FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission file number 1-6580
June 30, 2001
FIRST VIRGINIA BANKS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0497561
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code
(703) 241-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities 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. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
On July 31, 2001, there were 48,279,847 shares
of common stock outstanding.
This report contains a total of 22 pages.
INDEX
Page
---------
PART I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30,
2001 and 2000, and December 31, 2000 (Unaudited) 3/ 4
Condensed Consolidated Statements of Income - Three
months and six months ended June 30, 2001 and
2000 (Unaudited) 5/ 6
Condensed Consolidated Statements of Shareholders'
Equity - Six months ended June 30, 2001
and 2000 (Unaudited) 7/ 8
Condensed Consolidated Statements of Cash
Flows - Six months ended June 30, 2001
and 2000 (Unaudited) 9
Notes to Condensed Consolidated Financial
Statements (Unaudited) 10/13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14/20
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
PART II - Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
(Dollars in thousands, except per share data)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
- -------------------------------------------------------------------------------
June 30 December 31 June 30
2001 2000 2000
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 312,600 $ 322,966 $ 337,202
Money market investments 280,607 190,443 120,880
- -------------------------------------------------------------------------------
Total cash and cash equivalents 593,207 513,409 458,082
- -------------------------------------------------------------------------------
Securities - available for sale 58,200 110,989 115,405
Securities - held to maturity (fair values of
$2,343,893, $2,045,431 and $1,905,425) 2,332,093 2,053,119 1,946,649
- -------------------------------------------------------------------------------
Total securities 2,390,293 2,164,108 2,062,054
- -------------------------------------------------------------------------------
Loans, net of unearned income 6,270,081 6,366,464 6,433,544
Allowance for loan losses (68,670) (70,300) (71,053)
- -------------------------------------------------------------------------------
Net loans 6,201,411 6,296,164 6,362,491
- -------------------------------------------------------------------------------
Other earning assets 17,872 18,717 19,743
Premises and equipment 146,279 150,323 154,532
Intangible assets 150,413 157,777 165,213
Accrued income and other assets 206,679 215,971 193,505
- -------------------------------------------------------------------------------
Total assets $9,706,154 $9,516,469 $9,415,620
===============================================================================
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(Continued)
- -------------------------------------------------------------------------------
June 30 December 31 June 30
2001 2000 2000
- -------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $1,652,565 $1,618,901 $1,641,169
Interest-bearing:
Interest checking 1,504,070 1,524,943 1,486,169
Money market accounts 947,606 874,421 931,142
Savings deposits 1,002,492 983,781 1,053,701
Consumer certificates of deposit 2,321,168 2,323,733 2,284,483
Large denomination
certificates of deposit 506,021 500,037 462,885
- -------------------------------------------------------------------------------
Total deposits 7,933,922 7,825,816 7,859,549
- -------------------------------------------------------------------------------
Short-term borrowings 578,938 539,469 453,719
Long-term debt 539 1,116 1,670
Accrued interest and other liabilities 155,647 157,362 128,756
- -------------------------------------------------------------------------------
Total liabilities 8,669,046 8,523,763 8,443,694
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value 427 451 454
Common stock, $1 par value 46,164 46,143 46,625
Capital surplus 1,205 612 -
Retained earnings 987,329 945,241 926,221
Accumulated other comprehensive income (loss) 1,983 259 (1,374)
- -------------------------------------------------------------------------------
Total shareholders' equity 1,037,108 992,706 971,926
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $9,706,154 $9,516,469 $9,415,620
===============================================================================
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Interest income:
Loans $123,586 $127,311 $249,831 $253,180
Securities - available for sale 880 1,506 1,966 3,041
Securities - held to maturity 28,870 24,640 56,369 50,458
Money market investments 6,660 5,654 12,647 8,990
Other earning assets 291 409 608 926
- -------------------------------------------------------------------------------
Total interest income 160,287 159,520 321,421 316,595
- -------------------------------------------------------------------------------
Interest expense:
Deposits 49,291 46,813 99,757 92,547
Short-term borrowings 4,904 5,783 11,283 10,710
Long-term debt 21 42 49 91
- -------------------------------------------------------------------------------
Total interest expense 54,216 52,638 111,089 103,348
- -------------------------------------------------------------------------------
Net interest income 106,071 106,882 210,332 213,247
Provision for loan losses 2,138 3,135 3,001 5,442
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 103,933 103,747 207,331 207,805
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Continued)
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 103,933 103,747 207,331 207,805
- -------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 16,148 14,657 32,157 28,875
Electronic banking service fees 4,415 3,318 8,344 5,853
Trust and asset management fees 3,243 3,239 6,420 6,445
