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, 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 March 31, 1997 was:
Common Stock, $10.00 par value -- 22,007,355 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 - 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 three month period
ended March 31, 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 9 - 18 of this report.
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited in thousands)
<CAPTION>
March 31 December 31 March 31
1997 1996 1996
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $121,247 $146,152 $128,997
Interest Bearing Deposits With Other Banks 12,369 9,897 20,981
Federal Funds Sold 31,925 4,825 0
---------- ---------- ----------
Cash and Cash Equivalents 165,541 160,874 149,978
Securities
Available-for-Sale, at fair value 1,031,297 952,908 904,682
Held-to-Maturity (Estimated Fair Value,
March 31, 1997 - $225,125; December 31, 1996 - $219,841;
March 31, 1996 - $205,668) 224,948 217,322 203,594
Loans
Total Loans 2,806,417 2,810,212 2,546,298
Less: Allowance For Loan Losses 42,005 41,745 39,836
---------- ---------- ----------
Net Loans 2,764,412 2,768,467 2,506,462
Premises & Equipment - Net 83,707 84,087 80,172
Other Assets 85,408 83,645 65,054
---------- ---------- ----------
Total Assets $4,355,313 $4,267,303 $3,909,942
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest Bearing $420,825 $406,630 $393,349
Interest Bearing 3,034,567 2,999,386 2,723,202
---------- ---------- ----------
Total Deposits 3,455,392 3,406,016 3,116,551
Short-term Borrowings
Federal Funds Purchased 14,298 17,278 45,968
Repurchase Agreements and Other Borrowings 398,742 360,796 341,349
---------- ---------- ----------
Total Short-term Borrowings 413,040 378,074 387,317
Long-term Borrowings 28,886 28,892 12,904
Other Liabilities 50,830 45,744 43,184
---------- ---------- ----------
Total Liabilities 3,948,148 3,858,726 3,559,956
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 24,987,852 shares at March 31, 1997;
24,923,176 shares at December 31, 1996;
18,058,639 shares at March 31, 1996 249,879 249,232 180,587
Capital Surplus 74,168 73,834 35,081
Retained Earnings 161,192 152,006 176,823
Unrealized (Loss) Gain on Securities Available-for-Sale,
net of deferred income taxes (3,525) 883 1,438
Treasury Stock - 2,980,497 shares at March 31, 1997;
2,792,360 shares at December 31, 1996;
1,591,188 shares at March 31, 1996; at cost (74,549) (67,378) (43,943)
---------- ---------- ----------
Total Shareholders' Equity 407,165 408,577 349,986
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $4,355,313 $4,267,303 $3,909,942
========== ========== ==========
</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
1997 1996
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans
Taxable $59,922 $55,308
Tax-Exempt 741 644
-------- --------
Total 60,663 55,952
Interest on Investment Securities
Taxable 16,946 14,034
Tax-Exempt 2,983 2,773
-------- --------
Total 19,929 16,807
Other Interest Income 387 101
-------- --------
Total Interest Income 80,979 72,860
INTEREST EXPENSE
Deposits 31,062 27,399
Short-term Borrowings 5,160 4,423
Long-term Borrowings 439 200
-------- --------
Total Interest Expense 36,661 32,022
-------- --------
Net Interest Income 44,318 40,838
Provision For Loan Losses 1,458 1,149
-------- --------
Net Interest Income
After Provision For Loan Losses 42,860 39,689
OTHER INCOME
Trust Department Income 2,495 2,192
Service Charges on Deposit Accounts 3,582 3,414
Real Estate Loan Processing & Servicing Fees 1,320 1,351
Other Service Charges and Fees 1,722 1,356
Other Operating Income 1,895 1,465
Securities Transactions (84) (294)
-------- --------
Total Other Income 10,930 9,484
OTHER EXPENSES
Salaries and Employee Benefits 16,825 16,316
Occupancy Expense - Net 1,672 1,737
Equipment Expenses 2,066 2,152
Federal Deposit Insurance 215 247
Outside Data Processing 1,725 1,419
Other Operating Expenses 9,395 8,346
-------- --------
Total Other Expenses 31,898 30,217
-------- --------
Income Before Taxes 21,892 18,956
Applicable Income Taxes 7,421 6,308
-------- --------
NET INCOME $14,471 $12,648
======== ========
NET INCOME PER COMMON SHARE $0.66 $0.60
======== ========
Based on Average Shares Outstanding of 22,050 20,992
</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) $883
