-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QoRLLpcW1sepICWyLSVcv6cB1o2P+Jc7TbaOtlMmgC2GkK73KPA6tfOpHq/quLfF I1m7UjHNDRCqmbbv4ugi1g== 0000950168-97-000738.txt : 19970329 0000950168-97-000738.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950168-97-000738 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ONE VALLEY BANCORP INC CENTRAL INDEX KEY: 0000351616 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 550609408 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-10042 FILM NUMBER: 97566620 BUSINESS ADDRESS: STREET 1: ONE VALLEY SQ STREET 2: SUMMERS & LEE STS PO BOX 1793 CITY: CHARLESTON STATE: WV ZIP: 25326 BUSINESS PHONE: 3043487000 FORMER COMPANY: FORMER CONFORMED NAME: ONE VALLEY BANCORP OF WEST VIRGINIA INC DATE OF NAME CHANGE: 19920703 10-K405 1 ONE VALLEY BANCORP OF W. VA. 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] 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, 1996 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, 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 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 [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 156 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 $677,784,595 MARCH 4, 1997 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 4, 1997 COMMON STOCK ($10.00 PAR VALUE) 22,017,192 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, Inc., 1996 Annual Report Part I, Item 1; Part II, Items 5, 6, 7 and 8; to Shareholders for the year ended December 31, 1996 Part III, Item 13; and Part IV, Item 14 Portions of One Valley Bancorp, Inc., Proxy Statement Part III, Items 10, 11, 12 and 13 for the 1997 Annual Meeting of Shareholders
2 ONE VALLEY BANCORP, INC. FORM 10-K INDEX
Page Part I Item 1. Business.................................................................... 4 Item 2. Properties.................................................................. 12 Item 3. Legal Proceedings........................................................... 13 Item 4. Submission of Matters to a Vote of Security Holders......................... 13 Item 4A. Executive Officers of the Registrant........................................ 13 Part II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters............................................... 15 Item 6. Selected Financial Data..................................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 15 Item 8. Financial Statements and Supplementary Data................................. 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... 15 Part III Item 10. Directors and Executive Officers of the Registrant.......................... 16 Item 11. Executive Compensation...................................................... 16 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................................ 16 Item 13. Certain Relationships and Related Transactions.............................. 16 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................... 17 Signatures .................................................................................. 19 Index to Exhibits................................................................................ 22
3 PART I ITEM 1. BUSINESS ONE VALLEY BANCORP, INC. The Board of Directors of One Valley Bank, National Association, formerly Kanawha Valley Bank, National Association ("One Valley Bank"), caused One Valley Bancorp, 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, 1996, One Valley owned twelve 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, Inc.; One Valley Bank of Summersville, Inc.; One Valley Bank - North, Inc.; One Valley Bank of Clarksburg, National Association; One Valley Bank, F.S.B., a federally chartered savings bank; and One Valley Bank-Central Virginia, a federally chartered savings bank. 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, 1996, One Valley had consolidated assets of $4,267,303,000, deposits of $3,406,016,000, and shareholders' equity of $408,577,000. 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. 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. 4
Year in Currently Name Which Organized Chartered As One Valley Bank, Inc. 1911 State One Valley Bank of 1906 State Mercer County One Valley Bank of 1904 State Oak Hill One Valley Bank of 1956 State Huntington One Valley Bank of 1900 National Ronceverte One Valley Bank of 1910 State Summersville One Valley Bank - East 1865 National One Valley Bank of 1903 National Clarksburg One Valley Bank - North 1903 State One Valley Bank, FSB 1892 Federally-chartered savings bank One Valley Bank-Central Virginia 1914 Federally-chartered savings bank
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. One Valley Securities Corporation, a wholly-owned subsidiary of One Valley Bank, provides discount brokerage services and also sells, as agent, mutual funds and annuities. 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. Seven of the twenty-three 5 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 also make deposits or withdrawals at any of One Valley's 89 main office and branch locations. On April 30, 1996, One Valley consummated its acquisition of Co-operative Savings Bank, a federally-chartered savings bank headquartered in Lynchburg, Virginia. Following consummation of the acquisition, the name of the federal savings bank was changed to One Valley Bank - Central Virginia. This transaction was One Valley's first interstate acquisition. As of March 1, 1997, One Valley and its Subsidiaries had approximately 1900 full-time equivalent employees. 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, Central Virginia, and certain adjoining areas in Kentucky, Maryland, Ohio, Pennsylvania and Virginia. For most of the services which the Banking Subsidiaries perform, they compete with commercial banks as well as other financial institutions. For instance, savings banks, savings and loan associations, credit unions, finance companies, 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 federal and state banking legislation has provided an opportunity for One Valley to acquire banking subsidiaries in other attractive banking areas, it has increased competition for One Valley in its market areas, and, with interstate banking, One Valley faces additional competition in efforts to acquire other subsidiaries throughout West Virginia and in neighboring states. Until 1993, the various banks and bank-holding companies operating in West Virginia were predominantly owned by shareholders in West Virginia and were financed by operations arising principally in West Virginia. During 1993, Banc One Corp., 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 possible 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 greater capital resources and which have sophisticated marketing structures in place. 6 As of December 31, 1996, there were 54 bank holding companies in the State of West Virginia registered with the Federal Reserve System and the West Virginia Board of Banking and Financial Institutions ("Board of Banking"). These holding companies are headquartered in various West Virginia cities and control banks throughout the State of West Virginia, including banks which compete with the Banking Subsidiaries in their market areas. One Valley has actively competed with some of these bank holding companies to acquire its Banking Subsidiaries. SUPERVISION AND REGULATION The following outline of the regulatory framework applicable to bank holding companies and their subsidiaries is qualified by reference to the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on the business of One Valley. GENERAL Both federal and state laws extensively regulate various aspects of the banking business, such as permissible types and amounts of loans and investments, risk management and controls, permissible activities, rates of interest and fees, and reserve requirements. These regulations are intended primarily for the protection of depositors and customers rather than One Valley's shareholders. ACQUISITIONS AND ACTIVITIES As a bank holding company, One Valley is subject to regulation by the Board of Governors of the Federal Reserve System (the "FRB") under the Bank Holding Company Act of 1956 (the "BHCA"), including examination and reporting requirements. Under the BHCA, bank holding companies may not directly or indirectly acquire the ownership or control of more than five percent of the voting shares or substantially all the assets of a bank or any other company, without the prior approval of the FRB, subject to certain exceptions. The BHCA generally limits acquisitions by bank holding companies to commercial banks and companies engaged in activities that the FRB has determined to be so closely related to banking as to be a proper incident thereto. One Valley's direct activities are similarly limited. In reviewing applications under the BHCA, the FRB will consider, among other things, the competitive effect of the transaction, financial and managerial issues including the capital position of the combined organization, and convenience and needs factors, including, in the case of a bank or thrift acquisition, the applicant's record under the Community Reinvestment Act. Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("IBBEA") permitted bank holding companies to acquire banks located in states other than the bank holding company's home state without regard to whether the transaction is permitted under state law. In addition, IBBEA provides that, commencing June 1, 1997, national banks and state banks with different home states will be permitted to merge across state lines, unless the home state of a participating bank enacts legislation prior to May 31, 1997 expressly prohibiting interstate mergers. IBBEA further provides that states may enact a law 7 permitting interstate bank merger transactions prior to June 1, 1997 and a law permitting de novo interstate branching. On March 9, 1996, the West Virginia Legislature adopted legislation pursuant to which interstate branching, both by merger and also de novo, will become effective on and after May 31, 1997. One Valley is also 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 bank holding company from acquiring shares of a bank if the acquisition would cause the bank holding company's consolidated deposits in the State of West Virginia to exceed 25% of the total deposits of all depository institutions in the State of West Virginia. At December 31, 1996 the total deposits of the Banking Subsidiaries were approximately 16% of the total deposits in the State of West Virginia. Federal and state banking laws generally limit the activities of banks to the business of banking. In recent years, a series of judicial decisions and regulatory rulings have increased the range of services and products that can be offered by bank holding companies and banks, and simplified the regulatory process for acquisitions and the offering of new or additional products. Among the new or expanded products and services are sales of annuities, sales of insurance from places of 5000 or less and underwriting and dealing in securities. PAYMENT OF DIVIDENDS One Valley is a legal entity separate and distinct from the Banking Subsidiaries. A major portion of the revenues of One Valley result from dividends paid by the Banking Subsidiaries. The Banking Subsidiaries are subject to legal limitations on the amount of dividends they can pay. The prior approval of the Comptroller of the Currency (the "Comptroller") is required if the total of all dividends declared by a national bank in any calendar year will exceed the sum of such bank's net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends which would be greater than the bank's undivided profits after deducting statutory bad debt in excess of the bank's allowance for loan losses. Similar restrictions on dividends are in effect for the Banking Subsidiaries which are not national banks. Under the foregoing dividend restrictions, as of December 31, 1996, the Banking Subsidiaries, without obtaining regulatory approvals, could pay aggregate dividends of $14.4 million, plus retained net profits for the interim periods through the date of declaration, to One Valley during 1997. During 1996, the Banking Subsidiaries paid $51.3 million in cash dividends to One Valley. In addition, both One Valley and the Banking Subsidiaries are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. Regulatory authorities are authorized to determine that, under certain circumstances, the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The regulatory authorities have indicated that banking organizations should generally pay dividends only out of current operating earnings. 8 BORROWINGS BY ONE VALLEY FROM THE BANKING SUBSIDIARIES There are various legal restrictions on the extent to which One Valley and its nonbank subsidiaries can borrow or otherwise obtain credit from the Banking Subsidiaries. In general, these restrictions require that any such extensions of credit must be secured by designated amounts of specified collateral and are limited, as to One Valley or any one of such nonbank subsidiaries, to ten percent of the lending bank's capital stock and surplus, and as to One Valley and all such nonbank subsidiaries in the aggregate, to 20 percent of such lending bank's capital stock and surplus. These restrictions also apply to the Banking Subsidiaries' purchases of assets from and investments in One Valley and its nonbank subsidiaries. CAPITAL Bank regulators have adopted risk-based capital guidelines for bank holding companies and banks. The minimum ratio of qualifying total capital to risk-weighted assets and certain off-balance sheet items ("total capital ratio") is 8%. At least half of the total capital is required to be comprised of common stock, retained earnings, noncumulative perpetual preferred stock, minority interests (and, for bank holding companies, a limited amount of qualifying cumulative perpetual preferred stock), less goodwill and most other intangibles ("Tier 1 capital"). Other qualifying capital ("Tier 2 capital") may consist of other preferred stock, certain other capital instruments, and limited amounts of subordinated debt and allowance for loan losses. In addition, the bank regulators have established minimum leverage ratio requirements for bank holding companies and banks. These requirements provide for a minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets ("leverage ratio") equal to three percent for bank holding companies and banks that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies and banks will generally be required to maintain a leverage ratio of four to five percent. Regulatory capital requirements also provide that bank holding companies and banks 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. Federal banking agencies have issued regulations, which become effective in 1998, that may require additional capital in respect of interest rate exposure and other market risk. One Valley does not believe that these modifications will have a significant impact on its capital position. As of December 31, 1996, One Valley had a total capital ratio of 15.8%, a Tier 1 capital ratio of 14.5% and a leverage ratio of 9.1%. Note R of Notes to the Consolidated Financial Statements appearing at page 39 of One Valley's 1996 Annual Report to Shareholders is incorporated herein by reference. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things, requires the federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital categories: "well capitalized", "adequately capitalized", "under-capitalized", "significantly undercapitalized" and "critically undercapitalized". 9 The banking regulators have adopted regulations relating to these capital categories. The relevant capital measures are the total capital ratio, a Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) and the leverage ratio. Under the regulations, a bank will generally be: (i) "well capitalized" if it has a total capital ratio of ten percent or greater, a Tier 1 capital ratio of six percent or greater and a leverage ratio of five percent or greater; (ii) "adequately capitalized" if it has a total capital ratio of eight percent or greater, a Tier 1 capital ratio of four percent or greater and a leverage ratio of four percent or greater (three percent in certain circumstances), and is not "well capitalized"; (iii) "undercapitalized" if it has a total capital ratio of less than eight percent, a Tier 1 capital ratio of less than four percent or a leverage ratio of less than four percent (three percent in certain circumstances); (iv) "significantly undercapitalized" if it has a total capital ratio of less than six percent, a Tier 1 capital ratio of less than three percent or a leverage ratio of less than three percent; and (v) "critically undercapitalized" if its tangible equity is equal to or less than two percent of average quarterly tangible assets. As of December 31, 1996, One Valley and each of its Banking Subsidiaries had capital levels that qualify them as being "well capitalized" under such regulations. 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. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be "undercapitalized". "Undercapitalized" depository institutions are subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company under the guarantee is limited to the lesser of (i) an amount equal to five percent of the depository institution's total assets at the time it became "undercapitalized", and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized". "Significantly undercapitalized" depository 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 are subject to the appointment of a receiver or conservator. OBLIGATIONS IN RESPECT OF SUBSIDIARY BANKS The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") imposes liability on FDIC-insured depository institutions, such as the Banking Subsidiaries, for losses incurred by the FDIC in connection with assistance to an insured institution under common control. 10 Under the National Bank Act, if the capital stock of a national bank is impaired by losses or otherwise, the Comptroller is authorized to require payment of the deficiency by assessment upon the bank's shareholders, pro rata, and, if any such assessment is not paid by any shareholder after three months' notice, to sell the stock of such shareholder to make good the deficiency. Under FRB policy, One Valley is expected to act as a source of financial strength to each of its Banking Subsidiaries and to commit resources to support each of such subsidiaries. This support may be required at times when, absent such FRB policy, One Valley may not find itself able to provide it. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. DEPOSITOR PREFERENCE STATUTE Under federal law, deposits are afforded a priority over other general unsecured claims against a depository institution, including federal funds and letters of credit, in the liquidation or other resolution of such an institution by a receiver. FDIC ASSESSMENTS The Banking Subsidiaries are subject to deposit insurance assessments by the FDIC. Most of the deposits of the Banking Subsidiaries are insured by the Bank Insurance Fund ("BIF"), but the deposits of One Valley Bank F.S.B., One Valley Bank-Central Virginia, and an amount of deposits attributed to thrifts acquired by other Banking Subsidiaries are insured by the Savings Association Insurance Fund ("SAIF"). Effective January 1, 1996, the FDIC reduced the insurance premiums it charged on bank deposits insured by the BIF to the statutory minimum of $2,000 annually for banks which qualify for the highest ranking under a risk-based system. On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed into law. DIFA imposed a special assessment to recapitialize SAIF and reduced the amount of FDIC insurance premiums for deposits insured by SAIF to the same levels assessed for deposits insured by BIF. Paragraphs 3 and 5 of the Section of Management's Discussion and Analysis captioned "Income Statement Analysis - Non-Interest Income and Expense" appearing at page 21 of One Valley's 1996 Annual Report to Shareholders is incorporated herein by reference. DIFA further provides, however, for assessments to be imposed on deposits at all insured depository institutions to pay for the cost of the Financing Corporation funding. Based on December 31, 1996 deposit levels, One Valley estimates that insurance assessments will amount to approximately $750,000 in 1997. MISCELLANEOUS Under Section 106 of the 1970 Amendments to the Bank Holding Company Act and the regulations of the FRB, the Banking 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. 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 11 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. 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 FRB. The FRB regulates the national money supply in order to mitigate recessionary and inflationary pressures. The techniques used by the FRB 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 FRB have a direct and indirect effect on the amount of bank loans and deposits, and the interest rates charged and paid thereon. The impact of current economic problems and the policies of the FRB 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, but 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 five through 23 of One Valley's 1996 Annual Report to Shareholders for the fiscal year ended December 31, 1996. 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 land 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 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 20 branch locations throughout Kanawha, Putnam, Jackson, and Wood Counties. 12 OTHER AFFILIATE BANKS The properties owned or leased by the other Banking Subsidiaries consist generally of 11 main bank offices, related drive-in facilities, 57 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 70 1991 to Present, Chairman of the Board, One Valley. 1971 to 1991, One Valley Bank. Previously, President and Chief Executive Officer, One Valley. J. Holmes Morrison 56 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 48 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. 13 Name Age Banking Experience and Qualifications Frederick H. Belden, Jr. 58 1968 to present, One Valley Bank. Senior Vice President and Senior Trust Officer, 1982; Executive Vice President, 1986. Executive Vice President, One Valley, 1994. Laurance G. Jones 50 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. James A. Winter 44 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. Robert E. Kamm, Jr. 45 1975 to 1978, One Valley Bank, Assistant Investment Officer; 1982 to present, President One Valley Bank of Summersville, Inc.; Senior Vice President, One Valley, 1996. Kenneth R. Summers 51 1963 to 1988, One Valley Bank. Vice President, 1976; Senior Vice President, 1985; 1988 to present, President and Chief Executive Officer One Valley Bank, Inc.; Senior Vice President, One Valley, 1996.
14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS During 1996, One Valley Common Stock was traded over the counter on the Nasdaq National Market under the symbol "OVWV" by Merrill Lynch, Pierce, Fenner & Smith, Inc.; Keefe, Bruyette & Woods, Inc.; Robinson-Humphrey Co. Inc.; Legg, Mason, Wood, Walker, Inc.; Wheat First Securities, Inc.; Herzog, Heine, Geduld, Inc.; McDonald & Company Sec., Inc.; Sandler O'Neill & Partners; Prudential Securities, Inc.; and Friedman Billings Ramsey & Co. At March 4, 1997, the total number of holders of One Valley Common Stock was approximately 11,000, 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 1996 Annual Report to Shareholders is incorporated herein by reference. Notes D, F, Q and V of Notes to the Consolidated Financial Statements appearing at pages 29, 30, 38 and 43 of One Valley's 1996 Annual Report to Shareholders are incorporated herein by reference. Table 2 "Six-Year Selected Financial Summary" on page six of One Valley's 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Table 2 "Six-Year Selected Financial Summary" on page six of One Valley's 1996 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 five through 23 of One Valley's 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information contained on pages 24 through 44 of One Valley's 1996 Annual Report to Shareholders is incorporated herein by reference. See Item 14 for additional information regarding the financial statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 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 "Section 16(a) Beneficial Ownership Reporting Compliance" on pages two through five and page 17 of One Valley's definitive Proxy Statement dated March 21, 1997, 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 in Control Arrangements", and "Compensation of Directors" on pages ten through 13 and page 17 of One Valley's definitive Proxy Statement dated March 21, 1997, 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 six through ten of One Valley's definitive Proxy Statement dated March 21, 1997, 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 17 of One Valley's definitive Proxy Statement dated March 21, 1997, and Notes H and J of the Notes to the Consolidated Financial Statements appearing at pages 32 and 33 of One Valley's 1996 Annual Report to Shareholders are incorporated herein by reference. 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1996 Annual Report to Shareholders Index Page(s) (a) 1. Financial Statements Consolidated Financial Statements of One Valley Bancorp, Inc. incorporated by reference in Part II, Item 8 of this report. Consolidated Balance Sheets at 24 December 31, 1996 and 1995 Consolidated Statements of Income 25 for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Share- 26 holders' Equity for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows 27 for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial 28-43 Statements Report of Independent Auditors 44 (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 22 Reports on Form 8-K: None 17 (c) Exhibits See Item 14(a)3 above. (d) Financial Statement Schedules See Item 14(a)2 above. 18 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, INC. By: /s/ J. Holmes Morrison J. Holmes Morrison, President and Chief Executive Officer March 18, 1997 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 18, 1997 PHYLLIS H. ARNOLD /s/ Charles M. Avampato Director March 18, 1997 CHARLES M. AVAMPATO /s/ Robert F. Baronner Director March 18, 1997 ROBERT F. BARONNER Director March ___, 1997 C. MICHAEL BLAIR /s/ James K. Brown Director March 18, 1997 JAMES K. BROWN /s/ Nelle Ratrie Chilton Director March 18, 1997 NELLE RATRIE CHILTON /s/ R. Marshall Evans, Jr. Director March 18, 1997 R. MARSHALL EVANS, JR. Director March ___, 1997 JAMES GABRIEL 19 /s/ Phillip H. Goodwin Director March 20, 1997 PHILLIP H. GOODWIN Director March ___, 1997 THOMAS E. GOODWIN Director March ___, 1997 CECIL B. HIGHLAND, JR. /s/ Bob M. Johnson Director March 25, 1997 BOB M. JOHNSON /s/ Laurance G. Jones Treasurer and Chief March 17, 1997 LAURANCE G. JONES Financial Officer (Principal Financial Officer) /s/ Robert E. Kamm, Jr. Director March 25, 1997 ROBERT E. KAMM, JR. Director March ___, 1997 DAVID E. LOWE Director March ___, 1997 JOHN D. LYNCH /s/ Edward H. Maier Director March 18, 1997 EDWARD H. MAIER /s/ J. Holmes Morrison Chief Executive March 18, 1997 J. HOLMES MORRISON Officer, Director and President Director March ___, 1997 CHARLES R. NEIGHBORGALL, III /s/ Robert O. Orders, Sr. Director March 18, 1997 ROBERT O. ORDERS, SR. /s/ John L. D. Payne Director March 18, 1997 JOHN L. D. PAYNE /s/ Angus E. Peyton Director March 18, 1997 ANGUS E. PEYTON Director March ___, 1997 LACY I. RICE, JR. /s/ Brent D. Robinson Director March 21, 1997 BRENT D. ROBINSON 20 Director March ___, 1997 JAMES W. THOMPSON Director March ___, 1997 J. LEE VAN METRE, JR. Director March ___, 1997 RICHARD B. WALKER Director March ___, 1997 H. BERNARD WEHRLE, III Director March ___, 1997 JOHN H. WICK, III /s/ Thomas D. Wilkerson Director March 18, 1997 THOMAS D. WILKERSON /s/ James A. Winter Vice President and March 18, 1997 JAMES A. WINTER Chief Accounting Officer (Principal Accounting Officer) 21 INDEX TO EXHIBITS Exhibit No. Description: (3) Articles of Incorporation and Bylaws Exhibit 3.1 Restated Articles of Incorporation of One Valley, filed as part of One Valley's June 30, 1996, Quarterly Report on Form 10-Q and incorporated herein by reference. Exhibit 3.2 Amendments to the Bylaws of One Valley dated October 18 and December 20, 1995, and a complete copy of One Valley's Bylaws as amended and filed as part of One Valley's 1995 Annual Report on Form 10-K and incorporated herein by reference. Exhibit 4.1 Shareholder Protection Rights Agreement, filed as a part of One Valley's current report on Form 8-K, dated October 19, 1995, and incorporated herein by reference. (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 Form of Change in Control Severance Agreements between One Valley and certain of its officers, dated as of October 16, 1996. Exhibit 10.3 One Valley Bancorp, 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 10.4 One Valley Bancorp, 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 10.5 One Valley Bancorp, 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 10.6 One Valley Bancorp, 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. Exhibit 10.7 One Valley Bancorp, Inc., Executive Incentive Compensation Plan, dated as of January 1, 1996. 22 (11) Computation of Earnings Per Share -- found at page 77 herein. (12) Statement Re Computation of Ratios -- found at page 78 herein. (13) 1996 Annual Report to Security Holders -- found at page 79 herein. (21) Subsidiaries of Registrant -- found at page 131 herein. (23) Consent of Independent Auditors -- found at page 132 herein. (27) Financial Data Statement -- Edgar filing only (99) Proxy Statement for the 1997 Annual Meeting of One Valley -- found at page 133 herein. 23
EX-10 2 EXHIBIT 10.2 EXECUTIVE MANAGEMENT CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AGREEMENT is entered into as of the 16th day of October, 1996 by and between One Valley Bancorp, Inc. (the "Company"), and ______________ ("Executive"). W I T N E S S E T H WHEREAS, Executive currently serves as a key employee of the Company and his services and knowledge are valuable to the Company in connection with the management of one or more of the Company's principal operating facilities, divisions, departments or Subsidiaries (as defined in Section 1); and WHEREAS, the Board (as defined in Section 1) has determined that it is in the best interests of the Company and its stockholders to secure the continued services, and to ensure the continued and undivided dedication and objectivity, of the Company's executives in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as defined in Section 1) of the Company; and WHEREAS, the Board has authorized the Compensation Committee of the Board to cause the Company to enter into Change in Control severance agreements with the Company's executives, and the Compensation Committee has authorized the Company to enter into this Agreement with Executive. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and Executive hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth 1 below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (i) the willful and continued failure of Executive to perform substantially his duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or any such failure subsequent to Executive being delivered a Notice of Termination without Cause by the Company or delivering a Notice of Termination for Good Reason to the Company) after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive's duties, (ii) the willful engaging by Executive in illegal conduct or gross misconduct which is demonstrably and materially injurious to the Company or its affiliates or (iii) the Executive's conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude. For purposes of this paragraph (b) no act or failure to act by Executive shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company or its affiliates. The unwillingness of Executive to accept any condition or event which would constitute Good Reason under Section 1(f) may not be considered by the Board to be a failure to perform or misconduct by Executive. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause for purposes of this Agreement unless and until there shall have been delivered to him a copy of a resolution, duly adopted by a vote of three-quarters (3/4) of the entire 2 Board at a meeting of the Board called and held (after reasonable notice to Executive and an opportunity for Executive and his counsel to be heard before the Board). The Company must notify Executive of an event constituting Cause within ninety (90) days following its knowledge of its existence or such event shall not constitute Cause under this Agreement. (c) "Change in Control" means the occurrence of any one of the following events: (i) individuals who, on October 16, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to October 16, 1996, whose election or nomination for election was approved by a vote of at least three-quarters (3/4) of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual elected or nominated as a director of the Company initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of 3 the Company representing 50% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive); or (F) a transaction (other than one described in (iii) below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors then on the Board approve a resolution providing expressly that the acquisition pursuant to this clause (F) does not constitute a Change in Control under this paragraph (i); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 60% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate 4 parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Control Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or a sale or disposition of all or substantially all of the Company's assets. 5 Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 50% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. (d) "Date of Termination" means (i) the effective date on which Executive's employment by the Company terminates as specified in a prior written notice by the Company or Executive, as the case may be, to the other, delivered pursuant to Section 10 or (ii) if Executive's employment by the Company terminates by reason of death, the date of death of Executive. (e) "Disability" means Executive's total and permanent disability as defined by the Company's long-term disability plan (as in existence immediately prior to the Change in Control). (f) "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after a Change in Control: (1) (A) any change in the duties or responsibilities (including reporting responsibilities) of Executive that is inconsistent in any material and adverse respect with Executive's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control (including any material 6 and adverse diminution of such duties or responsibilities); provided, however, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities that is solely and directly a result of the Company no longer being a publicly traded entity and does not involve any other event set forth in this paragraph (f) or (B) a material and adverse change in Executive's titles or offices (including, if applicable, membership on the Board) with the Company as in effect immediately prior to such Change in Control; (2) a reduction by the Company in Executive's rate of annual base salary or annual target bonus opportunity (including any adverse change in the formula for such annual bonus target) as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that Executive (i) be based anywhere more than fifty (50) miles from the facility where Executive is located at the time of such Change in Control or (ii) travel on Company business to an extent substantially greater than the travel obligations of Executive immediately prior to such Change in Control; (4) the failure of the Company to (A) continue in effect any employee benefit plan, compensation plan, welfare benefit plan or material fringe benefit plan in which Executive is participating immediately prior to such Change in Control or the taking of any action by the Company which would adversely affect Executive's participation in or reduce Executive's benefits under 7 any such plan, unless Executive is permitted to participate in other plans providing Executive with substantially equivalent benefits in the aggregate (at substantially equivalent cost with respect to welfare benefit plans), or (B) provide Executive with paid vacation in accordance with the most favorable vacation, policies of the Company and its affiliated companies as in effect for Executive immediately prior to such Change in Control, including the crediting of all service for which Executive had been credited under such vacation policies prior to the Change in Control; or (5) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 9(b). Notwithstanding the foregoing, an isolated and inadvertent action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason. Executive must notify the Company of an event constituting Good Reason within one hundred and eighty (180) days following his knowledge of its existence or such event shall not constitute Good Reason under this Agreement. Notwithstanding anything herein to the contrary, Executive's termination of employment for any reason (other than Cause) during the thirty (30) day period immediately following the first anniversary of a Change in Control shall also constitute Good Reason under this Agreement. Executive's termination of employment under this Agreement for Good Reason shall in no event impair Executive's ability to 8 receive benefits under any retirement-based plans or programs for which Executive is otherwise eligible as of Executive's Date of Termination. (g) "Nonqualifying Termination" means a termination of Executive's employment (1) by the Company for Cause, (2) by Executive for any reason other than Good Reason, (3) as a result of Executive's death, or (4) as a result of Disability. (h) "Retirement" means termination of employment by Executive in accordance with the Company's retirement plan generally applicable to salaried employees (as in existence immediately prior to the Charge in Control), or in accordance with any retirement arrangement established with respect to Executive with Executive's written consent. (i) "Subsidiary" means any corporation or other entity in which the Company has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. (j) "Termination Period" means the period of time beginning with a Change in Control and ending two (2) years following such Change in Control. Notwithstanding anything in this Agreement to the contrary, if (i) Executive's employment is terminated prior to a Change in Control for reasons that would have constituted a Qualifying Termination if they had occurred following a Change in Control and (ii) Executive reasonably demonstrates that such termination (or Good Reason event) was at the request or suggestion of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control then for purposes of this Agreement (and notwithstanding whether a Change in Control occurs), the date immediately prior to the 9 date of such termination of employment or event constituting Good Reason shall be treated as a Change in Control. 2. Obligations of Executive. In the event of a tender or exchange offer, proxy contest, or the execution of any agreement which, if consummated, would constitute a Change in Control, Executive agrees not to voluntarily leave the employ of the Company, other than as a result of Disability, Retirement (following age sixty (60)) or an event which would constitute Good Reason if a Change in Control had occurred, until the Change in Control occurs or, if earlier, such tender or exchange offer, proxy contest, or agreement is terminated or abandoned; provided, however, that such obligation shall not extend for a period exceeding one hundred and eighty (180) days from the initial event resulting in the obligation under this Section 2. 3. Payments Upon Termination of Employment. (a) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Company shall pay to Executive (or Executive's beneficiary or estate) within ten (10) days following the Date of Termination, as compensation for services rendered to the Company: (1) a lump-sum cash amount equal to the sum of (A) Executive's unpaid base salary from the Company and its affiliated companies through the Date of Termination (without taking into account any reduction of base salary constituting Good Reason), (B) any bonus payments which have become payable, to the extent not theretofore paid, and (C) any compensation previously deferred by Executive other than pursuant to a tax-qualified plan (together with any interest thereon) and any unpaid accrued vacation, each to the extent not theretofore paid; 10 (2) to the extent not paid under the terms of such annual incentive compensation plan, a lump-sum cash amount equal to the target award for the Executive under the Company's annual incentive compensation plan for the fiscal year in which his Date of Termination occurs, reduced pro rata for that portion of the fiscal year not completed as of the end of the month in which such Date of Termination occurs; and (3) a lump-sum cash amount equal to three (3) times the sum of (A) Executive's annual rate of base salary from the Company and its affiliated companies in effect immediately prior to the Date of Termination (not taking into account any reductions which would constitute Good Reason) plus (B) the average annualized bonus earned by the Executive from the Company (or its Subsidiaries) during the three fiscal years (or shorter annualized period if Executive had not been employed for the full three-year period) ending immediately prior to the year of the Change in Control. (b) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, then for a period of thirty-six (36) months following the Date of Termination, the Company shall provide Executive (and Executive's dependents, if applicable) with the same level of medical, dental, accident, disability, and life insurance benefits upon substantially the same terms and conditions (including contributions required from Executive to receive such benefits) as existed immediately prior to Executive's Date of Termination (or, if more favorable to Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control); provided, that, if Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide 11 such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, if Executive becomes reemployed with another employer and is eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of Executive's eligibility, but only to the extent that the Company reimburses Executive for any increased cost and provides any additional benefits necessary to give Executive the benefits promised hereunder. (c) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, and Executive has attained age fifty (50) with ten (10) years of service with the Company (or any of its affiliates) at the time of the Date of Termination, Executive shall be eligible to receive retiree medical benefits from the Company at the conclusion of the thirty-six (36) months of benefit coverage set forth in Section 3(b). The retiree medical benefits (including contributions required from Executive to receive such benefits) to be provided to Executive (and Executive's eligible dependents) by the Company shall be no less favorable than the benefits (and cost to Executive) under the retiree medical program as of immediately prior to Executive's Date of Termination (or, if more favorable to Executive, as of immediately prior to the Change in Control), and shall be provided to Executive (and Executive's eligible dependents) notwithstanding any amendment to, or termination of, the Company's retiree medical program. (d) Any amount of severance paid pursuant to this Section 3 shall offset any other amount of severance to be received by Executive upon termination of employment of Executive under any other severance plan or policy of the 12 Company, including any employment agreement. (e) If during the Termination Period the employment of Executive shall terminate by reason of a Nonqualifying Termination, then the Company shall pay to Executive within ten (10) days following the Date of Termination a lump sum cash amount equal to the sum of (i) Executive's unpaid base salary from the Company through the Date of Termination, (ii) any bonus payments which have become payable, to the extent not theretofore paid, and (iii) any compensation previously deferred by Executive other than pursuant to a tax-qualified plan (together with any interest thereon) and any unpaid accrued vacation, each to the extent not theretofore paid. 4. Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 5. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 5) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, 13 together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Executive (or to the Internal Revenue Service on behalf of Executive) an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-up Payment in Executive's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made. For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to the Gross-up Payment. Notwithstanding the foregoing provisions of this Section 5(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Executive under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall 14 be made to Executive. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 3(a)(3), unless an alternative method of reduction is elected by Executive. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. (b) Subject to the provisions of Section 5(a), all determinations required to be made under this Section 5, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control (or if the Accounting Firm fails to make the Determination), Executive may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the 15 services hereunder. The Gross-up Payment under this Section 5 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Executive with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), or consistent with the calculations required to be made hereunder. In the event that the Executive thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Executive. Executive shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 16 6. Reimbursement of Expenses. If any contest or dispute shall arise under this Agreement involving termination of Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, reasonably incurred by Executive in connection with such contest or dispute (regardless of the result thereof), together with interest in an amount equal to the "prime rate" as set forth in The Wall Street Journal from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives Executive's statement for such fees and expenses through the date of payment thereof. 7. Term of Agreement. This Agreement shall continue in effect for a term of three (3) years from the date hereof; provided, however, that unless either party gives sixty (60) days' written notice prior to an anniversary of the date of this Agreement, its term shall automatically be extended by one (1) year on such anniversary date, so that, in the absence of such notice, the term of this Agreement shall be three (3) years as of each anniversary date. Notwithstanding the foregoing, upon a Change in Control, the term of the Agreement shall, if less than two (2) years at such date, be extended automatically to continue for at least two (2) years following such Change In Control. This Agreement shall terminate in any event upon the first to occur of (i) termination of Executive's employment with the Company prior to a Change in Control (except as otherwise provided hereunder), (ii) a Nonqualifying Termination or (iii) the end of the Termination Period. 17 8. Scope of Agreement. Nothing in this Agreement shall be deemed to entitle Executive to continued employment with the Company or its Subsidiaries, and if Executive's employment with the Company shall terminate prior to a Change in Control, Executive shall have no further rights under this Agreement (except as provided specifically hereunder); provided, however, that any termination of Executive's employment during the Termination Period shall be subject to all of the provisions of this Agreement including, without limitation, payment of amounts owed hereunder. 9. Successors; Binding Agreement. (a) This Agreement shall not be terminated by any Business Combination. In the event of any such Business Combination, the provisions of this Agreement shall be binding upon the Surviving Corporation, and such Surviving Corporation shall be treated as the Company hereunder. (b) The Company agrees that in connection with any Business Combination, it will cause any successor entity to the Company unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such Business Combination that constitutes a Change in Control shall constitute Good Reason hereunder and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by Executive. 18 (c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die following the Date of Termination while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate. 10. Notice. (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: One Valley Bancorp, Inc. One Valley Square, P.O. Box 1793 Charleston, WV 25326 Att: Corporate Secretary or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (b) A written notice of Executive's Date of Termination by the Company or Executive, as the case may be, to the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and 19 circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) specify the termination date (which date shall be not less than thirty (30) nor more than sixty (60) days after the giving of such notice). 11. Full Settlement; Resolution of Disputes. The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and, except as provided in Section 3(b) hereof, such amounts shall not be reduced whether or not Executive obtains other employment. 12. Employment with Subsidiaries. Employment with the Company for purposes of this Agreement shall include employment with any Subsidiary. 13. Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of West Virginia without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 14. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and 20 the same instrument. 15. Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including without limitation, the right of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as provided hereunder, the rights of and benefits payable to, Executive or Executive's estate or beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive or Executive's estate or beneficiaries under any other employee benefit plan or compensation program of the Company. This Agreement supersedes and overrides any employment or severance agreement previously entered into between Executive and the Company. 21 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written. ONE VALLEY BANCORP, INC. By:__________________________ Title:_______________________ ----------------------------- [Executive] 22 SENIOR MANAGEMENT CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AGREEMENT is entered into as of the 16th day of October, 1996 by and between One Valley Bancorp, Inc. (the "Company"), and ______________ ("Executive"). W I T N E S S E T H WHEREAS, Executive currently serves as a key employee of the Company and his services and knowledge are valuable to the Company in connection with the management of one or more of the Company's principal operating facilities, divisions, departments or Subsidiaries (as defined in Section 1); and WHEREAS, the Board (as defined in Section 1) has determined that it is in the best interests of the Company and its stockholders to secure the continued services, and to ensure the continued and undivided dedication and objectivity, of the Company's executives in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as defined in Section 1) of the Company; and WHEREAS, the Board has authorized the Compensation Committee of the Board to cause the Company to enter into Change in Control severance agreements with the Company's executives, and the Compensation Committee has authorized the Company to enter into this Agreement with Executive. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and Executive hereby agree as follows: 1 1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (i) the willful and continued failure of Executive to perform substantially his duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness or any such failure subsequent to Executive being delivered a Notice of Termination without Cause by the Company or delivering a Notice of Termination for Good Reason to the Company) after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive's duties, (ii) the willful engaging by Executive in illegal conduct or gross misconduct which is demonstrably and materially injurious to the Company or its affiliates or (iii) the Executive's conviction of, or plea of guilty or nolo contendere to, a felony involving moral turpitude. For purposes of this paragraph (b) no act or failure to act by Executive shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company or its affiliates. The unwillingness of Executive to accept any condition or event which would constitute Good Reason under Section 1(f) may not be considered by the Board to be a failure to perform or misconduct by Executive. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause for purposes of this Agreement unless and until there 2 shall have been delivered to him a copy of a resolution, duly adopted by a vote of three-quarters (3/4) of the entire Board at a meeting of the Board called and held (after reasonable notice to Executive and an opportunity for Executive and his counsel to be heard before the Board). The Company must notify Executive of an event constituting Cause within ninety (90) days following its knowledge of its existence or such event shall not constitute Cause under this Agreement. (c) "Change in Control" means the occurrence of any one of the following events: (i) individuals who, on October 16, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to October 16, 1996, whose election or nomination for election was approved by a vote of at least three-quarters (3/4) of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual elected or nominated as a director of the Company initially as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a 3 "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive); or (F) a transaction (other than one described in (iii) below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors then on the Board approve a resolution providing expressly that the acquisition pursuant to this clause (F) does not constitute a Change in Control under this paragraph (i); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 60% of the total voting power of (x) the corporation resulting 4 from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Control Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the 5 Company or a sale or disposition of all or substantially all of the Company's assets. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 50% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. (d) "Date of Termination" means (i) the effective date on which Executive's employment by the Company terminates as specified in a prior written notice by the Company or Executive, as the case may be, to the other, delivered pursuant to Section 10 or (ii) if Executive's employment by the Company terminates by reason of death, the date of death of Executive. (e) "Disability" means Executive's total and permanent disability as defined by the Company's long-term disability plan (as in existence immediately prior to the Change in Control). (f) "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after a Change in Control: (1) (A) any change in the duties or responsibilities (including reporting responsibilities) of Executive that is inconsistent in any material and adverse respect with Executive's position(s), duties, 6 responsibilities or status with the Company immediately prior to such Change in Control (including any material and adverse diminution of such duties or responsibilities); provided, however, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities that is solely and directly a result of the Company no longer being a publicly traded entity and does not involve any other event set forth in this paragraph (f) or (B) a material and adverse change in Executive's titles or offices (including, if applicable, membership on the Board) with the Company as in effect immediately prior to such Change in Control; (2) a reduction by the Company in Executive's rate of annual base salary or annual target bonus opportunity (including any adverse change in the formula for such annual bonus target) as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that Executive (i) be based anywhere more than fifty (50) miles from the facility where Executive is located at the time of such Change in Control or (ii) travel on Company business to an extent substantially greater than the travel obligations of Executive immediately prior to such Change in Control; (4) the failure of the Company to (A) continue in effect any employee benefit plan, compensation plan, welfare benefit plan or material fringe benefit plan in which Executive is participating immediately prior to such Change in Control or the taking of any action by the Company which would adversely affect Executive's 7 participation in or reduce Executive's benefits under any such plan, unless Executive is permitted to participate in other plans providing Executive with substantially equivalent benefits in the aggregate (at substantially equivalent cost with respect to welfare benefit plans), or (B) provide Executive with paid vacation in accordance with the most favorable vacation, policies of the Company and its affiliated companies as in effect for Executive immediately prior to such Change in Control, including the crediting of all service for which Executive had been credited under such vacation policies prior to the Change in Control; or (5) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 9(b). Notwithstanding the foregoing, an isolated and inadvertent action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason. Executive must notify the Company of an event constituting Good Reason within one hundred and eighty (180) days following his knowledge of its existence or such event shall not constitute Good Reason under this Agreement. Executive's termination of employment under this Agreement for Good Reason shall in no event impair Executive's ability to receive benefits under any retirement-based plans or programs for which Executive is otherwise eligible as of Executive's Date of Termination. 8 (g) "Nonqualifying Termination" means a termination of Executive's employment (1) by the Company for Cause, (2) by Executive for any reason other than Good Reason (including Retirement if Good Reason does not exist at such time), (3) as a result of Executive's death, or (4) as a result of Disability. (h) "Retirement" means termination of employment by Executive in accordance with the Company's retirement plan generally applicable to salaried employees (as in existence immediately prior to the Charge in Control), or in accordance with any retirement arrangement established with respect to Executive with Executive's written consent. (i) "Subsidiary" means any corporation or other entity in which the Company has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. (j) "Termination Period" means the period of time beginning with a Change in Control and ending two (2) years following such Change in Control. Notwithstanding anything in this Agreement to the contrary, if (i) Executive's employment is terminated prior to a Change in Control for reasons that would have constituted a Qualifying Termination if they had occurred following a Change in Control and (ii) Executive reasonably demonstrates that such termination (or Good Reason event) was at the request or suggestion of a third party who had indicated an intention or taken steps reasonably calculated to effect a Change in Control then for purposes of this Agreement (and notwithstanding whether a Change in Control occurs), the date immediately prior to the date of such termination of employment or event constituting Good Reason shall be treated as a Change in Control. 9 2. Obligations of Executive. In the event of a tender or exchange offer, proxy contest, or the execution of any agreement which, if consummated, would constitute a Change in Control, Executive agrees not to voluntarily leave the employ of the Company, other than as a result of Disability, Retirement (following age sixty (60)) or an event which would constitute Good Reason if a Change in Control had occurred, until the Change in Control occurs or, if earlier, such tender or exchange offer, proxy contest, or agreement is terminated or abandoned; provided, however, that such obligation shall not extend for a period exceeding one hundred and eighty (180) days from the initial event resulting in the obligation under this Section 2. 3. Payments Upon Termination of Employment. (a) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Company shall pay to Executive (or Executive's beneficiary or estate) within ten (10) days following the Date of Termination, as compensation for services rendered to the Company: (1) a lump-sum cash amount equal to the sum of (A) Executive's unpaid base salary from the Company and its affiliated companies through the Date of Termination (without taking into account any reduction of base salary constituting Good Reason), (B) any bonus payments which have become payable, to the extent not theretofore paid, and (C) any compensation previously deferred by Executive other than pursuant to a tax-qualified plan (together with any interest thereon) and any unpaid accrued vacation, each to the extent not theretofore paid; (2) to the extent not paid under the terms of such annual incentive compensation plan, a lump-sum cash amount equal to the target award for the Executive under the 10 Company's annual incentive compensation plan for the fiscal year in which his Date of Termination occurs, reduced pro rata for that portion of the fiscal year not completed as of the end of the month in which such Date of Termination occurs; and (3) a lump-sum cash amount equal to two (2) times the sum of (A) Executive's annual rate of base salary from the Company and its affiliated companies in effect immediately prior to the Date of Termination (not taking into account any reductions which would constitute Good Reason) plus (B) the average annualized bonus earned by the Executive from the Company (or its Subsidiaries) during the three fiscal years (or shorter annualized period if Executive had not been employed for the full three-year period) ending immediately prior to the year of the Change in Control. (b) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, then for a period of thirty-six (36) months following the Date of Termination, the Company shall provide Executive (and Executive's dependents, if applicable) with the same level of medical, dental, accident, disability, and life insurance benefits upon substantially the same terms and conditions (including contributions required from Executive to receive such benefits) as existed immediately prior to Executive's Date of Termination (or, if more favorable to Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control); provided, that, if Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, if Executive becomes reemployed with another 11 employer and is eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of Executive's eligibility, but only to the extent that the Company reimburses Executive for any increased cost and provides any additional benefits necessary to give Executive the benefits promised hereunder. (c) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, and Executive has attained age fifty (50) with ten (10) years of service with the Company (or any of its affiliates) at the time of the Date of Termination, Executive shall be eligible to receive retiree medical benefits from the Company at the conclusion of the thirty-six (36) months of benefit coverage set forth in Section 3(b). The retiree medical benefits (including contributions required from Executive to receive such benefits) to be provided to Executive (and Executive's eligible dependents) by the Company shall be no less favorable than the benefits (and cost to Executive) under the retiree medical program as of immediately prior to Executive's Date of Termination (or, if more favorable to Executive, as of immediately prior to the Change in Control), and shall be provided to Executive (and Executive's eligible dependents) notwithstanding any amendment to, or termination of, the Company's retiree medical program. (d) Any amount of severance paid pursuant to this Section 3 shall offset any other amount of severance to be received by Executive upon termination of employment of Executive under any other severance plan or policy of the Company, including any employment agreement. (e) If during the Termination Period the employment of Executive shall terminate by reason of a 12 Nonqualifying Termination, then the Company shall pay to Executive within ten (10) days following the Date of Termination a lump sum cash amount equal to the sum of (i) Executive's unpaid base salary from the Company through the Date of Termination, (ii) any bonus payments which have become payable, to the extent not theretofore paid, and (iii) any compensation previously deferred by Executive other than pursuant to a tax-qualified plan (together with any interest thereon) and any unpaid accrued vacation, each to the extent not theretofore paid. 4. Withholding Taxes. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 5. Limitations On Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the "Payments") would be subject to the excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the amounts payable to Executive under this Agreement shall be reduced (reducing first the payments under Section 3(a)(ii), unless an alternative method of reduction is elected by Executive) to the maximum amount as will result in no portion of the Payments being subject to such excise tax (the "Safe Harbor Cap"). For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under 13 this Agreement (and no other Payments) shall be reduced, unless consented to by Executive. (b) All determinations required to be made under this Section 5 shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control (or if the Accounting Firm fails to make the Determination), Executive may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). If payments are reduced to the Safe Harbor Cap, the Accounting Firm shall provide a reasonable opinion to Executive that he is not required to report any Excise Tax on his federal income tax return. All fees, costs and expenses (including, but not limited to, the costs of retaining experts) of the Accounting Firm shall be borne by the Company. The determination by the Accounting Firm shall be binding upon the Company and Executive (except as provided in Subsection (c) below). (c) If it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Section 5 (hereinafter referred to as an "Excess Payment"), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in 14 Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made under this Section 5. In the event that it is determined (1) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (2) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. 6. Reimbursement of Expenses. If any contest or dispute shall arise under this Agreement involving termination of Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, reasonably incurred by Executive in connection with such contest or dispute (regardless of the result thereof), together with interest in an amount equal to the "prime rate" as set forth in The Wall Street Journal from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives Executive's statement for such fees and expenses through the date of payment thereof. 15 7. Term of Agreement. This Agreement shall continue in effect for a term of three (3) years from the date hereof; provided, however, that unless either party gives sixty (60) days' written notice prior to an anniversary of the date of this Agreement, its term shall automatically be extended by one (1) year on such anniversary date, so that, in the absence of such notice, the term of this Agreement shall be three (3) years as of each anniversary date. Notwithstanding the foregoing, upon a Change in Control, the term of the Agreement shall, if less than two (2) years at such date, be extended automatically to continue for at least two (2) years following such Change In Control. This Agreement shall terminate in any event upon the first to occur of (i) termination of Executive's employment with the Company prior to a Change in Control (except as otherwise provided hereunder), (ii) a Nonqualifying Termination or (iii) the end of the Termination Period. 8. Scope of Agreement. Nothing in this Agreement shall be deemed to entitle Executive to continued employment with the Company or its Subsidiaries, and if Executive's employment with the Company shall terminate prior to a Change in Control, Executive shall have no further rights under this Agreement (except as provided specifically hereunder); provided, however, that any termination of Executive's employment during the Termination Period shall be subject to all of the provisions of this Agreement including, without limitation, payment of amounts owed hereunder. 9. Successors; Binding Agreement. (a) This Agreement shall not be terminated by any Business Combination. In the event of any such Business Combination, the provisions of this Agreement shall be 16 binding upon the Surviving Corporation, and such Surviving Corporation shall be treated as the Company hereunder. (b) The Company agrees that in connection with any Business Combination, it will cause any successor entity to the Company unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such Business Combination that constitutes a Change in Control shall constitute Good Reason hereunder and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by Executive. (c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die following the Date of Termination while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate. 10. Notice. (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have 17 been duly given when delivered or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: One Valley Bancorp, Inc. One Valley Square, P.O. Box 1793 Charleston, WV 25326 Att: Corporate Secretary or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (b) A written notice of Executive's Date of Termination by the Company or Executive, as the case may be, to the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) specify the termination date (which date shall be not less than thirty (30) nor more than sixty (60) days after the giving of such notice). 11. Full Settlement; Resolution of Disputes. The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the 18 provisions of this Agreement and, except as provided in Section 3(b) hereof, such amounts shall not be reduced whether or not Executive obtains other employment. 12. Employment with Subsidiaries. Employment with the Company for purposes of this Agreement shall include employment with any Subsidiary. 13. Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of West Virginia without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 14. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 15. Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including without limitation, the right 19 of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as provided hereunder, the rights of and benefits payable to, Executive or Executive's estate or beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive or Executive's estate or beneficiaries under any other employee benefit plan or compensation program of the Company. This Agreement supersedes and overrides any employment or severance agreement previously entered into between Executive and the Company. 20 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written. ONE VALLEY BANCORP, INC. By:__________________________ Title:_______________________ ----------------------------- [Executive] EX-10 3 EXHIBIT 10.7 EXECUTIVE INCENTIVE COMPENSATION PLAN OF ONE VALLEY BANCORP, INC. JANUARY 1, 1996 I. PURPOSE The purpose of this Plan is to further the interests of One Valley Bancorp, Inc., its participating subsidiaries and its shareholders by providing selected members of senior management of the Corporation and its subsidiaries who drive or otherwise participate in the decision making process to materially alter & influence the strategic direction and corporate results of the Company, with an opportunity to earn incentive compensation awards. Such awards are designed to recognize and reward outstanding performance and individual contributions and give the Plan Participants an interest in One Valley parallel to that of the shareholders, thus enhancing the proprietary and personal interest of the Participants in One Valley's continued success and progress. This Plan is also expected to enhance the likelihood of One Valley and its subsidiaries to attract and retain key employees. II. DEFINITIONS a) Affiliate Bank - A banking subsidiary of One Valley Bancorp, Inc. b) Committee - Compensation Committee of the Board of Directors of One Valley Bancorp. c) Plan Earnings Per Share (EPS) - Plan Net Income divided by the average number of shares of common stock of One Valley outstanding during the Plan Year. d) Effective Date - The date of inception of the Plan, January 1, 1996. e) One Valley Bancorp, Inc.; also referred to as the Corporation, the Company and as One Valley. f) Participant - An employee of the Company or of a Participating Employer who has been selected by the Committee to participate in the Plan. g) Participant Award Opportunity (PAO) - The percentage of Plan Compensation that establishes each Participant's basis for calculation of an award under the Plan. h) Participating Employer - A participating subsidiary of the Company. i) Plan - The Executive Incentive Compensation Plan of One Valley Bancorp, Inc.; also referred to as EICP. j) Plan Compensation - The total base salary paid to a Participant by the Company or by a Participating Employer for a Plan Year. Compensation of a Participant who is at any time simultaneously in the employ of more than one Participating Employer shall be the sum of such compensation received by the Participant from all such Participating Employers. Compensation shall include amounts deferred pursuant to Code Section 125. k) Plan Year - A calendar year beginning January 1 and ending December 31. III. SELECTION OF PLAN PARTICIPANTS The selection of Plan Participants will be made on an annual basis by the Committee. One Valley executive management and senior management of all Participating Employers of One Valley who hold positions, the impact of which can significantly influence corporate strategy and performance of One Valley, are eligible to be participants. The selection of the Participants by the Committee shall be made on the recommendation of 2 the CEO of One Valley or on the recommendation of such other senior officer(s) of the Corporation as the CEO may designate, but the Committee shall have sole authority to act with respect to the selection award opportunity and participation in the Plan. IV. SUMMARY OF PLAN DESIGN Specific objectives are established for a Plan Year. These objectives are of two broad types: Corporate and Unit/Individual. Plan Participants have a designated percentage of their award allocated to Corporate results (the Corporate Component) and the balance (to 100%) allocated to Unit/Individual performance (the Unit/Individual Component). a) The Corporate Component is that portion of a participant's award attributable to the financial performance of One Valley Bancorp for the Plan Year as measured by EPS growth over the prior Plan Year and One Valley's comparative performance relative to results on selected financial measures by a peer group of comparable banking organizations. The EPS growth goal, the peer group and selected financial measures of the Corporate Component are established by executive management of One Valley and approved by the Compensation Committee. b) The Unit/Individual Component is that portion of a Participant's award attributable to the Participant's measured performance in meeting Unit/Individual goals established for the Plan Year. Unit/Individual goals are established by each Participant's immediate supervisor and approved by One Valley senior management. V. DETAILS OF PLAN DESIGN A) THE CORPORATE COMPONENT The Corporate Component incorporates two factors: 1) One Valley's EPS growth over the prior year; and 2) relative performance on six financial measures compared to a peer group of comparable banking organizations. EPS GROWTH. One Valley's long range plan establishes a targeted EPS annual growth rate range. That range is divided into three(3) mini-ranges to establish EPS growth achievement levels upon which to measure this element of One Valley's corporate performance. The Committee has the discretion to alter the EPS growth target challenges from mirroring the long range plan in a given year to react to significant events that may cause the parameters of the long range plan to be unrealistic for such year. The subdivision of the long range plan growth target allows for several levels of achievement and award. Earnings as reported to shareholders will be the basis for calculating EPS. There is a minimum EPS growth level, below which no award is paid under the Plan for the Plan Year; except as may be permitted under Section VII., Item G. PEER GROUP. A peer group of banks (approximately 14 - 20) that are comparable to One Valley in asset size and lines of business is established annually. The intent is to maintain consistency from year to year among the identified group, however one or more banks may fall out of the group (to be replaced by others) at the annual review of comparable financial information if a bank is no longer deemed to be comparable to One Valley. The Committee approves the peer group and the rationale for inclusion and/or exclusion of banking organizations. 3 COMPARATIVE FINANCIAL MEASURES. Six financial measures are used to benchmark One Valley's performance against the cumulative average of the peer group for a defined time period, which is the trailing 12 months ending September 30 of the then current Plan year. The following financial measures are used: - Net Operating Expenses / Average Assets - Non Performing Assets / (Loans + OREO) - Net Loan Chargeoffs / Average Loans - Efficiency Ratio - Return on Average Assets (ROA) - Return on Average Equity (ROE) CORPORATE PERFORMANCE AWARD GRID. At the completion of a Plan Year, using the trailing 12 months ending September 30 data, each peer group bank is ranked on each of the six (6) comparative financial measures. The relative rank of each bank is then totaled to arrive at a sum of the ranks. The banks are then ranked by their cumulative totals and divided into quintile segments. The grid chart that follows is used to establish the percentage payout under the Corporate Component based on the EPS growth rate and the relative quintile position of One Valley. EXECUTIVE INCENTIVE COMPENSATION PLAN CORPORATE PERFORMANCE PAYOUT GRID One Valley Growth in EPS Over Prior Year EPS Growth Ranges* Performance Quintile % Range A % Range B % Range C 5th 110% 120% 130% One Valley Cumulative 4th 100% 110% 120% Position Relative to Peer 3rd 50% 90% 110% Group Based on 6 2nd ** 50% 90% Performance Factors 1st ** ** 50% THE PERCENTAGE INSIDE EACH GRID CELL REPRESENTS THE FACTOR USED IN DETERMINING THE CORPORATE COMPONENT PAYOUT * reflects One Valley long range plan except as may be revised by Compensation Committee to adjust for a non-recurring annual situation. ** The Compensation Committee has discretion to approve a payout if there is EPS growth for the current year over the prior year, but not at a level of payout consistent with the grid NO PAYOUT IF THERE IS NO INCREASE IN EPS FROM PRIOR YEAR 4 In no event will any award be made under this Plan if the prior year's EPS is not achieved. The Compensation Committee has discretion to approve a payout if there is EPS growth for the current year over the prior year, but not at a level of payout consistent with the grid. Payout of the Corporate Component to a Plan Participant is not an entitlement and a Participant must have an acceptable level of overall performance for a payout to be approved. The Committee has the final discretion, subject to executive management's recommendation, to approve or deny payments from this Plan. B) THE UNIT/INDIVIDUAL COMPONENT The Unit/Individual Component incorporates goals which reflect managements' expectation of a Participant's performance achievement for the Plan Year. The goals are more than a restatement of the forecast for the year and should reflect "stretch" targets, at three levels...Good, Superior and Outstanding. Three (3) to seven (7) such goals are the norm, each of which will have a designated weighting within the total Unit/Individual Component and each of which should be as quantitative and/or objectively measurable as possible. UNIT goals refer to the corporate operating entity in which a Participant works. At the highest level after One Valley Bancorp a "unit" is a company within One Valley Bancorp, i.e. an affiliate bank or subsidiary. In a relatively small affiliate or subsidiary, this may be the extent of the unit goals. In a larger entity, unit goals may include goals for divisions or departments. Goals for each affiliate entity, the holding company unit and each non-banking subsidiary are established annually and are incorporated into the EICP goals of each Participant, as applicable. It is expected that all Participants fully or principally employed by a Participating Employer of One Valley Bancorp will have one or more of their Unit/Individual goals pertinent to the performance of the subject subsidiary unit. FOR EXAMPLE, PLAN PARTICIPANTS EMPLOYED BY AN AFFILIATE BANK WILL HAVE ONE OR MORE GOALS WHICH PERTAIN AT LEAST TO THE OVERALL PERFORMANCE OF THE AFFILIATE BANK. PLAN PARTICIPANTS EMPLOYED BY ONE VALLEY BANK, N.A. WILL HAVE A GOAL APPLICABLE TO THE OVERALL PERFORMANCE OF THE BANK, AND UNIT GOALS WHICH RELATE TO THE DEPARTMENT/DIVISION, ETC. IN WHICH THEY WORK. INDIVIDUAL goals pertain more specifically to major targets for individual accomplishment. All aspects of individual performance cannot realistically be set out in the form of goals, however the evaluation of an individual participant's performance is to be an all inclusive evaluation considering both specified goals and elements of performance and behavior which may not be set out as specific goals. Each Participant's performance on Unit/Individual goals is evaluated on a scale of 70% to 130% achievement level (Good to Outstanding). [Note: Certain positions deemed to have a more intangible and less measurable impact on unit and/or corporate results have a top end Unit/Individual payout ratio of 110%. These positions and the applicable payout ratio are approved by the Committee]. The ratings and score on each goal coupled with the relative weight of each goal translates into a total rating on Unit/Individual goals. The total is then subjected to the influence of the less tangible, behavioral aspects of performance for a final composite rating. C) PARTICIPANT AWARD OPPORTUNITY Each Participant has a Participant Award Opportunity (PAO), which is a designated percentage of their Plan Compensation. The PAO serves as the basis for calculation of the cash award 5 payout and is approved by the Compensation Committee for each Participant. While this "percent of salary" sets up the framework for award calculation, the ultimate award can exceed the PAO to the extent that performance achievement levels exceed 100%. The PAO will be the payout level if both the Corporate and Unit/Individual payouts are at 100%, but to the extent either one varies from 100%, over or under, the award will vary similarly from the PAO. D) COMPONENT OPPORTUNITY WEIGHTS Each Participant has a percentage of his total award opportunity allocated to Corporate results (the Corporate Component) and the balance (to 100%) allocated to Unit/Individual performance (the Unit/Individual Component). The relative weights between the two Plan Components are designed to reflect the influences and impact that each Participant has over Corporate versus Unit/Individual results. FOR EXAMPLE, THE CEO OF ONE VALLEY WOULD HAVE A 100% CORPORATE COMPONENT WEIGHTING. A PARTICIPANT HEADING AN AFFILIATE BANK MIGHT HAVE A 50% CORPORATE COMPONENT WEIGHTING AND A 50% UNIT/INDIVIDUAL COMPONENT WEIGHTING, AND SO ON. The Component Weights are established annually by the Compensation Committee at the recommendation of the CEO of One Valley. The relative weights are considered as an indication of the desired emphasis to support the focus of the Plan Participant on goal achievement. E) COMPONENT PAYOUT RANGES 1) Corporate Component Payout Range The Corporate Component Payout is based on a combination of One Valley's growth in EPS over the 12 months ending September 30 of the current Plan year and One Valley's cumulative position relative to the peer group bank on the six financial measures. Based on where the combination of these two factors positions One Valley in the EICP Corporate Performance Payout Grid (see page 4), the award multiplier will vary from the minimum of 50% to the maximum of 130%, assuming a payout is made. This multiplier is applied to Corporate Component Weight of each Participant to arrive at a payout for each. 2) Unit/Individual Component Payout Range The Unit/Individual Component payout is subject to the refined measure of rating performance against established goals for each Participant, in the categories of Good, Superior, and Outstanding. Each Participant's performance on Unit/Individual goals is evaluated on a scale of 70% to 130% achievement level (Range of Awards from Good to Outstanding). [Note: Certain positions deemed to have a more intangible and less measurable impact on unit and/or corporate results have a top end Unit/Individual payout ratio of 110%.] The Committee has full discretion to approve the applied Range of Awards for any position/Participant, however the determination is normally consistent with the direct/indirect impact relationship of the position on earnings and performance. Table 1 and Table 2 (on page 7) set forth the performance levels and Range of Awards in each instance. 6 On any given Unit/Individual goal a manager performing a Participant's evaluation may assign an achievement level of less than 70% if the stated "Good" level of performance was not achieved but extenuating circumstances are cause for special consideration. While such an evaluation will factor in to the overall award calculation providing an element of credit for a special situation, no award will be paid to a Participant having a consolidated Unit/Individual award calculation of less than 70%.
