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 September 30, 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
of incorporation or organization) Identification No.)
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 September 30, 1996 was:
Common Stock, $10.00 par value -- 22,276,978 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 - 8 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 nine month period ended September 30, 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 9 - 19 of this report.
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited in thousands)
<CAPTION>
September 30 December 31 September 30
1996 1995 1995
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $151,116 $140,617 $142,951
Interest Bearing Deposits With Other Banks 12,542 8,259 5,194
Federal Funds Sold 2,800 16,800 500
---------- ---------- ----------
Cash and Cash Equivalents 166,458 165,676 148,645
Securities
Available-for-Sale, at fair value 972,313 871,699 549,106
Held-to-Maturity (Estimated Fair Value,
Sept. 30, 1996 - $204,207; December 31, 1995 - $212,040;
Sept. 30, 1995 - $466,413) 205,195 205,153 464,453
Loans
Total Loans 2,794,102 2,511,962 2,469,786
Less: Allowance For Loan Losses 41,709 39,534 39,428
---------- ---------- ----------
Net Loans 2,752,393 2,472,428 2,430,358
Premises & Equipment - Net 85,261 80,688 81,684
Other Assets 88,306 62,652 63,805
---------- ---------- ----------
Total Assets $4,269,926 $3,858,296 $3,738,051
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest Bearing $401,645 $389,514 $390,661
Interest Bearing 2,965,845 2,658,822 2,650,137
---------- ---------- ----------
Total Deposits 3,367,490 3,048,336 3,040,798
Short-term Borrowings
Federal Funds Purchased 34,233 54,005 17,960
Repurchase Agreements and Other Borrowings 404,043 335,775 278,489
---------- ---------- ----------
Total Short-term Borrowings 438,276 389,780 296,449
Long-term Borrowings 15,892 13,411 8,434
Other Liabilities 47,783 40,467 36,580
---------- ---------- ----------
Total Liabilities 3,869,441 3,491,994 3,382,261
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 24,872,838 shares at September 30, 1996;
18,016,584 shares at December 31, 1995;
17,994,164 shares at September 30, 1995 248,728 180,166 179,942
Capital Surplus 73,663 34,603 34,340
Retained Earnings 142,924 168,625 160,043
Unrealized (Loss) Gain on Securities Available-for-Sale,
net of deferred taxes (4,501) 6,252 1,795
Treasury Stock - 2,595,860 shares at September 30, 1996,
954,200 shares at December 31, 1995;
860,200 shares at September 30, 1995; at cost (60,329) (23,344) (20,330)
---------- ---------- ----------
Total Shareholders' Equity 400,485 366,302 355,790
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $4,269,926 $3,858,296 $3,738,051
========== ========== ==========
</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 For The Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans
Taxable $60,655 $55,265 $174,290 $161,285
Tax-Exempt 738 609 2,044 1,863
-------- -------- -------- --------
Total 61,393 55,874 176,334 163,148
Interest on Investment Securities
Taxable 16,160 12,797 46,157 37,438
Tax-Exempt 2,767 2,655 8,318 7,661
-------- -------- -------- --------
Total 18,927 15,452 54,475 45,099
Other Interest Income 143 491 388 1,614
-------- -------- -------- --------
Total Interest Income 80,463 71,817 231,197 209,861
INTEREST EXPENSE
Deposits 31,237 27,428 88,292 78,958
Short-term Borrowings 4,819 3,486 13,691 9,962
Long-term Borrowings 250 143 706 554
-------- -------- -------- --------
Total Interest Expense 36,306 31,057 102,689 89,474
-------- -------- -------- --------
Net Interest Income 44,157 40,760 128,508 120,387
Provision For Loan Losses 1,353 1,762 3,836 3,988
-------- -------- -------- --------
Net Interest Income
After Provision For Loan Losses 42,804 38,998 124,672 116,399
OTHER INCOME
Trust Department Income 2,287 2,036 6,967 6,063
Service Charges on Deposit Accounts 3,715 3,596 10,822 10,330
Real Estate Loan Processing & Servicing Fees 1,442 1,272 4,224 3,551
Other Service Charges and Fees 1,444 1,391 4,211 3,776
Other Operating Income 1,520 1,371 4,343 4,418
Securities Transactions (147) (86) (413) (66)
-------- -------- -------- --------
Total Other Income 10,261 9,580 30,154 28,072
