One Valley's Shares Lag Despite Strong Franchise
The recent acquisition of a defunct thrift raised the profile of One Valley Bancorp, West Virginia's largest banking company, but so far investors are not impressed.
One Valley shares traded on Wednesday at $30.375, about 112% of book value and a modest 8.3 times the $3.65 a share the bank is expected to earn next year by analysts at Keefe, Bruyette & Woods Inc., New York.
Investors lack enthusiasm, despite an extraordinary track record.
A Star Performer
"They have ranked No. 1 over the last two quarters among our universe of banks in terms of profits, liquidity, capital adequacy, and asset quality," said David A. Stumpf, a bank analyst for Wheat First Securities, Richmond.
Wheat First follows 33 regional and superregional banks in an extended Middle Atlantic region.
Two factors appear to be holding down One Valley's price. A 900,000-share offering slated for next week will increase the number of shares by nearly 15%, causing significant dilution of earnings per share.
Moreover, One Valley has not obtained footholds beyond the borders of the tiny Mountaineer State, where growth prospects are limited.
Hefty Share in Charleston
Within West Virginia, however, One Valley is a force to be reckoned with. Its acquisition of $535 million of assets of Atlantic Financial Federal will push its market share to 35% in Charleston, the capital, and enhance its franchise in the state.
"The branches they acquired are basically in places where they want to be or already are, which is the growth counties of the state," said a New York bank analyst who tracks the company. "Meanwhile, the deal also gives them more operational scale for improved efficiency."
One Valley obtained Atlantic Financial's West Virginia operations from the Resolution Trust Corp. In addition to the assets, One Valley received a cash payment of $41 million.
In exchange, One Valley took more than the usual level of assets from the thrift. Most were one-to four-family home mortgages, which propelled One Valley to the top position among mortgage servicers in the state, with a portfolio of $1.5 billion.
Nonperforming assets, including other real estate owned, equal 0.57% of all assets, Mr. Stumpf noted. "The average for our universe is 2.35%," he said.
"They felt humiliated last year when the level got to 1%, and it was only 1.5% in 1983, when unemployment in the state was 18%," said another analyst. "They are good local bankers and don't want to be anything else."
Indeed, Holmes Morrison, One Valley's chairman and chief executive officer, said Wednesday that the bank is not interested in expanding out of state. "We have looked at, and would consider, acquisitions adjacent to the markets we serve along the borders," he said. "But they will have to be close, and I mean close."