TABLE 1...DIRECT, TANGIBLE IMPACT: RATING % RANGE OF AWARDS Outstanding... Performance consistently, 110% - 130% decisively, and repeatedly exceeds job requirements. Superior...... Performance continually meets 90% - 110% all job requirements and a pattern of exceeding job requirements exists. Good.......... Performance reliably meets job 70% - 90% requirements and occasionally exceeds expected level. Less Than Good No Payout TABLE 2...INTANGIBLE, INDIRECT IMPACT: RATING % RANGE OF AWARDS Outstanding... Performance consistently, 100% - 110% decisively, and repeatedly exceeds job requirements. Superior...... Performance continually meets 85% - 100% all job requirements and a pattern of exceeding job requirements exists. Good.......... Performance reliably meets job 70% - 85% requirements and occasionally exceeds expected level. Less Than Good No Payout
7 VI. CALCULATION OF AWARDS STEPS 1. Determine the EPS growth for the Corporation for the Plan Year and the company's performance on the six financial measures against the peer group. Ensure that EPS meets or exceeds the prior year's EPS. Using these two pieces of information, find the appropriate cell on the EICP Corporate Performance Payout Grid and determine the percentage. 2. Evaluate each Participant and determine that the Participant's overall Unit/Individual Rating is at the Good level or better. Establish a percentage within the applicable Range of Awards for the Participant relative to his overall performance level. Participant must have an acceptable level of overall performance for a payout to be approved. 3. Ascertain each Participant's Plan Compensation, PAO, Corporate Component weighting, and Unit/Individual weighting. 4. Determine each Participant's Corporate Component Payout: a) Multiply each Participant's Plan Compensation by his PAO; b) Multiply the product of Step 4a) by the Participant's Corporate Component weighting percentage; c) Multiply the product of Step 4b) by the percentage obtained from the EICP Corporate Performance Payout Grid (determined in Step 1); d) The resultant of Steps a), b) and c) for each Participant reflects each Participant's Corporate Component award. The sum of this resultant for all Participants is the total Corporate Component payout for all Participants for a Plan Year. 5. Determine each Participant's Unit/Individual Component payout: a) Multiply each Participant's Plan Compensation by his PAO; b) Multiply the product of Step 5a) by each Participant's Unit/Individual Component weighting percentage; c) Multiply the product of Step 5b) by each Participant's overall Unit/Individual performance rating percentage (determined in step 2); d) The resultant of Steps a), b) and c) for each Participant reflects each Participant's Unit/Individual award. The sum of this resultant for all Participants is the total Unit/Individual Component payouts for all Participants for a Plan Year. 6. The sum of Steps 4 and 5 for each Participant reflects each Participant's total EICP award, and as a total for all Participants, the total EICP payouts for a Plan Year. See example of an award calculation on page 9. 8 EXAMPLE: CALCULATION OF AN EICP AWARD Assume a participant has base pay for a calendar year of $80,000; and has a 25% Participant Award Opportunity; a 40% Corporate Award Component; and a 60% Unit/Individual Award Component. Assume: - One Valley achieved a 7% growth in EPS over the prior Plan Year which places the results in the second of the three mini-ranges. (See Performance Grid on page 4). - One Valley's cumulative performance on the six (6) performance factors relative to the peer group was in the 4th quintile. (See Performance Grid on page 4). - Individual performance is rated at 105%. CALCULATIONS $80,000 Participant's Salary x 25% Participant Award Opportunity (PAO) $20,000 Dollar value of Participant's PAO | | 40% 60% | | Corporate Award Unit/Individual Award Component (40%): Component (60%): $8,000 $12,000 x 110% Corporate EPS x 105% Individual Performance -------------------- ----------- $8,800 Corporate $12,600 Unit/Individual Component Award Component Award TOTAL AWARD: $ 8,800 + 12,600 $ 21,400 (which represents 26.75% of base pay) 9 VII. ELIGIBILITY AND PAYOUT A. Awards will be paid only to Participants who are actively employed on December 31 of the Plan Year, except for those Participants who terminate due to retirement in good standing, death or disability, for whom an award may be made at the discretion of the Committee. B. All awards will generally be made within the first calendar quarter following the completion of the Plan Year as soon as all ratings and calculations can be made. C. Awards are to be in cash; however, Participants may elect to defer award compensation with the approval of the Committee. Such deferrals shall be in accordance with the provisions of the Deferred Compensation Plan of the Corporation. D. A change in a Participant's position responsibilities during the Plan Year may change his eligibility for awards subject to a review and determination by the Committee. E. No award is to be considered a mandatory obligation of the Corporation or of a Participating Employer and all awards are payable only at the full discretion of the Committee. F. No award will be paid to any Participant whose overall Unit/Individual performance rating is below the "Good" level. G. In making the EPS calculations for award payout, the Committee has the discretion to consider nonrecurring financial transactions which might have occurred during the Plan Year. In calculating Earnings Per Share for purposes of EICP awards in any Plan Year, no EICP payments will be made if such payments would reduce net income per share below the prior years EPS level. H. The Committee has discretion to reward outstanding performance of a Participant even if the minimum EPS growth goal was not achieved, however, in no event shall any award be made under this Plan if the prior year's corporate EPS is not achieved. VIII. CHANGES TO THE PLAN The Board of Directors or the Compensation Committee of One Valley may at any time alter, amend, revise, suspend or discontinue the Plan in their absolute and sole discretion, but any changes, suspensions or terminations shall not affect awards made prior thereto. IX. RIGHT TO CONTINUE EMPLOYMENT AND INTEREST IN AWARDS Neither the existence of this Plan nor any award granted pursuant to it shall create any right to continued employment of any Participant by the Corporation or any Participating Employer. No person, under any circumstances, shall have any vested or contingent interest in any particular property or asset of One Valley Bancorp or of any Participating Employer that may be held either by One Valley Bancorp or by any Participating Employer, by virtue of any award or any installment thereof. 10 EX-11 4 EXHIBIT 11 Exhibit 11 Statement Re: Computation of Earnings per Share
For The Three Months For The Twelve Months Ended December 31 Ended December 31 1996 1995 1996 1995 PRIMARY: Average Shares Outstanding 22,238,000 21,326,000 21,896,000 21,468,000 Net effect of the assumed exercise of stock options - based on the treasury stock method 340,000 151,000 219,000 141,000 ------------ ------------ ------------ ------------ Total 22,578,000 21,477,000 22,115,000 21,609,000 ============ ============ ============ ============ Net Income $14,447,000 $13,191,000 $53,155,000 $49,106,000 Per Share Amount $0.64 $0.61 $2.40 $2.27 ============ ============ ============ ============ FULLY DILUTED: Average Shares Outstanding 22,238,000 21,326,000 21,896,000 21,468,000 Net effect of the assumed exercise of stock options - based on the treasury stock method 377,000 164,000 365,000 192,000 ------------ ------------ ------------ ------------ Total 22,615,000 21,490,000 22,261,000 21,660,000 ============ ============ ============ ============ Net Income $14,447,000 $13,191,000 $53,155,000 $49,106,000 Per Share Amount $0.64 $0.61 $2.39 $2.27 ============ ============ ============ ============
EX-12 5 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 divided by net income per share. EX-13 6 EXHIBIT 13 One Valley Bancorp 1996 ANNUAL REPORT SHAREHOLDER INFORMATION STOCK LISTING Current market quotations for the common stock of One Valley Bancorp are available on the Nasdaq Stock Market electronic quotation system under the symbol OVWV. Registered Nasdaq market makers in One Valley stock include: Friedman Billings Ramsey & Co. Herzog, Heine, Geduld, Inc. Keefe, Bruyette & Woods, Inc. Legg, Mason, Wood, Walker, Inc. McDonald & Company Sec., Inc. Merrill Lynch, Pierce, Fenner & Smith, Inc. Prudential Securities, Inc. Robinson-Humphrey Co. 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 with 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, Financial Accountant One Valley Bancorp P.O. Box 1793 Charleston, West Virginia 25326 INDEPENDENT AUDITORS Ernst & Young LLP 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, 1996, there were approximately 7,850 shareholders of record of One Valley Common Stock. ONE VALLEY MARKETS Affiliate banks Affiliate branches (A map of West Virginia and Virginia appears here depicting the locations of One Valley Bank.) CONTENTS Financial Highlights .............................................. 1 Report to Customers, Employees, Owners .............................2 Management's Discussion and Analysis................................5 Consolidated Financial Statements .................................24 Six-Year Financial Summaries ......................................45 One Valley Bancorp Directors.......................................48 One Valley Bancorp Senior Management ..............................48 Directors of Affiliate Banks....................... Inside Back Cover
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data) 1996 1995 % CHANGE FOR THE YEAR Net interest income....................... $ 172,868 $ 161,292 7.18% Net income................................ 53,155 49,106 8.25 Average Balances Total loans - net....................... 2,652,817 2,392,572 10.88 Total assets............................ 4,104,520 3,689,211 11.26 Deposits................................ 3,270,975 3,006,906 8.78 Equity.................................. 389,705 348,273 11.90 AT YEAR-END Year-end Balances Total loans - net....................... $ 2,768,467 $ 2,472,428 11.97% Total assets............................ 4,267,303 3,858,296 10.60 Deposits................................ 3,406,016 3,048,336 11.73 Equity.................................. 408,577 366,302 11.54 PER SHARE Net income................................ $ 2.43 $ 2.29 6.11% Cash dividends............................ 0.92 0.83 10.84 Book value................................ 18.46 17.17 7.51
REPORT TO CUSTOMERS, EMPLOYEES, OWNERS One Valley Bancorp continued its consistent growth in net income and earnings per share in 1996 as reported net income increased for the fifteenth consecutive year, and, more importantly, reported earnings per share increased for the tenth consecutive year. As previously announced, One Valley also reached record levels in assets, loans, deposits and shareholders' equity, while maintaining its excellent asset quality. Net income per share increased to $2.43 in 1996, a 6.1% increase over the $2.29 in 1995, which reflects the September 18, 1996 five-for-four stock split effected in the form of a 25% stock dividend. After taking into account a one- time assessment in the third quarter of $2.3 million after tax (or $0.10 per share) to recapitalize the Savings Association Insurance Fund (SAIF), net income grew to $53.2 million from the $49.1 million earned in 1995. Return on average assets amounted to 1.30% in 1996, while return on shareholders' equity was 13.64% as average shareholders' equity grew 11.9% to $389.7 million. Year-end shareholders' equity rose to $408.6 million and the equity-to-assets ratio was maintained at 9.5%, which was at the upper end of the long-range plan goal of 7.5% to 9.5%. One Valley's risk based capital ratio, a regulatory measure of capitalization, was 15.8% versus the regulatory requirement of 8%. Cash dividends per share declared in 1996 were $0.92, a 10.8% increase over the $0.83 declared in 1995, and represented the fifteenth consecutive annual increase in cash dividends per share. Due to an 11.7% growth in average earning assets, net interest income for 1996 rose 7.2% to $172.9 million compared to $161.3 million earned during 1995, which was the primary contributor to the record earnings achieved by One Valley in 1996. The increase in net interest income occurred in the face of a declining net interest margin from 4.91% in 1995 to 4.72% in 1996 due to higher rates paid on deposits and somewhat lower rates received on loans. Total non- interest income for 1996 increased 8.6% over the prior year, primarily due to increased trust revenues and real estate servicing fees. Non-interest expenses increased by 7.4% due, in part, to the second quarter affiliation of CSB Financial, a $336 million savings bank headquartered in Lynchburg, Virginia, and the third quarter assessment to recapitalize the SAIF. Through focusing on the realignment of internal processes to provide better service to customers, One Valley continued to lower its efficiency ratio, which is a measure used to evaluate operational efficiency, to 56.27% (excluding the SAIF charge) for the year 1996 from 58.10% in 1995. (Photo appears here with the following caption.) J. HOLMES MORRISON, PRESIDENT AND CEO One Valley's overall asset quality remained sound and among the best in the industry in spite of some deterioration in the consumer loan portfolio. Net charge-offs for the year increased slightly to $5.2 million, or 0.19% of average total loans, compared to 0.16% in 1995. Non-performing assets plus loans 90 days past due at December 31, 1996 remained low and stable at $14.6 million or 0.52% of total loans compared to the 1995 ratio of 0.57%. The $14.6 million of non-performing assets and loans past due was covered 286% by the $41.7 million allowance for loan losses at year-end 1996, which continued to be a very strong coverage ratio. The "Management's Discussion and Analysis" section on pages 5 through 23 provides a thorough analysis of the financial condition and results of operation of One Valley for 1996 and prior years, and should be read in its entirety. Some of the highlights include: o Net income grew at a 15.0% compound annual growth rate over the last five years, while earnings per share grew at a 12.1% annual rate during this same period. In addition, return on average assets averaged 1.22% over the past five years and 1.31% over the past three years. Return on equity averaged 13.78% during the past five years and 14.13% for the last three years. 2 o Non-interest income (excluding securities transactions) had a five-year compound annual growth rate of 10.8% while non-interest expense grew at a compound rate of 6.9% during the same period. o Other important components of the balance sheet also demonstrated the sound fundamental growth of One Valley over the past five years with compound annual growth rates as follows: average total assets 8.2%; average net loans 11.2%; average deposits 6.9%; and average equity 12.6%. o Over the past five years, One Valley has continued to have a strong capital position as equity-to-average assets averaged 8.9%. o Owners have benefited from One Valley's consistent growth as cash dividends per share grew at a 13% compound annual rate for the five-year period ended December 31, 1996. Additional highlights during 1996 were as follows: o One Valley's first interstate acquisition of the $336 million asset savings bank, CSB Financial, in Lynchburg, Virginia. o In April, U.S. Banker magazine ranked One Valley as the sixth best performing bank of the 100 largest banks in the country based upon a composite quality criteria of profitability, asset quality, operating efficiency and capital adequacy. o The third quarter five-for-four stock split effected in the form of a 25% stock dividend. o Owners realized a 53% total return on their investment in One Valley and a 22.25% compound annual rate of return over the past five years versus the S&P 500 return of 15.22%. o One Valley's market capitalization reached $827 million during the year and One Valley ranked as the 82nd largest bank in the country in terms of market capitalization at year-end. o Non-traditional investment products and trust assets, including proprietary mutual funds, increased $255.5 million or 21% in 1996 reflecting One Valley's strategy of selling comprehensive integrated financial products and services. o The introduction of a One Valley VISA Check Card in September in which 59% of the cards have been activated. o Consistent with One Valley's goal of providing a complete range of financial services that meet customer needs, One Valley introduced a new marketing slogan and campaign - "Solutions You Can Trust." o One Valley developed a three-year technology plan which identifies major strategies and key intermediate term initiatives for telecommunications, optical imaging for computer output, an ATM market plan, as well as initial contracts for personal computer banking, telephone (Bar graph appears here with the following plot points.) NET INCOME AND DIVIDENDS PER SHARE 1991 1992 1993 1994 1995 1996 Net Income $1.37 $1.70 $1.76 $2.16 $2.29 $2.43 Dividends $0.50 $0.56 $0.67 $0.75 $0.83 $0.92 3 REPORT TO CUSTOMERS, EMPLOYEES, OWNERS banking, telephone bill payment and personal computer video conferencing to be implemented in 1997. As we move toward the next century, One Valley will continue to concentrate on the basic financial fundamentals of profitability, asset quality, operational efficiency, capital adequacy, liquidity and sound management of interest rate risk that are intended to produce increased earnings and dividends per share for our owners. It is a core tenet of One Valley's culture that consistently increasing earnings per share and dividends per share will enhance long-term shareholder value. While size is not a focus for One Valley, strategic acquisitions that quickly become accretive to earnings will continue to be a part of long-range planning. The continuing emphasis on sound fundamentals has led to a number of major initiatives for 1997. The 1997 initiatives are designed to fulfill our vision of "working together to exceed our customers' expectations" in a network of supercommunity banks. We will strive to provide comprehensive products and services that meet our customers' needs while improving our operational efficiency through the consolidation of those functions that are transparent to the customer. Based upon an exhaustive study of our retail delivery system by an outside firm in 1996, we will begin implementation of a new retail strategy in 1997 using technology and delivery systems tailored to each location. This branch transformation will be supported by a more efficient operational network that will enable transactions to flow quickly and conveniently for the customer. In accordance with One Valley's retirement policy, John T. Chambers retired from the Board in April 1996 at which time he was elected as an Honorary Director for three years. Jack, who successfully has had two careers - one as a medical doctor and one as a real estate entrepreneur - will be missed for his keen insight and wise counsel to the Board, various Board committees and management over the past twenty-three years. Likewise, Cecil Highland, who is the Chairman of the Board of One Valley - Clarksburg, will retire as a Director of One Valley in April 1997. Cecil has had a multi-faceted career in the fields of banking, law and publishing to mention just a few. This diversified background enabled him to bring a wealth of experience and knowledge that clearly benefited One Valley. In addition, David Lowe, who joined One Valley's Board when he was President of Bell Atlantic of West Virginia, completes his term as member of the Board. David, who brought his corporate management expertise to the Board and its Compensation Committee, will continue as a Board Member of One Valley Bank, N.A. in Charleston. As in the past, One Valley will continue in 1997 to focus on serving its three main constituencies of customers, employees and owners as well as the communities it serves. Respectfully yours, J. Holmes Morrison President and CEO (Graph appears here with the following plot points.) TEN-YEAR TOTAL RETURN TO SHAREHOLDERS* December 31, 1986 $1,000 December 31, 1996 $5,032 *Assumes initial investment of $1,000 and reinvestment of all dividends. Graph presents past performance and is not indicative of future results. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION One Valley Bancorp, Inc. (One Valley) is a multi-bank holding company headquartered in Charleston, West Virginia. It operates twelve bank subsidiaries ranging in size from $63 million to $1.7 billion and includes four national banks and two federal savings banks. Through these banks, One Valley serves 56 cities and towns with a full range of banking services in 89 locations strategically located throughout West Virginia and central Virginia. 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 office location of its lead bank. At December 31, 1996, One Valley had approximately $4.3 billion in total assets, $2.8 billion in total loans, and $3.4 billion in total deposits. The accompanying consolidated financial statements have been prepared by the management of One Valley in conformity with generally accepted accounting principles. The audit committee of the Board of Directors engaged Ernst & Young 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. 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. One Valley's Board of Directors declared a 25% stock dividend in September 1996. Since stock dividends increase the number of shares outstanding while leaving the total dollar amount of equity invested in the company unchanged, generally accepted accounting principles require that all previously published per share information be restated to reflect the increase in the number of shares of common stock outstanding. This restatement enables the reader to compare all historical per share information with current operations and market price quotations. Accordingly, all per share information in this discussion and throughout this annual report reflects the increase in the number of shares outstanding as a result of the 25% stock dividend. (Line graph appears here with the following plot points.) NET INCOME Dollars in millions Net Year Income 1991 $26,392 1992 $36,638 1993 $37,954 1994 $46,211 1995 $49,106 1996 $53,155
SUMMARY STATEMENT OF NET INCOME TABLE 1 (Dollars in thousands) Increase (Decrease) From Prior Year 1996 1995 1994 1996 1995 AMOUNT PERCENT AMOUNT PERCENT Interest income *........................ $312,153 $282,372 $251,383 $29,781 10.55 $30,989 12.33 Interest expense......................... 139,285 121,080 94,897 18,205 15.04 26,183 27.59 Net interest income...................... 172,868 161,292 156,486 11,576 7.18 4,806 3.07 Other operating income................... 41,205 37,639 37,445 3,566 9.47 194 0.52 Gross securities transactions............ (413) (65) (867) (348) 535.38 802 (92.50) Total operating income .................. 213,660 198,866 193,064 14,794 7.44 5,802 3.00 Provision for loan losses................ 5,204 5,632 4,788 (428) (7.60) 844 17.63 Other operating expenses................. 128,415 119,591 120,156 8,824 7.38 (565) (0.47) Income before taxes...................... 80,041 73,643 68,120 6,398 8.69 5,523 8.11 Income taxes ............................ 26,886 24,537 21,909 2,349 9.57 2,628 12.00 Net income............................... $ 53,155 $ 49,106 $ 46,211 $ 4,049 8.25 $ 2,895 6.26 * Fully tax-equivalent interest income using the rate of 35%.......................... $319,632 $289,272 $258,073 $30,360 10.50 $31,199 12.09
5 MANAGEMENT'S DISCUSSION AND ANALYSIS SUMMARY FINANCIAL RESULTS One Valley earned $53.2 million in 1996, an 8.3% increase over the $49.1 million earned in 1995. The increase is primarily due to increased net interest income which more than offset increased operating costs. This increase in earnings follows an increase in 1995 of 6.3% over the $46.2 million earned in 1994. Earnings in 1996 were impacted by the April 1996 acquisition of CSB Financial Corporation (CSB) discussed below. Earnings per share were $2.43 in 1996, an increase of 6.1% over the $2.29 earned in 1995, which compares to the 6.0% increase in 1995 over the $2.16 earned in 1994. As shown in Table 2, the five-year compound growth rate in earnings per share since 1991 has been 12.1%. Table 2, Six-Year Selected Financial Summary, presents summary financial data for the past six years, 1991 through 1996, 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 growth rates in Equity, Assets, Net Income and Net Loans. The management of One Valley believes balanced sustainable growth in its financial position enhances shareholder value. A solid capital base is a key strength of One Valley. As shown in Table 2, the average equity-to-assets ratio has remained consistently strong over the past six years. This is a result of record earnings performances and a judicious acquisition strategy. Table 1, 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 1996 ROA of 1.30% was a slight decrease from the 1.33% ROA reported in 1995 and the 1.31% ROA in 1994. As shown in Table 3, the decline in ROA is attributed primarily to a decrease in net credit income. The decline in net credit income (net interest income less the provision
SIX-YEAR SELECTED FINANCIAL SUMMARY TABLE 2 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 5-Year Compound Growth 1996 1995 1994 1993 1992 1991 Rate SUMMARY OF OPERATIONS Interest income............................ $ 312,153 $ 282,372 $ 251,383 $ 247,699 $ 263,484 $ 242,792 5.15% Interest expense .......................... 139,285 121,080 94,897 99,786 120,039 130,913 1.25 Net interest income........................ 172,868 161,292 156,486 147,913 143,445 111,879 9.09 Provision for loan losses ................. 5,204 5,632 4,788 5,788 11,389 6,671 (4.85) Non-interest income........................ 41,205 37,639 37,445 39,192 36,801 24,703 10.77 Gross securities transactions ............. (413) (65) (867) 113 (35) (730) Non-interest expense ...................... 128,415 119,591 120,156 125,150 115,538 92,046 6.89 Net income................................. 53,155 49,106 46,211 37,954 36,638 26,392 15.03 PER SHARE DATA Net income.................................. $ 2.43 $ 2.29 $ 2.16 $ 1.76 $ 1.70 $ 1.37 12.14% Cash dividends ............................. 0.92 0.83 0.75 0.67 0.56 0.50 12.97 Book value.................................. 18.46 17.17 15.14 14.16 13.03 11.86 9.25 SELECTED AVERAGE BALANCES Net loans .................................. $2,652,817 $2,392,572 $2,199,686 $2,026,748 $1,926,773 $1,557,230 11.24% Investment securities ...................... 1,152,981 997,269 1,050,980 1,074,467 1,049,459 834,820 6.67 Total assets ............................... 4,104,520 3,689,211 3,540,451 3,467,261 3,373,245 2,771,901 8.17 Deposits ................................... 3,270,975 3,006,906 2,930,555 2,895,131 2,829,263 2,343,404 6.90 Long-term borrowings........................ 18,602 11,416 22,931 36,088 25,703 15,653 3.51 Equity...................................... 389,705 348,273 315,724 294,733 269,007 215,273 12.60 SELECTED RATIOS Average equity to assets.................... 9.49% 9.44% 8.92% 8.50% 7.97% 7.77% Return on average assets ................... 1.30 1.33 1.31 1.09 1.09 0.95 Return on average equity ................... 13.64 14.10 14.64 12.88 13.62 12.26 Dividend payout ratio....................... 37.86 36.24 34.72 38.07 32.94 36.50
6 for loan losses) as a percent of average earning assets is due to two factors. The current low interest rate environment tends to decrease the yield on earning assets, while the increase in the competition for funds tends to increase the cost of funding earning assets. The decline in the net credit income ratio was partially offset by the consistent decline in net operating costs. As a percent of average earning assets, both non-interest income and non- interest expense have declined in years 1994 through 1996 from their previous years' result. However, One Valley's net overhead ratio (non-interest expense less non-interest income as a percent of average earning assets) has steadily declined to 2.28% in 1996, down from 2.39% in 1995 and 2.52% in 1994. 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 1996 ROE was 13.64%, compared to the 14.10% earned in 1995 and 14.64% reported in 1994. ROE declined in 1996, primarily due to an 11.9% increase in average shareholders' equity resulting from One Valley's strong earnings performance and the equity generated from the CSB acquisition. ACQUISITION ACTIVITY At the close of business on April 30, 1996, One Valley acquired CSB Financial Corporation, a $336 million Federal Savings Bank holding company headquartered in Lynchburg, Virginia. Pursuant to the merger agreement, One Valley exchanged 0.6774 shares of One Valley common stock for each share of CSB common stock. At the date of acquisition, CSB had total loans of $164 million, investment securities of $136 million, and total deposits of $257 million. The combination was accounted for under the purchase method of accounting. Accordingly, consolidated results for 1996 include the operations of CSB only from the date of acquisition. Comparisons of average balances and income statement categories are all affected by the CSB acquisition. The acquisition of CSB expands One Valley's presence into central Virginia, a growing market for financial services which provides additional geographical diversification for One Valley. Coinciding with the acquisition, One Valley changed its company name from One Valley Bancorp of West Virginia, Inc. to One Valley Bancorp, Inc., signifying its commitment to a multi-state presence.
