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, 1998
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, 1998 was:
Common Stock, $10.00 par value - 32,738,875 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, 1998, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997.
The Private Securities Litigation Act of 1995 indicates that the disclosure of
forward-looking information is desirable for investors and encourages such
disclosure by providing a safe harbor for forward-looking statements by
corporate management. This Quarterly Report on Form 10-Q contains forward-
looking statements that involve risk and uncertainty. In order to comply with
the terms of the safe harbor, the corporation notes that a variety of factors
could cause One Valley's actual results and experience to differ materially
from the anticipated results or other expectations expressed in those forward-
looking statements.
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 - 17 of this report.
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited in thousands)
<CAPTION>
March 31 December 31 March 31
1998 1997 1997
<S> <C> <C> <C>
ASSETS
Cash and Due From Banks $156,778 $127,012 $125,019
Interest Bearing Deposits With Other Banks 3,288 2,162 12,369
Federal Funds Sold 5,364 20,310 34,397
---------- ---------- ----------
Cash and Cash Equivalents 165,430 149,484 171,785
Securities
Available-for-Sale, at fair value 1,410,300 1,216,749 1,140,088
Held-to-Maturity (Estimated Fair Value,
March 31, 1998 - $249,668; December 31, 1997 - $355,820;
March 31, 1997 - $317,730) 244,379 352,272 321,683
Loans
Total Loans 3,537,802 3,302,536 3,135,212
Less: Allowance For Loan Losses 47,871 45,048 45,308
---------- ---------- ----------
Net Loans 3,489,931 3,257,488 3,089,904
Premises & Equipment - Net 96,742 90,397 89,963
Other Assets 135,054 95,096 91,757
---------- ---------- ----------
Total Assets $5,541,836 $5,161,486 $4,905,180
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest Bearing $498,437 $465,227 $421,821
Interest Bearing 3,750,876 3,468,947 3,441,379
---------- ---------- ----------
Total Deposits 4,249,313 3,934,174 3,863,200
Short-term Borrowings
Federal Funds Purchased 41,481 22,581 14,298
Repurchase Agreements and Other Borrowings 610,760 600,899 435,732
---------- ---------- ----------
Total Short-term Borrowings 652,241 623,480 450,030
Long-term Borrowings 48,872 48,875 59,886
Other Liabilities 51,007 51,307 53,557
---------- ---------- ----------
Total Liabilities 5,001,433 4,657,836 4,426,673
Shareholders' Equity:
Preferred Stock-$10 par value; 1,000,000 shares authorized
but none issued 0 0 0
Common Stock-$10 par value; 70,000,000 shares authorized,
Issued 37,085,721 shares at March 31, 1998;
36,330,605 shares at December 31, 1997;
29,734,431 shares at March 31, 1997 370,857 363,306 297,344
Capital Surplus 91,390 71,782 67,115
Retained Earnings 167,055 157,730 191,535
Accumulated Other Comprehensive Income 6,196 5,927 (2,938)
Treasury Stock - 4,346,846 shares at March 31, 1998
and December 31, 1997; 2,980,497 shares
at March 31, 1997; at cost (95,095) (95,095) (74,549)
---------- ---------- ----------
Total Shareholders' Equity 540,403 503,650 478,507
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $5,541,836 $5,161,486 $4,905,180
========== ========== ==========
</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
1998 1997
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans
Taxable $73,129 $67,065
Tax-Exempt 680 741
-------- --------
Total 73,809 67,806
Interest on Investment Securities
Taxable 22,962 20,396
Tax-Exempt 3,124 2,983
-------- --------
Total 26,086 23,379
Other Interest Income 191 472
-------- --------
Total Interest Income 100,086 91,657
INTEREST EXPENSE
Deposits 38,438 35,664
Short-term Borrowings 8,970 5,754
Long-term Borrowings 705 759
-------- --------
Total Interest Expense 48,113 42,177
-------- --------
Net Interest Income 51,973 49,480
Provision For Loan Losses 2,594 1,458
-------- --------
Net Interest Income
After Provision For Loan Losses 49,379 48,022
OTHER INCOME
Trust Department Income 2,890 2,495
Service Charges on Deposit Accounts 4,168 3,686
Real Estate Loan Processing & Servicing Fees 1,902 1,344
