credit card fees increased significantly due to an increase in the number of customers. Trust income increased in 1994 to $7.9 million, a $0.6 million or 8.5% increase over 1993. This increase follows a 20.4% increase in 1993 over 1992. Trust revenues are increasing primarily due to new business over the past several years. In 1994, One Valley realized $867,000 in losses on securities sales. These securities were sold as part of a plan to reinvest the proceeds in higher yielding investments. 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. In 1994, efficiencies were achieved in combining the operations of One Valley and Mountaineer Bankshares. One Valley's 1994 net overhead ratio, or non-interest expense less non-interest income excluding securities transactions to average earning assets, was 2.52%, a decrease from the 2.68% realized in 1993, and down from the 2.54% ratio realized in 1992. For the year 1994, net overhead was $82.7 million, a decrease of 3.8% from the 1993 net overhead of $86.0 million. By comparison, net overhead totaled $78.8 million in 1992. A lower net overhead ratio means more of the net interest margin flows through as net income. Over the past five years, net overhead has grown by a compound rate of 7.18% whereas average earning assets have grown by 8.51%. Total non-interest expense decreased by $4.7 million, or 3.7% from 1993. This compares to an 8.6% increase in 1993 versus 1992. Total staff costs rose by 2.5% in 1994, compared to a 10.9% increase in 1993. Higher expenses in 1993 due to severance packages for employees of One Valley's data processing subsidiary resulted in a lower percentage increase in 1994. These severance packages and additional expense associated with the adoption of FASB Statement 106 account for the growth in staff expenses in 1993. Additional information concerning the adoption of FASB Statement 106 is discussed in Note K to the consolidated financial statements. In 1993, the FASB issued Statement No. 112, "Employers' Accounting for Postemployment Benefits," which was adopted in 1994 by One Valley. This Statement requires employers to recognize the obligation to provide postemployment benefits to employees if the obligation is attributable to services already rendered, the 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 did not have a material impact on One Valley's financial statements. Advertising expense decreased by 15.0% in 1994 compared to 1993, primarily due to operating efficiencies after the merger of Mountaineer Bankshares. Advertising expense decreased by 6.5% in 1993, due to increased advertising in 1992 associated with the integration of a acquisition. FDIC insurance increased by 1.9% in 1994 and 6.4% in 1993 due to deposit growth. Net occupancy expense declined slightly in 1994, down 3.1% from 1993, which remained virtually unchanged when compared to 1992. Equipment expenses declined by 20.1% or $2.1 million in 1994, primarily due to realized savings from ceasing internal data processing operations. Equipment expenses increased by 1.0% in 1993 versus 1992. Outside data processing costs increased by 2.8% in 1994 which compares to a 94.6% NET OVERHEAD RATIO Net overhead as a % of average earning assets (Line graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 2.68% 2.61% 2.65% 2.54% 2.68% 2.52% EFFICIENCY RATIO Non-interest expense as a % of total adjusted revenues* (Line graph appears here. Plot points are listed below.) 1989 1990 1991 1992 1993 1994 63.60% 63.43% 65.13% 62.78% 65.44% 60.14% *Tax-equivalent net interest income plus other income 20 increase in 1993 compared to 1992. The increase in 1993 is largely due to costs related to the conversion of One Valley's in-house data processing system to outside service bureaus. Taxes not on income increased by 8.0% in 1994, due to increases in gross receipts and equity, which are taxed at the local level. The 0.9% increase in 1993 was primarily due to increases in equity based state and county taxes. Supplies and postage expense declined by 3.0% in 1994, primarily due to operational synergies realized after the Mountaineer Bankshares merger. This decrease follows a 5.2% increase in 1993 over 1992 due to the data processing conversion. Other expenses decreased by 15.1% in 1994, partially due to expenses in 1993 related to the merger of One Valley and Mountaineer and operating synergies realized after the merger. Other expenses increased 4.3% in 1993, primarily due to expenses associated with the merger of One Valley and Mountaineer. An analysis of the allowance for loan losses and related provision for loan losses is included in the Loan Portfolio section of the Balance Sheet Summary of this report. APPLICABLE INCOME TAXES Income tax expense in 1994 was $21.9 million compared to $18.3 million in 1993 and $16.6 million in 1992. The increase in 1994 is primarily due to increases in pretax earnings, which was partially offset by an increase in tax- exempt income. With the purchase of additional tax-exempt investments in 1994 and 1993, discussed above, tax-exempt income increased in 1994. One Valley's effective tax rate was 32.2% in 1994, down from 32.6% in 1993 and up from 31.2% in 1992. Additional information regarding income taxes is contained in Note J to the consolidated financial statements. NON-INTEREST INCOME AND EXPENSE TABLE 12 (DOLLARS IN THOUSANDS)
INCREASE (DECREASE) OVER PRIOR YEAR 1994 1993 1992 1994 1993 AMOUNT PERCENT AMOUNT PERCENT SERVICE CHARGES AND OTHER OPERATING INCOME Trust income................................... $ 7,892 $7,272 $ 6,041 $ 620 8.53 $ 1,231 20.38 Credit card fees............................... 3,254 2,749 2,055 505 18.37 694 33.77 Service charges on deposit accounts............ 11,441 11,963 11,281 (522) (4.36) 682 6.05 Insurance service fees......................... 840 819 990 21 2.56 (171) (17.27) Real estate loan processing & servicing fees... 5,176 8,080 8,453 (2,904) (35.94) (373) (4.41) Checkbook sales................................ 2,798 2,957 3,115 (159) (5.38) (158) (5.07) Securities transactions........................ (867) 113 (35) (980) (867.26) 148 (422.86) Miscellaneous.................................. 7,290 6,309 5,468 981 15.55 841 15.38 TOTAL NON-INTEREST INCOME................... $ 37,824 $40,262 $ 37,368 $ (2,438) (6.06) $ 2,894 7.74 STAFF AND OTHER OPERATING EXPENSES Salaries & wages............................... $ 49,149 $48,906 $ 45,436 $ 243 0.50 $ 3,470 7.64 Employee benefits.............................. 13,893 12,605 10,021 1,288 10.22 2,584 25.79 Total staff expenses.......................... 63,042 61,511 55,457 1,531 2.49 6,054 10.92 Other Operating Expenses Advertising................................... 2,293 2,697 2,884 (404) (14.98) (187) (6.48) FDIC insurance................................ 6,642 6,519 6,127 123 1.89 392 6.40 Occupancy, net................................ 6,014 6,206 6,199 (192) (3.09) 7 0.11 Equipment..................................... 8,468 10,604 10,503 (2,136) (20.14) 101 0.96 Outside data processing....................... 4,705 4,575 2,351 130 2.84 2,224 94.60 Taxes not on income........................... 2,542 2,354 2,334 188 7.99 20 0.86 Supplies and postage.......................... 6,588 6,793 6,456 (205) (3.02) 337 5.22 All other..................................... 21,108 24,848 23,829 (3,740) (15.05) 1,019 4.28 Total other operating expenses................ 58,360 64,596 60,683 (6,236) (9.65) 3,913 6.45 TOTAL NON-INTEREST EXPENSE.................. $ 121,402 $126,107 $116,140 $ (4,705) (3.73) $ 9,967 8.58
21 MANAGEMENT'S DISCUSSION AND ANALYSIS 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. Regardless 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. SUMMARY RESULTS OF OPERATIONS FOURTH QUARTER 1994 Net income for the three months ended December 31, 1994 was $11.5 million, an increase of 50.0% over the $7.7 million earned during the fourth quarter of 1993. The lower earnings in the fourth quarter of 1993 was the result of increased expenses related to the pending merger with Mountaineer Bankshares and expenses related to the conversion of the data processing system discussed above. On a per share basis, 1994 fourth quarter earnings were $0.68 compared to $0.45 in 1993, an increase of 51.1%. Net interest income increased by 4.4% when compared to the same three months of 1993. Non-interest income, excluding securities gains (losses), decreased by 5.2%, primarily due to declines in real estate loan processing and servicing fees. The decline in non-interest income was more that offset by a 12.6% decrease in non-interest expense. Fourth quarter 1993 non-interest expenses include costs associated with the completed data processing conversion and the Mountaineer merger. The provision for loan losses declined by 4.4% when compared to the fourth quarter of 1993. Additional quarterly financial data is provided in Note Q to the consolidated financial statements. 22 REPORT OF ERNST AND YOUNG LLP, 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 (One Valley) as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of Mountaineer Bankshares of W.VA., Inc. and subsidiaries (Mountaineer) which statements reflect total assets of $738,517 as of December 31, 1993 and total interest income of $52,645 and $55,403 for the years ended December 31, 1993 and 1992. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for Mountaineer, is based solely on the report of the other auditors. 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, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. One Valley adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994 (See Note D). (Signature of Ernst & Young LLP) Charleston, West Virginia January 19, 1995 23 CONSOLIDATED BALANCE SHEETS ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND SUBSIDIARIES (Dollars in thousands)
DECEMBER 31 1994 1993 ASSETS Cash and due from banks-Note B............................ $ 178,900 $ 141,195 Interest-bearing deposits in other banks.................. 4,297 8,028 Federal funds sold........................................ 24,875 31,145 Cash and cash equivalents................................ 208,072 180,368 Securities-Note D Available-for-Sale, at fair value........................ 541,201 Held-to-Maturity (fair value approximated $422,381 at December 31, 1994)..................................... 445,158 Held-for-Investment (fair value approximated $ 1,081,742 at December 31, 1993)..................................... 1,060,036 Loans, net-Notes E and F.................................. 2,335,519 2,132,888 Premises and equipment-Note G............................. 82,853 80,233 Accrued interest receivable............................... 28,404 26,900 Other assets.............................................. 32,034 32,451 TOTAL ASSETS.......................................... $3,673,241 $3,512,876 LIABILITIES Deposits: Non-interest bearing..................................... $ 378,512 $ 412,317 Interest bearing......................................... 2,547,967 2,524,418 Total deposits......................................... 2,926,479 2,936,735 Short-term borrowings-Note H: Federal funds purchased.................................. 53,145 14,012 Securities sold under agreements to repurchase and other.................................................. 322,194 204,408 Total short-term borrowings............................ 375,339 218,420 Long-term borrowings-Note I............................... 19,450 22,788 Other liabilities......................................... 30,106 29,749 TOTAL LIABILITIES..................................... 3,351,374 3,207,692 SHAREHOLDERS' EQUITY Preferred Stock-$10 par value; authorized 1,000,000 shares; none issued Common Stock-$10 par value; authorized 40,000,000 shares; 17,538,368 and 17,516,795 shares outstanding at December 31, 1994 and 1993, respectively, including 533,500 and 270,000 shares in treasury at December 31, 1994 and 1993......... 175,384 175,168 Capital surplus........................................... 25,954 25,830 Retained earnings......................................... 137,437 107,315 Unrealized losses on available-for-sale securities, net of deferred income taxes............................. (6,535) Treasury stock............................................ (10,373) (3,129) TOTAL SHAREHOLDERS' EQUITY............................ 321,867 305,184 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $3,673,241 $3,512,876
