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, 1997
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 Septmeber 30, 1997 was:
Common Stock, $10.00 par value - 27,268,969 shares
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 nine month period ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. 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, 1996.
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>
September 30 December 31 September 30
1997 1996 1996
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $141,585 $146,152 $151,116
Interest Bearing Deposits With Other Banks 5,483 9,897 12,542
Federal Funds Sold 44,000 4,825 2,800
---------- ---------- ----------
Cash and Cash Equivalents 191,068 160,874 166,458
Securities
Available-for-Sale, at fair value 1,068,561 952,908 972,313
Held-to-Maturity (Estimated Fair Value,
Sept. 30, 1997 - $232,131; December 31, 1996 - $219,841;
Sept. 30, 1996 - $204,207) 225,881 217,322 205,195
Loans
Total Loans 2,896,470 2,810,212 2,794,102
Less: Allowance For Loan Losses 41,790 41,745 41,709
---------- ---------- ----------
Net Loans 2,854,680 2,768,467 2,752,393
Premises & Equipment - Net 84,316 84,087 85,261
Other Assets 81,972 83,645 88,306
---------- ---------- ----------
Total Assets $4,506,478 $4,267,303 $4,269,926
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest Bearing $420,468 $406,630 $401,645
Interest Bearing 3,044,398 2,999,386 2,965,845
---------- ---------- ----------
Total Deposits 3,464,866 3,406,016 3,367,490
Short-term Borrowings
Federal Funds Purchased 54,750 17,278 34,233
Repurchase Agreements and Other Borrowings 491,191 360,796 404,043
---------- ---------- ----------
Total Short-term Borrowings 545,941 378,074 438,276
Long-term Borrowings 28,877 28,892 15,892
Other Liabilities 46,439 45,744 47,783
---------- ---------- ----------
Total Liabilities 4,086,123 3,858,726 3,869,441
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 31,480,715 shares at September 30, 1997;
24,923,176 shares at December 31, 1996;
24,872,838 shares at September 30, 1996 314,807 249,232 248,728
Capital Surplus 75,375 73,834 73,663
Retained Earnings 116,621 152,006 142,924
Unrealized Gain (Loss) on Securities Available-for-Sale,
net of deferred income taxes 3,403 883 (4,501)
Treasury Stock - 4,211,746 shares at September 30, 1997;
2,792,360 shares at December 31, 1996;
2,595,860 shares at September 30, 1996; at cost (89,851) (67,378) (60,329)
---------- ---------- ----------
Total Shareholders' Equity 420,355 408,577 400,485
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $4,506,478 $4,267,303 $4,269,926
========== ========== ==========
</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
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans
Taxable $62,655 $60,655 $183,956 $174,290
Tax-Exempt 765 738 2,253 2,044
-------- -------- -------- --------
Total 63,420 61,393 186,209 176,334
Interest on Investment Securities
Taxable 17,498 16,160 51,429 46,157
Tax-Exempt 2,990 2,767 8,988 8,318
-------- -------- -------- --------
Total 20,488 18,927 60,417 54,475
Other Interest Income 341 143 1,056 388
-------- -------- -------- --------
Total Interest Income 84,249 80,463 247,682 231,197
INTEREST EXPENSE
Deposits 32,836 31,237 95,959 88,292
Short-term Borrowings 6,197 4,819 16,478 13,691
Long-term Borrowings 451 250 1,335 706
-------- -------- -------- --------
Total Interest Expense 39,484 36,306 113,772 102,689
-------- -------- -------- --------
Net Interest Income 44,765 44,157 133,910 128,508
Provision For Loan Losses 1,999 1,353 5,291 3,836
-------- -------- -------- --------
Net Interest Income
After Provision For Loan Losses 42,766 42,804 128,619 124,672
OTHER INCOME
Trust Department Income 2,557 2,287 7,733 6,967
Service Charges on Deposit Accounts 3,712 3,715 11,021 10,822
Real Estate Loan Processing & Servicing Fees 1,441 1,442 4,165 4,224
Other Service Charges and Fees 2,785 2,102 7,934 5,975