Three Months Ended March 31, 1997
Net Income 0 0 14,471 0 0
Cash Dividends ($.24 per share) 0 0 (5,285) 0 0
Change in Fair Value of Securities
Available for Sale, net of deferred taxes 0 0 0 0 (4,408)
Treasury Shares Purchased 0 0 0 (7,171) 0
Stock Options Exercised 647 334 0 0 0
-------- -------- -------- -------- --------
Balance March 31, 1997 $249,879 $74,168 $161,192 ($74,549) ($3,525)
======== ======== ======== ======== ========
Balance December 31, 1995 $180,166 $34,603 $168,625 ($23,344) $6,252
Stock Issued for Acquisition 0 0 0 0 0
Three Months Ended March 31, 1996
Net Income 0 0 12,648 0 0
Cash Dividends ($.22 per share) 0 0 (4,450) 0 0
Change in Fair Value of Securities 0 0 0 0 0
Available for Sale, net of deferred taxes 0 0 0 0 (4,814)
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
======== ======== ======== ======== ========
</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
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $14,471 $12,648
Adjustments To Reconcile Net Income To Net Cash
Provided by Operating Activities:
Provision For Loan Losses 1,458 1,149
Depreciation 1,937 2,012
Amortization and Accretion 1,137 968
Net Gain From Sales of Assets 107 294
Increase (Decrease) Due to Changes In:
Accrued Interest Receivable (1,249) (2,228)
Accrued Interest Payable 255 2,595
Other Assets and Other Liabilities 5,331 3,550
-------- --------
Net Cash Provided by Operating Activities 23,447 20,988
INVESTING ACTIVITIES
Proceeds From Sales of Securities Available for Sale 6,935 28,232
Proceeds From Maturities of Securities Available for Sale 60,497 66,934
Proceeds From Maturities of Securities Held to Maturity 2,553 2,706
Purchases of Securities Available for Sale (153,856) (137,188)
Purchases of Securities Held to Maturity (10,196) (1,172)
Net Increase In Loans 4,006 (35,797)
Purchases of Premises and Equipment (1,580) (1,496)
-------- --------
Net Cash Used in Investing Activities (91,641) (77,781)
FINANCING ACTIVITIES
Net Increase in Interest Bearing and Non-interest Bearing Deposits 49,376 68,215
Net Decrease in Federal Funds Purchased (2,980) (8,037)
Net Increase in Other Short-term Borrowings 37,946 5,574
Repayment of Long-term Debt (6) (507)
Proceeds From Issuance of Common Stock 981 899
Purchase of Treasury Stock (7,171) (20,599)
Dividends Paid (5,285) (4,450)
-------- --------
Net Cash Provided by Financing Activities 72,861 41,095
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 4,667 (15,698)
Cash And Cash Equivalents at Beginning of Year 160,874 165,676
-------- --------
Cash And Cash Equivalents, March 31 $165,541 $149,978
======== ========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 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 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.
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. Statement No.
125 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. The adoption of this standard
did not have a material effect on the Company's financial
statements. Additionally, the delayed provisions of this standard
are not expected to have a material effect on One Valley's
financial statements.
Note C - 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 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
March 31, 1997
INTRODUCTION AND SUMMARY
Net income for the first quarter of 1997 totaled $14.5
million, a 14.4% increase from the $12.6 million earned in the same
quarter of 1996. On a per share basis, net income increased by
10.0% to $0.66 from the $0.60 earned in the first quarter of 1996.
The improvement in earnings during the quarter is primarily due to
higher net interest income and non-interest income. Prior period
earnings per share have been adjusted for a 5 for 4 stock split
declared in September 1996.
Return on average assets (ROA) measures how effectively One
Valley utilizes its assets to produce net income. ROA was 1.34% in
the first quarter of 1997, an increase from the 1.32% earned during
the same period of 1996. Return on average equity (ROE) also
increased to 14.13% from the 13.93% reported for the first quarter
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 1997. This discussion should be read in
conjunction with the 1996 Annual Report to Shareholders and the
other financial information included in this report.