Insurance premiums and commissions 1,809 1,668 3,708 3,440
Other 4,323 5,678 16,567 10,912
Securities gains 3,035 8 4,503 8
- -------------------------------------------------------------------------------
Total noninterest income 32,973 28,568 71,699 55,533
- -------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 46,360 45,755 92,776 91,614
Occupancy 6,443 6,569 13,076 13,295
Equipment 8,206 7,986 16,586 16,058
Amortization of intangibles 3,682 3,679 7,364 7,351
Other 15,514 15,651 30,510 30,614
- -------------------------------------------------------------------------------
Total noninterest expense 80,205 79,640 160,312 158,932
- -------------------------------------------------------------------------------
Income before income taxes 56,701 52,675 118,718 104,406
Provision for income taxes 19,316 18,196 41,071 35,734
- -------------------------------------------------------------------------------
Net income $ 37,385 $ 34,479 $ 77,647 $ 68,672
===============================================================================
Net income per share of common stock:
Basic $ .81 $ .73 $ 1.68 $ 1.43
Diluted .81 .73 1.68 1.43
Average shares of common stock outstanding:
Basic 46,162 47,226 46,157 47,958
Diluted 46,352 47,420 46,353 48,149
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(Unaudited)
- -------------------------------------------------------------------------------
Accum-
ulated
Other
Compre- Total
Pre- Hensive Share-
ferred Common Capital Retained Income holders'
Stock Stock Surplus Earnings (Loss) Equity
- -------------------------------------------------------------------------------
Balance January 1, 2000 $ 485 $49,162 $ - $982,357 $(1,517)$1,030,487
Comprehensive income:
Net income 68,672 68,672
Unrealized gains on
securities available for
sale 143 143
-----------
Total comprehensive income 68,815
-----------
Conversion of preferred
to common stock (31) 6 25 -
Issuance of shares for
stock options 16 505 521
Common stock purchased
and retired (2,559) (530) (90,197) (93,286)
Dividends declared:
Preferred stock (16) (16)
Common stock $.73 per share (34,595) (34,595)
- -------------------------------------------------------------------------------
Balance June 30, 2000 $ 454 $46,625 $ - $926,221 $(1,374)$ 971,926
===============================================================================
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(Unaudited)(Continued)
- -------------------------------------------------------------------------------
Accum-
ulated
Other Total
Pre- Compre- Share-
ferred Common Capital Retained hensive holders'
Stock Stock Surplus Earnings Income Equity
- -------------------------------------------------------------------------------
Balance January 1, 2001 $ 451 $46,143 $ 612 $945,241 $ 259 $ 992,706
Comprehensive income:
Net income 77,647 77,647
Unrealized gains on
securities available for
sale 1,724 1,724
-----------
Total comprehensive income 79,371
-----------
Conversion of preferred
to common stock (24) 5 19 -
Issuance of shares for
stock options 18 687 705
Common stock purchased
and retired (2) (113) (115)
Dividends declared:
Preferred stock (14) (14)
Common stock $.77 per share (35,545) (35,545)
- -------------------------------------------------------------------------------
Balance June 30, 2001 $ 427 $46,164 $1,205 $987,329 $ 1,983 $1,037,108
===============================================================================
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- -------------------------------------------------------------------------------
Six Months Ended June 30 2001 2000
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 93,406 $ 92,279
- -------------------------------------------------------------------------------
Investing activities:
Proceeds from the sale of available
for sale securities 80,191 750
Proceeds from the maturity of held to
maturity securities 1,906,395 507,661
Purchases of held to maturity securities (2,199,066) (537,589)
Net(increase) decrease in loans 91,753 (52,651)
Purchases of premises and equipment (4,114) (5,680)
Sales of premises and equipment 1,355 752
Intangible assets acquired - (2,203)
Other (2,620) 1,666
- -------------------------------------------------------------------------------
Net cash used for investing activities (126,106) (87,294)
- -------------------------------------------------------------------------------
Financing activities:
Net increase (decrease) in deposits 108,106 (4,399)
Net increase in short-term borrowings 39,469 33,422
Principal payments on long-term debt (577) (535)
Common stock purchased and retired (115) (93,286)
Proceeds from issuance of common stock 705 521
Cash dividends paid (35,090) (35,049)
- -------------------------------------------------------------------------------
Net cash provided by financing activities 112,498 (99,326)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 79,798 (94,341)
Cash and cash equivalents at beginning of year 513,409 552,423
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $593,207 $458,082
===============================================================================
Cash paid for:
Interest $109,136 $102,265
Income taxes 43,373 35,889
===============================================================================
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, except per share data)
1. GENERAL
The foregoing unaudited consolidated financial statements include the
accounts of the corporation and all of its subsidiaries. The corporation's
subsidiaries are predominantly engaged in banking activities. Foreign banking
activities and operations other than banking are not significant. All material
intercompany transactions and accounts have been eliminated. The unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the results of operations for each of the periods
presented. Certain amounts previously reported in 2000 have been reclassified
for comparative purposes.