Other Operating Income 1,715 862 3,750 2,579
Securities Transactions 52 (147) 76 (413)
-------- -------- -------- --------
Total Other Income 12,262 10,261 34,679 30,154
OTHER EXPENSES
Salaries and Employee Benefits 16,681 16,254 50,000 48,928
Occupancy Expense - Net 1,754 1,673 5,071 5,083
Equipment Expenses 2,196 2,346 6,407 6,624
Federal Deposit Insurance 195 4,159 618 4,760
Outside Data Processing 1,782 1,401 5,387 4,330
Other Operating Expenses 10,240 9,310 29,414 27,013
-------- -------- -------- --------
Total Other Expenses 32,848 35,143 96,897 96,738
-------- -------- -------- --------
Income Before Taxes 22,180 17,922 66,401 58,088
Applicable Income Taxes 7,523 5,902 22,523 19,380
-------- -------- -------- --------
NET INCOME $14,657 $12,020 $43,878 $38,708
======== ======== ======== ========
NET INCOME PER COMMON SHARE $0.54 $0.43 $1.60 $1.42
======== ======== ======== ========
Based on Average Shares Outstanding of 27,261 27,950 27,401 27,228
</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, 1996 $249,232 $73,834 $152,006 ($67,378) $883
Stock Issued for Acquisition 0 0 0 0 0
Nine Months Ended September 30, 1997
Net Income 0 0 43,878 0 0
Cash Dividends ($0.59 per share) 0 0 (16,303) 0 0
Five for Four Stock Split 62,960 0 (62,960) 0 0
Change in Fair Value of Securities
Available for Sale, net of deferred taxes 0 0 0 0 2,520
Treasury Shares Purchased 0 0 0 (22,473) 0
Stock Options Exercised 2,615 1,541 0 0 0
-------- -------- -------- -------- --------
Balance September 30, 1997 $314,807 $75,375 $116,621 ($89,851) $3,403
======== ======== ======== ======== ========
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 ($0.55 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 0 0 0 0 0
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)
======== ======== ======== ======== ========
</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
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $43,878 $38,708
Adjustments To Reconcile Net Income To Net Cash
Provided by Operating Activities:
Provision For Loan Losses 5,291 3,836
Depreciation 6,006 6,487
Amortization and Accretion 2,792 3,172
Net Gain From Sales of Assets (62) 383
Increase (Decrease) Due to Changes In:
Accrued Interest Receivable (453) (414)
Accrued Interest Payable 2,086 (426)
Other Assets and Other Liabilities (4,056) 5,296
-------- --------
Net Cash Provided by Operating Activities 55,482 57,042
INVESTING ACTIVITIES
Proceeds From Sales of Securities Available for Sale 27,051 104,662
Proceeds From Maturities of Securities Available for Sale 214,555 187,639
Proceeds From Maturities of Securities Held to Maturity 7,036 5,686
Purchases of Securities Available for Sale (354,086) (277,049)
Purchases of Securities Held to Maturity (15,645) (5,788)
Net Increase In Loans (90,032) (121,319)
Acquisition of Subsidiary, Net of Cash Paid 0 10,866
Purchases of Premises and Equipment (6,249) (5,721)
-------- --------
Net Cash Used in Investing Activities (217,370) (101,024)
FINANCING ACTIVITIES
Net Increase in Interest Bearing and Non-interest Bearing Deposit 58,850 62,022
Net Increase (Decrease) in Federal Funds Purchased 37,472 (19,772)
Net Increase in Other Short-term Borrowings 130,395 57,512
Repayment of Long-term Debt (15) (5,519)
Proceeds From Issuance of Common Stock 4,156 2,169
Purchase of Treasury Stock (22,473) (36,985)
Dividends Paid (16,303) (14,663)
-------- --------
Net Cash Provided by Financing Activities 192,082 44,764
-------- --------
Increase in Cash and Cash Equivalents 30,194 782
Cash And Cash Equivalents at Beginning of Year 160,874 165,676
-------- --------
Cash And Cash Equivalents, September 30 $191,068 $166,458
======== ========
</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. 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 Changes
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
(FAS 128) which supercedes APB Opinion No. 15, "Earnings Per Share" (APB 15).