Acquisitions and Name Change
At the close of business on April 30, 1996, One Valley Bancorp
acquired CSB Financial Corporation (CSB), a $336.0 million Federal
Savings Bank holding company headquartered in Lynchburg, Virginia.
Pursuant to the merger agreement, One Valley exchanged 0.6774
shares of One Valley common stock for each share of CSB common
stock. The transaction was valued at approximately $55.7 million.
The combination was accounted for under the purchase method of
accounting, and as a result, CSB is only included in consolidated
operations subsequent to the acquisition date. Comparisons to
March 31, 1996, should consider the effect of this transaction on
the financial results of the consolidated company. Coinciding with
the close of that transaction, the company name was changed from
One Valley Bancorp of West Virginia, Inc. to One Valley Bancorp,
Inc.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three months ended March 31, 1997,
was $46.3 million on a fully tax-equivalent basis, an 8.5% increase
over the $42.7 million earned during the same period in 1996. This
increase is largely due to a $277.5 million, or 11.0% increase in
average total loans and a $151.2 million, or 13.9% increase in
average securities during the first three month comparison. In
total, average earning assets increased by $447.5 million or 12.5%
in the first three months of 1997 over the same period in 1996,
while average interest bearing liabilities increased by $393.7
million or 12.8% 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 two-thirds of the growth in average
earning assets was attributable to the April 30, 1996, acquisition
of CSB Financial Corporation while the remainder was due to
internal growth.
As shown in the consolidated average balance sheets (page 18),
the yield on earning assets declined to 8.30% for the first three
months of 1997 from 8.36% earned during the first three months of
1996. During the same period, the cost of interest bearing
liabilities increased 11 basis points to 4.30% from last year's
4.19% 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 borrowed funds, as well as a
higher cost to attract customer deposits in an increasingly
competitive market. Additional discussion of the changes in
balance sheet mix is included later in this report. Primarily due
to the increase in the cost of interest bearing liabilities, the
net interest margin decreased to 4.61% during the first three
months of 1997, from the 4.77% during the first three months of
1996. 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 $1.5 million for the three
months ended March 31, 1997, a $0.3 million increase from the
provision made in the same period of 1996. As a percentage of
average total loans, the provision for loan losses through the
first three months of 1997 was 0.21% on an annualized basis,
compared with 0.18% for the first three months of 1996. 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 three months of 1997 increased to 0.17% on an annualized
basis, up from an annualized 0.13% during the first quarter of
1996, but down slightly from the 0.19% charge-off ratio for the
full year of 1996. The increase in the first quarter is primarily
due to an increase in consumer installment charge-offs.
Total non-performing assets at March 31, 1997, were 0.36% of
period-end loans, relatively unchanged from the 0.37% at December
31, 1996, and the 0.35% at March 31, 1996. Of the $1.2 million
increase in non-accrual loans from one year ago, $1.0 million is
attributable to the CSB Financial acquisition. Although the dollar
amount of non-perfoming assets at March 31, 1997, has increased
from the level one year ago, the allowance for loan losses is
sufficient to absorb over four times the amount of those non-
performing assets. At March 31, 1997, loans past due over 90 days
were 0.16% of outstanding loans, relatively unchanged from the
0.15% level at year-end 1996, but down slightly from the 0.18% at
March 31, 1996. An analysis of the allowance for loan losses and
non-performing assets is included on page 17.
With the continued good credit quality of the loan portfolio,
the allowance for loan losses has remained relatively stable. 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 March 31, 1997, the allowance was 1.50% of
outstanding loans, compared with the 1.49% at year-end and the
1.56% 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 three months
of 1997 was 2.07%, down from 2.28% during all of 1996 and the first
three months of 1996. This improvement is a result of growth in
average earning assets with only a modest increase in net overhead
from the same period in 1996. Average earning assets increased
12.5% in the first three months of 1997 when compared with the same
period in 1996. Net overhead increased by only 2.2% or $0.45
million during the same period primarily resulting from the
inclusion of CSB Financial in 1997 operations. Excluding the
effect of the Lynchburg operations, average earning assets
increased 3.5% while net overhead decreased by 5.7% or $1.2
million.