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 24 CONSOLIDATED STATEMENTS OF INCOME ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data)
YEAR ENDED DECEMBER 31 1994 1993 1992 INTEREST INCOME Interest and fees on loans: Taxable............................................ $189,040 $179,971 $186,681 Tax-exempt......................................... 2,352 2,122 2,068 Total............................................ 191,392 182,093 188,749 Interest and dividends on securities: Taxable............................................ 48,881 55,868 64,466 Tax-exempt......................................... 10,073 6,634 5,979 Total............................................ 58,954 62,502 70,445 Other............................................... 1,037 3,104 4,290 Total interest income............................ 251,383 247,699 263,484 INTEREST EXPENSE Deposits............................................ 85,221 90,807 109,713 Short-term borrowings-Note H........................ 8,491 6,270 8,203 Long-term borrowings-Note I......................... 1,185 2,709 2,123 Total interest expense........................... 94,897 99,786 120,039 NET INTEREST INCOME................................... 156,486 147,913 143,445 PROVISION FOR LOAN LOSSES-Note F...................... 4,788 5,788 11,389 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES... 151,698 142,125 132,056 OTHER INCOME Trust Department.................................... 7,892 7,272 6,041 Service charges on deposit accounts................. 11,441 11,963 11,281 Real estate loan processing and servicing fees...... 5,176 8,080 8,453 Other service charges and fees...................... 4,745 4,083 4,236 Securities (losses) gains........................... (867) 113 (35) Other-Note O........................................ 9,437 8,751 7,392 Total other income............................... 37,824 40,262 37,368 OTHER EXPENSES Salaries and employee benefits-Note K............... 63,042 61,511 55,457 Net occupancy-Note G................................ 6,014 6,206 6,199 Equipment........................................... 8,468 10,604 10,503 Federal deposit insurance assessments............... 6,642 6,519 6,127 Outside data processing............................. 4,705 4,575 2,351 Other-Note O........................................ 32,531 36,692 35,503 Total other expenses............................. 121,402 126,107 116,140 INCOME BEFORE INCOME TAXES............................ 68,120 56,280 53,284 APPLICABLE INCOME TAXES-Note J........................ 21,909 18,326 16,646 NET INCOME............................................ $ 46,211 $ 37,954 $ 36,638 NET INCOME PER COMMON SHARE........................... $ 2.70 $ 2.20 $ 2.13 Average common shares outstanding..................... 17,132 17,237 17,211
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 25 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data)
UNREALIZED NET GAIN UNREALIZED (LOSS) ON LOSS ON AVAILABLE MARKETABLE COMMON CAPITAL RETAINED TREASURY FOR SALE EQUITY STOCK SURPLUS EARNINGS STOCK SECURITIES SECURITIES BALANCES AT JANUARY 1, 1992............................ $116,076 $ 24,933 $116,555 $ (3,129) $ 0 $ (239) Net income............................................. 36,638 Acquisition of treasury stock by Mountaineer........... (41) Stock options exercised (50,423 shares)-Note K......... 505 472 Cash dividends on One Valley shares ($.70 per share)... (8,968) Cash dividends on Mountaineer shares................... (2,483) Three-for-two stock split in the form of a 50% stock dividend................................... 36,453 (12) (36,461) Six-for-five stock split in the form of a 20% stock dividend................................... 21,901 (21,901) Change in net unrealized loss on marketable equity securities.................................... (239) BALANCES AT DECEMBER 31, 1992.......................... 174,935 25,352 83,380 (3,129) 0 0 Net income............................................. 37,954 Sale of treasury stock by Mountaineer.................. 420 Stock options exercised (24,280 shares) and adjustment for fractional shares-Note K.............. 233 58 Cash dividends on One Valley shares ($.84 per share)... (10,826) Cash dividends on Mountaineer shares................... (3,193) BALANCES AT DECEMBER 31, 1993.......................... 175,168 25,830 107,315 (3,129) 0 0 Adjustment at beginning of the year for change in accounting method, net of deferred income taxes of ($3,177)-Note D............................. 4,765 Change in unrealized gains and losses, net of deferred income taxes of $7,533...................... (11,300) Net income............................................. 46,211 Purchase of treasury stock (263,500 shares)............ (7,244) Stock options exercised (21,843 shares) and adjustment for fractional shares-Note K.............. 216 124 Cash dividends on One Valley shares ($.94 per share)... (16,089) BALANCES AT DECEMBER 31, 1994.......................... $175,384 $ 25,954 $137,437 $ (10,373) $ (6,535) $ 0
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 26 CONSOLIDATED STATEMENTS OF CASH FLOWS ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND SUBSIDIARIES (Dollars in thousands)
YEAR ENDED DECEMBER 31 1994 1993 1992 OPERATING ACTIVITIES Net income................................................. $ 46,211 $ 37,954 $ 36,638 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses............................... 4,788 5,788 11,389 Depreciation............................................ 7,633 7,492 8,104 Amortization, net of accretion.......................... 2,776 7,390 7,828 Deferred income taxes (benefit)......................... (107) (2,142) (2,018) Net losses (gains) from sales of assets................. 585 (544) (593) Loans originated for sale............................... (50,806) (163,800) (218,466) Proceeds from loans sold................................ 66,067 170,220 207,871 Net change in accrued interest receivable............... (1,504) 1,844 2,659 Net change in accrued interest payable.................. 1,497 (2,978) (70) Net change in other assets and other liabilities........................................... (852) 3,141 (4,239) Net cash provided by operating activities............. 76,288 64,365 49,103 INVESTING ACTIVITIES Proceeds from sales of available-for-sale securities....... 138,922 Proceeds from maturities of available-for-sale securities............................................... 206,013 Purchases of available-for-sale securities................. (256,556) Proceeds from maturities of held-to-maturity securities............................................... 61,742 Purchases of held-to-maturity securities................... (93,169) Proceeds from sale of marketable equity securities......... 35,572 Proceeds from sales of securities held-for-investment...... 35,604 27,326 Proceeds from maturities of securities held-for- investment............................................... 504,582 611,284 Purchase of securities held-for-investment................. (581,210) (665,703) Sale of branch, net of deposits transferred and gain on sale..................................................... (8,489) Net increase in loans...................................... (215,615) (175,424) (62,691) Purchases of premises and equipment........................ (10,253) (7,524) (8,797) Net cash used in investing activities................. (168,916) (223,972) (71,498) FINANCING ACTIVITIES Net change in deposits..................................... (10,256) 55,123 64,258 Net change in federal funds purchased...................... 39,133 (3,706) 4,607 Net change in other short-term borrowings.................. 117,786 17,850 (4,783) Repayment of long-term borrowings.......................... (18,037) (19,586) (4,821) Proceeds from long-term borrowings......................... 14,699 12,156 18,900 Proceeds from issuance of common stock..................... 340 291 957 Purchase of treasury stock................................. (7,244) Sales (purchases) of treasury stock by Mountaineer......... 420 (41) Cash dividends............................................. (16,089) (14,019) (11,451) Net cash provided by financing activities............. 120,332 48,529 67,626 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 27,704 (111,078) 45,231 Cash and cash equivalents at beginning of year.............. 180,368 291,446 246,215 CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 208,072 $ 180,368 $ 291,446
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND SUBSIDIARIES DECEMBER 31, 1994 (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 intercompany 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. SECURITIES Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when One Valley has the positive intent and ability to hold the securities to maturity. Held-to-maturity (held-for-investment in 1993) securities are stated at amortized cost. Debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are stated at fair value with the unrealized gains and losses, net of deferred income taxes, reported in a separate component of shareholders' equity. Unrealized gains and losses represent the difference between the estimated fair value and amortized cost of available-for-sale securities. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income. The cost of securities sold is based on the specific identification method. 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 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 One Valley's stock option plans 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, 1994, was approximately $26,900. MERGER AND ACQUISITIONS NOTE C In January 1994, One Valley acquired all of the outstanding common stock of Mountaineer in exchange for 4,350,000 shares of One Valley common stock. This combination has been accounted for as a pooling of interests. The pooling of interests method requires the combining of the financial information of the merging companies as though they had always been combined. Following is an analysis presenting the results of operations for 1993 and 1992 of the separate companies.