ANALYSIS OF RETURN ON ASSETS AND EQUITY TABLE 3 1996 1995 1994 1993 1992 AS A PERCENT OF AVERAGE EARNING ASSETS: Fully taxable-equivalent net interest income *........................ 4.72% 4.91% 4.98% 4.77% 4.77% Provision for loan losses.................. (0.14) (0.16) (0.15) (0.18) (0.37) Net credit income........................ 4.58 4.75 4.83 4.59 4.40 Non-interest income........................ 1.07 1.10 1.12 1.22 1.19 Non-interest expense....................... (3.35) (3.49) (3.67) (3.91) (3.73) Tax equivalent adjustment.................. (0.20) (0.20) (0.20) (0.15) (0.13) Applicable income taxes.................... (0.71) (0.72) (0.67) (0.57) (0.54) RETURN ON AVERAGE EARNING ASSETS .............. 1.39 1.44 1.41 1.18 1.19 Multiplied by average earning assets to average total assets.................. 93.13 92.77 92.59 92.33 91.78 RETURN ON AVERAGE ASSETS....................... 1.30% 1.33% 1.31% 1.09% 1.09% Multiplied by average assets to average equity........................ 10.53X 10.59X 11.21X 11.76X 12.54X RETURN ON AVERAGE EQUITY....................... 13.64% 14.10% 14.64% 12.88% 13.62% *Fully tax-equivalent using the rate of 35% for 1996 through 1993 and 34% for 1992.
7 MANAGEMENT'S DISCUSSION AND ANALYSIS BALANCE SHEET ANALYSIS 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 optimal 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, 1996, is provided in Table 4, Average Balance Sheet / Net Interest Income Analysis. In 1996, average earning assets grew by 11.7% or $400.2 million over 1995, following a 4.4% or $144.4 million increase in 1995 over 1994. Average interest bearing liabilities, the primary source of funds supporting earning assets, increased 12.3% or $361.2 million over 1995, which follows a $142.7 million or 5.1% increase in 1995 over 1994. Approximately one-half of the increases in 1996 were due to the purchase of CSB. The remaining increase in interest bearing assets and liabilities was the result of increases in banking operations as more fully explained below.
AVERAGE BALANCE SHEET / NET INTEREST INCOME ANALYSIS TABLE 4 (DOLLARS IN THOUSANDS) 1996 1995 1994 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.................. $2,650,425 $ 235,153 8.87% $2,397,405 $ 217,034 9.05% $2,202,716 $ 189,040 8.58% Tax-exempt............... 43,740 4,328 9.89 33,977 3,774 11.11 34,430 3,618 10.51 Total loans............. 2,694,165 239,481 8.89 2,431,382 220,808 9.08 2,237,146 192,658 8.61 Less: Allowance for losses................. 41,348 38,810 37,460 Total loans-net......... 2,652,817 9.03 2,392,572 9.23 2,199,686 8.76 Investment securities Taxable.................. 948,239 62,447 6.59 810,089 50,693 6.26 874,901 48,881 5.59 Tax-exempt............... 204,742 17,040 8.32 187,180 15,941 8.52 176,079 15,497 8.80 Total securities........ 1,152,981 79,487 6.89 997,269 66,634 6.68 1,050,980 64,378 6.13 Federal funds sold & other.................... 16,815 664 3.95 32,595 1,830 5.61 27,363 1,037 3.79 Total earning assets................ 3,822,613 319,632 8.36 3,422,436 289,272 8.45 3,278,029 258,073 7.87 Other assets............... 281,907 266,775 262,422 Total assets............ $4,104,520 $3,689,211 $3,540,451 LIABILITIES AND EQUITY Interest bearing liabilities: Interest bearing demand deposits................ $ 488,256 9,717 1.99 $ 480,528 11,018 2.29 $ 451,718 10,832 2.40 Savings deposits......... 668,836 18,407 2.75 695,603 19,349 2.78 816,739 22,021 2.70 Time deposits............ 1,729,066 91,741 5.31 1,449,779 76,126 5.25 1,250,082 52,368 4.19 Total interest bearing deposits............. 2,886,158 119,865 4.15 2,625,910 106,493 4.06 2,518,539 85,221 3.38 Short-term borrowings............. 382,821 18,276 4.77 289,103 13,899 4.81 242,304 8,491 3.50 Long-term borrowings............. 18,602 1,144 6.15 11,416 688 6.03 22,931 1,185 5.17 Total interest bearing liabilities........... 3,287,581 139,285 4.24 2,926,429 121,080 4.14 2,783,774 94,897 3.41 Demand deposits............ 384,817 380,996 412,016 Other liabilities.......... 42,417 33,513 28,937 Shareholders' equity....... 389,705 348,273 315,724 Total liabilities and equity............ $4,104,520 $3,689,211 $3,540,451 Net interest earnings...... $ 180,347 $ 168,192 $ 163,176 Net yield on earning assets................... 4.72% 4.91% 4.98% (1) Fully tax-equivalent using the rate of 35%. (2) Non-accrual loans are included in average balances.
8 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 69.4% of average earning assets during 1996. One Valley continued to emphasize increasing its loan portfolio in 1996. Average net loans increased by $260.2 million or 10.9% in 1996, following an 8.8% or $192.9 million increase in 1995. Approximately 40% of the growth in loans resulted from the CSB acquisition. The remaining increase in 1996 average loans was fueled primarily by increases in residential and commercial real estate loans. The increase in 1995 average loans was also due to increases in residential and commercial real estate loans, as well as consumer installment loans. As a result of these increases in loan activity, average net loans have increased as a percentage of average earning assets, from 67.1% in 1994 to 69.4% in 1996. Similarly, One Valley's loan-to-deposit ratio maintained its upward trend in 1996, ending the year at 81.3%. This ratio compares to 81.1% at December 31, 1995 and 79.8% at December 31, 1994. Internal growth, as well as One Valley's carefully planned acquisition activity, have resulted in the increase in the loan portfolio. Total loans at December 31, 1996, increased by $298.3 million or 11.9% over the total at December 31, 1995. This increase compares to a $139.0 million or 5.9% increase in 1995 over total loans at December 31, 1994. As mentioned above, $164.4 million in loans was acquired through the CSB acquisition. The remaining increase in lending was primarily from internal growth focused in real estate loans. Residential real estate loans including revolving home equity loans increased by $245.7 million or 21.4% during 1996, compared to a $95.9 million or 9.1% increase in 1995. Approximately one-half of the 1996 increase in residential real estate loans was acquired through the CSB purchase. Commercial real estate loans, including apartment buildings and complexes, increased by $64.7 million or 15.8% in 1996, following a $60.6 million or 17.3% increase in 1995 from year-end 1994. Approximately 25% of the 1996 increase in that category was acquired through the CSB acquisition. Commercial real estate loans have historically 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. Loans for commercial purposes increased slightly in 1996 by $2.6 million or 0.8%. This follows a decline during 1995 of $49.3 million or 12.4%. These fluctuations partially reflect levels of credit line usage by large commercial customers. Consumer installment loans decreased by $21.6 million or 3.9% in 1996 primarily due to declines in automobile and student loans. This decrease follows a $28.5 million or 5.4% increase during 1995. 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 a material volume of highly leveraged transaction lending. Over the past four years, total loans have increased $812 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 68% of One Valley's loan portfolio at December 31, 1996, 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 1996, $62.9 million of loans were originated to be sold in the secondary market. This compares to $52.4 million of new loan volume originated for sale in the secondary market in 1995 and $50.8 million in 1994. This activity generates considerable processing and servicing fee income for One Valley, as discussed further in the "Income Statement Analysis" section of this report. Volumes of loans originated for sale fluctuate inversely with mortgage interest rates. Due to a lower interest rate environment in 1996, a higher volume of mortgage activity was realized when compared to 1995 and 1994. AVERAGE EARNING ASSETS Dollars in millions (Bar graph appears here with the following plot points.) 1991 1992 1993 1994 1995 1996 Loans 1557 1927 2027 2200 2393 2653 Taxable Investments 888 1086 1074 902 843 965 Tax-exempt Investments 94 83 101 176 187 205 Combined 2539 3096 3201 3278 3422 3823 TOTAL LOANS Dollars in millions (Bar graph appears here with the following plot points.) 1991 1992 1993 1994 1995 1996 Commercial Financial & Other 339 345 370 442 396 405 Commercial Real Estate 290 329 362 349 410 474 Residential Real Estate 872 871 972 1,050 1,146 1,391 Consumer 433 454 465 532 561 539 Total 1,934 1,998 2,169 2,373 2,512 2,810 9 MANAGEMENT'S DISCUSSION AND ANALYSIS
LOAN SUMMARY TABLE 5 (DOLLARS IN THOUSANDS) AS OF DECEMBER 31 1996 1995 1994 1993 1992 SUMMARY OF LOANS BY TYPE Commercial, financial, agricultural, and other loans............... $ 351,409 $ 348,761 $ 398,105 $ 334,068 $ 301,155 Real estate: Construction loans........................... 53,815 46,967 42,746 33,682 43,108 Revolving home equity........................ 152,006 128,754 113,142 102,648 93,092 Single family residentials................... 1,239,406 1,016,983 936,698 869,502 777,428 Apartment buildings and complexes............ 55,764 44,830 37,475 41,465 45,798 Commercial................................... 418,668 364,913 311,691 320,668 282,728 Bankers' acceptances.......................... 0 0 849 2,123 560 Consumer installment loans.................... 539,144 560,754 532,251 465,216 454,032 Subtotal..................................... 2,810,212 2,511,962 2,372,957 2,169,372 1,997,901 Less: Allowance for loan losses.............. 41,745 39,534 37,438 36,484 35,679 Net loans.................................... $2,768,467 $2,472,428 $2,335,519 $2,132,888 $1,962,222 PERCENT OF LOANS BY CATEGORY Commercial, financial, agricultural, and other...................... 12.50% 13.88% 16.78% 15.40% 15.07% Real estate: Construction loans........................... 1.92 1.87 1.80 1.55 2.16 Revolving home equity........................ 5.41 5.13 4.77 4.73 4.66 Single family residentials................... 44.10 40.49 39.46 40.09 38.91 Apartment buildings and complexes............ 1.98 1.78 1.58 1.91 2.29 Commercial................................... 14.90 14.53 13.14 14.78 14.15 Bankers' acceptances.......................... 0.00 0.00 0.04 0.10 0.03 Consumer installment loans.................... 19.19 22.32 22.43 21.44 22.73 Total........................................ 100.00% 100.00% 100.00% 100.00% 100.00% NON-PERFORMING ASSETS Non-accrual loans............................. $ 8.528 $ 7,174 $ 7,664 $ 8,819 $ 14,125 Other real estate owned....................... 1,791 1,565 1,436 3,124 8,853 Restructured loans............................ 0 0 552 597 131 Total non-performing assets.................. $ 10,319 $ 8,739 $ 9,652 $ 12,540 $ 23,109 Non-performing assets as a % of total loans... 0.37% 0.35% 0.41% 0.58% 1.16% LOANS PAST DUE OVER 90 DAYS..................... $ 4,273 $ 5,582 $ 3,827 $ 3,180 $ 4,139 As a % of total loans......................... 0.15% 0.22% 0.16% 0.15% 0.21% ALLOCATION OF LOAN LOSS RESERVE BY LOAN TYPE Commercial, financial, and unallocated portion.......................... $ 16,939 $ 15,638 $ 14,765 $ 16,698 $ 13,899 Real estate construction loans................ 285 250 220 180 224 Real estate loans - other..................... 8,583 8,298 8,036 8,277 9,179 Consumer installment loans.................... 15,938 15,348 14,417 11,329 12,377 Total........................................ $ 41,745 $ 39,534 $ 37,438 $ 36,484 $ 35,679
10 In addition to the loans reported in Table 5, One Valley also offers certain off-balance sheet products such as letters of credit, revolving credit agreements, and other loan commitments. These products are offered under the same credit standards as the loan portfolio and are included in the risk-based capital ratios used by the Federal Reserve to evaluate capital adequacy. Additional information on off-balance sheet commitments is contained in Note U to the consolidated financial statements. In spite of some deterioration in the consumer loan portfolio, overall asset quality for the year was sound. Reported in Table 5 is a five-year comparison of the level of non-performing assets and loans contractually past due over 90 days. 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 with restructured terms to enable a delinquent borrower to repay, were $10.3 million or 0.37% of total loans at year-end 1996, a slight increase over the percentage at December 31, 1995. While levels of non- performing assets are susceptible to increases resulting from fluctuations in the economy, One Valley diligently works to keep its level of non-performing assets at a relatively low level as demonstrated in Table 5. The amount of loans contractually past due over 90 days, but which continue to accrue interest, declined in 1996. At year-end, these loans constituted 0.15% of total year-end loans, a slight decrease from the 0.22% at December 31, 1995 and the 0.16% at December 31, 1994. 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
COMPARATIVE LOAN LOSS INFORMATION TABLE 6 (DOLLARS IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992 ALLOWANCE FOR LOAN LOSSES, BEGINNING OF PERIOD........................ $ 39,534 $ 37,438 $ 36,484 $ 35,679 $ 30,567 Charge-offs: Commercial, financial, and agricultural loans................... 1,105 726 1,207 2,644 2,756 Real estate construction loans.................................. 0 0 0 0 0 Real estate loans - other....................................... 652 574 1,118 1,320 1,525 Consumer installment loans...................................... 5,281 4,311 3,660 3,417 4,280 Total charge-offs.............................................. 7,038 5,611 5,985 7,381 8,561 Recoveries: Commercial, financial, and agricultural loans.................. 306 519 793 930 821 Real estate construction loans................................. 0 0 0 0 0 Real estate loans - other...................................... 315 224 274 373 394 Consumer installment loans..................................... 1,198 1,097 1,084 1,095 1,069 Total recoveries.............................................. 1,819 1,840 2,151 2,398 2,284 Net charge-offs....................................................... 5,219 3,771 3,834 4,983 6,277 Provision for loan losses............................................. 5,204 5,632 4,788 5,788 11,389 Balance of acquired subsidiaries...................................... 2,226 235 0 0 0 ALLOWANCE FOR LOAN LOSSES, END OF PERIOD.............................. $ 41,745 $ 39,534 $ 37,438 $ 36,484 $ 35,679 Average total loans................................................... $2,694,165 $2,431,382 $2,237,146 $2,063,680 $1,959,943 Total loans at year-end............................................... 2,810,212 2,511,962 2,372,957 2,169,372 1,997,901 AS A PERCENT OF AVERAGE TOTAL LOANS: Net charge-offs............................................... 0.19% 0.16% 0.17% 0.24% 0.32% Provision for loan losses..................................... 0.19 0.23 0.21 0.28 0.58 Allowance for loan losses..................................... 1.55 1.63 1.67 1.77 1.82 AS A PERCENT OF TOTAL LOANS AT YEAR-END: Allowance for loan losses..................................... 1.49% 1.57% 1.58% 1.68% 1.79% AS A MULTIPLE OF NET CHARGE-OFFS: Allowance for loan losses..................................... 8.00X 10.48X 9.76X 7.32X 5.68X Income before tax and provision for loan losses............... 16.33 21.02 19.02 12.46 10.30
11 MANAGEMENT'S DISCUSSION AND ANALYSIS 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 $12.0 million or 7.7% in 1996 and $4.0 million or 2.6% in 1995. 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, the balance of the loan is transferred to "Other Real Estate Owned" (OREO) and carried at the lower of the outstanding loan balance or the fair market value of the property based on current appraisals and other current market trends. If a writedown of the OREO property is necessary at the time of foreclosure, the amount is charged off against the allowance for loan losses. A quarterly review of the recorded property value is performed in conjunction with normal loan reviews, and if market conditions indicate that the recorded value exceeds the fair market value, additional writedowns 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, 1996. During 1996, One Valley recognized less than $0.1 million of interest on non-accrual loans, while approximately $0.8 million would have been recognized on these loans had they been current throughout 1996 in accordance with their original terms. Similarly, during 1995, less than $0.1 million was recognized on non-accrual loans, while approximately $0.7 million would have been recognized in accordance with their original terms. Effective January 1, 1995, One Valley adopted Financial Accounting Standards Board (FASB) Statement No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by FASB Statement No. 118. 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. In determining whether a loan is impaired, management considers such factors as past payment history, recent economic events, current and projected financial condition and other relevant information that is available. Impairment is determined on a loan-by-loan basis and generally consists of large commercial loans. A loan is categorized and reported as impaired when it is probable that the creditor will be unable to pay all of the principal and interest amounts according to the contractual terms of the loan agreement. The adoption of this standard did not have a material effect on One Valley's financial position, results of operations, accounting policies, or the determination of the adequacy of the allowance for loan losses. Additional information on impaired loans is contained in Note I to the consolidated 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 and impaired 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, 1996, the allowance for loan losses was $41.7 million or 1.49% of total year-end loans. This ratio is a decrease from the prior year's 1.57% and the 1.58% at the end of 1994. In management's opinion, the allowance for loan losses is adequate to absorb the current estimated risk of loss in the existing loan portfolio. A summary of the allowance for loan losses allocated by loan type is also included in Table 5. 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 1996 was $5.2 million, down slightly from the $5.6 million provision in 1995 but up from the $4.8 million provision in 1994. One Valley continually evaluates the adequacy of its allowance for loan losses and changes in the annual provision are based on the analyzed inherent risk of the loan portfolio. While One Valley experienced considerable loan growth during 1996, 1995 and 1994, the credit quality of the portfolio has improved significantly NON-PERFORMING ASSETS AND LOANS 90 DAYS PAST DUE Dollars in millions (Bar graph appears here with the following plot points.) Non-performing Assets Loans 90 Days Past Due Non- Loans 90 Performing Days Assets Past Due 1991 1.59% 0.19% 1992 1.16% 0.21% 1993 0.58% 0.15% 1994 0.41% 0.16% 1995 0.35% 0.22% 1996 0.37% 0.15% PROVISION FOR LOAN LOSSES AND NET CHARGE-OFFS Dollars in millions (Bar graph appears here with the following plot points.) Provision for Loan Losses and Net Charge-Offs Net Charge Offs Provision 1991 0.35% 0.42% 1992 0.32% 0.58% 1993 0.24% 0.28% 1994 0.17% 0.21% 1995 0.16% 0.23% 1996 0.19% 0.19% 12 over years prior to 1994, 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, compared to earlier years, and still maintain a relatively high ratio of the allowance for loan losses to non-performing assets. Net charge-offs in 1996 increased by $1.4 million from 1995 net charge-offs, largely due to a $1.0 million increase in consumer loan charge-offs and a $0.4 million increase in commercial charge-offs. However, net charge-offs as a percentage of average total loans increased only slightly to 0.19%, compared to 0.16% in 1995 and 0.17% in 1994. In all three years, these ratios compare favorably to peer group banks across the country. The increase in 1996 charge- offs follows a slight decrease in 1995 from the level of 1994 net charge-offs. Although the dollar amount of net charge-offs has remained historically low, charge-offs could increase in the coming months due to the increase in the total dollar amount of loans and adverse changes in economic conditions. These factors are considered in determining the adequacy of the allowance for loan losses, which at December 31, 1996, was sufficient to absorb nearly eight times the amount of net charge-offs experienced during 1996. INVESTMENT PORTFOLIO AND OTHER EARNING ASSETS Investment securities averaged $1,153.0 million in 1996, a $155.7 million or 15.6% increase over the $997.3 million averaged in 1995. This increase follows a 5.1% decrease from the $1,051.0 million averaged in 1994. Just over one-half of the increase in 1996 was a result of the CSB purchase. The decrease in the average balance during 1995 was primarily in response to the increased loan demand during the year, as One Valley was able to place maturing investments into its more profitable loan portfolio. The higher level in 1994 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. If classified as held-to- maturity, securities are
REMAINING MATURITIES OF LOANS TABLE 7 (DOLLARS IN THOUSANDS) BALANCE PROJECTED MATURITIES* DECEMBER 31 ONE YEAR ONE TO FIVE OVER FIVE 1996 OR LESS YEARS YEARS Commercial, financial, and agricultural loans... $323,146 $158,510 $119,875 $ 44,761 Real estate construction loans.................. 93,815 67,639 14,816 11,360 Commercial real estate loans.................... 474,432 94,399 238,024 142,009 Loans with: Floating rates................................. $426,082 $109,869 $226,326 $ 89,887 Predetermined rates............................ 425,311 170,679 146,389 108,243 *BASED ON SCHEDULED OR APPROXIMATE REPAYMENTS.
13 MANAGEMENT'S DISCUSSION AND ANALYSIS recorded at historical cost and adjusted monthly over their remaining lives for the accretion or amortization of the difference between the 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. One Valley adopted the provisions of 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 $630 million. At year-end 1994, approximately 55% of the total investment portfolio was classified as available-for-sale, while 45% was
SECURITIES MATURITY AND YIELD ANALYSIS TABLE 8 (DOLLARS IN THOUSANDS) AS OF DECEMBER 31, 1996 AVERAGE TAXABLE AVAILABLE-FOR-SALE MARKET MATURITY EQUIVALENT VALUE (Years/ Months) YIELD* U. S. TREASURY SECURITIES Within one year........................................ $112,834 6.49% After one but within five years........................ 132,677 6.52 After five but within ten years........................ 15,811 7.01 Over ten years......................................... 5,903 7.21 Total U.S. Treasury Securities....................... 267,225 2/0 6.55 U. S. GOVERNMENT AGENCIES SECURITIES Within one year........................................ 45,029 6.58 After one but within five years........................ 194,942 6.17 After five but within ten years........................ 142,368 6.75 Over ten years......................................... 12,069 7.17 Total U.S. Government Agencies Securities............ 394,408 4/9 6.46 MORTGAGE-BACKED SECURITIES** Within one year........................................ 1,659 7.85 After one but within five years........................ 12,684 7.45 After five but within ten years........................ 30,250 7.15 Over ten years......................................... 202,851 7.22 Total Mortgage-Backed Securities..................... 247,444 13/11 7.17 OTHER SECURITIES........................................ 43,831 TOTAL SECURITIES AVAILABLE-FOR-SALE..................... $952,908 6/7 6.37% AS OF DECEMBER 31, 1996 AVERAGE TAXABLE HELD-TO-MATURITY BOOK MATURITY EQUIVALENT VALUE (Years/ Months) YIELD* STATES AND POLITICAL SUBDIVISIONS SECURITIES Within one year........................................ $ 3.073 9.54% After one but within five years........................ 18,255 9.99 After five but within ten years........................ 71,385 7.74 Over ten years......................................... 124,161 8.06 Total States and Political Subdivisions Securities......................................... 216,874 10/0 8.14 OTHER SECURITIES........................................ 448 TOTAL SECURITIES HELD-TO-MATURITY....................... $217,322 10/0 8.14% *Fully tax-equivalent using the rate of 35%. **Maturities for mortgage-backed securities are based on final maturity.
14 classified as held-to-maturity. On November 15, 1995, the FASB staff issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." In accordance with provisions in that Special Report, One Valley chose to reclassify certain securities from held-to-maturity to available-for-sale and thus increase the potential liquidity of the investment portfolio. At the date of transfer, the amortized cost of those securities was $264.8 million and the net unrealized holding gain on those securities was approximately $3.3 million. As a result, at year-end 1995 and 1996, approximately 81% of the total investment portfolio was classified as available-for-sale, while 19% was classified as held-to-maturity. As shown in Table 8, Securities Maturity and Yield Analysis, the average maturity period of securities available-for-sale at December 31, 1996 was 6 years 7 months, lengthened primarily by the 13 year 11 month average final maturity of the mortgage backed securities portfolio. Table 8 uses a final maturity method to report the average maturity of mortgage-backed securities, which excludes the effect of monthly payments and prepayments. Approximately 70% of the securities available-for-sale are U.S. Government agency or Treasury securities that have an average maturity of 2 years 10 months. The average maturity period of securities held-to-maturity was 10 years 0 months at the end of 1996. The average maturity of the investment portfolio is managed at a level to maintain a proper matching with interest rate risk guidelines. During 1996, 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. Other information regarding investment securities may be found in Table 8, and in Note G 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 1996, One Valley increased its tax-exempt securities by $12.2 million, or 6.0%, over the level of tax-exempt securities held at December 31, 1995. This increase followed an increase in 1995 of $25.3 million, or 14.1%, over the level held at December 31, 1994. Future investments in tax-exempt securities will generally depend upon comparisons to taxable yields and the liquidity needs of One Valley. One Valley's average investment in federal funds sold and other short-term investments decreased 48.4% in 1996. This follows a 19.1% increase in 1995. Averaging $16.8 million in 1996, federal funds sold and other short-term investments decreased $15.8 million from the $32.6 million averaged in 1995, and was less than the $27.4 million averaged during 1994. 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 and in other sections of this report. AVERAGE DEPOSITS Dollars in millions Demand Time Savings Savings Total Deposits Deposits Regular Checking Deposits 1991 296 1,265 511 271 2,343 1992 373 1,401 692 363 2,829 1993 397 1,247 800 451 2,895 1994 412 1,453 614 452 2,931 1995 381 1,613 532 481 3,007 1996 385 1,729 669 488 3,271
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT TABLE 9 IN AMOUNTS OF $100,000 OR MORE (DOLLARS IN THOUSANDS) AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995 AMOUNT PERCENT AMOUNT PERCENT Three months or less................................... $118,825 42.58% $ 91,277 42.71% Three through six months............................... 45,256 16.21 29,405 13.76 Six through twelve months.............................. 48,863 17.51 45,922 21.49 Over twelve months..................................... 66,136 23.70 47,102 22.04 Total................................................ $279,080 100.00% $213,706 100.00%
15 MANAGEMENT'S DISCUSSION AND ANALYSIS FUNDING SOURCES In 1996, One Valley once again increased the rates paid on its interest bearing deposits. The average rate paid on interest bearing liabilities increased to 4.24% in 1996, up from the 4.14% average rate paid in 1995 and the 3.41% average rate paid in 1994. The increase in 1996 is largely due to a $279.3 million or 19.3% increase in longer term but more costly time deposits and a six basis point increase in the average rate paid on those deposits. A little less than half of the increase in average time deposits was a result of the CSB acquisition. 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 core deposit products as well as periodic special rate products to attract additional deposits. One Valley's deposits, on average, increased by 8.8% or $264.1 million in 1996. Approximately $173.4 million of this increase was acquired through the CSB acquisition. The remaining 3.0% increase compares to a 2.6% or $76.4 million increase in 1995 and a 1.2% or $35.4 million increase in 1994. Excluding the CSB acquisition, during 1996, non-interest bearing deposits remained relatively flat on average when compared to 1995, while interest bearing deposits increased by 3.5% or $91.4 million over 1995. This compares to a 7.5% decrease in average non-interest bearing deposits in 1995 from 1994 and a 4.3% increase in average interest bearing deposits during the same period. These trends are reflective of customer trends to keep more funds in interest bearing accounts, thus reducing their balances in checking and other non-interest bearing deposit products, and the stiff competition for interest bearing investments in a lower interest rate environment. One Valley anticipates that similar trends will continue into the foreseeable future.
COMPARATIVE RATE SENSITIVITY SUMMARY TABLE 10 (DOLLARS IN THOUSANDS) DECEMBER 31, 1996 0-3 MONTHS 3-6 MONTHS 6-12 MONTHS OVER 1 YEAR TOTAL Earning Assets Loans................................. $ 967,954 $ 179,610 $ 338,070 $ 1,324,578 $2,810,212 Investments........................... 84,967 66,047 96,276 922,940 1,170,230 Other earning assets.................. 14,722 0 0 0 14,722 Total earning assets................. 1,067,643 245,657 434,346 2,247,518 3,995,164 Interest Bearing Liabilities Interest bearing deposits............. 783,843 317,891 344,893 1,552,759 2,999,386 Short-term borrowings................. 369,360 2,675 4,848 1,190 378,073 Long-term borrowings.................. 3 3 7,006 21,880 28,892 Total interest bearing liabilities... 1,153,206 320,569 356,747 1,575,829 3,406,351 Interest sensitivity gap for period... (85,563) (74,912) 77,599 671,689 588,813 Cumulative interest sensitivity gap... (85,563) (160,475) (82,876) 588,813 Cumulative rate sensitivity ratio..... 0.93 0.89 0.95 1.17 DECEMBER 31, 1995 Earning Assets Loans................................. $ 930,384 $ 168,482 $ 309,722 $ 1,103,374 $2,511,962 Investments........................... 62,785 25,870 153,004 835,193 1,076,852 Other earning assets.................. 25,059 0 0 0 25,059 Total earning assets................. 1,018,228 194,352 462,726 1,938,567 3,613,873 Interest Bearing Liabilities Interest bearing deposits............. 682,321 218,587 342,733 1,415,181 2,658,822 Short-term borrowings................. 381,593 3,098 2,920 2,169 389,780 Long-term borrowings.................. 508 3,006 2,014 7,883 13,411 Total interest bearing liabilities... 1,064,422 224,691 347,667 1,425,233 3,062,013 Interest sensitivity gap for period... (46,194) (30,339) 115,059 513,334 551,860 Cumulative interest sensitivity gap... (46,194) (76,533) 38,526 551,860 Cumulative rate sensitivity ratio..... 0.96 0.94 1.02 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.