Other Service Charges and Fees 3,109 2,568
Other Operating Income 1,738 1,132
Securities Transactions 537 (45)
-------- --------
Total Other Income 14,344 11,180
OTHER EXPENSES
Salaries and Employee Benefits 19,331 18,295
Occupancy Expense - Net 1,879 1,795
Equipment Expenses 2,681 2,212
Outside Data Processing 2,301 1,985
Other Operating Expenses 12,075 10,055
-------- --------
Total Other Expenses 38,267 34,342
-------- --------
Income Before Taxes 25,456 24,860
Applicable Income Taxes 8,945 8,495
-------- --------
NET INCOME $16,511 $16,365
======== ========
NET INCOME PER SHARE
Basic $0.52 $0.51
Diluted $0.51 $0.50
Average Shares Outstanding (in thousands)
Basic 31,836 32,202
Diluted 32,553 32,895
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(unaudited in thousands)
<CAPTION>
Accumulated
Other
Common Capital Retained Treasury Comprehensive
Stock Surplus Earnings Stock Income Total
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 $363,306 $71,782 $157,730 ($95,095) $5,927 $503,650
Three Months Ended March 31, 1998
Comprehensive Income:
Net Income 0 0 16,511 0 0 16,511
Other Comprehensive Income, net of tax:
Net Unrealized Holding Gains on
Available-For-Sale Securities Arising
During The Period 0 0 0 0 806 806
Less: Reclassification Adjustment For
Gains Realized in Net Income 0 0 0 0 (537) (537)
--------
Other Comprehensive Income 269
--------
Comprehensive Income 16,780
Cash Dividends ($.21 per share)
FFVA Treasury Shares Reissued 7,087 19,274 0 0 0 26,361
Stock Options Exercised 464 334 0 0 0 798
-------- -------- -------- -------- -------- --------
Balance March 31, 1998 $370,857 $91,390 $167,055 ($95,095) $6,196 $540,403
======== ======== ======== ======== ======== ========
Balance December 31, 1996 $298,504 $66,641 $183,226 ($67,378) $2,065 $483,058
Three Months Ended March 31, 1997
Comprehensive Income:
Net Income 0 0 16,365 0 0 16,365
Other Comprehensive Income, net of tax:
Net Unrealized Holding Losses on
Available-For-Sale Securities Arising
During The Period 0 0 0 0 (5,048) (5,048)
Plus: Reclassification Adjustment For
Losses Realized in Net Income 0 0 0 0 45 45
--------
Other Comprehensive Income (5,003)
--------
Comprehensive Income 11,362
Cash Dividends ($.19 per share) 0 0 (5,734) 0 0 (5,734)
FFVA Repurchase of Common Stock (1,807) 140 (2,322) 0 0 (3,989)
Treasury Shares Purchased 0 0 0 (7,171) 0 (7,171)
Stock Options Exercised 647 334 0 0 0 981
-------- -------- -------- -------- -------- --------
Balance March 31, 1997 $297,344 $67,115 $191,535 ($74,549) ($2,938) $478,507
======== ======== ======== ======== ======== ========
</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
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $16,511 $16,365
Adjustments To Reconcile Net Income To Net Cash
Provided by Operating Activities:
Provision For Loan Losses 2,594 1,458
Depreciation 2,385 2,094
Amortization and Accretion 863 1,137
Net (Gain) Loss From Sales of Assets (537) 107
Increase (Decrease) Due to Changes In:
Accrued Interest Receivable (2,487) (1,298)
Accrued Interest Payable (581) 442
Other Assets and Other Liabilities 1,581 6,960
-------- --------
Net Cash Provided by Operating Activities 20,329 27,265
INVESTING ACTIVITIES
Proceeds From Sales of Securities Available for Sale 29,524 6,935
Proceeds From Maturities of Securities Available for Sale 128,530 68,595
Proceeds From Maturities of Securities Held to Maturity 7,717 4,365
Purchases of Securities Available for Sale (242,957) (164,968)
Purchases of Securities Held to Maturity (7,756) (22,615)
Net (Increase) Decrease In Loans (109,891) 590
Acquisition of Branches, Net of Cash Received 111,920 0
Purchases of Premises and Equipment (2,124) (1,680)
-------- --------
Net Cash Used in Investing Activities (85,037) (108,778)
FINANCING ACTIVITIES
Net Increase in Interest Bearing and Non-interest Bearing Deposits 31,923 58,753
Net Increase (Decrease) in Federal Funds Purchased 18,900 (2,980)
Net Increase in Other Short-term Borrowings 9,861 20,936
Proceeds From Long-term Borrowings 0 25,000
Repayment of Long-term Debt (3) (6)
Proceeds From Issuance of Common Stock 27,159 981
Purchase of Treasury Stock 0 (7,171)
Dividends Paid (7,186) (5,734)
-------- --------
