FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission file number 010042
One Valley Bancorp, Inc.
(Exact name of registrant as specified in its charter)
West Virginia 55-0609408
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Valley Square, Charleston, West Virginia 25326
(Address of principal executive offices)
(Zip Code)
(304) 348-7000
(Registrant's telephone number, including area code)
Not applicable
(Former name, address, and fiscal year, if changed since last report)
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 and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES XXX No
The number of shares outstanding of each of the issuer's classes of common stock
as of March 31, 1996 was:
Common Stock, $10.00 par value -- 16,467,451 shares
<PAGE>
One Valley Bancorp, Inc.
Part I. Financial Information
Item 1. Financial Statements.
The unaudited interim consolidated financial statements of One Valley Bancorp,
Inc. (One Valley) or (Registrant) are included on pages 3 - 7 of this report.
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for annual year-end financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included and are of a normal recurring nature.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's discussion and analysis of financial condition and results of
operations is included on pages 8 - 16 of this report.
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited in thousands)
<CAPTION>
March 31 December 31 March 31
1996 1995 1995
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $128,997 $140,617 $136,845
Interest Bearing Deposits With Other Banks 20,981 8,259 12,884
Federal Funds Sold 0 16,800 15,850
---------- ---------- ----------
Cash and Cash Equivalents 149,978 165,676 165,579
Securities
Available-for-Sale, at fair value 904,682 871,699 553,018
Held-to-Maturity (Estimated Fair Value,
March 31, 1996 - $205,668; December 31, 1995 - $212,040;
March 31, 1995 - $432,575) 203,594 205,153 439,339
Loans
Total Loans 2,546,298 2,511,962 2,412,895
Less: Allowance For Loan Losses 39,836 39,534 38,412
---------- ---------- ----------
Net Loans 2,506,462 2,472,428 2,374,483
Premises & Equipment - Net 80,172 80,688 82,741
Other Assets 65,054 62,652 64,112
---------- ---------- ----------
Total Assets $3,909,942 $3,858,296 $3,679,272
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest Bearing $393,349 $389,514 $391,908
Interest Bearing 2,723,202 2,658,822 2,645,060
---------- ---------- ----------
Total Deposits 3,116,551 3,048,336 3,036,968
Short-term Borrowings
Federal Funds Purchased 45,968 54,005 11,055
Repurchase Agreements and Other Borrowings 341,349 335,775 234,054
---------- ---------- ----------
Total Short-term Borrowings 387,317 389,780 245,109
Long-term Borrowings 12,904 13,411 14,445
Other Liabilities 43,184 40,467 37,902
---------- ---------- ----------
Total Liabilities 3,559,956 3,491,994 3,334,424
Shareholders' Equity:
Preferred Stock-$10 par value; 1,000,000 shares authorized
but none issued 0 0 0
Common Stock-$10 par value; 40,000,000 shares authorized,
Issued 18,058,639 shares at March 31, 1996;
18,016,584 shares at December 31, 1995;
17,959,750 shares at March 31, 1995 180,587 180,166 179,598
Capital Surplus 35,081 34,603 34,107
Retained Earnings 176,823 168,625 144,351
Unrealized Gain (Loss) on Securities Available-for-Sale,
net of deferred taxes 1,438 6,252 (2,337)
Treasury Stock - 1,591,188 shares at March 31, 1996,
954,200 shares at December 31, 1995;
550,500 shares at March 31, 1995; at cost (43,943) (23,344) (10,871)
---------- ---------- ----------
Total Shareholders' Equity 349,986 366,302 344,848
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $3,909,942 $3,858,296 $3,679,272
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited in thousands, except per share data)
<CAPTION>
For The Three Months
Ended March 31
1996 1995
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans
Taxable $55,308 $52,030
Tax-Exempt 644 628
-------- --------
Total 55,952 52,658
Interest on Investment Securities
Taxable 14,034 11,939
Tax-Exempt 2,773 2,504
-------- --------
Total 16,807 14,443
Other Interest Income 101 200
-------- --------
Total Interest Income 72,860 67,301
INTEREST EXPENSE
Deposits 27,399 24,491
Short-term Borrowings 4,423 3,276
Long-term Borrowings 200 228
-------- --------
Total Interest Expense 32,022 27,995
-------- --------
Net Interest Income 40,838 39,306
Provision For Loan Losses 1,149 1,113
-------- --------
Net Interest Income
After Provision For Loan Losses 39,689 38,193
OTHER INCOME
Trust Department Income 2,192 1,904