16 To supplement modest deposit growth, One Valley has increasingly turned to short-term borrowings. Short-term borrowings increased, on average, by $93.7 million or 32.4% from 1995, following a 19.3% or $46.8 million increase in 1995 over 1994. Only $3.4 million of the increase was the result of the CSB purchase. Repurchase agree-ments and other short-term borrowings increased, on average, by $91.7 million or 34.6% in 1996, primarily to fund loan and investment growth. This increase follows a $47.3 million or 21.8% increase in 1995. Increasingly, One Valley has turned to short-term borrowings in local and national markets as a resource to fund loan growth and investment strategies, as deposit growth has not kept pace with the growth in loans. Long-term borrowings, on average, increased by $7.2 million, or 62.9%, in 1996, following an $11.5 million or 50.2% decrease in 1995. The increase in 1996 was entirely the result of the CSB acquisition on April 30, 1996 and additional borrowings at that affiliate during the year, as One Valley integrated the acquisition into its existing asset/liability management strategy. As a result, One Valley now has $28.9 million of long-term debt, primarily Federal Home Loan Bank (FHLB) borrowings, with repayment schedules from one to seven years. Other information regarding short-and long-term borrowings is contained in Note L 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. 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 than interest bearing liabilities will be subject to interest rate repricing during a given 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, 1996. The information presented in the gap report represents a static view of One Valley and includes various assumptions and estimates by management regarding maturity and repayment patterns. In addition to the gap report, One Valley uses computer simulations of the next twelve months 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. Based on current simulations, One Valley anticipates that over the next twelve months a rising rate scenario would have a slight positive influence on net interest income whereas decreasing rates would have a slight negative influence on net interest income. One Valley's investments have been limited to traditional investment securities and it 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. 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. RETURN ON AVERAGE ASSETS (Line graph appears here with the following plot points.) Return on Assets 1991 0.95% 1992 1.09% 1993 1.09% 1994 1.31% 1995 1.33% 1996 1.30% RETURN ON AVERAGE EQUITY (Line graph appears here with the following plot points.) Return on Equity 1991 12.26% 1992 13.62% 1993 12.88% 1994 14.64% 1995 14.10% 1996 13.64% 17 MANAGEMENT'S DISCUSSION AND ANALYSIS One Valley generated $73.6 million of cash from operations in 1996, which compares to $65.7 million in 1995 and $76.3 million in 1994. Additional cash of $24.3 million was generated through net financing activities in 1996, which compares to $57.9 million in 1995 and $120.3 million in 1994. 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 $102.7 million in 1996, which compares to $166.0 million in 1995 and $168.9 million in 1994. Details on the sources and uses of cash can be found in the Consolidated Statements of Cash Flows in the consolidated financial statements. CAPITAL RESOURCES One Valley's average equity-to-asset ratio increased to 9.49% during 1996, up from 9.44% during 1995 and 8.92% in 1994. The increase in 1996 primarily resulted from the record earnings performance of One Valley and the equity generated through the CSB acquisition. At year-end 1996, One Valley's primary capital ratio was 10.45% compared to 10.41% at year-end 1995. 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 1996, One Valley's risk adjusted capital-to-assets ratio was 15.8% compared to 16.1% at December 31, 1995. 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, 1996 was 9.1% compared to 9.1% at December 31, 1995. 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 adverse 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 D to the consolidated financial statements. Simultaneous with the January 1996 announced merger agreement between One Valley and CSB, the Board of Directors authorized management to purchase up to 2.2 million shares of One Valley Bancorp common stock in the open market. During 1996, 1,599,610 shares (post 25% stock dividend) were repurchased under this program. Simultaneous with the Point Bancorp purchase in March 1995, the Board of Directors authorized management to purchase 411,600 shares of One Valley Bancorp common stock in the open market. During 1995, 420,700 shares were repurchased under this program and earlier authorizations. At December 31, 1996, One Valley held 2,792,360 shares in its treasury. Any additional purchases under this or previous authorizations will depend upon future market conditions. 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 $180.3 million in 1996, up 7.2% over the 1995 level, following a 3.1% increase in 1995 over 1994. 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 of 35%. The increase in net interest income in 1996 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 1996 and 1995 have provided a significant increase in net interest income. In 1996, the increase in the volume of earning assets increased interest income by $33.3 million. This increase was dampened somewhat by decreases in interest yields on loans due to the lower overall interest rate environment on average for the entire year. As a result, total interest income increased by $30.4 million in 1996 over 1995. Similarly in 1996, an increased volume of interest bearing liabilities boosted interest expense by $15.7 million, and the higher cost of interest bearing liabilities resulted in an overall increase in total interest expense of $18.2 million. However, the increase in total interest income exceeded the increase in overall interest expense by $12.2 million on a fully tax-equivalent basis in 1996 over 1995. In 1995, increases in volumes of interest sensitive assets and liabilities as well as higher interest rates increased total interest income and total interest expense over the previous year. However, as the increase in the volume of earning assets outpaced the increase in interest bearing liabilities, net interest income increased by $5.0 million in 1995 over 1994. During both years, the increase in loan volume was the most significant factor contributing to increased net interest income. In 1996, even though net interest income increased due to higher volumes of earning assets, the lower overall interest rate environment and increased competition for deposits and other funds had a dampening effect on the net interest margin percentage on a fully tax-equivalent basis. In 1996, a decrease in the yield on loans was only partially offset by an increase in the yield on the investment portfolio; thus the yield on all earning assets declined to 8.36% in 1996, down from the 8.45% realized during 1995. At the same time, the stiff competition for deposits and the use of short-term borrowings to fund loan and investment growth, pushed the cost of all funds up to 4.24% in 1996, from the 4.14% average cost in 1995. As a result, the net interest margin in 1996 declined to 4.72%, down from the 4.91% earned in 1995 and the 4.98% earned in 1994. As shown in the Net Interest Margin graph, One Valley's net interest margin has not fluctuated substantially, up or down, over the past six years. Further discussion of net interest income is included in the section of this report entitled "Balance Sheet Analysis." NET INTEREST MARGIN Percent of earning assets Fully taxable equivalent (Line graph appears here with the following plot points.) Yield on Earning Assets Net Margin Cost of Funds 1991 9.76 4.60 5.16 1992 8.64 4.77 3.87 1993 7.88 4.77 3.11 1994 7.87 4.98 2.89 1995 8.45 4.91 3.54 1996 8.36 4.72 3.64 19 MANAGEMENT'S DISCUSSION AND 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. As shown in Table 12, non-interest income increased by $3.2 million or 8.6% in 1996 compared to 1995, which follows a 2.7% increase in 1995 over 1994. The increase is primarily due to an increase in trust income, real estate loan servicing revenue and service charges on deposit accounts. In 1996, trust income increased to $9.3 million, a $1.1 million or 13.6% increase over 1995. This increase follows a 3.9% increase in 1995 over 1994. Trust revenues are increasing primarily due to new business over the past several years and favorable results in the bond and equity markets. Approximately one-third of the increase in loan servicing revenue and deposit service charges is the result of increased operations from the CSB acquisition. Late in 1994, One Valley introduced a new fee structure for its deposit accounts. As a result, service charges increased $0.5 million (excluding CSB) or 3.5% in 1996, and increased $2.4 million or 21.3% in 1995 over 1994. Also as a result, revenue from checkbook sales decreased 6.0% or $0.1 million in 1996 and by 20.4% or $0.6 million in 1995 over 1994. Real estate servicing fees increased by $0.8 million or 16.9% in 1996, which compares to a $0.4 million or 6.8% decrease in 1995 from the level earned in 1994. As mortgage loan activity and sales in the secondary market improved in 1996 due to lower mortgage interest rates, One Valley's processing and servicing fees also increased. Over the previous three years, mortgage loan activity had steadily declined, thus reducing servicing revenue. Credit/debit card fees increased by $0.5 million or 23.3% in 1996, as One Valley introduced a new debit card product late in the year. In 1996, One Valley realized $413,000 in losses on securities sales. This compares to $65,000 in losses realized in 1995 and $867,000 in losses realized in 1994. These securities were sold as part of a plan to reinvest the proceeds in higher yielding investments. Other operating income increased by $0.6 million or 11.4% in 1996 primarily due to increases in ATM usage and the sale of alternative investment products. This compares to a $1.8 million or $24.6% decrease in 1995 primarily due to a lower level of income recognized on the disposition of other real estate owned and other loan payoffs. 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 1996, additional efficiencies were achieved in the
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE TABLE 11 (DOLLARS IN THOUSANDS) 1996 VS 1995 1995 VS 1994 INCREASE (DECREASE) INCREASE (DECREASE) IN NET INTEREST INCOME IN NET INTEREST INCOME VOLUME RATE TOTAL VOLUME RATE TOTAL EARNING ASSETS Loans: Taxable................................ $ 22,521 $ (4,402) $ 18,119 $ 17,274 $ 10,720 $ 27,994 Tax-exempt............................. 999 (445) 554 (48) 204 156 Total loans.......................... 23,520 (4,847) 18,673 17,226 10,924 28,150 Investment Securities: Taxable................................ 8,992 2,762 11,754 (3,787) 5,599 1,812 Tax-exempt............................. 1,468 (369) 1,099 956 (512) 444 Total investment securities.......... 10,460 2,393 12,853 (2,831) 5,087 2,256 Federal funds sold & other.............. (723) (443) (1,166) 225 568 793 Total earning assets................. 33,257 (2,897) 30,360 14,620 16,579 31,199 INTEREST BEARING LIABILITIES Time and savings deposits............... 10,759 2,613 13,372 6,387 14,885 21,272 Short-term borrowings................... 4,475 (98) 4,377 1,848 3,560 5,408 Long-term borrowings.................... 442 14 456 (599) 102 (497) Total interest bearing liabilities... 15,676 2,529 18,205 7,636 18,547 26,183 NET INTEREST EARNINGS..................... $ 17,581 $ (5,426) $ 12,155 $ 6,984 $ (1,968) $ 5,016 * Fully taxable equivalent using the rate of 35%. Note - changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.
20 operations of One Valley's affiliates by realigning processes and reallocating resources. One Valley's 1996 net overhead ratio, or non-interest expense less non-interest income excluding securities transactions to average earning assets, was 2.28%, a decrease from the 2.39% realized in 1995, and down further still from the 2.52% ratio realized in 1994. For the year 1996, net overhead was $87.2 million, an increase of $5.3 million or 6.4% above the 1995 overhead of $82.0 million. A large portion of the increase in 1996 was due to a $3.8 million one-time assessment on certain financial institutions to recapitalize the Savings Association Insurance Fund (SAIF). Also included in the increase in net overhead was the cost of operations associated with the CSB purchase, which are included in the consolidated financial statements only from the date of acquisition. The current year increase follows a decrease in 1995 of 0.9% or $0.8 million from the 1994 overhead of $82.7 million. 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 5.3% whereas net interest income has grown by 9.1%. Total non-interest expense increased by $8.8 million, or 7.4% from 1995. Approximately 70% of this increase was due to the operational costs of CSB. This compares to a $0.6 million or 0.5% decrease in 1995 versus 1994. Total staff costs increased by $2.5 million or 4.0% in 1996, compared to a 1.5% decrease in 1995. Staff costs increased in 1996 primarily due to the additional staff costs from the CSB acquisition. Staff costs decreased in 1995 primarily due to fewer employees and decreases in the cost of employee benefits due in large part to lower pension expense. Additional information on employee benefits is discussed in Note N to the consolidated financial statements. Advertising expense increased by $1.2 million or 57.0% in 1996 due to the launch of a new image campaign resulting from One Valley's expansion into Virginia. Advertising expense decreased by 5.8% in 1995 and 15.0% in 1994 compared to prior years, primarily due to operating efficiencies after the merger of Mountaineer Bankshares in 1994. FDIC insurance increased by $1.0 million or 25.6% in 1996 largely due to the $3.8 million one-time special assessment on thrift based deposits to replenish the Savings Association Insurance Fund. FDIC insurance decreased by 41.0% in 1995 as the rate assessed on banking deposits was decreased during the middle of 1995 from 23.5 cents per $100 of deposits to four cents. The lower rate on banking deposits continued through 1996 but was substantially offset by the special SAIF assessment. Net occupancy expense increased 9.2% in 1996. Approximately one-half of the increase was the result of the CSB purchase while the other half was due to increases in building depreciation expense resulting from improvements completed in 1996 and 1995. This increase follows a 4.8% increase in 1995 from 1994. Equipment expenses increased by 4.3% in 1996 primarily due to the CSB acquisition and increased equipment depreciation due to technology improvements. In 1995, equipment expense increased by 3.5%, primarily due to increases in equipment rental and property taxes. Outside data processing costs increased by 7.7% in 1996 which compares to a 0.4% decrease in 1995 compared to 1994. The increase in 1996 is largely due to the CSB acquisition and the cost associated with the increased ATM activity mentioned above. Taxes not on income increased by $0.5 million or 18.8% in 1996 compared to a $0.3 million or 12.6% increase in 1995, primarily due to increases in gross receipts and equity, which are taxed at the local level. Supplies and postage expense increased by 2.1% in 1996 following an increase of 2.9% in 1995. Other expenses increased by $2.0 million or 9.6% in 1996, primarily due to the CSB acquisition, increased collection costs associated with the higher level of consumer charge-offs, and increased amortization of mortgage servicing rights. This follows an increase of 11.1% in 1995, due to operating expenses associated with the new deposit products introduced late in 1994. 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 Analysis of this report. APPLICABLE INCOME TAXES Income tax expense in 1996 was $26.9 million compared to $24.5 million in 1995 and $21.9 million in 1994. The increase in 1996 was primarily due to an increase in pretax earnings, which was compounded by an increase in non-deductible goodwill amortization. One Valley's effective tax rate was 33.6% in 1996, up from the 33.3% in 1995, and the 32.1% in 1994. NET OVERHEAD RATIO Net overhead as a % of average earning assets (Line graph appears here with the following plot points.) 1991 1992 1993 1994 1995 1996 2.67% 2.56% 2.68% 2.52% 2.39% 2.28% EFFICIENCY RATIO Non-interest expense as a % of total adjusted revenues* (Line graph appears here with the following plot points.) 1991 1992 1993 1994 1995 1996 65.03% 62.66% 65.27% 59.89% 58.10% 57.96% *Tax-equivalent net interest income plus other income 21 MANAGEMENT'S DISCUSSION AND ANALYSIS Additional information regarding income taxes is contained in Note M to the consolidated financial statements. EFFECTS OF CHANGING PRICES The results of operations and financial condition presented in this report are based on historical cost, unadjusted for the effects of inflation. Inflation affects One Valley in two ways. One is that inflation can result in increased operating costs which must be absorbed or recovered through increased prices for services. The second effect is on the purchasing power of the corporation. Virtually all of a bank's assets and liabilities are monetary in nature. 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.
NON-INTEREST INCOME AND EXPENSE TABLE 12 (DOLLARS IN THOUSANDS) INCREASE (DECREASE) OVER PRIOR YEAR 1996 1995 1994 1996 1995 AMOUNT PERCENT AMOUNT PERCENT SERVICE CHARGES AND OTHER OPERATING INCOME Trust income.............. $ 9,322 $ 8,203 $ 7,892 $ 1,119 13.64 $ 311 3.94 Credit/debit card income.................. 2,479 2,011 2,008 468 23.27 3 0.15 Service charges on deposit accounts........ 14,572 13,877 11,441 695 5.01 2,436 21.29 Insurance service fees.... 975 998 840 (23) (2.30) 158 18.81 Real estate loan processing & servicing fees.................... 5,642 4,826 5,176 816 16.91 (350) (6.76) Checkbook sales........... 2,095 2,228 2,798 (133) (5.97) (570) (20.37) Securities transactions............ (413) (65) (867) (348) (535.38) 802 92.50 Miscellaneous............. 6,120 5,496 7,290 624 11.35 (1,794) (24.61) TOTAL NON-INTEREST INCOME................. $ 40,792 $ 37,574 $ 36,578 $ 3,218 8.56 $ 996 2.72 STAFF AND OTHER OPERATING EXPENSES Salaries & wages.......... $ 49,951 $ 49,184 $ 49,149 $ 767 1.56 $ 35 0.07 Employee benefits......... 14,680 12,942 13,893 1,738 13.43 (951) (6.85) Total staff expenses............... 64,631 62,126 63,042 2,505 4.03 (916) (1.45) Other Operating Expenses Advertising............. 3,389 2,159 2,293 1,230 56.97 (134) (5.84) FDIC insurance......... 4,917 3,916 6,642 1,001 25.56 (2,726) (41.04) Occupancy, net.......... 6,887 6,305 6,014 582 9.23 291 4.84 Equipment............... 9,137 8,761 8,468 376 4.29 293 3.46 Outside data processing............ 5,692 5,285 5,304 407 7.70 (19) (0.36) Taxes not on income................ 3,400 2,861 2,542 539 18.84 319 12.55 Supplies and postage............... 6,919 6,778 6,588 141 2.08 190 2.88 All other............... 23,443 21,400 19,263 2,043 9.55 2,137 11.09 Total other operating expenses.... 63,784 57,465 57,114 6,319 11.00 351 0.61 TOTAL NON- INTEREST EXPENSE...... $128,415 $119,591 $120,156 $ 8,824 7.38 $ (565) (0.47)
SUMMARY RESULTS OF OPERATIONS FOURTH QUARTER 1996 Net income for the three months ended December 31, 1996 was $14.5 million, an increase of 9.5% over the $13.2 million earned during the fourth quarter of 1995. On a per share basis, 1996 fourth quarter earnings were $0.65 compared to $0.62 in 1995, an increase of 4.8%. Net interest income increased by 8.4% when compared to the same three months of 1995. The provision for loan losses decreased by $0.3 million when compared to the fourth quarter of 1995. Non-interest income increased by $1.1 million or 12.0% as all categories of non-interest income increased, due to the April 1996 CSB acquisition plus growth in Trust, ATM and credit card income. Similarly, non-interest expense increased by 10.4% when compared to the same quarter last year. The increase was primarily due to higher overall costs due to the CSB acquisition and higher FDIC expense because the fourth quarter of 1995 included the reversal of a $1.4 million accrual for potential assessments on SAIF insured deposits. The expense was accrued during the third quarter of 1995 in anticipation of legislation requiring a one-time special assessment on SAIF insured deposits. The actual assessment occurred in 1996 as discussed above. Additional quarterly financial data is provided in Note V to the consolidated financial statements. LONG-RANGE PLAN As part of achieving One Valley's mission "to establish mutually beneficial relationships with its customers by offering a complete range of services and products that meet or exceed their expectations; to share responsibility as employees for the success of our company and ourselves by committing to continuous improvement and self-development; and, to deliver long- term value on the investment made by our owners," One Valley has developed a long-range plan that outlines specific goals for the three years ending December 31, 1998. The long-range plan outlines goals for each of the constituencies outlined in One Valley's mission statement, namely its customers, employees and owners. Table 13 below lists the plan's owner objectives and how the 1996 financial results of One Valley compare to those objectives. The goals and owner objectives under the plan are forward-looking statements and are strategic goals One Valley hopes to achieve. They are not historical facts and involve risks and uncertainties, including, but not limited to, the demand for One Valley's products and services, the effect of economic conditions on borrowers' ability to repay loans, changes in the general level of interest rates, and the impact of continued competitive pressure from bank and non-bank providers of traditional banking services. 1996 TO 1998 LONG RANGE PLAN TABLE 13 PLAN GOALS 1996 OWNER OBJECTIVES PROFITABILITY: Return on average assets................ 1.20% to 1.40% 1.30% Return on average equity................ 13.00% to 15.00% 13.64% Earnings per share growth rate.......... 6.00% to 10.00% 6.11% ASSET QUALITY: Loan delinquency ratio.................. 1.25% to 2.00% 1.38% Non-performing assets to total assets... 0.50% to 0.90% 0.24% Net charge-off to average total loans... 0.20% to 0.40% 0.19% Allowance for loan losses as a % of non-performing assets.................. 150% to 250% 405% RESOURCE UTILIZATION: Efficiency ratio........................ 55% or lower 57.96% Net operating expenses to average assets 1.70% to 2.00% 2.12% CAPITAL: Average equity to total assets.......... 7.50% to 9.50% 9.49% LIQUIDITY: Loan to deposit ratio................... 78% to 84% 81.10% Net loans to total assets............... 65% to 70% 64.63% Wholesale funds to total assets......... 15% to 25% 11.71% 23
CONSOLIDATED BALANCE SHEETS ONE VALLEY BANCORP, INC. AND SUBSIDIARIES (Dollars in thousands) DECEMBER 31 1996 1995 ASSETS Cash and due from banks..................................... $ 146,152 $ 140,617 Interest-bearing deposits in other banks.................... 9,897 8,259 Federal funds sold.......................................... 4,825 16,800 Cash and cash equivalents.................................. 160,874 165,676 Securities: Available-for-sale, at fair value.......................... 952,908 871,699 Held-to-maturity (fair value approximated $219,841 and $212,040 at December 31, 1996 and 1995).................. 217,322 205,153 Loans, net.................................................. 2,768,467 2,472,428 Premises and equipment...................................... 84,087 80,688 Accrued interest receivable................................. 34,129 32,307 Other assets................................................ 49,516 30,345 TOTAL ASSETS............................................ $4,267,303 $3,858,296 LIABILITIES Deposits: Non-interest bearing....................................... $ 406,630 $ 389,514 Interest bearing........................................... 2,999,386 2,658,822 Total deposits........................................... 3,406,016 3,048,336 Short-term borrowings: Federal funds purchased.................................... 17,278 54,005 Securities sold under agreements to repurchase and other.................................................... 360,796 335,775 Total short-term borrowings.............................. 378,074 389,780 Long-term borrowings........................................ 28,892 13,411 Other liabilities........................................... 45,744 40,467 TOTAL LIABILITIES....................................... 3,858,726 3,491,994 SHAREHOLDERS' EQUITY Preferred Stock-$10 par value; authorized 1,000,000 shares; none issued Common Stock-$10 par value; authorized 40,000,000 shares; 24,923,176 and 18,016,584 shares issued at December 31, 1996 and 1995, respectively, including 2,792,360 and 954,200 shares in treasury at December 31, 1996 and 1995.... 249,232 180,166 Capital surplus............................................. 73,834 34,603 Retained earnings........................................... 152,006 168,625 Unrealized gain on available-for-sale securities, net of deferred income taxes.............................. 883 6,252 Treasury stock............................................. (67,378) (23,344) TOTAL SHAREHOLDERS' EQUITY............................. 408,577 366,302 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $4,267,303 $3,858,296 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CONSOLIDATED STATEMENTS OF INCOME ONE VALLEY BANCORP, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data) YEAR ENDED DECEMBER 31 1996 1995 1994 INTEREST INCOME Interest and fees on loans: Taxable...................................... $235,153 $217,034 $189,040 Tax-exempt................................... 2,813 2,453 2,352 Total.................................... 237,966 219,487 191,392 Interest and dividends on securities: Taxable...................................... 62,447 50,693 48,881 Tax-exempt................................... 11,076 10,362 10,073 Total.................................... 73,523 61,055 58,954 Other.......................................... 664 1,830 1,037 Total interest income.................... 312,153 282,372 251,383 INTEREST EXPENSE Deposits....................................... 119,865 106,493 85,221 Short-term borrowings.......................... 18,276 13,899 8,491 Long-term borrowings........................... 1,144 688 1,185 Total interest expense................... 139,285 121,080 94,897 NET INTEREST INCOME................................ 172,868 161,292 156,486 PROVISION FOR LOAN LOSSES.......................... 5,204 5,632 4,788 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........................................... 167,664 155,660 151,698 OTHER INCOME Trust Department............................... 9,322 8,203 7,892 Service charges on deposit accounts............ 14,572 13,877 11,441 Real estate loan processing and servicing fees......................................... 5,642 4,826 5,176 Other service charges and fees................. 5,599 5,013 4,745 Securities losses.............................. (413) (65) (867) Other.......................................... 6,070 5,720 8,191 Total other income....................... 40,792 37,574 36,578 OTHER EXPENSES Salaries and employee benefits................. 64,631 62,126 63,042 Net occupancy.................................. 6,887 6,305 6,014 Equipment...................................... 9,137 8,761 8,468 Federal deposit insurance assessments.......... 4,917 3,916 6,642 Outside data processing........................ 5,692 5,285 5,304 Other.......................................... 37,151 33,198 30,686 Total other expenses..................... 128,415 119,591 120,156 INCOME BEFORE INCOME TAXES......................... 80,041 73,643 68,120 APPLICABLE INCOME TAXES............................ 26,886 24,537 21,909 NET INCOME......................................... $ 53,155 $ 49,106 $ 46,211 NET INCOME PER COMMON SHARE........................ $ 2.43 $ 2.29 $ 2.16 Average common shares outstanding (in thousands) ................................ 21,896 21,468 21,415 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ONE VALLEY BANCORP, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data) UNREALIZED GAIN (LOSS) ON AVAILABLE COMMON CAPITAL RETAINED TREASURY FOR SALE STOCK SURPLUS EARNINGS STOCK SECURITIES BALANCES AT JANUARY 1, 1994.................................. $175,168 $ 25,830 $107,315 $ (3,129) $ 0 Adjustment at beginning of the year for change in accounting method, net of deferred income taxes of $(3,177)............ 4,765 Change in unrealized gains and losses, net of deferred income taxes of $7,533........................... (11,300) Net income................................................... 46,211 Purchase of treasury stock (263,500 shares) ................. (7,244) Stock options exercised (21,843 shares) and adjustment for fractional shares......................................... 216 124 Cash dividends ($.75 per share).............................. (16,089) Balances at December 31, 1994................................ 175,384 25,954 137,437 (10,373) (6,535) Change in unrealized gains and losses, net of deferred income taxes of $(8,524).......................... 12,787 Net income ............................................... 49,106 Issuance of common stock (411,602 shares).................... 4,116 8,130 Purchase of treasury stock (420,700 shares).................. (12,971) Stock options exercised (66,614 shares) and adjustment for fractional shares............................ 666 519 Cash dividends ($.83 per share).............................. (17,918) Balances at December 31, 1995 ............................... 180,166 34,603 168,625 (23,344) 6,252 Change in unrealized gains and losses, net of deferred income taxes of $3,585............................ (5,369) Net income .............................................. 53,155 Issuance of common stock (1,789,000 shares) ................ 17,890 37,817 Purchase of treasury stock (1,318,988 shares)............... (44,034) Five-for-four stock split in the form of a 25% stock dividend.............................................. 49,746 (49,746) Stock options exercised (144,958 shares) and adjustment for fractional shares........................... 1,430 1,414 Cash dividends ($.92 per share)............................. (20,028) BALANCES AT DECEMBER 31, 1996............................... $249,232 $ 73,834 $152,006 $ (67,378) $ 883 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
CONSOLIDATED STATEMENTS OF CASH FLOWS ONE VALLEY BANCORP, INC. AND SUBSIDIARIES (Dollars in thousands) YEAR ENDED DECEMBER 31 1996 1995 1994 OPERATING ACTIVITIES Net income................................................. $ 53,155 $ 49,106 $ 46,211 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses............................... 5,204 5,632 4,788 Depreciation............................................ 9,134 8,049 7,633 Amortization, net of accretion.......................... 2,368 3,544 2,776 Deferred income tax expense (benefit)................... 35 (9) (107) Net losses (gains) from sales of assets................. 362 (270) 585 Loans originated for sale............................... (62,870) (52,440) (50,806) Proceeds from loans sold................................ 63,932 49,523 66,067 Net change in accrued interest receivable............... 603 (3,727) (1,504) Net change in accrued interest payable.................. (500) 4,738 1,497 Net change in other assets and other liabilities........................................... 2,175 1,531 (852) Net cash provided by operating activities............. 73,598 65,677 76,288 INVESTING ACTIVITIES Proceeds from sales of available-for-sale securities....... 105,496 103,279 138,922 Proceeds from maturities of available-for-sale securities............................................... 266,629 222,599 206,013 Purchases of available-for-sale securities................. (327,060) (338,306) (256,556) Proceeds from maturities of held-to-maturity securities.... 8,574 30,141 61,742 Purchases of held-to-maturity securities................... (20,815) (55,796) (93,169) Purchase of subsidiary, net of cash received............... 10,866 4,454 Net increase in loans...................................... (139,266) (127,053) (215,615) Purchases of premises and equipment........................ (7,173) (5,301) (10,253) Net cash used in investing activities................. (102,749) (165,983) (168,916) FINANCING ACTIVITIES Net change in deposits..................................... 100,548 79,712 (10,256) Net change in federal funds purchased...................... (36,727) 860 39,133 Net change in other short-term borrowings.................. 14,265 13,581 117,786 Repayment of long-term borrowings.......................... (7,526) (11,539) (18,037) Proceeds from long-term borrowings......................... 15,007 5,000 14,699 Proceeds from issuance of common stock..................... 2,844 1,185 340 Purchase of treasury stock................................. (44,034) (12,971) (7,244) Cash dividends............................................. (20,028) (17,918) (16,089) Net cash provided by financing activities............. 24,349 57,910 120,332 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (4,802) (42,396) 27,704 Cash and cash equivalents at beginning of year.............. 165,676 208,072 180,368 CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 160,874 $ 165,676 $ 208,072 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ONE VALLEY BANCORP, INC. AND SUBSIDIARIES DECEMBER 31, 1996 (Dollars in thousands, except per share data) NAME CHANGE NOTE A Effective May 1, 1996, One Valley Bancorp of West Virginia, Inc. changed its legal name to One Valley Bancorp, Inc. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES NOTE B The accounting and reporting policies of One Valley Bancorp, Inc. and its subsidiaries (One Valley) conform to generally accepted accounting principles and to general practices within the banking industry. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The following is a summary of the more significant accounting and reporting policies. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of One Valley Bancorp, 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. 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 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 loans. On January 1, 1995, One Valley adopted Financial Accounting Standards Board (FASB) Statement No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by FASB Statement No. 118. Under this standard, the 1996 and 1995 allowance for loan losses related to loans that were identified for evaluation in accordance with Statement No. 114 were based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. The adoption of this standard did not have a material effect on One Valley's financial position, results of operations, accounting policies or the determination of the adequacy of the allowance for loan losses. INCOME TAXES Income taxes have been provided using the liability method in which 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. 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. 28 SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES-CONTINUED NOTE B LOAN SERVICING On January 1, 1996, One Valley adopted FASB Statement No. 122, "Accounting for Mortgage Servicing Rights." This standard requires that mortgage servicing rights be capitalized, regardless of how those rights were acquired. The mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. The adoption of this standard did not have a material effect on One Valley's financial statements. FASB Statement No. 122 was superseded by FASB Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," however, the basic accounting principles of Statement No. 122 are included in Statement No. 125. 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. RECLASSIFICATIONS Certain amounts in the 1995 and 1994 financial statements have been reclassified to conform to the 1996 presentation. Such reclassifications had no impact on net income or shareholders' equity. 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 the contractual payment of principal or interest has become 90 days past due. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged against 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. Interest received on nonaccrual loans is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of the remaining unpaid principal. Generally, a loan is restored to accrual status when it is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the collectibility of the total contractual principal and interest is no longer in doubt. 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 C Bank subsidiaries are required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the years ended December 31, 1996, was approximately $25,500. RESTRICTIONS ON SUBSIDIARY DIVIDENDS NOTE D The primary source of funds for the dividends paid by One Valley Bancorp, Inc. 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. At December 31, 1996, the retained net profits available for distribution to One Valley Bancorp, Inc. as dividends without regulatory approval approximated $14,400, plus retained net profits for the interim periods through the date of declaration. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) MERGERS AND ACQUISITIONS NOTE E On April 30, 1996, One Valley acquired all of the outstanding stock of CSB Financial Corporation, headquartered in Lynchburg, Virginia. Under terms of the agreement, One Valley exchanged 0.6774 shares of its common stock for each share of CSB Financial Corporation's common stock outstanding. This resulted in the issuance of approximately 1,789,000 shares valued at approximately $55.7 million. This transaction was accounted for under the purchase method of accounting. Accordingly, consolidated results include the operations of CSB Financial Corporation only from the date of acquisition. CSB had $336 million of total assets, $257 million in deposits, and $164 million in loans at April 30, 1996. On March 15, 1995, One Valley acquired all of the outstanding stock of Point Bancorp, Inc., the parent company of a $57 million Federal Savings Bank. Pursuant to the merger agreement, One Valley exchanged 0.6 shares of its common stock and $7.10 cash for each share of Point Bancorp common stock. A total of 411,602 shares were issued in this transaction. This combination was accounted for under the purchase method of accounting. Accordingly, consolidated results include the operations of Point Bancorp only from the date of acquisition. Pro forma financial information is not presented because the above transactions were immaterial to One Valley. In years prior to 1994, One Valley acquired several financial institutions accounted for using the purchase method of accounting. The purchase price of these acquisitions was 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 $3,800 and $2,100 at December 31, 1996 and 1995. Deposit intangible amortization approximated $900 in 1996, $600 in 1995, and $500 in 1994. 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 $18,000 and $6,500 at December 31, 1996 and 1995. Goodwill amortization approximated $1,100 in 1996, $500 in 1995, and $300 in 1994. SHAREHOLDER RIGHTS PLAN NOTE F On October 18, 1995, the Board of Directors approved a Shareholder Protection Rights Plan (the Plan). The Plan provides that each share of common stock carries with it one right. The rights would be exercisable only if a person or group, as defined, acquired 10% or more of One Valley's common stock, or after a person commences a tender offer for such stock. If a person or group acquires 10% or more of One Valley's common stock, holders of rights, other than the 10% holder, could acquire shares of One Valley's common stock at half price or the Board could exchange each such right for one share of common stock. In addition, under certain circumstances, holders of rights could acquire shares of common stock of the 10% holder at half price. 30 SECURITIES NOTE G The following is a summary of available-for-sale and held-to-maturity securities:
Available-for-Sale Held-to-Maturity Estimated Estimated Amortized Gross Unrealized Fair Amortized Gross Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value December 31, 1996 U.S. Treasury securities and obligations of U.S. government agencies and corporations............... $662,302 $ 4,068 $ (4,738) $661,632 $ 0 $ 0 $ 0 $ 0 Obligations of states and political subdivisions 216,874 3,596 (1,073) 219,397 Mortgage-backed securities....... 245,734 3,117 (1,407) 247,444 Other securities................. 43,400 508 (76) 43,832 448 0 (4) 444 Total securities................... $951,436 $ 7,693 $ (6,221) $952,908 $217,322 $3,596 $(1,077) $219,841 December 31, 1995 U.S. Treasury securities and obligations of U.S. government agencies and corporations............. $627,471 $ 8,254 $ (570) $635,155 $ 0 $ 0 $ 0 $ 0 Obligations of states and political subdivisions....... 204,694 7,334 (447) 211,581 Mortgage-backed securities....... 208,883 3,479 (940) 211,422 Other securities................. 24,919 203 25,122 459 1 (1) 459 Total securities............. $861,273 $11,936 $ (1,510) $871,699 $205,153 $7,335 $ (448) $212,040 December 31, 1994 U.S. Treasury securities and obligations of U.S. government agencies and corporations............. $501,001 $ 409 $ (9,280) $492,130 $126,442 $ 206 $ (2,883) $123,765 Obligations of states and political subdivisions....... 179,346 1,348 14,781) 165,913 Mortgage-backed securities....... 36,881 195 (2,234) 34,842 138,931 656 (7,315) 132,272 Other securities................. 14,210 19 14,229 439 10 (18) 431 Total securities............. $552,092 $ 623 $(11,514) $541,201 $445,158 $2,220 $ (24,997) $422,381
Gross realized gains and losses on available-for-sale securities approximated $83 and $496 in 1996, $87 and $152 in 1995, and $284 and $1,167 in 1994. One Valley adopted the provisions of FASB No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994. 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. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) SECURITIES-CONTINUED NOTE G On November 15, 1995, the FASB staff issued a Special Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. In accordance with provisions in that Special Report, One Valley chose to reclassify securities from held-to-maturity to available- for-sale. At the date of transfer, the amortized cost of those securities was $264,842 and the unrealized gain on those securities was $1,996 (net of $1,330 in deferred income taxes), which is included in shareholders' equity. The amortized cost and estimated fair value of debt securities at December 31, 1996, 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.