OTHER EXPENSES
Salaries and Employee Benefits 16,254 15,261 48,928 47,142
Occupancy Expense - Net 1,673 1,556 5,083 4,656
Equipment Expenses 2,346 2,093 6,624 6,500
Federal Deposit Insurance 4,159 1,479 4,760 4,815
Outside Data Processing 1,206 1,180 3,762 3,396
Other Operating Expenses 9,505 8,492 27,581 24,378
-------- -------- -------- --------
Total Other Expenses 35,143 30,061 96,738 90,887
-------- -------- -------- --------
Income Before Taxes 17,922 18,517 58,088 53,584
Applicable Income Taxes 5,902 6,187 19,380 17,668
-------- -------- -------- --------
NET INCOME $12,020 $12,330 $38,708 $35,916
======== ======== ======== ========
NET INCOME PER COMMON SHARE $0.54 $0.57 $1.78 $1.67
======== ======== ======== ========
Based on Average Shares Outstanding of 22,360 21,449 21,782 21,498
</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) $6,252
Stock Issued for Acquisition 17,890 37,817 0 0 0
Nine Months Ended September 30, 1996
Net Income 0 0 38,708 0 0
Cash Dividends ($.68 per share) 0 0 (14,663) 0 0
Five for Four Stock Split 49,746 0 (49,746) 0 0
Change in Fair Value of Securities
Available for Sale, net of deferred taxes 0 0 0 0 (10,753)
Treasury Shares Purchased 0 0 0 (36,985) 0
Stock Options Exercised 926 1,243 0 0 0
-------- -------- -------- -------- --------
Balance September 30, 1996 $248,728 $73,663 $142,924 ($60,329) ($4,501)
======== ======== ======== ======== ========
Balance December 31, 1994 $175,384 $25,954 $137,437 ($10,373) ($6,535)
Stock Issued for Acquisition 4,116 8,130 0 0 0
Nine Months Ended September 30, 1995
Net Income 0 0 35,916 0 0
Cash Dividends ($.62 per share) 0 0 (13,310) 0 0
Change in Fair Value of Securities 0 0 0 0 0
Available for Sale, net of deferred taxes 0 0 0 0 8,330
Treasury Shares Purchased 0 0 0 (9,957) 0
Stock Options Exercised 442 256 0 0 0
-------- -------- -------- -------- --------
Balance September 30, 1995 $179,942 $34,340 $160,043 ($20,330) $1,795
======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited in thousands)
<CAPTION>
For The Nine Months
Ended September 30
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $38,708 $35,916
Adjustments To Reconcile Net Income To Net Cash
Provided by Operating Activities:
Provision For Loan Losses 3,836 3,988
Depreciation 6,487 6,061
Amortization and Accretion 3,172 2,643
Net Loss (Gain) From Sales of Assets 383 66
Increase (Decrease) Due to Changes In:
Accrued Interest Receivable (414) (3,024)
Accrued Interest Payable (426) 3,088
Other Assets and Other Liabilities 5,296 552
-------- --------
Net Cash Provided by Operating Activities 57,042 49,290
INVESTING ACTIVITIES
Proceeds From Sales of Securities Available for Sale 104,662 80,669
Proceeds From Maturities of Securities Available for Sale 187,639 177,181
Proceeds From Maturities of Securities Held to Maturity 5,686 25,191
Purchases of Securities Available for Sale (277,049) (219,400)
Purchases of Securities Held to Maturity (5,788) (45,164)
Net Increase In Loans (121,319) (86,539)
Acquisition of Subsidiary, Net of Cash Paid 10,866 4,454
Purchases of Premises and Equipment (5,721) (4,309)
-------- --------
Net Cash Used in Investing Activities (101,024) (67,917)
FINANCING ACTIVITIES
Net Increase in Interest Bearing and Non-interest Bearing Deposit 62,022 72,174
Net Decrease in Federal Funds Purchased (19,772) (35,185)
Net Increase (Decrease) in Other Short-term Borrowings 57,512 (43,705)
Repayment of Long-term Debt (5,519) (11,516)
Proceeds From Issuance of Common Stock 2,169 699
Purchase of Treasury Stock (36,985) (9,957)
Dividends Paid (14,663) (13,310)
-------- --------
Net Cash Provided by (Used in) Financing Activities 44,764 (40,800)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 782 (59,427)
Cash And Cash Equivalents at Beginning of Year 165,676 208,072
-------- --------
Cash And Cash Equivalents, September 30 $166,458 $148,645
======== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of PresentationThe
accounting and reporting policies of One Valley conform to generally accepted
accounting principles and practices in 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. 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 nine
months of operating results presented for One Valley in this report and are
immaterial.