Service Charges on Deposit Accounts 3,414 3,166
Real Estate Loan Processing & Servicing Fees 1,351 1,115
Other Service Charges and Fees 1,356 1,085
Other Operating Income 1,465 1,526
Securities Transactions (294) 7
-------- --------
Total Other Income 9,484 8,803
OTHER EXPENSES
Salaries and Employee Benefits 16,316 16,443
Occupancy Expense - Net 1,737 1,528
Equipment Expenses 2,152 2,144
Federal Deposit Insurance 247 1,658
Outside Data Processing 1,223 1,069
Other Operating Expenses 8,542 7,522
-------- --------
Total Other Expenses 30,217 30,364
-------- --------
Income Before Taxes 18,956 16,632
Applicable Income Taxes 6,308 5,344
-------- --------
NET INCOME $12,648 $11,288
======== ========
NET INCOME PER COMMON SHARE $0.75 $0.66
======== ========
Based on Average Shares Outstanding of 16,794 17,079
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(unaudited in thousands)
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Capital Retained Treasury Available
Stock Surplus Earnings Stock for Sale
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 $180,166 $34,603 $168,625 ($23,344) $6,252
Three Months March 31, 1996
Net Income 0 0 12,648 0 0
Cash Dividends ($.27 per share) 0 0 (4,450) 0 0
Change in Fair Value of Securities
Available for Sale, net of deferred taxes 0 0 0 0 (4,814)
Treasury Shares Purchased 0 0 0 (20,599) 0
Stock Options Exercised 421 478 0 0 0
-------- -------- -------- -------- --------
Balance March 31, 1996 $180,587 $35,081 $176,823 ($43,943) $1,438
======== ======== ======== ======== ========
Balance December 31, 1994 $175,384 $25,954 $137,437 ($10,373) ($6,535)
Stock Issued for Acquisition 4,116 8,130 0 0 0
Three Months Ended March 31, 1995
Net Income 0 0 11,288 0 0
Cash Dividends ($.25 per share) 0 0 (4,374) 0 0
Change in Fair Value of Securities 0 0 0 0 0
Available for Sale, net of deferred taxes 0 0 0 0 4,198
Treasury Shares Purchased 0 0 0 (498) 0
Stock Options Exercised 98 23 0 0 0
-------- -------- -------- -------- --------
Balance March 31, 1995 $179,598 $34,107 $144,351 ($10,871) ($2,337)
======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited in thousands)
<CAPTION>
For The Three Months
Ended March 31
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $12,648 $11,288
Adjustments To Reconcile Net Income To Net Cash
Provided by Operating Activities:
Provision For Loan Losses 1,149 1,113
Depreciation 2,012 1,926
Amortization and Accretion 968 775
Net Loss (Gain) From Sales of Assets 294 (7)
Increase (Decrease) Due to Changes In:
Accrued Interest Receivable (2,228) (2,661)
Accrued Interest Payable 2,595 1,123
Other Assets and Other Liabilities 3,550 6,117
-------- --------
Net Cash Provided by Operating Activities 20,988 19,674
INVESTING ACTIVITIES
Proceeds From Sales of Securities Available for Sale 28,232 27,678
Proceeds From Maturities of Securities Available for Sale 66,934 67,391
Proceeds From Maturities of Securities Held to Maturity 2,706 6,191
Purchases of Securities Available for Sale (137,188) (66,225)
Purchases of Securities Held to Maturity (1,172) (593)
Net Increase In Loans (35,797) (27,691)
Acquisition of Subsidiary, Net of Cash Paid 0 4,454
Purchases of Premises and Equipment (1,496) (1,231)
-------- --------
Net Cash (Used in) Provided by Investing Activities (77,781) 9,974
FINANCING ACTIVITIES
Net Increase in Interest Bearing and Non-interest Bearing Deposit 68,215 68,344
Net Decrease in Federal Funds Purchased (8,037) (42,090)
Net Increase (Decrease) in Other Short-term Borrowings 5,574 (88,140)
Proceeds From Long-term Borrowings 0 0
Repayment of Long-term Debt (507) (5,505)
Proceeds From Issuance of Common Stock 899 122
Acquisition of Treasury Stock (20,599) (498)
Dividends Paid (4,450) (4,374)
-------- --------
Net Cash Provided by (Used in) Financing Activities 41,095 (72,141)
-------- --------
Decrease in Cash and Cash Equivalents (15,698) (42,493)
Cash And Cash Equivalents at Beginning of Year 165,676 208,072
-------- --------
Cash And Cash Equivalents, March 31 $149,978 $165,579
======== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accounting and reporting policies of One Valley conform to generally
accepted accounting principles and practices in the banking industry. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The interim financial information included in this report is
unaudited. In the opinion of management, all adjustments necessary for a fair
presentation of the results of the interim periods have been made. These notes
are presented in conjunction with the Notes to Consolidated Financial
Statements included in the Annual Report of One Valley.