1993 1992 Net interest income: One Valley................ $116,912 $113,670 Mountaineer............... 31,001 29,775 Consolidated.............. $147,913 $143,445 Net income: One Valley................ $ 32,469 $ 29,477 Mountaineer............... 5,485 7,161 Consolidated.............. $ 37,954 $ 36,638 Net income per common share: One Valley................ $ 2.52 $ 2.29 Mountaineer............... 1.89 2.48 Consolidated.............. $ 2.20 $ 2.13
One Valley has acquired several financial institutions 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 $1,300 and $1,800 at December 31, 1994 and 1993. Deposit intangible amortization approximated $500 in 1994, $800 in 1993, and $900 in 1992. 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 $4,000 and $4,300 at December 31, 1994 and 1993. Goodwill amortization approximated $300 in 1994, 1993, and 1992. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) SECURITIES NOTE D The following is a summary of available-for-sale and held-to-maturity securities as of December 31, 1994:
Available-for-Sale Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Treasury securities and obligations of U.S. government agencies and corporations... $ 501,001 $ 409 $ (9,280) $ 492,130 Mortgage-backed securities.................... 36,881 195 (2,234) 34,842 Other securities.............................. 14,210 19 14,229 Total securities............................ $ 552,092 $ 623 $ (11,514) $ 541,201
Held-to-Maturity Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Treasury securities and obligations of U.S. government agencies and corporations........ $ 126,442 $ 206 $ (2,883) $ 123,765 Obligations of states and political subdivisions... 179,346 1,348 (14,781) 165,913 Mortgage-backed securities......................... 138,931 656 (7,315) 132,272 Other securities................................... 439 10 (18) 431 Total securities................................. $ 445,158 $ 2,220 $ (24,997) $ 422,381
During the year ended December 31, 1994, gross realized gains and losses on available-for-sale securities approximated $285 and $1,167. The following is a summary of securities held-for-investment as of December 31, 1993 and 1992:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value December 31, 1993 U.S. Treasury securities and obligations of U.S. government agencies and corporations........ $ 709,229 $ 12,330 $ (526) $ 721,033 Obligations of states and political subdivisions... 137,654 5,864 (650) 142,868 Mortgage-backed securities......................... 197,444 5,104 (731) 201,817 Other securities................................... 15,709 319 (4) 16,024 Total securities................................. $1,060,036 $ 23,617 $ (1,911) $1,081,742 December 31, 1992 U.S. Treasury securities and obligations of U.S. government agencies and corporations........ $ 755,737 $ 13,590 $ (354) $ 768,973 Obligations of states and political subdivisions... 83,653 4,402 (115) 87,940 Mortgage backed-securities......................... 171,346 5,182 (410) 176,118 Other securities................................... 18,539 200 (8) 18,731 Total securities................................. $1,029,275 $ 23,374 $ (887) $1,051,762
30 SECURITIES-CONTINUED NOTE D 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." One Valley adopted the provisions of the new standard for investments held as of or acquired after January 1, 1994. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect of adopting this Statement as of January 1, 1994, was to increase the opening balance of shareholders' equity by $4,765 (net of $3,177 in deferred income taxes) to reflect the net unrealized holding gains on securities classified as available-for-sale previously carried at amortized cost. Securities designated as available-for-sale at January 1, 1994, approximated $630,000. The amortized cost and estimated fair value of debt securities at December 31, 1994, 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 Available-For-Sale Due in one year or less.................. $ 270,719 $ 268,867 Due after one year through five years.... 229,271 222,288 Due after five years through ten years... 1,011 975 501,001 492,130 Mortgage-backed securities............... 36,881 34,842 Other.................................... 14,210 14,229 Total securities....................... $ 552,092 $ 541,201 Estimated Amortized Fair Cost Value Held-to-Maturity Due in one year or less.................. $ 7,667 $ 7,743 Due after one year through five years.... 67,178 67,352 Due after five years through ten years... 77,761 76,221 Due after ten years...................... 153,182 138,362 305,788 289,678 Mortgage-backed securities............... 138,931 132,272 Other.................................... 439 431 Total securities....................... $ 445,158 $ 422,381
At December 31, 1994 and 1993, securities carried at $420,700 and $429,200 were pledged to secure public deposits, repurchase agreements, and for other purposes as required or permitted by law. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) LOANS NOTE E
Loans are summarized as follows: December 31 1994 1993 Commercial, financial and agricultural................. $ 373,583 $ 306,425 Real estate: Revolving home equity............ 113,142 102,648 Single family residential........ 936,698 869,502 Apartment buildings and complexes.................. 37,475 41,465 Commercial....................... 311,691 320,668 Construction..................... 42,746 33,682 Installment loans to individuals... 532,251 465,216 Bankers' acceptances............... 849 2,123 Other.............................. 24,522 27,643 Total loans net of unearned income................ 2,372,957 2,169,372 Less allowance for loan losses..... 37,438 36,484 Loans - net.................... $2,335,519 $2,132,888
Unearned income approximated $1,800 and $4,100 at December 31, 1994 and 1993. 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:
1994 1993 Balance, January 1..... $ 72,846 $ 70,695 Additions.............. 35,009 26,989 Amount collected....... (34,362) (24,838) Balance, December 31... $ 73,493 $ 72,846
In May 1993, the FASB issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," which was amended by FASB Statement No. 118 and 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. One Valley will adopt this Statement on January 1, 1995, and it will not have a material effect on One Valley's financial statements. 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, 1994, One Valley held loans for sale of approximately $3,500 and had commitments to originate and sell loans of approximately $2,000. The mortgage loan portfolio serviced by One Valley for the benefit of others approximated $896,500, $842,000, and $1,007,000 at December 31, 1994, 1993, and 1992. Custodial escrow balances maintained in connection with the foregoing loan servicing and One Valley's own mortgage loan portfolio were approximately $10,800 and $11,000 at December 31, 1994 and 1993. 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, 1994, were as follows:
1994 1993 1992 Balance, January 1.......... $36,484 $35,679 $30,567 Charge-offs................. (5,985) (7,381) (8,561) Recoveries.................. 2,151 2,398 2,284 Net charge-offs........... (3,834) (4,983) (6,277) Provision for loan losses... 4,788 5,788 11,389 Balance, December 31........ $37,438 $36,484 $35,679
32 PREMISES AND EQUIPMENT NOTE G The major categories of premises and equipment and accumulated depreciation are summarized as follows:
December 31 1994 1993 Land.............................. $ 14,643 $ 14,510 Buildings and improvements........ 77,072 73,065 Equipment......................... 53,592 49,202 Total............................. 145,307 136,777 Less accumulated depreciation... (62,454) (56,544) Premises and equipment-net........ $ 82,853 $ 80,233
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: 1995-$4,300; 1996-$4,000; 1997-$3,600; 1998-$3,500; and 1999-$2,000, with $2,400 of commitments extending beyond 2000. Total expense under these lease agreements, including cancelable and noncancelable leases, was $3,500 in 1994, $3,100 in 1993, and $1,700 in 1992. SHORT-TERM BORROWINGS NOTE H Federal funds purchased and securities sold under agreements to repurchase represent borrowings with maturities primarily from overnight to 90 days. Additional details regarding short-term borrowings are set forth below:
Federal Repurchase Funds Agreements Purchased and Other 1994 Average amount outstanding during year........ $ 25,114 $ 217,190 Maximum amount outstanding at any month-end... 84,638 322,193 Weighted average interest rate: During year................................. 4.26% 3.34% End of year................................. 5.02 3.97 1993 Average amount outstanding during year........ $ 19,313 $ 195,080 Maximum amount outstanding at any month-end... 22,236 221,779 Weighted average interest rate: During year................................. 3.17% 2.90% End of year................................. 2.92 2.58 1992 Average amount outstanding during year........ $ 19,183 $ 202,418 Maximum amount outstanding at any month-end... 42,366 218,381 Weighted average interest rate: During year................................. 3.51% 3.71% End of year................................. 2.92 3.26
Interest paid on deposits, short-term borrowings, and long-term borrowings approximated $93,000 in 1994, $103,000 in 1993, and $121,000 in 1992. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) LONG-TERM BORROWINGS NOTE I Long-term borrowings of $19,450 and $22,788 at December 31, 1994 and 1993 primarily consist of Federal Home Loan advances. The advances mature as follows: 1995 - $11,500, 1996 - $5,000, and 2003 - $2,600. The advances bear a weighted average interest rate of 5.65% at December 31, 1994. INCOME TAXES NOTE J The income tax provisions (benefits) included in the consolidated statements of income are summarized as follows:
1994 1993 1992 Current: Federal.................... $18,772 $18,100 $16,854 State...................... 3,244 2,480 1,963 Deferred Federal and State... (107) (2,254) (2,171) Total.................... $21,909 $18,326 $16,646
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:
1994 1993 1992 Computed tax at statutory federal rate...... $23,842 35.0% $19,698 35.0% $18,116 34.0% Plus: State income taxes, net of federal tax benefits............... 1,986 2.9 1,511 2.7 1,198 2.2 25,828 37.9 21,209 37.7 19,314 36.2 Increase (decrease) in taxes resulting from: Tax-exempt interest...................... (4,348) (6.4) (2,931) (5.2) (2,708) (5.1) Other-net................................. 429 .6 48 .1 40 .1 Actual tax expense...................... $21,909 32.1% $18,326 32.6% $16,646 31.2%
Significant components of One Valley's deferred tax assets and liabilities are as follows:
December 31 1994 1993 Deferred tax assets: Available-for-sale securities...... $ 4,356 $ 0 Allowance for loan losses.......... 14,877 14,187 Accrued employee benefits.......... 3,157 2,578 Other.............................. 2,473 2,426 Total deferred tax assets........ 24,863 19,191 Deferred tax liabilities: Premises and equipment............. 2,780 2,871 Loans.............................. 5,328 4,804 Other.............................. 1,188 413 Total deferred tax liabilities... 9,296 8,088 Net deferred tax assets........ $15,567 $11,103
Income taxes (benefit) related to securities gains (losses) approximated $(347), $45, and $(14) in 1994, 1993, and 1992. One Valley made tax payments of approximately $21,000 in 1994, $22,000 in 1993, and $20,000 in 1992. 34 EMPLOYEE BENEFIT PLANS NOTE K 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. The funding policy of One Valley is to contribute annually the maximum amount that can be deducted for income tax purposes. During 1994, the Mountaineer defined benefit pension plan was merged into One Valley's defined benefit pension plan. The following table presents the funded status of the combined plans and amounts recognized in the consolidated balance sheets at December 31:
1994 1993 Actuarial present value of accumulated benefit obligation, including vested benefits of $17,210 in 1994 and $18,020 in 1993....................... $ 18,370 $ 19,137 Actuarial present value of projected benefit obligation for services rendered to date............................. $ (26,294) $ (28,602) Plan assets at fair value, consisting primarily of cash, listed stocks, and U.S. bonds............................. 21,923 22,705 Projected benefit obligation in excess of plan assets....... (4,371) (5,897) Unrecognized net asset at November 1, 1987, net of amortization.............................................. (2,363) (2,598) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions......................... 3,144 6,064 Unrecognized prior service cost............................. 764 219 Accrued pension cost included in other liabilities.......... $ (2,826) $ (2,212)
Following is a summary of the components of net periodic pension cost:
1994 1993 1992 Service cost-benefits earned during the period... $ 1,883 $ 1,445 $ 1,231 Interest cost on projected benefit obligation.... 1,991 1,740 1,568 Actual loss (return) on plan assets.............. 1,524 (2,640) (996) Net amortization and deferral.................... (3,249) 893 (629) Net periodic pension cost...................... $ 2,149 $ 1,438 $ 1,174
The weighted-average discount rate used in determining the actuarial present value of projected benefit obligations was 8.25% and 7% at December 31, 1994 and 1993. The rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations was 5.5% in 1994 and 1993. The expected long-term rate of return on plan assets in 1994, 1993, and 1992 was 8.5%. The unrecognized net loss decreased in 1994 due to the change in the weighted-average discount rate. This decrease was partially offset by actuarial experience losses relating to the return on plan assets. One Valley has nonqualified and incentive stock option plans for certain key employees. Pursuant to these plans, an aggregate maximum of 1,158,000 shares of common stock were reserved for issuance, although no more than 162,000 shares may be issued in any calendar year. At December 31, 1994, there were outstanding and exercisable options for the purchase of 385,940 shares at prices ranging from $10.28 to $28.38 per share. During 1994, 21,843 shares were exercised at prices ranging from $11.67 to $21.74. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) EMPLOYEE BENEFIT PLANS-CONTINUED NOTE K 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 following table presents the plan's funded status and amounts recognized in the consolidated balance sheets at December 31:
1994 1993 Accumulated postretirement benefit obligation: Active plan participants fully eligible for benefits................................................ $ (71) $ (54) Other active participants................................. (2,150) (2,512) Current retirees.......................................... (2,639) (2,700) (4,860) (5,266) Plan assets................................................. 0 0 Accumulated postretirement benefit obligation in excess of plan assets............................................... (4,860) (5,266) Unrecognized transition obligation.......................... 3,932 4,151 Unrecognized prior service cost............................. 233 245 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions......................... (361) 467 Accrued postretirement benefit cost included in other liabilities............................................. $ (1,056) $ (403)
Net periodic postretirement benefit cost included the following components:
1994 1993 1992 Service cost.......................................... $ 260 $ 141 Interest cost......................................... 377 350 Amortization of transition obligation over 20 years... 230 218 Net periodic postretirement benefit cost............ $ 867 $ 709 $ 261
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e. health care cost trend rate) is 11% for 1995 and is assumed to decrease gradually to 6% in 2000 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, 1994, by $280 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1994 by $68. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8.25% and 7% at December 31, 1994 and 1993. 36 PARENT COMPANY CONDENSED FINANCIAL INFORMATION NOTE L CONDENSED BALANCE SHEETS
December 31 Assets 1994 1993 Repurchase agreement with a subsidiary bank.............. $ 21,328 $ 0 Interest-bearing deposits in subsidiary bank.............. 25,841 Securities: Available-for-sale........... 6,426 Held-to-maturity............. 909 Held-for-investment.......... 1,486 Premises and equipment......... 777 393 Investment in subsidiaries: Banks........................ 288,801 274,337 Non-banks.................... 5,683 8,869 Other assets................... 3,363 1,320 Total assets................. $327,287 $312,246 Liabilities Other liabilities.............. $ 5,420 $ 7,062 Total liabilities............ 5,420 7,062 Shareholders' Equity Common stock................... 175,384 175,168 Capital surplus................ 25,954 25,830 Retained earnings.............. 137,437 107,315 Unrealized losses.............. (6,535) Treasury stock................. (10,373) (3,129) Total shareholders' equity... 321,867 305,184 Total liabilities and shareholders' equity....... $327,287 $312,246
CONDENSED STATEMENTS OF INCOME
Year Ended December 31 1994 1993 1992 Income: Dividends from bank subsidiaries... $35,426 $31,869 $22,937 Other income....................... 3,078 2,825 2,237 Total income..................... 38,504 34,694 25,174 Expenses: Salaries and employee benefits..... 7,200 5,279 4,504 Other expenses..................... 3,268 5,940 4,374 Interest expense................... 14 54 512 Total expenses................... 10,482 11,273 9,390 Income before income taxes and equity in undistributed earnings of subsidiaries.................... 28,022 23,421 15,784 Applicable income tax (benefit)...... (2,927) (3,074) (3,568) Income before equity in undistributed earnings of subsidiaries.......... 30,949 26,495 19,352 Equity in undistributed earnings of subsidiaries.................... 15,262 11,459 17,286 Net income....................... $46,211 $37,954 $36,638
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31 1994 1993 1992 Operating Activities: Net income.......................... $ 46,211 $ 37,954 $ 36,638 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization....... 220 430 853 Equity in undistributed earnings of subsidiaries........ (15,262) (11,459) (17,286) Net change in other assets and other liabilities........... (3,531) (188) 130 Net cash provided by operating activities.......... 27,638 26,737 20,335 Investing Activities: Purchase of securities: Available-for-sale................ (5,108) Held-to-maturity.................. (912) Proceeds from maturities and sale of investment securities..... 2,520 Purchase of investment securities... (78) (1,042) Investment in subsidiaries.......... (2,500) (3,000) Purchase of equipment............... (638) (142) (222) Proceeds from sale of other real estate................. 600 Net cash (used in) provided by investing activities............ (9,158) (2,620) 1,256 Financing Activities: Repayment of long-term borrowings........................ (1,326) (4,566) Proceeds from issuance of common stock...................... 340 291 957 Purchase of treasury stock.......... (7,244) Sales (purchases) of treasury stock by Mountaineeer............. 420 (41) Cash dividends paid................. (16,089) (14,019) (11,451) Net cash used in financing activities............ (22,993) (14,634) (15,101) (Decrease) increase in cash and cash equivalents........... (4,513) 9,483 6,490 Cash and cash equivalents at beginning of year................... 25,841 16,358 9,868 Cash and cash equivalents at end of year......................... $ 21,328 $ 25,841 $ 16,358
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) RESTRICTIONS ON SUBSIDIARY DIVIDENDS NOTE M 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 1995, the retained net profits available for distribution to One Valley Bancorp as dividends without regulatory approval are approximately $29,000, plus retained net profits for the interim periods through the date of declaration. COMMITMENTS AND CONTINGENT LIABILITIES NOTE N 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. 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 approximately $35,000 as of December 31, 1994. 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, 1994, the Bank had commitments outstanding to extend credit at prevailing market rates approximating $381,000. 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 One Valley is contingently liable on certain loans previously sold by an acquired company. At December 31, 1994, there were approximately $44,000 in outstanding loans sold with recourse. 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. OTHER INCOME AND EXPENSES NOTE O Included in other income are checkbook sales which approximated $2,798 in 1994, $2,957 in 1993, and $3,115 in 1992 and credit card fees which approximated $3,254 in 1994, $2,749 in 1993, and $2,055 in 1992. Included in other expenses is supplies expense which approximated $3,447 in 1994, $3,771 in 1993, and $3,652 in 1992, postage expense which approximated $3,141 in 1994, $3,022 in 1993, and $2,804 in 1992, and professional fees which approximated $2,858 in 1994, $3,799 in 1993, and $3,703 in 1992. 38 FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE P The following methods and assumptions were used by One Valley in estimating its fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS The carrying values of cash and cash equivalents approximate their fair values. SECURITIES 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 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. ACCRUED INTEREST The carrying value of accrued interest approximates its fair value. DEPOSITS The fair values of demand deposits (i.e. interest and noninterest bearing checking, regular savings, and other types of money market demand accounts) are, by definition, equal to their carrying values. 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. 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 estimated fair value of total deposits at December 31, 1994 and 1993. SHORT-TERM BORROWINGS The carrying values of federal funds purchased and securities sold under agreements to repurchase approximate their fair values. LONG-TERM BORROWINGS The fair values of the 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. COMMITMENTS The fair values of commitments (standby letters of credit and loan 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, 1994 and 1993, approximate their carrying value. The fair values of One Valley's financial instruments are summarized below:
December 31, 1994 December 31, 1993 Carrying Fair Carrying Fair Amount Value Amount Value Cash and cash equivalents..... $ 208,072 $ 208,072 $ 180,368 $ 180,368 Securities.................... 986,359 963,582 1,060,036 1,081,742 Loans......................... 2,335,519 2,319,848 2,132,888 2,173,000 Accrued interest receivable... 28,404 28,404 26,900 26,900 Deposits...................... 2,926,479 2,914,411 2,936,735 2,946,000 Short-term borrowings......... 375,339 375,339 218,420 218,420 Long-term borrowings.......... 19,450 18,788 22,788 22,900 Accrued interest payable...... 10,353 10,353 8,856 8,856
39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) QUARTERLY FINANCIAL DATA (UNAUDITED) NOTE Q Quarterly financial data for 1994 and 1993 is summarized below:
1994 1993 Three Months Ended Three Months Ended March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 Interest income......................... $ 60,126 $ 61,294 $ 64,339 $ 65,624 $ 61,225 $ 62,200 $ 61,870 $ 62,404 Interest expense........................ 22,351 22,414 24,156 25,976 25,755 25,146 24,467 24,418 Net interest income................... 37,775 38,880 40,183 39,648 35,470 37,054 37,403 37,986 Provision for loan losses............... 1,179 1,213 1,185 1,211 1,551 1,564 1,406 1,267 Net interest income after provision for loan losses....................... 36,596 37,667 38,998 38,437 33,919 35,490 35,997 36,719 Other income, excluding securities gains................................. 8,899 10,811 9,249 9,732 9,728 10,146 10,014 10,261 Securities transactions................. 197 (504) (410) (150) - 58 119 (64) Other expenses.......................... 29,604 30,072 30,314 31,412 29,330 29,792 31,064 35,921 Income before income taxes.............. 16,088 17,902 17,523 16,607 14,317 15,902 15,066 10,995 Applicable income taxes................. 5,257 5,853 5,724 5,075 4,479 5,243 5,299 3,305 Net Income.......................... $ 10,831 $ 12,049 $ 11,799 $ 11,532 $ 9,838 $ 10,659 $ 9,767 $ 7,690 Per Share Data: Average shares outstanding (in thousands).......................... 17,250 17,165 17,105 17,009 17,228 17,237 17,237 17,246 Net income per share.................. $ .63 $ .70 $ .69 $ .68 $ .57 $ .62 $ .57 $ .45 Dividends per share................... .22 .22 .25 .25 .20 .20 .22 .22 High bid/share........................ 28.50 29.00 29.75 30.25 32.25 29.75 33.25 31.25 Low bid/share......................... 24.75 24.25 27.75 28.00 28.25 25.25 26.75 27.00
40 SIX-YEAR AVERAGE BALANCE SHEET SUMMARY ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND SUBSIDIARIES (Dollars in thousands)
1994 1993 1992 1991 1990 1989 % OF % OF % OF % OF % OF % OF $ TOTAL $ TOTAL $ TOTAL $ TOTAL $ TOTAL $ TOTAL ASSETS Loans: Taxable.................... 2,202,716 62 2,032,527 58 1,929,592 57 1,549,386 56 1.373,880 56 1,330,372 56 Tax-exempt................. 34,430 1 31,153 1 30,351 1 32,443 1 30,316 1 34,295 2 Total loans............... 2,237,146 63 2,063,680 59 1,959,943 58 1,581,829 57 1,404,196 57 1,364,667 58 Less: Allowance for losses... 37,460 1 36,932 1 33,170 1 24,599 1 20,161 1 17,783 1 Total loans-net........... 2,199,686 62 2,026,748 58 1,926,773 57 1,557,230 56 1,384,035 56 1,346,884 57 Investment Securities: Taxable.................... 874,901 25 973,890 28 966,198 29 740,927 27 634,354 26 533,379 23 Tax-exempt................. 176,079 5 100,577 3 83,261 2 93,893 3 110,709 4 124,199 5 Total securities.......... 1,050,980 30 1,074,467 31 1,049,459 31 834,820 30 745,063 30 657,578 28 Federal funds sold & other... 27,363 1 100,270 3 119,696 4 146,612 5 148,837 6 174,667 7 Total earning assets...... 3,278,029 93 3,201,485 92 3,095,928 92 2,538,662 91 2,277,935 92 2,179,129 92 Other assets................. 262,422 7 265,776 8 277,317 8 233,239 9 205,223 8 198,770 8 Total assets............ 3,540,451 100 3,467,261 100 3,373,245 100 2,771,901 100 2,483,158 100 2,377,899 100 LIABILITIES & SHAREHOLDERS' EQUITY Interest Bearing Liabilities: Time & savings deposits.... 2,518,539 71 2,498,420 72 2,455,775 73 2,047,057 74 1,828,345 74 1,757,040 74 Short-term borrowings...... 242,304 6 214,460 6 221,601 6 168,061 6 139,215 5 127,832 5 Long-term borrowings....... 22,931 1 36,088 1 25,703 1 15,653 0 21,342 1 22,489 1 Total interest bearing liabilities............. 2,783,774 78 2,748,968 79 2,703,079 80 2,230,771 80 1,988,902 80 1,907,361 80 Demand deposits.............. 412,016 12 396,711 11 373,488 11 296,347 11 273,032 11 261,606 11 Other liabilities............ 28,937 1 26,849 1 27,671 1 29,510 1 24,724 1 24,374 1 Total liabilities......... 3,224,727 91 3,172,528 91 3,104,238 92 2,556,628 92 2,286,658 92 2,193,341 92 Shareholders' equity......... 315,724 9 294,733 9 269,007 8 215,273 8 196,500 8 184,558 8 Total liabilities & shareholders' equity.... 3,540,451 100 3,467,261 100 3,373,245 100 2,771,901 100 2,483,158 100 2,377,899 100
41 SIX-YEAR NET INTEREST INCOME SUMMARY ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND SUBSIDIARIES (Dollars in thousands)
1994 1993 1992 1991 1990 1989 % OF % OF % OF % OF % OF % OF TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL INTEREST INTEREST INTEREST INTEREST INTEREST INTEREST $ INCOME $ INCOME $ INCOME $ INCOME $ INCOME $ INCOME Interest Income: Loans: Taxable................... 189,040 73.2 179,971 71.3 186,681 69.7 165,539 66.8 155,243 64.8 150,470 64.6 Tax-exempt................ 3,618 1.4 3,255 1.3 3,133 1.2 3,866 1.6 4,111 1.7 6,358 2.7 Total loans............. 192,658 74.6 183,226 72.6 189,814 70.9 169,405 68.4 159,354 66.5 156,828 67.3 Securities Taxable................... 48,881 19.0 55,868 22.2 64,466 24.1 58,483 23.6 55,201 23.0 46,340 19.9 Tax-exempt................ 15,497 6.0 10,146 4.0 9,059 3.4 10,721 4.3 12,467 5.2 13,847 5.9 Total securities........ 64,378 25.0 66,014 26.2 73,525 27.5 69,204 27.9 67,668 28.2 60,187 25.8 Funds sold & other......... 1,037 0.4 3,104 1.2 4,290 1.6 9,142 3.7 12,640 5.3 16,104 6.9 Total interest income... 258,073 100.0 252,344 100.0 267,629 100.0 247,751 100.0 239,662 100.0 233,119 100.0 Interest Expense: Deposits................... 85,221 33.0 90,807 36.0 109,713 41.0 120,437 48.6 122,284 51.0 118,685 50.9 Short-term borrowings...... 8,491 3.3 6,270 2.5 8,203 3.1 8,947 3.6 10,003 4.2 10,346 4.4 Long-term borrowings....... 1,185 0.5 2,709 1.1 2,123 0.8 1,529 0.6 2,175 0.9 2,304 1.0 Total interest expense.... 94,897 36.8 99,786 39.6 120,039 44.9 130,913 52.8 134,462 56.1 131,335 56.3 Tax equivalent net interest income........ 163,176 63.2 152,558 60.4 147,590 55.1 116,838 47.2 105,200 43.9 101,784 43.7 Tax equivalent adjustment.... 6,690 2.6 4,645 1.8 4,145 1.5 4,959 2.0 5,637 2.4 6,870 3.0 Net interest income.......... 156,486 60.6 147,913 58.6 143,445 53.6 111,879 45.2 99,563 41.5 94,914 40.7 SUMMARY OF AVERAGE RATES EARNED & PAID* Taxable loans................ 8.58% 8.85% 9.67% 10.68% 11.30% 11.31% Tax-exempt loans............. 10.51 10.45 10.32 11.92 13.56 18.54 Net loans.................. 8.76 9.04 9.85 10.88 11.51 11.64 Taxable securities........... 5.59 5.74 6.67 7.89 8.70 8.69 Tax-exempt securities........ 8.80 10.09 10.88 11.42 11.26 11.15 Total securities........... 6.13 6.14 7.01 8.29 9.08 9.15 Funds sold & deposits........ 3.79 3.10 3.58 6.24 8.49 9.22 Total earning assets ....... 7.87% 7.88% 8.64% 9.76% 10.52% 10.70% Time & savings deposits..... 3.38 3.63 4.47 5.88 6.69 6.75 Short-term borrowings....... 3.50 2.92 3.70 5.32 7.19 8.09 Long-term borrowings........ 5.17 7.51 8.26 9.77 10.19 10.24 Total interest cost....... 3.41 3.63 4.44 5.87 6.76 6.89 Total cost of all funds... 2.89 3.11 3.87 5.16 5.90 6.04 Net interest margin..... 4.98% 4.77% 4.77% 4.60% 4.62% 4.66%
* YIELDS ARE COMPUTED ON A FULLY TAXABLE EQUIVALENT BASIS USING THE RATES OF 35% FOR 1994 AND 1993 AND 34% FOR 1992 THROUGH 1989. 42 SIX-YEAR OPERATING INCOME SUMMARY ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND SUBSIDIARIES (Dollars in thousands)
1994 1993 1992 1991 1990 1989 % OF % OF % OF % OF % OF % OF ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING $ INCOME $ INCOME $ INCOME $ INCOME $ INCOME $ INCOME Interest income............... 251,383 86.9 247,699 86.0 263,484 87.6 242,792 90.9 234,025 92.3 226,249 92.8 Interest expense.............. 94,897 32.8 99,786 34.7 120,039 39.9 130,913 49.0 134,462 53.0 131,335 53.9 Net interest income........... 156,486 54.1 147,913 51.3 143,445 47.7 111,879 41.9 99,563 39.3 94,914 38.9 Provision for loan losses..... 4,788 1.7 5,788 2.0 11,389 3.8 6,671 2.5 7,884 3.1 12,404 5.1 Net interest income after provision for loan losses... 151,698 52.4 142,125 49.3 132,056 43.9 105,208 39.4 91,679 36.2 82,510 33.8 Other Income: Trust Department income..... 7,892 2.7 7,272 2.5 6,041 2.0 5,327 2.0 4,838 1.9 4,433 1.8 Service charges on deposit accounts.......... 11,441 4.0 11,963 4.2 11,281 3.7 8,981 3.4 6,568 2.6 5,554 2.3 Other service charges and fees.......... 9,921 3.4 12,163 4.2 12,689 4.2 5,954 2.2 4,054 1.6 3,491 1.4 Other operating income...... 9,437 3.3 8,751 3.1 7,392 2.5 4,824 1.8 4,210 1.7 3,721 1.5 Securities transactions..... (867) (0.3) 113 0.0 (35) (0.0) (730) (0.3) (37) 0.0 265 0.1 Total other income........ 37,824 13.1 40,262 13.9 37,368 12.4 24,356 9.1 19,633 7.8 17,464 7.1 Operating Expenses: Salaries & benefits......... 63,042 21.8 61,511 21.4 55,457 18.4 46,236 17.3 41,105 16.2 38,638 15.9 Occupancy expense........... 6,014 2.1 6,206 2.2 6,199 2.1 4,315 1.6 3,360 1.3 3,164 1.3 Equipment expense........... 8,468 2.9 10,604 3.7 10,503 3.5 8,759 3.3 4,971 2.0 6,859 2.8 External computer costs..... 4,705 1.6 4,575 1.6 2,351 0.8 1,864 0.7 1,549 0.6 1,535 0.6 Other expense............... 39,173 13.5 43,211 15.0 41,630 13.8 31,255 11.7 28,216 11.1 25,480 10.5 Total operating expenses.. 121,402 41.9 126,107 43.9 116,140 38.6 92,429 34.6 79,201 31.2 75,676 31.1 Income before tax............. 68,120 23.6 56,280 19.6 53,284 17.7 37,135 13.9 32,111 12.8 24,298 9.8 Applicable income taxes....... 21,909 7.6 18,326 6.4 16,646 5.5 10,743 4.0 8,402 3.3 5,197 2.1 Net income.................... 46,211 16.0 37,954 12.9 36,638 12.2 26,392 9.9 23,709 9.5 19,101 7.7
* ADJUSTED OPERATING INCOME EQUALS INTEREST INCOME PLUS OTHER INCOME.