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.
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" which is
applicable to One Valley effective January 1, 1997. However, on October 30,
1996, the FASB agreed to defer the effective date for one year for the
following transactions: securities lending, repurchase agreements, dollar
rolls and other similiar secured transactions. The delay in implementation
was necessary to allow companies to overcome technological problems in their
systems which would create control and accountability issues. Statement No.
125 establishes standards for determining whether certain transfers of
financial assets should be considered sales of all or part of the assets or as
secured borrowings. The Statement also establishes standards surrounding
settlements of liabilities through the transfer of assets to a creditor or
obtaining an unconditional release and whether these settlements should prove
the debt extinguished. One Valley's management anticipates this statement to
have an immaterial effect on the financial results of the company for 1997.
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
shares valued at approximately $55.7 million for CSB Financial common stock.
The combination was accounted for under the purchase method of accounting.
Accordingly, consolidated results as of September 30, 1996, include the
operations of CSB Financial only from the date of acquisition. Coinciding
with the close of that transaction, One Valley shareholders previously 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.
Note D - Securities
One Valley adopted the provisions of FASB Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" for investments held as of
or acquired after January 1, 1994. In accordance with Statement No. 115, One
Valley designates securities as available-for-sale or held-to-maturity based
on management's intent at the time the security is purchased. Securities
designated as available-for-sale at September 30, 1996, had an historical cost
of $979.8 million, with an unrealized loss of approximately $7.5 million,
which decreased shareholders' equity by $4.5 million, net of $3.0 million in
deferred income taxes. At year-end December 31, 1995, and September 30, 1995,
securities available-for-sale had a historical cost of $861.3 million and
$546.1 million, with an unrealized gain of approximately $10.4 million and
$3.0 million, respectively. The unrealized gains increased shareholders'
equity by $6.3 million and $1.8 million, net of $4.2 and $1.2 million in
deferred income taxes, respectively.
Note E - Stock Splits and Stock Dividends
On September 18, 1996, One Valley's Board of Directors authorized a five-for-
four stock split of common shares effected in the form of a 25% stock dividend
to shareholders of record on September 30, 1996. Average shares outstanding
and per share amounts included in the consolidated financial statements have
been adjusted for the stock split.
One Valley Bancorp, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
September 30, 1996
INTRODUCTION AND SUMMARY
Net income for the third quarter of 1996 totaled $12.0 million, a 2.5%
decrease from the $12.3 million earned in the same quarter of 1995. Net
income and earnings per share results include a one-time $2.3 million charge,
net of applicable income taxes, for a special assessment on certain financial
institutions to recapitalize the Savings Association Insurance Fund (SAIF).
Details of this assessment are explained below. Excluding this one-time
assessment, One Valley earned net operating income of $14.4 for the quarter
ended September 30, 1996, a 16.5% increase over the $12.3 earned during the
same period of 1995. On a per share basis, which has been adjusted for a 5
for 4 stock split declared in September 1996, net income declined by 5.3% to
$0.54 from the $0.57 earned in the third quarter of 1995 due to the special
assessment. Financial results discussed in this report include the effect of
the one-time special assessment, $0.10 per share, unless otherwise indicated.
Return on average assets (ROA) measures how effectively One Valley
utilizes its assets to produce net income. ROA was 1.14% in the third quarter
of 1996, a decrease from the 1.33% earned during the same period of 1995.