Total non-interest income was $11.0 million through the first
three months of 1997, up 12.6% from the $9.8 million non-interest
income earned during the same period in 1996. Trust income
increased by 13.8% from the same period last year due to new
business and increases in the market value of trust assets managed.
Service charges on deposit accounts increased by 4.9% in the first
three month comparison mainly due to a higher level of customer
activity. Real estate loan processing and service fees decreased
by 2.3% when compared to the first three months of 1996 due to a
slightly lower level of loans serviced for the secondary market.
Other service charges and fees increased by 27.0% over the first
three months of 1996, primarily due to increases in fee income from
non-One Valley customer use of the Company's network of automated
teller machines. Other operating income increased by 29.4% due
primarily to other non-recurring income reported by the building
management subsidiary of the Company and the introduction of a new
debit card product.
Total non-interest expense was $31.9 million during the three
months ended March 31, 1997, a 5.6% increase from the $30.2 million
during the same period in 1996, largely due to the acquired
operations of CSB Financial. Staff costs increased by 3.1% from
the level one year ago. Staffing levels, excluding the employees
added through the CSB acquisition, have declined by 4.6% from March
31, 1996, as operations are continually being streamlined and
levels are reduced through normal attrition. The savings have been
offset by normal salary and benefit increases and an increase in
staff from the Lynchburg acquisition. Occupancy expense decreased
by 3.7% from the same period last year primarily due to lower
utility costs and less winter maintenance for the facilities due to
a mild winter. Equipment expenses decreased 4.0% from last year's
level primarily due to lower maintenance and depreciation costs.
Federal deposit insurance expense for the first quarter of 1997 was
13.0% less than the same period last year due to the reduced
assessment rate required after the one-time SAIF adjustment in
September 1996 that replenished that fund. It is anticipated that
this new rate will continue to be assessed throughout the remainder
of 1997. Outside data processing expense increased by 21.6% above
the first quarter of 1996. Approximately thirty percent of this
increase is due to the new Lynchburg operations. The remainder of
the increase is due to enhanced computer service required to
support various customer products and services, such as the VISA
Checkcard, trust accounts, broker-dealer transactions, and mortgage
lending. Other operating expenses increased 12.6% in the first
three months of 1997. Nearly two-thirds of this increase was
directly related to the Lynchburg operations. The remainder is due
to increases in postage costs from customer mailings in the first
quarter, New York Stock Exchange registration dues, advertising
expense related to a new image campaign launched in the fall of
1996, and increases in local taxes not on income.
Income tax expense increased by $1.1 million, or 17.6%, for
the first three months of 1997 compared with the same period in
1996. The increase in taxes is primarily a result of the 15.5%
growth in pretax earnings. One Valley's effective income tax rate
for the first three months of 1997 was 33.9% compared to 33.3%
during the first three months of 1996.
FINANCIAL CONDITION
Asset Structure
Total loans at March 31, 1997, exceeded March 31, 1996, levels
by 10.2% or $260.1 million. Approximately $164.4 million in loans
was acquired through the CSB Financial acquisition. The
consolidated loan-to-deposit ratio has decreased slightly to 80.0%
at March 31, 1997, compared to 80.4% at March 31, 1996. Since
year-end 1996, total loans have decreased by 0.14% or $3.8 million.
This decrease in total loans is primarily due to paydowns on
indirect auto loans and credit cards in the first quarter. These
decreases were partially offset by increases in other consumer loan
categories such as home equity and student loans. Commercial,
mortgage, and other loan categories remained relatively stable
during the same period.