Note B - Accounting Change
In May 1995, the FASB issued Statement No. 122, "Accounting for Mortgage
Servicing Rights" which is applicable to One Valley in 1996. FAS 122
eliminates the accounting inconsistencies that existed between mortgage
servicing rights that are acquired through loan origination acitivites and
those acquired through purchase transactions. As of January 1, 1996, One
Valley adopted FAS 122, the results of which are included in the first three
months of operating results presented for One Valley in this report.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation" which is applicable to One Valley in 1996. The Statement
provides companies with the option of accounting for stock-based compensation
under APB Opinion No. 25, "Accounting for Stock Issued to Employees" or
applying the provisions of Statement 123. As a result, One Valley has decided
to continue to apply the provisions of APB No. 25 to account for stock-based
compensation. Required disclosure will be made in the 1996 year-end financial
statements for One Valley.
Note C - Acquisitions and Name Change
At the close of business on April 30, 1996, One Valley Bancorp acquired all of
the outstanding stock of CSB Financial Corporation, headquartered in Lynchburg,
Virginia. Pursuant to the merger agreement, One Valley exchanged 0.6774 shares
of its common stock and for each share of CSB Financial's common stock. The
transaction was valued at approximately $55.7 million, or $21.08 per share of
CSB Financial common stock. The combination was accounted for under the
purchase method of accounting. Accordingly, consolidated results in future
periods after April 30, 1996, will include the operations of CSB Financial only
from the date of acquisition. Coinciding with that transaction, One Valley
shareholders voted to change the company name from One Valley Bancorp of West
Virginia, Inc. to One Valley Bancorp, Inc. This report refers to the
registrant as One Valley Bancorp, Inc.
One Valley Bancorp, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
March 31, 1996
INTRODUCTION AND SUMMARY
Net income for the first quarter of 1996 totaled $12.6 million, an
increase of 12.1% over the $11.3 million earned in the same quarter of 1995.
On a per share basis, net income of $0.75 for the first quarter of 1996
increased 13.7% over the $0.66 earned during the same period in 1995. The
improvement in earnings during the quarter can be attributed, in large part, to
higher net interest income and non-interest income.
Return on average assets (ROA) measures how effectively One Valley
utilizes its assets to produce net income. ROA was 1.32% in the first three
months of 1996, an increase from the 1.25% earned during the first three months
of 1995. Return on average equity (ROE) also increased, from 13.75% for the
first three months of 1995 to 13.93% earned over the first three months of
1996.
The following discussion is an analysis of the financial condition and
results of operations of One Valley for the first three months of 1996. This
discussion should be read in conjunction with the 1995 Annual Report to
Shareholders and the other financial information included in this report.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three months ended March 31, 1996, was $42.7
million on a fully tax-equivalent basis, a 4.1% increase over the $41.0 million
earned during the same period in 1995. This increase is largely due to a
$141.0 million, or 5.9% increase in average total loans and a $107.6 million,
or 11.0% increase in average securities during the first three months
comparison. Average earning assets increased by 7.3% in the first three months
of 1996 over the same period in 1995, while average interest bearing
liabilities increased by 7.0% in the same period. Both total interest income
and total interest expense increased from the prior year due to the increases
in volume and a higher interest rate environment. However, since the growth in
loans, One Valley's highest yielding asset, outpaced the growth in average
interest bearing liabilities, net interest income also increased.