Return on average equity (ROE) also decreased, from 13.93% for the third
quarter of 1995 to 12.00% earned in the third quarter of 1996.
The following discussion is an analysis of the financial condition and
results of operations of One Valley for the first nine 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.
Supervision and Regulation
On September 30, 1996, President Clinton signed into law an omnibus
appropration act. The act contained a provision requiring a one-time
assessment on certain financial institutions to recapitalize the Savings
Association Insurance Fund (SAIF). At September 30, 1996, One Valley had
approximately $643.1 million of SAIF assessable deposits resulting from prior
acquisitions of savings and loan institutions including CSB Financial
Corporation (see below). As a result, One Valley's portion of this special
one-time assessment will be approximately $3.8 million ($2.3 million, net of
applicable income taxes). Net income and operating expenses reported for the
quarter ended September 30, 1996, include this one-time assessment.
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
shares valued at approximately $55.7 million for CSB Financial common stock.
The combination was accounted for under the purchase method of accounting.
Accordingly, consolidated results as of September 30, 1996, include the
operations of CSB Financial only from the date of acquisition. Coinciding
with the close of that transaction, One Valley shareholders previously voted
to change the company name from One Valley Bancorp of West Virginia, Inc. to
One Valley Bancorp, Inc.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the nine months ended September 30, 1996, was
$134.1 million on a fully tax-equivalent basis, a 6.9% increase over the
$125.5 million earned during the same period in 1995. This increase is
largely due to a $243.6 million, or 10.1% increase in average total loans and
a $156.3 million, or 15.8% increase in average securities during the first
nine month comparison. In total, average earning assets increased by 11.0% or
$374.8 million in the first nine months of 1996 over the same period in 1995,
while average interest bearing liabilities increased by 11.7% or $339.5
million in the same period. Both total interest income and total interest
expense increased from the prior year due to the increases in volume and
changes in the mix of assets and liabilities. Approximately forty-five
percent of this growth was attributable to the second quarter acquisition of
CSB Financial Corporation while the remainder was due to internal growth.
As shown in the consolidated average balance sheets (page 19), the yield
on earning assets declined to 8.37% for the first nine months of 1996 from
8.44% during the first nine months of 1995. During the same period, the cost
of interest bearing liabilities increased 11 basis points to 4.22% from last
year's 4.11% 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 discussed later in this report. Due to the increase in the cost
of interest bearing liabilities, the net interest margin decreased to 4.74%
during the first nine months of 1996, compared to 4.92% during the first nine
months of 1995. Internal interest rate risk simulations indicate that over
the next twelve months a sharp rise in interest rates would have a slightly
positive influence on net interest income whereas, a sharp decline in rates
would have a slightly 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 $3.8 million for the nine months ended
September 30, 1996, 3.8% below the provision made in the same period of 1995.
As a percentage of average total loans, the provision for loan losses through
the first nine months of 1996 was 0.19% annualized, compared with 0.22% for
the first nine months of 1995. The provision for loan losses was based upon
One Valley's continual evaluation process of the adequacy of the allowance for
loan losses. Net charge-offs as a percentage of average total loans in the
first nine months of 1996 increased to 0.19% on an annualized basis, up from
an annualized 0.12% during the same period of 1995.
Total non-performing assets at September 30, 1996, were 0.42% of period-
end loans, up from the 0.35% at December 31, 1995 and September 30, 1995. Of
the $1.9 million increase in non-accrual loans, $850,000 is attributable to
the CSB Financial acquisition while $870,000 of the increase was in real
estate secured non-accrual loans. Foreclosed properties at September 30, 1996
were up $1.2 million or 101.9% over September 30, 1995. Although non-
perfoming assets at September 30, 1996, have increased from the level one year
ago, the allowance for loan losses is sufficient to absorb over three and one-
half times the amount of non-performing assets. At September 30, 1996, loans
past due over 90 days were 0.21% of outstanding loans, a decrease from the
0.22% level at year-end 1995, but up from the 0.18% at September 30, 1995. An
analysis of the allowance for loan losses and non-performing assets is
included on page 18.
