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, 1998
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 executive offices) (Zip Code)
Registrant's telephone number, including area code (304) 348-7000
----------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK ($10.00 PAR VALUE) NEW YORK STOCK EXCHANGE
----------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
--------------
NONE
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. [ ]
<PAGE>
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 closing price on
----------------------------------------- ---------------------------
$1,012,591,701 MARCH 5, 1999
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 5, 1999
----- ----------------------------
COMMON STOCK ($10.00 PAR VALUE) 34,401,692
DOCUMENTS INCORPORATED BY REFERENCE
The following lists the documents which we incorporate by reference into
the Form 10-K Annual Report, and the parts and items of the Form 10-K where we
incorporate these documents.
<TABLE>
<CAPTION>
Document Part of the Form 10-K Where We
-------- Incorporate the Document
------------------------
<S> <C>
Portions of One Valley Bancorp, Inc., 1998 Part I, Item 1; Part II, Items 5, 6, 7,
Annual Report to Shareholders for the year 7A and 8; Part III, Item 13; and
ended December 31, 1998 Part IV, Item 14
Portions of One Valley Bancorp, Inc., Proxy Part III, Items 10, 11, 12 and 13
Statement for the 1999 Annual Meeting of
Shareholders
</TABLE>
2
<PAGE>
ONE VALLEY BANCORP, INC.
FORM 10-K
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I
Item 1. Business...................................................... 4
Item 2. Properties ................................................... 12
Item 3. Legal Proceedings............................................. 12
Item 4. Submission of Matters to a Vote of Security Holders........... 12
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 7A. Quantitative and Qualitative Disclosures About Market Risk ... 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 .................................................................... 18
Index to Exhibits............................................................... 21
</TABLE>
3
<PAGE>
PART I
ITEM 1. BUSINESS
ONE VALLEY BANCORP, INC. AND ITS AFFILIATE BANKS
One Valley Bancorp, Inc. is a $6.0 billion registered bank holding
company headquartered in Charleston, West Virginia. On December 31, 1998, One
Valley owned the following affiliate banks:
<TABLE>
<CAPTION>
Percentage
Year of Net
When Currently Percentage Income Number of
Name Organized Chartered As of Assets Contributed Branches
- ---- --------- ------------ --------- ----------- --------
<S> <C> <C> <C> <C> <C>
One Valley Bank,
National Association 1867 National 35.60% 35.39% 22
One Valley Bank, Inc. 1911 State (WV) 14.75% 16.30% 19
One Valley Bank of
Mercer County, Inc. 1906 State (WV) 4.46% 5.83% 5
One Valley Bank of
Huntington, Inc. 1956 State (WV) 3.38% 3.84% 4
One Valley Bank-South, Inc. 1910 State (WV) 7.21% 9.90% 10
One Valley Bank-East,
National Association 1865 National 6.87% 7.62% 13
One Valley Bank-North, Inc. 1903 State (WV) 4.21% 4.81% 6
One Valley Bank-
Central Virginia,
National Association 1914 National 19.91% 14.29% 35
One Valley Bank-
Shenandoah 1933 State (VA) 3.61% 2.04% 11
</TABLE>
Through these affiliate banks, One Valley has 125 offices in West Virginia and
Virginia and over $4.0 billion in trust assets under administration. One Valley
has a market capitalization of over $1.1 billion, and is the largest bank
holding company based in West Virginia.
One Valley's West Virginia affiliate banks are located in the most
economically vibrant areas in West Virginia and have concentrated on growth in
urban areas along major highways. Accordingly, these affiliate banks generally
serve the stronger economic areas of West Virginia. In 1996, One Valley began an
interstate expansion strategy into Virginia. The area through Central Virginia
is a priority expansion market for One Valley with Charlottesville, Lynchburg
and Lexington being the cornerstones of this expansion strategy.
4
<PAGE>
One Valley Bank, National Association, One Valley's principal affiliate
bank, was formed in 1867 as a state bank under the name "The Kanawha Valley
Bank." In 1975, this bank converted from a state bank to a national banking
association. In 1981, the bank's board of directors formed One Valley Bancorp,
and through a corporate reorganization, One Valley Bancorp of West Virginia,
Inc. was formed as a single bank holding company which owned all of the bank's
common stock. In 1987, One Valley and its affiliates adopted the name "One
Valley" primarily to promote a single corporate identity for One Valley's
diverse banking operations.
OPERATIONS OF THE AFFILIATE BANKS AND OTHER SUBSIDIARIES
The affiliate banks offer all services that full-service commercial
banks traditionally offer, including commercial and individual demand and time
deposit accounts, commercial and individual loans, credit card (MasterCard and
Visa) and drive-in banking services. Additionally, One Valley is active in
correspondent banking services. It also offers trust services in West Virginia
and Virginia. No material portion of any of the affiliate banks' deposits has
been obtained from a single or small group of customers, and the loss of any one
customer's deposits would not have a material adverse effect on the business of
any of the affiliate banks.
The affiliate banks also offer services to customers at various
locations within their service areas through approximately 280 automated teller
machines or ATMs. The ATMs allow customers to make deposits and withdrawals
twenty-four hours a day at convenient locations. Customers may also borrow
against their revolving lines of credit or transfer funds between deposit
accounts at ATM locations. Affiliate bank customers 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 worldwide.
One Valley Securities Corporation, a subsidiary of One Valley Bank,
National Association, provides discount brokerage services and also sells, as
agent, mutual funds and annuities. One Valley Insurance Corporation, a
subsidiary of One Valley Bank, Inc., is a general agency and sells life and
other insurance products. Valley Security Insurance Company, Inc., a subsidiary
of One Valley Bank-Shenandoah, sells title insurance, as agent.
Although the market areas of several of the affiliate banks 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 affiliate banks constitute less than 5% of One Valley's total
loans outstanding. The affiliate banks generally serve the stronger economic
areas of the State.
5
<PAGE>
DELIVERY SYSTEMS
The methods that the affiliate banks use to deliver bank products and
services to customers consist of the following:
o traditional branch offices;
o electronic banking:
o ATM network;
o PC banking and bill payment;
o telephone bill payment;
o VISA check card; and
o telebanking centers;
o trust offices; and
o investment centers.
One Valley's strategy is to offer delivery systems that:
o provide alternative channels for convenience;
o give customers choices;
o lower overall costs; and
o introduce electronic banking at a cost which accommodates
varying paces of customer acceptance.
EMPLOYEES
As of March 1, 1999, One Valley, its affiliate banks and other
subsidiaries had approximately 2,300 full-time equivalent employees.
COMPETITION
Vigorous competition exists in all areas where One Valley and its
affiliate banks conduct business. The affiliate banks primarily serve the
following defined market areas: West Virginia, Central and Southern Virginia,
and, to a limited extent, certain adjoining areas in Kentucky, Maryland, North
Carolina, Ohio and Pennsylvania.
6
<PAGE>
The affiliate banks compete with commercial banks and other financial
institutions. 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.
Additionally, insurance companies, investment counseling firms, other business
firms and individuals offer personal, corporate trust and investment counseling
services.
The opening of branch banks within One Valley's market areas increased
competition for the affiliate banks. Although federal and state banking
legislation allows One Valley to acquire banking subsidiaries in other
attractive banking areas, it increased competition for One Valley. With
interstate banking, One Valley is in competition with others to acquire banking
institutions in West Virginia and neighboring states.
Until 1993, shareholders in West Virginia predominantly owned the
various banks and bank-holding companies operating in West Virginia. Until that
time, operations arising principally in West Virginia financed these banks and
bank holding companies. Thereafter, other banking companies, including Banc One
Corp. and Huntington Bankshares Incorporated have entered the West Virginia
market. Other large out-of-state banks may, 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 that have
access to greater capital resources and which have sophisticated marketing
structures in place.
During 1998, One Valley significantly expanded its presence in Virginia
with the closing of the purchase of FFVA Financial Corporation, the purchase of
15 branches from Wachovia Corporation and the acquisition of Summit Bankshares,
Inc. As a result, One Valley is the eighth largest banking institution in
Virginia and competes with established Virginia and North Carolina banking
companies. The markets served by One Valley in Virginia are growing more rapidly
than the West Virginia markets and offer enhanced earnings opportunities.
As of December 31, 1998, there were 56 bank holding companies in West
Virginia registered with the Federal Reserve System and the West Virginia Board
of Banking and Financial Institutions ("Board of Banking") and 58 bank holding
companies in Virginia registered with the Federal Reserve System and the State
Corporation Commission of Virginia. These holding companies are headquartered in
various West Virginia and Virginia cities and control banks throughout West
Virginia and Virginia, including banks which compete with the affiliate banks.
One Valley has actively competed with some of these bank holding companies to
acquire its affiliate banks.
SUPERVISION AND REGULATION
The following outlines the regulatory framework for bank holding
companies and their subsidiaries. We qualify this outline by reference to the
particular statutory and regulatory provisions. A change in applicable statutes,
regulations, regulatory or accounting policy could materially affect One
Valley's and its subsidiaries' businesses.
7
<PAGE>
ACQUISITIONS AND ACTIVITIES. The Board of Governors of the Federal
Reserve System regulates bank holding companies like One Valley under the Bank
Holding Company Act of 1956. This act imposes examination and reporting
requirements on One Valley. Under this act, bank holding companies may not
directly or indirectly own or control more than 5% of the voting shares or
substantially all of the assets of a bank or any other company without the prior
approval of the Federal Reserve Board, subject to certain exceptions.
In reviewing applications under this act, the Federal Reserve Board
considers 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.
Prior to acquiring more than 5% of the voting stock or substantially all
of the assets of another institution in West Virginia, One Valley must obtain
approval from the West Virginia Board of Banking. 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 West
Virginia to exceed 25% of the total deposits of all depository institutions in
the state. Based on June 30, 1998 data compiled by the FDIC, the total deposits
of the affiliate banks were approximately 15.6% of the total deposits in West
Virginia.
Prior to acquiring more than 5% of the voting stock of a Virginia bank
or 25% of the voting stock of a Virginia savings institution, or merging or
consolidating with a Virginia bank or Virginia savings institution, One Valley
must obtain the approval of the State Corporation Commission of Virginia. One
Valley's West Virginia subsidiaries may expand into Virginia by merger with
Virginia banking institutions or by de novo branching. There are no Virginia law
limitations on the size of the deposit base in Virginia or an interstate
acquiring bank in relation to the total deposits of all depository institutions
in Virginia.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits bank holding companies to acquire banks located in states other than the
bank holding company's home state. Riegle-Neal also allows national banks and
state banks with different home states to merge across state lines, unless the
home state of a participating bank enacted legislation prior to May 31, 1997,
that expressly prohibits interstate mergers. Additionally, the act allows branch
banking across state lines, unless the state where the new branch will be
located enacted legislation restricting or prohibiting de novo interstate
branching on or before May 31, 1997. Neither West Virginia nor Virginia enacted
any legislation restricting interstate branch banking.
Federal and state banking laws generally limit the activities of banks
to the business of banking. Judicial decisions and regulatory rulings increased
the range of services and products that bank holding companies and banks may
offer. Among the new or expanded products and services are sales of annuities,
sales of insurance from places with a population of 5,000 or less and
underwriting and dealing in securities.
8
<PAGE>
One Valley regularly evaluates acquisition opportunities and conducts
due diligence activities in connection with possible acquisitions. As a result,
acquisition discussions and, in some cases, negotiations, may take place, and
future acquisitions involving cash, debt or equity securities may occur.
Acquisitions typically involve the payment of a premium over book and market
values and, therefore, some dilution of One Valley's book value and net income
per common share may occur in connection with any future acquisitions.
DIVIDEND PAYMENTS. One Valley is a legal entity separate and distinct
from its affiliate banks. A major portion of One Valley's revenues comes from
dividends its affiliate banks pay to it. Federal law restricts the amount of
dividends affiliate banks may pay. In certain instances, a national bank must
obtain approval of the Comptroller of the Currency before paying dividends.
Federal law also prohibits national banks from paying dividends 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 apply to the
state chartered affiliate banks.
On December 31, 1998, the affiliate banks could have paid aggregate
dividends of $17,248,000, plus retained net profits for the interim periods
through the date of declaration, to One Valley during 1998 without obtaining
prior regulatory approval. During 1998, the affiliate banks paid $86,750,000,
including a one-time special dividend of $22 million from its operations in
Virginia. It is One Valley's policy to maintain liquidity at the parent level.
Therefore, each affiliate bank dividends nearly all of its earnings to the
parent, retaining only an amount to keep it well capitalized. At year-end, the
parent company held in excess of $100 million in liquid assets.
Other regulatory policies and requirements impact the affiliate banks'
ability to pay dividends, including the requirements that the institution
maintain adequate capital above regulatory minimums. Banking regulatory
authorities may restrict payments if the payment of dividends would be an unsafe
or unsound banking practice.
LOANS TO ONE VALLEY. One Valley and its non-bank subsidiaries may not
borrow from the affiliate banks unless the borrowing is secured by designated
amounts of specified collateral and are limited, as to One Valley or any one of
its nonbank subsidiaries, to 10% of the lending bank's capital stock and
surplus. One Valley and all its nonbank subsidiaries in the aggregate are
limited to 20% of the lending bank's capital stock and surplus. These
restrictions also apply to the bank affiliates' purchases of assets from and
investments in One Valley and its nonbank subsidiaries.
9
<PAGE>
CAPITAL REQUIREMENTS. Bank regulators adopted risk-based capital
guidelines for bank holding companies and banks. Regulations divide capital
ratios into Tier I capital and Tier II capital. At least half of a bank's total
capital is required to be comprised of Tier I capital which consists 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 II capital consists of other preferred stock, certain other capital
instruments and limited amounts of subordinated debt and allowance for loan
losses.
Additionally, bank regulators established minimum leverage ratio
requirements for bank holding companies and banks. These requirements provide
for a minimum leverage ratio of Tier I capital to adjusted average quarterly
assets ("leverage ratio") equal to 3% 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 4% to 5%.
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.
At December 31, 1998, One Valley had a Tier I capital ratio of 15.6%, a
total capital ratio of 14.3% and a leverage ratio of 9.0%.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal banking agencies to take "prompt corrective action"
about depository institutions that do not meet minimum capital requirements.
This act establishes five capital categories which the chart below summarizes:
<TABLE>
<CAPTION>
Capital Category Tier I Capital Ratio Total Capital Ratio Leverage Ratio
- ---------------- -------------------- ------------------- --------------
<S> <C> <C> <C>
Well Capitalized => 6% => 10% => 5%
Adequately Capitalized => 4% => 8% => 4%
Undercapitalized < 4% < 8% < 4%
Significantly Undercapitalized < 3% < 6% < 3%
Critically Undercapitalized(1) - - -
</TABLE>
(1) Tangible equity is equal to or less than 2% of average quarterly tangible
assets.
As of December 31, 1998, One Valley and its affiliate banks had capital
levels that qualify them as being "well capitalized."
FDICIA generally prohibits a depository institution that is not "well
capitalized" from accepting brokered deposits and offering interest rates on
deposits higher than the prevailing rates 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 afterward be "undercapitalized."
10
<PAGE>
"Undercapitalized" depository institutions are subject to growth
limitations and must submit a capital restoration plan. The federal banking
agencies may accept a capital plan only after determining that the plan is based
on realistic assumptions and is likely to succeed in restoring the depository
institution's capital. Additionally, the depository institution's parent holding
company must guarantee that the institution will comply with the plan. If a
depository institution fails to submit an acceptable plan, regulators treat the
institution as if it is "significantly undercapitalized."
"Significantly undercapitalized" depository institutions are 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 requirements to cease receiving deposits from correspondent banks.
Regulators may appoint a receiver or conservator for "critically
undercapitalized" institutions.
OTHER OBLIGATIONS. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 imposes liability on FDIC-insured depository
institutions, like the affiliate banks, for losses the FDIC incurs when it
assists an insured affiliated bank.
Under the National Bank Act, if losses impair a national bank's capital
stock, the Comptroller may assess the bank's shareholders, pro rata, for the
amount of the deficiency. If the shareholder does not pay the deficiency after
three months' notice, the Comptroller may sell the shareholder's stock to make
good the deficiency.
Under Federal Reserve Board policy, One Valley must act as a source of
financial strength to each of its affiliate banks and commit resources to
support each of them.
STATE REGISTRATION. One Valley must register annually with the
Commissioner of Banking of West Virginia and pay a registration fee based on the
total amount of bank deposits of the affiliate banks. Although legislation
allows the Commissioner to set the registration fee, it limits the fee to ten
dollars per nearest million dollars of deposits. The Commissioner also regulates
and supervises One Valley.
The State Corporation Commission of Virginia has authority to examine
One Valley as a bank holding company owning a Virginia bank or Virginia savings
institution and to require reports from One Valley. Generally, this regulatory
oversight is ceded through a cooperative agreement by the Virginia Commission to
the Commissioner of Banking of West Virginia, who has primary examination
responsibility for One Valley.
EFFECT OF GOVERNMENTAL POLICIES ON OPERATIONS. The fiscal and monetary
policies of the federal government and its agencies, particularly the Federal
Reserve Board, affect both members and non-members of the Federal Reserve. The
Federal Reserve Board regulates the national money supply to mitigate
recessionary and inflationary pressures. The techniques the Federal Reserve
Board uses 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.
11
<PAGE>
The Federal Reserve Board's policies have a direct and indirect effect
on the amount of bank loans and deposits, and the interest rates banks charge
and pay. We cannot accurately predict the impact of current economic problems
and the Federal Reserve Board's and other regulators' policies. These policies
could materially affect the revenues and income of the affiliate banks.
ONE VALLEY'S STATISTICAL DISCLOSURE. One Valley includes statistical
disclosure in its "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of its Annual Report to Shareholders on pages
4 through 26 for the year ended December 31, 1998. We incorporate that report by
reference.
ITEM 2. PROPERTIES
ONE VALLEY AND ONE VALLEY BANK
One Valley Bank, National Association owns the site of its current
banking quarters, One Valley Square in Charleston, West Virginia. One Valley
Bank leases this land to One Valley Square, Inc. One Valley Square, Inc.,
constructed a 15 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.
One Valley Bank subleases the seventh floor to others. One Valley also
operates from the space leased by One Valley Bank in One Valley Square. The
remaining space is leased to non-affiliated tenants. One Valley Bank also
conducts operations at its operations center located in Charleston, and at 20
branch locations throughout Kanawha, Mason, Putnam, Jackson, and Wood Counties.
OTHER AFFILIATE BANKS
On March 5, 1999, other affiliate banks own or lease eight main bank
offices, related drive-in facilities, 95 branch offices and other properties
that are necessary to house related support activities of those banks. All of
the affiliate banks' properties are suitable and adequate for their current
operations and are generally fully utilized.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are presently pending in which the affiliate
banks are parties. These proceedings involve routine litigation incidental to
the banks' businesses. 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
12
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of One Valley are:
<TABLE>
<CAPTION>
Name Age Banking Experience and Qualifications
---- --- -------------------------------------
<S> <C> <C>
Robert F. Baronner 72 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 58 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; Senior Vice
President, 1998.
Phyllis H. Arnold 50 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;
Chief Operating Officer, 1998.
Frederick H. Belden, Jr. 60 1968 to present, One Valley Bank. Senior Vice
President and Senior Trust Officer, 1982;
Executive Vice President, 1986. Executive
Vice President, One Valley, 1994.
13
<PAGE>
Name Age Banking Experience and Qualifications
---- --- -------------------------------------
Laurance G. Jones 52 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 46 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; Senior Vice
President, One Valley, 1998.
Robert E. Kamm, Jr. 47 1975 to 1978, One Valley Bank, Assistant
Investment Officer; 1982 to present, President
One Valley Bank-South, Inc.; Senior Vice
President, One Valley, 1996.
Kenneth R. Summers 53 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.
</TABLE>
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
One Valley's Common Stock is registered on the New York Stock Exchange
under the symbol "OV."
On March 5, 1999, One Valley had approximately 18,400 shareholders,
including shareholders of record and shares held in nominee name. One Valley
incorporates by reference the information in paragraphs number 2 and 3 in the
subsection captioned "Balance Sheet Analysis-Capital Resources" on page 19 of
One Valley's 1998 Annual Report to Shareholders.
One Valley incorporates by reference Notes A, C, E and S of Notes to the
Consolidated Financial Statements appearing at pages 32, 35 and 45 of One
Valley's 1998 Annual Report to Shareholders and Table 2 "Six-Year Selected
Financial Summary" on page 5.
ITEM 6. SELECTED FINANCIAL DATA
One Valley incorporates by reference Table 2 "Six-Year Selected
Financial Summary" on page 5 of One Valley's 1998 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
One Valley incorporates by reference the information contained on pages
4 through 26 of One Valley's 1998 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
One Valley incorporates by reference the information contained on pages
17 through 18 of One Valley's 1998 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
One Valley incorporates by reference the information contained on pages
28 through 49 of One Valley's 1998 Annual Report to Shareholders. 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
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
One Valley incorporates by reference the information in the sections
"Election of Directors - Management Nominees to One Valley's Board" and "-
Section 16(a) Beneficial Ownership Reporting Compliance" on pages 3 through 6
and page 8 of One Valley's definitive Proxy Statement dated March 26, 1999. One
Valley also refers you to the information about One Valley's executive officers
in Part I, Item 4A, of this report.
ITEM 11. EXECUTIVE COMPENSATION
One Valley incorporates by reference the information in the sections
"Executive Compensation and Other Information", "Change in Control
Arrangements," and "Board Compensation" on pages 13 through 17 and page 8 of One
Valley's definitive Proxy Statement dated March 26, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
One Valley incorporates by reference the information in the sections
"One Valley Share Ownership - Directors, Executive Officers and Nominees," and
"- Certain Beneficial Owners" on pages 18 through 22 of One Valley's definitive
Proxy Statement dated March 26, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
One Valley incorporates by reference the information in the sections
captioned "Certain Transactions with Directors and Officers and Their
Associates" and "Compensation Committee Interlocks and Insider Participation" on
pages 8 and 9 of One Valley's definitive Proxy Statement dated March 26, 1999,
and Notes G and I of the Notes to the Consolidated Financial Statements
appearing at page 37 of One Valley's 1998 Annual Report to Shareholders.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
1998 Annual Report
to Shareholders
Index Page(s)
----- -------
<S> <C> <C>
(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 December 31, 1998,
and 1997 28
Consolidated Statements of Income for the years
ended December 31, 1998, 1997 and 1996 29
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1998, 1997 and 1996 30
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996 31
Notes to Consolidated Financial Statements 32-45
Report of Independent Auditors 46
(a) 2. Financial Statement Schedules
One Valley omits all schedules, because the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements or related Notes.
(a) 3. Exhibits Required to be Filed by Item 601 of Regulation S-K
and Item 14(c) of Form 10-K
See Index to Exhibits. 21
(b) Reports on Form 8-K
None.
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONE VALLEY BANCORP, INC.
By: /s/ J. Holmes Morrison
-------------------------------------------
J. HOLMES MORRISON,
President and Chief Executive Officer
By: /s/ Laurance G. Jones
-------------------------------------------
LAURANCE G. JONES,
Executive Vice President and Treasurer
(Principal Financial Officer)
By: /s/ James A. Winter
-------------------------------------------
JAMES A. WINTER,
Senior Vice President and Chief Accounting
Officer (Principal Accounting Officer)
March 17, 1999
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Phyllis H. Arnold Director March 17, 1999
- -------------------------------
PHYLLIS H. ARNOLD
/s/ Charles M. Avampato Director March 17, 1999
- -------------------------------
CHARLES M. AVAMPATO
/s/ Robert F. Baronner Director March 17, 1999
- -------------------------------
ROBERT F. BARONNER
18
<PAGE>
SIGNATURE TITLE DATE
/s/ Dennis M. Bone Director March 17, 1999
- -------------------------------
DENNIS M. BONE
/s/ James K. Brown Director March 17, 1999
- -------------------------------
JAMES K. BROWN
/s/ James K. Candler Director March 17, 1999
- -------------------------------
JAMES K. CANDLER
/s/ Nelle Ratrie Chilton Director March 17, 1999
- -------------------------------
NELLE RATRIE CHILTON
/s/ H. Rodgin Cohen Director March 17, 1999
- -------------------------------
H. RODGIN COHEN
/s/ James L. Davidson, Jr. Director March 17, 1999
- -------------------------------
JAMES L. DAVIDSON, JR.
/s/ Ray Marshall Evans, Jr. Director March 17, 1999
- -------------------------------
RAY MARSHALL EVANS, JR.
/s/ James Gabriel Director March 17, 1999
- -------------------------------
JAMES GABRIEL
/s/ Thomas E. Goodwin Director March 17, 1999
- -------------------------------
THOMAS E. GOODWIN
/s/ Bob M. Johnson Director March 17, 1999
- -------------------------------
BOB M. JOHNSON
/s/ Robert E. Kamm, Jr. Director March 17, 1999
- --------------------------------
ROBERT E. KAMM, JR.
/s/ John D. Lynch Director March 17, 1999
- --------------------------------
JOHN D. LYNCH
/s/ Edward H. Maier Director March 17, 1999
- --------------------------------
EDWARD H. MAIER
19
<PAGE>
SIGNATURE TITLE DATE
/s/ J. Holmes Morrison President, Chief March 17, 1999
- ------------------------------- Executive Officer and
J. HOLMES MORRISON Director
/s/ Charles R. Neighborgall, III Director March 17, 1999
- --------------------------------
CHARLES R. NEIGHBORGALL, III
/s/ John L. D. Payne Director March 17, 1999
- -------------------------------
JOHN L. D. PAYNE
/s/ Angus E. Peyton Director March 17, 1999
- -------------------------------
ANGUS E. PEYTON
/s/ Lacy I. Rice, Jr. Director March 17, 1999
- -------------------------------
LACY I. RICE, JR.
/s/ Brent D. Robinson Director March 17, 1999
- -------------------------------
BRENT D. ROBINSON
/s/ James W. Thompson Director March 17, 1999
- -------------------------------
JAMES W. THOMPSON
/s/ W. Lowrie Tucker, III Director March 17, 1999
- -------------------------------
W. LOWRIE TUCKER, III
/s/ J. Lee Van Metre, Jr. Director March 17, 1999
- -------------------------------
J. LEE VAN METRE, JR.
/s/ Richard B. Walker Director March 17, 1999
- -------------------------------
RICHARD B. WALKER
Director March 17, 1999
- -------------------------------
H. BERNARD WEHRLE, III
/s/ John H. Wick, III Director March 17, 1999
- --------------------------------
JOHN H. WICK, III
/s/ Thomas D. Wilkerson Director March 17, 1999
- -------------------------------
THOMAS D. WILKERSON
</TABLE>
20
<PAGE>
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, 1998, Quarterly
Report on Form 10-Q and incorporated herein by reference.
Exhibit 3.2 Amended and Restated Bylaws of One Valley filed as
part of One Valley's June 30, 1998, Quarterly Report on
Form 10-Q 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, filed as part of One Valley's 1997
Annual Report on Form 10-K and incorporated herein by
reference.
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 Amended and Restated
Incentive Stock Option Plan found at page 23 herein.
21
<PAGE>
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.
(12) Statement Re Computation of Ratios -- found at page 30
herein.
(13) 1998 Annual Report to Security Holders -- found at page
31 herein.
(21) Subsidiaries of Registrant -- found at page 83 herein.
(23a) Consent of Ernst & Young LLP, Independent Auditors --
found at page 84 herein.
(23b) Consent of Cherry, Bekaert & Holland, L.L.P.,
Independent Auditors -- found at page 85 herein.
(27) Financial Data Statement -- Edgar filing only.
(99a) Proxy Statement for the 1999 Annual Meeting of One
Valley -- found at page 87 herein.
(99b) Report of Cherry, Bekaert & Holland, L.L.P., Independent
Auditors -- found at page 114 herein.
22
EXHIBIT 10.4
ONE VALLEY BANCORP, INC.
1993 INCENTIVE STOCK OPTION PLAN
(AMENDED AND RESTATED, EFFECTIVE APRIL 16, 1997)
SECTION 1. PURPOSE OF THE PLAN
The One Valley Bancorp, Inc. 1993 Incentive Stock Option Plan
(the "Plan") is intended to provide a method whereby key employees of One Valley
Bancorp, Inc. (the "Company") and its subsidiaries who are responsible for the
management, growth, and protection of the business, and who are making and can
continue to make substantial contributions to the success and profitability of
the business, may be encouraged to acquire a stock ownership in the Company,
thus creating a proprietary interest in the business and providing them with
greater incentive to continue in the service of and to promote the interests of
the Company and its stockholders. Accordingly, the Company will from time to
time during the effective period of the Plan, grant to the employees selected in
the manner provided below options to purchase shares of the $10.00 per value
common stock of the Company ("Common Stock") subject to the conditions specified
herein. It is further intended that options issued pursuant to the Plan will
constitute incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as the same or any successor statute may now or
hereafter be in effect (the "Code").
SECTION 2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Board of Directors may from time
to time remove members from or add members to the Committee. Vacancies on the
Committee, however caused, shall be filled by the Board of Directors. The
Committee shall select one of its members as Chairman and shall hold meetings at
such times and places as it may determine. The majority of the Committee shall
constitute a quorum, and the acts of the majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all of the
members, shall be the acts of the Committee.
23
<PAGE>
Subject to the provisions of the Plan, the Committee shall have
full and final authority in its discretion, (a) to determine the employees to be
granted stock options; (b) to determine the number of shares covered by each
option; (c) to determine the time or times at which options will be granted; (d)
to determine the option price of the shares subject to each option; (e) to
prescribe the form or forms of the instruments evidencing any options granted
(which forms shall be consistent with the Plan but need not be identical to one
another); (f) to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and (g) to construe
and interpret the Plan, the rules and regulations, and the instruments
evidencing options granted under the Plan, and to make all of the determinations
deemed necessary or advisable for the administration of the Plan. The Committee
shall have authority in its discretion to determine the time or times when each
option becomes exercisable and the duration of the exercise, subject to the
provisions of Sections 5, 8 and 12 of the Plan.
SECTION 3. SHARES AVAILABLE FOR OPTIONS
Subject to the provisions of Section 11 hereof, there will be
reserved for use upon the exercise of options to be granted from time to time
under the Plan an aggregate of 960,000 shares of Common Stock, and the aggregate
number of shares of Common Stock for which options may be granted under this
Plan shall not exceed said 960,000 shares. Further, subject to the provisions of
Section 11 hereof, the Committee may grant options in an amount not exceeding
96,000 shares of Common Stock in any calendar year plus the number of shares of
common stock which were unissued, forfeited, or expired, in any previous
calendar year within the time limitations of the Plan.