As shown in the consolidated average balance sheets (page 17), the yield
on earning assets remained constant at 8.36% in the first quarter of 1995
versus the first quarter of 1996. During the same period, the cost of interest
bearing liabilities increased 23 basis points to 4.19% from last year's 3.96%
level. This increased cost has resulted from a combination of changes in the
mix of interest-bearing liabilities including a higher level of short-term
borrowed funds, as well as a higher cost to attract deposit funds into
certificates of deposit. Additional discussion of the changes in balance sheet
mix is included in a later section of this report. Due to the increase in the
cost of interest bearing liabilities, the net interest margin decreased to
4.77% during the first three months of 1996, compared to 4.96% during the first
three months of 1995. At March 31, 1996, One Valley's asset/liability
structure was slightly asset sensitive. One Valley anticipates that over the
next twelve months a rising rate scenario would have a slight positive
influence on net interest income whereas, declining rates would have a slight
negative influence on net interest income. Normal fluctuations in market
interest rates should not have a significant impact on One Valley's net
interest margin.
Credit Experience
The provision for loan losses was $1.1 million for the first quarter ended
March 31, 1996, which equaled the provisions made in the same period of 1995.
The provision for loan losses was based upon One Valley's continued evaluation
process of the adequacy of the allowance for loan losses. As a percentage of
average total loans, the provision for loan losses through the first three
months of 1996 was 0.18% annualized which was slightly below the 0.19% for the
first quarter of 1995. Net charge-offs as a percentage of average total loans
in the first three months of 1996 increased to 0.13% on an annualized basis, up
from an annualized 0.06% during the first three months of 1995.
Total non-performing assets at March 31, 1996, were 0.35% of period-end
loans, unchanged from year-end 1995 but down from the 0.44% at March 31, 1995.
At March 31, 1996, loans past due over 90 days were 0.18% of outstanding loans,
a decrease from the 0.22% level at year-end 1995, but up from the 0.13% at
March 31, 1995. The dollar amounts of both non-performing assets and loans
past due over 90 days are summarized on page 16.
With the continued good credit quality of the loan portfolio, the
allowance for loan losses has remained relatively stable. At March 31, 1996,
the allowance was 1.56% of outstanding loans, as compared to the 1.57% at year-
end and the 1.59% one year ago.
Non-Interest Income and Expense
Total non-interest income was $9.5 million through the first three months
of 1996, up 7.7% from the $8.8 million non-interest income earned during the
same period in 1995. Trust income increased by 15.1% from the first three
months of last year due to the increase in market value of trust assets managed
during the first quarter of 1996 when compared to the same period of 1995.
Service charges on deposit accounts increased by 7.8% in the first three month
comparison due to changes in the service charge fee structure. Real estate
loan processing and service fees increased by 21.2% when compared to the first
three months of 1995. This increase is due to a higher level of fees from
secondary mortgage loan activity combined with income recognized with the
adoption of FAS 122, "Accounting for Mortgage Servicing Rights." Other service
charges and fees increased by 25.0% over the first three months of 1995,
primarily due to increases in sales of mutual funds and other investment
products and increased sales of credit life commissions. Other operating
income decreased by 4.0% due primarily to a lower level of income recognized on
the disposition of other real estate owned and other loan payoffs. Securities
losses of $294,000 were taken in the first quarter of 1996 as part of a
restructing of a portion of One Valley's investment portfolio.
In May 1995, the FASB issued Statement 122, Accounting for Mortgage
Servicing Rights. Statement 122 requires financial institutions to recognize
rights to service mortgage loans for others as separate assets. Mortgage
Servicing Rights can be purchased from a third party or retained from loans
originated internally and sold to third party investors. This statement was
adopted as of January 1, 1996. The adoption of this Statement has had no
material effect on One Valley's financial statements for the first three months
and is expected to be immaterial in future periods.
Total non-interest expense was $30.2 million of operating costs during the
three months ended March 31, 1996, relatively unchanged from the $30.4 million
from the same period in 1995. Staff costs remained consistent with the level
one year ago. Staffing levels have declined by 4.3% from March 31, 1995, as
operations are continually being streamlined and staffing levels are reduced
through normal attrition. Savings were partially offset by normal salary and
benefit increases. Occupancy expense increased by 13.7% primarily due to an
increase in depreciation resulting from facility renovations coupled with
utility and maintenance costs associated with the unusual winter weather during
the quarter. Outside data processing expense increased by 14.4% above the same
period in 1995 primarily due to the second and third quarter 1995 conversions
of newly acquired affiliates to a common external data processing system.
Other operating expenses increased 13.6% in the first three months of 1996 due
to increased expenditures in a number of miscellaneous categories including
employee education, advertising and promotions, maintenance and disposition of
other real estate owned, consulting, and intangible amortization expense.