Per Share Summary (in dollars, except average shares) 1994 1993 1992 1991 1990 1989 Net income........ 2.70 2.20 2.13 1.72 1.55 1.25 Cash dividends.... 0.94 0.84 0.70 0.62 0.59 0.56 Stock dividends... 0 50%/20% 0 0 0 0 Average shares.... 17,132,000 17,237,000 17,211,000 15,361,000 15,296,000 15,280,000
43 ONE VALLEY BANCORP QUALITY COUNCIL Phyllis H. Arnold EXECUTIVE VICE PRESIDENT AND PRESIDENT & CEO, ONE VALLEY BANK, NA Frederick H. Belden, Jr. EXECUTIVE VICE PRESIDENT AND ASSISTANT CORPORATE SECRETARY C. Michael Blair PRESIDENT & CEO, ONE VALLEY BANK - NORTH J. G. Call PRESIDENT & CEO, ONE VALLEY BANK OF HUNTINGTON John M. Frazier PRESIDENT & CEO, ONE VALLEY BANK OF OAK HILL Michael H. Hudnall PRESIDENT & CEO, ONE VALLEY BANK OF MARION COUNTY, N.A. Laurance G. Jones EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Robert E. Kamm, Jr. PRESIDENT & CEO, ONE VALLEY BANK OF SUMMERSVILLE Larry F. Mazza PRESIDENT & CEO, ONE VALLEY BANK OF CLARKSBURG, N.A. James L. Miller PRESIDENT & CEO, ONE VALLEY BANK OF MERCER COUNTY J. Holmes Morrison PRESIDENT AND CHIEF EXECUTIVE OFFICER John L. Robertson PRESIDENT & CEO, ONE VALLEY BANK OF RONCEVERTE, N.A. Brent D. Robinson EXECUTIVE VICE PRESIDENT William D. Stegall PRESIDENT & CEO, ONE VALLEY BANK - EAST, N.A. Kenneth R. Summers PRESIDENT & CEO, ONE VALLEY BANK OF MORGANTOWN James L. Whytsell SENIOR VICE PRESIDENT - DATA PROCESSING DIRECTORS OF ONE VALLEY BANCORP Phyllis H. Arnold EXECUTIVE VICE PRESIDENT, ONE VALLEY BANCORP OF WEST VIRGINIA, INC. PRESIDENT & CHIEF EXECUTIVE OFFICER, ONE VALLEY BANK, N.A. Charles M. Avampato PRESIDENT, CLAY FOUNDATION, INC. Robert F. Baronner CHAIRMAN OF THE BOARD, ONE VALLEY BANCORP OF WEST VIRGINIA, INC. C. Michael Blair PRESIDENT & CHIEF EXECUTIVE OFFICER, ONE VALLEY BANK - NORTH James K. Brown ATTORNEY, JACKSON & KELLY John T. Chambers COMMERCIAL REALTOR, PRESIDENT, RAVENSWOOD LAND CO. AND MOUNT ALPHA DEVELOPMENT COMPANY Nelle Ratrie Chilton DIRECTOR, DICKINSON FUEL COMPANY, INC. AND TERRA CO., INC. Ray Marshall Evans, Jr. PRESIDENT, DICKINSON COMPANY, CHESAPEAKE MINING COMPANY AND HUBBARD PROPERTIES, INC., VICE PRESIDENT, GEARY SECURITIES James Gabriel PRESIDENT & CEO, GABRIEL BROTHERS, INC. Phillip H. Goodwin PRESIDENT, CAMCARE & CAMC Thomas E. Goodwin CHAIRMAN OF THE BOARD, ONE VALLEY BANK OF RONCEVERTE, N.A. Cecil B. Highland, Jr. CHAIRMAN OF THE BOARD, ONE VALLEY BANK OF CLARKSBURG, N.A., PRESIDENT, CLARKSBURG PUBLISHING CO. Robert E. Kamm, Jr. PRESIDENT & CHIEF EXECUTIVE OFFICER, ONE VALLEY BANK OF SUMMERSVILLE, INC. David E. Lowe PRESIDENT, BELL ATLANTIC WV, INC. John D. Lynch VICE PRESIDENT, DAVIS LYNCH GLASS CO. Edward H. Maier PRESIDENT, GENERAL CORPORATION J. Holmes Morrison PRESIDENT & CHIEF EXECUTIVE OFFICER, ONE VALLEY BANCORP OF WEST VIRGINIA, INC. CHAIRMAN OF THE BOARD, ONE VALLEY BANK, N.A. Charles R. Neighborgall, III PRESIDENT, NEIGHBORGALL CONSTRUCTION CO. Robert O. Orders, Sr. CHIEF EXECUTIVE OFFICER, ORDERS CONSTRUCTION COMPANY John L. D. Payne PRESIDENT, PAYNE-GALLATIN MINING CO. Angus E. Peyton ATTORNEY, BROWN & PEYTON Lacy I. Rice, Jr. VICE CHAIRMAN OF THE BOARD, ONE VALLEY BANCORP OF WEST VIRGINIA, INC., ATTORNEY, BOWLES, RICE, MCDAVID GRAFF & LOVE Brent D. Robinson EXECUTIVE VICE PRESIDENT, ONE VALLEY BANCORP OF WEST VIRGINIA, INC. James W. Thompson CHAIRMAN OF THE BOARD, ONE VALLEY BANK OF MERCER COUNTY John L. Van Metre, Jr. ATTORNEY, STEPTOE & JOHNSON Richard B. Walker CHAIRMAN OF THE BOARD AND CEO, CECIL I. WALKER MACHINERY CO. H. Bernard Wehrle, III PRESIDENT, MCJUNKIN CORPORATION John Henry Wick, III VICE PRESIDENT, DICKINSON FUEL COMPANY, INC. Thomas D. Wilkerson SENIOR AGENT, NORTHWESTERN MUTUAL LIFE INSURANCE CO. HONORARY MEMBERS James F. Brown, III Charles T. Jones James R. McCartney Mary Price Ratrie 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 J. Holmes Morrison Robert O. Orders, Sr. John L. D. Payne Angus E. Peyton William A. Rice, Jr. 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 Mary Price Ratrie John M. Wells, Sr. 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 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 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 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 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 CLARKSBURG, N.A. 4TH AND MAIN STREETS CLARKSBURG, WV 26302 Marcia Allen Broughton Earl N. Flowers John C. Hart J. Cecil Jarvis Cecil B. Highland, Jr. C. William Johnson William M. Kidd Larry F. Mazza* Paul G. Robinson William W. Simpson Leonard J. Timms, 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 ONE VALLEY BANK NORTH 414 JEFFERSON AVENUE, MOUNDSVILLE, WV 26041 C. Michael Blair* Earl G. Downs Robert L. Fisher Loren Gene Gray Sidney E. Grisell Carlos C. Jimenez Helen E. Levenson William Medovic Shelley R. Moore James P. Ovies Charles E. Rexroad Paul G. Robinson Clinton Rogerson Nick A. Sparachane Bernard P. Twigg Glenn Reed Whipkey Bruce W. Wilson ONE VALLEY BANK EAST, N.A. 148 SOUTH QUEEN STREET MARTINSBURG, WV 25401 A. Elwood Butler Walter L. Butler James W. Dailey, II Deborah J. Dhayer Conrad C. Hammann Charles A. Hensell John B. Hoke, Jr. James B. Hutzler Robert A. McMillan John M. Miller III Bonn A. Poland, III Lacy I. Rice, Jr. Douglas M. Roach William D. Stegall* John L. Van Metre, Jr. HONORARY MEMBERS George E. Alter, Jr. Guy R. Avey Howard N. Carper, Jr. F. Dennis Clarke Robert G. Criswell Frank H. Fischer N. Blaine Groves T. Fred Hammond Otho S. Lewis Floyd C. Odom Walter B. Ridenour Robert A. Sanders Philip T. Siebert Clyde E. Smith, Jr. Paul E. Tederick C. Vincent Townsend ONE VALLEY BANK OF MARION COUNTY, N.A. 4TH AND MAIN STREETS CLARKSBURG, WV 26302 Michael E. Basile John R. Carpenter Sarah L. Crayton Trevelyn F. Hall, II Wendell G. Hardway Benjamin H. Hayes Michael H. Hudnall* Thomas M. Prendergast Paul G. Robinson Howard A. Shriver Carl J. Snyder Kenneth R. Summers Robert H. Thompson Hays Webb Brian K. Wilson * PRESIDENT AND CEO EX-21 6 EXHIBIT 21 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 - East, 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 - North, Inc., a West Virginia corporation. 10) One Valley Bank of Marion County, National Association, a national banking association organized under the laws of the United States of America. 11) One Valley Bank of Clarksburg, National Association, a national banking association organized under the laws of the United States of America. 12) One Valley Square, Inc., a Texas corporation. EX-23 7 EXHIBIT 23.1 Exhibit 23.1 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 19, 1995, included in the 1994 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, No. 2-90738) and pertaining to the 1993 Incentive Stock Option Plan (Form S-8, No. 33-66700) of One Valley Bancorp of West Virginia, Inc. of our report dated January 19, 1995, with respect to the consolidated financial statements of One Valley Bancorp of West Virginia, Inc. and Subsidiaries incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 1994. /s/ Ernst & Young LLP Charleston, WV March 27, 1995 EX-23 8 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation in this Form 10-K of our report dated February 4, 1994, relating to the consolidated financial statements of Mountaineer Bankshares of W. Va., Inc. for the years ended December 31, 1993 and 1992. We also consent to the incorporation by reference in the Registration Statements pertaining to the Amended 1983 Incentive Stock Option Plan (Form S-8, No. 2-90738) and pertaining to the 1993 Incentive Stock Option Plan (Form S-8, No. 33-66700) of One Valley Bancorp of West Virginia, Inc. of our report dated February 4, 1994, with respect to the consolidated financial statements of Mountaineer Bankshares of W. Va., Inc., incorporated in the Annual Report on Form 10-K for the year ended December 31, 1994. /s/ Crowe, Chizek and Company Columbus, Ohio March 27, 1995 EX-27 9 EXHIBIT 27
9 This schedule contains summary financial information extracted from the consolidated balance sheets and statements of income of One Valley Bancorp as well as supplemental schedules of the analysis of loan losses and non-performing asses and the consolidated average balance sheets and is qualified in its entirety by reference to such financial statements and supplemental schedules. 0000351616 ONE VALLEY BANCORP 1000 YEAR DEC-31-1994 DEC-31-1994 178900 4297 24875 0 541201 445158 422381 2372957 37438 3673241 2926479 375339 30106 19450 175384 0 0 146483 3673241 191392 58954 1037 251383 85221 94897 156486 4788 (867) 121402 68120 68120 0 0 46211 2.70 2.70 4.98 7664 3827 552 0 36484 5985 2151 37438 37438 0 0
EX-99 10 EXHIBIT 99.1 ONE VALLEY BANCORP OF WEST VIRGINIA, INC. Charleston, West Virginia NOTICE OF REGULAR ANNUAL MEETING OF SHAREHOLDERS To be held April 25, 1995 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 25, 1995, for the purpose of considering and voting upon proposals: 1. To elect eleven directors - nine 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 the appointment by the Board of Directors of Ernst & Young as independent Certified Public Accountants for the year 1995. 3. 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 7, 1995, 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 20, 1995 1 ONE VALLEY BANCORP OF WEST VIRGINIA, INC. ONE VALLEY SQUARE CHARLESTON, WEST VIRGINIA PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS -- APRIL 25, 1995 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 25, 1995, 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 20, 1995. 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 eleven management nominees as directors for the terms specified, 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. Eligibility of Stock for Voting Purposes Pursuant to the Bylaws of One Valley, the Board of Directors has fixed March 7, 1995, 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, 17,004,868 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, 3,269,756 shares of stock representing 19.23% of the shares of One Valley outstanding. Of these shares, the banks hold 2,677,540 shares as co-trustee or co-executor and 592,216 shares as sole trustee or sole executor (other principal holders of One Valley's stock are discussed under "Principal Holders of Securities"). The 2,677,540 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 592,216 shares held by the banks as sole trustee or sole executor, 535,076 shares (or 3.15% of the total shares outstanding) will be voted by the banks, as trustee or executor, "FOR" the election of the eleven management nominees as directors, and "FOR" the approval of the appointment of Ernst & Young as independent Certified Public Accountants. The remaining 57,140 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. 2 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 33 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 29 directors on the Board; and, at a meeting held February 21, 1995, the Board's Executive Committee fixed at 29 the number of directors to constitute the full Board of Directors of One Valley effective April 25, 1995. 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, nine 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 eleven directors in the class of 1996, nine directors in the class of 1997, and nine directors in the class of 1998. Management Nominees to the Board of One Valley Unless otherwise directed, the proxies will be voted "FOR" the election of the following eleven 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.