Statement No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. One Valley will continue to
apply APB 15 until the adoption of FAS 128. The new standard specifies the
computation, presentation, and disclosure of basic and diluted earnings per
share. Basic and fully diluted earnings per share are not anticipated to be
materially different from earnings per share under APB 15.
Note C - Stock Splits and Stock Dividends
On August 19, 1997, 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 as of August 29, 1997. Average shares
outstanding and per share amounts for prior periods 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, 1997
INTRODUCTION AND SUMMARY
Net income for the third quarter of 1997 totaled $14.7 million, a 21.9%
increase from the $12.0 million earned in the same quarter of 1996. On a per
share basis, net income increased by 25.6% to $0.54 from the $0.43 earned in
the third quarter of 1996. The large increase in earnings during the quarter
is primarily due to a $3.8 million ($0.08 per share) one-time Savings
Association Insurance Fund (SAIF) assessment that occurred in September 1996.
Excluding the effect of this assessment, core operating earnings per share
increased by 5.9% over 1996, primarily reflecting improved non-interest
income results.
Net income for the first nine months of 1997 totaled $43.9 million, a
13.4% increase over the first nine months of 1996. Earnings per share during
the nine month period were $1.60, up 12.7% from the $1.42 earned in the first
nine months of 1996. Excluding the effect of the one-time SAIF assesmment,
core operating earnings per share increased by 6.7% over 1996, primarily
reflecting improved non-interest income and net interest income results.
On August 19, 1997, One Valley approved a 5 for 4 stock split effected
in the form of a 25% stock dividend. On September 12, 1997, 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, August 29, 1997.
Customary with a stock split, all per share information for prior periods
presented has been adjusted to reflect the additional shares outstanding.
Return on average assets (ROA) measures how effectively One Valley
utilizes its assets to produce net income. ROA was 1.34% for the first nine
months of 1997, up from the 1.27% earned during the same period of 1996.
Return on average equity (ROE) also increased to 14.27% from the 13.45%
reported for the first nine months 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 1997. This
discussion should be read in conjunction with the 1996 Annual Report to
Shareholders and the other financial information included in this report.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the nine months ended September 30, 1997, was
$140.0 million on a fully tax-equivalent basis, a 4.4% increase over the
$134.1 million earned during the same period in 1996. This increase is
largely due to a $169.7 million, or 6.4% increase in average total loans and
a $110.3 million, or 9.6% increase in average securities during the nine
month comparison. In total, average earning assets increased by $295.1
million or 7.8% during the first nine months of 1997 over the same period in
1996, while average interest bearing liabilities increased by $243.3 million
or 7.5% 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.
As shown in the consolidated average balance sheets (page 16), the yield
on earning assets was 8.32% for the first nine months of 1997, down from the
8.37% for the same period in 1996. During the same period, the cost of
interest bearing liabilities increased 13 basis points to 4.35% from last
year's 4.22% level. This increase in cost of funds has resulted from a
combination of changes in the mix of interest-bearing liabilities including a
higher level of short-term and long-term borrowed funds, as well as a higher
cost to attract customer deposits in an increasingly competitive market.
Primarily due to the increase in the cost of interest bearing liabilities,
the net interest margin decreased to 4.58% for the first nine months of 1997,
from the 4.74% during the same period in 1996.
Fully tax-equivalent net interest income of $46.8 million in the third
quarter of 1997 is up slightly from 1996 and relatively unchanged from the
second quarter of 1997. However, the net interest margin declined to 4.52%
in the third quarter of 1997 versus the 4.69% in the same period last year
and the 4.64% margin in the second quarter of 1997. The declining interest
margin percentage reflects a combination of increased short-term borrowings
to leverage investment opportunities, downward pressure on loan and
investment yields due to the interest rate environment, and increased upward
pressure on deposit costs due to competitive pressures and continued emphasis
on expanding the customer base. Additional discussion of the changes in
balance sheet mix is included later in this report.
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 $5.3 million for the first nine months
of 1997, a $1.5 million increase from the provision made in the same period
of 1996. The provision for loan losses is based upon One Valley's continual
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 nine months of 1997 was 0.25% on an annualized basis, compared with
0.19% for the same period in 1996.