The shares to be delivered upon exercise of options under this
Plan shall be made available, at the discretion of the Board of Directors,
either from the authorized but unissued shares of Common Stock of the Company or
from shares of Common Stock held by the Company as treasury shares, including
shares purchased on the open market. If an option granted under the Plan expires
or terminates unexercised as to any shares covered thereby, such shares shall
thereafter be available for the granting of other options under the Plan.
The Company, during the term of the options granted pursuant to
this Plan, will at all times reserve and keep available, and will seek to obtain
from any regulatory body having jurisdiction, any requisite authority in order
to issue and sell the number of shares of its Common Stock sufficient to satisfy
the requirements of such options. If in the opinion of its counsel the issue or
sale of any shares of its stock pursuant to this Plan will not be lawful for any
reason, including the inability of the Company to obtain from any regulatory
body having jurisdiction authority deemed by such counsel to be necessary to
such issuance or sale, the Company shall not be obligated to issue or sell any
such shares.
SECTION 4. ELIGIBILITY
Options will be granted only to persons who are key employees of
the Company or of a subsidiary of the Company (as the term "subsidiary
corporation" is defined by Section 424(f) of the Code). The term "key employee"
may include officers as well as all other key employees of the Company and its
subsidiaries, but shall include directors only if they are also employees. No
member of the Board of Directors then serving on the Committee shall be eligible
to receive an option under the Plan.
In selecting the individuals to whom options shall be granted, as
well as in determining the number of shares subject to and the type of terms and
provisions of each option, the Committee shall weigh such factors as it shall
deem relevant to accomplish the purpose of this Plan.
24
<PAGE>
SECTION 5. TERM OF OPTIONS
The full term of each option granted hereunder shall be for such
period as the Committee shall determine, but in no case shall any option be
exercisable after ten years from the date it is granted. In addition, no
incentive stock option granted to a person then owning more than 10% of the
voting power of all classes of stock of the Company or any of its subsidiaries,
whether outright or by attribution under Section 424(d) of the Code, shall be
exercisable after five years from the date it is granted. Each option shall be
subject to earlier termination as provided by Paragraphs (a), (b), (c) and (d)
of Section 10 hereof.
SECTION 6. OPTION PRICE
The option price shall be determined by the Committee for each
option granted, and shall be not less than 100% of the fair market value of the
shares covered thereby at the time the option is granted. Fair market value for
purposes of this Plan as of any day shall be the average of the high and low
reported sales price of the Common Stock on that day or, if no Common Stock was
traded on that day, on the next preceding day on which there was such a trade.
If an incentive stock option is granted to any person then owning more than 10%
of the voting power of all classes of stock of the Company or any of its
subsidiaries, whether outright or by attribution under Section 424(d) of the
Code, the purchase price per share of the Common Stock subject to the option
shall be not less than 110% of the fair market value of the stock on the date
when the option is granted, determined in good faith, as aforesaid.
SECTION 7. NONTRANSFERABILITY OF OPTIONS
No option granted under this Plan shall be transferable by the
grantee other than by will or the laws of descent and distribution, and such
option may be exercised during the grantee's lifetime only by the grantee (or by
grantee's legal representatives in the event of grantee's incapacity). More
particularly (but without limiting the generality of the foregoing), no option
may be assigned, transferred (except as aforesaid), pledged, or hypothecated in
any way, whether by operation of law or otherwise, and no option shall be
subject to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, or other dispositions of an option contrary to
the provisions hereof, or the levy of any attachment or similar process upon an
option, shall be null and void and without effect.
SECTION 8. EXERCISE OF OPTIONS
(a) Each option granted under this Plan shall be exercisable on
the date or dates and during the period and for the number of shares specified
in the instrument evidencing such option; provided, however, that no option
granted under this Plan shall be exercisable after the expiration of ten years
from the date such option is granted. Options may be made exercisable in
installments, and such options or installments thereof may be exercised in part
from to time according to their terms.
25
<PAGE>
(b) A person electing to exercise an option shall give written
notice to the Company of such election and of the number of shares such person
has elected to purchase, and shall at the time of exercise tender the full
purchase price of such shares. Such person shall possess no rights of a record
holder with respect to any of such shares until a certificate or certificates
for the shares so purchased is issued. With respect to options granted on or
after April 16, 1997, the payment of the purchase price shall be made (i) in
cash, or by certified or bank check, (ii) by surrender of shares of Common Stock
owned by the holder of the option for at least six months prior to exercise of
the option, (iii) through simultaneous sale through a broker of shares acquired
upon exercise, (iv) through additional methods prescribed by the Committee or
(v) by a combination of any such methods. Any shares of Common Stock so
delivered in payment shall be valued at their fair market value as determined on
the exercise date, or on such other date as determined by the Committee for
administrative convenience. With respect to options granted prior to April 16,
1997, the payment of the purchase price shall be made pursuant to (i), (iii) or
(v).
(c) The Company shall have the right to require Employee to pay
to the Company in cash (including certified or bank check) any amount required
to be withheld to satisfy federal, state and local tax withholding requirements
prior to the issuance or delivery of any shares of Common Stock under the Plan.
Employee may elect to satisfy such withholding obligation by (i) delivering
previously owned shares of Common Stock, (ii) having the Company retain shares
of Common Stock which would otherwise be delivered upon exercise of an option,
or (iii) any combination of a cash payment or the methods set forth in (i) and
(ii) above. For purposes of (i) and (ii) above, shares of Common Stock shall be
valued at their fair market value as determined on the exercise date, or on such
other date as determined by the Committee for administrative convenience.
SECTION 9. CHANGE OF DUTIES & RIGHT TO CONTINUE EMPLOYMENT
(a) No option shall be affected by any change of duties or
position of the optionee (including transfer to or from a subsidiary) so long as
the optionee continues to be an employee of the Company or of one of its
subsidiaries.
(b) Nothing in the Plan or in the options granted hereunder shall
confer upon any optionee any right to continue in the employ of the Company or
any of its subsidiaries, or to interfere in any way with the right of the
Company or its subsidiaries to terminate such employment at any time.
SECTION 10. TERMINATION OF OPTIONS
(a) Any option granted pursuant to the Plan shall terminate, to
the extent not theretofore exercised, ten (10) years from the date the Option is
granted, except as provided below in this Section 10.
26
<PAGE>
(b) Any option granted pursuant to the Plan shall terminate, to
the extent not theretofore exercised, on the date on which the optionee ceases
to be an employee of the Company or one of its subsidiaries for any reason other
than death, retirement, or disability (with respect to options granted on or
after April 16, 1997) or a voluntary or involuntary termination of employment
due to, as a result of, or in connection with certain business combinations or a
Change in Control of the Company as defined in Section 10(e) hereof.
(c) If an optionee dies while employed by the Company or any of
its subsidiaries, any person who acquires, by will or by the laws of descent and
distribution, an option theretofore granted may exercise such option at any time
prior to the expiration of its full term. The same rule shall apply if an
optionee dies within 90 days of cessation of employment by the Company or any of
its subsidiaries, (i) due to retirement in good standing; (ii) due to disability
(with respect to options granted on or after April 16, 1997) or; (iii) due to,
as a result of, or in connection with certain business combinations or a Change
in Control of the Company as defined in Section 10(e) hereof. Such exercise
shall be limited to the purchase rights which had accrued as of the date when
the optionee ceased to be an employee of the Company or any of its subsidiaries.
(d) With respect to options granted prior to April 16, 1997, (i)
if an optionee retires in good standing from the employ of the Company or any of
its subsidiaries, under rules and regulations adopted by the Committee, by
reason of (A) age or (B) disability, or (ii) if an optionee's employment is
voluntarily or involuntarily terminated due to, as a result of or in connection
with certain business combinations or a Change in Control of the Company as
defined in Section 10(e) hereof, the optionee shall have the right to exercise
any option, to the extent not already exercised, at any time prior to the first
to occur of the expiration of its full term or 90 days (one year in the event of
disability retirement under clause (i) (B) above) from the date of such
retirement or termination. With respect to options granted on or after April 16,
1997, if the optionee retires or terminates pursuant to (i) or (ii) above or if
the optionee otherwise terminates employment as a result of disability, the
optionee shall have the right to exercise any option, to the extent not already
exercised, at any time prior to the first to occur of the expiration of its full
term or three years from the date of such retirement or termination.
(e) The provisions of Subsections 10(b), (c), and (d) relating to
termination of employment due to, as a result of, or in connection with certain
business combinations or a Change in Control of the Company as defined herein,
and to Articles VI.1 through VI.6 of the Articles of the Company including,
without limitation, the incorporation thereof into this Plan may be amended or
suspended only with the affirmative vote of the holders of at least 80% of the
outstanding stock of the Company entitled to vote thereon.
27
<PAGE>
A Change in Control or certain business combination occurs as a
result of or in connection with the following events: (i) any business
combination which would require a higher than majority vote of the shareholders
of the Company pursuant to the provisions of Articles VI.1 through VI.6 of the
Articles of Incorporation of the Company ("Articles"), which are by this
reference made a part of this Plan ("Unfriendly Business Combination"); (ii) a
business combination (as defined in Article VI.1B of the Articles) which results
in an Interested Shareholder (as defined in Article VI.3B of the Articles) or
any affiliate or any associate (as defined in Article VI.3E of the articles) of
an Interested Shareholder becoming the beneficial owner (as defined in Article
VI.3C of the Articles) of more than 50% of the Voting Stock of the Company
("Friendly Business Combination"); or (iii) any person becomes the beneficial
owner of over 50% of the Voting Stock of the Company and a majority of the
Disinterested Directors (as defined in Article VI.3G of the Articles) finds and
determines that such beneficial ownership constitutes a Change in Control of the
Company ("Over 50% Acquisition").
SECTION 11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION AND
CERTAIN CORPORATE TRANSACTIONS
In the event of any change in capitalization (such as a stock
split or stock dividend or other similar corporate change) of the Company, the
Committee shall make such equitable substitution or adjustment (in accordance
with, to the extent applicable, Code Sections 422 and 424 and the Regulations
promulgated thereunder), if any, as it deems to be appropriate, as to the number
or kind of shares of Common Stock or other securities reserved for issuance
pursuant to the Plan (including the annual limit on option grants) or subject to
outstanding options, and to any other terms and conditions of outstanding
options including the option purchase price.
In the case of any Corporate Transaction (as hereinafter defined)
involving the Company, the Committee shall make such equitable substitution or
adjustment (in accordance with, to the extent applicable, Code Sections 422 and
424 and the Regulations promulgated thereunder), if any, as it deems to be
appropriate, as to the number or kind of shares of Common Stock or other
securities reserved for issuance pursuant to the Plan (including the annual
limit on option grants) or subject to outstanding options, and to any other
terms and conditions of outstanding options including the option purchase price,
provided that:
(1) the excess of the aggregate fair market value of
the shares subject to the option over the
aggregate option price of such shares,
immediately after the substitution or assumption,
is not more than the excess of the aggregate fair
market value of the shares subject to the option
over the aggregate option price of such shares
immediately before such substitution or
assumption, and
(2) the new option or the assumption of the old option does
not give the employee additional benefits which he did not
have under the old option.
28
<PAGE>
For purposes of this section the term "Corporate Transaction"
means a corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation or similar corporate transaction.
The Company shall give notice of such substitution or adjustment
to each holder of an option under this Plan, and such substitution or adjustment
shall be effective and binding on the optionee.
SECTION 12. AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN
Subject to the provisions of Sections 10(e) and 14 of the Plan,
the Board of Directors may at any time and from time to time amend or suspend
this Plan, provided, however, that no such amendment shall, without approval of
the shareholders of the Company, except as provided in Section 11 hereof, (a)
increase the aggregate number of shares as to which options may be granted under
the Plan; (b) change the minimum option exercise price; (c) increase the maximum
period during which options may be exercised; (d) extend the effective period of
the Plan; and (e) permit the granting of options to members of the Committee. No
option may be granted during any suspension of the Plan or after the Plan has
been terminated, and no amendment, suspension, or termination shall, except as
provided in Section 11, without the optionee's consent, adversely alter or
impair any of the rights or obligations under any option theretofore granted
under this Plan.
SECTION 13. SHAREHOLDER APPROVAL AND EFFECTIVE DATE
This Plan became effective upon its approval by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote at
the annual meeting of the shareholders of the Company on April 27, 1993. No
options may be granted under the Plan subsequent to April 26, 2003.
SECTION 14. EXERCISE OF OPTIONS IN THE EVENT OF CHANGE IN CONTROL
All unexpired options granted under the 1993 Incentive Stock
Option Plan, as amended, which have not been previously exercised at that time,
whether or not the optionee is an employee of the Company or any of its
subsidiaries, will be immediately exercisable by the optionee, (i) at the time
of a 50% Acquisition; or (ii) in the event of shareholder approval of an
Unfriendly Business Combination or a Friendly Business Combination, provided
that any such exercise of such unexpired options, at the election of the
optionee, may be made contingent upon the consummation of an Unfriendly Business
Combination or a Friendly Business Combination, whichever is applicable. This
Section 14 of the Plan may be amended only upon the affirmative vote of the
holders of at least 80% of the outstanding stock of the Company entitled to vote
thereon.
29
EXHIBIT 12
STATEMENT RE: COMPUTATION OF RATIOS
ROA - RETURN ON AVERAGE ASSETS: Return on Average Assets is defined as net
income divided by average total assets.
ROE - RETURN ON AVERAGE EQUITY: Return on Average Equity is defined as net
income divided by average total equity.
One Valley incorporates the definitions on page 27 of One Valley's 1998 Annual
Report to Shareholders.
30
- -------------
ONE VALLEY
BANCORP, INC.
ANNUAL REPORT
1998
- -------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
================================================================================
Contents
================================================================================
<S> <C>
Financial Highlights ...................................................... 1
Report to Customers, Employees, Owners .................................... 2
Management's Discussion and Analysis ...................................... 4
Glossary of Terms ......................................................... 27
Consolidated Financial Statements ......................................... 28
Six-Year Financial Summaries .............................................. 47
One Valley Bancorp Directors and Senior Management ........................ 50
Additional Shareholder Information ........................................ 52
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
================================================================================
Financial Highlights
================================================================================
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 % CHANGE
---- ---- --------
<S> <C> <C> <C>
For The Year
Net interest income ........... $ 220,724 $ 199,850 10.44%
Net income .................... 73,045 63,800 14.49
Average Balances
Total loans - net ......... 3,641,069 3,135,152 16.14
Total assets .............. 5,648,166 4,945,505 14.21
Deposits .................. 4,283,567 3,846,583 11.36
Equity .................... 558,289 487,598 14.50
At Year-End
Year-end Balances
Total loans - net ......... $3,938,849 $3,257,488 20.92%
Total assets .............. 5,963,580 5,161,486 15.54
Deposits .................. 4,552,888 3,934,174 15.73
Equity .................... 595,533 503,650 18.24
Per Share
Net income:
Basic ..................... $ 2.19 $ 2.00 9.50%
Diluted ................... 2.15 1.95 10.26
Cash dividends ................ 0.90 0.80 12.50
Book value .................... 17.14 15.75 8.83
</TABLE>
31
<PAGE>
- ----------
REPORT TO
CUSTOMERS,
EMPLOYEES,
OWNERS
- ----------
[PHOTO]
J. Holmes Morrison, President and CEO
Net income
increased for
the 17th consecutive
year
- --------------------
One Valley Bancorp recorded its seventeenth consecutive year of increased
net income and dividends in 1998. In addition, earnings per share increased to
$2.15, which is the twelfth consecutive year of increased earnings per share on
an as reported basis. Very few banking companies among the 100 largest in the
country have matched this level of consistent profitability.
The 1998 year also represented one of significant growth and expansion for
One Valley. With the affiliation of FFVA Financial Corporation in Lynchburg,
Virginia, the purchase of the fifteen Jefferson National and Central Fidelity
branches from Wachovia, and the acquisition of Summit Bankshares Inc. located in
Rockbridge County Virginia, One Valley increased its total assets by over $1.1
billion. One Valley now has 48 offices and $1.5 billion in assets in the growing
markets of Lynchburg, Charlottesville and Lexington, Virginia making One Valley
the eighth largest bank in Virginia. The significant growth experienced in 1998
enabled One Valley to once again reach record levels in assets, loans, deposits
and shareholders' equity. At the same time One Valley has maintained its focus
on the sound financial fundamentals of profitability, asset quality, operational
efficiency, capital adequacy, liquidity and management of interest rate risk.
For the year, One Valley earned a record $73.0 million, which is a 14.5%
increase over the $63.8 million earned in 1997. Fully diluted net income per
share increased 10.3% to $2.15 from the $1.95 earned on a restated basis in
1997. One-time charges connected with the acquisition of FFVA Financial
Corporation were incurred during the first quarter of 1998 and decreased
earnings by approximately $0.03 per share. Return on average assets at 1.29% and
return on equity at 13.08% remained steady in 1998 compared to prior years.
Average shareholders' equity grew 14.5% to $558.3 million resulting in a strong
capital ratio, as equity to average assets was 9.88%. Cash dividends per share
increased 12.5% to a record $0.90 in 1998.
Growth in net income in 1998 was primarily a result of a 10.4% increase in
net interest income and a 23.6% increase in non-interest income, both of which
were positively impacted by One Valley's acquisition activity in 1998. However,
due to the continued flattening of the yield curve throughout 1998, One Valley's
net interest margin declined to 4.33% in 1998 versus the 4.48% recorded in 1997.
The growth in non-interest income, led by trust income, real estate loan
processing and servicing, and other fees, helped to offset the decline in the
net interest margin. In the face of the significant growth in assets in 1998,
One Valley maintained adequate control of operating expenses resulting in lower
operational efficiency ratios, as the efficiency and net overhead ratios
declined to 56.2% and 1.95%, respectively.
One Valley's long history of sound asset quality continued in 1998 as net
charge-offs declined to 0.18% of loans, non-performing assets declined to 0.24%
of total loans, and loans delinquent for 30 days or more declined to 1.16% of
total loans. The loan loss reserve at year-end of $52.3 million adequately
covered the $9.6 million in non-performing assets by 546%. The forgoing asset
quality ratios, which were achieved while growing the loan to deposit ratio to
86.5%, remain among the best in the industry.
On page 27 of this report is a glossary of terms, which should assist in
the understanding of this report as well as the management discussion and
analysis, which follows. The "Management's Discussion and Analysis" section on
pages 4 through 26 provides a comprehensive review of the financial condition
and results of operations of One Valley for 1998 and prior years, and should be
read in its entirety. Some of the financial highlights include:
o Net income grew at an 11.0% compound annual growth rate over the last five
years, while fully diluted earnings per share grew at a 6.1% rate during the
same period. Return on average assets averaged 1.30% over the past five years,
while return on equity averaged 13.08% over the same time frame.
o Average loans grew 9.7% per year while deposits grew 5.8% per year during the
last five years.
o Equity has grown at an 11.7% compound annual rate over the last five years
producing a strong average equity to assets ratio of 9.9% during this period.
o One Valley's consistent profitability has benefited its owners as dividends
per share grew at a 10.8% compound annual rate for the five-year period ending
December 31, 1998.
Other highlights during 1998 were as follows:
o US Banker Magazine ranked One Valley as the 13th 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. This is
the third year in a row One Valley has been ranked in the top 15.
32
<PAGE>
o For the second year in a row One Valley was named to Keefe Bruyette and Wood's
"1998 Honor Roll" of banks for being one of 13 in their universe of 128 banks to
report at least ten consecutive years of increased earnings per share.
o As of December 31, 1998, One Valley was ranked as the 78th largest provider of
bank managed mutual funds in the country.
o With a market capitalization of over $1.1 billion One Valley ranked as the
73rd largest banking company in the country based upon market capitalization.
o In March, the One Valley Board of Directors approved a revised strategic Long
Range Plan to implement a proactive, consultative sales culture supported by a
new organizational model, to propel One Valley to greater customer acquisition
and penetration thereby creating more attractive earnings growth.
As we look towards the future, 1999 will be focused on the strategic plan
as well as Year 2000 readiness. One Valley's Year 2000 project began in 1996. We
have worked diligently, internally and with our vendors, to assure that we are
ready for the millennium date change. We are on or ahead of the schedule for
remediation and testing of our computer systems set by the banking regulators.
Our systems readiness effort, including all testing, will be complete by the end
of June 1999. We have undertaken comprehensive contingency planning. In the
event there should be service disruptions by others outside our control, we will
be prepared and open for business. We will continue efforts begun during 1998 to
educate our employees and customers on the issue. We are prepared to respond to
the media and to speak to civic and professional groups. We encourage you to
review One Valley's Year 2000 readiness disclosures included in later sections
of this report.
The 1990's has been a decade marked by growth, success and change for One
Valley Bancorp. As we move forward toward the millennium, a clear vision of the
future becomes even more imperative to our continued success. In examining our
goals for the future, we acknowledge that the relationship between our customers
and employees is intertwined in all that we do.
To reach the objectives set forth in this plan, we will continue to
position One Valley Bank as a "Super Community Bank". This positioning is our
best strategy to take advantage of our Retail and Business market opportunities
as we continue to compete with both large and smaller financial service
providers. Being a "Super Community Bank" means that we continue our commitment
to local decision making which facilitates effective service to our customers.
Our greatest opportunities for the future lie in the acquisition of new
customers in our Virginia markets and the expansion of household relationships
in our West Virginia markets. Our goal is to implement a proactive sales culture
by utilizing consultative selling methods which are best suited to providing
financial solutions for our customers.
In looking to the future, we realize that the only way to successfully
prevail is to continually change and grow to meet the demands of our three
constituencies: our Customers, Employees and Owners, and grow to exceed their
expectations while giving back to the communities that we serve. The foundation
for this change is the constant in our work together--our Vision Statement,
Mission Statement and Core Values. These remain fundamental to not only our
long-range goals, but our daily actions as well.
In accordance with One Valley's Board Retirement policy, five directors
(see picture on page 51) meet the mandatory retirement age and will become
Honorary Directors in 1999. The tenure and service of these Directors has been
remarkable and their wisdom and counsel will be sorely missed in future years.
Robert F. Baronner, who has served as President & CEO of One Valley and its
predecessor Kanawha Valley Bank from 1975 to 1991 and as Chairman since 1991,
has had an unparalleled distinguished career in banking. He leaves a legacy of
capital strength and sound asset quality that has stood the test of numerous
economic cycles.
Angus E. Peyton has served on One Valley Boards since 1958 and has been a
member at one time or another of every Board Committee of One Valley and its
predecessor Kanawha Valley Bank. He will always be remembered for his artistic
influence on One Valley, most notably as a co-creator of the "Cabriole" statue
in front of the headquarters building.
James W. Thompson and Thomas E. Goodwin joined One Valley's Board as a
result of their bank's affiliation with One Valley. James Gabriel was elected to
the Board in 1993. Each of these individuals represented their affiliate bank
and region with a thoughtful insight that enabled the bank and One Valley to
grow and prosper during their tenure on the Board.
By continuing an unwavering focus on our customers, employees, owners and
communities we serve, One Valley should enjoy another successful year in 1999.
Respectfully submitted,
/s/ J. Holmes Morrison
- ----------------------
J. Holmes Morrison
President and CEO
Net Income and
Dividends Per Share
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Net
Year Income Dividends
---------------------------------------
1993 $1.61 $.54
1994 $1.54 $.60
1995 $1.69 $.67
1996 $1.80 $.74
1997 $2.00 $.80
1998 $2.19 $.90
Ten-Year Total Return
To Shareholders*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
1988 1990 1992 1994 1996 1998
---- ---- ---- ---- ---- ----
1,000 913 2,224 2,914 4,350 5,779
*Assumes initial investment of $1,000 and reinvestment of all dividends. Graph
presents past performance and is not indicative of future results.
33
<PAGE>
- -------------
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 nine bank subsidiaries
ranging in size from $203 million to $2.1 billion and includes three national
banks. Through these banks, One Valley serves 81 cities and towns with a full
range of banking services in 125 locations strategically located throughout West
Virginia and central Virginia. At December 31, 1998, One Valley had
approximately $6.0 billion in total assets, $4.0 billion in total loans, and
$4.6 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 auditors, 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.
On March 30, 1998, One Valley merged with FFVA Financial Corporation
(FFVA), a $604 million holding company in Lynchburg, Virginia. Since the
transaction was accounted for as a pooling of interests, generally accepted
accounting principles require that all historical financial information be
restated to reflect the merger of the two companies from the earliest date
presented in this annual report. Accordingly, all financial information in this
discussion and throughout this annual report reflects the merger of One Valley
and FFVA as if it occurred on January 1, 1993, (the earliest date presented in
this annual report). Similarly, all prior period comparisons have been restated
to present the significant changes in the financial condition and results of
operations of the combined company.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Summary Statement of Net Income Table 1
====================================================================================================================================
(Dollars in thousands)
Increase (Decrease) From Prior Year
1998 1997 1996 1998 1997
--------- --------- --------- ----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income * ..................................... $ 420,019 $ 376,760 $ 353,146 $ 43,259 11.48 $ 23,614 6.69
Interest expense ...................................... 199,295 176,910 160,467 22,385 12.65 16,443 10.25
--------- --------- --------- --------- ----- --------- -----
Net interest income ................................... 220,724 199,850 192,679 20,874 10.44 7,171 3.72
Other operating income ................................ 59,108 47,836 42,275 11,272 23.56 5,561 13.15
Gross securities transactions ......................... 1,125 1,018 (162) 107 10.51 1,180
--------- --------- --------- --------- ----- --------- -----
Total operating income ................................ 280,957 248,704 234,792 32,253 12.97 13,912 5.93
Provision for loan losses ............................. 10,063 7,531 5,264 2,532 33.62 2,267 43.07
Other operating expenses .............................. 161,944 144,319 140,984 17,625 12.21 3,335 2.37
--------- --------- --------- --------- ----- --------- -----
Income before taxes ................................... 108,950 96,854 88,544 12,096 12.49 8,310 9.39
Income taxes .......................................... 35,905 33,054 29,926 2,851 8.63 3,128 10.45
--------- --------- --------- --------- ----- --------- -----
Net income ............................................ $ 73,045 $ 63,800 $ 58,618 $ 9,245 14.49 $ 5,182 8.84
========= ========= ========= ========= ===== ========= =====
* Fully tax-equivalent interest income using
the rate of 35% ....................................... $ 428,151 $ 384,833 $ 360,625 $ 43,318 11.26 $ 24,208 6.71
</TABLE>
34
<PAGE>
Summary Financial Results
One Valley earned $73.0 million in 1998, a 14.5% increase over the $63.8
million earned in 1997. Table 1, Summary Statement of Net Income, presents three
years of comparative income statement information. As shown in Table 1, the
increase is primarily due to increased net interest income and non-interest
income which more than offset increased operating costs. This increase in
earnings follows an increase in 1997 of 8.8% over the $58.6 million earned in
1996. Earnings comparisons are impacted by the February 1998 purchase of fifteen
branches from Wachovia Corporation, the August 1998 acquisition of Summit
Bankshares, Inc. (Summit) and the April 1996 acquisition of CSB Financial
Corporation (CSB) discussed below. Diluted earnings per share was $2.15 in 1998,
an increase of 10.3% over the $1.95 earned in 1997, which compares to the 10.8%
increase in 1997 over the $1.76 earned in 1996. As shown in Table 2, the
five-year compound growth rate in earnings per share since 1993 has been 6.1%.
Table 2, Six-Year Selected Financial Summary, presents summary financial
data for the past six years, 1993 through 1998, along
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Six-Year Selected Financial Summary Table 2
====================================================================================================================================
(Dollars in thousands)
5-Year
Compound
Growth
1998 1997 1996 1995 1994 1993 Rate
----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest income ............. $ 420,019 $ 376,760 $ 353,146 $ 320,055 $ 280,763 $ 276,129 8.75%
Interest expense ............ 199,295 176,910 160,467 140,292 109,680 114,512 11.72
Net interest income ......... 220,724 199,850 192,679 179,763 171,083 161,617 6.43
Provision for loan losses ... 10,063 7,531 5,264 5,887 5,388 6,688 8.51
Non-interest income ......... 59,108 47,836 42,275 38,484 38,323 40,739 7.73
Gross securities transactions 1,125 1,018 (162) 144 (849) 266
Non-interest expense ........ 161,944 144,319 140,984 128,675 127,652 132,284 4.13
Net income .................. 73,045 63,800 58,618 55,580 50,914 43,301 11.02
Per Share Data
Net income:
Basic .................... $ 2.19 $ 2.00 $ 1.80 $ 1.69 $ 1.54 $ 1.61 6.35%
Diluted .................. 2.15 1.95 1.76 1.67 1.53 1.60 6.09
Cash dividends .............. 0.90 0.80 0.74 0.66 0.60 0.54 10.76
Book value .................. 17.14 15.75 14.82 15.32 13.81 12.43 6.64
Selected Period-end Balances
Net loans ................... $ 3,938,849 $ 3,257,488 $ 3,090,442 $ 2,763,643 $ 2,604,051 $ 2,394,357 10.47%
Total assets ................ 5,963,580 5,161,486 4,801,113 4,355,586 4,113,844 3,892,461 8.91
Deposits .................... 4,552,888 3,934,174 3,804,369 3,426,311 3,263,735 3,272,711 6.83
Long-term borrowings ........ 35,480 48,875 32,892 22,661 28,700 35,288 0.11
Equity ...................... 595,533 503,650 356,587 454,361 412,726 334,937 12.20
Selected Average Balances
Net loans ................... $ 3,641,069 $ 3,135,152 $ 2,958,161 $ 2,674,893 $ 2,462,509 $ 2,293,436 9.69%
Investment securities ....... 1,163,607 1,467,907 1,345,501 1,174,001 1,164,445 1,162,499 6.78
Total assets ................ 5,648,166 4,945,505 4,625,907 4,168,873 3,942,948 3,840,341 8.02
Deposits .................... 4,283,567 3,846,583 3,656,587 3,361,721 3,272,721 3,228,528 5.82
Long-term borrowings ........ 42,814 52,315 21,951 19,026 22,931 36,088 3.48
Equity ...................... 558,289 487,598 471,443 438,814 359,966 321,403 11.68
Selected Ratios
Average equity to assets .... 9.88% 9.86% 10.19% 10.53% 9.13% 8.37%
Return on average assets .... 1.29 1.29 1.27 1.33 1.29 1.13
Return on average equity .... 13.08 13.08 12.43 12.67 14.14 13.47
Dividend payout ratio ....... 41.10 40.00 41.11 39.05 38.96 33.54
</TABLE>
35
<PAGE>
Net Income
Dollars in millions
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Net
Year Income
---------------------------
1993 43.301
1994 50.914
1995 55.580
1996 58.618
1997 63.800
1998 73.045
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, net loans,
net income and cash dividends. 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 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 1998 ROA of 1.29%
matched the 1.29% ROA reported in 1997 and was up slightly from the 1.27% ROA in
1996. As shown in Table 3, while One Valley's ROA has not significantly changed
over the past three years, the income components that make-up ROA have changed.