Net Cash Provided by Financing Activities 80,654 85,790
-------- --------
Increase in Cash and Cash Equivalents 15,946 4,277
Cash And Cash Equivalents at Beginning of Year 149,484 167,508
-------- --------
Cash And Cash Equivalents, March 31 $165,430 $171,785
======== ========
</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 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. Statement 128 requires the
reporting of basic and diluted net income per common share. Basic net income
per common share excludes any dilutive effects of stock options and is
computed by dividing net income by the average common shares outstanding
during the year. Diluted net income per common share is computed by dividing
net income by the average common shares outstanding during the year adjusted
for the dilutive effect options under One Valley's stock option plans. The
effect of dilutive stock options on average shares outstanding was 717,000 for
the first quarter of 1998 and 693,000 for the first quarter of 1997. Net
income per common share amounts for all periods presented have been restated
to conform to Statement 128.
As of January 1, 1998, the One Valley adopted Financial Accounting Standards
Board (FASB) Statement 130, "Reporting Comprehensive Income" (FAS 130). FAS
130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no
impact on One Valley's net income or shareholders' equity. FAS 130 requires
unrealized gains or losses on the One Valley's available-for-sale securities,
which prior to adoption were reported separately in shareholders' equity to be
included in other comprehensive income. Prior period financial statements
have been reclassified to conform to the requirements of FAS 130. During the
first quarter of 1998 and 1997, total comprehensive income amounted to $16,780
and $11,362.
As of January 1, 1998, One Valley adopted the provision of FASB Statement 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," relating to repurchase agreements, securities lending and
other similar transactions and pledged collateral, which had been delayed by
FASB statement 127 "Deferral of the Effective Date of Certain Provisions of
FASB Statement 125, an Amendment of FASB Statement 125." The effect of
adopting the additional provisions of Statement 125, as amended by Statement
127, had no material impact on One Valley's financial position or results of
operations.
Note C - Merger
At the close of business on March 30, 1998, One Valley acquired all of the
outstanding stock of FFVA Financial Corporation, in exchange for 5,518,668
shares of One Valley common stock. This combination was accounted for as a
pooling-of-interest. Accordingly, all prior period financial information has
been restated to reflect the merger of the two companies as though they had
always been combined.
One Valley Bancorp, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
March 31, 1998
INTRODUCTION AND SUMMARY
Net income for the first quarter of 1998 totaled $16.5 million, a 0.9%
increase from the $16.4 million earned in the same quarter of 1997. On a per
share basis, basic net income per share increased by 2.0% to $0.52 from the
$0.51 earned in the first quarter of 1997. The improvement in earnings during
the quarter is primarily due to higher net interest income and non-interest
income which more than offset the increase in non-interest expense. Prior
period per share information has been adjusted for a 5 for 4 stock split
declared in August 1997.
Return on average assets (ROA) measures how effectively One Valley
utilizes its assets to produce net income. ROA was 1.24% in the first quarter
of 1998, a decrease from the 1.35% earned during the same period of 1997.
Return on average equity (ROE) also decreased to 12.78% from the 13.55%
reported for the first quarter of 1997. The decline in ROA and ROE was
primarily the result of merger related expenses incurred during the first
quarter of 1998 as more fully explained below.
The following discussion is an analysis of the financial condition and
results of operations of One Valley for the first three months of 1998. This
discussion should be read in conjunction with the 1997 Annual Report to
Shareholders and the other financial information included in this report.