With the continued good credit quality of the loan portfolio, the
allowance for loan losses has remained relatively stable. At September 30,
1996, the allowance was 1.49% of outstanding loans, as compared to the 1.57%
at year-end and the 1.60% one year ago.
Non-Interest Income and Expense
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 various sized operations. As this ratio decreases, more of the net
interest margin flows to net income. One Valley's net overhead ratio for the
first nine months of 1996 was 2.34%, 2.20% excluding the SAIF Assessment. The
reported percentage was down from 2.39% during all of 1995 and down from the
2.46% during the first nine months of 1995. This improvement is a result of
growth in average earning assets and decrease in net overhead, excluding the
SAIF Assessment, from the same period in 1995. Average earning assets
increased 11.0% in the first nine months of 1996 when compared with the same
period in 1995. Excluding the effect of the SAIF Assessment, net overhead
decreased by 0.6% during the same period due to an increase in non-interest
income coupled with a decline in FDIC insurance expense. These ratios reflect
the inclusion of CSB Financial only for the five months since its acquisition
on April 30, 1996.
Total non-interest income was $30.2 million through the first nine months
of 1996, up 7.4% from the $28.1 million non-interest income earned during the
same period in 1995. Trust income increased by 14.9% from the first nine
months of last year due to new business and an increase in the market value of
trust assets managed during the first nine months of 1996 when compared to the
same period of 1995. Service charges on deposit accounts increased by 4.8% in
the first nine month comparison due to changes in the service charge fee
structure. Real estate loan processing and service fees increased by 19.0%
when compared to the first nine months of 1995. This increase is due to 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 11.5% over the first nine months of
1995, primarily due to increases in sales of mutual funds and other investment
products. Other operating income decreased by 1.7% due primarily to a lower
level of income recognized on the disposition of other real estate owned and
other loan payoffs. Securities losses of $413,000 were recognized in the
first nine months of 1996 as part of a restructuring 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 total financial results for the first nine
months and is expected to be immaterial in future periods.
Total non-interest expense was $96.7 million during the nine months ended
September 30, 1996, a 6.4% increase from the $90.9 million during the same
period in 1995. Excluding the SAIF Assessment the increase in non-interest
expenses was limited to 2.3%, or $2.1 million from the same period last year.
Staff costs increased by 3.8% from the level one year ago. Staffing levels,
excluding the effect of acquisitions, have declined by 6.1% from September 30,
1995, as operations are continually being streamlined and levels are reduced
through normal attrition; however, savings have been offset by normal salary
and benefit increases and an increase in staff from the Lynchburg acquisition.
Occupancy expense increased by 9.2% primarily due to an increase in
depreciation resulting from facility renovations and the additional Lynchburg
locations. Increases in equipment maintenance costs are primarily due to the
Lynchburg acquisition. Federal deposit insurance expense includes the one-
time $3.8 million SAIF assessment described previously. Outside data
processing expense increased by 10.8% above the same period in 1995. Nearly
half of this increase is due to the new Lynchburg operations. The remainder
of this increase is 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 13.1% in the first nine months of
1996. A third of this increase was the result of CSB Financial acquisition.
The remainder is largely due to expenditures associated with a new marketing
image campaign launched in the third quarter of 1996, maintenance and
disposition of other real estate owned, increases in local non-income taxes,
and increases in intangible amortization expense.
Income tax expense increased by $1.7 million, or 9.7%, for the first nine
months of 1996 compared with the same period in 1995. The increase in taxes
is primarily a result of the 8.4% growth in pretax earnings. One Valley's
effective income tax rate for the first nine months of 1996 was 33.4% compared
to 33.0% during the first nine months of 1995.
FINANCIAL CONDITION
Asset Structure
Total loans continued to grow when compared to the first nine months of
1995. At September 30, 1996, total loans exceeded September 30, 1995, levels
by 13.1% or $324.3 million. Approximately $173.4 million of the change in
period-end loans was attributable to the CSB Financial acquisition. The
consolidated loan-to-deposit ratio has also increased to 81.7% at September
30, 1996, compared to 79.9% at September 30, 1995. Since year-end 1995, total
loans have increased by 4.3% or $108.7 million, excluding the CSB transaction.