During the third quarter of 1995, the Federal Deposit Insurance
Corporation (FDIC) lowered its insurance assessment rates as part of the
nationwide funding of the Bank Insurance Fund (BIF). This drop in rates
explains the 85% decrease in Federal Deposit Insurance expense from the first
quarter of 1995 to the first quarter of 1996. Congress continues to debate the
legislation to boost the Savings Association Insurance Fund (SAIF) with a one
time assessment on thrift deposits. At March 31, 1996, One Valley had over
$400 million of SAIF assessable deposits resulting from prior acquisitions of
savings and loan institutions. Accordingly, One Valley will continue to pay
premiums on these SAIF insured deposits at the level experienced in the first
quarter of 1996. If legislation currently being debated is enacted, One Valley
would recognize a one time assessment of approximately $2.8 million in the
period in which the law is enacted, excluding the effect of CSB Financial
deposits.
The net overhead ratio (non-interest expense less non-interest income
excluding security transactions divided by average earning assets) is a measure
of the company's ability to control costs and equalizes the comparison of
differently sized operations. As this ratio decreases, more of the net
interest margin earned flows to net income. One Valley's net overhead ratio
for the first three months of 1996 was 2.28%, down from 2.39% during all of
1995 and down from the 2.59% during the first three months of 1995. This
improvement is a result of a growth in average earning assets and a decrease in
net overhead costs. Average earning assets increased 7.3% in the first three
months of 1996 when compared with the same period in 1995. Net overhead,
however, has decreased by $1.1 million during the same period partially due to
the increase in non-interest income and partially due to the decline in FDIC
insurance expense.
Income tax expense increased by $964,000, or 18.0%, for the first three
months of 1996 in comparison to 1995. The increase in taxes is primarily a
result of the 14.0% growth in pretax earnings. One Valley's effective income
tax rate for the first three months of 1996 was 33.3% compared to 32.1% during
the first three months of 1995.
FINANCIAL CONDITION
Asset Structure
Total loans continued to grow when compared to the first three months of
1995. At March 31, 1996, total loans exceeded March 31, 1995, levels by 5.5%
or $133.4 million. The consolidated loan-to-deposit ratio has also increased
to 80.4% at March 31, 1996, compared to 78.2% at March 31, 1995. Since year-
end 1995, total loans have increased by 1.4% or $34.3 million. This increase
in total loans has resulted from growth in the three major loan categories;
commercial, real estate, and consumer installment.
Investment portfolio assets increased $31.4 million or 2.9% from the level
at year-end and increased by 11.7% or $115.9 million from the level one year
ago. The increase in the investment portfolio over the 1995 level is due to
One Valley's asset/liability strategy which strives to minimize interest rate
risk while enhancing the financial position of the company.
At the time of purchase, management determines the appropriate
classification of securities. If management has the positive intent and One
Valley has the ability at the time of purchase to hold securities until
maturity, they are classified as held-for-investment and carried at amortized
historical cost adjusted for amortization of premiums and accretion of
discounts, which are recognized as adjustments to interest income. Securities
to be held for indefinite periods of time and not intended to be held to
maturity or on a long-term basis are classified as available-for-sale and
carried at fair value. The corresponding difference between the historical
cost and the current fair value of these securities, the unrealized gain or
loss, is an adjustment to shareholders' equity, net of deferred taxes.
Securities available-for-sale include securities that management intends to use
as part of its asset/liability management strategy and that may be sold in
response to changes in interest rates, resultant prepayment risk, and other
related risk factors.
One Valley adopted the provisions of FASB Statement No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" for investments held as
of or acquired after January 1, 1994. At year-end 1994, approximately 55% of
the total investment portfolio was classified as available-for-sale, while 45%
was classified as held-to-maturity. On November 15, 1995, the FASB staff
issued a Special Report, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities." In
accordance with provisions in that Sepcial Report, One Valley chose to
reclassify certain securities from held-to-maturity to available-for-sale and
thus increase the potential liquidity of the investment portfolio. At the date
of transfer, the amortized cost of those securities was $264.8 million and the
net unrealized holding gain on those securities was approximately $3.3 million.
As a result, at year-end 1995, approximately 81% of the total investment
portfolio was classified as available-for-sale, while 19% was classified as
held-to-maturity. At the end of the first quarter of 1996, those ratios have
changed only slightly from year-end but significantly from March one year ago.