Acquisitions
At the close of business on February 19, 1998, One Valley acquired
fifteen branches in Virginia from the Wachovia Corporation. Through this
purchase One Valley acquired $124.9 million in loans and $283.2 million in
deposits. This transaction was treated as a purchase and accordingly, the
balances and results of the operations of the branches are included in the
financial statements of One Valley only from the date of purchase. Also, at
the close of business on March 30, 1998, One Valley Bancorp merged with FFVA
Financial Corporation a $580.0 million bank headquartered in Lynchburg,
Virginia. Pursuant to the merger agreement, One Valley exchanged 1.05 shares
of One Valley Bancorp stock for each share of FFVA Financial common stock
outstanding. The combination was accounted for as a pooling of interest and as
a result, all prior financial results have been restated and reported on a
combined basis. Due to the immaterial impact on One Valley's financial
statements, separate results for the preceding periods are not presented
herein.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three months ended March 31, 1998, was $54.0
million on a fully tax-equivalent basis, a 4.9% increase over the $51.5
million earned during the same period in 1997. This increase is largely due
to a $269.4 million, or 8.6% increase in average total loans and a $207.0
million, or 14.5% increase in average securities during the first three-month
comparison. In total, average earning assets increased by $449.3 million or
9.9% in the first three months of 1998 over the same period in 1997, while
average interest bearing liabilities increased by $409.6 million or 10.4% 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 one-four of the growth in
average earning assets was attributable to the purchase of the fifteen
branches from the Wachovia Corporation.
As shown in the consolidated average balance sheets (page 17), the yield
on earning assets declined to 8.23% for the first three months of 1998 from
8.32% earned during the first three months of 1997. During the same period,
the cost of interest bearing liabilities increased 14 basis points to 4.50%
from last year's 4.36% level. The 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 4.33% during the first three
months of 1998, from the 4.56% during the first three months of 1997.
Internal interest rate risk simulations indicate that over the next twelve
months a sharp rise in interest rates would have a slight positive influence
on net interest income; whereas, a sharp decline in rates would have a slight
negative influence on net interest income. Normal fluctuations in market
interest rates should not have a significant impact on One Valley's net
interest margin.
Credit Experience
The provision for loan losses was $2.6 million for the three months ended
March 31, 1998, a $1.1 million increase from the provision made in the same
period of 1997. As a percentage of average total loans, the provision for
loan losses through the first three months of 1998 was 0.31% on an annualized
basis, compared with 0.19% for the first three months of 1997. The increase
in the provision for loan losses is based upon One Valley's continual
evaluation process of the adequacy of the allowance for loan losses and to
provide for the growth in the loan portfolio as a result of the Wachovia
branch purchase. Net charge-offs as a percentage of average total loans in
the first three months of 1998 increased to 0.21% on an annualized basis, up
from an annualized 0.15% during the first quarter of 1997, but down from the
0.26% charge-off ratio for the full year of 1997. The increase in the first
quarter is primarily due to an increase in consumer installment charge-offs.
Total non-performing assets at March 31, 1998, were 0.32% of period-end
loans, up from the 0.31% at December 31, 1997, but down from the 0.34% at
March 31, 1997. Although the dollar amount of non-performing assets at March
31, 1998 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, 1998, loans past due over 90 days were 0.13%
of outstanding loans, down slightly from the .19% at year-end 1997, but
relatively unchanged from the 0.14% at March 31, 1997. An analysis of the
allowance for loan losses and non-performing assets is included on page 16.
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, 1998, the
allowance was 1.35% of outstanding loans, compared with the 1.36% at year-end
and the 1.45% 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 One Valley'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 1998 was 1.96%, down from 2.09% during all of 1997 and
the 2.03% for the first three months of 1997. This improvement is a result of
growth in average earning assets with a moderate increase in net overhead over
the same period in 1997. Average earning assets increased 9.9% in the first
three months of 1998 when compared with the same period in 1997. Net overhead
increased by 5.8% or $1.3 million during the same period primarily resulting
from the purchase of fifteen branches from the Wachovia Corporation and
expenses related to the FFVA merger.
Total non-interest income was $14.3 million through the first three
months of 1998, up 28.3% from the $11.2 million non-interest income earned
during the same period in 1997. Trust income increased by 15.8% 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 13.1%
in the first three-month comparison mainly due to a higher level of customer
activity. Real estate loan processing and service fees increased by 41.5%
when compared to the first three months of 1997 due to a higher level of loans
sold in the secondary market. Other service charges and fees increased by
21.1% over the first three months of 1998, primarily due to increases in
credit/debit card activity and other banking services provided to customers.