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 $100.7 million or 9.3% from the
level at year-end and by $163.9 million or 16.2% from the level one year ago,
largely due to the CSB Financial acquistion. Other increases in the
investment portfolio were due to One Valley's asset/liability strategy which
strives to minimize interest rate risk while enhancing the financial position
of the company.
Securities designated as available-for-sale at September 30, 1996, had an
historical cost of $979.8 million, with an unrealized loss of approximately
$7.5 million, which decreased shareholders' equity by $4.5 million, net of
$3.0 million in deferred income taxes. At year-end December 31, 1995, and
September 30, 1995, securities available-for-sale had a historical cost of
$861.3 million and $546.1 million, with an unrealized gain of approximately
$10.4 million and $3.0 million, respectively. The unrealized gains increased
shareholders' equity by $6.3 million and $1.8 million, net of $4.2 and $1.2
million in deferred income taxes, respectively.
At the time of purchase, management determines the appropriate
classification of securities. 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 income 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. 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.
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 Special Report, One Valley chose to
reclassify certain securities from held-to-maturity to available-for-sale and
thus increase the potential liquidity of the investment portfolio. At the
date of transfer, the amortized cost of those securities was $264.8 million
and the net unrealized holding gain on those securities was approximately $3.3
million. As a result, at year-end 1995, 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 third quarter of 1996,
those ratios have changed only slightly from year-end but significantly from
September one year ago. At September 30, 1996, approximately 83% of the total
investment portfolio was classified as available-for-sale, while 17% was
classified as held-to-maturity, compared to 54% and 46%, respectively, for
September 30, 1995.
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 1996 and 1995.
As shown on the consolidated average balance sheets (page 19), average tax-
exempt securities in the first nine months of 1996 increased by 11.4% or $21.0
million over the average during the first nine months of 1995. One Valley
will continue to monitor its investment opportunties and may purchase
additional tax-exempt securities of similar yield and quality.
Federal funds sold at September 30, 1996, were $2.8 million, down $14.0
million from year-end but up $2.3 million from one year ago. 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 September 30, 1996, increased $319.2 million or 10.5%
from the level at year-end and $326.7 million or 10.7% since September 30,
1995. Approximately $273.0 million of the change in total deposits was
attributable to the CSB Financial acquisition. 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. The majority of the growth in One Valley's core
deposits, exclusive of the CSB acquisition, has been in certificates of
deposit, which have increased by 11.0% since September 1995. Other deposits,
including interest-bearing transaction accounts and savings accounts, have
decreased by 14.7% during this time period. Some of these deposits were
reinvested in certificates of deposit or other investment products. The
average rate paid on interest bearing deposits increased to 4.13% in the first
nine months of 1996, up from the 4.06% average rate paid for all of 1995, and
the 4.03% average rate paid in the first nine months of 1995 largely due to
increased rates on fixed rate CDs and IRAs. 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 increased by $48.5 million or 12.4% from the
year-end level, and increased $141.8 million or 47.8% from the level at
September 30, 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,
deposit growth, and One Valley's asset/liablility strategy. The increase from
September one year ago is primarily the result of a $68.0 million increase in
short-term borrowings with the Federal Home Loan Bank, and a $33.0 million
increase in customer overnight repurchase agreements. The increased level of
short-term borrowings has been used to fund the $159.4 million loan growth as
well as the higher level of investment portfolio assets as planned under One
Valley's asset/liability management program.
Long-term borrowings increased $2.5 million or 18.5% since year-end 1995
and $7.5 million or 88.4% since September 30, 1995. The increase since
September one year ago was the result of $8.0 million in FHLB advances
acquired through the CSB Financial transaction and $5.0 million in FHLB
advances incurred in the fourth quarter of 1995. Partially offsetting the
debt acquired were $5.5 million in payments primarily on long-term advances
from the FHLB. The $15.9 million of long-term borrowings at September 30,
1996, principally consists of FHLB advances incurred prior to 1994 to fund
investments in mortgage backed securites. Approximately $2.0 million of these
advances mature in the fourth quarter of 1996 and $7.0 million will mature in
1997.