One Valley's net credit income as a percentage of average earning assets has
declined over the past three years. The decline in net credit income (net
interest income less the provision 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.
However, One Valley has been able to offset this decline by increasing its
non-interest income and reducing its operating costs (as a percentage of average
earning assets). Non-interest expense as a percent of average earning assets has
consistently declined in years 1994 through 1998 from the previous years'
results. This is the result of increased operational efficiency and an increase
in average earning assets. During 1997 and 1998, non-interest income as a
percent of average earning assets increased rather significantly as a result of
fee increases and fee income from new products and services. These two positive
trends offset the decline in net credit income. As a result, One Valley's net
overhead ratio (non-interest expense less non-interest income as a percent of
average earning assets) has steadily declined to 1.95% in 1998, down from 2.08%
in 1997 and 2.28% in 1996, while ROA has remained consistent.
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 1998 ROE was 13.08%, again matching the 13.08%
earned in 1997 and up significantly from the 12.43% reported for 1996. ROE
increased in 1997, primarily due to One Valley's strong earnings performance and
the leveraging of equity through the CSB purchase in 1996.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Analysis of Return on Assets and Equity Table 3
====================================================================================================================================
(Dollars in thousands)
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
As a percent of average earning assets:
Fully taxable-equivalent net
interest income * .................................. 4.33% 4.48% 4.63% 4.80% 4.85%
Provision for loan losses ............................ (0.19) (0.16) (0.12) (0.15) (0.15)
----- ----- ----- ----- -----
Net credit income .................................. 4.14 4.32 4.51 4.65 4.70
Non-interest income .................................. 1.14 1.05 0.97 0.99 1.02
Non-interest expense ................................. (3.06) (3.11) (3.25) (3.31) (3.48)
Tax equivalent adjustment ............................ (0.15) (0.17) (0.17) (0.18) (0.18)
Applicable income taxes .............................. (0.69) (0.71) (0.70) (0.73) (0.67)
----- ----- ----- ----- -----
Return on average earning assets ........................ 1.38 1.38 1.36 1.42 1.39
Multiplied by average earning assets
to average total assets ............................ 93.56 93.81 93.49 93.25 93.00
----- ----- ----- ----- -----
Return on average assets ................................ 1.29% 1.29% 1.27% 1.33% 1.29%
Multiplied by average assets
to average equity .................................. 10.12X 10.14X 9.81X 9.51X 10.95X
----- ----- ----- ----- -----
Return on average equity ................................ 13.08% 13.08% 12.43% 12.67% 14.14%
===== ===== ===== ===== =====
</TABLE>
*Fully tax-equivalent using the rate of 35%
36
<PAGE>
Acquisition Activity
At the close of business on March 30, 1998, One Valley merged with FFVA
Financial Corporation, a $604 million Federal Savings Bank holding company
headquartered in Lynchburg, Virginia. The acquisition of FFVA expanded One
Valley's presence in Lynchburg and south central Virginia, a growing market for
financial services providing additional geographical diversification for One
Valley. Pursuant to the merger agreement, One Valley exchanged 1.05 shares of
One Valley common stock for each share of FFVA common stock. At the date of
acquisition, FFVA had total loans of $319 million, investment securities of $211
million, and total deposits of $418 million. The combination was accounted for
as a pooling-of-interests. Accordingly, all prior period financial information
has been restated to reflect the combined operations of One Valley and FFVA from
the earliest period presented in this annual report.
At the close of business on February 19, 1998, One Valley purchased fifteen
branches from Wachovia Corporation, half of which were located in and around
Charlottesville, Virginia. The purchase of these branches expanded One Valley's
presence into central and north central Virginia, providing additional
geographical diversification for One Valley. At the date of purchase, these
fifteen branches had total loans of $125 million, total deposits of $283 million
and cash equivalents of $112 million. Consolidated results for 1998 include the
operations of the fifteen branches only from the date of purchase. Comparisons
of average balances and income statement categories are all affected by the
branch purchase.
At the close of business on August 7, 1998, One Valley acquired Summit
Bankshares, Inc., a $199 million bank holding company located in the Lexington,
Virginia market with $149 million in loans and $181 million in deposits.
Pursuant to the merger agreement, One Valley exchanged 1.36 shares of One Valley
common stock for each share of Summit common stock. Operating now as One Valley
Bank - Shenandoah, the consolidated results for 1998 include the operations of
Summit only from the date of acquisition. Comparisons of average balances and
income statement categories are all affected by the Summit acquisition.
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. The acquisition of CSB was the first to
expand One Valley's presence into central 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.
Return on Average Assets
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Return on
Assets
-------------
1993 1.13%
1994 1.29%
1995 1.33%
1996 1.27%
1997 1.29%
1998 1.29%
Return on Average Equity
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Return on
Equity
-------------
1993 13.47%
1994 14.14%
1995 12.67%
1996 12.43%
1997 13.08%
1998 13.08%
37
<PAGE>
Balance Sheet Analysis
Summary
A financial institution's primary sources of revenue are generated by its
earning assets, while its major expenses are produced by the funding of these
assets with interest bearing liabilities. Effective management of these sources
and uses of funds is essential in attaining a financial institution's 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, 1998, is provided in Table 4,
Average Balance Sheet/Net Interest Income Analysis.
In 1998, average earning assets grew by 13.9% or $645.1 million over 1997,
following a 7.3% or $314.6 million increase in 1997 over 1996. Average interest
bearing liabilities, the primary source of funds supporting earning assets,
increased 13.3% or $530.9 million over 1997, which follows a $275.3 million or
7.4% increase in 1997 over 1996. Approximately 45% of the asset increase and 75%
of the liability increase in 1998 was due to the branch purchase and the
acquisition of Summit, while approximately 40% of the increase in average
earning assets and liabilities in 1997 was due to the purchase of CSB. The
remaining 1998 and 1997 increases in interest bearing assets and
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
==============================================================================================================
Average Balance Sheet/Net Interest Income Analysis Table 4
==============================================================================================================
(Dollars in thousands)
1998 1997
Average Yield/ Average Yield/
Balance Interest(1) Rate(1) Balance Interest(1) Rate(1)
---------- ---------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans(2)
Taxable ........................ $3,648,141 $ 315,172 8.64% $3,134,255 $ 276,520 8.82%
Tax-exempt ..................... 42,563 4,162 9.78 46,208 4,600 9.95
---------- ---------- ------ ---------- ---------- ------
Total loans .................. 3,690,704 319,334 8.65 3,180,463 281,120 8.84
Less: Allowance for losses ..... 49,635 45,311
---------- ------ ---------- ------
Total loans-net .............. 3,641,069 8.77 3,135,152 8.97
Investment securities
Taxable ........................ 1,374,913 88,136 6.41 1,241,684 83,458 6.72
Tax-exempt ..................... 238,694 19,071 7.99 226,223 18,466 8.16
---------- ---------- ------ ---------- ---------- ------
Total securities ............. 1,613,607 107,207 6.64 1,467,907 101,924 6.94
Federal funds sold & other ........ 29,889 1,610 5.39 36,401 1,789 4.91
---------- ---------- ------ ---------- ---------- ------
Total earning assets ......... 5,284,565 428,151 8.10 4,639,460 384,833 8.29
Other assets ...................... 363,601 306,045
---------- ----------
Total assets ................. $5,648,166 $4,945,505
========== ==========
Liabilities and Equity
Interest bearing liabilities:
Interest bearing demand
deposits ..................... $ 580,052 9,773 1.68 $ 561,331 10,894 1.94
Savings deposits ............... 1,003,638 34,511 3.44 746,879 23,164 3.10
Time deposits .................. 2,188,967 116,593 5.33 2,128,170 113,968 5.36
---------- ---------- ------ ---------- ---------- ------
Total interest bearing
deposits .................. 3,772,657 160,877 4.26 3,436,380 148,026 4.31
Short-term borrowings .......... 714,088 35,841 5.02 510,014 25,466 4.99
Long-term borrowings ........... 42,814 2,577 6.02 52,315 3,418 6.53
---------- ---------- ------ ---------- ---------- ------
Total interest bearing
liabilities ................ 4,529,559 199,295 4.40 3,998,709 176,910 4.42
Demand deposits ................... 510,910 410,203
Other liabilities ................. 49,408 48,995
Shareholders' equity .............. 558,289 487,598
---------- ----------
Total liabilities and equity . $5,648,166 $4,945,505
========== ==========
Net interest earnings ............. $ 228,856 $ 207,923
========== ==========
Net yield on earning assets ....... 4.33% 4.48%
====== ======
<CAPTION>
1996
Average Yield/
Balance Interest(1) Rate(1)
-------- ---------- ------
<S> <C> <C> <C>
Assets
Loans(2)
Taxable ........................ $2,959,033 $ 262,354 8.87%
Tax-exempt ..................... 43,740 4,328 9.89
---------- ---------- -----
Total loans .................. 3,002,773 266,682 8.88
Less: Allowance for losses ..... 44,612
---------- -----
Total loans-net .............. 2,958,161 9.02
Investment securities
Taxable ........................ 1,140,759 75,956 6.66
Tax-exempt ..................... 204,742 17,040 8.32
---------- ---------- -----
Total securities ............. 1,345,501 92,996 6.91
Federal funds sold & other ........ 21,176 947 4.47
---------- ---------- -----
Total earning assets ......... 4,324,838 360,625 8.34
Other assets ...................... 301,069
----------
Total assets ................. $4,625,907
==========
Liabilities and Equity
Interest bearing liabilities:
Interest bearing demand
deposits ..................... $ 570,783 12,036 2.11
Savings deposits ............... 700,919 20,107 2.87
Time deposits .................. 2,000,068 106,104 5.31
---------- ---------- -----
Total interest bearing
deposits .................. 3,271,770 138,247 4.23
Short-term borrowings .......... 429,708 21,076 4.90
Long-term borrowings ........... 21,951 1,144 5.21
---------- ---------- -----
Total interest bearing
liabilities ................ 3,723,429 160,467 4.31
Demand deposits ................... 384,817
Other liabilities ................. 46,218
Shareholders' equity .............. 471,443
----------
Total liabilities and equity . $4,625,907
===========
Net interest earnings ............. $ 200,158
==========
Net yield on earning assets ....... 4.63%
=====
</TABLE>
(1) Fully tax-equivalent using the rate of 35%.
(2) Non-accrual loans are included in average balances.
38
<PAGE>
liabilities were the result of increases in banking operations as more fully
explained below.
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 69.8% of average earning assets during 1998.
One Valley continued to emphasize increasing its loan portfolio in 1998. Average
net loans increased by $505.9 million or 16.1% in 1998. A total of $171.1
million of the increase in average loans was from the effect of the purchase
activity in the Virginia market during 1998. The remaining increase in 1998
average loans was fueled primarily by increases in commercial lending and
residential and commercial real estate loans. The 1998 increase follows a 6.0%
or $177.0 million increase in 1997. Approximately one-third of the 1997 increase
resulted from the CSB acquisition. The remaining increase in 1997 average loans
was also primarily in residential and commercial real estate loans. As a result
of these increases in loan activity, One Valley's loan-to-deposit ratio
maintained its upward trend in 1998, ending the year at 86.5%. This ratio
compares to 82.8% at December 31, 1997 and 81.2% at December 31, 1996. Internal
growth, as well as One Valley's carefully planned acquisition activity, has
resulted in the increase in the loan portfolio.
Total loans at December 31, 1998, increased by $688.6 million or 20.9% over
the total at December 31, 1997. This increase compares to a $167.0 million or
5.3% increase in 1997 over total loans at December 31, 1996. Approximately
$270.9 million in loans were obtained through acquisitions in 1998. Excluding
the 1998 acquisitions, total loans increased by $417.7 million or 12.7% over
December 31, 1997. The increase in 1998 lending was primarily from internal
growth focused in commercial and residential real estate loans. Residential real
estate loans including revolving home equity loans increased by $357.8 million
or 20.8% during 1998, compared to a $96.4 million or 5.9% increase in 1997.
Slightly more than one-third of the 1998 increase in residential real estate
loans was the result of the branch purchase and the Summit acquisition.
Commercial real estate loans increased by $141.9 million or 29.8% in 1998,
following a $25.3 million or 5.6% increase in 1997 from year-end 1996.
Approximately one-fourth of the 1998 increase in that category was obtained
through acquisitions. Commercial real estate loans have historically averaged
about 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 not secured by real estate increased in 1998 by $71.8 million or 18.1%.
This follows an increase during 1997 of $45.1 million or 12.8%. Approximately
one-third of the increase was obtained through acquisitions, while the remaining
increase in 1998 was primarily due to increases in the levels of credit line
usage by large commercial customers and increases in automobile dealer floorplan
loans. The 1997 increase in commercial loans was primarily due to increases in
the levels of credit line usage by large commercial customers. Consumer
installment loans increased by $52.8 million or 9.2% in 1998. Nearly all of the
increase was the result of acquisitions. This increase follows a slight increase
in 1997 over 1996.
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 $1.34 billion, 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 73%
of One Valley's loan portfolio at December 31, 1998, 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. About 75% of these loans are secured by property located
within West Virginia where real estate values have remained relatively stable
over the past ten years. Most of the remaining 25% are secured by property
located in central Virginia where real estate values are increasing and slightly
more volatile. One Valley also originates residential real estate loans to be
sold in the secondary market. In 1998, $263.6 million of loans were originated
to be sold in the secondary market. This compares to $111.8 million of new loan
volume originated for sale in the secondary market in
Total Loans
Dollars in millions
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial & Other 370 448 405 418 457 565
Commercial Real Estate 362 392 458 523 552 722
Residental Real Estate 972 1,263 1,366 1,623 1,720 2,078
Consumer 465 544 581 572 573 626
2,169 2,648 2,810 3,135 3,303 3,991
</TABLE>
- ------------
Total loans
increased by
$689 million
in 1998
39
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Loan Summary Table 5
====================================================================================================================================
(Dollars in thousands)
As of December 31
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Loans by Type
Commercial, financial,
agricultural, and other loans ..................... $ 468,307 $ 396,503 $ 351,409 $ 348,761 $ 398,105
Real estate:
Construction loans ................................. 97,175 60,975 66,369 56,420 49,453
Revolving home equity .............................. 226,216 192,252 152,006 128,754 113,142
Single family residentials ......................... 1,851,470 1,527,621 1,471,434 1,237,416 1,149,570
Apartment buildings and complexes .................. 103,349 75,314 70,990 60,191 49,101
Commercial ......................................... 618,958 477,025 451,756 397,821 343,298
Bankers' acceptances ................................. 0 0 0 0 849
Consumer installment loans ........................... 625,646 572,846 571,533 580,616 544,163
---------- ---------- ---------- ---------- ----------
Subtotal ........................................... 3,991,121 3,302,536 3,135,497 2,809,979 2,647,681
Less: Allowance for loan losses ..................... 52,272 45,048 45,055 42,751 40,492
---------- ---------- ---------- ---------- ----------
Net loans .......................................... $3,938,849 $3,257,488 $3,090,442 $2,767,228 $2,607,189
========== ========== ========== ========== ==========
Percent of Loans by Category
Commercial, financial,
agricultural, and other ............................ 11.73% 12.01% 11.21% 12.41% 15.04%
Real estate:
Construction loans ................................. 2.43 1.85 2.13 2.01 1.87
Revolving home equity .............................. 5.67 5.82 4.85 4.58 4.27
Single family residentials ......................... 46.39 46.26 46.91 44.04 43.42
Apartment buildings and complexes .................. 2.59 2.28 2.26 2.14 1.85
Commercial ......................................... 15.51 14.44 14.41 14.16 12.97
Bankers' acceptances ................................. 0.00 0.00 0.00 0.00 0.03
Consumer installment loans ........................... 15.68 17.34 18.23 20.66 20.55
---------- ---------- ---------- ---------- ----------
Total .............................................. 100.00% 100.00% 100.00% 100.00% 100.00%
========== ========== ========== ========== ==========
Non-Performing Assets
Non-accrual loans .................................... $ 8,477 $ 8,052 $ 10,288 $ 9,627 $ 11,134
Other real estate owned .............................. 1,089 1,808 1,945 1,565 1,521
Restructured loans ................................... 0 0 0 0 552
---------- ---------- ---------- ---------- ----------
Total non-performing assets ........................ $ 9,566 $ 9,860 $ 12,233 $ 11,192 $ 13,207
========== ========== ========== ========== ==========
Non-performing assets as a % of total loans .......... 0.24% 0.30% 0.39% 0.40% 0.50%
Loans Past Due Over 90 Days ............................. $ 7,467 $ 6,275 $ 4,959 $ 8,180 $ 6,386
As a % of total loans ................................ 0.19% 0.19% 0.16% 0.29% 0.24%
Allocation of Loan Loss Reserve
by Loan Type
Commercial, financial,
agricultural, and other loans ...................... $ 19,830 $ 18,780 $ 18,585 $ 17,016 $ 16,036
Real estate construction loans ....................... 455 344 367 318 254
Real estate loans - other ............................ 12,158 9,216 9,753 9,809 9,556
Consumer installment loans ........................... 19,509 16,708 16,350 15,608 14,646
---------- ---------- ---------- ---------- ----------
Total .............................................. $ 52,272 $ 45,048 $ 45,055 $ 42,751 $ 40,492
========== ========== ========== ========== ==========
</TABLE>
40
<PAGE>
1997 and $67.1 million in 1996. 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 1997 and 1998, a higher volume of mortgage activity was realized
when compared to 1996.
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 R
to the consolidated financial statements.
In spite of some increases in net charge-offs in recent years, overall
asset quality for those years has remained 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 $9.6 million or 0.24% of total loans at
year-end 1998, the lowest level over the past five year-ends. 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,
increased in 1998 to $7.5 million. At year-end, these loans constituted 0.19% of
total loans, unchanged from year-end 1997 but up slightly from the 0.16% at
December 31, 1996.
The consistently favorable ratio of problem loans to total loans has
occurred while the loan portfolio has increased significantly over the last five
years, and thus the favorable ratio is indicative of One Valley's commitment to
a quality loan portfolio. Both the increase in the size and the credit quality
of the loan portfolio have enabled One Valley to increase its interest income
from loans by $38.2 million or 13.6% in 1998 and $14.4 million or 5.4% in 1997.
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 less costs
to dispose 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 less costs to dispose, 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, 1998. During 1998,
One Valley recognized less than $0.2 million of interest on non-accrual loans,
while approximately $0.8 million would have been recognized on these loans had
they been current throughout 1998 in accordance with their original terms.
Similarly, during 1997, 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.
A loan is categorized and reported as impaired when it is probable that the
borrower will be unable to pay all of the principal and interest amounts
according to the contractual terms of the loan agreement. 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. Impaired loans are determined on a
loan-by-loan basis and generally consist of large commercial loans. Impaired
loans are measured at the present value of expected future
Provision for Loan Losses
and Net Charge-offs
As a percent of average total loans
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Net
Charge-
Offs Provision
-------------------------
1993 0.24% 0.28%
1994 0.16% 0.22%
1995 0.14% 0.22%
1996 0.17% 0.18%
1997 0.24% 0.24%
1998 0.18% 0.27%
Non-Performing Assets and
Loans 90 Days Past Due
As a percent of average total loans
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Non- Loans 90
Performing Days
Assets Past Due
-------------------------
1993 0.58% 0.15%
1994 0.50% 0.24%
1995 0.40% 0.29%
1996 0.39% 0.16%
1997 0.30% 0.19%
1998 0.24% 0.19%
41
<PAGE>
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
realizable value of the collateral if the loan is collateral dependent.
Additional information on impaired loans is contained in Note H 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.
Commercial, consumer, and mortgage loan portfolios are segregated for purposes
of analysis in determining the amount of One Valley's loan loss provision.
Specific loss estimates are derived for individual credits where applicable,
while historical loss percentages are applied to various homogeneous loan pools.
Commercial loans are evaluated individually, while the consumer and mortgage
portfolio loans are considered as homogenous pools, within each category. The
general allowance on graded loans is determined via a combination of historical
loss percentages, duration of the portfolio, and inherent risk by grade.
Differences between actual losses and estimated losses are reduced by careful
monitoring of the loan portfolios via a continuous internal risk review process.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Comparative Loan Loss Information Table 6
====================================================================================================================================
(Dollars in thousands)
For the Year Ended December 31
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Loan Losses, Beginning of Period .......... $ 45,048 $ 45,055 $ 42,751 $ 40,492 $ 39,060
Charge-offs
Commercial, financial, and agricultural loans ........ 1,533 2,098 1,105 726 1,207
Real estate construction loans ....................... 0 34 0 0 0
Real estate loans - other ............................ 639 888 667 588 1,314
Consumer installment loans ........................... 6,523 6,817 5,293 4,451 3,662
---------- ---------- ---------- ---------- ----------
Total charge-offs .................................. 8,695 9,837 7,065 5,765 6,183
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial, and agricultural loans ........ 398 446 306 519 793
Real estate construction loans ....................... 0 0 0 0 0
Real estate loans - other ............................ 196 399 321 232 326
Consumer installment loans ........................... 1,433 1,454 1,252 1,151 1,108
---------- ---------- ---------- ---------- ----------
Total recoveries ................................... 2,027 2,299 1,879 1,902 2,227
---------- ---------- ---------- ---------- ----------
Net charge-offs ......................................... 6,668 7,538 5,186 3,863 3,956
Provision for loan losses ............................... 10,063 7,531 5,264 5,887 5,388
Balance of acquired subsidiaries ........................ 3,829 0 2,226 235 0
---------- ---------- ---------- ---------- ----------
Allowance for Loan Losses, End of Period ................ $ 52,272 $ 45,048 $ 45,055 $ 42,751 $ 40,492
========== ========== ========== ========== ==========
Average total loans ..................................... $3,690,704 $3,180,463 $3,002,773 $2,716,839 $2,502,784
Total loans at year-end ................................. 3,991,121 3,302,536 3,135,497 2,809,979 2,647,681
As a Percent of Average Total Loans:
Net charge-offs ...................................... 0.18% 0.24% 0.17% 0.14% 0.16%
Provision for loan losses ............................ 0.27 0.24 0.18 0.22 0.22
Allowance for loan losses ............................ 1.42 1.42 1.50 1.57 1.62
As a Percent of Total Loans at Year-end:
Allowance for loan losses ............................ 1.31% 1.36% 1.44% 1.52% 1.53%
As a Multiple of Net Charge-offs:
Allowance for loan losses ............................ 7.84X 5.98X 8.69X 11.07X 10.24X
Income before tax and provision for loan losses ...... 17.85 13.85 18.09 13.22 20.45
</TABLE>
42
<PAGE>
As a part of the holding company structure, One Valley maintains credit
analysis and review departments. Changes in loan concentrations and quality are
monitored and could result in adjustments to the allowance during the period of
review. One Valley also maintains a loan administration function to continually
identify and monitor problem loans.
Management is mindful of the imprecision inherent in any estimation of
credit losses used in analyzing loan loss adequacy. Changes in general economic
conditions, as well as specific economic factors in the individual markets in
which One Valley operates presents an inherent risk factor, which involves a
higher degree of uncertainty regarding the allowance. Accordingly, One Valley
has assigned each major loan category an additional unallocated portion of the
allowance to mitigate these unknown risk factors.
Based on the analysis performed, 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. At December 31, 1998, the allowance
for loan losses was $52.3 million or 1.31% of total year-end loans. This ratio
is a decrease from the prior year's 1.36% and the 1.44% at the end of 1996.
The provision for loan losses in 1998 was $10.1 million, up from the $7.5
million provision in 1997 and the $5.3 million provision in 1996. The increase
in 1998 was to provide for the sharp growth in the loan portfolio, while the
increase in 1997 was in response to a change in the risk profile of the consumer
loan portfolio early in 1997 and to provide for the continued growth of the loan
portfolio. One Valley continually evaluates the adequacy of its allowance for
loan losses, and changes in the provision are based on the estimated inherent
risk of the loan portfolio. While One Valley experienced considerable loan
growth during 1998, 1997 and 1996, the overall credit quality of the portfolio
has remained consistent over those years, as evidenced by the low level of
non-performing assets and the low level of net charge-offs during those years.
Net charge-offs in 1998 decreased by $0.9 million from 1997 net
charge-offs, as loan loss experience improved in all categories of loans. This
follows a $2.4 million increase in 1997 from 1996, largely due to a $1.3 million
increase in consumer loan net charge-offs and a $0.9 million increase in
commercial net charge-offs. Net charge-offs as a percentage of average total
loans decreased to 0.18% in 1998, compared to 0.24% in 1997 and 0.17% in 1996.
In all three years, these ratios compare favorably with peer group banks across
the country. 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, or adverse changes in economic
conditions. These factors are considered in determining the adequacy of the
allowance for loan losses, which at December 31, 1998, was sufficient to absorb
over seven and one-half times the amount of net charge-offs experienced during
1998.
- ---------------
Loan loss
experience
improved in all
categories of
loans
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Remaining Maturities of Loans Table 7
====================================================================================================================================
Balance Projected Maturities*
December 31 One Year One to Five Over Five
1998 or Less Years Years
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural loans .................. $433,935 $226,245 $153,152 $ 54,538
Real estate construction loans ................................. 97,175 60,056 14,163 22,956
Commercial real estate loans ................................... 722,307 116,294 300,808 305,205
Loans with:
Floating rates .............................................. $575,685 $136,094 $290,946 $148,645
Predetermined rates ......................................... 677,732 266,501 177,177 234,054
</TABLE>
*Based on scheduled or approximate repayments.
43
<PAGE>
Investment
securities
averaged
$1.6 billion
in 1998
- ---------------
Investment Portfolio and
Other Earning Assets
Investment securities averaged $1,613.6 million in 1998, a $145.7 million
or 9.9% increase over the $1,467.9 million averaged in 1997. This increase
follows a 9.1% increase over the $1,345.5 million averaged in 1996. Nearly 80%
of the increase in 1998 was the result of investments and investable funds
obtained through the Summit acquisition and the branch purchase. The increase in
the average balance during 1997 was primarily the result of One Valley's
asset/liability strategy to use borrowed funds to purchase higher yielding
investments to mitigate the risk of a decline in interest rates.
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 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.
As shown in Table 8, Securities Maturity and Yield Analysis, the average
maturity period of securities available-for-sale at December 31, 1998 was 8
years 1 month, lengthened primarily by the 16-year 9-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 65%
of the securities available-for-sale are U.S. Government agency or Treasury
securities that have an average maturity of 4 years 8 months. The average
maturity period of securities held-to-maturity was 9 years 9 months at the end
of 1998. The average maturity of the investment portfolio is managed at a level
to maintain a proper matching with One Valley's interest rate risk guidelines.
During 1998, 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 F to the consolidated financial statements.
During 1998, One Valley increased its tax-exempt securities by $26.8
million, or 11.3%, over the level of tax-exempt securities held at December 31,
1997. Approximately one-half of this increase was the result of the Summit
acquisition. During 1997, tax-exempt securities increased by $20.4 million, or
9.4%, over the level held at December 31, 1996. 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 by 17.9% in 1998. This follows a 71.9% increase in 1997.
Averaging $29.9 million in 1998, federal funds sold and other short-term
investments decreased $6.5 million from the $36.4 million averaged in 1997, but
was greater than the $21.2 million averaged during 1996. 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.
44
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
======================================================================================================================
Securities Maturity and Yield Analysis Table 8
======================================================================================================================
As of December 31, 1998
Average Taxable
Available-for-Sale Market Maturity Equivalent
Value (Years/ Months) Yield*
---------- --------------- ----------
<S> <C> <C> <C>
U. S. Treasury Securities
Within one year......................................... $ 168,052 6.26%
After one but within five years......................... 9,775 6.42
After five but within ten years......................... 21,239 7.01
----------
Total U.S. Treasury Securities ........................ 199,066 1/3 6.35
U. S. Government Agencies Securities
Within one year......................................... 41,189 4.93
After one but within five years......................... 269,711 5.78
After five but within ten years......................... 314,341 6.07
Over ten years.......................................... 25,702 7.17
----------
Total U.S. Government Agencies Securities.............. 650,943 5/8 5.92
Mortgage-Backed Securities**
Within one year ........................................ 4,034 6.88
After one but within five years......................... 13,763 6.89
After five but within ten years......................... 35,541 7.11
Over ten years.......................................... 276,130 7.03
----------
Total Mortgage-Backed Securities....................... 329,468 16/9 7.03
Other Debt Securities
Within one year ........................................ 25,281 5.85
After one but within five years......................... 37,465 6.33
After five but within ten years......................... 10,542 6.50
Over ten years.......................................... 7,927 7.38
----------
Total Other Debt Securities............................ 81,215 8/5 6.31
Other Securities ......................................... 47,133
----------
Total Securities Available-for-Sale ...................... $1,307,825 8/1 6.08%
==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
Average Taxable
Held-to-Maturity Book Maturity Equivalent
Value (Years/ Months) Yield*
---------- --------------- ----------
<S> <C> <C> <C>
States and Political Subdivisions Securities
Within one year......................................... $ 2,687 8.39%
After one but within five years......................... 32,273 7.06
After five but within ten years......................... 117,587 7.62
Over ten years.......................................... 125,382 7.74
----------
Total States and Political Subdivisions Securities .... 277,929 9/9 7.62
Other Securities ......................................... 338
----------
Total Securities Held-to-Maturity ........................ $ 278,267 9/9 7.61%
==========
</TABLE>
*Fully tax-equivalent using the rate of 35%.
** Maturities for Mortgage-Backed Securities are based on final maturity.
45
<PAGE>
Average Deposits
Dollars in millions
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Demand Time Savings Savings Total
Deposits Deposits Regular Checking Deposits
---------------------------------------------------------
1993 397 1,247 800 451 2,895
1994 412 1,250 817 452 2,931
1995 381 1,450 696 481 3,007
1996 385 2,000 701 571 3,657
1997 410 2,128 747 561 3,847
1998 511 2,189 1004 580 4,284
Deposits
increased by
15.7% in 1998
- -----------------
Funding Sources
In 1998, rates paid on its interest bearing deposits declined slightly as
market interest rates have remained low. The average rate paid on interest
bearing liabilities decreased to 4.26% in 1998, down from the 4.31% average rate
paid in 1997 but slightly higher than the 4.23% average rate paid in 1996. The
decrease in 1998 is largely due to a $256.8 million or 34.4% increase in savings
and money market deposits and a three basis point decrease in the average rate
paid on time deposits. Due to alternative sources of investment and the
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. These core deposit products pay an
indexed money market interest rate that adjusts monthly and account for a
majority of the 1998 increase in savings deposits.