Other operating income increased by 53.5% primarily due to additional income
received from certain loan payoffs and the income from the final payment on
the sale of One Valley's Corporate Trust business.
Total non-interest expense was $38.3 million during the three months
ended March 31, 1998, a 11.4% increase from the $34.3 million during the same
period in 1997, largely due to the operations of the fifteen branches from the
Wachovia Corporation acquired during the first quarter and the one time
expenses related to the acquisition of FFVA. Staff costs increased by 5.7%
from the level one-year ago primarily due to the additional staff from the
Wachovia branch purchase and normal salary and benefit increases. Occupancy
expense increased by 4.7% from the same period last year primarily due to the
increased facilities cost related to the fifteen new branches. Equipment
expenses increased 21.2% from last year's level primarily due to higher
maintenance and depreciation costs related to technology upgrades that
occurred in 1997 and are continuing in 1998. Outside data processing expense
increased by 15.9% above the first quarter of 1997. This increase is
primarily due to processing costs related to the increased activity in the
Visa Checkcard and ATM product. Other operating expenses increased by $2.0
million or 20.1% in the first three months of 1998. One half ($1.1million) of
the increase was directly related to one-time charges for investment banking
and legal fees related to the FFVA merger. The remainder was primarily due to
increases in advertising expense and other expenses associated with the
operations of the fifteen new branches.
Income tax expense increased by $0.5 million, or 5.3%, for the first
three months of 1998 compared with the same period in 1997. The increase in
taxes is primarily a result of the 2.4% growth in pretax earnings and expenses
related to the FFVA merger. One Valley's effective income tax rate for the
first three months of 1998 was 35.1% compared to 34.2% during the first three
months of 1997.
FINANCIAL CONDITION
Asset Structure
Total loans at March 31, 1998, exceeded March 31, 1997, levels by 12.8%
or $402.6 million. Since year-end 1997, total loans have increased by 7.1% or
$235.3 million. The consolidated loan-to-deposit ratio has increased to 82.1%
at March 31, 1998, compared to 80.0% at March 31, 1997. Approximately $124.9
million in loans were acquired through the Wachovia Branch purchase during the
first quarter of 1998. The increase in total loans is primarily in commercial
revolving lines of credit, commercial real estate loans, and one-to-four
family mortgage loans.
Investment portfolio assets increased $85.7 million or 5.5% from the
level at year-end and by $192.9 million or 13.2% from the level one-year ago.
One Valley acquired approximately $108.2 million of investable funds through
the Wachovia branch purchase. These funds were primarily invested in
additional purchases of government agency and mortgage backed 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 March 31, 1998, had a
historical cost of $1.4 billion, with an unrealized gain of approximately
$10.1 million. This unrealized gain increased shareholders' equity by $6.2
million, net of $3.9 million in deferred income taxes. At year-end December
31, 1997, and March 31, 1997, securities available-for-sale had a historical
cost of $1.207 billion and $1.145 billion, with an unrealized gain of
approximately $9.7 million at year-end, and an unrealized loss of
approximately $5.0 million at March 31, 1997. The unrealized gain increased
shareholders' equity by $5.9 million, net of $3.8 million in deferred income
taxes while the unrealized loss reduced shareholders' equity by $2.9 million,
net of $2.1 million in deferred income taxes.
On March 30, 1998, in accordance with the provisions in FAS Statement
115, One Valley reclassified as available-for-sale approximately $96.2 million
of investments that were previously categorized as held-to-maturity by FFVA.
The reclassification enabled One Valley to incorporate FFVA's investment
portfolio into its own investment policy and assets/liability management
strategies. At the date of transfer, these securities had a carrying value of
$95.3 million with an unrealized gain of approximately $0.9 million.
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 17),
average tax-exempt securities in the first three months of 1998 increased by
6.3% or $14.0 million over the average during the first three months of 1997.
One Valley will continue to monitor its investment opportunities and may
purchase additional tax-exempt securities of similar yield and quality.
Federal funds sold at March 31, 1998, were $5.4 million, down $14.9
million from year-end and down $29.0 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, 1998, increased by $315.1 million or 8.0%
from the level at year-end and $386.1 million or 10.0% since March 31, 1997.