Certain information and disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission. These
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
corporation's annual report to stockholders on Form 10-K for the year ended
December 31, 2000.
2. SECURITIES
The following reflects the amortized cost of securities and the related
approximate fair values:
- -------------------------------------------------------------------------------
June 30, 2001 June 30, 2000
- -------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------
Available for sale:
U.S. Government and its agencies $ 45,583 $ 45,957 $ 106,444 $ 105,074
Other 9,395 12,243 11,081 10,331
- -------------------------------------------------------------------------------
Total $ 54,978 $ 58,200 $ 117,525 $ 115,405
===============================================================================
Held to maturity:
U.S. Government and its agencies $1,979,064 $1,986,637 $1,634,392 $1,597,932
State and municipal obligations 353,029 357,256 312,257 307,493
- -------------------------------------------------------------------------------
Total $2,332,093 $2,343,893 $1,946,649 $1,905,425
===============================================================================
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
3. LOANS
Loans consisted of:
- -------------------------------------------------------------------------------
June 30 2001 2000
- -------------------------------------------------------------------------------
Consumer:
Automobile $3,176,954 $3,246,413
Home equity, fixed- and variable-rate 689,031 794,536
Revolving credit loans 33,409 29,723
Other 157,922 177,819
Commercial 885,784 882,218
Construction and land development 141,181 178,690
Real estate:
Commercial mortgage 490,978 424,336
Residential mortgage 694,822 699,809
- -------------------------------------------------------------------------------
Total loans, net of unearned income
of $116,918 and $136,835 $6,270,081 $6,433,544
===============================================================================
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was:
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Balance at beginning of period $68,914 $70,225 $70,300 $70,119
Provision charged to operating expense 2,138 3,135 3,001 5,442
- -------------------------------------------------------------------------------
Balance before charge-offs 71,052 73,360 73,301 75,561
Charge-offs 3,232 3,234 7,264 6,402
Recoveries 850 927 2,633 1,894
- -------------------------------------------------------------------------------
Balance at June 30 $68,670 $71,053 $68,670 $71,053
===============================================================================
Percentage of annualized net
charge-offs to average loans .15% .14% .15% .14%
Percentage of allowance for loan
losses to period-end loans 1.10 1.10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
5. OTHER NONINTEREST INCOME
Other noninterest income for the six months ending June 30, 2001 included
$7.749 million from the sale of the corporation's interest in Star Systems,
Inc., which was exchanged for shares of Concord EFS, Inc.
6. FEDERAL INCOME TAX
The reconcilement of income tax computed at the federal statutory tax
rates to the provision for income taxes was as follows:
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Amount Pct Amount Pct Amount Pct Amount Pct
- -------------------------------------------------------------------------------
Statutory rate $19,845 35.0% $18,436 35.0% $41,551 35.0% $36,542 35.0%
Nontaxable interest on
municipal obligations (1,199)(2.1) (1,217)(2.3) (2,335)(2.0) (2,476)(2.4)
State taxes, net of
Federal tax benefit 406 0.7 415 0.7 1,064 0.9 672 0.6
Nondeductible goodwill 572 0.9 568 1.1 1,143 1.0 1,135 1.1
Other items (308)(0.5) (6) - (352)(0.3) (139)(0.1)
- -------------------------------------------------------------------------------
Effective rate $19,316 34.0% $18,196 34.5% $41,071 34.6% $35,734 34.2%
===============================================================================
7. PREFERRED AND COMMON STOCK
There are 3,000,000 shares of preferred stock, par value $10.00 per
share, authorized. The following four series of cumulative convertible stock
were outstanding:
- -------------------------------------------------------------------------------
June 30 December 31 June 30
Series Dividends 2001 2000 2000
- -------------------------------------------------------------------------------
A 5% 15,935 16,548 16,761
B 7% 3,290 3,290 3,290
C 7% 5,072 5,372 5,372
D 8% 18,350 19,927 19,927
- -------------------------------------------------------------------------------
Total preferred shares 42,647 45,137 45,350
===============================================================================
The Series A, Series B and Series D shares are convertible into two and
one-fourth shares of common stock, and the Series C shares are convertible into
one and eight-tenths shares of common stock. All of the preferred stock may be
redeemed at the option of the corporation for $10.00 per share.