Capital Structure and Liquidity
On September 18, 1996, One Valley approved a 5 for 4 stock split effected
in the form of a 25% stock dividend. On October 9, 1996, One Valley
shareholders received one additional share of One Valley common stock for each
four shares of stock they held as of the record date, September 30, 1996.
Customary with a stock split, the market value and all per share information
have been adjusted to reflect the additional shares outstanding.
One Valley's equity-to-asset ratio was 9.38%, down slightly from the
9.49% at December 31, 1995, and 9.52% one year ago. The 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 in conjunction with the
CSB Financial acquisition, and a $10.8 million swing in unrealized gains and
losses on securities available for sale.
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 2.2 million shares of One Valley common stock (adjusted for the 5
for 4 stock split). As of September 30, 1996, One Valley held 2.6 million
shares of treasury stock and has remaining Board authorization for the
repurchase of 1.1 million additional shares. Any purchases under this or
previous authorizations will depend upon future market conditions.
One Valley's cash dividends, totaling $0.68 per share through the first
nine months of 1996, were up 10.4% over the $0.62 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 September
30, 1996 was 15.94%, well above the 8.0% required, while its Tier I capital
ratio was 14.69%. One Valley's strong capital position is demonstrated
further by its leverage ratio of 8.99% 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.
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 For The Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, Beginning of Period $42,150 $38,642 $39,534 $37,438
Loan Losses 2,212 1,374 5,073 3,779
Loan Recoveries 418 398 1,185 1,546
------- ------- ------- -------
Net Charge-offs 1,794 976 3,888 2,233
Balance of Acquired Subsidiary 0 0 2,227 235
Provision For Loan Losses 1,353 1,762 3,836 3,988
------- ------- ------- -------
Balance, End of Period $41,709 $39,428 $41,709 $39,428
======= ======= ======= =======
Total Loans, End of Period $2,794,102 $2,469,786
Allowance For Loan Losses As a % of Total Loans 1.49 1.60
========== ==========
NON-PERFORMING ASSETS AT QUARTER END
Non-Accrual Loans $9,272 $7,325
Foreclosed Properties 2,388 1,183
Restructured Loans 0 186
------- -------
Total Non-Performing Assets $11,660 $8,694
======= =======
Non-Performing Assets As a % of Total Loans 0.42 0.35
Loans Past Due Over 90 Days $5,823 $4,449
Loans Past Due Over 90 Days As a % of Total Loans 0.21 0.18
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Average Balance Sheets
(unaudited in thousands)
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
1996 1995 1996 1995
Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate Amount Yield/Rate
(pct.) (pct.) (pct.) (pct.)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans
Taxable $2,731,099 8.84 $2,415,281 9.08 $2,616,544 8.90 $2,381,271 9.06
Tax-Exempt 46,481 9.72 33,338 11.15 42,615 9.86 34,241 11.19
---------- ---------- ---------- ----------
Total 2,777,580 8.85 2,448,619 9.11 2,659,159 8.91 2,415,512 9.09
Less: Allowance for
Losses 42,311 38,848 41,172 38,470
---------- ---------- ---------- ----------
Net Loans 2,735,269 8.99 2,409,771 9.25 2,617,987 9.05 2,377,042 9.23
Securities
Taxable 965,372 6.70 807,878 6.34 939,427 6.55 804,169 6.21
Tax-Exempt 205,302 8.29 193,045 8.46 204,707 8.34 183,704 8.55
---------- ---------- ---------- ----------
Total 1,170,674 6.98 1,000,923 6.75 1,144,134 6.87 987,873 6.64
Federal Funds Sold
& Other 15,829 3.59 34,419 5.66 14,533 3.57 36,894 5.85
---------- ---------- ---------- ----------
Total Earning Assets 3,921,772 8.37 3,445,113 8.49 3,776,654 8.37 3,401,809 8.44