At March 31, 1996, approximately 82% of the total investment portfolio was
classified as available-for-sale, while 18% was classified as held-to-maturity,
compared to 56% and 44%, respectively, for March 31, 1995.
Securities designated as available-for-sale at March 31, 1996, had an
historical cost of $902.3 million, with an unrealized gain of approximately
$2.4 million, which increased shareholders' equity by $1.4 million, net of $1.0
million in deferred income taxes. At year-end December 31, 1995, and March 31,
1995, securities available-for-sale had a historical cost of $861.3 million and
$556.9 million, with an unrealized gain of approximately $10.4 million and an
unrealized loss of approximately $3.9 million, respectively. The unrealized
gain increased shareholders' equity by $6.3 million, while the unrealized loss
decreased shareholders' equity by $2.3 million, net of $4.2 and $1.6 million in
deferred taxes, respectively.
In order to improve its fully tax equivalent net interest income and to
hedge against higher income tax rates, One Valley increased its holdings of
tax-exempt securities that were offering attractive yields in 1995. As shown
on the consolidated average balance sheets (page 17), average tax-exempt
securities in the first three months of 1996 increased by 14.1% or $25.2
million over the average during the first three months of 1995. One Valley
will continue to monitor its investment opportunties and may purchase
additional tax-exempt securities of similar yield and quality.
One Valley had no federal funds sold at March 31, 1996, compared to $16.8
million at year-end and $15.9 million one year ago. However, One Valley
averaged $12.7 million in federal funds sold during the first three months of
1996, down 16.9% from the same period in 1995. Fluctuations in federal funds
sold are normal and largely due to planned changes in the company's
asset/liability structure in order to maximize the return on investment in
response to changes in the interest rate environment.
Liability Structure
Total deposits at March 31, 1996, increased $68.2 million or 2.2% from the
level at year-end and increased $79.6 million or 2.6% since March 31, 1995.
Non-interest bearing deposits have increased by 1.0% from year-end, and have
increased by 0.4% since March 31, 1995. Interest bearing deposits at March 31,
1996, increased $64.4 million or 2.4% from year-end and $78.1 million or 3.0%
from one year ago. Average interest bearing deposits for the first quarter of
1996 increased 4.3% over the average for the same period of 1995. Over the
past few years growth in banking deposits has been modest. Due to the low
interest rate environment compared to the early 1990's, deposit customers are
shortening the maturities of their deposit reinvestments and seeking higher
yielding non-traditional investment alternatives. In 1995 through the first
quarter of 1996, One Valley offered higher interest rates on deposit accounts
to its customers. The average rate paid on interest bearing deposits increased
to 4.10% in the first three months of 1996, up from the 4.06% average rate paid
for all of 1995, and the 3.86% average rate paid in the first three months of
1995. In an effort to meet customer expectations for an integrated financial
services delivery system, One Valley operates a fully licensed NASD
Broker/Dealer subsidiary and continues to expand other product lines.
Total short-term borrowings decreased slightly by $2.5 million or 0.6%
from the year-end level, but increased $142.2 million or 58% from the level at
March 31, 1995. Short-term borrowings, which consist of Federal funds
purchased from correspondent banks, repurchase agreements with large corporate
and public entities, advances on credit lines available to the company, and
commercial paper can fluctuate significantly depending upon loan demand and One
Valley's asset/liablility strategy. The increase from March one year ago
includes a $34.9 million increase in federal funds purchased, a $37.8 million
increase in customer overnight repurchase agreements, and a $60.2 million
increase in short-term borrowings with the Federal Home Loan Bank and other
correspondent banks. This increased level of short-term borrowings has been
used to fund loan growth as well as a higher level of investment portfolio
assets as planned under One Valley's asset/liability management program.
Long-term borrowings declined $500,000 or 3.8% since year-end 1995 and
$1.5 million or 10.7% since March 31, 1995. The decline since year-end 1995
was the result of $500,000 in payments on long-term advances from the FHLB.
The $12.9 million of long-term borrowings at March 31, 1996, principally
consists of FHLB advances incurred prior to 1994 to fund investments in
mortgage backed securites. Approximately $5.0 million of these advances mature
in 1996.