One Valley's deposits, on average, increased by 11.4% or $437.0 million in
1998. Of this increase, $318.9 million resulted from the 1998 branch purchase
and Summit acquisition. The 1998 increase compares to a 5.2% or $190.0 million
increase in 1997. Approximately half of the 1997 increase was acquired through
the CSB acquisition. Non-interest bearing deposits increased by 24.6% or $100.7
million on average when compared to 1997, primarily due to increases in
predominantly consumer-based deposit accounts. Excluding the effect of the
branch purchase and Summit acquisition, average non-interest bearing deposits
increased by 14.8% or $60.6 million. Interest bearing deposits increased by 9.8%
or $336.3 million over 1997, primarily in savings deposits. Excluding the effect
of the 1998 acquisitions, interest bearing deposits increased by 1.8% or $61.8
million on average when compared to 1997. In 1997, non-interest bearing deposits
increased by 6.6% or $25.4 million while interest bearing deposits increased by
5.0% or $164.6 million over 1996. In the past two years, One Valley has been
able to attract non-interest bearing deposits by increasing customer service and
convenience through increased electronic banking services and locations.
To supplement its deposit growth, One Valley has increasingly turned to
short-term borrowings to fund loan growth. Short-term borrowings increased, on
average, by $208.0 million or 41.1% from 1997, following a $76.3 million or
17.8% increase in 1997 over 1996. Wholesale repurchase agreements increased, on
average, by $146.3 million or 85.2% in 1998, primarily to fund loan growth,
while repurchase agreements with commercial customers increased by $29.7 million
or 12.9% in 1998. A repurchase agreement is a collateralized short-term debt
instrument whereby One Valley agrees to repurchase the collateral at a specified
price on a specified date. This 1998 increase in wholesale repurchase agreements
follows a $49.1 million or 40.1% increase in 1997. One Valley continues to
evaluate the use of 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, decreased by $13.5 million or 23.9% in
1998, following a $34.3 million increase in 1997. The decrease in 1998 was due
to scheduled repayments that occurred during the year and late in 1997. The
increase in 1997 was the result of the CSB acquisition in 1996 as well as a new
$25.0 million long-term borrowing from the Federal Home Loan Bank (FHLB). As a
result, One Valley now has $35.5 million of long-term debt, primarily FHLB
borrowings, with repayment schedules from one to ten years. Other information
regarding short- and long-term borrowings is contained in Note K to the
consolidated financial statements.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
=====================================================================================================================
Maturity Distribution of Certificates of Deposit Table 9
=====================================================================================================================
As of December 31, 1998 As of December 31, 1997
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Three months or less............................... $ 99,067 27.28% $ 99,980 30.47%
Three through six months........................... 60,582 16.69 54,363 16.57
Six through twelve months.......................... 106,587 29.36 86,693 26.42
Over twelve months................................. 96,848 26.67 87,097 26.54
--------- ------ --------- ------
Total............................................ $ 363,084 100.00% $ 328,133 100.00%
========= ====== ========= ======
</TABLE>
46
<PAGE>
Interest Sensitivity and Liquidity
Asset/liability management is a means of optimizing 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.
A commonly used measure of interest rate risk is a 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. In addition to the gap report, One
Valley uses computer simulations of the next twelve to thirty-six 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 potential 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 declining interest rate scenario would have a slight
negative influence on net interest income whereas increasing rates would have
little significant impact on net interest income.
To hedge against potential rising interest rates on its indexed money
market core deposit accounts, One Valley entered into an interest rate swap
agreement during 1998. Under this agreement, One Valley agreed to pay a fixed
rate of interest and receive a variable rate of interest. In addition, One
Valley purchased an interest rate cap. The intent of these off-balance sheet
instruments is to limit the impact of rising interest rates on the cost of its
indexed core
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Interest Rate Sensitivity Summary at December 31, 1998 Table 10
====================================================================================================================================
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets
Fixed interest rate loans..... $ 692,131 $358,041 $281,049 $196,009 $174,148 $516,562 $2,217,940 $2,245,672
Average interest rate....... 8.94% 8.95% 8.57% 8.37% 8.12% 7.16% 8.37%
Variable interest rate loans.. 545,446 190,937 133,057 113,397 99,877 690,467 1,773,181 1,775,098
Average interest rate....... 7.92% 7.86% 7.88% 7.88% 7.83% 8.22% 8.02%
Fixed interest rate securities 580,012 150,519 168,043 83,020 98,398 506,100 1,586,092 1,595,260
Average interest rate....... 6.22% 6.34% 6.21% 6.27% 5.59% 5.67% 6.02%
Rate Sensitive Liabilities
Non interest-bearing deposits. $ 159,786 $ 91,306 $ 68,480 $ 63,344 $ 44,512 $143,236 $ 570,664 $ 570,434
Average interest rate....... - - - - - - -
Savings and interest-
bearing checking............ 237,997 251,057 198,234 163,416 141,760 825,164 1,817,628 1,817,628
Average interest rate....... 2.74% 2.87% 2.84% 2.79% 2.81% 2.76% 2.79%
Fixed interest rate time deposits 1,241,338 470,345 85,881 36,931 34,148 2,140 1,870,783 1,883,894
Average interest rate....... 5.25% 5.49% 5.47% 5.79% 5.43% 4.07% 5.33%
Variable interest rate
time deposits............... 291,774 - - - - - 291,774 291,774
Average interest rate....... 4.19% - - - - - 4.19%
Fixed interest rate borrowings 273,250 102,154 25,059 65 2,672 30,258 433,457 434,065
Average interest rate....... 5.01% 5.51% 4.40% 7.50% 5.96% 4.95% 4.97%
Variable interest rate borrowings 331,782 331,782 331,782
Average interest rate....... 3.80% 3.80%
Rate Sensitive Derivative Financial Instruments
Interest rate swap purchased.. - - - - $150,000 - $ 150,000 $ (1,433)
Average variable rate received... - - - - 5.29% - -
Fixed rate paid............. - - - - 5.61% - -
Interest rate cap purchased... - - $ 50,000 - - - 50,000 100
Average strike rate......... - - 6.00% - - - -
</TABLE>
This table includes various assumptions and estimates by management of maturity
and repayment patterns.
47
<PAGE>
deposit accounts in a rising interest rate environment. One Valley continually
evaluates all investment alternatives in its management of interest rate risk
and asset/liability structure.
Tables 10 and 11, Interest Rate Sensitivity Summary, provides information
about One Valley's financial instruments that are sensitive to changes in
interest rates. For loans, securities and liabilities with contractual
maturities, the table presents principal cash flows and related weighted-average
interest rates by contractual maturity as well as One Valley's estimate of the
impact of interest rate fluctuations on the prepayment of residential real
estate loans, home equity loans and mortgage backed securities. For core
deposits that have no contractual maturity, the table presents principal cash
flows and, as applicable, related weighted-average interest rates. Those
principal cash flows are based on historical experience, management's judgment,
and statistical analysis, as applicable, concerning their most likely withdrawal
behaviors. For derivative financial instruments, the table presents notional
amounts and their contractual expiration dates.
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 available-for-sale
securities and short-term investments which can be readily converted to cash.
Furthermore, One Valley continues to have the ability to attract short-term
sources of funds such as federal funds and repurchase agreements, and to arrange
credit lines to meet its cash needs.
One Valley generated $67.6 million of cash from operations in 1998, which
compares to $74.8 million in 1997 and $79.7 million in 1996. Additional cash of
$244.6 million was generated through net financing activities in 1998, which
compares to $288.1 million in 1997 and $55.8 million in 1996. 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 $253.3 million in 1998, which compares to $380.9 million in
1997 and $141.4 million in 1996. Details on the sources and uses of cash can be
found in the Consolidated Statements of Cash Flows in the consolidated financial
statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Interest Rate Sensitivity Summary at December 31, 1997 Table 11
====================================================================================================================================
1998 1999 2000 2001 2002 Thereafter Total Fair Value
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets
Fixed interest rate loans..... $ 436,952 $309,777 $235,999 $194,432 $148,080 $422,679 $1,747,919 $1,759,314
Average interest rate....... 9.29% 9.19% 8.87% 8.57% 8.49% 7.80% 8.71%
Variable interest rate loans.. 370,649 146,999 102,303 74,322 69,929 790,415 1,554,617 1,556,297
Average interest rate....... 8.62% 8.53% 8.61% 8.71% 8.95% 8.20% 8.39%
Fixed interest rate securities 367,366 326,635 106,910 110,820 85,119 572,171 1,569,021 1,576,118
Average interest rate....... 6.40% 6.54% 6.61% 6.63% 6.70% 6.09% 6.36%
Rate Sensitive Liabilities
Non interest-bearing deposits. $ 130,873 $ 74,301 $ 55,726 $ 51,546 $ 36,222 $116,559 $ 465,227 $ 465,227
Average interest rate....... - - - - - - -
Savings and interest-
bearing checking............ 253,519 168,678 137,131 117,433 101,839 580,862 1,359,462 1,359,328
Average interest rate....... 2.79% 2.68% 2.68% 2.68% 2.68% 2.68% 2.70%
Fixed interest rate
time deposits............... 1,197,988 445,516 99,071 32,948 17,572 2,176 1,795,271 1,801,350
Average interest rate....... 5.45% 5.72% 5.95% 5.14% 5.89% 4.06% 5.33%
Variable interest rate
time deposits............... 314,214 - - - - - 314,214 314,214
Average interest rate....... 4.84% - - - - - 4.84%
Fixed interest rate borrowings 171,474 167,321 29,006 6 6 2,837 370,650 371,164
Average interest rate....... 5.66% 5.49% 5.46% 8.76% 8.76% 5.84% 5.57%
Variable interest rate borrowings 301,705 301,705 301,705
Average interest rate....... 4.68% 4.68%
</TABLE>
This table includes various assumptions and estimates by management of maturity
and repayment patterns.
48
<PAGE>
Capital Resources
One Valley's average equity-to-asset ratio remained strong at 9.88% during
1998, relatively unchanged from 9.86% during 1997 but down from 10.19% in 1996.
At year-end 1998, One Valley's primary capital ratio was 10.77% compared to
10.54% at year-end 1997. 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 1998, One Valley's risk adjusted
capital-to-assets ratio was 15.6% compared to 16.4% at December 31, 1997. 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, 1998 was 9.0% compared to 9.2% at December 31, 1997. Both of these
ratios are well above the minimum 3.0% and the 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 C
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
2.8 million shares of One Valley Bancorp common stock in the open market. During
1997, 820,403 shares and 1,976,075 shares in 1996 were repurchased under this
program. At December 31, 1998, One Valley held 4,392,546 shares in its treasury.
Due to the accounting treatment of the FFVA merger 708,600 FFVA treasury shares
were reissued which raised $26.3 million in equity. Subsequent to December 31,
1998, One Valley announced a plan authorizing management to repurchase up to an
aggregate of 1,500,000 shares of common stock. Any shares purchased under the
plan will be available for a variety of corporate purposes.
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 $228.9 million in 1998, up 10.1% over the 1997 level,
following a 3.9% increase in 1997 over 1996. 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 1998 is largely due to the increase
in the volume of earning assets, primarily loans. As shown in Table 12, Rate
Volume Analysis, increases in the volume of earning assets in both 1998 and 1997
have provided a significant increase in net interest income. In 1998, the
increase in the volume of earning assets increased interest income by $53.5
million. This increase was dampened somewhat by decreases in interest yields on
loans and investments due to the lower overall interest rate environment on
average for the entire year. As a result, total interest income increased by
$43.3 million in 1998 over 1997.
Similarly in 1998, an increased volume of interest bearing liabilities
boosted interest expense by $24.0 million. However a slightly lower cost of
interest bearing liabilities reduced the overall increase in total interest
expense to $22.4 million. The increase in total interest income exceeded the
increase in overall interest expense by $20.9 million on a fully tax-equivalent
basis in 1998 over 1997. In 1997, increases in volumes of interest sensitive
assets and liabilities increased total interest income and total interest
expense over the previous year. Yet, a decline in yields on loans partially
reduced overall interest income while an increase in rates paid on deposits
increased interest expense. As the increase in the volume of earning assets
outpaced the increase in interest bearing liabilities in 1997, net interest
income still increased by $7.8 million in 1997 over 1996. During both
- -----------------
Net interest
income
increased by
$20.9 million in
1998
49
<PAGE>
Net Interest Margin
Fully taxable equivalent
% of average earning assets
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Yield on Net Cost of
Assets Margin Funds
1993 7.88 4.67 3.21
1994 7.84 4.85 2.99
1995 8.41 4.80 3.61
1996 8.34 4.63 3.71
1997 8.29 4.48 3.81
1998 8.10 4.33 3.77
years, the increase in loan volume was the most significant factor contributing
to increased net interest income.
In 1998, 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 1998, the
decrease in the yield on loans was accompanied by a decrease in the yield on the
investment portfolio. Thus the yield on all earning assets declined to 8.10% in
1998, down from the 8.29% realized during 1997 and the 8.34% realized during
1996. At the same time, the stiff competition for deposits and the use of
short-term borrowings to fund loan and investment growth prevented the cost of
all funds from declining as significantly as the yield on earning assets. In
1998, the average cost of funds was 4.40% down only slightly from the 4.42% in
1997, but up from the 4.31% average cost in 1996. As a result, the net interest
margin in 1998 declined to 4.33%, down from the 4.48% earned in 1997 and the
4.63% earned in 1996. The Net Interest Margin graph shows One Valley's yield on
earning assets, cost of all funds and net interest margin over the past six
years. Further discussion of net interest income is included in the section of
this report entitled "Balance Sheet Analysis."
Non-interest Income and Expense
Non-interest income has been and will continue to be an important factor
for improving profitability. Recognizing this importance, management continues
to evaluate areas where non-interest income can be enhanced. As shown in Table
13, non-interest income increased by $11.4 million or 23.3% in 1998 compared to
1997, which follows a 16.0% increase in 1997 over 1996. The increase in 1998 was
primarily due to an increase in trust income, credit/debit card fees, service
charges on deposit accounts and real estate fees. These areas increased, in
part, due to the increased customer base in central Virginia resulting from the
branch purchase and Summit acquisition. In 1998, trust income increased to $11.7
million, a 14.2% or $1.4 million increase over 1997. This increase follows a
9.7% increase in 1997 over 1996. Trust
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Rate Volume Analysis of Changes in Interest Income and Expense Table 12
====================================================================================================================================
1998 vs 1997 1997 vs 1996
Increase (Decrease) Increase (Decrease)
In Net Interest Income In Net Interest Income
---------------------------------- ---------------------------------
Volume Rate Total Volume Rate Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Loans:
Taxable ........................................... $ 44,502 $ (5,850) $ 38,652 $ 15,465 $ (1,299) $ 14,166
Tax-exempt ........................................ (358) (80) (438) 246 26 272
-------- -------- -------- -------- -------- --------
Total loans ..................................... 44,144 (5,930) 38,214 15,711 (1,273) 14,438
Investment Securities:
Taxable ........................................... 8,665 (3,987) 4,678 6,777 725 7,502
Tax-exempt ........................................ 1,002 (397) 605 1,759 (333) 1,426
-------- -------- -------- -------- -------- --------
Total investment securities ..................... 9,667 (4,384) 5,283 8,536 392 8,928
Federal funds sold & other .......................... (340) 161 (179) 740 102 842
-------- -------- -------- -------- -------- --------
Total earning assets ............................ 53,471 (10,153) 43,318 24,987 (779) 24,208
-------- -------- -------- -------- -------- --------
Interest Bearing Liabilities
Time and savings deposits ........................... 14,353 (1,502) 12,851 7,053 2,726 9,779
Short-term borrowings ............................... 10,442 (67) 10,375 4,004 386 4,390
Long-term borrowings ................................ (811) (30) (841) 1,922 352 2,274
-------- -------- -------- -------- -------- --------
Total interest bearing liabilities .............. 23,984 (1,599) 22,385 12,979 3,464 16,443
-------- -------- -------- -------- -------- --------
Net Interest Earnings .................................. $ 29,487 $ (8,554) $ 20,933 $ 12,008 $ (4,243) $ 7,765
======== ======== ======== ======== ======== ========
</TABLE>
* 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.
50
<PAGE>
revenues are increasing primarily due to new business over the past several
years and favorable results in the financial markets. Credit/debit card fees
increased by $1.6 million or 43.5% in 1998, and by $1.2 million or 48.6% in
1997. One Valley introduced a new debit card product late in 1996 and usage has
steadily increased. Likewise, commercial purchase card and credit card usage
also increased in 1998. Deposit service charges increased by $3.9 million or
25.1% in 1998, and increased $577,000 or 3.9% in 1997. In 1997 and 1998, One
Valley introduced new products and a new fee structure for deposit services.
This new pricing structure, coupled with the increase in the customer base due
to the 1998 acquisitions, led to the significant increase in service charge
revenue. The 1997 increase was primarily due to an increase in customer
activity. Electronic banking revenue increased by $494,000 or 21.0% in 1998
largely due to increased ATM usage. In 1997, One Valley increased its number of
ATM locations from 97 at the end of 1996 to 235 at the end of 1997 through
arrangements reached with several retail convenience store chains. At December
31, 1998, One Valley had 287 ATM locations.
Real estate servicing fees increased by $2.5 million or 40.3% in 1998,
which compares to a $93,000 or 1.5% increase in 1997 from the level earned in
1996. As mortgage loan activity and sales in the secondary market increased in
1998 due to lower mortgage interest rates, One Valley's processing and servicing
fees also increased. In 1997, mortgage loan activity increased again over the
prior year. However, the increased revenue generated from the originations was
offset by lower servicing revenue on loans serviced for others. Revenue from the
sale of investment products, such as discount brokerage, mutual funds and
annuities, increased by $305,000 or 27.9% in 1998. This compares to a $143,000
or 15.1% increase in 1997. One Valley began offering such products as part of
its commitment to provide integrated financial services to its customers.
In 1998, One Valley realized $1.1 million in gains on securities sales.
This compares to $1.0 million in gains realized in 1997 and $162,000 in losses
realized in 1996. These securities were sold as part of One Valley's management
of its asset/liability position. Other operating income increased by $941,000 or
14.2% in 1998 partially due to the sale of a portion of One Valley's student
loan portfolio. This compares to a $1.4 million increase in 1997 primarily due
to the sale of One Valley's corporate trust business.
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 1998, however, operating costs
increased by 12.2% due to the cost of operating the fifteen branches purchased
in February and the nine branches obtained through the Summit acquisition. Yet,
due to the increase in average earning assets from those acquisitions and the
increases in non-interest income, One Valley's net overhead ratio declined in
1998. One Valley's 1998 net overhead ratio, or non-interest expense less
non-interest income excluding securities transactions to average earning assets,
was 1.95%, a decrease from the 2.08% realized in 1997, and down further still
from the 2.28% ratio realized in 1996. For the year 1998, net overhead was
$102.8 million, an increase of $6.4 million or 6.6% above the 1997 overhead of
$96.5 million. The current year increase follows a decrease in 1997 of 2.3% or
$2.2 million from the 1996 overhead of $98.7 million. In 1997, additional
efficiencies were achieved in the operations of One Valley's affiliates by
realigning processes and reallocating resources. This process continued
throughout 1998 and was partially responsible for the limited 6.6% increase in
net overhead costs. 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 only 2.4% whereas net interest income has grown by
6.4%.
Total non-interest expense increased by $17.6 million or 12.2% from 1997.
This year's increase compares to a $3.3 million or 2.4% increase in 1997 versus
1996. One Valley recognized acquisition related expenses of $3.6 million in the
fourth quarter of 1997 and $1.5 million in the first quarter of 1998 due to the
consolidation and growth of its expanding banking operations in Virginia and
West Virginia. Total staff costs increased by 8.0% in 1998, a result of normal
salary increases and the additional staff from the operations of the twenty-four
new branches. Total staff costs increased by $3.8 million or 5.4% in 1997,
compared to 1996, largely due to normal salary and benefit increases and
additional pension costs. Additional information on employee benefits is
discussed in Note M to the consolidated financial statements.
Net Overhead Ratio
Net overhead as a % of
average earning assets
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Net
Overhead
-------------
1993 2.57%
1994 2.44%
1995 2.32%
1996 2.28%
1997 2.08%
1998 1.95%
Efficiency Ratio
Non-interest expense as a % of
total adjusted revenues*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Efficiency
Ratio
-------------
1993 63.91%
1994 59.07%
1995 57.15%
1996 58.15%
1997 56.43%
1998 56.24%
*Tax-equivalent net interest income plus other income
51
<PAGE>
Advertising expense remained virtually flat in 1998, increasing by only
2.2%. This follows a 1997 increase of $366,000 due to additional advertising
related to the new debit card and electronic banking products. FDIC insurance
decreased by $172,000 or 16.4% in 1998 as insurance rates were lowered. In 1997,
FDIC insurance decreased by $6.9 million or 86.7%, largely due to a one-time
special assessment on thrift-based deposits to replenish the Savings Association
Insurance Fund in 1996.
Net occupancy expense increased by $941,000 or 12.4% in 1997 compared to a
3.2% increase in 1997. Most of the increase in 1998 was the result of the new
branch operations in 1998. The remaining portion of the 1998 increase was due to
additional building depreciation expense resulting from improvements, higher
utility costs, and increased real estate taxes. In 1998, equipment expense
increased by $2.2 million or 23.8%, largely due to increased equipment
depreciation and maintenance costs associated with the new branch operations,
the imposition of personal property taxes on banks in West Virginia, and costs
associated with technology improvements. Equipment expense decreased by 3.2% in
1997 primarily due to lower equipment depreciation costs. Outside data
processing costs increased by $897,000 or 9.8% in 1998 due to processing costs
related to the new branch operations as well as costs related to increased debit
and credit card activity. This increase compares to a $2.5 million or 37.4%
increase in 1997 due to conversion and data processing costs related to the
expanded operations in Virginia, as well as the additional processing costs
associated with the expansion of One Valley's ATM network.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Non-Interest Income and Expense Table 13
====================================================================================================================================
Increase (Decrease) Over Prior Year
1998 1997 1996 1998 1997
--------- --------- --------- ------------------ -------------------
Amount Percent Amount Percent
--------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Service Charges and Other
Operating Income
Trust income ................................... $ 11,675 $ 10,228 $ 9,322 $ 1,447 14.15 $ 906 9.72
Credit/debit card income ....................... 5,286 3,684 2,479 1,602 43.49 1,205 48.61
Service charges on deposit accounts ............ 19,408 15,511 14,934 3,897 25.12 577 3.86
Electronic banking ............................. 2,844 2,350 1,206 494 21.02 1,144 94.86
Investment services ............................ 1,397 1,092 949 305 27.93 143 15.07
Real estate loan processing & servicing fees ... 8,686 6,191 6,098 2,495 40.30 93 1.53
Checkbook sales ................................ 2,259 2,168 2,095 91 4.20 73 3.48
Securities transactions ........................ 1,125 1,018 (162) 107 10.51 1,180
Miscellaneous .................................. 7,553 6,612 5,192 941 14.23 1,420 27.35
--------- --------- --------- --------- ------ --------- ------
Total Non-Interest Income .................... $ 60,233 $ 48,854 $ 42,113 $ 11,379 23.29 $ 6,741 16.01
========= ========= ========= ========= ====== ========= ======
Staff and Other Operating Expenses
Salaries & wages ............................... $ 62,978 $ 57,247 $ 54,262 $ 5,731 10.01 $ 2,985 5.50
Employee benefits .............................. 17,202 16,987 16,146 215 1.27 841 5.21
--------- --------- --------- --------- ------ --------- ------
Total staff expenses ......................... 80,180 74,234 70,408 5,946 8.01 3,826 5.43
Other Operating Expenses
Advertising .................................. 4,175 4,083 3,717 92 2.25 366 9.85
FDIC insurance ............................... 879 1,051 7,921 (172) (16.37) (6,870) (86.73)
Occupancy, net ............................... 8,555 7,614 7,380 941 12.36 234 3.17
Equipment .................................... 11,606 9,377 9,683 2,229 23.77 (306) (3.16)
Outside data processing ...................... 10,012 9,115 6,632 897 9.84 2,483 37.44
Taxes not on income .......................... 4,151 3,382 3,400 769 22.74 (18) (0.53)
Supplies and postage ......................... 8,842 7,404 7,013 1,438 19.42 391 5.58
All other .................................... 33,544 28,059 24,830 5,485 19.55 3,229 13.00
--------- --------- --------- --------- ------ --------- ------
Total other operating expenses ............... 81,764 70,085 70,576 11,679 16.66 (491) (0.70)
--------- --------- --------- --------- ------ --------- ------
Total Non-Interest Expense ................. $ 161,944 $ 144,319 $ 140,984 $ 17,625 12.21 $ 3,335 2.37
========= ========= ========= ========= ====== ========= ======
</TABLE>
52
<PAGE>
Taxes not on income increased by $769,000 or 22.7% in 1998, largely due to
the Lynchburg affiliate's charter change to a national bank. In Virginia, banks
are subject to an equity-based state franchise tax but are exempt from income
tax. In 1997 and earlier years, the Lynchburg affiliate was a thrift institution
and subject to state income tax. In 1997, taxes not on income were virtually
unchanged from 1996. Supplies and postage expense increased by $1.4 million or
19.4% in 1998, primarily related to additional mailings, forms, supplies and
courier services for the new branch operations. This increase compares to a 5.6%
increase in 1997, primarily related to additional mailings, normal increases in
supply costs, and courier service for One Valley's expanded Virginia operations.
Other expenses increased by $5.5 million or 19.6% in 1998 compared to a $3.2
million or 13.0% increase in 1997. The increase in 1998 was primarily due to
increased intangible amortization resulting from the Wachovia branch purchase,
and a general increase in costs due to the expanding branch network. The
increase in 1997 was largely due to increased professional service costs,
increased employee travel and intangible amortization resulting from the CSB
acquisition, and a planned increase in employee training and development.
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 1998 was $35.9 million compared to $33.1 million in
1997 and $29.9 million in 1996. The increase in 1998 was primarily due to an
increase in pretax earnings. One Valley's effective tax rate was 33.0% in 1998,
down from the 34.1% in 1997, and the 33.8% in 1996, partially due to the
elimination of state income taxes on the Lynchburg affiliate. Additional
information regarding income taxes is contained in Note L 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.
Summary Results of Operations Fourth Quarter 1998
Net income for the three months ended December 31, 1998 was $19.5 million,
an increase of 39.3% from the $14.0 million earned during the fourth quarter of
1997. Earnings in 1997 were impacted by charges related to expanding One
Valley's operations in Virginia. For the fourth quarter of 1998, diluted
earnings per share rose to $0.55, a 27.9% increase from the $0.43 reported for
the fourth quarter of 1997.
Net interest income increased by 14.0% when compared to the same three
months of 1997. Average earning assets increased by 15.9%, while average
deposits increased by 15.4% versus the fourth quarter of 1997. The provision for
loan losses increased by $342,000 when compared to the fourth quarter of 1997.
Non-interest income excluding securities transactions increased by $3.3 million
or 26.4% as all categories of non-interest income increased primarily due to the
increased number of branches. One Valley also realized $136,000 in securities
gains in the fourth quarter of 1998. Non-interest expense increased by 6.6% when
compared to the same quarter last year. The increase is largely due to increased
staff costs, occupancy and equipment costs, and other costs related to the
increased number of branches.
Additional quarterly financial data is provided in Note S to the
consolidated financial statements.
- ----------------
Net overhead
decreased to
1.95% of average
earning assets
53
<PAGE>
Year 2000 Readiness Disclosure
Introduction
One Valley recognizes the significant potential risk associated with the
Year 2000 or Y2K issue and the challenge its poses. The Y2K problem arose
because many existing computer programs use only the last two digits to refer to
a year. Consequently, these computer programs do not properly recognize a year
that begins with 20XX instead of 19XX. Beginning January 1, 2000, computer
applications that use dates for computations, comparisons and sorting may
produce incorrect results or fail due to an invalid interpretation of the date.
The potential risk is not limited to computers and related software
applications, but extends to telephones, security systems, copiers, FAX machines
or any apparatus that utilizes computer technology. The full extent of the
potential impact of Y2K is not yet known, but it could adversely affect national
or global economies.
As a financial institution, the ability of One Valley to promptly and
accurately capture, record, process and communicate its customers' financial
transactions and related data is vital to its ongoing operations. The Y2K
problem could impede One Valley's ability to do so in several significant
respects. Recognizing this potential risk, One Valley has undertaken a
comprehensive project to address the Year 2000 issues that may affect One Valley
and its customers. One Valley's preparations began in late 1996 under the
guidance of Management and with oversight by the Board of Directors.
Project Overview
One Valley's project includes five phases: Awareness, Assessment,
Renovation (or remediation), Validation (or testing), and Implementation. Each
phase is described below. The phases indicate the order and method of One
Valley's approach to Year 2000 concerns. Elements of different phases overlap,
and different systems are at varying levels of completion within each phase.
Systems that are mission critical have been addressed first.
The Awareness Phase consisted of formal updates to One Valley management,
employees and the Board of Directors about the issues relating to Y2K. In this
stage management gathered information and attended conferences, appointed a
project steering team and coordinators, began preliminary discussions with third
party vendors, and distributed preliminary information to its employees and
customers. This phase was completed in October, 1997, however One Valley
continues on-going efforts to keep its customers and employees up to date.
In the Assessment Phase, One Valley identified its critical information
technology (IT) systems and performed a company-wide inventory of all systems,
software, hardware, equipment and components that potentially could be affected
by Y2K. During this phase, One Valley established project time lines, allocated
resources and established the methodology to monitor the Y2K readiness of the IT
Systems provided by third parties, as well as its non-IT Systems. One Valley
also determined the Y2K readiness of its in-house IT Systems and components, and
reported progress to senior management and the Board of Directors on a regular
basis. During this phase, One Valley identified four general areas of potential
susceptibility to Y2K issues: Major IT Systems provided by third parties,
Internal IT Systems, Non-IT Systems, including communications infrastructure and
physical facilities, and interruption to customers' business. One Valley also
identified which systems were "mission critical" in terms of its operations and
customer service. The Assessment Phase was completed in the fourth quarter of
1997.
In the Renovation Phase, One Valley's third-party IT providers implemented
program changes to accommodate the Y2K issues and conducted internal testing,
which was completed for all systems defined as mission critical in 1998. In
addition, during this phase One Valley began reprogramming its internal IT and
non-IT Systems to accommodate Y2K. Most internal IT Systems and non-IT Systems
have not been designated as mission critical to One Valley. Those that were
deemed mission critical were renovated or replaced during 1998. During this
phase, One Valley is also focusing on its customers' readiness for and
susceptibility to Y2K concerns. One Valley anticipates that the remaining
renovation of systems that are not mission critical will be completed by the end
of the second quarter of 1999.
In the Validation Phase, One Valley and its third party IT providers test
the renovated applications and components to make sure they are Y2K ready. This
phase has been very active during late 1998 and early 1999.