Other Assets 298,296 274,153 280,474 267,981
---------- ---------- ---------- ----------
Total Assets $4,220,068 $3,719,266 $4,057,128 $3,669,790
========== ========== ========== ==========
LIABILITIES AND EQUITY
Interest Bearing Liabilities
Deposits $2,978,338 4.17 $2,646,008 4.11 $2,852,220 4.13 $2,619,924 4.03
Short-term Borrowings 395,609 4.85 287,167 4.82 382,097 4.79 277,997 4.79
Long-term Borrowings 16,241 6.12 8,992 6.31 15,412 6.12 12,352 6.00
---------- ---------- ---------- ----------
Total Interest
Bearing
Liabilities 3,390,188 4.26 2,942,167 4.19 3,249,729 4.22 2,910,273 4.11
Non-interest Bearing
Deposits 385,454 390,120 382,601 382,813
Other Liabilities 43,882 32,814 41,106 32,832
---------- ---------- ---------- ----------
Total Liabilities 3,819,524 3,365,101 3,673,436 3,325,918
Shareholders' Equity 400,545 354,165 383,692 343,872
---------- ---------- ---------- ----------
Total Liabilities
& Equity $4,220,069 $3,719,266 $4,057,128 $3,669,790
========== ========== ========== ==========
Interest Income To Earning Assets 8.37 8.49 8.37 8.44
Interest Expense To Earning Assets 3.68 3.58 3.63 3.52
------ ------ ------ ------
Net Interest Margin 4.69 4.91 4.74 4.92
====== ====== ====== ======
<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 21 attached.
27. Financial Data Schedule - electronic filing only.
b.) Reports on Form 8-K
None filed.
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 November 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 and
Chief Financial Officer
<TABLE>
Exhibit 11
Statement Re: Computation of Earnings per Share
<CAPTION>
For The Three Months For The Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY:
Average Shares Outstanding 22,360,000 21,449,000 21,782,000 21,498,000
Net effect of the assumed exercise
of stock options - based on the
treasury stock method 273,000 143,000 231,000 138,000
------------ ------------ ------------ ------------
Total 22,633,000 21,592,000 22,013,000 21,636,000
============ ============ ============ ============
Net Income $12,020,000 $12,330,000 $38,708,000 $35,916,000
Per Share Amount $0.53 $0.57 $1.76 $1.66
============ ============ ============ ============
FULLY DILUTED:
Average Shares Outstanding 22,360,000 21,449,000 21,782,000 21,498,000
Net effect of the assumed exercise
of stock options - based on the
treasury stock method 330,000 176,000 311,000 189,000
------------ ------------ ------------ ------------
Total 22,690,000 21,625,000 22,093,000 21,687,000
============ ============ ============ ============
Net Income $12,020,000 $12,330,000 $38,708,000 $35,916,000
Per Share Amount $0.53 $0.57 $1.75 $1.66
============ ============ ============ ============
</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 consoldiated 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 151116
<INT-BEARING-DEPOSITS> 12542
<FED-FUNDS-SOLD> 2800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 972313
<INVESTMENTS-CARRYING> 205195
<INVESTMENTS-MARKET> 204207
<LOANS> 2794102
<ALLOWANCE> 41709
<TOTAL-ASSETS> 4269926
<DEPOSITS> 3367490
<SHORT-TERM> 438276
<LIABILITIES-OTHER> 47783
<LONG-TERM> 15892
0
0
<COMMON> 248728
<OTHER-SE> 151757
<TOTAL-LIABILITIES-AND-EQUITY> 4269926
<INTEREST-LOAN> 176334
<INTEREST-INVEST> 54475
<INTEREST-OTHER> 388
<INTEREST-TOTAL> 231197
<INTEREST-DEPOSIT> 88292
<INTEREST-EXPENSE> 102689
<INTEREST-INCOME-NET> 128508
<LOAN-LOSSES> 3836
<SECURITIES-GAINS> (413)
<EXPENSE-OTHER> 96738
<INCOME-PRETAX> 58088
<INCOME-PRE-EXTRAORDINARY> 58088
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38708
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 4.74
<LOANS-NON> 9272
<LOANS-PAST> 5823
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 39534
<CHARGE-OFFS> 5073
<RECOVERIES> 1185
<ALLOWANCE-CLOSE> 41709
<ALLOWANCE-DOMESTIC> 41709
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