Available-for-Sale Held-to-Maturity Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value Due in one year or less.................. $157,214 $157,863 $ 3,073 $ 3,103 Due after one year through five years.... 326,522 327,618 18,255 18,921 Due after five years through ten years... 160,632 158,179 71,385 72,359 Due after ten years...................... 17,934 17,972 124,161 125,014 662,302 661,632 216,874 219,397 Mortgage-backed securities............... 245,734 247,444 0 0 Other.................................... 43,000 43,832 448 444 Total securities....................... $951,436 $952,908 $217,322 $219,841
At December 31, 1996 and 1995, securities carried at $600,400 and $450,200 were pledged to secure public deposits, repurchase agreements, and for other purposes as required or permitted by law. LOANS NOTE H Loans are summarized as follows: December 31 1996 1995 Commercial, financial and agricultural................ $ 323,146 $ 319,432 Real estate: Revolving home equity........... 152,006 128,754 Single family residential....... 1,239,406 1,016,983 Apartment buildings and complexes............... 55,764 44,830 Commercial...................... 418,668 364,913 Construction.................... 53,815 46,967 Installment loans to individuals.... 539,144 560,754 Other .............................. 28,263 29,329 Total loans net of unearned income............. 2,810,212 2,511,962 Less allowance for loan losses...... 41,745 39,534 Loans - net......................... $2,768,467 $2,472,428 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: 1996 1995 Balance, January 1..... $ 71,927 $ 73,493 Additions.............. 61,639 24,562 Amount collected....... (27,208) (26,128) Balance, December 31... $106,358 $ 71,927 32 LOANS-CONTINUED NOTE H 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, 1996, One Valley held loans for sale of approximately $10,000 and had commitments to originate and sell loans of approximately $10,500. The mortgage loan portfolio serviced by One Valley for the benefit of others approximated $902,300, $967,700, and $896,500 at December 31, 1996, 1995, and 1994. Custodial escrow balances maintained in connection with the foregoing loan servicing and One Valley's own mortgage loan portfolio were approximately $8,400 and $9,600 at December 31, 1996 and 1995. In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which is applicable to One Valley effective January 1, 1997. However, on October 30, 1996, the FASB agreed to defer the effective date for one year for the following transactions: securities lending, repurchase agreements, dollar rolls and other similar secured transactions. The delay in implementation was necessary to allow companies to overcome technological problems in their systems which would create control and accountability issues. Statement No. 125 establishes standards for determining whether certain transfers of financial assets should be considered sales of all or part of the assets or as secured borrowings. Statement No. 125 also establishes standards for settlements of liabilities through the transfer of assets to a creditor or obtaining an unconditional release and whether these settlements should prove the debt extinguished. The adoption of this standard is not expected to have a material effect on One Valley's financial statements. ALLOWANCE FOR LOAN LOSSES NOTE I Changes in the allowance for loan losses for each of the three years in the period ended December 31, 1996, were as follows:
1996 1995 1994 Balance, January 1 ....................... $39,534 $37,438 $36,484 Charge-offs.................................... (7,038) (5,611) (5,985) Recoveries ............................... 1,819 1,840 2,151 Net charge-offs................................ (5,219) (3,771) (3,834) Provision for loan losses...................... 5,204 5,632 4,788 Balance of acquired subsidiary................. 2,226 235 Balance, December 31........................... $41,745 $39,534 $37,438
At December 31, 1996 and 1995, the recorded investment in loans that are considered to be impaired under FASB No. 114 was $8,900 and $10,100 (of which $3,300 and $2,600 were on a nonaccrual basis). Included in these amounts are $5,900 and $8,100 of impaired loans for which the related allowance for loan losses is $500 and $200, and $3,000 and $2,000 of impaired loans that as a result of writedowns or being well-secured do not have an allowance for loan losses. The average recorded investment in impaired loans during the years ended December 31, 1996 and 1995, was approximately $9,000 and $9,500. For the years ended December 31, 1996 and 1995, One Valley recognized interest income on those impaired loans of $880 and $780. The amount of interest income recognized in 1996 and 1995 included less than $100 of interest income recognized using the cash basis method of income recognition. DEPOSITS NOTE J Included in interest-bearing deposits are various time deposit products. Time deposits outstanding at December 31, 1996, have scheduled maturities of $978,000 in 1997, $393,000 in 1998, $71,000 in 1999, $42,000 in 2000, $18,000 in 2001, and $2,000 thereafter. As of December 31, 1996 and 1995, One Valley had deposits from related parties of $72,600 and $53,300. Interest paid on deposits, short-term borrowings, and long-term borrowings approximated $139,000 in 1996, $116,000 in 1995, and $93,000 in 1994. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) PREMISES AND EQUIPMENT NOTE K The major categories of premises and equipment and accumulated depreciation are summarized as follows: December 31 1996 1995 Land.............................. $ 18,245 $ 15,655 Buildings and improvements........ 83,686 76,993 Equipment......................... 58,971 56,193 Total............................. 160,902 148,841 Less accumulated depreciation... (76,815) (68,153) Premises and equipment-net........ $ 84,087 $ 80,688 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 1997-$4,700; 1998-$3,800; 1999-$3,100; 2000-$3,000; and 2001-$2,900, with $2,400 of commitments extending beyond 2001. Total expense under these lease agreements, including cancelable and noncancelable leases, was $3,500 in 1996, 1995, and 1994. SHORT-TERM AND LONG-TERM BORROWINGS NOTE L Federal funds purchased and securities sold under agreements to repurchase represent borrowings with maturities primarily from overnight to 90 days. The securities underlying the repurchase agreements are under the control of One Valley. Additional details regarding short-term borrowings are set forth below: Federal Repurchase Funds Agreements Purchased and Other 1996 Average amount outstanding during year.... $ 26,612 $ 359,667 Maximum amount outstanding at any month-end 71,563 468,966 Weighted average interest rate: During year........................... 5.38% 4.74% End of year........................... 5.40 4.67 1995 Average amount outstanding during year.... $ 24,642 $ 264,461 Maximum amount outstanding at any month-end 54,005 357,501 Weighted average interest rate: During year........................... 5.89% 4.71% End of year........................... 5.76 4.71 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 Several of One Valley's banking subsidiaries are members of the Federal Home Loan Bank (FHLB). A benefit of membership in the FHLB is the availability of short-term and long-term borrowings, in the form of collateralized advances. The advances are collateralized by U.S. Treasury and agency securities, residential mortgage loans, and multi-family mortgage loans with an aggregate book value approximating $57,000 at December 31, 1996. The available lines of credit for short-term and long-term borrowings, at prevailing market interest rates, as of December 31, 1996, approximate $895 million. Long-term borrowings of $28,892 and $13,411 at December 31, 1996 and 1995, primarily consist of FHLB advances. The advances mature as follows: 1997 - $7,000; 1998 - $12,000; 1999 - $2,000; 2001 - $5,000; and $2,900 thereafter. The weighted average interest rate of these advances at December 31, 1996, was 6.19%. 34 INCOME TAXES NOTE M The income tax provisions (benefits) included in the consolidated statements of income are summarized as follows: 1996 1995 1994 Current: Federal............................. $23,095 $20,822 $18,772 State............................... 3,756 3,724 3,244 Deferred Federal and State................ 35 (9) (107) Total........................... $26,886 $24,537 $21,909 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:
1996 1995 1994 Computed tax at statutory federal rate ........... $28,014 35.0% $25,775 35.0% $23,842 35.0% Plus: State income taxes, net of federal tax benefits................... 2,465 3.1 2,450 3.3 1,986 2.9 30,479 38.1 28,225 38.3 25,828 37.9 Increase (decrease) in taxes resulting from: Tax-exempt interest... ....................... (4,861) (6.1) (4,484) (6.1) (4,348) (6.4) Other-net..................................... 1,268 1.6 796 1.1 429 .6 Actual tax expense........................ $26,886 33.6% $24,537 33.3% $21,909 32.1%
Significant components of One Valley's deferred tax assets and liabilities are as follows: December 31 1996 1995 Deferred tax assets: Allowance for loan losses........... $15,484 $15,559 Accrued employee benefits........... 3,840 3,355 Other............................... 1,680 1,541 Total deferred tax assets....... 21,004 20,455 Deferred tax liabilities: Loans............................... 6,026 5,909 Available-for-sale securities....... 583 4,168 Premises and equipment.............. 3,032 3,239 Other............................... 0 87 Total deferred tax liabilities.. 9,641 13,403 Net deferred tax assets....... $11,363 $ 7,052 Income taxes (benefit) related to securities losses approximated $(165), $(26), and $(347) in 1996, 1995, and 1994. One Valley made tax payments of approximately $25,000 in 1996, $26,000 in 1995, and $21,000 in 1994. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) EMPLOYEE BENEFIT PLANS NOTE N 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 1996, the CSB Financial Corporation's defined benefit 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:
1996 1995 Actuarial present value of accumulated benefit obligation, including vested benefits of $24,454 in 1996 and $23,921 in 1995....................... $ 26,951 $ 25,632 Actuarial present value of projected benefit obligation for services rendered to date............................. $ (36,573) $ (34,944) Plan assets at fair value, consisting primarily of cash, listed stocks, and U.S. bonds............................. 33,080 27,851 Projected benefit obligation in excess of plan assets....... (3,493) (7,093) Unrecognized net asset at November 1, 1987, net of amortization.............................................. (1,873) (2,117) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions........ 2,843 6,662 Unrecognized prior service cost............................. 624 694 Accrued pension cost included in other liabilities.......... $ (1,899) $ (1,854)
Following is a summary of the components of net periodic pension cost:
1996 1995 1994 Service cost-benefits earned during the period... $ 2,133 $ 1,529 $ 1,883 Interest cost on projected benefit obligation.... 2,461 2,088 1,991 Actual (return) loss on plan assets.............. (2,674) (4,332) 1,524 Net amortization and deferral.................... 385 2,209 (3,249) Net periodic pension cost...................... $ 2,305 $ 1,494 $ 2,149
The weighted-average discount rate used in determining the actuarial present value of projected benefit obligations was 7.5% and 7% at December 31, 1996 and 1995. The rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations was 5.5% in 1996 and 1995. The expected long-term rate of return on plan assets was 8.5% in 1996, 1995, and 1994. The unrecognized net loss decreased in 1996 due to the change in the weighted-average discount rate. 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. 36 EMPLOYEE BENEFIT PLANS-CONTINUED NOTE N The following table presents the plan's funded status and amounts recognized in the consolidated balance sheets at December 31:
1996 1995 Accumulated postretirement benefit obligation: Active plan participants fully eligible for benefits...... $ 0 $ 0 Other active participants................................. (3,147) (3,064) Current retirees.......................................... (2,598) (2,889) (5,745) (5,953) Plan assets................................................. 0 0 Accumulated postretirement benefit obligation in excess of plan assets............................................... (5,745) (5,953) Unrecognized transition obligation.......................... 3,496 3,714 Unrecognized prior service cost............................. 208 221 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions........ (239) 401 Accrued postretirement benefit cost included in other liabilities............................................. $ (2,280) $ (1,617)
Net periodic postretirement benefit cost included the following components:
1996 1995 1994 Service cost.......................................... $ 230 $ 188 $ 260 Interest cost......................................... 421 403 377 Amortization of transition obligation over 20 years... 231 230 230 Net periodic postretirement benefit cost............ $ 882 $ 821 $ 867
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e. health care cost trend rate) is 9% for 1997 and is assumed to decrease gradually to 5.5% in 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the plan as of December 31, 1996 by $351 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1996 by $58. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% and 7% at December 31, 1996 and 1995. OTHER EXPENSES NOTE O Included in other expenses are supplies expense which approximated $3,459 in 1996, $3,619 in 1995, and $3,447 in 1994 and postage expense which approximated $3,460 in 1996, $3,162 in 1995, and $3,141 in 1994. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) STOCK OPTION PLANS NOTE P One Valley has nonqualified and incentive stock option plans for certain key employees and directors. One Valley has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and related Interpretations in accounting for its employee stock options instead of applying FASB Statement No. 123, "Accounting for Stock-Based Compensation." Under APB 25, because the exercise price of One Valley's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pursuant to these plans, an aggregate maximum of 1,200,000 shares of common stock were reserved for issuance, although no more than 120,000 shares, plus any shares carried over from the prior year, may be issued in any calendar year. All options granted have 10 year terms and vest immediately. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if One Valley had accounted for its employee stock options under the fair value method of that Statement. However, pro forma information has not been presented herein because the effect of applying Statement 123's fair value method to One Valley's stock- based awards in 1996 and 1995 results in net income and earnings per share that are not materially different from amounts reported. A summary of One Valley's stock option activity and related information for the years ended December 31 follows:
1996 1995 Weighted- Weighted- Average Average Exercise Exercise Options Price Options Price Outstanding at beginning of year...... 526,000 $18.86 489,000 $16.76 Balance of acquired subsidiary........ 206,000 12.98 0 0.00 Granted............................... 122,000 24.82 124,000 24.24 Exercised............................. (168,000) 16.04 (83,000) 14.23 Forfeited............................. 0 0.00 (4,000) 24.20 Outstanding at end of year.......... 686,000 18.57 526,000 18.86 Exerciseable at end of year......... 686,000 18.57 526,000 18.86 Weighted-average fair value of options granted during the year............. $ 4.20 $ 3.75
Exercise prices for options outstanding at December 31, 1996, ranged from $8.22 to $28.00. The weighted-average remaining contractual life of those options at December 31, 1996 was 7.5 years. STOCK SPLITS AND STOCK DIVIDENDS NOTE Q On September 18, 1996, One Valley's Board of Directors authorized a five- for-four stock split of common shares effected in the form of a 25% stock dividend to shareholders of record on September 30, 1996. Average shares outstanding and per share amounts included in the consolidated financial statements have been adjusted for the stock split. 38 REGULATORY MATTERS NOTE R One Valley and its banking subsidiaries are subject to various regulatory capital requirements administered by the banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on One Valley's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, One Valley and each of its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of One Valley and each of its banking subsidiaries' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. One Valley and each of its banking subsidiaries' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require One Valley and each of its banking subsidiaries to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). One Valley and each of its banking subsidiaries met all capital adequacy requirements to which they were subject at December 31, 1996. As of December 31, 1996, the most recent notifications from the banking regulatory agencies categorized One Valley and each of its banking subsidiaries as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, One Valley and each of its banking subsidiaries must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table below. There are no conditions or events since these notifications that management believes have changed the institutions' category. One Valley's and its significant banking subsidiaries', One Valley Bank, National Association and One Valley Bank, Inc., actual capital amounts and ratios are also presented in the following table.
To Be Well Minimum Capitalized Under Required Prompt Corrective Actual Regulatory Capital Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 1996 Total Capital (to Risk Weighted Assets) One Valley........................... $419,400 16% $212,500 8% $265,600 10% One Valley Bank, National Association 150,100 14 84,200 8 105,300 10 One Valley Bank, Inc................. 47,100 14 27,300 8 34,100 10 Tier I Capital (to Risk Weighted Assets) One Valley........................... 486,100 15% 106,200 4% 159,300 6% One Valley Bank, National Association 136,900 13 42,100 4 63,200 6 One Valley Bank, Inc................. 42,800 13 13,700 4 20,500 6 Tier I Capital (to Average Assets) One Valley........................... 386,100 9% 169,000 4% 211,200 5% One Valley Bank, National Association 136,900 8 65,600 4 81,900 5 One Valley Bank, Inc................. 42,800 8 22,300 4 27,900 5 As of December 31, 1995 Total Capital (to Risk Weighted Assets) One Valley........................... $380,100 16% $189,000 8% $236,200 10% One Valley Bank, National Association 145,000 14 81,400 8 101,800 10 One Valley Bank, Inc................. 46,300 14 26,600 8 33,300 10 Tier I Capital (to Risk Weighted Assets) One Valley........................... 350,600 15% 94,500 4% 141,700 6% One Valley Bank, National Association 132,300 13 40,700 4 61,100 6 One Valley Bank, Inc................. 42,100 13 13,300 4 20,000 6 Tier I Capital (to Average Assets) One Valley........................... 350,600 10% 147,600 4% 184,500 5% One Valley Bank, National Association 132,300 8 63,400 4 79,300 5 One Valley Bank, Inc................. 42,100 8 21,100 4 26,300 5
39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) PARENT COMPANY CONDENSED FINANCIAL INFORMATION NOTE S CONDENSED BALANCE SHEETS December 31 Assets 1996 1995 Repurchase agreement with a subsidiary bank.............. $ 21,469 $ 26,130 Securities: Available-for-sale........... 9,978 12,820 Held-to-maturity............. 0 883 Premises and equipment......... 893 750 Investment in subsidiaries: Commercial and federal savings banks...... 382,678 325,224 Non-banks.................... 6,391 6,027 Other assets................... 4,922 4,865 Total assets................. $426,331 $376,699 Liabilities Short-term borrowings.......... $ 5,793 $ 0 Other liabilities.............. 11,961 10,397 Total liabilities............ 17,754 10,397 Shareholders' Equity Common stock................... 249,232 180,166 Capital surplus................ 73,834 34,603 Retained earnings.............. 152,006 168,625 Unrealized gain................ 883 6,252 Treasury stock................. (67,378) (23,344) Total shareholders' equity... 408,577 366,302 Total liabilities and shareholders' equity....... $426,331 $376,699 CONDENSED STATEMENTS OF INCOME Year Ended December 31 1996 1995 1994 Income: Dividends from subsidiaries........ $51,258 $47,290 $35,426 Other income....................... 4,222 3,788 3,078 Total income..................... 55,480 51,078 38,504 Expenses: Salaries and employee benefits..... 8,108 6,749 7,200 Other expenses..................... 4,804 5,028 3,268 Interest expense................... 280 18 14 Total expenses................... 13,192 11,795 10,482 Income before income taxes and equity in undistributed earnings of subsidiaries.................... 42,288 39,283 28,022 Applicable income tax (benefit)...... (3,403) (3,034) (2,927) Income before equity in undistributed earnings of subsidiaries........... 45,691 42,317 30,949 Equity in undistributed earnings of subsidiaries.................... 7,464 6,789 15,262 Net income....................... $53,155 $49,106 $46,211 CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31 1996 1995 1994 Operating Activities: Net income........................ $ 53,155 $ 49,106 $ 46,211 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization..... 245 238 220 Equity in undistributed earnings of subsidiaries...... (7,464) (6,789) (15,262) Net change in other assets and other liabilities......... 1,441 3,396 (3,531) Net cash provided by operating activities........ 47,377 45,951 27,638 Investing Activities: Purchase of securities: Available-for-sale.............. (8,028) (6,210) (5,108) Held-to-maturity................ (912) Proceeds from maturities and sales of securities: Available-for-sale.............. 10,982 196 Held-to-maturity................ 860 Investment in subsidiaries........ (5,139) (2,500) Purchase of equipment............. (427) (292) (638) Net cash provided by (used in) investing activities.......... 3,387 (11,445) (9,158) Financing Activities: Net change in short-term borrowings...................... 5,793 Proceeds from issuance of common stock.................... 2,844 1,185 340 Purchase of treasury stock........ (44,034) (12,971) (7,244) Cash dividends paid............... (20,028) (17,918) (16,089) Net cash used in financing activities.......... (55,425) (29,704) (22,993) (Decrease) increase in cash and cash equivalents......... (4,661) 4,802 (4,513) Cash and cash equivalents at beginning of year................. 26,130 21,328 25,841 Cash and cash equivalents at end of year....................... $ 21,469 $ 26,130 $ 21,328 40 FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE T 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 of 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 of 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 non-interest bearing checking, regular savings, and other types of money market demand accounts) are, by definition, equal to their carrying values. Fair values of 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, 1996 and 1995. 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 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, 1996 and 1995, approximate their carrying value. The fair values of One Valley's financial instruments are summarized below:
December 31, 1996 December 31, 1995 Carrying Fair Carrying Fair Amount Value Amount Value Cash and cash equivalents..... $ 160,874 $ 160,874 $ 165,676 $ 165,676 Securities.................... 1,170,230 1,172,749 1,076,852 1,083,739 Loans......................... 2,768,467 2,780,519 2,472,428 2,502,771 Accrued interest receivable... 34,129 34,129 32,307 32,307 Deposits...................... 3,406,016 3,408,753 3,048,336 3,053,777 Short-term borrowings......... 378,074 378,074 389,780 389,780 Long-term borrowings.......... 28,892 28,802 13,411 13,449 Accrued interest payable...... 15,639 15,639 15,332 15,332
41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) COMMITMENTS AND CONTINGENT LIABILITIES NOTE U 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 $44,000 as of December 31, 1996. 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, 1996, the Bank had commitments outstanding to extend credit at prevailing market rates approximating $479,000. 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, 1996, there was approximately $29,900 in outstanding loans sold with recourse. Pursuant to the terms of an Indemnity Agreement with the Federal Deposit Insurance Corporation (FDIC), successor to the obligations of the Resolution Trust Corporation, the FDIC is obligated to indemnify any and all costs, losses, liabilities and expenses, including legal fees, resulting from certain third-party claims. 42 QUARTERLY FINANCIAL DATA (UNAUDITED) NOTE V Quarterly financial data for 1996 and 1995 is summarized below:
1996 1995 Three Months Ended Three Months Ended March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 Interest income ..................................... $72,860 $77,874 $80,463 $80,956 $67,301 $70,742 $71,817 $72,512 Interest expense .................................... 32,022 34,361 36,306 36,596 27,995 30,422 31,057 31,606 Net interest income................................. 40,838 43,513 44,157 44,360 39,306 40,320 40,760 40,906 Provision for loan losses ........................... 1,149 1,334 1,353 1,368 1,113 1,113 1,762 1,644 Net interest income after provision for loan losses . 39,689 42,179 42,804 42,992 38,193 39,207 38,998 39,262 Other income, excluding securities gains............. 9,778 10,381 10,408 10,638 8,796 9,676 9,666 9,501 Securities transactions ............................. (294) 28 (147) 0 7 13 (86) 1 Other expenses ...................................... 30,217 31,378 35,143 31,677 30,364 30,462 30,061 28,704 Income before income taxes........................... 18,956 21,210 17,922 21,953 16,632 18,434 18,517 20,060 Applicable income taxes.............................. 6,308 7,170 5,902 7,506 5,344 6,137 6,187 6,869 Net income........................................ $12,648 $14,040 $12,020 $14,447 $11,288 $12,297 $12,330 $13,191 Per Share Data: Average shares outstanding (in thousands)........... 20,992 21,985 22,360 22,238 21,349 21,693 21,449 21,326 Net income per share .............................. $ .60 $ .64 $ .54 $ .65 $ .53 $ .57 $ .57 $ .62 Dividends per share ................................ .22 .22 .24 .24 .20 .20 .22 .22 High bid/share ..................................... 26.20 27.80 31.60 37.75 24.80 24.90 26.80 27.70 Low bid/share ...................................... 24.70 24.50 27.00 31.25 22.40 23.00 24.40 24.90
43 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders One Valley Bancorp, Inc. We have audited the accompanying consolidated balance sheets of One Valley Bancorp, Inc. and subsidiaries (One Valley) as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of One Valley's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of One Valley Bancorp, Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Charleston, West Virginia January 21, 1997 /s/ Ernst & Young LLP 44
SIX-YEAR AVERAGE BALANCE SHEET SUMMARY ONE VALLEY BANCORP, INC. AND SUBSIDIARIES (Dollars in thousands) 1996 1995 1994 1993 1992 1991 % OF % OF % OF % OF % OF % OF $ TOTAL $ TOTAL $ TOTAL $ TOTAL $ TOTAL $ TOTAL ASSETS Loans: Taxable...................... 2,650,425 65 2,397,405 65 2,202,716 62 2,032,527 58 1,929,592 57 1,549,386 56 Tax-exempt................... 43,740 1 33,977 1 34,430 1 31,153 1 30,351 1 32,443 1 Total loans................. 2,694,165 66 2,431,382 66 2,237,146 63 2,063,680 59 1,959,943 58 1,581,829 57 Less: Allowance for losses... 41,348 1 38,810 1 37,460 1 36,932 1 33,170 1 24,599 1 Total loans-net............. 2,652,817 65 2,392,572 65 2,199,686 62 2,026,748 58 1,926,773 57 1,557,230 56 Investment Securities: Taxable...................... 948,239 23 810,089 22 874,901 25 973,890 28 966,198 29 740,927 27 Tax-exempt................... 204,742 5 187,180 5 176,079 5 100,577 3 83,261 2 93,893 3 Total securities............ 1,152,981 28 997,269 27 1,050,980 30 1,074,467 31 1,049,459 31 834,820 30 Federal funds sold & other..... 16,815 0 32,595 1 27,363 1 100,270 3 119,696 4 146,612 5 Total earning assets........ 3,822,613 93 3,422,436 93 3,278,029 93 3,201,485 92 3,095,928 92 2,538,662 91 Other assets................... 281,907 7 266,775 7 262,422 7 265,776 8 277,317 8 233,239 9 Total assets.............. 4,104,520 100 3,689,211 100 3,540,451 100 3,467,261 100 3,373,245 100 2,771,901 100 LIABILITIES & SHAREHOLDERS' EQUITY Interest Bearing Liabilities: Time & savings deposits...... 2,886,158 70 2,625,910 71 2,518,539 71 2,498,420 72 2,455,775 73 2,047,057 74 Short-term borrowings........ 382,821 9 289,103 8 242,304 6 214,460 6 221,601 6 168,061 6 Long-term borrowings......... 18,602 0 11,416 0 22,931 1 36,088 1 25,703 1 15,653 0 Total interest bearing liabilities............... 3,287,581 79 2,926,429 79 2,783,774 78 2,748,968 79 2,703,079 80 2,230,771 80 Demand deposits................ 384,817 9 380,996 10 412,016 12 396,711 11 373,488 11 296,347 11 Other liabilities.............. 42,417 1 33,513 1 28,937 1 26,849 1 27,671 1 29,510 1 Total liabilities........... 3,714,815 89 3,340,938 90 3,224,727 91 3,172,528 91 3,104,238 92 2,556,628 92 Shareholders' equity........... 389,705 11 348,273 10 315,724 9 294,733 9 269,007 8 215,273 8 Total liabilities & shareholders' equity...... 4,104,520 100 3,689,211 100 3,540,451 100 3,467,261 100 3,373,245 100 2,771,901 100
45
SIX-YEAR NET INTEREST INCOME SUMMARY ONE VALLEY BANCORP, INC. AND SUBSIDIARIES (Dollars in thousands) 1996 1995 1994 1993 1992 1991 % 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 ........................ 235,153 73.6 217,034 75.0 189,040 73.2 179,971 71.3 186,681 69.7 165,539 66.8 Tax-exempt ..................... 4,328 1.3 3,774 1.3 3,618 1.4 3,255 1.3 3,133 1.2 3,866 1.6 Total loans .................. 239,481 74.9 220,808 76.3 192,658 74.6 183,226 72.6 189,814 70.9 169,405 68.4 Securities Taxable ....................... 62,447 19.5 50,693 17.6 48,881 19.0 55,868 22.2 64,466 24.1 58,483 23.6 Tax-exempt .................... 17,040 5.4 15,941 5.5 15,497 6.0 10,146 4.0 9,059 3.4 10,721 4.3 Total securities ............. 79,487 24.9 66,634 23.1 64,378 25.0 66,014 26.2 73,525 27.5 69,204 27.9 Funds sold & other .............. 664 0.2 1,830 0.6 1,037 0.4 3,104 1.2 4,290 1.6 9,142 3.7 Total interest income........ 319,632 00.0 289,272 100.0 258,073 100.0 252,344 100.0 267,629 100.0 247,751 100.0 Interest Expense: Deposits ....................... 119,865 37.5 106,493 36.8 85,221 33.0 90,807 36.0 109,713 41.0 120,437 48.6 Short-term borrowings ........... 18,276 5.7 13,899 4.8 8,491 3.3 6,270 2.5 8,203 3.1 8,947 3.6 Long-term borrowings............. 1,144 0.4 688 0.3 1,185 0.5 2,709 1.1 2,123 0.8 1,529 0.6 Total interest expense ........ 139,285 43.6 121,080 41.9 94,897 36.8 99,786 39.6 120,039 44.9 130,913 52.8 Tax equivalent net interest income............. 180,347 56.4 168,192 58.1 163,176 63.2 152,558 60.4 147,590 55.1 116,838 47.2 Tax equivalent adjustment ........ 7,479 2.3 6,900 2.4 6,690 2.6 4,645 1.8 4,145 1.5 4,959 2.0 Net interest income............... 172,868 54.1 161,292 55.7 156,486 60.6 147,913 58.6 143,445 53.6 111,879 45.2 SUMMARY OF AVERAGE RATES EARNED & PAID* Taxable loans ................... 8.87% 9.05% 8.58% 8.85% 9.67% 10.68% Tax-exempt loans ................ 9.89 11.11 10.51 10.45 10.32 11.92 Net loans ....................... 9.03 9.23 8.76 9.04 9.85 10.88 Taxable securities .............. 6.59 6.26 5.59 5.74 6.67 7.89 Tax-exempt securities............ 8.32 8.52 8.80 10.09 10.88 11.42 Total securities................ 6.89 6.68 6.13 6.14 7.01 8.29 Funds sold & deposits ........... 3.95 5.61 3.79 3.10 3.58 6.24 Total earning assets ........... 8.36% 8.45% 7.87% 7.88% 8.64% 9.76% Time & savings deposits ......... 4.15 4.06 3.38 3.63 4.47 5.88 Short-term borrowings ........... 4.77 4.81 3.50 2.92 3.70 5.32 Long-term borrowings............. 6.15 6.03 5.17 7.51 8.26 9.77 Total interest cost ............ 4.24 4.14 3.41 3.63 4.44 5.87 Total cost of all funds ........ 3.64 3.54 2.89 3.11 3.87 5.16 Net interest margin............ 4.72% 4.91% 4.98% 4.77% 4.77% 4.60% * INTEREST INCOME AND YIELDS ARE COMPUTED ON A FULLY TAXABLE EQUIVALENT BASIS USING THE RATES OF 35% FOR 1996 THROUGH 1993 AND 34% FOR 1992 AND 1991.