Net charge-offs as a percentage of average total loans in the first nine
months of 1997 increased to 0.25% on an annualized basis, up from an
annualized 0.19% during the same period in 1996, and for the full year of
1996. The increase in the net charge-off ratio in the first nine months has
resulted from an overall increase in consumer installment charge-offs.
Management continues to monitor this increase in charge-offs; however, the
current ratio falls well within One Valley's long range plan.
Total non-performing assets at September 30, 1997, were 0.40% of period-
end loans, up slightly from the 0.37% at December 31, 1996, and down from the
0.42% at September 30, 1996. The allowance for loan losses is sufficient to
absorb nearly four times the amount of those non-performing assets. At
September 30, 1997, loans past due over 90 days were 0.20% of outstanding
loans, up from the 0.15% level at year-end 1996, but down slightly from the
0.21% at September 30, 1996. An analysis of the allowance for loan losses
and non-performing assets is included on page 15.
With the continued high credit quality of the loan portfolio, the
allowance for loan losses has remained relatively unchanged since year-end
1996 and September 30, 1996. In management's opinion, the allowance for loan
losses is adequate to absorb the current estimated risk of loss in the
existing loan portfolio. At September 30, 1997, the allowance was 1.44% of
outstanding loans, compared with the 1.49% at year-end and 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 1997 was 2.04%, down from 2.28% during all of 1996
and down from the 2.34% for the first nine months of 1996. This improvement
is a result of $295.1 million, or 7.8% growth in average earning assets
coupled with a decline in net operating costs. Net overhead declined by $3.9
million, or 5.9% in the first nine months of 1997 compared to the same period
in 1996, but would be virtually unchanged after adjusting for the special
1996 SAIF assessment.
Total non-interest income was $34.7 million through the first nine
months of 1997, up 15.0% from the $30.2 million non-interest income earned
during the same period in 1996. Trust income increased by 11.0% over last
year due to new business and increases in the market value of trust assets
managed. Service charges on deposit accounts increased by 1.8% in the first
nine month comparison mainly due to a higher level of customer activity.
Real estate loan processing and service fees decreased by 1.4% when compared
to the first nine months of 1996 due to a slightly lower level of loans
originated and serviced for the secondary market. Other service charges and
fees increased by 32.8% over the first nine months of 1996, primarily due to
increases in fee income from the implementation of a VISA Checkcard product
in late 1996 along with non-One Valley customer use of the Company's network
of automated teller machines. One Valley expanded its ATM network during 1997
from 88 machines to 224 machines throughout West Virginia and contiguous
states. Other operating income increased by 45.4% due primarily to non-
recurring income reported by the building management subsidiary of the
Company in the first quarter of 1997 ($0.3 million), and gains in the third
quarter of 1997 from the sale of One Valley's Corporate Trust business ($0.4
million) and the sale of a former branch site ($0.3 million).
Total non-interest expense was $96.9 million during the nine months
ended September 30, 1997, relatively unchanged from the $96.7 million
experienced during the same period in 1996. Excluding the special SAIF
assessment in 1996, total year-to-date non-interest expense increased by 4.3%
over 1996. Staff costs increased by 2.2% from the level one year ago
primarily due to the full year effect of the April 1996 acquisition of
Cooperative Savings Bank in Lynchburg, Virginia. Occupancy and equipment
expenses remained relatively unchanged from the same period last year.
Federal deposit insurance expense for the first nine months of 1997 was $0.6
million as compared to the $4.8 million in the same period last year due to
the reduced assessment rate after the one-time SAIF adjustment in September
1996. It is anticipated that the new rate will continue throughout the
remainder of 1997. Outside data processing expense increased by 24.4% above
the level through September 30, 1996. This increase is due to the conversion
of Lynchburg operations to the common data processing system and enhanced
computer service required to support various customer products and services,
such as ATM processing, the VISA Checkcard, trust accounts, broker-dealer
transactions, and mortgage lending. Other operating expenses increased 8.9%
in the first nine months of 1997. This increase resulted from a combination
of the full-year effect of intangible amortization related to the new
Lynchburg operations, the 1997 listing on the New York Stock Exchange,
expanded advertising campaign expense, increased postage costs from customer
mailings, increases in training and education costs related to new technology
and other strategic initiatives, and increases in insurance coverage costs
during 1997.