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 Robert F. Baronner 68 1981 None 1998 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 C. Michael Blair 52 1994 None 1998 Chairman of the Board, President and Chief Executive Officer - One Valley Bank- North, Inc.; formerly Chairman of the board, President and Chief Executive Officer - Mercantile Banking and Trust Company, Moundsville, WV James K. Brown 65 1981 None 1998 Attorney - Jackson & Kelly, Charleston, WV Nelle Ratrie Chilton 55 1989 (1) 1998 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) 3 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 R. Marshall Evans, Jr. 53 1984 (2) 1998 President-Dickinson Co., Quincy Coal Co., and Chesapeake Mining Co., Charleston, WV; Vice President - Geary Securities, Charleston, WV; President- Hubbard Properties, Inc., Cheyenne, WY Phillip H. Goodwin 54 1989 None 1998 President-CAMCARE and Charleston Area Medical Center, Charleston, WV J. Holmes Morrison 54 1990 None 1997 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 Robert O. Orders, Sr. 69 1989 None 1998 Chief Executive Officer - Orders Construction Co., St. Albans, WV John L. D. Payne 56 1981 (2) 1998 President - Payne-Gallatin Mining Co., Charleston, WV Brent D. Robinson 47 1994 None 1998 Executive Vice President - One Valley Bancorp of West Virginia, Inc.; formerly President, Chief Operating Officer and Chief Financial Officer - Mountaineer Bankshares of W.Va., Inc. H. Bernard Wehrle, III 43 1991 None 1996 President - McJunkin Corporation, Charleston, WV (Steel Fabricators) 5 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 46 1993 None 1996 1991 to present - President and Chief Executive Officer - One Valley Bank, National Association; formerly Exe- cutive Vice President - One Valley Bank, National Association, Charleston, WV Charles M. Avampato 56 1984 None 1996 President - Clay Foundation, Inc., Charleston, WV (Charitable Foundation) John T. Chambers 71 1981 None 1996 Commercial Realtor; President - Ravenswood Land Co. and Mt. Alpha Development Co., Charleston, WV James Gabriel 64 1993 None 1996 President and Chief Exe- cutive Officer - Gabriel Brothers, Inc., Morgantown, WV (Retail Sales) Thomas E. Goodwin 65 1985 None 1996 Chairman of the Board - One Valley Bank of Ronceverte, National Assoc- iation, Ronceverte, WV Cecil B. Highland, Jr. 76 1994 None 1997 Chairman of the Board - One Valley Bank of Clarksburg, National Association; President and General Manager - Clarksburg Publishing Co., Clarksburg, WV Robert E. Kamm, Jr. 43 1987 None 1997 President and Chief Executive Officer-One Valley Bank of Summersville, Inc., Summers- ville, WV 5 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 David E. Lowe 54 1993 None 1997 1993-President and Chief Executive Officer- Bell Atlantic WV, Inc., 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 John D. Lynch 54 1986 None 1996 Vice President - Davis Lynch Glass Company, Star City, WV Edward H. Maier 51 1983 None 1997 President - General Corporation, Charleston, WV (Real Estate Investment, Natural Gas Production, Warehousing) Charles R. Neighborgall, III 53 1987 None 1996 President - The Neighborgall Construction Company, Huntington, WV (General Contractors) Angus E. Peyton (3) 68 1981 None 1997 Attorney-Brown and Peyton, Charleston, WV Lacy I. Rice, Jr. 63 1994 None 1997 Attorney - Bowles, Rice, McDavid, Graff & Love; Vice Chairman of the Board - One Valley Bancorp of West Virginia Inc., Charleston, WV; Chairman of the Board - One Valley Bank - East, Martinsburg, WV; formerly Chairman of the Board, and Chief Executive Officer - Mountaineer Bankshares of W.Va., Inc. 6 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 James W. Thompson 67 1983 None 1996 Chairman of the Board - One Valley Bank of Mercer County, Inc., Princeton, WV J. Lee Van Metre, Jr. 57 1986 None 1996 Attorney - Steptoe & Johnson; Secretary of the Board-One Valley Bank - East, National Association, Martinsburg, WV Richard B. Walker 56 1991 None 1997 Chairman of the Board and Chief Executive Officer- Cecil I. Walker Machinery John H. Wick, III 49 1993 (1) 1996 1992 to present - Vice President - Dickinson Fuel Co., Inc., Charleston, WV; 1980 to 1992 - Commercial Realtor, Harrison & Bates, Inc., Richmond, VA Thomas D. Wilkerson 66 1981 None 1997 Senior Agent-Northwestern Mutual Life Insurance Company, Charleston, WV
(1) John H. Wick, III, is the brother-in-law of Nelle Ratrie Chilton. (2) R. Marshall Evans, Jr. and John L. D. Payne are first cousins. (3) Angus E. Peyton is a member of the Board of Directors of American Electric Power Company, Inc. 7 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 1994 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 Ronceverte, National Association, One Valley Bank of Morgantown, Inc., One Valley Bank of Oak Hill, Inc., a wholly-owned subsidiary of One Valley Bank of Summersville, Inc., One Valley Bank of Marion County, National Association, One Valley Bank - East, National Association, One Valley Bank - North, Inc., and One Valley Bank of Clarksburg, National Association. On September 2, 1994, an Agreement and Plan of Merger was executed pursuant to which Point Bancorp, Inc., agreed to merge with and into a wholly-owned subsidiary of One Valley. It is anticipated that this merger will be consummated in the first quarter of 1995. Committees of the Board One Valley has a standing Audit Committee, Compensation Committee and Nominating Committee. The Audit Committee of One Valley consists of five members, Charles M. Avampato, Nelle Ratrie Chilton, Edward H. Maier, John L. D. Payne and Richard B. Walker and met four times in 1994. 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 three times in 1994. 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 1994. 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. 8 The Board of One Valley met 9 times in 1994, and there were numerous meetings of the Committees of the Board. During 1994, Directors Gabriel, Highland, Phillip Goodwin, 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 7.6% of the issued and outstanding stock of One Valley. The C. C. Dickinson Family Trusts collectively hold 866,980 shares, representing 5.1% 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 7, 1995, 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.
Title of Name and Address Amount and Nature of Percent of Class of Beneficial Owner Beneficial Ownership (1) Class Common Stock Mary Price Ratrie 979,482(2) 5.8% Kanawha Salines Malden, WV 25306 Common Stock Charles C. Dickinson, III 914,523(3) 5.4% 1111 City National Building Wichita Falls, Texas 76301 Common Stock Robert F. Goldsmith 865,998(4) 5.1% 1528 Dogwood Road Charleston, WV 25314 Common Stock Ray M. Evans, Jr. 1,435,871(5) 8.4% 3401 Northside Parkway Atlanta, GA 30327
(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 2,494,291 shares, or 14.7% of the total 17,004,868 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 39,080 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 72,666 shares owned by Dickinson Property Limited Partnership in which Mary Price Ratrie is a beneficial owner. (3) Consists of 47,543 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). 9 (4) Consists of 25,579 shares owned of record; 2,428 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 7, 1995, 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 39,412 Direct (2) 145 Indirect * Charles M. Avampato 18,012 Direct 2,922 Indirect * Robert F. Baronner 10,216 Direct 6,037 Indirect * Frederick H. Belden, Jr. 18,130 Direct (3) 136 Indirect * C. Michael Blair 57,036 Direct (4) 3,818 Indirect * James K. Brown 2,577 Direct 1,212 Indirect * John T. Chambers 7,067 Direct 850 Indirect * Nelle Ratrie Chilton 43,462 Direct 55,153 Indirect * R. Marshall Evans, Jr. 28,502 Direct 1,407,369 Indirect (5) 8.4% James Gabriel 6,482 Direct * 10 Amount and Nature of Beneficial Percent of Name of Beneficial Owner Ownership (1) Class Phillip H. Goodwin 1,515 Direct * Thomas E. Goodwin 7,422 Direct 7,478 Indirect * Cecil B. Highland, Jr. 324,582 Direct 7,331 Indirect 2.0% Laurance G. Jones 13,200 Direct (6) * 2,500 Indirect Robert E. Kamm, Jr. 274,567 Direct (7) 107,285 Indirect 2.3% David E. Lowe 700 Direct * John D. Lynch 21,000 Direct 3,000 Indirect * Edward H. Maier 5,780 Direct * J. Holmes Morrison 55,062 Direct (8) 782 Indirect * Charles R. Neighborgall, III 1,188 Direct 2,677 Indirect * Robert O. Orders, Sr. 15,669 Direct * John L. D. Payne 714 Direct 434,479 Indirect (9) 2.6% Angus E. Peyton 35,077 Direct 166,170 Indirect 1.2% Lacy I. Rice, Jr. 149,500 Direct * Brent D. Robinson 29,009 Direct (10) 682 Indirect * James W. Thompson 8,805 Direct 4,080 Indirect * J. Lee Van Metre, Jr. 3,208 Direct * Richard B. Walker 1,777 Direct * H. Bernard Wehrle, III 1,180 Direct * John H. Wick, III 9,084 Direct 39,905 Indirect * 11 Amount and Nature of Beneficial Percent of Name of Beneficial Owner Ownership (1) Class Thomas D. Wilkerson 1,800 Direct * All Directors, Nominees and Executive 1,233,109 Direct Officers as a Group (33 individuals) 1,973,532 Indirect 18.9% *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 18,720 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 10,140 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 7,960 shares pursuant to One Valley's 1993 Stock Option Plan. (4) Includes options to purchase 2,800 shares pursuant to One Valley's 1993 Stock Option Plan. Includes options to purchase 7,310 shares pursuant to Mountaineer Bankshares of W.Va., Inc. Stock Option Plan. (5) See Note (5) to Principal Holders of Voting Securities. (6) Includes options to purchase 3,420 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 7,280 shares pursuant to One Valley's 1993 Stock Option Plan. (7) Includes options to purchase 11,295 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 5,120 shares pursuant to One Valley's 1993 Stock Option Plan. (8) Includes options to purchase 31,320 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 18,000 shares pursuant to One Valley's 1993 Stock Option Plan. (9) 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. (10) Includes options to purchase 3,800 shares pursuant to One Valley's 1993 Stock Option Plan. Includes options to purchase 8,850 shares pursuant to Mountaineer Bankshares of W.Va., Inc. Stock Option Plan. 12 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, 1994, 1993, and 1992, of those persons who were, as of December 31, 1994, (i) the chief executive officer and (ii) the four other most highly compensated officers of One Valley. 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(1) Award(s) Options Payouts sation(2) Position Year ($) ($) ($) ($) (#) ($) ($) J. Holmes Morrison 1994 315,000 110,250 0 0 9,000 0 5,476 President & CEO 1993 275,000 114,297 0 0 9,000 0 5,263 1992 233,000 106,015 0 0 9,000 0 4,577 Phyllis H. Arnold 1994 190,000 63,840 0 0 5,100 0 4,531 Exec. Vice President 1993 170,000 63,750 0 0 5,040 0 4,553 1992 150,000 58,500 0 0 5,040 0 3,890 Frederick H. Belden, Jr. 1994 156,000 47,190 0 0 4,000 0 4,691 Exec. Vice President 1993 148,000 50,875 0 0 3,960 0 4,550 1992 135,000 48,263 0 0 3,960 0 3,479 Laurance G. Jones 1994 150,000 43,313 0 0 3,800 0 4,687 Exec. Vice President 1993 132,000 43,560 0 0 3,480 0 4,462 1992 117,000 41,828 0 0 3,420 0 3,017 Brent D. Robinson 1994 150,000 41,250 29,311 0 3,800 0 49,121 Exec. Vice President 1993 138,900 27,754 0 0 0 0 8,813 1992 126,336 0 0 0 3,000 0 7,539
(1) The amount included for Mr. Robinson in "Other Annual Compensation" is the amount reimbursed for payment of taxes as a result of the expenses paid by One Valley as listed in footnote (2). (2) 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. Robinson, the amount reported for 1994 pertains to the 401(k) Plan ($3,808), relocation expenses ($20,313), and termination of an arrangement with Mountaineer Bankshares for a company-provided automobile ($25,000); for 1993 and 1992 pertains to the Mountaineer Bankshares 401(k) Plan match and Board and Committee fees for services rendered as a Board member of Mountaineer Bankshares. Under the Mountaineer Bankshares 401(k) Plan, employees were permitted to contribute up to 6% of salary for which the company made a 50% matching contribution. 13 The following table sets forth further information on grants of stock options during 1994 to (i) the listed officers and (ii) all optionees as a group pursuant to One Valley's 1993 Incentive Stock Option Plan. The table also provides information concerning the potential gain to all shareholders at the designated rate of appreciation. No stock appreciation rights ("SARs") were awarded by One Valley. OPTION GRANTS IN LAST FISCAL YEAR