Investment portfolio assets increased $86.0 million or 7.4%
from the level at year-end and by $148.0 million or 13.4% from the
level one year ago. The increase from one year ago is due to the
Lynchburg investment portfolio. Excluding the assets attributable
to Lynchburg, total securities have decreased $6.8 million or 0.6%
from the level one year ago, 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 March 31, 1997,
had a historical cost of $1.037 billion, with an unrealized loss of
approximately $5.9 million. This unrealized loss decreased
shareholders' equity by $3.5 million, net of $2.4 million in
deferred income taxes. At year-end December 31, 1996, and March
31, 1996, securities available-for-sale had a historical cost of
$951.4 million and $902.3 million, with an unrealized gain of
approximately $1.5 million and $2.4 million, respectively. The
unrealized gains increased shareholders' equity by $0.9 million and
$1.4 million, net of $0.6 and $1.0 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-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.
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 over the last several years. As shown on the
consolidated average balance sheets (page 18), average tax-exempt
securities in the first three months of 1997 increased by 9.7% or
$19.7 million over the average during the first three months of
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 March 31, 1997, were $31.9 million, up
$27.1 million from year-end and up the entire $31.9 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 March 31, 1997, increased 1.4% from the
level at year-end and $338.8 million or 10.9% since March 31, 1996.
Approximately $263.2 million of the increase in total deposits from
March 31, 1996, was attributable to the Lynchburg operations. 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 time deposits, which have increased by 5.9% since March 31,
1996. Other deposits, including interest-bearing transaction
accounts and savings accounts, have decreased by 1.1% 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 4.20% in the
first three months of 1997, up from the 4.15% average rate paid for
all of 1996, and the 4.10% average rate paid in the first three
months of 1996 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 $35.0 million or 9.2%
from the year-end level, and increased $25.7 million or 6.6% from
the level at March 31, 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 increase from
year-end 1996 is primarily the result of a $35.0 million increase
in national market repurchase agreements. The increased level of
short-term borrowings has been used to fund the higher level of
investment portfolio assets as planned under One Valley's
asset/liability management program.
Long-term borrowings increased $16.0 million or 123.9% since
March 31, 1996. The increase since March one year ago was entirely
the result of the CSB Financial acquisition and additional
borrowings at that affiliate during the year, as One Valley
integrated the acquisition into its existing asset/liability
management strategy. Partially offsetting the debt acquired were
$5.0 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 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 for prior periods
presented have been adjusted to reflect the additional shares
outstanding.
One Valley's equity-to-asset ratio was 9.35% at March 31,
1997, down from the 9.57% at December 31, 1996, but up from the
8.95% 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 $4.4 million net of tax
change 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 the 2.2 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 March 31,
1997, One Valley held 3.0 million shares of treasury stock and has
remaining Board authorization for the repurchase of 721,000
additional shares. Any purchases under this or previous
authorizations will depend upon future market conditions.
One Valley's cash dividend, totaling $0.24 per share for the
first quarter of 1997, was up 9.1% over the $0.22 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 March 31, 1997
was 15.86%, well above the 8.0% required, while its Tier I capital
ratio was 14.61%. One Valley's strong capital position is
demonstrated further by its leverage ratio of 8.97% 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
Ended March 31
1997 1996
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, Beginning of Period $41,745 $39,534
Loan Losses 1,695 1,258
Loan Recoveries 497 411
------- -------
Net Charge-offs 1,198 847
Provision For Loan Losses 1,458 1,149
------- -------
Balance, End of Period $42,005 $39,836
======= =======
Total Loans, End of Period $2,806,417 $2,546,298
Allowance For Loan Losses
As a % of Total Loans 1.50 1.56
========== ==========
NON-PERFORMING ASSETS AT QUARTER END
Non-Accrual Loans $8,616 $7,459
Foreclosed Properties 1,511 1,384
------- -------
Total Non-Performing Assets $10,127 $8,843
======= =======
Non-Performing Assets
As a % of Total Loans 0.36 0.35
Loans Past Due Over 90 Days $4,489 $4,653
Loans Past Due Over 90 Days
As a % of Total Loans 0.16 0.18
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Average Balance Sheets
(unaudited in thousands)
<CAPTION>
Three Months Ended March 31
1997 1996
Amount Yield/Rate Amount Yield/Rate
(pct.) (pct.)