Income tax expense increased by $3.1 million, or 16.2%, for the first
nine months of 1997 compared with the same period in 1996. The increase in
taxes is primarily a result of the 14.3% growth in pretax earnings. One
Valley's effective income tax rate for the first nine months of 1997 was
33.9% compared to 33.4% during the same period in 1996.
FINANCIAL CONDITION
Asset Structure
Total loans at September 30, 1997, exceeded September 30, 1996, levels
by 3.7% or $102.4 million. The consolidated loan-to-deposit ratio has
increased to 82.4% at September 30, 1997, compared to 81.7% at September 30,
1996. The increase in total loans from one year ago is primarily the result
of growth in real estate secured loans including commercial, mortgage, and
home equity loans as well as growth in other loan categories such as
commercial and industrial loans. These increases were only partially offset
by decreases in consumer auto loans.
Investment portfolio assets increased $124.2 million or 10.6% from the
level at year-end and by $116.9 million or 9.9% from the level one year ago.
The increases resulted primarily from additional purchases of government
agency, mortgage backed, and tax exempt securities. These investment
decisions were made in accordance with 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, 1997, had a
historical cost of $1.1 billion, with an unrealized gain of approximately
$5.7 million. This unrealized gain increased shareholders' equity by $3.4
million, net of $2.3 million in deferred income taxes. At year-end December
31, 1996, and September 30, 1996, securities available-for-sale had a
historical cost of $951.4 million and $979.8 million, with an unrealized gain
of approximately $1.5 million and an unrealized loss of $7.5 million,
respectively. The unrealized gain increased shareholders' equity by $0.9
million while the unrealized loss decreased equity by $4.5 million, net of
$0.6 and $3.0 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-to-maturity and carried at amortized historical cost
adjusted for amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income.
In order to improve its fully tax equivalent net interest income and to
hedge against higher income tax rates, One Valley has increased its holdings
of tax-exempt securities that were offering attractive yields over the last
several years. As shown on the consolidated average balance sheets (page
16), average tax-exempt securities through September 30, 1997 increased by
10.2% or $20.9 million over the average at September 30, 1996. 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, 1997, were $44.0 million, up $39.2
million from year-end and up $41.2 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, 1997, increased $97.4 million or 2.9%
since September 30, 1996 and 1.7% from the level at year-end. In recent
years growth in banking deposits industry-wide has been modest. Due to the
low interest rate environment, deposit customers are shortening the
maturities of their deposit reinvestments and seeking higher yielding non-
deposit investment alternatives. The majority of the growth in One Valley's
core deposits has been in a new money market deposit account and in fixed
rate certificates of deposit. Demand deposits are up 4.7% from September one
year ago primarily due to increases in consumer, depository institutions, and
public fund deposits. The average rate paid on interest bearing deposits
increased to 4.25% in the first nine months of 1997, up from the 4.15%
average rate paid for all of 1996, and the 4.13% average rate paid in the
first nine months of 1996 largely due to increased rates on certificates of
deposit and the new money market product. In an effort to meet customer
demand for non-deposit investment alternatives, One Valley operates a fully
licensed NASD Broker/Dealer subsidiary which sells mutual funds and annuities
and continues to expand other product lines.
Total short-term borrowings increased by $167.9 million or 44.4% from
the year-end level, and increased $107.7 million or 24.6% from the level at
September 30, 1996. 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
increased level of short-term borrowings has been used to fund loan growth
and the higher level of investment portfolio assets as planned under One
Valley's asset/liability management program.
Long-term borrowings increased $13.0 million or 81.7% since September
30, 1996. The increase since September one year ago was primarily the result
of activity in the fourth quarter of 1996 in conjunction with the Company's
asset/liability management strategy. Partially offsetting the debt acquired
were $2.0 million in payments primarily on long-term advances from the
Federal Home Loan Bank (FHLB). As a result, One Valley now has $28.9 million
of long-term borrowings, primarily FHLB borrowings, with repayment schedules
from one to seven years. Approximately $7.0 million of these borrowings will
mature in the fourth quarter of 1997 and $12.0 million will mature in 1998.