Approximately $283.2 million of the increase in total deposits was
attributable to the fifteen new branches purchased during the first quarter of
1998. Over the past few years growth in banking deposits has been modest.
Due to the current 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 new
branches, has been in money market accounts. The average rate paid on interest
bearing deposits increased to 4.34% in the first three months of 1998, up from
the 4.31% average rate paid for all of 1997, and the 4.26% average rate paid
in the first three months of 1997 largely due to increased rates on money
market accounts and fixed rate CDs. In an effort to meet customer
expectations for an integrated financial service 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 $28.8 million or 4.6% from the
year-end level, and increased $202.2 million or 44.9% from the level at March
31, 1997. Short-term borrowings consist of Federal funds purchased from
correspondent banks, repurchase agreements with large corporate and public
entities, advances on credit lines available to One Valley, and commercial
paper. The increased level of short-term borrowings has been used to fund the
loan growth and the higher level of investment portfolio assets as planned
under One Valley's asset/liability management program.
Long-term borrowings decreased $11.0 million or 18.4% since March 31,
1997. The decrease since March one-year ago was primarily the result of
payments primarily on long-term advances from the Federal Home Loan Bank
(FHLB). As a result, One Valley now has $48.9 million of long-term
borrowings, primarily FHLB borrowings, with repayment schedules from one to
six years. In 1998 maturities of these borrowings include $7.0 million in the
second quarter, $5.0 million in the third quarter, and $2.0 million in the
fourth quarter while approximately $2.0 million will mature in 1999.
Capital Structure and Liquidity
One Valley's equity-to-asset ratio was 9.75% at March 31, 1998,
relatively unchanged from the 9.76% at December 31, 1997 and March 31, 1997.
One Valley's commitment to a strong capital ratio has facilitated the
company's expansion into the central Virginia markets thus increasing long-
term profitability and shareholder value. One Valley's cash dividend,
totaling $0.21 per share for the first quarter of 1998, was up 10.5% over the
$0.19 per share dividend during the same period in 1997. 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, 1998 was 17.72%, well above the 8.0% required,
while its Tier I capital ratio was 16.47%. One Valley's strong capital
position is demonstrated further by its leverage ratio of 9.76% 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.
In order that the FFVA merger be treated as a pooling of interests for
accounting purposes, FFVA Corporation reissued 675,000 treasury shares in a
private placement offering. As a result, approximately $26.4 million of
additional equity was raised in the first quarter of 1998.
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
1998 1997
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, Beginning of Period $45,048 $45,055
Loan Losses 2,252 1,702
Loan Recoveries 509 497
------- -------
Net Charge-offs 1,743 1,205
Balance of Acquired Subsidiary 1,972 0
Provision For Loan Losses 2,594 1,458
------- -------
Balance, End of Period $47,871 $45,308
======= =======
Total Loans, End of Period $3,537,802 $3,135,212
Allowance For Loan Losses As a % of Total Loans 1.35 1.45
========== ==========
NON-PERFORMING ASSETS AT QUARTER END
Non-Accrual Loans $9,456 $9,151
Foreclosed Properties 1,950 1,540
Restructured Loans 0 0
------- -------
Total Non-Performing Assets $11,406 $10,691
======= =======
Non-Performing Assets As a % of Total Loans 0.32 0.34
Loans Past Due Over 90 Days $4,574 $4,489
Loans Past Due Over 90 Days As a % of Total Loans 0.13 0.14
</TABLE>
<PAGE>
<TABLE>
ONE VALLEY BANCORP, INC. AND SUBSIDIARIES
Consolidated Average Balance Sheets
(unaudited in thousands)
<CAPTION>
Three Months Ended March 31
1998 1997
Amount Yield/Rate Amount Yield/Rate
(pct.) (pct.)