The Implementation Phase began during the fourth quarter of 1998. During
the first part of this phase, vendors completed upgrading of the applications,
systems and other components, and Y2K ready programs for mission critical
functions were put into production at One Valley. The balance of this final
phase will be completed by the end of the second quarter of 1999.
54
<PAGE>
Project Status
One Valley's major IT Systems are provided by the companies which are among
the largest service providers in the world and are recognized as among the
leading firms in their respective lines of business. The major IT Systems
provided by these third parties consist of those which process mortgage loans,
credit cards, commercial and installment loans, deposits, investments, and trust
services. One Valley uses its Internal IT Systems to collect and format data
that is then sent to and processed by these third parties. The resulting
information is then available to One Valley. The third party service providers,
in some cases, also generate statements for mailing directly to customers.
One Valley has continually monitored the Y2K progress of these third
parties and has determined that progress to date is acceptable. These systems
have each been renovated, tested by the vendor, are in use by One Valley now,
and are running on the remediated Y2K software. The Y2K upgrading of all mission
critical IT Systems provided by third parties is complete. Because most of One
Valley's mission critical systems are supplied by third party vendors,
validation by the vendors occurred first. The upgraded system was then put into
production at One Valley and further testing by One Valley will continue
throughout 1999. One Valley is in the process of conducting time dimension
testing of these third-party IT Systems, and in doing so utilizes its own
testing, proxy testing, logical partition testing, or the most appropriate
combination thereof.
One Valley's Internal IT Systems are primarily used to capture and prepare
data to be transmitted to its third party IT Systems providers. One Valley is in
various stages of renovating, validating and implementing these systems, with
completion anticipated by the second quarter of 1999. As part of a planned
upgrade of its systems, by the end of the second quarter of 1999, One Valley
will have replaced all of its personal computers with models that are Y2K ready.
In addition, One Valley has over 280 ATMs in its network, all of which have been
validated by the vendor and are using Y2K compliant software. It is anticipated
that testing of these ATMs by One Valley will be completed by the end of the
second quarter of 1999. One Valley's IT Systems also include network servers,
routers and related software. The upgrading or replacement of One Valley's
servers and routers and related software is approximately 85% to 93% complete
and is expected to be finished by the end of the first quarter of 1999.
Another important part of One Valley's operations includes its non-IT
Systems, primarily facilities and equipment. Basic utilities, such as telephone,
gas and electrical service, as well as heating and cooling systems, could be
adversely affected by the Y2K. One Valley has performed an inventory of its
facilities and has tested or developed plans to test, to the extent possible,
applicable equipment for Year 2000 compliance. One Valley has determined that
all of its vaults are Y2K ready. Outside companies, primarily utilities, which
provide these non-IT services, have indicated to One Valley that they plan to be
Y2K ready by the end of 1999, and to date One Valley is not aware of any non-IT
system provider with a Y2K issue that would materially impact One Valley's
operations. However, beyond these assurances, One Valley has no means of
insuring or verifying that these non-IT Systems will be Y2K ready, and the
impact of a failure in these systems is not determinable.
Another area that could potentially impact One Valley is interruption of
its customers' business, which among other things could potentially affect the
ability of its commercial loan and other customers to repay loans from One
Valley, thus increasing One Valley's delinquency ratios, non-performing assets
and loans losses. To help minimize these problems and heighten customer
awareness, One Valley has established a Y2K Corporate Customer Action Plan. As
part of this plan, One Valley has mailed Year 2000 brochures to all commercial
customers, hosted Y2K information seminars featuring a nationally known expert
for its customers, made FDIC Year 2000 brochures available in the lobby of all
its branches, and published a Year 2000 questions and answer sheet.
One Valley has also incorporated a Y2K readiness assessment in its credit
risk evaluations of corporate borrowers falling within certain parameters. As of
June 30, 1998, corporate borrowers were preliminarily assessed as to their level
of Year 2000 risk based upon their line of business, their degree of reliance on
computer hardware and software, and their historic response to strategic
challenges. A full assessment of medium and high-risk customers and industries
was undertaken, including a questionnaire and a site visit in some instances. In
addition, the results of One Valley's evaluations have been analyzed by industry
segment to provide Y2K risk profiles by industry. Corporate borrowers in those
industries with a significant inherent Y2K risk receive greater scrutiny. One
Valley plans to monitor closely customers and industries judged to be high risk,
and credit analyses on new and existing credits include evaluation of Year 2000
readiness.
- ----------------
One Valley has
undertaken a
comprehensive
project to
address the Year
2000 issues
55
<PAGE>
Although One Valley has implemented and made significant progress toward
completing its Y2K project, there are uncertainties which, due to their
unprecedented nature, simply cannot be fully evaluated. For example, the extent
of interplay between payment systems is unclear, and it is not known how the
potential failure of one aspect of that complex system might adversely impact
other elements. In addition, although testing will be completed for each
significant system, it is not possible to independently verify each vendor's
vendors. It is unknown how a problem at one discrete point in the chain of
service could impact an entire system.
Management believes it has an effective project in place to resolve the Y2K
issues within One Valley in a timely manner. In the event of a vendor,
governmental, utility, customer or other Y2K failure, the Company may be unable
to perform some or all of the functions related to its customers' financial
transactions. The impact and duration of such inability would depend upon the
extent of the Y2K-related failure or failures. While One Valley believes that it
is taking the steps appropriate to prevent a Y2K failure on its part, because
One Valley's ability to perform is linked to the performance of others,
certainty is not possible. In addition, the potential for disruptions in the
economy generally resulting from Y2K issues remains unknown and could also
materially adversely affect One Valley and its customers. If system failures
occur for any reason, One Valley and its customers could also be subject to
litigation. The likelihood of such events and their impact on One Valley cannot
be reasonably estimated at this time.
One Valley is in the process of contingency planning for the possibility of
business disruption due to Y2K issues. The Y2K contingency planning will expand
existing business continuity plans, contemplating specific Y2K scenarios. As
part of that process One Valley has assessed the potential business impact of a
failure of each of its important systems and determined the need for contingency
planning on a system by system basis. One Valley's contingency plans focus upon
IT Systems failures by its vendors, as well as widespread disruptions of
telecommunications and electrical power, all of varying duration. Contingency
plans for Y2K have been developed for mission critical applications and, as part
of an on-going process, One Valley will continue to develop these plans and
similar plans as it finalizes evaluation of remaining systems. There can be no
assurance, however, that contingency planning will be adequate for all possible
events.
Project Costs
Expenses directly related to Y2K have been incurred, such as staff costs
and informational conferences and seminars for employees and customers. These
costs have been immaterial to date. Since third party vendors provide most of
One Valley's IT Systems under the terms of fixed price contracts, One Valley has
had to date, no material direct expense as a result of vendor's upgrades to
those systems as a result of Y2K concerns. It is possible, however, that these
vendors may attempt to recover some of their Y2K-related costs by way of future
price increases upon renewal of their respective contracts.
One Valley has been very aggressive in upgrading its internal IT Systems
infrastructure, most of which are capital improvements attributed to planned
upgrades in technology to modernize the way One Valley performs its day-to-day
operations, and not solely the result of Y2K concerns.
The total cost of the Y2K project, consisting primarily of computer
upgrades for One Valley's IT Systems which were the result of or accelerated by
Y2K concerns, is estimated to be approximately $5 million. To date, One Valley
has incurred over $3.8 million of these total estimated expenditures. One Valley
does not separately track the internal costs incurred for the Y2K project, which
are principally payroll costs for its information technology employees and
others involved in the Y2K project. Virtually all of the project costs are
attributable to the purchase of new software and operations equipment, which
will be capitalized.
Forward-looking Statements
The Private Securities Litigation Act of 1995 indicates that the disclosure
of forward-looking information is desirable for investors and encourages such
disclosure by providing a safe harbor for forward-looking statements by
corporate management. This Annual Report, including the Letter to Shareholders
and the Management's Discussion and Analysis of Financial Condition and Results
of Operations, contains forward-looking statements that involve risk and
uncertainty. In order to comply with the terms of the safe harbor, the
corporation notes that a variety of factors could cause One Valley's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in those forward-looking statements.
56
<PAGE>
Allowance for Loan Losses
The cumulative reserve established to absorb losses on loans. Increases to
the reserve are charged against earnings and are listed in the income statement
as "provision for loan losses."
Average Balance Sheet
A balance sheet showing the average of the daily ending balances of all
assets, liabilities and shareholders' equity. An average is used to smooth the
fluctuations in balances due to the timing of customer loan proceeds, loan
payments, deposits and withdrawals. The average balance sheet is used to
calculate the yield on earning assets and the rates paid on deposit accounts and
other borrowed funds.
Basic Earnings per Share
Net income divided by the average shares outstanding during the year or
period.
Compound Annual Growth Rate
The average annual increase of an item over a given period of time usually
greater than a year. The growth rate is expressed as a percentage of the item's
total at the beginning of the period.
Cost of All Funds
The sum of all interest expense divided by the sum of average earning
assets. This percentage shows the interest rate paid to fund interest earning
assets and is compared to the Yield on Earning Assets. The Yield minus the Cost
is referred to as the Net Interest Margin.
Diluted Earnings per Share
Net income divided by the average possible shares outstanding during the
year or other period assuming all options to buy stock had actually been
exercised and the cash proceeds were used to redeem shares at an average market
value.
Dividend Payout Ratio
Dividends paid per share divided by net income earned per share, which
shows the percentage of net income earned returned to the shareholder in the
form of dividends.
Earning Assets
Assets such as loans and investment securities on which the company earns
interest or dividend income.
Efficiency Ratio
Designed to show the operational efficiency of an organization. This ratio
shows the percentage of each dollar earned that is expended to operate the
business. It is calculated by dividing total operating expenses by the sum of
fully tax-equivalent net interest income plus other operating income. As this
ratio decreases, more of each dollar earned flows to Net Income.
Fully Taxable Equivalent
Certain investments earn interest that is exempt from Federal income tax.
Since they are exempt, the investments generally pay a lower percentage rate of
interest. To compare this rate, or the dollars of income earned, to investments
subject to income tax, an amount is added to the tax-exempt investment's income
that represents the tax dollars saved. The total becomes a "fully
taxable-equivalent" yield or income and enables a comparison of taxable and
tax-exempt investments.
Net Charge-offs
The amount of uncollectible loans written-off against the Allowance for
Loan Losses net of any proceeds recovered on loans previously written-off.
Net Charge-off Ratio
The amount of net charge-offs divided by the average total loans
outstanding. This ratio helps to compare the dollar amounts of net charge-offs
of differently sized loan portfolios.
Net Income
The amount that total revenues exceed total expenses during a given time
period. This amount increases total shareholders' equity.
Net Interest Income
The sum of all interest income less all interest expense.
Net Interest Margin
The sum of all interest income less all interest expense divided by the sum
of average earning assets. This percentage shows the average interest rate
earned on those assets less the interest cost paid to fund those assets.
Net Overhead
The amount operating expenses exceed other operating income. This amount
shows the net dollar cost to conduct business operations.
Net Overhead Ratio
The amount of Net Overhead divided by average earning assets. This
percentage is compared to the Net Interest Margin percentage to show how much of
the margin is used to cover operating expenses. As this ratio decreases, more of
the Net Interest Margin flows to Net Income.
Shareholder's Equity
The amount that the assets of a corporation exceed its liabilities. Also
represents the book value owned by the shareholders of a corporation.
Yield on Earning Assets
The sum of all interest income divided by the sum of average earning
assets. This percentage shows the average rate earned on those earning assets
and is compared to the Cost of All Funds. The Yield minus the Cost is referred
to as the Net Interest Margin.
- -----------------
GLOSSARY OF
TERMS
- -----------------
57
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Consolidated Balance Sheets
====================================================================================================================================
One Valley Bancorp, Inc. and Subsidiaries
(Dollars in thousands)
December 31
1998 1997
----------- -----------
<S> <C> <C>
Assets
Cash and due from banks ............................................................... $ 155,226 $ 127,012
Interest-bearing deposits in other banks .............................................. 3,150 2,162
Federal funds sold .................................................................... 50,000 20,310
----------- -----------
Cash and cash equivalents ........................................................... 208,376 149,484
Securities:
Available-for-sale, at fair value ................................................... 1,307,825 1,216,749
Held-to-maturity (fair value approximated $287,441 and $359,369
at December 31, 1998 and 1997) .................................................... 278,267 352,272
Loans, net ............................................................................ 3,938,849 3,257,488
Premises and equipment ................................................................ 102,863 90,397
Accrued interest receivable ........................................................... 40,916 38,764
Other assets .......................................................................... 86,484 56,332
----------- -----------
Total assets ........................................................................ $ 5,963,580 $ 5,161,486
=========== ===========
Liabilities
Deposits:
Non-interest bearing ................................................................ $ 570,664 $ 465,227
Interest bearing .................................................................... 3,982,224 3,468,947
----------- -----------
Total deposits .................................................................... 4,552,888 3,934,174
Short-term borrowings:
Federal funds purchased ............................................................. 36,410 22,581
Securities sold under agreements to repurchase and other ............................ 693,349 600,899
----------- -----------
Total short-term borrowings ....................................................... 729,759 623,480
Long-term borrowings .................................................................. 35,480 48,875
Other liabilities ..................................................................... 49,920 51,307
----------- -----------
Total liabilities ................................................................... 5,368,047 4,657,836
Shareholders' Equity
Preferred stock--$10 par value; authorized 1,000,000 shares; none issued
Common stock--$10 par value; authorized 70,000,000 shares;
39,135,180 and 36,330,605 shares issued at December 31, 1998 and 1997,
including 4,392,546 and 4,346,846 shares in treasury at
December 31, 1998 and 1997 .......................................................... 391,352 363,306
Capital surplus ....................................................................... 94,157 71,782
Retained earnings ..................................................................... 200,174 157,730
Accumulated other comprehensive income ................................................ 6,450 5,927
Treasury stock ........................................................................ (96,600) (95,095)
----------- -----------
Total shareholders' equity .......................................................... 595,533 503,650
----------- -----------
Total liabilities and shareholders' equity .......................................... $ 5,963,580 $ 5,161,486
=========== ===========
</TABLE>
See notes to consolidated financial statements.
58
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Consolidated Statements of Income
====================================================================================================================================
One Valley Bancorp, Inc. and Subsidiaries
(Dollars in thousands, except per share data)
Year Ended December 31
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest Income Interest and fees on loans:
Taxable .......................................................... $ 315,172 $ 276,520 $ 262,354
Tax-exempt ....................................................... 2,705 2,990 2,813
--------- --------- ---------
Total .......................................................... 317,877 279,510 265,167
Interest and dividends on securities:
Taxable .......................................................... 88,136 83,458 75,956
Tax-exempt ....................................................... 12,396 12,003 11,076
--------- --------- ---------
Total .......................................................... 100,532 95,461 87,032
Other .............................................................. 1,610 1,789 947
--------- --------- ---------
Total interest income .......................................... 420,019 376,760 353,146
Interest Expense
Deposits ........................................................... 160,877 148,026 138,247
Short-term borrowings .............................................. 35,841 25,466 21,076
Long-term borrowings ............................................... 2,577 3,418 1,144
--------- --------- ---------
Total interest expense ......................................... 199,295 176,910 160,467
--------- --------- ---------
Net Interest Income ................................................... 220,724 199,850 192,679
Provision For Loan Losses ............................................. 10,063 7,531 5,264
--------- --------- ---------
Net Interest Income After Provision For Loan Losses ................... 210,661 192,319 187,415
Other Income
Trust Department ................................................... 11,675 10,228 9,322
Service charges on deposit accounts ................................ 19,408 15,511 14,934
Real estate loan processing and servicing fees ..................... 8,686 6,191 6,098
Other service charges and fees ..................................... 14,056 10,947 8,177
Securities gains (losses) .......................................... 1,125 1,018 (162)
Other .............................................................. 5,283 4,959 3,744
--------- --------- ---------
Total other income ............................................. 60,233 48,854 42,113
Other Expenses
Salaries and employee benefits ..................................... 80,180 74,234 70,408
Net occupancy ...................................................... 8,555 7,614 7,380
Equipment .......................................................... 11,606 9,377 9,683
Federal deposit insurance assessments .............................. 878 1,051 7,921
Outside data processing ............................................ 10,012 9,115 6,632
Other .............................................................. 50,713 42,928 38,960
--------- --------- ---------
Total other expenses ........................................... 161,944 144,319 140,984
--------- --------- ---------
Income Before Income Taxes ............................................ 108,950 96,854 88,544
Applicable Income Taxes ............................................... 35,905 33,054 29,926
--------- --------- ---------
Net Income ............................................................ $ 73,045 $ 63,800 $ 58,618
========= ========= =========
Net income per common share:
Basic .............................................................. $ 2.19 $ 2.00 $ 1.80
Diluted ............................................................ $ 2.15 $ 1.95 $ 1.76
Average common shares outstanding (in thousands):
Basic .............................................................. 33,356 31,921 32,600
Diluted ............................................................ 33,940 32,686 33,221
</TABLE>
See notes to consolidated financial statements.
59
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Consolidated Statements of Shareholders' Equity
====================================================================================================================================
One Valley Bancorp, Inc. and Subsidiaries
(Dollars in thousands, except per share data)
Accumulated
Other
Common Capital Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
--------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 .......................... $ 210,110 $ 55,386 $ 204,449 $ 7,760 $ (23,344) $ 454,361
Comprehensive income:
Net income......................................... 58,618 58,618
Other comprehensive income, net of deferred income
taxes of $(3,733):
Unrealized gains on securities of $5,598, net of
reclassification adjustment for losses included
in net income of $97........................... (5,695) (5,695)
---------
Total comprehensive income......................... 52,923
Issuance of common stock (1,789,000 shares)......... 17,890 37,817 55,707
Purchase of treasury stock (1,318,988 shares)....... (44,034) (44,034)
Five-for-four stock split in the form of a 25%
stock dividend .................................... 49,746 (49,746)
Stock options exercised (144,958 shares) and
adjustment for fractional shares................... 1,430 1,414 2,844
Cash dividends on One Valley shares ($.74 per share) (20,028) (20,028)
Cash dividends on FFVA shares....................... (1,903) (1,903)
FFVA repurchase of treasury stock................... (9,185) (637) (8,164) (17,986)
Two-for-one stock split of FFVA shares.............. 28,484 (28,484)
Allocated/earned FFVA ESOP and MSBP shares.......... 1,143 1,143
Exercise of FFVA stock options...................... 18 13 31
--------- ---------- --------- ---------- ---------- ---------
Balances at December 31, 1996 ........................ 298,493 66,652 183,226 2,065 (67,378) 483,058
Comprehensive income:
Net income......................................... 63,800 63,800
Other comprehensive income, net of deferred income
taxes of $2,495:
Unrealized gains on securities of $4,473, net of
reclassification adjustment for gains included
in net income of $611.......................... 3,862 3,862
---------
Total comprehensive income......................... 67,662
Purchase of treasury stock (856,396 shares)......... (27,717) (27,717)
Five-for-four stock split in the form of a 25%
stock dividend .................................... 62,960 (62,960)
Stock options exercised (303,698 shares) and
adjustment for fractional shares................... 3,015 1,783 4,798
Cash dividends on One Valley shares ($.80 per share) (22,009) (22,009)
Cash dividends of FFVA shares....................... (2,005) (2,005)
FFVA repurchase of treasury stock................... (1,807) 140 (2,322) (3,989)
Allocated/earning FFVA ESOP and MSBP shares......... 3,810 3,810
Exercise of FFVA stock options...................... 47 (5) 42
Issuance of common stock to FFVA MSBP plan.......... 598 (598)
--------- ---------- --------- ---------- ---------- ---------
Balances at December 31, 1997 ........................ 363,306 71,782 157,730 5,927 (95,095) 503,650
Comprehensive income:
Net income......................................... 73,045 73,045
Other comprehensive income, net of deferred income
taxes of $225:
Unrealized gains on securities of $1,198, net of
reclassification adjustment for gains included
in net income of $675.......................... 523 523
---------
Total comprehensive income......................... 73,568
Purchase of treasury stock (45,700 shares).......... (1,505) (1,505)
Stock options exercised (269,519 shares) and
adjustment for fractional shares................... 2,695 841 3,536
Cash dividends on One Valley shares ($.90 per share) (30,601) (30,601)
Issuance of common stock (1,826,600 shares)......... 18,264 2,260 20,524
FFVA treasury shares reissued (708,600 shares)...... 7,087 19,274 26,361
--------- ---------- --------- ---------- ---------- ---------
Balances at December 31, 1998 ........................ $ 391,352 $ 94,157 $ 200,174 $ 6,450 $ (96,600) $ 595,533
========= ========= ========= ========== ========== =========
</TABLE>
See notes to consolidated financial statements.
60
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Consolidated Statements of Cash Flows
====================================================================================================================================
One Valley Bancorp, Inc. and Subsidiaries
(Dollars in thousands)
Year Ended December 31
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income ............................................................. $ 73,045 $ 63,800 $ 58,618
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses .......................................... 10,063 7,531 5,264
Depreciation ....................................................... 10,365 9,013 9,738
Amortization, net of accretion ..................................... 3,530 3,371 2,391
Deferred income tax (benefit) expense .............................. (2,372) 842 165
Net (gains) losses from sales of assets ............................ (407) (1,003) 112
Loans originated for sale .......................................... (261,199) (111,837) (67,105)
Proceeds from loans sold ........................................... 231,333 112,823 68,167
Net change in accrued interest receivable .......................... (377) (581) 641
Net change in accrued interest payable ............................. (3,112) 3,182 (382)
Net change in other assets and other liabilities ................... 6,714 (12,385) 2,137
--------- --------- ---------
Net cash provided by operating activities ........................ 67,583 74,756 79,746
Investing Activities
Proceeds from sales of available-for-sale securities ................... 53,045 92,165 151,749
Proceeds from maturities of available-for-sale securities .............. 616,627 278,877 266,629
Purchases of available-for-sale securities ............................. (617,443) (522,292) (366,559)
Proceeds from maturities of held-to-maturity securities ................ 42,916 37,740 21,934
Purchases of held-to-maturity securities ............................... (62,431) (86,621) (47,968)
Purchase of subsidiary, net of cash received ........................... 118,371 10,866
Net increase in loans .................................................. (390,634) (171,993) (169,662)
Purchases of premises and equipment .................................... (13,732) (8,781) (8,430)
--------- --------- ---------
Net cash used in investing activities ............................ (253,281) (380,905) (141,441)
Financing Activities
Net change in deposits ................................................. 154,144 129,805 120,008
Net change in federal funds purchased .................................. 13,829 5,303 (36,727)
Net change in other short-term borrowings .............................. 92,450 184,103 48,265
Repayment of long-term borrowings ...................................... (13,622) (9,017) (10,776)
Proceeds from long-term borrowings ..................................... 25,000 15,007
Proceeds from issuance of common stock ................................. 29,895 4,840 2,875
Purchase of treasury stock ............................................. (1,505) (27,717) (44,034)
Cash dividends ......................................................... (30,601) (24,014) (21,931)
Allocation of FFVA ESOP and MSBP shares ................................ 3,810 1,143
FFVA repurchase of treasury stock ...................................... (3,988) (17,986)
--------- --------- ---------
Net cash provided by financing activities ................................. 244,590 288,125 55,844
--------- --------- ---------
Increase (decrease) in cash and cash equivalents .......................... 58,892 (18,024) (5,851)
Cash and cash equivalents at beginning of year ............................ 149,484 167,508 173,359
--------- --------- ---------
Cash and cash equivalents at end of year .................................. $ 208,376 $ 149,484 $ 167,508
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
61
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
Notes to Consolidated Financial Statements
================================================================================
One Valley Bancorp, Inc. and Subsidiaries December 31, 1998
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
NOTE A
- ------
Summary of Significant Accounting and Reporting Policies
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 specific
identification method is used to determine realized gains and losses on sales of
securities.
Loans Held for Sale
Mortgage loans originated and held for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate.
Mortgage Servicing Rights
The value of mortgage servicing rights, regardless of how obtained, are
capitalized and 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. To determine fair value, One Valley estimates
the present value of future cash flows incorporating various assumptions
including servicing income, cost of servicing, discount rates, prepayment
speeds, and default rates. For purposes of determining impairment, the mortgage
servicing rights are stratified based upon predominant risk characteristics of
the underlying loans.
Derivative Financial Instruments
As part of managing its interest rate risk, One Valley periodically uses
financial instruments such as interest rate swaps, cap and floor contracts, and
other off-balance sheet financial agreements frequently referred to as
derivative financial instruments. These derivative instruments provide an
off-balance sheet method of managing earnings fluctuations due to changes in
interest rates. During 1998, One Valley entered into an interest rate swap
agreement with a notional amount of $150 million. Based on the terms of the
interest rate swap agreement, One Valley pays fixed and receives variable during
the term of the swap. The net amount payable or receivable from the interest
rate swap agreement is accrued as an adjustment to interest expense. The amount
accrued during 1998 was not material. In addition, One Valley purchased a $50
million interest rate cap during 1998 to help protect its interest rate margin
in periods of extremely high interest rates. The amount paid for the interest
rate cap was capitalized and is amortized over the term of the agreement.
As with any financial instrument, derivatives have inherent risks,
primarily market and credit risk. Market risk includes the risk of gains and
losses that result from changes in interest rates. Credit risk is the risk that
a counterparty to a derivative
62
<PAGE>
- --------------------------------------------------------------------------------
Summary of Significant Accounting and Reporting Policies
NOTE A -
CONTINUED
- ---------
contract with an unrealized gain fails to perform according to the terms of the
agreement. One Valley monitors these risks through its asset/liability committee
policy whereby the outstanding amount of derivatives are limited and the
counterparty is monitored.
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. Impaired loans,
primarily consisting of non-accrual and restructured loans, are evaluated based
on the discounted value of expected future cash flows or on the estimated fair
value of the collateral if repayment of the loan is expected to be provided by
the collateral. In management's judgment, the allowance for loan losses is
maintained at a level adequate to absorb potential losses in the loan portfolio.
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.
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.
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.
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.
Stock-Based Compensation
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 (APB 25), "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its employee stock
options instead of applying Financial Accounting Standards Board (FASB)
Statement No. 123 (FASB 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.
Net Income per Common Share
Basic net income per common share excludes any dilutive effects of stock
options and is computed by dividing net income by the average common shares
outstanding adjusted for the ESOP shares which were not committed to release in
the previous years presented (which represent 209,000 and 243,000 in 1997 and
1996.) Diluted net income per common share is computed by dividing net income by
the average common shares outstanding during the year, net of the ESOP shares,
adjusted for the dilutive effect of options under One Valley's stock option
plans. The effect of dilutive stock options on average shares outstanding was
584,000, 765,000, and 621,000 in 1998, 1997, and 1996.
63
<PAGE>
- --------------------------------------------------------------------------------
Summary of Significant Accounting and Reporting Policies
NOTE A -
CONCLUDED
- ---------
Segment Reporting
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The provisions of this
statement require disclosure of financial and descriptive information about an
enterprise's operating segments in annual and interim financial reports issued
to shareholders. The statement defines an operating segment as a component of an
enterprise that engages in business activities that generate revenue and incur
expense, whose operating results are reviewed by the chief operating decision
maker in the determination of resource allocation and performance, and for which
discrete financial information is available.
One Valley's only defined business segment is community banking as One
Valley primarily evaluates its performance and allocates resources based on the
financial information of its community banking operations. As a community bank,
One Valley offers its customers a full range of products through traditional and
in-store branches, offices, ATMs, telephones, personal computers, and other
delivery channels throughout various geographic areas. The financial information
presented in the financial statements represents the financial information of
One Valley's community banking segment and no additional disclosure is
necessary.
New Accounting Pronouncements
Certain provisions of FASB Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," relating to
repurchase agreements, securities lending and other similar transactions, and
pledged collateral, were deferred for one year by FASB No. 127, and were adopted
prospectively as of January 1, 1998. FASB No. 125 established new criteria for
determining whether a transfer of financial assets in exchange for cash or other
consideration should be accounted for as a sale or as a pledge of collateral in
a secured borrowing and also established new accounting requirements for pledged
collateral. The adoption of these provisions did not have a material impact on
financial position or results or operations.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income includes net income as well as
certain items that are reported directly within a separate component of
stockholders' equity and bypass net income. One Valley adopted the provisions of
this statement in 1998. These disclosure requirements had no impact on financial
position or results of operations.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The provisions of this statement require
that derivative instruments be carried at fair value on the balance sheet and
allows hedge accounting when specific criteria are met. Any changes in fair
value or cash flow that represent the ineffective portion of a hedge are
required to be recognized in earnings and cannot be deferred. For derivative
instruments not accounted for as hedges, changes in fair value are required to
be recognized in earnings. The provisions of this statement become effective for
quarterly and annual reporting beginning January 1, 2000. The impact of adopting
the provisions of this statement on One Valley's financial position or results
of operations subsequent to the effective date is not currently estimable and
will depend on the financial position of One Valley and the nature and purpose
of the derivative instruments in use by management at that time.
- --------------------------------------------------------------------------------
NOTE B
- ------
Restrictions on Cash and Due From Bank Accounts
Bank subsidiaries are required to maintain average balances with the
Federal Reserve Bank. The average amount of those balances for the year ended
December 31, 1998, was approximately $16,764.
64
<PAGE>
- --------------------------------------------------------------------------------
NOTE C
- ------
Restrictions on Subsidiary Dividends
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, 1998, the retained net
profits available for distribution to One Valley Bancorp, Inc. as dividends
without regulatory approval approximated $17,248.
- --------------------------------------------------------------------------------
NOTE D
- ------
Mergers and Acquisitions
On August 7, 1998, One Valley acquired Summit Bankshares, Inc. (Summit), a
bank holding company that operated nine branches in Virginia. Under terms of the
agreement, One Valley exchanged 1.36 shares of its common stock for each share
of Summit's common stock outstanding. This resulted in the issuance of
approximately 1,827,000 shares valued at approximately $62 million. As of August
7, 1998, Summit had $199 million in total assets, $149 million in total loans,
and $181 million in deposits. This transaction was accounted for as a
pooling-of-interest. However, due to the immaterial impact on One Valley's
financial statements, the balances and results of operations of Summit are
included in One Valley's financial statements only from the date of acquisition.
On March 30, 1998, One Valley acquired all stock of FFVA Financial
Corporation (FFVA), headquartered in Lynchburg, Virginia. Under terms of the
agreement, One Valley exchanged 1.05 shares of its common stock for each share
of FFVA's common stock outstanding. This resulted in the issuance of
approximately 5,519,000 shares valued at approximately $206 million. This
combination was accounted for as a pooling of interests and, as a result, all
prior financial results were restated and reported on a combined basis. Due to
the immaterial impact on One Valley's financial statements, separate results of
operations are not presented herein.