Capital Structure and Liquidity
On August 19, 1997, One Valley approved a 5 for 4 stock split effected
in the form of a 25% stock dividend. On September 12, 1997, 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, August 29, 1997.
Customary with a stock split, all per share information for prior periods
presented has been adjusted to reflect the additional shares outstanding.
One Valley's equity-to-asset ratio was 9.33% at September 30, 1997, down
from the 9.57% at December 31, 1996, and down from the 9.38% one year ago.
The equity-to-asset ratio, while remaining strong, decreased in these
comparisons due to a 5.5% increase in total assets, coupled with the
repurchase of $29.5 million of One Valley common stock in the open market
which was initiated in conjunction with the CSB Financial acquisition, in
April 1996.
The Board of Directors has authorized management to repurchase shares of
One Valley 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 the 2.8 million shares
of One Valley common stock (adjusted for the 5 for 4 stock split) that would
be issued as a result of the acquisition. As of September 30, 1997, One
Valley held 4.2 million shares of treasury stock and has remaining Board
authorization for the repurchase of 415,000 additional shares. Any purchases
under this or previous authorizations will depend upon future market
conditions.
One Valley's cash dividend, totaling $0.59 per share for the first nine
months of 1997, was up 7.3% over the $0.55 per share dividend during the same
period in 1996. 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 customer in the
local community. One Valley's risk based capital ratio at September 30, 1997
was 15.85%, well above the 8.0% required, while its Tier I capital ratio was
14.60%. One Valley's strong capital position is demonstrated further by its
leverage ratio of 8.87% 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
1997 1996 1997 1996
<S> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, Beginning of Period $41,127 $42,150 $41,745 $39,534
Loan Losses 2,239 2,212 7,056 5,073
Loan Recoveries 903 418 1,810 1,185
------- ------- ------- -------
Net Charge-offs 1,336 1,794 5,246 3,888
Balance of Acquired Subsidiary 0 0 0 2,227
Provision For Loan Losses 1,999 1,353 5,291 3,836
------- ------- ------- -------
Balance, End of Period $41,790 $41,709 $41,790 $41,709
======= ======= ======= =======
Total Loans, End of Period $2,896,470 $2,794,102
Allowance For Loan Losses As a % of Total Loans 1.44 1.49
========== ==========
NON-PERFORMING ASSETS AT QUARTER END
Non-Accrual Loans $9,871 $9,272
Foreclosed Properties 1,603 2,388
------- -------
Total Non-Performing Assets $11,474 $11,660
======= =======
Non-Performing Assets As a % of Total Loans 0.40 0.42
Loans Past Due Over 90 Days $5,694 $5,823
Loans Past Due Over 90 Days As a % of Total Loans 0.20 0.21
</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
1997 1996 1997 1996
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 $2,822,586 8.81 $2,731,099 8.84 $2,782,355 8.83 $2,616,544 8.90
Tax-Exempt 46,457 10.05 46,481 9.72 46,536 9.96 42,615 9.86
---------- ---------- ---------- ----------
Total 2,869,043 8.83 2,777,580 8.85 2,828,891 8.85 2,659,159 8.91
Less: Allowance for Losses 41,616 42,311 41,925 41,172
---------- ---------- ---------- ----------
Net Loans 2,827,427 8.96 2,735,269 8.99 2,786,966 8.98 2,617,987 9.05
Securities
Taxable 1,059,861 6.60 965,372 6.70 1,028,898 6.66 939,427 6.55
Tax-Exempt 226,241 8.13 205,302 8.29 225,566 8.17 204,707 8.34
---------- ---------- ---------- ----------
Total 1,286,102 6.87 1,170,674 6.98 1,254,464 6.94 1,144,134 6.87
Federal Funds Sold & Other 29,426 4.62 15,835 3.59 30,335 4.65 14,533 3.57
---------- ---------- ---------- ----------