46
SIX-YEAR OPERATING INCOME SUMMARY ONE VALLEY BANCORP, INC. AND SUBSIDIARIES (Dollars in thousands) 1996 1995 1994 1993 1992 1991 % 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....................... 312,153 88.5 282,372 88.3 251,383 87.3 247,699 86.3 263,484 87.7 242,792 91.0 Interest expense ..................... 139,285 39.5 121,080 37.8 94,897 33.0 99,786 34.8 120,039 39.9 130,913 49.1 Net interest income................... 172,868 49.0 161,292 50.5 156,486 54.3 147,913 51.5 143,445 47.8 111,879 41.9 Provision for loan losses............. 5,204 1.5 5,632 1.8 4,788 1.7 5,788 2.0 11,389 3.8 6,671 2.5 Net interest income after provision for loan losses .......... 167,664 47.5 155,660 48.7 151,698 52.6 142,125 49.5 132,056 44.0 105,208 39.4 Other Income: Trust Department income ............. 9,322 2.7 8,203 2.5 7,892 2.7 7,272 2.5 6,041 2.0 5,327 2.0 Service charges on deposit accounts ................... 14,572 4.1 13,877 4.3 11,441 4.0 11,963 4.2 11,281 3.7 8,981 3.4 Other service charges and fees.................... 11,241 3.2 9,839 3.1 9,921 3.4 12,163 4.2 12,689 4.2 5,954 2.2 Other operating income .............. 6,070 1.7 5,720 1.8 8,191 2.8 7,794 2.8 6,790 2.3 4,441 1.7 Securities transactions ............. (413) (0.1) (65) (0.0) (867) (0.3) 113 0.0 (35) (0.0) (730) (0.3) Total other income................. 40,792 11.6 37,574 11.7 36,578 12.6 39,305 13.7 36,766 12.2 23,973 9.0 Operating Expenses: Salaries & benefits ................. 64,631 18.3 62,126 19.4 63,042 21.8 61,511 21.4 55,457 18.4 46,236 17.3 Occupancy expense.................... 6,887 2.0 6,305 2.0 6,014 2.1 6,206 2.2 6,199 2.1 4,315 1.6 Equipment expense.................... 9,137 2.6 8,761 2.7 8,468 2.9 10,604 3.7 10,503 3.5 8,759 3.3 External computer costs.............. 5,692 1.6 5,285 1.6 5,304 1.8 5,041 1.8 2,962 1.0 2,126 0.8 Other expense ....................... 42,068 11.9 37,114 11.6 37,328 13.1 41,788 14.5 40,417 13.5 30,610 11.5 Total operating expenses .......... 128,415 36.4 119,591 37.3 120,156 41.7 125,150 43.6 115,538 38.5 92,046 34.5 Income before tax .................... 80,041 22.7 73,643 23.1 68,120 23.5 56,280 19.6 53,284 17.7 37,135 13.9 Applicable income taxes .............. 26,886 7.6 24,537 7.7 21,909 7.6 18,326 6.4 16,646 5.5 10,743 4.0 Net income ........................... 53,155 15.1 49,106 15.4 46,211 15.9 37,954 13.2 36,638 12.2 26,392 9.9
* ADJUSTED OPERATING INCOME EQUALS INTEREST INCOME PLUS OTHER INCOME.
Per Share Summary (in dollars, except average shares) 1996 1995 1994 1993 1992 1991 Net income.......................... 2.43 2.29 2.16 1.76 1.70 1.37 Cash dividends...................... 0.92 0.83 0.75 0.67 0.56 0.50 Stock dividends..................... 25% 0 0 50%/20% 0 0 Average shares...................... 21,896,000 21,468,000 21,415,000 21,546,000 21,514,000 19,201,000
47 DIRECTORS OF ONE VALLEY BANCORP Phyllis H. Arnold EXECUTIVE VICE PRESIDENT, ONE VALLEY BANCORP, 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, INC. C. Michael Blair CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER, ONE VALLEY BANK - NORTH James K. Brown ATTORNEY, JACKSON & KELLY Nelle Ratrie Chilton VICE PRESIDENT AND 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 AND CHARLESTON AREA MEDICAL CENTER 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. Bob M. Johnson PRESIDENT & CHIEF EXECUTIVE OFFICER, ONE VALLEY BANK - CENTRAL VIRGINIA Robert E. Kamm, Jr. PRESIDENT & CHIEF EXECUTIVE OFFICER, ONE VALLEY BANK OF SUMMERSVILLE, INC. David E. Lowe EXECUTIVE VICE PRESIDENT, CHARLES RYAN & ASSOCIATES 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, INC. CHAIRMAN OF THE BOARD, ONE VALLEY BANK, N.A. Charles R. Neighborgall, III PRESIDENT, THE 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, INC., ATTORNEY, BOWLES, RICE, MCDAVID GRAFF & LOVE Brent D. Robinson PRESIDENT & CHIEF EXECUTIVE OFFICER, ONE VALLEY BANK OF HUNTINGTON 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 John T. Chambers ONE VALLEY BANCORP SENIOR MANAGEMENT J. Holmes Morrison PRESIDENT AND CHIEF EXECUTIVE OFFICER Phyllis H. Arnold EXECUTIVE VICE PRESIDENT Frederick H. Belden, Jr. EXECUTIVE VICE PRESIDENT AND ASSISTANT CORPORATE SECRETARY Laurance G. Jones EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Robert E. Kamm, Jr. SENIOR VICE PRESIDENT William M. Kidd SENIOR VICE PRESIDENT - CREDIT POLICY AND LOAN ADMINISTRATION Merrell S. McIlwain II SENIOR VICE PRESIDENT - GENERAL COUNSEL AND CORPORATE SECRETARY Terry T. Puster SENIOR VICE PRESIDENT Kenneth R. Summers SENIOR VICE PRESIDENT 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 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 John T. Chambers ONE VALLEY BANK OF SUMMERSVILLE 811 MAIN STREET SUMMERSVILLE, WV 26651 Roy V. Groves W. H. Henderson, Jr. Charles H. Hinkle Robert E. Kamm, Jr.* David Lackey Glenn H. McMillion Robert C. Rader 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 Clinton Rogerson Nick A. Sparachane Bernard P. Twigg Glenn Reed Whipkey Bruce W. Wilson ONE VALLEY BANK, INC. 496 HIGH STREET MORGANTOWN, WV 26505 Iona L. Bucklew Jeffrey B. Carpenter Samuel Chico, Jr. Otis G. Cox, Jr. Laurence S. DeLynn George R. Farmer, Jr. Arthur Gabriel Trevelyn F. Hall, II Wendell G. Hardway Benjamin H. Hayes Kenneth Juskowich James L. Laurita, Sr. John D. Lynch Paul F. Malone David Moffa D.J. Moore Thomas M. Prendergast Howard A. Shriver James M. Stevenson Paul T. Swanson Kenneth R. Summers* Robert H. Thompson Bernard G. Westfall Brian K. Wilson HONORARY MEMBERS Michael E. Basile John R. Carpenter Sarah L. Crayton James R. McCartney Jordan C. Pappas Carl J. Snyder Hays Webb 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* Ronald E. Ohl Kenneth R. Summers Leonard J. Timms, Jr. ONE VALLEY BANK, FSB 610 VIAND STREET POINT PLEASANT, WV 25550 Phyllis H. Arnold Gary L. Brown* Brian J. Fox Laurance G. Jones William M. Kidd Bryan F. Stepp ONE VALLEY BANK OF OAK HILL 100 MAIN STREET OAK HILL, WV 25901 John M. Frazier* George W. Jones, III James E. Lively William E. Meador Marilyn T. Montgomery Donald C. Newell, Jr. Roy Shrewsbury, II N. M. Steen HONORARY MEMBERS Elizabeth M. Lewis ONE VALLEY BANK OF RONCEVERTE, N.A. 100 MAPLEWOOD AVENUE RONCEVERTE, WV 24970 Gary M. Ambler Thomas E. Goodwin Norman O. Nutter Michael O'Brien Donald E. Parker, Jr. Henry E. Riffe John L. Robertson Paul G. Robinson* David Sebert Marion Shiflet ONE VALLEY BANK EAST, N.A. 148 SOUTH QUEEN STREET MARTINSBURG, WV 25401 Walter L. Butler James W. Dailey, II Deborah J. Dhayer Conrad C. Hammann Charles A. Hensell James B. Hutzler Robert A. McMillan John M. Miller, III Ellen M. Parsons 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. Robert G. Criswell Frank H. Fischer N. Blaine Groves T. Fred Hammond Otho S. Lewis Walter B. Ridenour Robert A. Sanders Philip T. Siebert Clyde E. Smith, Jr. Paul E. Tederick C. Vincent Townsend ONE VALLEY BANK OF MERCER COUNTY COURTHOUSE SQUARE PRINCETON, WV 24740 Homer K. Ball Jerry L. Beasley Fred A. Bolton J. Richard Copeland H. Allen Griffith A. Glendon Hill M. D. Kirk, Jr. Joseph F. Marsh James L. Miller* Charles W. Pace Dewey W. Russell James W. Thompson Ted L. White H. Elwood Winfrey HONORARY MEMBERS James W. Anderson John C. Anderson W. R. Cooke Harry Finkelman Richard V. Lilly Fred McKenzie Lawrence J. Pace Guy B. Scyphers Joseph C. Shaffer, Jr. ONE VALLEY BANK OF HUNTINGTON SIXTH AVE. & FIRST ST. HUNTINGTON, WV 25701 J. G. Call W. Dan Egnor Charlene Farrell Stephen G. Fox Henry M. Kayes Sara H. Lowe Charles R. Neighborgall, III Stephen G. Roberts Brent D. Robinson* David P. Reed J. Roger Smith Kevin D. Thompson ONE VALLEY BANK CENTRAL VIRGINIA 2120 LANGHORNE ROAD LYNCHBURG, VA 24501 Donald W. Britton William J. Conner Bob M. Johnson* Laurance G. Jones William M. Kidd Robert M. O'Brian William F. Overacre Edgar J.T. Perrow Jerry T. Price George P. Ramsey, III F. Rogers Vaden * PRESIDENT AND CEO EX-21 7 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, 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 Clarksburg, National Association, a national banking association organized under the laws of the United States of America. 11) One Valley Bank, FSB, a federal savings bank. 12) One Valley Bank-Central Virginia, a federal savings bank. 13) One Valley Thrift, Inc., a West Virginia corporation. 14) One Valley Square, Inc., a Texas corporation. EX-23 8 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of One Valley Bancorp, Inc. of our report dated January 21, 1997, included in the 1996 Annual Report to Shareholders of One Valley Bancorp, 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, Inc. of our report dated January 21, 1997, with respect to the consolidated financial statements of One Valley Bancorp, Inc. and Subsidiaries incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 1996. /s/ Ernst & Young LLP Charleston, WV March 26, 1997 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 assets 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 YEAR YEAR DEC-31-1996 DEC-31-1995 DEC-31-1994 DEC-31-1996 DEC-31-1995 DEC-31-1994 146152 140617 178900 9897 8259 4297 4825 16800 24875 0 0 0 952908 871699 541201 217322 205153 445158 219841 212040 422381 2810212 2511962 2372957 41745 39534 37438 4267303 3858296 3673241 3406016 3048336 2926479 378074 389780 375339 45744 40467 30106 28892 13411 19450 0 0 0 0 0 0 249232 180166 175384 159345 186136 146483 4267303 3858296 3673241 237966 219487 191392 73523 61055 58954 664 1830 1037 312153 282372 251383 119865 106493 85221 139285 121080 94897 172868 161292 156486 5204 5632 4788 (413) (65) (867) 128415 119591 120156 80041 73643 68120 80041 73643 68120 0 0 0 0 0 0 53155 49106 46211 2.43 2.29 2.16 2.43 2.29 2.16 4.72 4.91 4.98 8528 7174 7664 4273 5582 3827 0 0 552 0 0 0 39534 37438 36484 7038 5611 5985 1819 1840 2151 41745 39534 37438 41745 39534 37438 0 0 0 0 0 0
EX-99 10 EXHIBIT 99 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for use of the [X] Definitive Proxy Statement Commission on (as permitted by Rule 14a-b(e)(21)) [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 ONE VALLEY BANCORP, INC. (Name of Registrant as Specified in Its Charter) Elizabeth Osenton Lord (Name of Person(s) Filing Proxy Statement) Payment of filing fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: -------------------------------------------------------------------- (2) Aggregate number of securities to which transactions applies: -------------------------------------------------------------------- (3) Per unit price other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: -------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: -------------------------------------------------------------------- (5) Total fee paid: -------------------------------------------------------------------- 1 [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: -------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: -------------------------------------------------------------------- (3) Filing Party: -------------------------------------------------------------------- (4) Date Filed: -------------------------------------------------------------------- 2 ONE VALLEY BANCORP, INC. CHARLESTON, WEST VIRGINIA NOTICE OF REGULAR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 22, 1997 To the Shareholders: The Regular Annual Meeting of Shareholders of One Valley Bancorp, 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 22, 1997, for the purpose of considering and voting upon proposals: 1. To elect ten directors - nine to serve for a term of three years, and one to serve for a term of two years, and until their successors are chosen and qualify. 2. To ratify the selection of Ernst & Young LLP by the Board of Directors as independent Certified Public Accountants for the year 1997. 3. To approve an amendment to the Articles of Incorporation to update the indemnification provision of Article V. 4. To transact such other business as may properly be brought before the meeting or any adjournment thereof. Only those shareholders of record at the close of business on March 4, 1997, 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 21, 1997 3 (This Page intentionally left blank) ONE VALLEY BANCORP, INC. ONE VALLEY SQUARE CHARLESTON, WEST VIRGINIA PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS -- APRIL 22, 1997 This statement is furnished in connection with the solicitation of proxies for use at the Annual Meeting of Shareholders of One Valley Bancorp, Inc. ("One Valley"), to be held on Tuesday, April 22, 1997, 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 21, 1997. The mailing address of the principal executive offices of One Valley is P. O. Box 1793, Charleston, West Virginia 25326. SOLICITATION OF PROXIES The solicitation of proxies is made by management at the direction of the Board of Directors of One Valley. These proxies enable shareholders to vote on all matters which are scheduled to come before the meeting. If the enclosed proxy is signed and returned, it will be voted as directed; or if not directed, the proxy will be voted "FOR" the election of the ten management nominees as directors for the terms specified, "FOR" the ratification of the selection of Ernst & Young LLP as independent Certified Public Accountants and "FOR" the amendment of One Valley's Articles of Incorporation to update the indemnification provision of Article V. 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 One Valley's Bylaws, the Board of Directors has fixed March 4, 1997, 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, 22,017,192 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, 3,986,330 shares of stock representing 18.11% of the shares of One Valley outstanding. Of these shares, the banks hold 3,354,654 shares as co-trustee or co-executor and 631,676 shares as sole trustee or sole executor (other principal holders of One Valley's stock are discussed under "Principal Holders of Securities"). The 3,354,654 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 631,676 shares held by the banks as sole trustee or sole executor, 567,728 shares (or 2.58% of the total shares outstanding) will be voted by the banks, as trustee or executor, "FOR" the election of the ten management nominees as directors, "FOR" the ratification of the selection of Ernst & Young LLP as independent Certified Public Accountants, and "FOR" the amendment of One Valley's Articles of Incorporation to update the indemnification provision of Article V. The remaining 63,948 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. 4 PURPOSE OF MEETING 1. ELECTION OF DIRECTORS One Valley's Bylaws currently provide that the Board of Directors shall consist of not fewer than six nor more than 33 members. The Bylaws also provide that the exact number of directors within these minimum and maximum limits are to be fixed and determined by resolution of the Board of Directors. There are presently 29 directors on the Board, and at a meeting held February 18, 1997, the Board's Executive Committee fixed at 29 the number of directors to constitute the full Board of Directors of One Valley effective April 22, 1997. The term of Mr. Cecil B. Highland, Jr. as a director of One Valley expires at the 1997 Annual Meeting, and in accordance with One Valley's Directors Retirement Policy, he will not stand for re-election. Mr. David E. Lowe has completed his term of service and will not stand for re-election. 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, and one nominee has been nominated for a two-year term, and until their successors are chosen and qualify. This will result in a Board composed of three classes with nine directors in the class of 1998, eleven directors in the class of 1999 and nine directors in the class of 2000. MANAGEMENT NOMINEES TO THE BOARD OF ONE VALLEY Unless otherwise directed, the proxies will be voted "FOR" the election of the following ten directors to serve for terms expiring at the Annual Meeting of Shareholders for the years indicated below and until their successors are chosen and qualify.