On February 19, 1998, One Valley acquired 15 branches in Virginia from the
Wachovia Corporation. Through this purchase, One Valley acquired $124.9 million
in loans and $283.2 million in deposits. This transaction was accounted for as a
purchase and, accordingly, the balances and results of the operations of the
branches are included in the financial statements of One Valley only from the
date of purchase.
Prior to 1998 One Valley acquired other financial institutions accounted
for using the purchase method of accounting. The purchase price of these
acquisitions and those previously noted 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 $5,800 and $2,700 at December 31, 1998 and 1997. Deposit
intangible amortization approximated $2,000 in 1998, $1,100 in 1997, and $900 in
1996. 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 $49,000 and $17,500 at December 31, 1998 and 1997. Goodwill
amortization approximated $3,400 in 1998, $1,400 in 1997, and $1,200 in 1996.
- --------------------------------------------------------------------------------
NOTE E
- ------
Shareholder Rights Plan
In 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.
65
<PAGE>
- --------------------------------------------------------------------------------
NOTE F
- ------
Securities
The following is a summary of available-for-sale and held-to-maturity
securities:
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
-------------------------------------------------- --------------------------------------------------
Estimated Estimated
Amortized Gross Unrealized Fair Amortized Gross Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
-------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998
U.S. Treasury securities
and obligations of
U.S. government agencies
and corporations ....... $ 845,155 $ 6,541 $ (1,687) $ 850,009 $ 0 $ 0 $ 0 $ 0
Obligations of states and
political subdivisions . 277,929 9,537 (363) 287,103
Mortgage-backed securities 324,538 5,103 (173) 329,468
Other securities .......... 127,694 807 (153) 128,348 338 338
-------------------------------------------------- --------------------------------------------------
Total securities ....... $1,297,387 $ 12,451 $ (2,013) $1,307,825 $ 278,267 $ 9,537 $ (363) $ 287,441
================================================== ==================================================
December 31, 1997
U.S. Treasury securities
and obligations of
U.S. government agencies
and corporations ....... $ 857,928 $ 4,322 $ (793) $ 861,457 $ 46,443 $ 476 $ (28) $ 46,891
Obligations of states and
political subdivisions . 237,290 6,557 (127) 243,720
Mortgage-backed securities 298,231 5,984 (295) 303,920 62,756 389 (192) 62,953
Other securities .......... 50,899 494 (21) 51,372 5,783 22 5,805
-------------------------------------------------- --------------------------------------------------
Total securities ....... $1,207,058 $ 10,800 $ (1,109) $1,216,749 $ 352,272 $ 7,444 $ (347) $ 359,369
================================================== ==================================================
December 31, 1996
U.S. Treasury securities
and obligations of
U.S. government agencies
and corporations ....... $ 678,286 $ 4,258 $ (4,741) $ 677,803 $ 35,558 $ 315 $ (117) $ 35,756
Obligations of states and
political subdivisions . 216,874 3,596 (1,073) 219,397
Mortgage-backed securities 328,958 4,873 (1,488) 332,343 46,570 484 (550) 46,504
Other securities .......... 48,881 508 (76) 49,313 4,448 10 (4) 4,454
-------------------------------------------------- --------------------------------------------------
Total securities ....... $1,056,125 $ 9,639 $ (6,305) $1,059,459 $ 303,450 $ 4,405 $ (1,744) $ 306,111
================================================== ==================================================
</TABLE>
Gross realized gains and losses on available-for-sale securities
approximated $1,125 and $0 in 1998, $1,130 and $112 in 1997, and $359 and $521
in 1996.
Upon consummation of the acquisitions of Summit and FFVA, One Valley chose
to reclassify $1,700 and $110,400 of securities acquired from Summit and FFVA,
respectively, from held-to-maturity to available-for-sale. The related
unrealized gain on the securities acquired from Summit and FFVA was $20 and
$1,500, respectively. This transfer was made by One Valley to conform the
securities acquired to One Valley's investment policies and guidelines.
The amortized cost and estimated fair value of debt securities at December
31, 1998, 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.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
----------------------------- -----------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less ................................ $ 236,808 $ 238,556 $ 2,687 $ 3,491
Due after one year through five years .................. 328,613 330,714 32,273 33,152
Due after five years through ten years ................. 378,957 381,663 117,587 121,758
Due after ten years .................................... 305,876 309,759 125,382 128,702
---------- ---------- ---------- ----------
1,250,254 1,260,692 277,929 287,103
Other .................................................. 47,133 47,133 338 338
---------- ---------- ---------- ----------
Total securities .................................... $1,297,387 $1,307,825 $ 278,267 $ 287,441
========== ========== ========== ==========
</TABLE>
At December 31, 1998 and 1997, securities carried at approximately $754,000
and $693,000 were pledged to secure public deposits, repurchase agreements, and
for other purposes as required or permitted by law.
66
<PAGE>
- --------------------------------------------------------------------------------
NOTE G
- ------
Loans
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31
1998 1997
---------- ----------
<S> <C> <C>
Commercial, financial
and agricultural .......................... $ 433,935 $ 372,933
Real estate:
Revolving home equity ..................... 226,216 192,252
Single family residential .................... 1,851,470 1,527,621
Apartment buildings
and complexes ........................... 103,349 75,314
Commercial ................................ 618,958 477,025
Construction ................................. 97,175 60,975
Installment loans to individuals ............. 625,646 572,846
Other ........................................ 34,372 23,570
---------- ----------
Total loans net of
unearned income ......................... 3,991,121 3,302,536
Less allowance for loan losses ............... 52,272 45,048
---------- ----------
Loans - net .................................. $3,938,849 $3,257,488
========== ==========
</TABLE>
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, 1998 and 1997, One
Valley held loans for sale of approximately $39,077 and $11,500 and had
commitments to originate and sell loans of approximately $36,771 and $11,000,
respectively.
The mortgage loan portfolio serviced by One Valley for the benefit of
others approximated $863,457, $890,327, and $907,906 at December 31, 1998, 1997,
and 1996. Custodial escrow balances maintained in connection with the foregoing
loan servicing and One Valley's own mortgage loan portfolio were approximately
$8,862 and $8,540 at December 31, 1998 and 1997, respectively.
One Valley and its subsidiaries have granted loans to officers and
directors of One Valley and its subsidiaries and to their associates. Related
party loans were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated persons and did not involve more than normal risk of collectibility.
The following presents the activity with respect to related party loans
aggregating $60 or more to any one related party:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Balance, January 1 ................. $ 86,140 $ 106,605
Additions .......................... 46,590 28,060
Amount collected ................... (47,448) (48,525)
--------- ---------
Balance, December 31 ............... $ 85,282 $ 86,140
========= =========
</TABLE>
- --------------------------------------------------------------------------------
NOTE H
- ------
Allowance for Loan Losses
Changes in the allowance for loan losses for each of the three years in the
period ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, January 1 ............. $ 45,048 $ 45,055 $ 42,751
Charge-offs .................... (8,695) (9,837) (7,065)
Recoveries ..................... 2,027 2,299 1,879
-------- -------- --------
Net charge-offs ............. (6,668) (7,538) (5,186)
Provision for loan losses ...... 10,063 7,531 5,264
Balance of acquired
subsidary ................... 3,829 2,226
-------- -------- --------
Balance, December 31 ........... $ 52,272 $ 45,048 $ 45,055
======== ======== ========
</TABLE>
Impaired loans approximated $3,700 and $6,600 (of which $2,100 and $3,400
were on a nonaccrual basis) at December 31, 1998 and 1997. Included in these
amounts are $4,900 and $5,900 of impaired loans for which the related allowance
for loan losses is $830 and $500, and $1,700 and $3,000 of impaired loans that
as a result of write-downs or being well secured do not have an allowance for
loan losses. The average recorded investment in impaired loans during the years
ended December 31, 1998, 1997 and 1996, was approximately $4,600, $8,500 and
$9,000. For the years ended December 31, 1998, 1997 and 1996, One Valley
recognized interest income on those impaired loans of $340, $560 and $880. The
amount of interest income recognized in 1998, 1997 and 1996 included less than
$100 of interest income recognized using the cash basis method of income
recognition.
- --------------------------------------------------------------------------------
NOTE I
- ------
Deposits
Included in interest-bearing deposits are various time deposit products.
Time deposits outstanding at December 31, 1998, have scheduled maturities of
$1,533,000 in 1999, $470,000 in 2000, $86,000 in 2001, $37,000 in 2002, $34,000
in 2003 and $2,000 thereafter. The aggregate amount of time deposits exceeding
$100 at December 31, 1998 approximated $363,000.
As of December 31, 1998 and 1997, One Valley had deposits from related
parties of approximately $77,200 and $76,000. Interest paid on deposits,
short-term borrowings, and long-term borrowings approximated $200,012 in 1998,
$172,511 in 1997, and $160,056 in 1996.
67
<PAGE>
- --------------------------------------------------------------------------------
NOTE J
- ------
Premises and Equipment
The major categories of premises and equipment and accumulated
depreciation are summarized as follows:
<TABLE>
<CAPTION>
December 31
1998 1997
--------- ---------
<S> <C> <C>
Land ................................... $ 22,559 $ 19,567
Buildings and improvements ............. 101,022 89,376
Equipment .............................. 64,939 56,300
--------- ---------
Total ............................... 188,520 165,243
Less accumulated depreciation .......... (85,657) (74,846)
--------- ---------
Premises and equipment-net .......... $ 102,863 $ 90,397
========= =========
</TABLE>
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: 1999-$5,000;
2000-$4,500; 2001-$4,300; 2002-$2,700; and 2003-$600 with $3,200 of commitments
extending beyond 2003.
Total expense under these lease agreements, including cancelable and
noncancelable leases, was $10,588 in 1998, $8,300 in 1997, and $7,100 in 1996.
- --------------------------------------------------------------------------------
NOTE K
- ------
Short-term and Long-term Borrowings
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:
<TABLE>
<CAPTION>
Federal Repurchase
Funds Agreements
Purchased and Other
--------- ----------
<S> <C> <C>
1998
Average amount outstanding
during year....................... $47,912 $666,894
Maximum amount outstanding
at any month-end.................. 91,781 875,880
Weighted average interest rate:
During year....................... 5.47% 4.99%
End of year....................... 4.94% 4.45%
1997
Average amount outstanding
during year....................... $33,806 $497,631
Maximum amount outstanding
at any month-end................. 69,801 609,426
Weighted average interest rate:
During year....................... 5.46% 4.97%
End of year....................... 5.72% 5.06%
1996
Average amount outstanding
during year....................... $26,612 $409,903
Maximum amount outstanding
at any month-end.................. 71,563 528,966
Weighted average interest rate:
During year....................... 5.38% 4.88%
End of year....................... 5.40% 4.80%
</TABLE>
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 $257,025 at December 31, 1998. The available lines of
credit for short-term and long-term borrowings, at prevailing market interest
rates, as of December 31, 1998, approximated $1.2 billion.
Long-term borrowings of $35,480 and $48,875 at December 31, 1998 and 1997,
primarily consist of FHLB advances. The advances mature as follows: 1999-$2,000;
2001-$5,000; 2002-$25,000; 2003-$2,600 and $880 thereafter. The weighted average
interest rate of these advances at December 31, 1998, was 5.8%.
68
<PAGE>
- --------------------------------------------------------------------------------
NOTE L
- ------
Income Taxes
The income tax provisions (benefits) included in the consolidated
statements of income are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal ....................... $ 34,568 $ 28,282 $ 25,660
State ......................... 3,709 3,930 4,101
Deferred Federal and State ....... (2,372) 842 165
-------- -------- --------
Total ......................... $ 35,905 $ 33,054 $ 29,926
======== ======== ========
</TABLE>
Income taxes (benefit) related to securities gains (losses) approximated
$450, $407, and $(65) in 1998, 1997, and 1996.
One Valley made tax payments of approximately $32,874 in 1998, $34,193 in
1997, and $27,942 in 1996.
Significant components of One Valley's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses ................. $20,078 $16,813
Accrued employee benefits ................. 2,224 1,480
Other ..................................... 4,472 4,697
------- -------
Total deferred tax assets .............. 26,774 22,990
Deferred tax liabilities:
Loans ..................................... 6,685 6,808
Available-for-sale securities ............. 3,988 3,763
Premises and equipment .................... 3,059 3,140
Other ..................................... 1,936 320
------- -------
Total deferred tax liabilities .......... 15,668 14,031
------- -------
Net deferred tax assets ................. $11,106 $ 8,959
======= =======
</TABLE>
- --------------------------------------------------------------------------------
A reconciliation between the amount of reported income tax expense and the
amount computed by applying the statutory federal income tax rate to income
before income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory federal rate...................... $38,133 35.0% $33,796 35.0% $30,905 35.0%
Plus: State income taxes, net of federal tax benefits....... 2,306 2.1 2,666 2.7 2,693 3.0
------- ---- ------- ---- ------- ----
40,439 37.1 36,462 37.7 33,598 38.0
Increase (decrease) in taxes resulting from:
Tax-exempt interest...................................... (4,554) (4.2) (4,535) (4.7) (4,861) (5.5)
Other--net................................................ 20 0.1 1,127 1.1 1,189 1.3
------- ---- ------- ---- ------- ----
Actual tax expense.................................... $35,905 33.0% $33,054 34.1% $29,926 33.8%
======= ==== ======= ==== ======= ====
</TABLE>
69
<PAGE>
- --------------------------------------------------------------------------------
NOTE M
- ------
Employee Benefit Plans
One Valley and FFVA have defined benefit pension plans covering
substantially all of its employees. During 1998, the FFVA defined benefit
pension plan was merged into One Valley's plan. One Valley also 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. This plan provides medical and dental benefits.
The following table summarizes the benefit obligation and plan asset
activity for each of the plans.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in fair value of plan assets:
Balance at beginning of measurement period ................... $ 54,090 $ 38,158 $ 0 $ 0
Actual return on plan assets ................................. 7,891 5,137 0 0
Employer contribution ........................................ 1,702 12,163 0 0
Benefits paid ................................................ (1,478) (1,368) 0 0
Settlement ................................................... (1,125) 0 0
-------- -------- -------- --------
Balance at end of measurement period ............................ 61,080 54,090 0 0
Change in benefit obligation:
Balance at beginning of measurement period ................... 55,161 42,220 6,322 5,743
Service cost ................................................. 2,632 2,358 252 260
Interest cost ................................................ 3,904 3,543 342 440
Actuarial loss (gain) ........................................ 2,356 8,408 (1,492) 158
Benefits paid ................................................ (1,478) (1,368) (248) (279)
Settlement ................................................... (1,115)
Acquisition .................................................. 22
-------- -------- -------- --------
Balance at end of measurement period ............................ 61,460 55,161 5,198 6,322
-------- -------- -------- --------
Funded status ................................................... (380) (1,071) (5,198) (6,322)
Unamortized prior service cost .................................. 2,320 2,636 185 197
Unrecognized net actuarial loss (gain) .......................... 6,184 7,576 (1,493) (84)
Unrecognized net obligation ..................................... (1,453) (1,705) 3,059 3,277
-------- -------- -------- --------
Prepaid (accrued) benefit cost .................................. $ 6,671 $ 7,436 $ (3,447) $ (2,932)
======== ======== ======== ========
Weighted-average assumptions as of December 31:
Discount rate ................................................ 6.75% 7.00%-7.25% 6.75% 7.00%
Expected return on plan assets ............................... 8.50% 7.50%-8.50%
Rate of compensation increase ................................ 4.75% 5.00%-6.00% 4.75% 5.00%
</TABLE>
Plan assets of the defined benefit pension plan consist primarily of cash,
listed stocks, and U.S. Government and agency obligations.
The following table presents the components of net defined benefit pension
and post-retirement benefit plans costs:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost ................................... $ 2,632 $ 2,358 $ 2,378 $ 252 $ 260 $ 230
Interest cost .................................. 3,904 3,543 2,836 342 440 421
Expected return on plan assets ................. (4,533) (3,275) (3,001)
Net amortization and deferral .................. 425 95 443 147 231 231
------- ------- ------- ------- ------- -------
Benefit cost ................................ $ 2,428 $ 2,721 $ 2,656 $ 741 $ 931 $ 882
======= ======= ======= ======= ======= =======
</TABLE>
For measurement purposes, a 6.75% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000. The rate was assumed
to decrease gradually to 4.75% for 2001 and remain at that level thereafter. The
health care trend rate assumption does not have a significant effect on the
medical plan, therefore, a one percentage point change in the trend rate is not
material in the determination of the accumulated postretirement benefit
obligation or the ongoing expense.
70
<PAGE>
- --------------------------------------------------------------------------------
NOTE M -
Concluded
- ---------
Employee Benefit Plans
FFVA had an ESOP covering all full-time employees, over the age of 21, with
at least one year of service. The ESOP borrowed funds from FFVA to purchase
330,681 shares of common stock, the loan being collateralized by the common
stock. Contributions by FFVA, along with dividends received on unallocated
shares were used to repay the loan with shares being released from FFVA's lien
proportional to the loan repayments. The plan was accounted for in accordance
with Statement of Position 93-6 and the shares pledged as collateral are
reported as a reduction of stockholder's equity in the consolidated statements
of financial condition. The total amount charged to expense for the years ended
December 31, 1997 and 1996, was $825 and $690, respectively. The ESOP was
terminated on March 30, 1998.
FFVA established a Management Stock Bonus Plan (MSBP) and Trust during 1995
to award directors, officers and employees in accordance with the provision of
the plan. All shares which had been previously awarded became fully vested on
December 16, 1997, the date of the signing of a definitive merger agreement with
One Valley. For the years ended December 1997 and 1996, the amounts included in
compensation expense were $2,077 and $628, respectively. The plan was terminated
thereafter.
- --------------------------------------------------------------------------------
NOTE N
- ------
Stock Option Plans
Pursuant to its nonqualified and incentive stock option plans, One Valley
has an aggregate maximum of 1,500,000 shares of common stock reserved for
issuance at December 31, 1998 and 1997, although no more than 150,000 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 FASB No. 123, and has been determined as if One Valley had accounted
for its employee stock options under the fair value method of that statement.
The fair value for the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate .............. 4.5% 5.7% 6.2%
Dividend yields ...................... 2.5% 3.4% 3.4%
Volatility factor .................... 0.193 0.187 0.186
Weighted-average life of options ..... 3 yrs 4 yrs 4 yrs
</TABLE>
Pro forma information has not been presented herein because the effect of
applying FASB No. 123's fair value method to One Valley's stock-based awards in
1998, 1997 and 1996 results in net income and net income per common 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:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year .................. 1,290,056 $16.12 1,495,055 $13.73 1,306,156 $13.51
Balance of acquired subsidiary .................... 257,500 10.38
Granted ........................................... 157,900 38.22 167,500 30.60 152,500 19.85
Exercised ......................................... (269,282) 13.17 (372,499) 13.03 (216,699) 12.80
Forfeited ......................................... (4,402) 11.91
---------- ---------- ----------
Outstanding at end of year ........................ 1,178,674 19.59 1,290,056 16.12 1,495,055 13.73
========== ========== ==========
Exercisable at end of year ........................ 1,178,674 19.59 1,290,056 16.12 980,533 14.49
Weighted-average fair value of options
granted during the year ........................ $5.83 $4.96 $3.36
</TABLE>
Exercise prices for options outstanding at December 31, 1998, ranged from
$6.58 to $38.22. The weighted-average remaining contractual life of those
options at December 31, 1998, was seven years.
71
<PAGE>
- --------------------------------------------------------------------------------
NOTE O
- ----------
Regulatory Matters
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,
1998.
As of December 31, 1998, 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, and 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.
The following table sets forth regulatory capital ratios for One Valley and
its significant banking subsidiaries, One Valley Bank, National Association and
One Valley Bank-Central Virginia, NA.
<TABLE>
<CAPTION>
Well
1998 1997 Capitalized Minimum
Amount Ratio Amount Ratio Ratio Ratio
------------------ ------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
One Valley......................................... $580,900 16% $498,800 16% >=10% 8%
One Valley Bank, National Association.............. 158,600 12 150,000 13 >=10 8
One Valley Bank-Central Virginia, NA............... 95,700 15 108,500 22 >=10 8
Tier I Capital (to Risk Weighted Assets)
One Valley......................................... $534,200 14% $460,700 13% >=6% 4%
One Valley Bank, National Association.............. 141,800 11 135,500 12 >=6 4
One Valley Bank-Central Virginia, NA............... 87,900 14 102,700 21 >=6 4
Tier I Capital (to Average Assets)
One Valley......................................... $534,200 9% $460,700 9% >=5% 4%
One Valley Bank, National Association.............. 141,800 7 135,500 7 >=5 4
One Valley Bank-Central Virginia, NA............... 87,900 7 102,700 11 >=5 4
</TABLE>
72
<PAGE>
- --------------------------------------------------------------------------------
NOTE P
- ----------
Parent Company Condensed Financial Information
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31
Assets: 1998 1997
-------- --------
<S> <C> <C>
Cash ......................................... $ 269 $ 964
Repurchase agreement with a
subsidiary bank ........................... 38,912 26,696
Securities:
Available-for-sale ........................ 83,990 15,329
Held-to-maturity .......................... 6,754
Premises and equipment ....................... 1,279 967
Investment in subsidiaries:
Commercial and federal
savings banks .......................... 479,768 452,297
Non-banks ................................. 7,243 6,925
Other assets ................................. 6,155 22,112
-------- --------
Total assets .............................. $624,370 $525,290
======== ========
Liabilities and
Shareholders' Equity:
Liabilities:
Short-term borrowings ........................ $ 10,968 $ 6,105
Other liabilities ............................ 17,869 15,535
-------- --------
Total liabilities ......................... 28,837 21,640
Shareholders' equity ......................... 595,533 503,650
-------- --------
Total liabilities and
shareholders' equity ................... $624,370 $525,290
======== ========
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income:
Dividends from
subsidiaries ................... $ 86,750 $ 58,130 $ 71,258
Other income ...................... 7,856 6,134 5,031
-------- -------- --------
Total income ................... 94,606 64,264 76,289
Expenses:
Salaries and
employee benefits .............. 9,387 7,727 8,108
Other expenses .................... 8,741 8,487 4,967
Interest expense .................. 501 479 280
-------- -------- --------
Total expenses ................. 18,629 16,693 13,355
-------- -------- --------
Income before income
taxes and equity in
undistributed earnings
of subsidiaries ................ 75,977 47,571 62,934
Applicable income
tax (benefit) .................. (5,016) (3,716) (3,157)
-------- -------- --------
Income before equity in
undistributed earnings
of subsidiaries ................ 80,993 51,287 66,091
(Excess dividends) equity
in undistributed
earnings of subsidiaries ....... (7,948) 12,513 12,527
Distribution of subsidiary
retained earnings .............. (20,000)
-------- -------- --------
Net income .................. $ 73,045 $ 63,800 $ 58,618
======== ======== ========
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income ........................ $ 73,045 $ 63,800 $ 58,618
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization ................ 458 324 245
Dividend from
subsidiary .................. 20,000
Excess dividends (equity
in undistributed
earnings) of
subsidiaries ................ 7,948 (12,513) (12,527)
Net change in other
assets and other
liabilities ................. 1,424 1,471 1,344
-------- -------- --------
Net cash provided by
operating activities ........ 82,875 53,082 67,680
Investing Activities:
Net decrease (increase)
in loans receivable ............ 14,750 6,250 (661)
Purchase of securities:
Available-for-sale ............. (75,759) (8,715) (8,453)
Held-to-maturity ............... (6,756)
Proceeds from maturities
and sales of securities:
Available-for-sale ............. 3,370 4,083 10,982
Held-to-maturity ............... 3,779 860
Investment in subsidiaries ........ (12,668)
Purchase of equipment ............. (722) (387) (427)
-------- -------- --------
Net cash (used in)
provided by
investing activities ........ (74,006) 1,231 2,301
Financing Activities:
Net change in short-term
borrowings ..................... 4,863 312 5,793
Proceeds from issuance of
common stock ................... 29,895 4,840 2,875
Purchase of treasury stock ........ (1,505) (27,717) (44,034)
Issuances of MSBP shares .......... 2,002
FFVA repurchase of
treasury stock ................. (3,988) (17,986)
Cash dividends paid ............... (30,601) (24,014) (21,931)
-------- -------- --------
Net cash provided by
(used in) financing
activities .................. 2,652 (48,565) (75,283)
-------- -------- --------
Increase (decrease)
in cash ........................ 11,521 5,748 (5,302)
Cash and cash equivalents
at beginning of year ........... 27,660 21,912 27,214
-------- -------- --------
Cash and cash equivalents
at end of year ................. $ 39,181 $ 27,660 $ 21,912
======== ======== ========
</TABLE>
73
<PAGE>
- --------------------------------------------------------------------------------
NOTE Q
- ----------
Fair Value of Financial Instruments
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 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, 1998 and 1997.
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.
Off-Balance Sheet
Derivative Financial Instruments
The fair values for the derivative financial instruments were computed
using discounted cash flows at current interest rates.
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, 1998 and 1997, approximate their carrying value.
- --------------------------------------------------------------------------------
The fair values of One Valley's financial instruments are summarized below:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents ..................... $ 208,376 $ 208,376 $ 149,484 $ 149,484
Securities .................................... 1,586,092 1,595,266 1,569,021 1,576,118
Loans ......................................... 3,938,849 3,969,731 3,257,488 3,271,796
Accrued interest receivable ................... 40,916 40,916 38,764 38,764
Deposits ...................................... 4,552,888 4,563,730 3,934,174 3,940,099
Short-term borrowings ......................... 729,759 730,041 623,480 625,858
Long-term borrowings .......................... 35,480 35,806 48,875 47,011
Accrued interest payable ...................... 18,561 18,561 19,277 19,277
Off-balance sheet derivatives ................. 178 (1,333)
</TABLE>
74
<PAGE>
- --------------------------------------------------------------------------------
NOTE R
- ---------
Commitments and Contingent Liabilities
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 $22,850 as of December 31, 1998. 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, 1998, the Bank had commitments outstanding to extend
credit at prevailing market rates approximating $675,150. 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, 1998, there was approximately $18,249 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.