Total Earning Assets 4,142,955 8.30 3,921,778 8.37 4,071,765 8.32 3,776,654 8.37
Other Assets 289,010 298,290 282,418 280,474
---------- ---------- ---------- ----------
Total Assets $4,431,965 $4,220,068 $4,354,183 $4,057,128
========== ========== ========== ==========
LIABILITIES AND EQUITY
Interest Bearing Liabilities
Deposits $3,042,362 4.28 $2,978,335 4.17 $3,019,900 4.25 $2,852,220 4.13
Short-term Borrowings 487,433 5.04 395,609 4.85 444,259 4.96 382,097 4.79
Long-term Borrowings 28,877 6.20 16,241 6.12 28,883 6.18 15,412 6.12
---------- ---------- ---------- ----------
Total Interest
Bearing Liabilities 3,558,672 4.40 3,390,185 4.26 3,493,042 4.35 3,249,729 4.22
Non-interest Bearing Deposits 415,153 385,454 406,062 382,601
Other Liabilities 43,706 43,884 45,123 41,106
---------- ---------- ---------- ----------
Total Liabilities 4,017,531 3,819,523 3,944,227 3,673,436
Shareholders' Equity 414,434 400,545 409,956 383,692
---------- ---------- ---------- ----------
Total Liabilities & Equity $4,431,965 $4,220,068 $4,354,183 $4,057,128
========== ========== ========== ==========
Interest Income To Earning Assets 8.30 8.37 8.32 8.37
Interest Expense To Earning Assets 3.78 3.68 3.74 3.63
------ ------ ------ ------
Net Interest Margin 4.52 4.69 4.58 4.74
====== ====== ====== ======
<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 20 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, 1997
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
1997 1996 1997 1996
<S> <C> <C> <C> <C>
PRIMARY:
Average Shares Outstanding 27,261,000 21,985,000 27,401,000 21,488,000
Net effect of the assumed exercise
of stock options - based on the
treasury stock method 293,000 226,000 351,000 160,000
------------ ------------ ------------ ------------
Total 27,554,000 22,211,000 27,752,000 21,648,000
============ ============ ============ ============
Net Income $14,657,000 $14,040,000 $43,878,000 $26,688,000
Per Share Amount $0.53 $0.63 $1.58 $1.23
============ ============ ============ ============
FULLY DILUTED:
Average Shares Outstanding 27,261,000 21,985,000 27,401,000 21,488,000
Net effect of the assumed exercise
of stock options - based on the
treasury stock method 349,000 266,000 441,000 210,000
------------ ------------ ------------ ------------
Total 27,610,000 22,251,000 27,842,000 21,698,000
============ ============ ============ ============
Net Income $14,657,000 $14,040,000 $43,878,000 $26,688,000
Per Share Amount $0.53 $0.63 $1.58 $1.23
============ ============ ============ ============
</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 STAEMENTS AND SUPPLEMENTAL SCHEDULES.
</LEGEND>
<CIK> 0000351616
<NAME> ONE VALLEY BANCORP, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 141585
<INT-BEARING-DEPOSITS> 5483
<FED-FUNDS-SOLD> 44000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1068561
<INVESTMENTS-CARRYING> 225881
<INVESTMENTS-MARKET> 232131
<LOANS> 2896470
<ALLOWANCE> 41790
<TOTAL-ASSETS> 4506478
<DEPOSITS> 3464866
<SHORT-TERM> 545941
<LIABILITIES-OTHER> 46439
<LONG-TERM> 28877
0
0
<COMMON> 314807
<OTHER-SE> 105548
<TOTAL-LIABILITIES-AND-EQUITY> 4506478
<INTEREST-LOAN> 186209
<INTEREST-INVEST> 60417
<INTEREST-OTHER> 1056
<INTEREST-TOTAL> 247682
<INTEREST-DEPOSIT> 95959
<INTEREST-EXPENSE> 113772
<INTEREST-INCOME-NET> 133910
<LOAN-LOSSES> 5291
<SECURITIES-GAINS> 76
<EXPENSE-OTHER> 96897
<INCOME-PRETAX> 66401
<INCOME-PRE-EXTRAORDINARY> 66401
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43878
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.60
<YIELD-ACTUAL> 4.58
<LOANS-NON> 9871
<LOANS-PAST> 5694
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 41745
<CHARGE-OFFS> 7056
<RECOVERIES> 1810
<ALLOWANCE-CLOSE> 41790
<ALLOWANCE-DOMESTIC> 41790
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