<S> <C> <C> <C> <C>
ASSETS
Loans
Taxable $3,352,058 8.82 $3,078,956 8.80
Tax-Exempt 43,042 9.86 46,787 9.88
---------- ----------
Total 3,395,100 8.83 3,125,743 8.85
Less: Allowance for Losses 46,226 45,338
---------- ----------
Net Loans 3,348,874 8.95 3,080,405 8.98
Securities
Taxable 1,399,441 6.56 1,206,432 6.76
Tax-Exempt 237,641 8.09 223,632 8.21
---------- ----------
Total 1,637,082 6.78 1,430,064 6.99
Federal Funds Sold & Other 13,833 5.60 40,019 4.78
---------- ----------
Total Earning Assets 4,999,789 8.23 4,550,488 8.32
Other Assets 343,108 297,273
---------- ----------
Total Assets $5,342,897 $4,847,761
========== ==========
LIABILITIES AND EQUITY
Interest Bearing Liabilities
Deposits $3,595,839 4.34 $3,397,333 4.26
Short-term Borrowings 690,599 5.27 476,650 4.90
Long-term Borrowings 47,057 6.08 49,889 6.17
---------- ----------
Total Interest
Bearing Liabilities 4,333,495 4.50 3,923,872 4.36
Non-interest Bearing Deposits 445,032 393,575
Other Liabilities 47,699 47,243
---------- ----------
Total Liabilities 4,826,226 4,364,690
Shareholders' Equity 516,671 483,071
---------- ----------
Total Liabilities & Equity $5,342,897 $4,847,761
========== ==========
Interest Income To Earning Assets 8.23 8.32
Interest Expense To Earning Assets 3.90 3.76
------ ------
Net Interest Margin 4.33 4.56
====== ======
<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 4. Submission of Matters to a Vote of Security Holders.
A Special Meeting of Shareholders of One Valley was held on March 11, 1998.
At that meeting the matters set forth below were voted upon. The number of
votes cast for or against, as well as the number of abstentions and broker
non-votes concerning each matter are indicated in the following tabulation.
1. Approve the agreement and plan of merger between One Valley Bancorp,
Inc. and FFVA Financial Corporation.
Broker
For Against Abstentions Non-Votes
21,858,202 89,248 77,123 1,244,487
2. Approve Amendment to the Articles of Incorporation to increase the
authorized common stock of One Valley Bancorp, Inc. from 40,000,000 shares to
70,000,000 shares.
For Against Abstentions
22,530,089 668,645 70,326
One Valley Bancorp, Inc.
Part II. Other Information
Item 6. Exhibits and Reports on Form 10-Q
a.) Exhibits
27. Financial Data Schedule - electronic filing only.
b.) Reports on Form 8-K
1. March 11, 1998 - One Valley Bancorp, Inc. announced the new
closing date for the FFVA Financial Corporation merger.
2. March 16, 1998 - One Valley Bancorp, Inc. announced
anticipated earnings for the first quarter.
3. March 30, 1998 - One Valley Bancorp, Inc. announced completion
of the FFVA Financial Corporation merger.
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 15, 1998
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> <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>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 156778 125019
<INT-BEARING-DEPOSITS> 3288 12369
<FED-FUNDS-SOLD> 5364 34397
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 1410300 1140088
<INVESTMENTS-CARRYING> 244379 321683
<INVESTMENTS-MARKET> 249668 317730
<LOANS> 3537802 3135212
<ALLOWANCE> 47871 45308
<TOTAL-ASSETS> 5541836 4905180
<DEPOSITS> 4249313 3863200
<SHORT-TERM> 652241 450030
<LIABILITIES-OTHER> 51007 53557
<LONG-TERM> 48872 59886
0 0
0 0
<COMMON> 370857 297344
<OTHER-SE> 169546 181163
<TOTAL-LIABILITIES-AND-EQUITY> 5541836 4905180
<INTEREST-LOAN> 73809 67806
<INTEREST-INVEST> 26086 23379
<INTEREST-OTHER> 191 472
<INTEREST-TOTAL> 100086 91657
<INTEREST-DEPOSIT> 38438 35664
<INTEREST-EXPENSE> 48113 42177
<INTEREST-INCOME-NET> 51973 49480
<LOAN-LOSSES> 2594 1458
<SECURITIES-GAINS> 537 (45)
<EXPENSE-OTHER> 38267 34342
<INCOME-PRETAX> 25456 24860
<INCOME-PRE-EXTRAORDINARY> 25456 24860
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16511 16365
<EPS-PRIMARY> .52 .51
<EPS-DILUTED> .51 .50
<YIELD-ACTUAL> 8.23 8.32
<LOANS-NON> 11406 10691
<LOANS-PAST> 4574 4489
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 45048 45055
<CHARGE-OFFS> 2252 1702
<RECOVERIES> 509 497
<ALLOWANCE-CLOSE> 47871 45308
<ALLOWANCE-DOMESTIC> 47871 45308
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