Grant Date Individual Grants Value(1) Number of % of Total Potential Realizable Value Securities Options at Assumed Annual Rates Underlying Granted to Exercise of Stock Appreciation for Options Employees or Base Expira- Ten-Year Option Term Granted in Fiscal Price(2) tion 0% 5% 10% Name (#) Year ($/Sh) Date ($) ($) ($) J. Holmes Morrison 9,000 9.4% 26.50 4/28/04 0 150,030 380,070 Phyllis H. Arnold 5,100 5.3% 26.50 4/28/04 0 85,017 215,373 Frederick H. Belden, Jr. 4,000 4.2% 26.50 4/28/04 0 66,680 168,920 Laurance G. Jones 3,800 4.0% 26.50 4/28/04 0 63,346 160,474 Brent D. Robinson 3,800 4.0% 26.50 4/28/04 0 63,346 160,474 All Optionees (including the five listed above) 95,800 100% 26.50 4/28/04 0 1,596,986 4,045,634 All Shareholders - - - - 0 281,874,164 714,069,942 Optionee Gain as % of All Shareholders Gain - - - - 0 0.56% 0.56%
(1) The actual value, if any, an executive may realize depends on the excess of the stock price over the exercise price on the date the option is exercised. (2) The exercise price is the fair market value of One Valley Common Stock on the date the options were granted. Options are exercisable immediately, and terminate upon termination of employment for reasons other than death or retirement, upon the expiration of three months after the date of retirement, upon the expiration of one year from the date of death, or ten years from the option date. 14 The following table sets forth information concerning (i) the value realized upon the exercise of stock options during 1994 by the listed officers, and (ii) the number of unexercised options held by each listed officer as of December 31, 1994, and the market value of the underlying shares if the options had been exercised on that date. No SARs have been awarded by One Valley. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Shares Acquired Value FY-End (#) FY-End ($) Name On Exercise (#) Realized ($)(1) Exercisable Exercisable J. Holmes Morrison 0 0 49,320 403,104 Phyllis H. Arnold 4,590 66,928 28,860 256,382 Frederick H. Belden, Jr. 0 0 15,520 91,712 Laurance G. Jones 0 0 10,700 28,915 Brent D. Robinson 0 0 12,650 119,552
(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, 1994, 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 Highest Consecutive Estimated Annual Pension For Five Year Representative Years of Credited Service Average Compensation 15 20 25 30 35 $125,000 $28,177 $37,569 $67,486 $67,486 $67,486 150,000** 34,177 45,569 87,763 87,763 87,763 175,000 34,177 45,569 99,986 99,986 99,986 200,000 34,177 45,569 116,236 116,236 116,236 225,000 34,177 45,569 132,486 132,486 132,486 250,000 34,177 45,569 148,736 148,736 148,736 300,000 34,177 45,569 181,236 181,236 181,236 400,000 34,177 45,569 246,236 246,236 246,236 450,000 34,177 45,569 278,736 278,736 278,736 500,000 34,177 45,569 311,236 311,236 311,236 **IRS Maximum for Qualified Plan. 15 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, 1994, the credited years of service under the retirement plan for the individuals named in the table shown under Executive Compensation were: Phyllis H. Arnold, 18.667 years; J. Holmes Morrison, 27.17 years; Frederick H. Belden, Jr., 27 years; Laurance G. Jones, 25.33 years; and Brent D. Robinson, 6.833 years. In 1990, a Supplemental Employee Retirement Plan (SERP) was established for certain members of senior management, including the individuals named in the Cash Compensation Table, which provides for a benefit at normal retirement of 65 percent of final average compensation, less (i) the retirement benefit under the Defined Benefit Pension Plan, and (ii) any retirement benefits from a previous employer, and (iii) the employee's Social Security benefit. The plan further provides reduced early retirement benefit target objectives and a disability retirement benefit target of 60 percent of final average compensation at the time of disability, minus the benefits paid under the Defined Benefit Pension Plan and the employee's Social Security benefit. During 1994, $123,262 was paid into the SERP Trust for 1993, and $232,415 was accrued for 1994. Change of Control Arrangements In January 1987, and in January 1994 in the case of Mr. Robinson, One Valley entered into agreements with the officers listed in the Summary Compensation Table 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. 16 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 1994 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 Hay Compensation Report of Banks and Associated Financials produced by Hay Management Consultants, the SNL Executive Compensation Review, the Wyatt Data Services Financial Institutions Compensation Survey, and the William M. Mercer Finance, Accounting and Legal Compensation Survey. This information was selected for comparison because of the formidable position that these surveys hold in the industry and the availability of representative peer group information. 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. 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. 17 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. Participation in the ISOP is limited to approximately thirty employees of the top management of One Valley and its affiliate banks who are deemed to have the opportunity to most significantly affect corporate results. 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 1994 was based in large measure on the corporate results in 1993 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 $2.47 per share and actual earnings per share were $2.52, which was 10% higher than 1992 earnings of $2.29 per share. This relative success of One Valley was a major consideration in establishing the base compensation for the CEO. During 1994 One Valley consistently received high rankings from multiple industry research companies. The MICP award for 1994 was based on the earnings per share performance in 1994 which was $2.70 The ISOP awards to the CEO for 1994 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. 18 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, 1994, 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. The graph assumes (i) the reinvestment of all dividends and (ii) an initial investment of $100. 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. Five-year Cumulative Total Return Comparison (The Comparison Chart appears here. The plot points are listed below:) 1989 1990 1991 1992 1993 1994 One Valley Bancorp 100 $88 $177 $276 $263 $275 Standard & Poors 500 100 $97 $126 $136 $150 $152 All Publicly Traded Banks 100 $77 $109 $130 $153 $145 (Media General Industry Group Index - 04) 18 Compensation of Directors During 1994, each director who was not also an officer and full-time employee of One Valley received $600 for each meeting of the Board of Directors of One Valley attended, $350 to the respective directors who attended the Board's Audit Committee, and, as members of certain other committees of the Board of Directors, received $275 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 1994, 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 the 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. James Gabriel. 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 1994, 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, 1994, were, in the aggregate, 22.8% of total shareholders' equity, 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, Steptoe & Johnson, a law firm in which Director J. Lee Van Metre, Jr., is a partner, Bowles, Rice, McDavid, Graff & Love, a law firm in which Director Lacy I. Rice, Jr., is a partner, and McNeer, Highland & McMunn, a law firm in which Director Cecil B. Highland, Jr., is of counsel, performed legal services for One Valley and its subsidiaries in 1994 and will perform similar services in 1995. On the basis of information provided by Messrs. Brown, Van Metre, Rice and Highland, it is believed that less than five percent of the gross revenues of those law firms did in 1994, and will in 1995, 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 1994, One Valley's affiliate banks, and One Valley Square, Inc., paid $126,580 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 Vice President and director of TerraCo, Inc. During 1994, The 20 Neighborgall Construction Co. received payments of $196,345.26 from One Valley's affiliate, One Valley Bank of Huntington, Inc., for miscellaneous renovation and repair work to facilities owned by the bank and for construction of a new branch in Ceredo. It is anticipated that additional payments will be made in 1995 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 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 1995 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 1994 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 1996 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 21, 1995, to have it considered for inclusion in the proxy statement of the Annual Meeting in 1996. J. Holmes Morrison President Charleston, West Virginia March 20, 1995 *************************************************************************** - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - PROXY ONE VALLEY BANCORP OF WEST VIRGINIA, INC. PROXY CHARLESTON, WEST VIRGINIA This Proxy is Solicited on Behalf of The Board of Directors for The Annual Meeting of Shareholders, April 25, 1995 Michael A. Albert, John R. Lukens and Louis S. Southworth, II, or any one of them, are hereby authorized to represent and to vote stock of the undersigned in One Valley Bancorp of West Virginia, Inc. at the Annual Meeting of Shareholders to be held April 25, 1995, and any adjournment thereof. The election of the following persons: Robert F. Baronner, C. Michael Blair, James K. Brown, Nelle Ratrie Chilton, Ray Marshall Evans, Jr., Phillip H. Goodwin, Robert O. Orders, Sr., John L. D. Payne and Brent D. Robinson for three-year terms expiring at the Annual Meeting of Shareholders in 1998; J. Holmes Morrison for a two-year term expiring at the Annual Meeting of Shareholders in 1997; and H. Bernard Wehrle, III for a one-year term expiring at the Annual Meeting of Shareholders in 1996, and until their successors are chosen and qualify. Unless otherwise specified on this Proxy, the shares represented by this Proxy will be voted "FOR" the propositions listed above and described more fully in the Proxy Statement of One Valley Bancorp of West Virginia, Inc., distributed in connection with this Annual Meeting. If any shares are voted cumulatively for the election of Directors, the Proxies, unless otherwise directed, shall have full discretion and authority to cumulate their votes and vote for less than all such nominees. If any other business is presented at said meeting, this Proxy shall be voted in accordance with recommendations of the Board of Directors. PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. (Continued and to be signed on reverse side.) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ONE VALLEY BANCORP OF WEST VIRGINIA, INC. PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY The Board of Directors recommends a vote "FOR" the listed propositions. FOR WITHHOLD FOR ALL 1. Election of Directors- (Except Nominees(s)written Below Nominees: Robert F. Baronner, C. Michael [ ] [ ] [ ] Blair, James K. Brown, Nelle Ratrie Chilton, Ray Marshall Evans, Jr., Phillip H. Goodwin, J. Holmes Morrison,Robert O. Orders, Sr., John L. D. Payne, Brent D. Robinson and H. Bernard Wehrle, III. 2. Approve the appointment of Ernst & Young FOR AGAINST ABSTAIN as independent Certified Public Accountants [ ] [ ] [ ] for 1995. 3. Transact such other business as may properly FOR AGAINST ABSTAIN come before the meeting and any adjournment [ ] [ ] [ ] thereof. Dated:__________________, 1995 Signature( s)___________________________________ _____________________________________________ When signing as attorney, executor, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. _______________________________________________________________________________ EX-99 11 EXHIBIT 99.2 Exhibit 99.2 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Mountaineer Bankshares of W. Va., Inc. Martinsburg, West Virginia We have audited the accompanying consolidated balance sheet of Mountaineer Bankshares of W. Va., Inc., as of December 31, 1993 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the two 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 audits 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 consolidated financial statements present fairly, in all material respects, the consolidated financial position of Mountaineer Bankshares of W. Va., Inc., as of December 31, 1993, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 11 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postretirement benefits other than pensions. /s/ Crowe, Chizek and Company Columbus, Ohio February 4, 1994