SERVED FAMILY AS A RELATIONSHIP DIRECTOR WITH DIRECTORS PRINCIPAL OF ONE AND OTHER YEAR IN OCCUPATION VALLEY NOMINEES WHICH TERM OR EMPLOYMENT NOMINEES AGE SINCE EXPIRES LAST FIVE YEARS Dennis M. Bone 45 - None 2000 1995 to present - President and Chief Executive Officer - Bell Atlantic- West Virginia, Inc.; formerly Director, Regulatory Planning - Bell Atlantic- New Jersey, Inc., Charleston, WV H. Rodgin Cohen 52 - None 2000 Attorney - Sullivan & Cromwell, New York, NY Bob M. Johnson 61 1996 None 2000 1996 to present - President and Chief Executive Officer - One Valley Bank - Central Virginia; formerly President and Chief Executive Officer - Co-operative Savings Bank, FSB, Lynchburg, VA Robert E. Kamm, Jr. 45 1987 None 2000 President and Chief Executive Officer - One Valley Bank of Summersville, Inc., Summersville, WV Edward H. Maier 53 1983 None 2000 President - General Corporation, Charleston, WV (Real Estate Investment and Natural Gas Production) 5 SERVED FAMILY AS A RELATIONSHIP DIRECTOR WITH DIRECTORS PRINCIPAL OF ONE AND OTHER YEAR IN OCCUPATION VALLEY NOMINEES WHICH TERM OR EMPLOYMENT NOMINEES AGE SINCE EXPIRES LAST FIVE YEARS J. Holmes Morrison 56 1990 None 2000 President and Chief Executive Officer - One Valley Bancorp, Inc., and Chairman of the Board - One Valley Bank, National Association, Charleston, WV Angus E. Peyton (1) 70 1981 None 1999 Attorney - Brown and Peyton, Charleston, WV Lacy I. Rice, Jr. 65 1994 None 2000 Attorney - Bowles, Rice, McDavid, Graff & Love; Vice Chairman of the Board - One Valley Bancorp, 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. Richard B. Walker 58 1991 None 2000 Chairman of the Board and Chief Executive Officer - Cecil I. Walker Machinery Thomas D. Wilkerson 68 1981 None 2000 Senior Agent - Northwestern Mutual Life Insurance Company, Charleston, WV
DIRECTORS CONTINUING TO SERVE UNEXPIRED TERMS The following Directors will continue to serve until the expiration of their terms:
SERVED FAMILY AS A RELATIONSHIP DIRECTOR WITH DIRECTORS PRINCIPAL OF ONE AND OTHER YEAR IN OCCUPATION VALLEY NOMINEES WHICH TERM OR EMPLOYMENT DIRECTORS AGE SINCE EXPIRES LAST FIVE YEARS Phyllis H. Arnold 48 1993 None 1999 President and Chief Executive Officer - One Valley Bank, National Association, Charleston, WV Charles M. Avampato 58 1984 None 1999 President - Clay Foundation, Inc., Charleston, WV (Charitable Foundation) 6 SERVED FAMILY AS A RELATIONSHIP DIRECTOR WITH DIRECTORS PRINCIPAL OF ONE AND OTHER YEAR IN OCCUPATION VALLEY NOMINEES WHICH TERM OR EMPLOYMENT DIRECTORS AGE SINCE EXPIRES LAST FIVE YEARS Robert F. Baronner 70 1981 None 1998 Chairman of the Board - One Valley Bancorp, Inc., Charleston, WV; formerly President and Chief Executive Officer - One Valley Bancorp, Inc., Charleston, WV C. Michael Blair 54 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 67 1981 None 1998 Attorney - Jackson & Kelly, Charleston, WV Nelle Ratrie Chilton 57 1989 (2) 1998 Director and Vice President - Dickinson Fuel Co., Inc., Charleston, WV; TerraCo., Inc., Charleston, WV; TerraCare, Inc., TerraSalis, Inc., TerraSod, Inc., Malden, WV (Landscaping) R. Marshall Evans, Jr. 55 1984 (3) 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 James Gabriel 66 1993 None 1999 President and Chief Executive Officer - Gabriel Brothers, Inc., Morgantown, WV (Retail Sales) Phillip H. Goodwin 56 1989 None 1998 President - CAMCARE and Charleston Area Medical Center, Charleston, WV Thomas E. Goodwin 67 1985 None 1999 Chairman of the Board - One Valley Bank of Ronceverte, National Association, Ronceverte, WV John D. Lynch 56 1986 None 1999 Vice President - Davis Lynch Glass Company, Star City, WV Charles R. 55 1987 None 1999 President - The Neighborgall Neighborgall, III Construction Company, Huntington, WV Robert O. Orders, Sr. 71 1989 None 1998 Chief Executive Officer - Orders Construction Co., St. Albans, WV John L. D. Payne 58 1981 (3) 1998 President - Payne-Gallatin Mining Co., Charleston, WV 7 SERVED FAMILY AS A RELATIONSHIP DIRECTOR WITH DIRECTORS PRINCIPAL OF ONE AND OTHER YEAR IN OCCUPATION VALLEY NOMINEES WHICH TERM OR EMPLOYMENT DIRECTORS AGE SINCE EXPIRES LAST FIVE YEARS Brent D. Robinson 49 1994 None 1998 1995 to present - President and Chief Executive Officer - One Valley Bank of Huntington, Huntington, WV; 1993 to 1996 - Executive Vice President, One Valley Bancorp, Inc.; formerly President, Chief Operating Officer and Chief Financial Officer - Mountaineer Bankshares of W.Va., Inc. James W. Thompson 69 1983 None 1999 Chairman of the Board - One Valley Bank of Mercer County, Inc., Princeton, WV J. Lee Van Metre, Jr. 59 1986 None 1999 Attorney - Steptoe & Johnson; Secretary of the Board - One Valley Bank - East, National Association, Martinsburg, WV H. Bernard Wehrle, III 45 1991 None 1999 President - McJunkin Corporation, Charleston, WV (Industrial Wholesaler) John H. Wick, III 51 1993 (2) 1999 1992 to present - Vice President - Dickinson Fuel Co., Inc., Charleston, WV; 1980 to 1992 - Harrison & Bates, Inc., Richmond, VA (Commercial Realtor)
(1) Angus E. Peyton is a member of the Board of Directors of American Electric Power Company, Inc. (2) Nelle Ratrie Chilton is the sister-in-law of John H. Wick, III. (3) R. Marshall Evans, Jr. and John L. D. Payne are first cousins. GENERAL One Valley's Bylaws provide that in the election of directors, 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. Directors are elected by a plurality of votes cast, without regard to either broker non-votes or proxies as to which authority to vote for one or more of the nominees being proposed is withheld. One Valley's Bylaws 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. To the extent known, the notice of nomination must 8 contain the following information: (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 1996 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, Inc.; One Valley Bank of Oak Hill, Inc.; One Valley Bank of Summersville, Inc.; One Valley Bank - East, National Association, One Valley Bank - North, Inc.; One Valley Bank of Clarksburg, National Association; One Valley Bank, F.S.B.; and One Valley Bank - Central Virginia. 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 1996. This Committee reviews and evaluates significant matters relating to audit and internal controls, reviews the scope and results of audits by independent auditors, reviews the activities of the internal audit staff, meets with the appropriate management personnel regarding internal and external audit results and reports its findings to the Board of Directors. The Compensation Committee of One Valley consists of six members, Charles M. Avampato, Nelle Ratrie Chilton, Phillip H. Goodwin, David E. Lowe, John L. D. Payne and H. Bernard Wehrle, III, and met four times in 1996. The Compensation Committee administers the One Valley Bancorp, 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 six members, Robert F. Baronner, Nelle Ratrie Chilton, Phillip H. Goodwin, J. Holmes Morrison, John L. D. Payne and Angus E. Peyton and met once in 1996. 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 One Valley's Bylaws previously described. One Valley's Board met eight times in 1996, and there were numerous meetings of the Committees of the Board. During 1996, Directors Phillip H. Goodwin, Angus E. Peyton and H. Bernard Wehrle, III, attended fewer than 75% of the aggregate of the total number of One Valley Board meetings 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 One Valley's formation as a one-bank holding company holding 100% 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 1,612,227 shares, representing 7.32% of the issued and outstanding stock of One Valley. The C. C. Dickinson Family Trusts collectively hold 1,083,724 shares, representing 4.92% 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 4, 1997, 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. 9
TITLE OF NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS ----- ------------------- ------------------------ ----- Common Stock Mary Price Ratrie 1,224,127(2) 5.56% Kanawha Salines Malden, WV 25306 Common Stock Charles C. Dickinson, III 1,126,498(3) 5.12% 1111 City National Building Wichita Falls, Texas 76301 Common Stock R. Marshall Evans, Jr. 1,794,198(4) 8.15% 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 three individuals hold, excluding duplication, a total of 3,061,099 shares, or 13.90% of the total 22,017,192 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 42,498 shares owned of record; 1,083,724 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); 945 shares owned by J. Q. Dickinson & Co., a sole proprietorship owned by Mary Price Ratrie; and 96,960 shares owned by Dickinson Property Limited Partnership in which Mary Price Ratrie is a beneficial owner. (3) Consists of 42,774 shares owned of record and 1,083,724 shares held as co-trustee with Mary Price Ratrie and One Valley Bank (in which trusts Mr. Dickinson has a one-fifth beneficial interest). (4) Consists of 1,046,857 shares held as co-trustee with an individual co-trustee and One Valley Bank; 175,575 shares held as co-trustee with One Valley Bank and another individual co-trustee; 149,401 shares held with One Valley Bank as co-trustee; 28,913 shares held by his wife as trustee of trusts for the benefit of his children; 35,627 shares owned of record; 7,227 shares owned of record by his wife; and 350,598 shares owned by Dickinson Company, of which Mr. Evans is an executive officer. Not included in this total amount are 18,301 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 VOTING 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 4, 1997, and indicates the percentages of One Valley 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 64,723 Direct (2) * 181 Indirect Charles M. Avampato 24,529 Direct * 3,891 Indirect Robert F. Baronner 12,454 Direct * 7,546 Indirect 10 AMOUNT AND NATURE OF BENEFICIAL PERCENT OF NAME OF BENEFICIAL OWNER OWNERSHIP (1) CLASS Frederick H. Belden, Jr. 27,400 Direct (3) * 2,670 Indirect C. Michael Blair 72,974 Direct (4) * 12,777 Indirect Dennis M. Bone 200 Direct * James K. Brown 2,016 Direct * 3,039 Indirect Nelle Ratrie Chilton 54,298 Direct * H. Rodgin Cohen 1,000 Direct * R. Marshall Evans, Jr. 35,627 Direct 8.2% 1,758,571 Indirect (5) James Gabriel 10,602 Direct * 1,625 Indirect Phillip H. Goodwin 2,671 Direct * Thomas E. Goodwin 9,277 Direct * 9,347 Indirect Cecil B. Highland, Jr. 406,131 Direct 1.9% 9,697 Indirect Bob M. Johnson 104,912 Direct (6) * 2,707 Indirect Laurance G. Jones 20,975 Direct (7) * 4,500 Indirect Robert E. Kamm, Jr. 329,570 Direct (8) 1.6% 24,064 Indirect David E. Lowe 1,401 Direct * John D. Lynch 26,250 Direct * 3,750 Indirect Edward H. Maier 12,500 Direct J. Holmes Morrison 74,411 Direct (9) * 10,427 Indirect Charles R. Neighborgall, III 1,706 Direct * 3,375 Indirect Robert O. Orders, Sr. 21,862 Direct * John L. D. Payne 892 Direct 2.6% 571,849 Indirect (10) Angus E. Peyton 44,125 Direct 1.1% 207,711 Indirect 11 AMOUNT AND NATURE OF BENEFICIAL PERCENT OF NAME OF BENEFICIAL OWNER OWNERSHIP (1) CLASS Lacy I. Rice, Jr. 180,576 Direct * Brent D. Robinson 33,256 Direct (11) * 852 Indirect Kenneth R. Summers 34,980 Direct (12) * James W. Thompson 18,721 Direct * 7,318 Indirect J. Lee Van Metre, Jr. 4,105 Direct * Richard B. Walker 2,372 Direct * H. Bernard Wehrle, III 1,475 Direct * John H. Wick, III 12,625 Direct * 49,401 Indirect Thomas D. Wilkerson 2,250 Direct * All Directors, Nominees and Executive 1,671,181 Direct Officers as a Group (35 individuals) 2,241,352 Indirect 17.8%
*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 13,925 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 27,050 shares pursuant to One Valley's 1993 Stock Option Plan. (3) Includes options to purchase 4,950 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 20,825 shares pursuant to One Valley's 1993 Stock Option Plan. (4) Includes options to purchase 11,937 shares pursuant to One Valley's 1993 Stock Option Plan. Includes options to purchase 9,140 shares pursuant to Mountaineer Bankshares of W.Va., Inc., Stock Option Plan. (5) See Note (4) to Principal Holders of Voting Securities. (6) Includes options to purchase 4,375 shares pursuant to One Valley's 1993 Stock Option Plan. Includes options to purchase 54,426 shares pursuant to CSB Financial Corporation Stock Option Plan. (7) Includes options to purchase 19,975 shares pursuant to One Valley's 1993 Stock Option Plan. (8) Includes options to purchase 4,031 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 15,212 shares pursuant to One Valley's 1993 Stock Option Plan. (9) Includes options to purchase 26,309 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 46,875 shares pursuant to One Valley's 1993 Stock Option Plan. (10) Consists of 117,003 shares held in nine trusts of which John L. D. Payne is a co-trustee, 453,946 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 900 shares owned by his children; does not include 110,037 shares held in or through trusts in which John L. D. Payne, at the discretion of the trustees, is an income beneficiary. 12 (11) Includes options to purchase 14,750 shares pursuant to One Valley's 1993 Stock Option Plan. (12) Includes options to purchase 11,700 shares pursuant to One Valley's 1983 Stock Option Plan. Includes options to purchase 18,412 shares pursuant to One Valley's 1993 Stock Option Plan. EXECUTIVE COMPENSATION The following table sets forth the annual and long-term compensation for services in all capacities to One Valley for the fiscal years ended December 31, 1996, 1995, and 1994, of those persons who were, as of December 31, 1996, (i) the chief executive officer and (ii) the four other most highly compensated executive 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 Award(s) Options Payouts sation(1) Position Year ($) ($) ($) ($) (#) ($) ($) -------- ---- ------- -------- --------- ---------- ---------- ------- -------- J. Holmes Morrison 1996 362,000 173,760 0 0 12,500 0 3,750 President & CEO 1995 340,000 140,080 0 0 11,875 0 3,750 1994 315,000 110,250 0 0 11,250 0 5,476 Phyllis H. Arnold 1996 218,000 93,696 0 0 7,500 0 3,750 Exec. Vice President 1995 205,000 78,925 0 0 6,875 0 3,750 1994 190,000 63,840 0 0 6,375 0 4,531 Frederick H. Belden, Jr.1996 174,000 60,030 0 0 5,625 0 3,750 Exec. Vice President 1995 164,000 54,858 0 0 5,250 0 3,750 1994 156,000 47,190 0 0 5,000 0 4,691 Laurance G. Jones 1996 171,000 58,995 0 0 5,625 0 3,750 Exec. Vice President 1995 160,000 49,440 0 0 5,250 0 3,750 1994 150,000 43,313 0 0 4,750 0 4,687 Kenneth R. Summers 1996 152,000 46,740 0 0 5,000 0 3,750 Sr. Vice President 1995 135,000 38,813 0 0 4,687 0 3,706 1994 130,000 35,750 0 0 4,375 0 3,539
(1) The amounts included in "All Other Compensation" consist of One Valley's contributions on behalf of the listed officers to the 401(k) Plan, pursuant to which participating employees receive a matching contribution of 50% from One Valley for up to 5% of pay contributed to the 401(k) Plan by the employee, to a maximum of $3,750 which represents One Valley's matching share times $150,000, the maximum compensation allowed for benefit calculation in a qualified plan. 13 The following table sets forth further information on grants of stock options during 1996 to (i) the listed officers and (ii) all optionees as a group pursuant to One Valley's 1993 Incentive Stock Option Plan. The number of shares and exercise price reflect a 5 for 4 stock split effected in the form of a 25% stock dividend declared on September 18, 1996. The table also provides information concerning the potential gain to all shareholders at the designated rate of appreciation. No stock appreciation rights ("SARs") were awarded by One Valley.
OPTION GRANTS IN LAST FISCAL YEAR Grant Date Individual Grants Value(1) Number of % of Total Potential Realizable Value Securities Options at Assumed Annual Rates Underlying Granted to Exercise of Stock Appreciation for Options Employees or Base Expira- Ten-Year Option Term Granted in Fiscal Price(2) tion 0% 5% 10% Name (#) Year ($/Sh) Date ($) ($) ($) ------- ------- ---------- --------- -------- ----- -------- -------- J. Holmes Morrison 12,500 10.2% 24.70 04/29/06 0 194,500 492,500 Phyllis H. Arnold 7,500 6.1% 24.70 04/29/06 0 116,700 295,500 Frederick H. Belden, Jr. 5,625 4.6% 24.70 04/29/06 0 87,525 221,625 Laurance G. Jones 5,625 4.6% 24.70 04/29/06 0 87,525 221,625 Kenneth R. Summers 5,000 4.1% 24.70 04/29/06 0 77,800 197,000 25 Optionees (including the five listed above) 118,062 96.4% 24.70 04/29/06 0 1,837,045 4,651,643 One Optionee 4,375 3.6% 28.00 08/05/06 0 77,044 195,256 All Shareholders - - - - 0 320,291,941 811,022,011 Optionee Gain as % of All Shareholders' Gain - - - - 0 .60% .60%
(1) The actual value, if any, an officer may realize depends on the excess of the stock price over the exercise price on the date the option is exercised. (2) The exercise price is the fair market value of One Valley Common Stock on the date the options were granted. Options are exercisable immediately and terminate upon termination of employment for reasons other than death or retirement, upon the expiration of three months after the date of retirement, upon the expiration of one year from the date of death or ten years from the option date. 14 The following table sets forth information concerning (i) the value realized upon the exercise of stock options during 1996 by the listed officers, and (ii) the number of unexercised options held by each listed officer as of December 31, 1996, and the market value of the underlying shares if the options had been exercised on that date. The number of shares reflect a 5 for 4 stock split effected in the form of a 25% stock dividend declared on September 18, 1996. No SARs have been awarded by One Valley. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Shares Acquired Value FY-End (#) FY-End ($) Name On Exercise (#) Realized ($)(1) Exercisable Exercisable ---- --------------- --------------- ------------ ------------ J. Holmes Morrison 4,378 92,965 77,184 1,377,877 Phyllis H. Arnold 1,600 45,200 40,975 700,251 Frederick H. Belden, Jr. 1,000 22,120 25,775 386,464 Laurance G. Jones 1,720 22,162 22,100 318,076 Kenneth R. Summers 1,410 29,532 30,112 532,060
(1) Market value of underlying securities at exercise, minus the exercise or base price. Compensation covered by a qualified pension plan is based on total pay, including all 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 except that compensation relative to the benefit calculation cannot exceed $150,000. In 1996, this plan was amended a) to provide for the merger of assets and participants from Co-operative Savings Bank, FSB (now One Valley Bank - Central Virginia); b) to adopt a "Rule of 87" under which early retirement benefits are unreduced if a participant's age and credited service equals or exceeds 87; and c) to change the 5% early retirement benefit reduction factor to lower the benefit using a calculation based on age 62 rather than age 65 when an employee with 25 years of service or more retires prior to age 62 (unless they meet the Rule of 87, in which case there is no reduction). As of November 1, 1996, the credited years of service under the retirement plan for the individuals named in the table shown under Executive Compensation were: Phyllis H. Arnold, 20.667 years; J. Holmes Morrison, 29.17 years; Frederick H. Belden, Jr., 29 years; Laurance G. Jones, 27.417 years; and Kenneth R. Summers, 33.417 years. In 1990, a Supplemental Employee Retirement Plan (SERP) was established for certain members of senior management, including the individuals named in the Summary Compensation Table, which provides for a benefit at normal retirement of 65% of final average compensation, less (i) the retirement benefit under the Defined Benefit Pension Plan, (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% of final average compensation at the time of disability, minus the benefits paid under the employer Long-Term Disability Plan and the employee's Social Security benefit. In 1996, the SERP was amended: a) to redefine a "disability" to be the inability of a participant to perform his or her usual job function performed immediately preceding the onset of disability; b) to revise the reduced early retirement benefit target objectives to be consistent with the change in the 5% early retirement reduction factor made in the Defined Benefit Pension Plan; and c) to cause the SERP to include "non-compete" provisions which must be met for any participant to receive benefits under that plan. During 1996, $318,705 was accrued for the SERP Trust. 15 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, 1996, 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 $27,932 $37,242 $66,274 $66,274 $66,274 150,000** 33,932 45,242 82,524 82,524 82,524 175,000 33,932 45,242 98,774 98,774 98,774 200,000 33,932 45,242 115,024 115,024 115,024 250,000 33,932 45,242 147,524 147,524 147,524 300,000 33,932 45,242 180,024 180,024 180,024 400,000 33,932 45,242 245,024 245,024 245,024 500,000 33,932 45,242 310,024 310,024 310,024 600,000 33,932 45,242 375,024 375,024 375,024
**IRS Maximum for Qualified Plan. CHANGE IN CONTROL ARRANGEMENTS In October 1996, 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, and to secure the executives' continued service and dedication in the event of an actual or threatened change in control. The Board of Directors determined that such an arrangement was appropriate, especially in view of the volatile banking market and the advent of full-scale interstate branching in June 1997; however, the agreements were not undertaken in the belief that a change in control of One Valley was imminent. The 1996 agreements supersede previous change in control agreements. In general, the agreements provide that, in the event there is a change in control of One Valley (as described below), and during the two-year period immediately following the change in control the executive is (i) terminated by One Valley without cause, or (ii) terminates employment for good reason (as defined in the agreements), or (iii) in the case of executives at the level of Executive Vice President or above, voluntarily terminates employment during the thirteenth month after a change in control, the executive shall receive a lump-sum cash amount equal to either three (at the level of Executive Vice President or above) or two times the sum of (i) the executive's base salary and average bonus for the three years preceding the change in control, (ii) a pro rata portion of the executive's target bonus for the year in which the change in control occurs, (iii) the continuation of welfare benefits for a 36-month period, and (iv) retiree medical benefits following such 36-month period if the executive has attained age 50 with ten years of service as of the date of termination. In the event change in control related payments are subject to a 20% excise tax under Section 4999 of the Internal Revenue Code, One Valley will reimburse executives at the level of Executive Vice President or above in an amount sufficient to enable the executive to retain his change in control benefits as if the excise tax had not applied; provided, however, that the reimbursement will not be made and severance payments will be capped so no excise tax would be due if a reduction of the severance payments by an amount equal to less than 10% of the change in control benefits would result in no excise tax being due. If necessary, payments for other executives under the severance agreements will be reduced so no excise tax would be due. Pursuant to the severance agreements, the executives agree to not voluntarily terminate employment during the 180-day period following the commencement of a tender or exchange offer or proxy contest or execution of an agreement which would result in a change in control, unless and until such offer, contest or agreement is terminated or abandoned or a change in control occurs. Under the severance agreements, a "change in control" is defined generally to mean: (i) a person becomes the beneficial owner of 50% or more of the voting power of One Valley; (ii) a change in a majority of the Board (or their approved successors); (iii) the consummation of a reorganization, merger, consolidation or sale of substantially all of the assets of One Valley (unless One Valley's stockholders receive more than 60% of the voting stock of the surviving or purchasing company, no person acquires more than 50% of such voting stock, and One Valley's Board of Directors remains a majority of the continuing board of directors of the surviving or purchasing company); or (iv) a liquidation, dissolution or sale or disposition of all or substantially all the assets of One Valley. 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 the performance of each executive and of One Valley. The Committee has determined that to accomplish these objectives, total compensation should be composed 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 1996 and in fixing levels of executive compensation, the Committee considered internal equity and external competitiveness of base compensation and total compensation 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. In 1995 the Committee independently engaged a third party consultant, Price Waterhouse LLP, to study the compensation and benefits of the most senior executives of the corporation and to offer an evaluation and recommendations for 1996. In March 1996, Price Waterhouse LLP reported directly to the Compensation Committee concerning annual cash compensation, total compensation, an executive benefits analysis and recommendations concerning change in control agreements. The Committee reviewed the findings and recommendations in detail and determined that One Valley's level of executive compensation is appropriate relative to a high performing peer group of banks. The percentage of compensation at risk is competitive to the peer group banks. These compensation levels are consistent with the philosophy of the Compensation Committee. Currently, base compensation for One Valley's executives, while competitive, is below the average for similar positions within comparable financial institutions. 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 Executive Incentive Compensation Plan ("EICP"). Awards under EICP are granted based upon individual and corporate performance. Corporate performance is measured by One Valley's earnings per share growth relative to a target level set by the Board of Directors, and One Valley's performance on six financial measures as compared to a selected peer group. The comparative measures are: net operating expenses / average assets; non-performing assets / (loans and OREO); net loan charge-offs / average loans; efficiency ratio; return on assets; and return on equity. The individual portion is based 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 level of annual performance of One Valley, determined in a manner which emphasizes factors which should have a positive impact upon total return to shareholders, has a significant impact upon total executive compensation. The Committee believes that shareholder value can be further enhanced by closely aligning the financial interests of One Valley's key executives with those of its shareholders. Awards of stock options pursuant to One Valley's Incentive Stock Option Plan ("ISOP") are intended to meet this objective and constitute the long-term incentive portion of executive compensation. 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 One Valley Common 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 17 underlying stock increases, and the increase in value of the option is directly tied to the increase in the value of the One Valley Common Stock. The Committee believes the ISOP focuses the attention and efforts of executive management upon increasing long-term shareholder value, and the Committee annually 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 with One Valley of the participants in the ISOP. Price Waterhouse LLP reviewed long-term incentives as a part of total compensation benchmarking. Total compensation refers to the aggregation of the annual cash compensation and average long-term incentives. The level of One Valley's total compensation package is competitive with the peer groups; however, One Valley places slightly more emphasis on the long-term incentive component of the compensation package than do the banks included in the peer group. 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 significantly impact the EICP award; and, in addition, the market price of One Valley Common Stock determines the value of options awarded during prior periods. The base compensation of the CEO in 1996 was based in large measure on the corporate results in 1995 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 Compensation Committee reviewed the report of Price Waterhouse LLP on executive benefits. On the whole, the executive benefits were found to be adequate, although somewhat conservative. The Committee approved the recommendation that executives be provided personal financial and estate planning services. With respect to change in control strategies, Price Waterhouse LLP recommended a complete study of One Valley's then current change in control agreements, which it believed should be modified and expanded. (See the subsection of this Proxy Statement captioned "Change in Control Agreements.") 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 receives 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 cumulative total shareholder return on One Valley Common Stock for the five-year period ending December 31, 1996, 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 (Performance Graph appears here with the following plot points.) FISCAL YEAR ENDING 1991 1992 1993 1994 1995 1996 One Valley Bancorp 100 155.61 148.48 154.95 177.21 271.27 All Publicly Traded Banks 100 119.14 140.83 133.61 188.94 261.26 Standard & Poor's 500 100 107.64 118.50 120.06 165.18 203.11 19 COMPENSATION OF DIRECTORS During 1996, 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. Non-employee directors who were members of the Board's Audit Committee received $350 per meeting attended and $300 for other committee meetings attended. In addition, Mr. Baronner received compensation in the amount of $18,000 for serving as Chairman of the Board of Directors. During 1996, 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. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires One Valley's directors and executive officers, and persons who beneficially own more than ten percent of a registered class of One Valley'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 One Valley. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish One Valley with copies of all Section 16(a) forms they file. To One Valley's knowledge, based solely upon review of the copies of such reports furnished to One Valley and written representations that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. 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 1996, 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. One Valley's management believes that these transactions, which at December 31, 1996, were, in the aggregate, 26.0% of total shareholders' equity, 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, McNeer, Highland & McMunn, a law firm in which Director Cecil B. Highland, Jr., is of counsel, and Sullivan & Cromwell, a law firm in which Nominee H. Rodgin Cohen is a partner, performed legal services for One Valley and its subsidiaries in 1996. Based on information provided by Messrs. Brown, Van Metre, Rice, Highland and Cohen, One Valley believes that payments it made to these law firms were less than five percent of each of those law firms' gross revenues in 1996. During 1996, The Neighborgall Construction Co. received payments of $149,720 from One Valley's affiliate, One Valley Bank of Huntington, Inc., for repair work to facilities owned by the bank. In One Valley's opinion, 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 1996, One Valley's affiliate banks and One Valley Square, Inc., paid $115,029 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. 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. 20 2. RATIFICATION OF SELECTION OF AUDITORS The Board of Directors has selected the firm of Ernst & Young LLP to serve as independent auditors for One Valley for 1997. Although the selection of auditors does not require shareholder ratification, the Board of Directors has directed that the appointment of Ernst & Young LLP be submitted to shareholders for ratification. If the shareholders do not ratify the appointment of Ernst & Young LLP, the Board of Directors will consider the appointment of other independent auditors. 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 LLP 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 ratification of the selection of Ernst & Young LLP 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 ratify the appointment of Ernst & Young LLP. 3. PROPOSAL TO AMEND INDEMNIFICATION PROVISION OF ARTICLES OF INCORPORATION The Board of Directors recommends that the shareholders approve an amendment to Article V of the Articles of Incorporation of One Valley to revise and update the obligation of One Valley to indemnify its directors and officers. The text of Article V, in its current form, is attached as Exhibit A to this Proxy Statement and incorporated herein by this reference. The text of proposed Article V is attached as Exhibit B and is also incorporated herein by this reference. Background and Reasons for the Proposed Amendment: Indemnification is the practice by which a corporation pays the expenses of directors and officers who are named as defendants or otherwise involved in litigation relating to their activities on behalf of the corporation. Virtually all publicly-owned corporations provide indemnification. The laws of the State of West Virginia expressly authorize indemnification, and since One Valley was incorporated in 1981, Article V has provided indemnification for One Valley's directors and officers. Since 1981, there have been numerous legal and other developments concerning indemnification. The Board of Directors believes that One Valley's current indemnification provision should be revised and updated to reflect these developments and to be consistent with industry standards, so as to attract and retain qualified directors and officers. The current indemnification provision may leave some ambiguity as to whether the standard of conduct required for indemnification has been satisfied. Similarly, the current provision utilizes legal terms establishing the standard of conduct of indemnification which, in light of the developments since 1981, may be difficult to apply. The proposed provision is designed to reduce ambiguity and uncertainty in favor of indemnification simply "to the fullest extent authorized by law." In the opinion of the Board of Directors, the use of the language "to the fullest extent authorized by law" makes the provision consistent with existing law and potential future developments in this area. In addition, the proposed indemnity provision more clearly specifies the payments One Valley must make, the binding contractual nature of One Valley's commitment to do so, and the procedure that an indemnified party may use to obtain prompt payment. The Board of Directors believes that the proposed amendment is consistent with the original intent of Article V when it was adopted. The proposed indemnity provision does not authorize indemnification which is precluded by state or federal statutes or regulations. For example, the federal securities laws or regulations of the Federal Deposit Insurance Corporation may preclude indemnification for certain specified violations. Other information: Although there is currently no litigation pending, or, to One Valley's knowledge, threatened that will trigger either the existing or the proposed indemnification provision, incumbent directors may be deemed to have a direct and personal interest in approval of the proposed amendment because of possible litigation in the future. One Valley maintains directors' and officers' liability insurance which may offset part of the cost involved in any indemnification claim. To the extent obligations under the proposed indemnity provision of One Valley's Articles of Incorporation exceed any proceeds of insurance (or if such coverage is discontinued or not available), any indemnification payments made by One Valley could have an adverse effect upon its earnings and assets. The Board recommends that Article V of One Valley's Articles of Incorporation be amended and restated in its entirety as set forth in Exhibit B. An affirmative vote of a majority of the outstanding shares of One Valley Common Stock is required to approve the amendment. Shares voted "ABSTAIN" and shares not voted will have the same effect as if these shares were voted "AGAINST" approval of the amendment. 21 THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THIS PROPOSAL. The enclosed proxy will be voted "FOR" the approval of the proposed amendment to Article V of the Articles of Incorporation unless otherwise directed. FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION Upon written request by any shareholder to Laurance G. Jones, Treasurer, One Valley, P. O. Box 1793, Charleston, West Virginia 25326, a copy of One Valley's 1996 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 1998 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 18, 1997, to have it considered for inclusion in the proxy statement of the Annual Meeting in 1998. J. Holmes Morrison PRESIDENT Charleston, West Virginia March 21, 1997 22 EXHIBIT A ARTICLE V ------------- Provisions for the regulation of the internal affairs of the corporation are: Each director and officer of this corporation, or former director or officer of this corporation, or any person who may have served at its request as a director or officer of another corporation, his heirs and personal representatives, shall be indemnified by this corporation against costs and expenses at any time reasonably incurred by him arising out of or in connection with any claim, action, suit or proceeding, civil or criminal, against him or to which he may be made a party by reason of his being or having been such director or officer except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for gross negligence or willful misconduct in the performance of a duty to the corporation. If in the judgment of the board of directors of this corporation a settlement of any claim, action, suit or proceeding so arising be deemed in the best interests of the corporation, any such director or officer shall be reimbursed for any amounts paid by him in effecting such settlement and reasonable expenses incurred in connection therewith. The foregoing right of indemnification shall be in addition to any and all other rights to which any director or officer may be entitled as a matter of law. EXHIBIT B Proposed ARTICLE V --------- Provisions for the Regulation of the Internal Affairs of the Corporation A. Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved (including, without limitation, as a witness or deponent) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise in nature ("Proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the written request of the corporation's board of directors, president or their delegate as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such Proceeding is alleged action or omission in an official capacity as a director, officer, trustee, employee or agent or in any other capacity, shall be indemnified and held harmless by the corporation to the fullest extent authorized by law, including but not limited to the West Virginia Code, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said Code permitted the corporation to provide prior to such amendment), against all expenses, liability and loss (including, without limitation, attorneys' fees and disbursements, judgments, fines, ERISA or other similar or dissimilar excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by such person in connection therewith; provided, however, that the corporation shall indemnify any such person seeking indemnity in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors of the corporation; provided, further, that the corporation shall not indemnify any person for civil money penalties or other matters, to the extent such indemnification is specifically not permissible pursuant to federal or state statute or regulation, or order or rule of a regulatory agency of the federal or state government with authority to enter, make or promulgate such order or rule. Such right shall include the right to be paid by the corporation expenses, including, without limitation, attorneys' fees and disbursements, incurred in defending or participating in any such Proceeding in advance of its final disposition; provided, however, that the payment of such expenses in advance of the final disposition of such Proceeding shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, in which such director or officer agrees to repay all amounts so advanced if it should be ultimately determined that such person is not entitled to be indemnified under this Article or otherwise. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the corporation, or that such person did have reasonable cause to believe that his conduct was unlawful. 23 B. Right of Claimant to Bring Suit. If a claim under this Article is not paid in full by the corporation within thirty days after a written claim therefor has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful, in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending or participating in any Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the applicable law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification or reimbursement of the claimant is permitted in the circumstances because he or she has met the applicable standard of conduct, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. C. Contractual Rights: Applicability. The right to be indemnified or to the reimbursement or advancement of expenses pursuant hereto (i) is a contract right based upon good and valuable consideration, pursuant to which the person entitled thereto may bring suit as if the provisions hereof were set forth in a separate written contract between the corporation and the director or officer, (ii) is intended to be retroactive and shall be available with respect to events occurring prior to the adoption hereof, and (iii) shall continue to exist after the rescission or restrictive modification hereof with respect to events occurring prior thereto. D. Requested Service. Any director or officer of the corporation serving, in any capacity, (i) another corporation of which five percent (5%) or more of the shares entitled to vote in the election of its directors is held by the corporation, or (ii) any employee benefit plan of the corporation or of any corporation referred to in clause (i), shall be deemed to be doing so at the request of the corporation. E. Non-Exclusivity of Rights. The rights conferred on any person hereunder shall not be exclusive of and shall be in addition to any other right which such person may have or may hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors or otherwise. F. Insurance. The corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under West Virginia law. 24 (This Page intentionally left blank) ******************************************************************************* APPENDIX - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - PROXY ONE VALLEY BANCORP, INC. PROXY CHARLESTON, WEST VIRGINIA THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS, APRIL 22, 1997 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, Inc. at the Annual Meeting of Shareholders to be held April 22, 1997, and any adjournment thereof. Unless otherwise specified on this Proxy, the shares represented by this Proxy will be voted "FOR" the propositions listed on the reverse side and described more fully in the Proxy Statement of One Valley Bancorp, 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.) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 25 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ONE VALLEY BANCORP, 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.
1. Election of Directors for the terms specified in the FOR WITHHOLD FOR ALL Proxy Statement. (Except Nominees(s)written Below Nominees: Dennis M. Bone, H. Rodgin Cohen, Bob M. [ ] [ ] [ ] Johnson, Robert E. Kamm, Jr., Edward H. Maier, J. Holmes Morrison, Angus E. Peyton, Lacy I. Rice, Jr., Richard B. Walker and Thomas D. Wilkerson 2. Ratify the selection of Ernst & Young LLP as independent FOR AGAINST ABSTAIN Certified Public Accountants for 1997. [ ] [ ] [ ] 3. Approve an amendment to Article V of the Articles of FOR AGAINST ABSTAIN Incorporation to update the indemnification provision. [ ] [ ] [ ] 4. Transact such other business as may properly come before the FOR AGAINST ABSTAIN meeting and any adjournment thereof. [ ] [ ] [ ]
Dated:__________________, 1997 Signature(s)___________________________________ --------------------------------------------- When signing as attorney, executor, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 26 -----END PRIVACY-ENHANCED MESSAGE-----