- --------------------------------------------------------------------------------
NOTE S
- ----------
Quarterly Financial Data (Unaudited)
Quarterly financial data for 1998 and 1997 is summarized below:
<TABLE>
<CAPTION>
1998 1997
Three Months Ended Three Months Ended
March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income ........................... $100,086 $104,290 $108,237 $107,406 $ 91,611 $ 93,381 $ 95,299 $ 96,469
Interest expense .......................... 48,113 49,372 51,669 50,141 42,177 43,399 45,349 45,985
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income .................... 51,973 54,918 56,568 57,265 49,434 49,982 49,950 50,484
Provision for loan losses ................. 2,594 2,294 2,593 2,582 1,458 1,834 1,999 2,240
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses .............. 49,379 52,624 53,975 54,683 47,976 48,148 47,951 48,244
Other income, excluding
securities gains ....................... 13,807 14,417 15,061 15,823 11,318 11,685 12,581 12,252
Securities transactions ................... 537 186 266 136 (45) 192 230 641
Other expenses ............................ 38,267 40,161 40,908 42,608 34,389 34,673 35,314 39,943
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes ................ 25,456 27,066 28,394 28,034 24,860 25,352 25,448 21,194
Applicable income taxes ................... 8,945 9,047 9,409 8,504 8,495 8,672 8,709 7,178
-------- -------- -------- -------- -------- -------- -------- --------
Net income ............................. $ 16,511 $ 18,019 $ 18,985 $ 19,530 $ 16,365 $ 16,680 $ 16,739 $ 14,016
======== ======== ======== ======== ======== ======== ======== ========
Average shares outstanding:
Basic .................................. 31,836 32,754 34,058 34,736 32,202 31,921 31,799 31,762
Diluted ................................ 32,553 33,434 34,635 35,252 32,895 32,609 32,504 32,738
Per Share Data:
Net income:
Basic ............................... $ .52 $ .55 $ .56 $ .56 $ .51 $ .52 $ .53 $ .44
Diluted ............................. .51 .54 .55 .55 .50 .51 .51 .43
Dividends .............................. .21 .21 .24 .24 .19 .19 .21 .21
High ................................... 38.81 40.13 36.31 34.00 32.20 33.60 37.00 40.94
Low .................................... 33.75 33.25 29.50 28.75 28.60 28.60 32.50 36.31
</TABLE>
75
<PAGE>
- -----------
REPORT OF
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, 1998 and 1997,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
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 did not audit the consolidated financial statements of FFVA
Financial Corporation and subsidiary (FFVA) which statements reflect total
assets of $579 million as of December 31, 1997 and total interest income of $44
million and $41 million for the years ended December 31, 1997 and 1996. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to data included for FFVA, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Charleston, West Virginia
January 19, 1999
76
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Six-Year Average Balance Sheet Summary
====================================================================================================================================
One Valley Bancorp, Inc. and Subsidiaries
(Dollars in thousands)
1998 1997 1996 1995 1994
% of % of % of % of % of
$ Total $ Total $ Total $ Total $ Total
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans:
Taxable .................... 3,648,141 65 3,134,255 63 2,959,033 64 2,682,862 64 2,468,354 63
Tax-exempt ................. 42,563 1 46,208 1 43,740 1 33,977 1 34,430 1
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total loans ............. 3,690,704 66 3,180,463 64 3,002,773 65 2,716,839 65 2,502,784 64
Less: Allowance for losses . 49,635 1 45,311 1 44,612 1 41,946 1 40,275 1
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total loans-net ......... 3,641,069 65 3,135,152 63 2,958,161 64 2,674,893 64 2,462,509 63
Investment Securities:
Taxable .................... 1,374,913 24 1,241,684 25 1,140,759 25 986,821 24 988,366 25
Tax-exempt ................. 238,694 4 226,223 5 204,742 4 187,180 4 176,079 4
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total securities ........ 1,613,607 28 1,467,907 30 1,345,501 29 1,174,001 28 1,164,445 29
Federal funds sold & other .... 29,889 1 36,401 1 21,176 0 38,540 1 39,833 1
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total earning assets .... 5,284,565 94 4,639,460 94 4,324,838 93 3,887,434 93 3,666,787 93
Other assets .................. 363,601 6 306,045 6 301,069 7 281,439 7 276,161 7
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total assets ........ 5,648,166 100 4,945,505 100 4,625,907 100 4,168,873 100 3,942,948 100
========= ===== ========= ===== ========= ===== ========= ===== ========= =====
Liabilities &
Shareholders' Equity
Interest Bearing Liabilities:
Time & savings deposits .... 3,772,657 67 3,436,380 70 3,271,770 71 2,980,725 71 2,860,705 73
Short-term borrowings ...... 714,088 12 506,046 10 429,708 9 312,195 8 255,503 6
Long-term borrowings ....... 42,814 1 56,283 1 21,951 0 19,026 0 22,931 1
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total interest bearing
liabilities ......... 4,529,559 80 3,998,709 81 3,723,429 80 3,311,946 79 3,139,139 80
Demand deposits ............... 510,910 9 410,203 8 384,817 8 380,996 9 412,016 10
Other liabilities ............. 49,408 1 48,995 1 46,218 1 37,117 1 31,827 1
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total Liabilities ....... 5,089,877 90 4,457,907 90 4,154,464 89 3,730,059 89 3,582,982 91
Shareholders' equity .......... 558,289 10 487,598 10 471,443 11 438,814 11 359,966 9
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total liabilities &
shareholders' equity 5,648,166 100 4,945,505 100 4,625,907 100 4,168,873 100 3,942,948 100
========= ===== ========= ===== ========= ===== ========= ===== ========= =====
<CAPTION>
1993
% of
$ Total
-----------------
<S> <C> <C>
Assets
Loans:
Taxable .................... 2,301,683 59
Tax-exempt ................. 31,153 1
--------- -----
Total loans ............. 2,332,836 60
Less: Allowance for losses . 39,400 1
--------- -----
Total loans-net ......... 2,293,436 59
Investment Securities:
Taxable .................... 1,061,922 28
Tax-exempt ................. 100,577 3
--------- -----
Total securities ........ 1,162,499 31
Federal funds sold & other .... 105,049 3
--------- -----
Total earning assets .... 3,560,984 93
Other assets .................. 279,357 7
--------- -----
Total assets ........ 3,840,341 100
========= =====
Liabilities &
Shareholders' Equity
Interest Bearing Liabilities:
Time & savings deposits .... 2,831,817 74
Short-term borrowings ...... 224,369 6
Long-term borrowings ....... 36,088 1
--------- -----
Total interest bearing
liabilities ......... 3,092,274 81
Demand deposits ............... 396,711 10
Other liabilities ............. 29,953 1
--------- -----
Total Liabilities ....... 3,518,938 92
Shareholders' equity .......... 321,403 8
--------- -----
Total liabilities &
shareholders' equity 3,840,341 100
========= =====
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Six-Year Net Interest Income Summary
====================================================================================================================================
One Valley Bancorp, Inc. and Subsidiaries
(Dollars in thousands)
1998 1997 1996 1995 1994 1993
% of % of % of % of % of % of
Total Total Total Total Total Total
Interest Interest Interest Interest Interest Interest
$ Income $ Income $ Income $ Income $ Income $ Income
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income*:
Loans:
Taxable ...................... 315,172 73.6 276,520 71.8 262,354 72.7 242,174 74.1 210,775 73.3 202,478 72.1
Tax-exempt ................... 4,162 1.0 4,600 1.2 4,328 1.2 3,774 1.1 3,618 1.3 3,255 1.2
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans ............... 319,334 74.6 281,120 73.0 266,682 73.9 245,948 75.2 214,393 74.6 205,733 73.3
Securities
Taxable ...................... 88,136 20.6 83,458 21.7 75,956 21.1 62,813 19.2 56,526 19.6 61,791 22.0
Tax-exempt ................... 19,071 4.4 18,466 4.8 17,040 4.7 15,941 4.9 15,497 5.4 10,146 3.6
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total securities .......... 107,207 25.0 101,924 26.5 92,996 25.8 78,754 24.1 72,023 25.0 71,937 25.6
Funds sold & other .............. 1,610 0.4 1,789 0.5 947 0.3 2,253 0.7 1,037 0.4 3,104 1.1
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total interest income ..... 428,151 100.0 384,833 100.0 360,625 100.0 326,955 100.0 287,453 100.0 280,774 100.0
Interest Expense:
Deposits ........................ 160,877 37.5 148,026 38.5 138,247 38.3 123,753 37.9 99,115 34.5 104,785 37.3
Short-term borrowings ........... 35,841 8.4 25,466 6.6 21,076 5.9 15,851 4.8 9,380 3.3 7,018 2.5
Long-term borrowings ............... 2,577 0.6 3,418 0.9 1,144 0.3 688 0.2 1,185 0.4 2,709 1.0
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total interest expense ............. 199,295 46.5 176,910 46.0 160,467 44.5 140,292 42.9 109,680 38.2 114,512 40.8
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Tax equivalent
net interest income ............. 228,856 53.5 207,923 54.0 200,158 55.5 186,663 57.1 177,773 61.8 166,262 59.2
Tax equivalent adjustment .......... 8,132 1.9 8,073 2.1 7,479 2.1 6,900 2.1 6,690 2.3 4,645 1.6
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net interest income ................ 220,724 51.6 199,850 51.9 192,679 53.4 179,763 55.0 171,083 59.5 161,617 57.6
======= ===== ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Summary of Average Rates
Earned & Paid*
Taxable loans ...................... 8.64% 8.82% 8.87% 9.03% 8.54% 8.80%
Tax-exempt loans ................... 9.78 9.95 9.89 11.11 10.51 10.45
Net loans ....................... 8.77 8.97 9.02 9.19 8.71 8.97
Taxable securities ................. 6.41 6.72 6.66 6.37 5.72 5.82
Tax-exempt securities .............. 7.99 8.16 8.32 8.52 8.80 10.09
Total securities ................ 6.64 6.94 6.91 6.71 6.19 6.19
Funds sold & deposits .............. 5.39 4.91 4.47 5.85 2.60 2.95
Total earning assets ............ 8.10% 8.29% 8.34% 8.41% 7.84% 7.88%
Time & savings deposits ............ 4.26 4.31 4.23 4.15 3.46 3.70
Short-term borrowings .............. 5.02 5.03 4.90 5.08 3.67 3.13
Long-term borrowings ............... 6.02 6.07 5.21 3.62 5.17 7.51
Total interest cost ............. 4.40 4.42 4.31 4.24 3.49 3.70
Total cost of all funds ......... 3.77 3.81 3.71 3.61 2.99 3.21
Net interest margin .......... 4.33% 4.48% 4.63% 4.80% 4.85% 4.67%
</TABLE>
* Interest income and yields are computed on a fully taxable equivalent basis
using the rate of 35%.
78
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Six-Year Operating Income Summary
====================================================================================================================================
One Valley Bancorp, Inc. and Subsidiaries
(Dollars in thousands, except per share data)
1998 1997 1996 1995 1994 1993
% of % of % of % of % of % of
Adjusted Adjusted Adjusted Adjusted Adjusted Adjusted
Operating Operating Operating Operating Operating Operating
$ Income $ Income $ Income $ Income $ Income $ Income
-------------- -------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income ................ 420,019 87.5 376,760 88.5 353,146 89.3 320,055 89.2 280,763 88.2 276,129 87.1
Interest expense ............... 199,295 41.5 176,910 41.6 160,467 40.5 140,292 39.1 109,680 34.5 114,512 36.1
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Net interest income ............ 220,724 46.0 199,850 46.9 192,679 48.8 179,763 50.1 171,083 53.7 161,617 51.0
Provision for loan losses ...... 10,063 2.1 7,531 1.8 5,264 1.3 5,887 1.6 5,388 1.7 6,688 2.1
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Net interest income after
provision for loan losses ... 210,661 43.9 192,319 45.1 187,415 47.5 173,876 48.5 165,695 52.0 154,929 48.9
Other Income:
Trust Department income ..... 11,675 2.4 10,228 2.4 9,322 2.4 8,203 2.3 7,892 2.5 7,272 2.3
Service charges on
deposit accounts ......... 19,408 4.0 15,511 3.7 14,934 3.8 14,109 3.9 11,441 3.6 11,963 3.7
Other service
charges and fees ......... 22,742 4.8 17,138 4.0 14,275 3.6 12,346 3.5 13,671 4.3 16,079 5.1
Other operating income ...... 5,283 1.1 4,959 1.2 3,744 0.9 3,826 1.1 5,319 1.7 5,425 1.7
Securities transactions ..... 1,125 0.2 1,018 0.2 (162) (0.0) 144 0.0 (849) (0.3) 266 0.1
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total other income ....... 60,233 12.5 48,854 11.5 42,113 10.7 38,628 10.8 37,474 11.8 41,005 12.9
Operating Expenses:
Salaries & benefits ......... 80,180 16.7 74,234 17.4 70,408 17.8 67,022 18.7 67,079 21.0 65,225 20.6
Occupancy expense ........... 8,555 1.8 7,614 1.8 7,380 1.9 6,777 1.9 6,937 2.2 7,083 2.2
Equipment expense ........... 11,606 2.4 9,377 2.2 9,683 2.4 9,233 2.6 8,468 2.7 10,604 3.3
External computer costs ..... 10,012 2.1 9,115 2.1 6,632 1.7 6,073 1.6 5,981 1.9 5,721 1.8
Other expense ............... 51,591 10.7 43,979 10.3 46,881 11.9 39,570 11.0 39,187 12.4 43,651 13.7
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total operating expenses . 161,944 33.7 144,319 33.8 140,984 35.7 128,675 35.8 127,652 40.2 132,284 41.6
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Income before tax .............. 108,950 22.7 96,854 22.8 88,544 22.5 83,829 23.5 75,517 23.6 63,650 20.2
Applicable income taxes ........ 35,905 7.5 33,054 7.8 29,926 7.6 28,249 7.9 24,603 7.7 20,349 6.4
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Net income ..................... 73,045 15.2 63,800 15.0 58,618 14.9 55,580 15.6 50,914 15.9 43,301 13.8
======== ==== ======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
* Adjusted operating income equals interest income plus other income.
<TABLE>
<CAPTION>
Per Share Summary 1998 1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income:
Basic ......................... 2.19 2.00 1.80 1.69 1.54 1.61
Diluted ....................... 2.15 1.95 1.76 1.67 1.53 1.60
Cash dividends ................... 0.90 0.80 0.74 0.66 0.60 0.54
Stock dividends .................. 0 25% 25% 0 0 50%/20%
Basic average shares ............. 33,356,000 31,921,000 32,600,000 32,934,000 33,059,000 26,933,000
Diluted average shares ........... 33,940,000 32,686,000 33,221,000 33,203,000 33,219,000 27,106,000
</TABLE>
79
<PAGE>
- ---------
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.
Dennis M. Bone
President & Chief Executive Officer
Bell Atlantic - West Virginia, Inc.
James K. Brown
Attorney, Jackson & Kelly
James K. Candler
President, Candler Oil Company
Nelle Ratrie Chilton
Vice President and Director
Dickinson Fuel Company, Inc.
and Terra Co., Inc.
H. Rodgin Cohen
Attorney, Sullivan & Cromwell
James L. Davidson, Jr.
Chairman of the Board
One Valley Bank-Central Virginia, NA
Ray Marshall Evans, Jr.
President, Dickinson Company,
Chesapeake Mining Company and
Hubbard Properties, Inc.,
Vice President, Geary Securities
James Gabriel
President & Chief Executive Officer
Gabriel Brothers, Inc.
Thomas E. Goodwin
Retired Chairman of the Board
One Valley Bank of Ronceverte, N.A.
Bob M. Johnson
Vice Chairman of the Board
One Valley Bank-Central Virginia, NA
Robert E. Kamm, Jr.
Senior Vice President
One Valley Bancorp, Inc.
President & Chief Executive Officer
One Valley Bank-South, Inc.
John D. Lynch
Vice President
Davis Lynch Glass Co.
Edward H. Maier
President, General Corporation
J. Holmes Morrison
President & Chief Executive Officer
One Valley Bancorp, Inc.
Chairman of the Board
One Valley Bank, N.A.
Charles R. Neighborgall, III
President, The Neighborgall
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-East, N.A.
James W. Thompson
Chairman of the Board
One Valley Bank of Mercer County
W. Lowrie Tucker, III
President & Chief Executive Officer
One Valley Bank-Shenandoah
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 H. Wick, III
Vice President,
Dickinson Fuel Company, Inc.
Thomas D. Wilkerson
Senior Agent
Northwestern Mutual Life
Insurance Co.
Honorary Members
John T. Chambers
Cecil B. Highland, Jr.
Robert O. Orders, Sr.
- ----------
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
John F. Sapp
Senior Vice President
Kenneth R. Summers
Senior Vice President
80
<PAGE>
[PHOTO]
Directors of One Valley Bancorp - Standing Left to Right - John L. D. Payne,
Robert E. Kamm, Jr., Ray Marshall Evans, Jr., John L. Van Metre, Jr., John D.
Lynch, Edward H. Maier, James K. Brown, Richard B. Walker, Bob M. Johnson, Brent
D. Robinson, John H. Wick, III, W. Lowrie Tucker, III, James L. Davidson, Jr.,
James K. Candler, H. Bernard Wehrle, III, Dennis M. Bone, Charles R.
Neighborgall, III
Seated Left to Right - James Gabriel, James W. Thompson, Angus E. Peyton, Lacy I
Rice, Jr., J. Holmes Morrison, Robert F. Baronner, Phyllis H. Arnold, Thomas E.
Goodwin, Nelle Ratrie Chilton, Thomas D. Wilkerson, Charles M. Avampato
[PHOTO]
Left to Right - Robert F. Baronner, James Gabriel, Thomas E. Goodwin, Angus E.
Peyton, James F. Thompson
- -----------
ONE VALLEY
BANCORP
RETIRING
DIRECTORS
- -----------
81
<PAGE>
- ----------------
SHAREHOLDER
INFORMATION
- ----------------
Market Registration
One Valley is registered on the New York Stock Exchange under the symbol
"OV".
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
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 Linda S. Dugan,
Shareholder Relations Representative, at (304) 348-7023.
Contacts
Analysts, portfolio managers, and others seeking financial information
about One Valley Bancorp should contact Laurance G. Jones, Executive Vice
President and Chief Financial Officer, at (304) 348-7062.
News media representatives and others seeking general information should
contact Terry T. Puster, Senior Vice President, at (304) 348-1442.
Shareholders seeking assistance should contact Linda S. Dugan, Shareholder
Relations Representative, at (304) 348-7023.
Independent Auditors
Ernst & Young LLP
900 United Center
Charleston, West Virginia 25301
Stock Transfer Agent
Harris Trust & Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Number of Shareholders
There were approximately 8,300 shareholders of record of One Valley Common
Stock at December 31, 1998.
- --------------
AFFILIATE
MARKETS
- --------------
[GRAPHIC]
82
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, Inc., a West Virginia banking corporation.
6) One Valley Bank-South, Inc., a West Virginia banking corporation.
7) One Valley Bank-North, Inc., a West Virginia banking corporation.
8) One Valley Bank-Central Virginia, National Association, a national
banking association organized under the laws of the United States of
America.
9) One Valley Bank-Shenandoah, a Virginia banking corporation.
10) One Valley Square, Inc., a Texas corporation.
83
EXHIBIT 23A
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 19, 1999,
included in the 1998 Annual Report to Shareholders of One Valley Bancorp, Inc.
We also consent to the incorporation by reference in the Registration
Statement, 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 19, 1999,
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, 1998.
/s/ Ernst & Young LLP
Charleston, West Virginia
March 25, 1999
84
EXHIBIT 23B
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, Nos. 2-90738 and 33-66700) of One Valley Bancorp, Inc. of our report
dated January 30, 1998, relating to the consolidated statement of financial
condition of FFVA Financial Corporation and subsidiary as of December 31, 1997,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the two years in the period ended December 31,
1997, which report appears in this December 31, 1998 annual report on Form 10-K
of One Valley Bancorp, Inc.
/s/ Cherry, Bekaert & Holland, L.L.P.
Lynchburg, Virginia
March 24, 1999
85
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
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 of such financial statements and supplemental schedules.
</LEGEND>
<RESTATED>
<CIK> 0000351616
<NAME> ONE VALLEY BANCORP, INC
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 155226 127012 151516
<INT-BEARING-DEPOSITS> 3150 2162 9897
<FED-FUNDS-SOLD> 50000 20310 6095
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 1307825 1216749 1059459
<INVESTMENTS-CARRYING> 278267 352272 303450
<INVESTMENTS-MARKET> 287441 359369 306345
<LOANS> 3991121 3302536 3135497
<ALLOWANCE> 52272 45048 45055
<TOTAL-ASSETS> 5963580 5161486 4801113
<DEPOSITS> 4552888 3934174 3804369
<SHORT-TERM> 729759 623480 434074
<LIABILITIES-OTHER> 49920 51307 46720
<LONG-TERM> 35480 48875 32892
0 0 0
0 0 0
<COMMON> 391352 363306 298493
<OTHER-SE> 204181 140344 184565
<TOTAL-LIABILITIES-AND-EQUITY> 5963580 5161486 4801113
<INTEREST-LOAN> 317877 279510 265167
<INTEREST-INVEST> 100532 95461 87032
<INTEREST-OTHER> 1610 1789 947
<INTEREST-TOTAL> 420019 376760 353146
<INTEREST-DEPOSIT> 160877 148026 138247
<INTEREST-EXPENSE> 199295 176910 160467
<INTEREST-INCOME-NET> 220724 199850 192679
<LOAN-LOSSES> 10063 7531 5264
<SECURITIES-GAINS> 1125 1018 (162)
<EXPENSE-OTHER> 161944 144319 140984
<INCOME-PRETAX> 108950 96854 88544
<INCOME-PRE-EXTRAORDINARY> 108950 96854 88544
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 73045 63800 58618
<EPS-PRIMARY> 2.19 2.00 1.80
<EPS-DILUTED> 2.15 1.95 1.76
<YIELD-ACTUAL> 4.33 4.48 4.63
<LOANS-NON> 9566 9860 12233
<LOANS-PAST> 7467 6275 4959
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 45048 45055 42751
<CHARGE-OFFS> 8695 9837 7065
<RECOVERIES> 2027 2299 1879
<ALLOWANCE-CLOSE> 52272 45048 45055
<ALLOWANCE-DOMESTIC> 52272 45048 45055
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
EXHIBIT 99a
ONE VALLEY BANCORP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DATE: April 27, 1999
TIME: 10:00 A.M., local time
PLACE: Charleston Town Center Marriott
200 Lee Street East
Charleston, West Virginia
MATTERS TO BE VOTED UPON:
1. Election of 12 directors - nine directors to serve three-year terms and
three directors to serve two-year terms;
2. Ratification of the Board of Directors' selection of Ernst & Young LLP
as One Valley's independent auditors for 1999; and
3. Any other matters that properly come before the meeting.
Shareholders who are holders of record on March 9, 1999, may vote at the
meeting.
By Order of the Board of Directors
J. Holmes Morrison
President
Charleston, West Virginia
March 26, 1999
Please sign and return the enclosed proxy card as soon as possible, even if you
plan to attend the meeting. You may revoke your proxy before it is voted at the
meeting.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
_________________________________________________________________ PAGE NO.
<S> <C>
VOTING PROCEDURES AND REVOKING YOUR PROXY............................... 1
VOTING FOR DIRECTORS................................................. 2
VOTING FOR RATIFICATION OF AUDITORS.................................. 2
REVOKING YOUR PROXY.................................................. 2
* ELECTION OF DIRECTORS (ITEM 1 ON PROXY CARD)............................. 3
MANAGEMENT NOMINEES TO ONE VALLEY'S BOARD............................ 3
OTHER NOMINEES....................................................... 7
BOARD INFORMATION.................................................... 7
Number of Meetings............................................ 7
Board Committees.............................................. 7
Board Compensation............................................ 8
Section 16(a) Beneficial Ownership Reporting Compliance....... 8
Certain Transactions with Directors and Officers and Their
Associates ................................................... 8
Compensation Committee Interlocks and Insider Participation... 9
Board Compensation Committee Report on Executive Compensation. 9
Performance Graph............................................. 12
Five-Year Cumulative Total Return Comparison.................. 12
EXECUTIVE COMPENSATION AND OTHER INFORMATION......................... 13
Summary of Compensation....................................... 13
Summary of Stock Options...................................... 14
Summary of Option Exercises................................... 15
Retirement Benefits........................................... 15
Change in Control Arrangements................................ 17
ONE VALLEY SHARE OWNERSHIP......................................... 18
Directors, Executive Officers and Nominees....................... 18
Certain Beneficial Owners -
One Valley Common Stock Ownership................................ 21
* RATIFICATION OF AUDITORS (ITEM 2 ON PROXY CARD)..................... ...... 22
FORM 10-K ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION................................................... 23
OTHER INFORMATION..................................................... 23
SHAREHOLDER PROPOSALS FOR 1999........................................ 23
</TABLE>
* Matters to be voted upon.
<PAGE>
ONE VALLEY BANCORP, INC.
ONE VALLEY SQUARE
SUMMERS AND LEE STREETS
P. O. BOX 1793
CHARLESTON, WEST VIRGINIA 25326
PROXY STATEMENT
One Valley's Board of Directors is soliciting proxies to vote One Valley
shares at the 1999 Annual Meeting of Shareholders. Shareholders will meet at
10:00 a.m. on Tuesday, April 27, 1999, for the purposes stated in the
accompanying Notice of Annual Meeting. On or about March 26, 1999, One Valley
began mailing this proxy statement to shareholders of record as of March 9,
1999. Shareholders as of March 9, 1999, may vote at the meeting.
Please read this proxy statement carefully. You will find more
information about One Valley in our enclosed 1998 Annual Report to Shareholders
and in the public documents we file with the Securities and Exchange Commission.
One Valley will pay for the Board of Directors' solicitation of proxies,
and employees of One Valley and its subsidiaries may follow up on this written
solicitation by telephone or other methods of communication.
As of March 5, 1999, One Valley had 70,000,000 authorized shares of
common stock with 34,401,692 shares issued and outstanding.
VOTING PROCEDURES AND REVOKING YOUR PROXY
If you complete, sign and return the enclosed proxy card, the persons
named in the proxy card will vote your shares as you direct. If you sign and
return the proxy card without indicating how you want to vote, the proxies will
vote your shares "FOR" the election of the 12 nominees as directors and "FOR"
the ratification of the selection of Ernst & Young LLP as independent auditors.
A quorum for the meeting is present if at least a majority of the outstanding
shares is present in person or by proxy. Those who fail to return a proxy or
attend the meeting will not count towards determining a quorum.
1
<PAGE>
VOTING FOR DIRECTORS
Directors are elected by a plurality of the shares voted. This means
that the 12 nominees receiving the most votes will be elected. You may vote each
share you own for each nominee. Alternatively, you may choose to vote
cumulatively, a process explained below. Cumulative voting is applicable only to
the election of directors.
To vote cumulatively, you multiply the number of shares you own times
the number of nominees, resulting in a cumulative total. You may vote your
cumulative total for one nominee or divide it among nominees in any proportion
you choose. The following is an example of how cumulative voting works. If you
own five shares and there are 12 nominees for director, you have a cumulative
total of 60 votes. You may choose to vote all 60 votes for one nominee and not
vote for the other nominees. Or, you may allocate 30 votes for one nominee, 30
votes for another nominee and not vote for the others. Or, you may choose any
other allocation of your cumulative total over all or part of the 12 nominees.
If you vote your shares cumulatively by proxy, you must indicate how you wish to
divide your cumulative total. Otherwise, the proxies will vote the cumulative
total evenly or in a manner to elect as many of One Valley's nominees as
possible.
VOTING FOR RATIFICATION OF AUDITORS
A favorable vote by a majority of shareholders of One Valley common
stock represented at the Annual Meeting is required to ratify the selection of
Ernst & Young LLP as independent auditors for 1999.
REVOKING YOUR PROXY
You may revoke your proxy before it is voted at the Annual Meeting by:
o notifying One Valley in person;
o giving written notice to One Valley;
o submitting to One Valley a subsequently dated proxy; or
o attending the meeting and withdrawing the proxy before it is voted.
2
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
One Valley's Bylaws provide that the Board of Directors can set the number
of directors but also provide that the Board of Directors must have no less than
six nor more that 33 directors. The Board of Directors has set the number of
directors to serve in 1999 at 26, which means that 12 directors will be elected
at the 1999 annual meeting.
One Valley's Articles of Incorporation divide the Board of Directors into
three classes, each of which serves for three years. The classes are to be
approximately equal. Because of this arrangement, One Valley has nominated nine
nominees for three-year terms and three nominees for two-year terms. Following
the election, the three classes would be; nine directors in the class of 2000,
eight directors in the class of 2001 and nine directors in the class of 2002.
MANAGEMENT NOMINEES TO ONE VALLEY'S BOARD
[PHOTO HERE] PHYLLIS H. ARNOLD
Director since 1993
Term expires 2002
Age 50
President and Chief Executive
Officer - One Valley Bank, National
Association, Charleston, WV
[PHOTO HERE] CHARLES M. AVAMPATO
Director since 1984
Term expires 2002
Age 60
President-Clay Foundation, Inc.,
Charleston, WV (Charitable Foundation)
[PHOTO HERE] JAMES K. CANDLER
Director since 1998
Term expires 2002
Age 63
President-Candler Oil Company,
Inc., Lynchburg, VA
[PHOTO HERE] JAMES L. DAVIDSON, JR.
Director since 1998
Term expires 2002
Age 65
Chairman of the Board - One Valley
Bank-Central, VA. Lynchburg, VA
[PHOTO HERE] JOHN D. LYNCH
Director since 1986
Term expires 2002
Age 58
Vice President-Davis Lynch Glass
Company. Star City, WV
[PHOTO HERE] JOHN MORK
Nominee
Term expires 2001
Age 51
President and Chief Executive Officer
and Director - Energy Corporation
of America. Denver, CO
3
<PAGE>
[PHOTO HERE] CHARLES R. NEIGHBORGALL, III
Director since 1987
Term expires 2002
Age 57
President - The Neighborgall
Construction Company, Huntington,
WV
[PHOTO HERE] WILLIAM A. RICE, JR.
Nominee
Term expires 2001
Age 52
1999 to present - President -
AIRGAS, INC. (ARG, NYSE)
(distributor of welding equipment and
gases) Radnor, PA; 1995 to 1998 -
Group President Airgas Direct
Industrial, Charleston, WV; 1993 to
1995 - Vice President Purchasing.
[PHOTO HERE] W. LOWRIE TUCKER, III
Director since 1998
Term expires 2002
Age 46
President - One Valley Bank -
Shenandoah, Raphine, VA
[PHOTO HERE] J. LEE VAN METRE, JR.
Director since 1986
Term expires 2002
Age 61
Attorney - Steptoe & Johnson;
Secretary of the Board - One Valley
Bank - East, National Association,
Martinsburg, WV
[PHOTO HERE] EDWIN H. WELCH
Nominee
Term expires 2001
Age 54
1989 to present - President -
University of Charleston,
Charleston, WV
[PHOTO HERE] JOHN H. WICK, III
Director since 1993
Term expires 2002
Age 53
1992 to present - Vice President -
Dickinson Fuel Co., Inc., Charleston
WV(1)
4
<PAGE>
DIRECTORS CONTINUING TO SERVE UNEXPIRED TERMS
[PHOTO HERE] DENNIS M. BONE
Director since 1997
Term expires 2000
Age 47
1995 to present - President and Chief
Executive Officer - Bell Atlantic -
West Virginia, Inc.; formerly
Vice President External Affairs -
Bell Atlantic - New Jersey, Inc.,
Charleston, WV
[PHOTO HERE] JAMES K. BROWN
Director since 1981
Term expires 2001
Age 69
Attorney - Jackson & Kelly PLLC
Charleston, WV
[PHOTO HERE] NELLE RATRIE CHILTON
Director since 1989
Term expires 2001
Age 59
Director and Vice President -
Dickinson Fuel Co., Inc.,
Charleston, WV; TerraCo., Inc.,
Charleston, WV; TerraCare,
Inc., TerraSalis, Inc., TerraSod,
Inc., Malden. WV (Landscaping) (1)
[PHOTO HERE] H. RODGIN COHEN
Director since 1997
Term expires 2000
Age 54
Attorney - Sullivan & Cromwell,
New York, NY
[PHOTO HERE] R. MARSHALL EVANS, JR.
Director since 1984
Term expires 2001
Age 57
President - Dickinson Co., LLC,
Quincy Coal Co., and Chesapeake
Mining Co., Charleston, WV; Vice
President - Geary Securities,
Charleston, WV; President -
Hubbard Properties, Inc., Cheyenne,
WY (2)
[PHOTO HERE] BOB M. JOHNSON
Director since 1996
Term expires 2000
Age 63
1998 to present - Vice Chairman of
the Board - One Valley Bank -
Central Virginia; 1996 to 1997 -
President and Chief Executive Officer
- One Valley Bank - Central Virginia;
formerly President and Chief Executive
Officer - Co-operative Savings Bank, FSB,
Lynchburg, VA
[PHOTO HERE] ROBERT E. KAMM, JR.
Director since 1987
Term expires 2000
Age 47
President and Chief Executive
Officer - One Valley Bank - South,
Inc., Summersville, WV
[PHOTO HERE] EDWARD H. MAIER
Director since 1983
Term expires 2000
Age 55
President - General Corporation,
Charleston, WV (Real Estate
Investment and Natural Gas
Production)
5
<PAGE>
[PHOTO HERE] J. HOLMES MORRISON
Director since 1990
Term expires 2000
Age 58
President and Chief Executive
Officer - One Valley Bancorp, Inc.,
and Chairman of the Board - One
Valley Bank, National Association,
Charleston, WV
[PHOTO HERE] JOHN L. D. PAYNE
Director since 1981
Term expires 2001
Age 60
President - Payne-Gallatin Mining
Co., Charleston, WV (2)
[PHOTO HERE] LACY I. RICE, JR.
Director since 1994
Term expires 2000
Age 67
Attorney - Bowles, Rice, McDavid,
Graff & Love PLLC; Vice Chairman
of the Board - One Valley Bancorp,
Inc., Charleston, WV; Chairman of
the Board - One Valley Bank - East,
Martinsburg, WV
[PHOTO HERE] BRENT D. ROBINSON
Director since 1994
Term expires 2001
Age 51
1998 to present - President and Chief
Executive Officer - One Valley Bank -
East, Martinsburg, WV; 1995 to
1997 - President and Chief Executive
Officer - One Valley Bank of Huntington,
Huntington, WV; 1993 to 1996 - Executive
Vice President, One Valley Bancorp, Inc.
[PHOTO HERE] RICHARD B. WALKER
Director since 1991
Term expires 2000
Age 60
Chairman of the Board and Chief
Executive Officer - Cecil I. Walker
Machinery Co., Belle, WV
[PHOTO HERE] THOMAS D. WILKERSON
Director since 1981
Term expires 2000
Age 70
Senior Agent - Northwestern Mutual
Life Insurance Company, Charleston,
WV
_________________
(1) John H. Wick, III is the brother-in-law of Nelle Ratrie Chilton.
(2) R. Marshall Evans, Jr. and John L. D. Payne are first cousins.