Acquisitions and Name Change
At the close of business on April 30, 1996, One Valley Bancorp acquired
all of the outstanding stock of CSB Financial Corporation, headquartered in
Lynchburg, Virginia. Pursuant to the merger agreement, One Valley exchanged
0.6774 shares of its common stock for each share of CSB Financial's common
stock. The transaction was valued at approximately $55.7 million, or $21.08
per share of CSB Financial common stock. The combination was accounted for
under the purchase method of accounting. Accordingly, consolidated results in
future periods after April 30, 1996, will include the operations of CSB
Financial only from the date of acquisition. Coinciding with that transaction,
One Valley shareholders voted to change the company name from One Valley
Bancorp of West Virginia, Inc. to One Valley Bancorp, Inc.
Capital Structure and Liquidity
One Valley's equity-to-asset ratio has decreased slightly since year-end
but remains strong compared to industry standards. At March 31, 1996, the
ratio was 8.95% compared to 9.49% at December 31, 1995, and 9.37% one year ago.
This decrease since year-end is primarily attributable to the repurchase of
common shares of One Valley Bancorp stock in the open market which was
initiated as part of the CSB Financial acquisition.
One Valley's cash dividends, totaling $0.27 per share through the first
three months of 1996, were up 8% over the $0.25 per share dividend during the
same period in 1995. One Valley's dividend policy coupled with the continued
growth in net income, demonstrates management's commitment to a strong equity-
to-asset ratio benefiting both the investor and the depositors of the local
community. One Valley's risk based capital ratio at March 31, 1996 was 15.28%,
well above the 8.0% required, while its Tier I capital ratio was 14.03%. One
Valley's strong capital position is demonstrated further by its leverage ratio
of 8.72% compared to regulatory guidance of 4.0% to 5.0%. The capital ratios
of the banking subsidiaries also remain strong and allow them to effectively
serve the communities in which they are located.
The capital positions of the banks, coupled with proper asset/liability
matching and the stable nature of the primarily consumer base of core deposits,
results in the maintenance of a strong liquidity position. The liquidity of
the parent company is dependent upon dividends from its banking subsidiaries
which, although restricted by banking regulations, are adequate to meet its
cash needs.
The Board of Directors has authorized management to repurchase shares of
One Valley Bancorp common stock in the open market. In January 1996,
simultaneous with the announced merger agreement between One Valley and CSB
Financial, the Board of Directors authorized management to repurchase an
additional 1.8 million shares of One Valley common stock. As of March 31,
1996, One Valley held 1.6 million shares of treasury stock and has remaining
Board authorization for the repurchase of 1.4 million additional shares. Any
purchases under this or previous authorizations will depend upon future market
conditions.
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.
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Analysis of Loan Losses and Non-Performing Assets
(unaudited in thousands)
<CAPTION>
For The Three Months
Ended March 31
1996 1995
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, Beginning of Period $39,534 $37,438
Loan Losses 1,258 1,040
Loan Recoveries 411 666
------- -------
Net Charge-offs 847 374
Balance of Acquired Subsidiary 0 235
Provision For Loan Losses 1,149 1,113
------- -------
Balance, End of Period $39,836 $38,412
======= =======
Total Loans, End of Period $2,546,298 $2,412,895
Allowance For Loan Losses As a % of Total Loans 1.56 1.59
========== ==========
NON-PERFORMING ASSETS AT QUARTER END
Non-Accrual Loans $7,459 $8,891
Foreclosed Properties 1,384 1,301
Restructured Loans 0 415
------- -------
Total Non-Performing Assets $8,843 $10,607
======= =======
Non-Performing Assets As a % of Total Loans 0.35 0.44
Loans Past Due Over 90 Days $4,653 $3,236
Loans Past Due Over 90 Days As a % of Total Loans 0.18 0.13
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Average Balance Sheets
(unaudited in thousands)
<CAPTION>
Three Months Ended March 31
1996 1995
Amount Yield/Rate Amount Yield/Rate
(pct.) (pct.)