<S> <C> <C> <C> <C>
ASSETS
Loans
Taxable $2,752,033 8.79 $2,481,722 8.94
Tax-Exempt 46,787 9.88 39,563 10.04
---------- ----------
Total 2,798,820 8.81 2,521,285 8.96
Less: Allowance for Losses 42,029 39,720
---------- ----------
Net Loans 2,756,791 8.94 2,481,565 9.10
Securities
Taxable 1,013,489 6.69 881,966 6.36
Tax-Exempt 223,632 8.21 203,946 8.37
---------- ----------
Total 1,237,121 6.96 1,085,912 6.74
Federal Funds Sold & Other 33,716 4.66 12,652 3.20
---------- ----------
Total Earning Assets 4,027,628 8.30 3,580,129 8.36
Other Assets 278,198 255,798
---------- ----------
Total Assets $4,305,826 $3,835,927
========== ==========
LIABILITIES AND EQUITY
Interest Bearing Liabilities
Deposits $2,996,330 4.20 $2,681,455 4.10
Short-term Borrowings 433,642 4.83 370,538 4.79
Long-term Borrowings 28,889 6.16 13,197 6.08
---------- ----------
Total Interest
Bearing Liabilities 3,458,861 4.30 3,065,190 4.19
Non-interest Bearing Deposits 392,625 368,609
Other Liabilities 44,754 39,059
---------- ----------
Total Liabilities 3,896,240 3,472,858
Shareholders' Equity 409,586 363,069
---------- ----------
Total Liabilities & Equity $4,305,826 $3,835,927
========== ==========
Interest Income To Earning Assets 8.30 8.36
Interest Expense To Earning Assets 3.69 3.59
------ ------
Net Interest Margin 4.61 4.77
====== ======
<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
Listing Application with the New York Stock Exchange
(NYSE) April 22, 1997
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, 1997
BY /s/J. Holmes Morrison
J. Holmes Morrison
President and
Chief Executive Officer
BY /s/James A. Winter
James A. Winter
Chief Accounting Officer and
Assistant Treasurer
<TABLE>
Exhibit 11
Statement Re: Computation of Earnings per Share
<CAPTION>
For The Three Months
Ended March 31
1997 1996
<S> <C> <C>
PRIMARY:
Average Shares Outstanding 22,050,000 20,992,000
Net effect of the assumed exercise
of stock options - based on the
treasury stock method 345,000 129,000
------------ ------------
Total 22,395,000 21,121,000
============ ============
Net Income $14,471,000 $12,648,000
Per Share Amount $0.65 $0.60
============ ============
FULLY DILUTED:
Average Shares Outstanding 22,050,000 20,992,000
Net effect of the assumed exercise
of stock options - based on the
treasury stock method 365,000 148,000
------------ ------------
Total 22,415,000 21,140,000
============ ============
Net Income $14,471,000 $12,648,000
Per Share Amount $0.65 $0.60
============ ============
</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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 121247
<INT-BEARING-DEPOSITS> 12369
<FED-FUNDS-SOLD> 31925
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1031297
<INVESTMENTS-CARRYING> 224948
<INVESTMENTS-MARKET> 225125
<LOANS> 2806417
<ALLOWANCE> 42005
<TOTAL-ASSETS> 4355313
<DEPOSITS> 3455392
<SHORT-TERM> 413040
<LIABILITIES-OTHER> 50830
<LONG-TERM> 28886
0
0
<COMMON> 249879
<OTHER-SE> 157286
<TOTAL-LIABILITIES-AND-EQUITY> 4355313
<INTEREST-LOAN> 60663
<INTEREST-INVEST> 19929
<INTEREST-OTHER> 387
<INTEREST-TOTAL> 80979
<INTEREST-DEPOSIT> 31062
<INTEREST-EXPENSE> 36661
<INTEREST-INCOME-NET> 44318
<LOAN-LOSSES> 1458
<SECURITIES-GAINS> (84)
<EXPENSE-OTHER> 31898
<INCOME-PRETAX> 21892
<INCOME-PRE-EXTRAORDINARY> 21892
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14471
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<YIELD-ACTUAL> 4.61
<LOANS-NON> 8616
<LOANS-PAST> 4489
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 41745
<CHARGE-OFFS> 1695
<RECOVERIES> 497
<ALLOWANCE-CLOSE> 42005
<ALLOWANCE-DOMESTIC> 42005
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