6
<PAGE>
OTHER NOMINEES
One Valley's Bylaws require that any nominations for election to the
Board of Directors, other than those made by One Valley, must be made by a
shareholder. The nomination must be in writing and delivered or mailed to the
President not less than 14 days nor more than 50 days prior to the meeting.
However, if One Valley gives less than 21 days' notice of the meeting, the
nominations must be mailed or delivered to the President not later than the 7th
day after the notice of meeting was mailed.
A shareholder nomination must include the:
o name and address of the proposed nominee(s);
o principal occupation of proposed nominee(s);
o total shares to be voted for each proposed nominee;
o name and address of the shareholder making the nomination; and
o number of shares owned by the shareholder making the nomination.
If a shareholder does not follow these nomination requirements, the Chairman of
the meeting does not have to accept the nomination. This means that unless these
requirements are met, the shareholder's nominee(s) will not be included among
the nominees for election and any votes for those nominees will not be counted.
BOARD INFORMATION
NUMBER OF MEETINGS
The Board of Directors met six times in 1998. All of One Valley's
directors attended 75% or more of all Board and Committee meetings during 1998,
with the exception of Messrs. Cohen, Kamm and Wehrle.
BOARD COMMITTEES
The AUDIT COMMITTEE has seven members, Charles M. Avampato, James K.
Brown, Nelle Ratrie Chilton, Edward H. Maier, John L. D. Payne, Richard B.
Walker and Thomas D. Wilkerson, and met four times in 1998. This committee
monitors audit and internal controls, the scope and results of audits by
independent auditors, the activities of the internal audit staff and internal
audit results.
7
<PAGE>
The COMPENSATION COMMITTEE has five members, Charles M. Avampato, Dennis
M. Bone, Nelle Ratrie Chilton, John L. D. Payne and H. Bernard Wehrle, III, and
met twice in 1998. This committee administers the One Valley Bancorp, Inc., 1983
and 1993 Incentive Stock Option Plans and approves compensation levels for the
executive management group of One Valley and its subsidiaries.
The BOARD GOVERNANCE COMMITTEE has six members, Robert F. Baronner,
Dennis M. Bone, Nelle Ratrie Chilton, J. Holmes Morrison, John L. D. Payne and
Angus E. Peyton and met once in 1998. Among other things, this committee
recommends nominees to fill vacancies on the Board of Directors.
BOARD COMPENSATION
During 1998, each director who was not an employee of One Valley
received $650 for each meeting of the Board of Directors he or she attended.
Additionally, non-employee directors who were members of the Audit Committee
received $350 per meeting attended and $300 for other committee meetings
attended. In addition, Mr. Baronner received $18,000 for serving as Chairman of
the Board. Each director not employed by One Valley also receives an annual
grant of 100 shares of One Valley common stock. During 1998, there were no other
compensation arrangements for One Valley directors.
Under the One Valley Deferred Compensation Plan, One Valley directors
may defer fees they receive for serving as directors.
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 to make stock ownership and
transaction filings with the Securities and Exchange Commission and to provide
copies to One Valley. Based on a review of the reports furnished to One Valley
and written statements that no other reports were required, all Section 16(a)
filing requirements applicable to its officers and directors were met except for
Mr. Edward H. Maier, who filed one report late. One Valley is required to report
late filings.
CERTAIN TRANSACTIONS WITH DIRECTORS AND OFFICERS AND THEIR ASSOCIATES
One Valley and its banking subsidiaries have and expect to have business
transactions with directors, officers, principal shareholders and their
associates. During 1998, all of these transactions were made on substantially
the same terms (including interest rates, collateral and repayment terms on
loans) as comparable transactions with affiliated persons. One Valley's
management believes that these transactions, which at December 31, 1998, were,
in the aggregate, 14.32% of total shareholders' equity, did not involve more
than the normal business risk of collection or include other unfavorable
features.
Jackson & Kelly PLLC, a law firm in which Director James K. Brown is a
member, Steptoe & Johnson, a law firm in which Director J. Lee Van Metre, Jr.,
is a partner, Bowles, Rice, McDavid, Graff
8
<PAGE>
& Love PLLC, a law firm in which Director Lacy I. Rice, Jr., is of counsel, and
Sullivan & Cromwell, a law firm in which Director H. Rodgin Cohen is a partner,
performed legal services for One Valley and its subsidiaries in 1998. Based on
information provided by Messrs. Brown, Van Metre, Rice and Cohen, the payments
made to these law firms were less than five percent of the gross revenues of
each of those firms in 1998. In One Valley's opinion, these transactions were on
terms as favorable to One Valley as they would have been with unaffiliated third
parties.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, One Valley's affiliate banks and One Valley Square, Inc.,
paid $114,910 to TerraCare, Inc., for landscaping services. TerraCare, Inc., is
a wholly owned subsidiary of TerraCo, Inc. 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 during 1998 were Phillip H. Goodwin, Charles M.
Avampato, Dennis M. Bone, Nelle Ratrie Chilton, John L. D. Payne and H. Bernard
Wehrle, III.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee ("Committee") of the Board of Directors
establishes compensation policies, plans and programs to accomplish three
objectives:
o to attract and retain highly capable and well-qualified executives;
o to focus executives' efforts on increasing long-term shareholder
value; and
o to reward executives at levels which are competitive with the
marketplace for similar positions and consistent 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. Total compensation refers to
the totals of the annual cash compensation and average long-term incentives.
The Committee meets at least annually and otherwise when necessary with
the Chief Executive Officer and the senior human resources executive to review
and approve the compensation programs for executives. Outside compensation
consultants are retained when the Committee deems it appropriate. In determining
the salary budget for 1998 and in fixing levels of executive compensation, the
Committee considered:
o the review of compensation by Price Waterhouse LLP,
o One Valley's performance relative to its long-range goals and its
peers,
o the relative individual performances of each executive.
9
<PAGE>
In its evaluation of One Valley's corporate performance when fixing base salary
levels, the Committee does not assign weights to the individual factors which,
taken together, constitute "corporate performance."
The Compensation Committee has determined that One Valley's compensation
is generally competitive with peer banks; however, One Valley places slightly
more emphasis on the incentive components of the compensation package than the
banks included in the peer group. Base compensation for One Valley's executives
is somewhat below the average for similar positions within comparable financial
institutions. The Committee believes, philosophically, that total compensation
should trend toward having a relatively higher percentage of compensation at
risk.
In 1998, the Committee retained Towers Perrin to study the cash and
non-cash compensation of the most senior executives of One Valley. This new
study will assist the Committee in its continuing evaluation of the external
competitiveness of compensation and executive benefits available to One Valley
executives. The information will be used for establishing compensation practices
for 1999.
One Valley pays short-term incentive compensation to key executives, as
determined by the Compensation Committee, pursuant to One Valley's Executive
Incentive Compensation Plan ("EICP"). Awards under EICP are based upon
individual and corporate performance. Corporate performance is measured by One
Valley's earnings per share (EPS) 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 established objectives.
In establishing the short-term payouts for 1998, the Committee
considered One Valley's performance relative to peers which placed results in
the top quintile of the peer group of fifteen (15) banks. EICP awards were
influenced by the impact of acquisition costs on certain goals. However, the
Committee considers the impact of these acquisition costs to be short-term in
nature and a transition to greater long-term value.
The Committee believes that shareholder value can be further increased
by 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 specifically approved by the Committee and consists of approximately
twenty-five to thirty senior management employees 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 One Valley Common Stock on the day the option
is granted. The executive may exercise the option any time within a ten-year
period. The options gain value over that time only if the market price of One
Valley stock increases. The Committee believes the ISOP focuses the attention
and efforts of executive management upon increasing long-term shareholder value.
The Committee awards options
10
<PAGE>
once each year 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 usually allocated to
executives based upon the recommendation of the Chief Executive Officer.
The Compensation Committee determines total compensation for the CEO in
basically 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. One
Valley's earnings per share determines the amount of base compensation increase
and significantly affects the EICP award. In addition, the market price of One
Valley Common Stock determines the value of options previously awarded to the
CEO. The base compensation of the CEO in 1998 was based primarily on the
corporate results in 1997 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 weights to the components of
corporate performance in fixing the CEO's base compensation.
This report shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
unless One Valley specifically incorporates this report by reference. It will
not otherwise be filed under such Acts.
The report is submitted by the Compensation Committee, which consists of
Dennis M. Bone, Chairman
Charles M. Avampato
Nelle Ratrie Chilton
John L. D. Payne
H. Bernard Wehrle, III.
11
<PAGE>
PERFORMANCE GRAPH
The following five-year performance graph compares the yearly change in
cumulative total shareholder return on One Valley common stock, with the
cumulative total return of the Standard & Poor's 500 Stock Index and the Media
General Industry Group Index - 04. Industry Group Index - 04 consists of all
banks and bank holding companies within the United States whose stock has been
publicly traded for at least six years. This graph assumes the reinvestment of
all dividends and an initial investment of $100. There is no assurance that One
Valley's stock performance will continue in the future with the same or similar
trends as the graph depicts.
FIVE-YEAR CUMULATIVE TOTAL RETURN COMPARISON*
<TABLE>
<CAPTION>
One Valley
S&P 500 Publicly Traded Banks Bancorp
<S> <C> <C> <C>
1993 100 100 100
1994 101 97 104
1995 139 135 119
1996 171 177 183
1997 229 255 244
1998 294 268 213
</TABLE>
*The graph shall not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, unless
One Valley specifically incorporates this graph by reference. It will not
otherwise be filed under such Acts.
12
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF COMPENSATION
The following table summarizes the compensation One Valley paid its
chief executive officer and the four other most highly compensated executive
officers as of the end of 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ------------------------
Awards Payouts
------- ---------
All Other
Other Compensation
Incentive Annual Restricted Securities (Including
Compen- Compen- Stock Underlying LTIP 401(k)
Name and Salary sation sation Award(s) Options Payouts Matching
Principal Position Year ($) ($) ($) ($) (#) ($) Contributions)
- ------------------ ---- --- --- --- --- --- --- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Holmes Morrison 1998 400,000 160,000 0 0 18,000 0 4,000
President and CEO 1997 377,000 180,960 0 0 18,000 0 4,000
1996 362,000 173,760 0 0 15,625 0 3,750
Phyllis H. Arnold 1998 245,083 93,744 0 0 11,000 0 4,000
Exec. Vice President 1997 227,000 86,442 0 0 10,875 0 4,000
& Chief Operating 1996 218,000 93,696 0 0 9,375 0 3,750
Officer
Frederick H. Belden, 1998 192,000 61,920 0 0 8,200 0 4,000
Jr. 1997 181,000 62,445 0 0 8,125 0 4,000
Exec. Vice President 1996 174,000 60,030 0 0 7,031 0 3,750
Laurance G. Jones 1998 190,000 59,850 0 0 8,200 0 4,000
Exec. Vice President 1997 178,000 60,609 0 0 8,125 0 4,000
1996 171,000 58,995 0 0 7,031 0 3,750
Kenneth R. Summers 1998 167,917 48,663 0 0 7,200 0 4,000
Sr. Vice President 1997 158,000 47,795 0 0 7,125 0 4,000
1996 152,000 46,740 0 0 6,250 0 3,750
</TABLE>
13
<PAGE>
SUMMARY OF STOCK OPTIONS
The following table lists One Valley's grants during 1998 of stock
options to the listed officers and all recipients of options under One Valley's
1993 Incentive Stock Option Plan. The table also provides information about the
potential gain to all shareholders at the designated rate of appreciation. The
actual value, if any, an officer may realize depends on the amount by which the
stock market price is greater than the exercise price. The exercise price is the
price the employee must pay to buy the shares. It is set at the fair market
value of One Valley common stock on the date One Valley granted the options.
Recipients may exercise options at any time. The table reflects the impact of a
25% stock dividend declared on August 19, 1997. One Valley did not award any
stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
Number of Potential Realizable Value
Securities % of Total At Assumed Annual Rates
Underlying Options Of Stock Appreciation for
Options Granted to Exercise or Ten-Year Option Term
Granted Employees in Base Price Expiration 5% 10%
Name (#) Fiscal Year ($/Sh) (1) Date ($) ($)
- ---- --- ----------- ---------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
J. Holmes Morrison 18,000 11.1% 38.22 04/29/08 432,540 1,096,380
Phyllis H. Arnold 11,000 6.8% 38.22 04/29/08 264,330 670,010
Frederick H. Belden, Jr. 8,200 5.1% 38.22 04/29/08 197,046 499,462
Laurance G. Jones 8,200 5.1% 38.22 04/29/08 197,046 499,462
Kenneth R. Summers 7,200 4.4% 38.22 04/29/08 173,016 438,552
26 Optionees
(including the five 157,900 100.0% 38.22 04/29/08 3,794,337 9,617,689
listed above)
One Optionee 4,000 - 36.63 05/18/08 92,160 233,520
All Shareholders - - - - 825,984,625 2,092,998,941
Optionee Gain as % of
All Shareholders' Gain - - - - .49% .49%
</TABLE>
- -----------------------
(1) Plan participants may use previously owned shares to pay for an option's
exercise price. Additionally, plan participants may have One Valley
withhold their shares due upon exercise of an option to satisfy their
required tax withholding obligations. In 1997, One Valley amended the
plan to extend the expiration period of the options to the earlier of
three years or the full option term if a participant retires, is
disabled or is terminated because of a change in control. The number of
shares has been adjusted for the 25% stock dividend declared on August
19, 1997.
14
<PAGE>
SUMMARY OF OPTION EXERCISES
The following table lists the number of shares acquired and the value
realized as a result of the exercise of options during 1998 for the listed
officers. The value realized is the difference between the market price of the
shares acquired and the exercise price of the options. The table also lists the
number of shares underlying unexercised options as well as values for
"in-the-money" options. Options are "in-the-money" if the 1998 year-end share
price is higher than the exercise price.
OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired On FY-End (#) FY-End ($)
Name Exercise (#) Value Realized ($) Exercisable Exercisable
- ---- ------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C>
J. Holmes Morrison 4,600 112,600 52,639 626,422
Phyllis H. Arnold 7,680 170,261 37,090 422,778
Frederick H. Belden, Jr. 1,000 18,528 32,438 380,450
Laurance G. Jones 1,087 15,090 25,818 260,007
Kenneth R. Summers 0 0 40,544 565,767
</TABLE>
RETIREMENT BENEFITS
One Valley maintains a qualified pension plan. Compensation covered by a
qualified pension plan is based on total pay received during a period of 60
consecutive months of employment which results in the highest total pay. "Total
pay" does not include stock options or payments in lieu of benefits under One
Valley's flexible benefits program. "Total pay" is the total annual salary and
bonus listed in the Summary Compensation Table.
For purposes of calculating retirement, the benefits compensation is
capped at $160,000. As of November 1, 1998, the credited years of service under
the retirement plan for the following individuals were: Phyllis H. Arnold,
22.667 years; J. Holmes Morrison, 31.167 years; Frederick H. Belden, Jr., 31.000
years; Laurance G. Jones, 29.417 years; and Kenneth R. Summers, 35.417 years.
15
<PAGE>
In 1990, One Valley established a Supplemental Employee Retirement Plan
for members of senior management, including the individuals named in the Summary
Compensation Table. This plan provides for a benefit at normal retirement of 65%
of final average compensation, less the retirement benefit under the Defined
Benefit Pension Plan, any retirement benefits from a previous employer and the
employee's Social Security benefit. The plan also provides a reduced early
retirement benefit and a disability retirement benefit. Both of these benefits
are reduced by benefits paid under One Valley's Long Term Disability Plan and
Social Security benefits an employee receives.
In 1997, One Valley amended the Supplemental Employee Retirement Plan to
exclude stock options and payments in lieu of benefits under One Valley's
flexible benefits program from the calculation of Supplemental Employee
Retirement Plan benefits. During 1998, $371,794 was accrued for the Supplemental
Employee Retirement Plan Trust, and $178,449 was paid into the Trust.
For illustrative purposes, the following table lists the approximate
annual retirement benefits (Qualified Plan and Supplemental Plan) an employee
would receive if he or she retired on November 1, 1998, at age 65. Amounts are
based 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.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Highest Consecutive Estimated Annual Pension For
Five-Year Representative Years of Credited Service
Average Compensation* 15 20 25 or More
<S> <C> <C> <C>
$125,000 $ 27,665 $ 36,887 $ 65,146
150,000 33,665 44,887 81,396
175,000 39,665 52,887 97,646
200,000 45,665 60,887 113,896
225,000 51,665 68,887 130,146
250,000 57,665 76,887 146,396
300,000 69,665 92,887 178,896
400,000 93,665 124,887 243,896
450,000 105,665 140,887 276,396
500,000 117,665 156,887 308,896
550,000 129,665 172,887 341,396
600,000 141,665 188,887 373,896
650,000 153,665 204,887 406,396
700,000 165,665 220,887 438,896
</TABLE>
* IRS Maximum for Qualified Plan is $160,000.
16
<PAGE>
CHANGE IN CONTROL ARRANGEMENTS
In October 1996, One Valley entered into agreements with all officers
listed in the Summary Compensation Table and with other officers to encourage
those key officers not to seek other employment because of the possibility of
another entity's acquiring One Valley. One Valley designed these agreements to
secure the executives' continued service and dedication in the face of the
perception a change in control could occur, or an actual or threatened change in
control. Because of the amount of acquisition activity in the banking industry,
the Board of Directors believed entering into these agreements was in One
Valley's best interest. The 1996 agreements replaced existing change in control
agreements and were not entered into because a change in control was imminent.
Generally, the agreements apply if there is a change in control of One
Valley and for two years following the change in control. During this period, if
the executive (a) is terminated by One Valley without cause, (b) resigns for
"good reason," or (c) if an executive at the level of executive vice president
or above voluntarily terminates employment during the thirteenth month after a
change in control, then the executive will receive cash equal to either three
(at the level of executive vice president or above) or two times the sum of (a)
the executive's base salary and average bonus for the three years prior to the
change in control, and (b) a pro rata portion of the executive's target bonus
for the year when the change in control occurs. Health benefits will continue
for 36 months following that period, and the executive will receive retiree
medical benefits if the executive has 10 years of service and is at least 50
years old.
If an excise tax under Section 4999 of the Internal Revenue Code applies
to these agreements, One Valley will pay executives (at the level of executive
vice president or above) an additional amount so that after payment of the tax,
the executive has received the full change in control benefits. However, the
extra payment will not be made and payments will be capped if One Valley reduces
the change in control payments so that no excise tax is due. If necessary, One
Valley will reduce payments for other executives under the change in control
agreements so no excise tax would be due. Under the agreements, executives will
not resign for 180 days after change in control activities have begun, unless
the activities terminate or a change in control occurs.
Under the change in control agreements, a "change in control" means (a)
a person becomes the beneficial owner of 50% or more of the voting power of One
Valley, (b) a change in a majority of the Board, (c) the completion of a
reorganization, merger, consolidation or sale of substantially all of One
Valley's assets (unless One Valley's shareholders receive more than 60% of the
voting stock of the acquiring company, no person acquires more than 50% of the
voting stock, and One Valley's Board of Directors constitutes a majority of the
continuing board of directors of the acquiring company), or (d) a liquidation,
dissolution or sale or disposition of all or substantially all of One Valley's
assets.
17
<PAGE>
ONE VALLEY SHARE OWNERSHIP
The following table lists One Valley's share ownership for the persons
or groups specified. Ownership includes direct and indirect (beneficial)
ownership as defined by SEC rules. Information in the table is as of March 5,
1999. Share totals include 100 directors' qualifying shares which One Valley's
Bylaws require each director to own. The Bylaws further require that to be
eligible for re-election, a director must own at least 500 shares by the end of
the first three years of service.
DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES
<TABLE>
<CAPTION>
SHARES
NAME POSITIONS WITH COMPANY BENEFICIALLY OWNED
---- ---------------------- ------------------
<S> <C> <C>
NOMINEES FOR THREE-YEAR TERM:
- -----------------------------
Phyllis H. Arnold Chief Operating Officer, 90,391 Direct (1) (2)
Executive Vice President, Director
Charles M. Avampato Director 32,894 Direct
5,138 Indirect
James K. Candler Director 24,573 Direct (3)
James L. Davidson, Jr. Director 181,631 Direct (3)
12,806 Indirect
John D. Lynch Director 32,912 Direct
4,687 Indirect
Charles R. Neighborgall, III Director 2,857 Direct
3,656 Indirect
W. Lowrie Tucker, III Director 32,939 Direct
7,599 Indirect
J. Lee Van Metre, Jr. Director 2,822 Direct
2,612 Indirect
John H. Wick, III Director 17,098 Direct
43,730 Indirect
NOMINEES FOR TWO-YEAR TERM:
- ---------------------------
John Mork Nominee 900 Direct
William A. Rice, Jr. Nominee 5,825 Direct
Edwin H. Welch Nominee 2,517 Direct
18
<PAGE>
SHARES
NAME POSITIONS WITH COMPANY BENEFICIALLY OWNED
---- ---------------------- ------------------
CONTINUING DIRECTORS:
- ---------------------
Dennis M. Bone Director 1,040 Direct
James K. Brown Director 2,767 Direct
4,018 Indirect
Nelle Ratrie Chilton Director 68,178 Direct
H. Rodgin Cohen Director 3,446 Direct
R. Marshall Evans, Jr. Director 44,633 Direct
2,208,169 Indirect(4)
Bob M. Johnson Director 46,345 Direct(2)
31,892 Indirect
Robert E. Kamm, Jr. Director 330,495 Direct
27,191 Indirect
Edward H. Maier Director 26,000 Direct
J. Holmes Morrison President, Chief Executive Officer, 86,020 Direct (1) (2)
Director 15,583 Indirect
John L. D. Payne Director 1,215 Direct
724,806 Indirect (5)
Lacy I. Rice, Jr. Director 179,964 Direct
4,687 Indirect
Brent D. Robinson Senior Vice President, 36,132 Direct (2)
Director 1,065 Indirect
Richard B. Walker Director 4,544 Direct
Thomas D. Wilkerson Director 3,112 Direct
19
<PAGE>
SHARES
NAME POSITIONS WITH COMPANY BENEFICIALLY OWNED
---- ---------------------- ------------------
EXPIRED TERMS:
Robert F. Baronner Chairman of the Board, 15,792 Direct
Director 9,432 Indirect
James Gabriel Director 28,351 Direct
4,531 Indirect
Thomas E. Goodwin Director 11,695 Direct
11,683 Indirect
Angus E. Peyton Director 51,668 Direct
255,888 Indirect
James W. Thompson Director 24,929 Direct
10,195 Indirect
H. Bernard Wehrle, III Director 3,943 Direct
OTHER EXECUTIVE OFFICERS:
- -------------------------
Frederick H. Belden, Jr. Executive Vice President 45,965 Direct (1) (2)
3,125 Indirect
Laurance G. Jones Executive Vice President, 35,318 Direct (2)
Chief Financial Officer 6,537 Indirect
Kenneth R. Summers Senior Vice President 54,953 Direct (1) (2)
276 Indirect
All Directors, Nominees and 1,566,952 Direct
Executive Officers as a Group 2,821,872 Indirect
(36 Individuals)
</TABLE>
All Directors, Nominees and Executive Officers as a Group - 12.76%. Three of the
above individuals beneficially own more than one percent of One Valley common
stock: R. Marshall Evans, Jr. - 6.55%, Robert E. Kamm, Jr. - 1.04%, and John L.
D. Payne - 2.11%.
(1) Includes shares the individual has the right to acquire within 60 days
through the exercise of options under One Valley's 1983 Stock Option
Plan: Phyllis H. Arnold - 4,589, J. Holmes Morrison - 13,013, Kenneth R.
Summers - 10,405, and Frederick H. Belden, Jr. - 1,687.
20
<PAGE>
(2) Includes shares the individual has the right to acquire within 60 days
through the exercise of options under One Valley's 1993 Stock Option
Plan: Phyllis H. Arnold - 43,501, Bob M. Johnson - 6,000, Robert E.
Kamm, Jr. - 27,801, J. Holmes Morrison - 57,626, Brent D. Robinson -
13,000, Kenneth R. Summers - 37,339, Frederick H. Belden, Jr. - 37,951,
and Laurance G. Jones - 34,018.
(3) Includes shares the individual has the right to acquire within 60 days
through the exercise of options under the FFVA Financial Corporation
1994 Stock Option Plan: James K. Candler - 13,238, and James L.
Davidson, Jr. - 83,713.
(4) See Note (1) under Certain Beneficial Owners.
(5) Consists of 146,247 shares held in nine trusts of which John L. D. Payne
is a co-trustee, 567,434 shares held by Hubbard Properties, Inc.,
formerly Dickinson Company, LLC, Payne-Gallatin Mining Company and Horse
Creek Land and Mining Company and 10,000 shares held by Southern Land
Limited Partnership (in which companies Mr. Payne is an executive
officer and director), and 1,125 shares owned by his children; does not
include 191,586 shares held in or through trusts in which John L. D.
Payne, at the discretion of trustees, is an income beneficiary.
CERTAIN BENEFICIAL OWNERS
ONE VALLEY COMMON STOCK OWNERSHIP
Mr. R. Marshall Evans, Jr. is the only shareholder known to One Valley
to beneficially own five percent or more of One Valley's common stock.
"Beneficially own" means to own the shares directly, or to have the right to
vote the shares, or to have the right to dispose of the shares. More than one
person may "beneficially own" the same shares. For example, co-trustees of a
trust may each be "beneficial owners" of the shares in the trust.
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership (1) of Class
---------------- ------------------------ --------
R. Marshall Evans, Jr. 2,252,802 (1) 6.55%
3401 Northside Parkway
Atlanta, GA 30327
- ----------------
(1) Consists of (a) 1,308,562 shares held as co-trustee with an individual
co-trustee and One Valley Bank; (b) 219,464 shares held as co-trustee
with One Valley Bank and another individual co-trustee; (c) 186,731
shares held with One Valley Bank as co-trustee; (d) 36,132 shares held
by his wife as trustee of trusts for the benefit of his children; (e)
44,633 shares owned of record; (f) 9,033 shares owned of record by his
wife; and (g) 438,247 shares owned by Hubbard
21
<PAGE>
Properties, Inc., formerly Dickinson Company, LLC, and 10,000 shares
owned by Southern Land Limited Partnership (in which Mr. Evans is an
executive officer and director). This does not include 35,654 shares
held in trusts from which Mr. Evans may, at the discretion of the
co-trusees, receive distributions of income and, under certain
circumstances, distributions of principal.
One Valley's subsidiary banks hold of record as trustee, co-trustee,
executor or co-executor, 4,848,642 shares of stock representing 14.09% of the
outstanding One Valley shares. One Valley does not vote all of these shares. The
information below indicates when One Valley's subsidiary banks have voting
control:
o The banks do not vote the 4,095,763 shares held as co-trustee or co-executor.
o The banks hold 752,879 shares as sole trustee or sole executor,
of which 707,666 shares (or 2.06% of the total shares
outstanding) will be voted by the banks, as trustee or executor.
These shares will be voted "FOR" the election of the 12 nominees
as directors and "FOR" the ratification of the selection of Ernst
& Young LLP as independent auditors.
o The banks hold 45,213 shares as sole trustee or sole executor in
personal trust and self-directed employee benefit accounts. These
shares will be voted at the direction of the grantor, settlor or
beneficiary of those accounts.
RATIFICATION OF AUDITORS
(ITEM 2 ON PROXY CARD)
The Board of Directors has selected the firm of Ernst & Young LLP to
serve as independent auditors for One Valley for 1999. Although the selection of
auditors does not require shareholder ratification, the Board of Directors has
submitted the appointment of Ernst & Young LLP to the 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.
Ernst & Young LLP advised One Valley that no member of that 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, will have the opportunity to make a statement and will respond
to appropriate questions. The proxies will vote your proxy "FOR" the
ratification of the selection of Ernst & Young LLP unless otherwise directed.
22
<PAGE>
FORM 10-K ANNUAL REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION
ONE VALLEY WILL PROVIDE A COPY OF ONE VALLEY'S 1998 ANNUAL REPORT ON
FORM 10-K, WITHOUT CHARGE, TO ANY SHAREHOLDER, UPON WRITTEN REQUEST MAILED TO
LAURANCE G. JONES, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, ONE
VALLEY BANCORP, INC., P. O. BOX 1793, CHARLESTON, WEST VIRGINIA 25326.
OTHER INFORMATION
If any of the nominees for election as directors is unable to serve due
to death or other unexpected occurrence, your proxies will be voted for a
substitute nominee or nominees designated by the Board of One Valley, or the
Board of Directors may adopt a resolution to reduce the number of directors to
be elected. The Board of Directors is unaware of any other matters to be
considered at the annual meeting. If any other matters properly come before the
meeting, persons named in the accompanying proxy will vote your shares in
accordance with the direction of the Board of Directors.
SHAREHOLDER PROPOSALS FOR 1999
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
29, 1999, to have it considered for inclusion in the proxy statement of the
Annual Meeting in 2000.
J. Holmes Morrison
President
Charleston, West Virginia
March 26, 1999
23
<PAGE>
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 27, 1999
Charles D. Dunbar, Elizabeth Lord and Louis S. Southworth II, or any one
of them with full power to act alone and with full power of substitution, 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 27,
1999, 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.)
<PAGE>
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.
<TABLE>
<CAPTION>
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT *
<S> <C> <C> <C>
Except Nominee(s) Written Below
1. Election of Directors for the terms specified
in the Proxy Statement: [ ] [ ] [ ]
Phyllis H. Arnold, Charles M. Avampato,
James K. Candler, James L. Davidson, Jr.,
John D. Lynch, John Mork,
Charles R. Neighborgall, III, William A.
Rice, Jr., W. Lowrie Tucker, III, J. Lee
Van Metre, Jr., Edwin H. Welch and John H.
Wick, III
- -----------------------------------
* (Except Nominee(s) written above.)
2. Ratify the selection of Ernst & Young LLP as FOR AGAINST ABSTAIN
Independent Auditors for 1999.
[ ] [ ] [ ]
3. Transact such other business as may properly come before the meeting and
any adjournment thereof.
Dated: _________________, 1999
_______________________________________
Signature(s)
When signing as attorney, executor,
administrator, trustee or guardian, please
give full title. If more than one trustee,
all should sign.
</TABLE>
EXHIBIT 99B
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
FFVA Financial Corporation
Lynchburg, Virginia
We have audited the consolidated statements of financial condition of FFVA
Financial Corporation and Subsidiary as of December 31, 1997, and the related
consolidated statements of changes in stockholders' equity, income, and cash
flows for each of the two years in the period ended December 31, 1997 (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FFVA Financial
Corporation and Subsidiary as of December 31, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Cherry, Bekaert & Holland, L.L.P.
Lynchburg, Virginia
January 30, 1998
114