<S> <C> <C> <C> <C>
ASSETS
Loans
Taxable $2,481,722 8.94 $2,345,268 9.00
Tax-Exempt 39,563 10.04 35,052 11.18
---------- ----------
Total 2,521,285 8.96 2,380,320 9.03
Less: Allowance for Losses 39,720 37,810
---------- ----------
Net Loans 2,481,565 9.10 2,342,510 9.18
Securities
Taxable 881,966 6.36 799,511 5.97
Tax-Exempt 203,946 8.37 178,769 8.62
---------- ----------
Total 1,085,912 6.74 978,280 6.46
Federal Funds Sold & Other 12,652 3.20 15,233 5.32
---------- ----------
Total Earning Assets 3,580,129 8.36 3,336,023 8.36
Other Assets 255,798 265,948
---------- ----------
Total Assets $3,835,927 $3,601,971
========== ==========
LIABILITIES AND EQUITY
Interest Bearing Liabilities
Deposits $2,681,455 4.10 $2,570,233 3.86
Short-term Borrowings 370,538 4.79 280,142 4.74
Long-term Borrowings 13,197 6.08 15,208 6.08
---------- ----------
Total Interest
Bearing Liabilities 3,065,190 4.19 2,865,583 3.96
Non-interest Bearing Deposits 368,609 374,965
Other Liabilities 39,059 32,997
---------- ----------
Total Liabilities 3,472,858 3,273,545
Shareholders' Equity 363,069 328,426
---------- ----------
Total Liabilities & Equity $3,835,927 $3,601,971
========== ==========
Interest Income To Earning Assets 8.36 8.36
Interest Expense To Earning Assets 3.59 3.40
------ ------
Net Interest Margin 4.77 4.96
====== ======
<FN> Note: Yields are computed on a fully taxable equivalent basis using the rate of 35%.
</TABLE>
<PAGE>
One Valley Bancorp, Inc.
Part II. Other Information
Item 6. Exhibits and Reports on Form 10-Q
a.) Exhibits
11. Statement of Computation of Earnings per Share - page 19 attached.
27. Financial Data Schedule - electronic filing only.
b.) Reports on Form 8-K
January 26, 1996 - Definitive Agreement with CSB Financial
March 21, 1996 - Change in date of CSB Merger
April 30, 1996 - CSB Merger Announcement
SIGNATURES
Pursuant to the requirements 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.
DATE May 14, 1996
BY /s/J. Holmes Morrison
J. Holmes Morrison
President and
Chief Executive Officer
BY /s/Laurance G. Jones
Laurance G. Jones
Executive Vice President &
Treasurer
<TABLE>
Exhibit 11
Statement Re: Computation of Earnings per Share
<CAPTION>
For The Three Months
Ended March 31
1996 1995
<S> <C> <C>
PRIMARY:
Average Shares Outstanding 16,794,000 17,079,381
Net effect of the assumed exercise
of stock options - based on the
treasury stock method 103,000 104,000
------------ ------------
Total 16,897,000 17,183,381
============ ============
Net Income $12,648,000 $11,288,000
Per Share Amount $0.75 $0.66
============ ============
FULLY DILUTED:
Average Shares Outstanding 16,794,000 17,079,381
Net effect of the assumed exercise
of stock options - based on the
treasury stock method 118,000 113,000
------------ ------------
Total 16,912,000 17,192,381
============ ============
Net Income $12,648,000 $11,288,000
Per Share Amount $0.75 $0.66
============ ============
</TABLE>
<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 TO SUCH FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES.
</LEGEND>
<CIK> 0000351616
<NAME> ONE VALLEY BANCORP, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 128997
<INT-BEARING-DEPOSITS> 20981
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 904682
<INVESTMENTS-CARRYING> 203594
<INVESTMENTS-MARKET> 205668
<LOANS> 2546298
<ALLOWANCE> 39836
<TOTAL-ASSETS> 3909942
<DEPOSITS> 3116551
<SHORT-TERM> 387317
<LIABILITIES-OTHER> 43184
<LONG-TERM> 12904
0
0
<COMMON> 180587
<OTHER-SE> 169399
<TOTAL-LIABILITIES-AND-EQUITY> 3909942
<INTEREST-LOAN> 55952
<INTEREST-INVEST> 16807
<INTEREST-OTHER> 101
<INTEREST-TOTAL> 72860
<INTEREST-DEPOSIT> 27399
<INTEREST-EXPENSE> 32022
<INTEREST-INCOME-NET> 40838
<LOAN-LOSSES> 1149
<SECURITIES-GAINS> (294)
<EXPENSE-OTHER> 30217
<INCOME-PRETAX> 18956
<INCOME-PRE-EXTRAORDINARY> 18956
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12648
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<YIELD-ACTUAL> 4.77
<LOANS-NON> 7459
<LOANS-PAST> 4653
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 39534
<CHARGE-OFFS> 1258
<RECOVERIES> 411
<ALLOWANCE-CLOSE> 39836
<ALLOWANCE-DOMESTIC> 39836
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