There are 175,000,000 shares of common stock, par value $1.00 per share,
authorized and 46,164,000, 46,143,000 and 46,625,000 shares were outstanding at
June 30, 2001, December 31, 2000, and June 30, 2000, respectively. Options to
purchase 988,333 shares of common stock were outstanding on June 30, 2001. A
total of 3,054,779 shares of common stock were reserved at June 30, 2001:
93,671 shares for the conversion of preferred stock and 2,961,108 shares for
stock options.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
8. EARNINGS PER SHARE
Earnings per share computations are as follows:
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Basic:
Net income $37,385 $34,479 $77,647 $68,672
Preferred stock dividends 7 8 14 16
- -------------------------------------------------------------------------------
Net income applicable to common stock $37,378 $34,471 $77,633 $68,688
- -------------------------------------------------------------------------------
Average common shares outstanding (000s) 46,162 47,226 46,157 47,958
Earnings per share of common stock $ .81 $ .73 $ 1.68 $ 1.43
===============================================================================
Diluted:
Net income $37,385 $34,479 $77,647 $68,672
Average common shares outstanding (000s) 46,162 47,226 46,157 47,958
Dilutive effect of stock options (000s) 95 89 99 86
Conversion of preferred stock (000s) 95 105 97 105
- -------------------------------------------------------------------------------
Total average common shares (000s) 46,352 47,420 46,353 48,149
- -------------------------------------------------------------------------------
Earnings per share of common stock $ .81 $ .73 $ 1.68 $ 1.43
===============================================================================
Options which were not included in the calculation of diluted earnings per
share because the options' exercise price was greater than the average market
price were:
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Options (000s) 327 648 254 648
Weighted average price $ 49.25 $ 46.06 $ 50.34 $ 46.06
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
(Dollars in thousands, except per share data)
QUARTERLY RESULTS:
First Virginia Banks, Inc. reported an 11% increase in second quarter
earnings per share to $.81 compared to the $.73 earned in the 2000 second
quarter. The return on average assets increased to 1.55% compared to 1.46% in
the prior year's second quarter, and the return on average shareholders' equity
increased to 14.54% compared to 13.99%. Net income for the second quarter
totaled $37.385 million compared to $34.479 million in 2000. In the second
quarter, First Virginia sold its interest in Concord EFS, Inc. and recognized
an after-tax gain of $1.853 million. This is in addition to the $4.735 million
after-tax gain recognized in the first quarter when the corporation exchanged
its interest in Star Systems, Inc. for Concord EFS, Inc. stock. Excluding the
gain, earnings per share in the second quarter equaled $.77, the return on
average assets was 1.47% and the return on average shareholders' equity was
13.83%. Cash basis recurring income, which excludes both the effects of
intangible assets and their related amortization and the gain on the sale of
the Concord EFS, Inc. stock, equaled $38.583 million in the second quarter
compared to $37.507 million in the prior year's second quarter. Cash basis
recurring income produced a return on average tangible assets of 1.63% in the
second quarter and a return on average tangible shareholders' equity of 17.61%.
For the first six months of 2001, earnings per share increased 17% to
$1.68 compared to the $1.43 earned in the comparable period of 2000. Net
income for the first six months totaled $77.647 million compared to $68.672
million in 2000. The returns on average assets and average shareholders'
equity were 1.63% and 15.27%, respectively, for the first six months of 2001
compared to 1.46% and 13.69% in the first six months of 2000. Excluding the
gains on the sale of Star Systems, Inc. and Concord EFS, Inc., earnings per
share for the first six months equaled $1.53, the return on average assets was
1.49% and the return on average shareholders' equity was 13.98%. Cash basis
recurring income equaled $77.161 million for the first six months of 2001
compared to $74.706 million in the first six months of 2000. The recurring
cash basis return on average tangible assets equaled 1.64% in the first six
months of 2001, and the return on average tangible shareholders' equity was
17.88%.
Total assets at June 30, 2001, were $9.706 billion compared to $9.416
billion at June 30, 2000. Average loans declined less than 1% in the second
quarter to $6.245 billion compared to the $6.292 billion in the first quarter.
While average loans declined during the quarter, by quarter's end new loan
demand was increasing in commercial, real estate and automobile loans.
Commercial loans declined during the quarter, a direct result of automobile
dealers reducing their floor plan loans to get their inventory in line with
sales. Average real estate loans increased at an annualized rate of 15% during
the second quarter and should increase strongly in the third quarter as lower
interest rates encourage consumers to refinance existing real estate loans and
assume new home equity debt. Average deposits increased at a 7% annualized
rate over the first quarter with growth in virtually every category including
demand deposits, which rose at a 16% annualized pace over the first quarter,
and insured money market accounts, which increased at a 19% annualized pace.
The net interest margin declined slightly during the second quarter to 4.84%
compared to the 4.88% realized in the previous two quarters and the 5.00% rate
realized in the second quarter of 2000.
A traditional area of strength for First Virginia is in the quality of its
assets. Nonperforming assets continued to decline despite the weak economy and
were down 11% to $17.992 million at June 30, 2001, compared to $20.214 million
at the end of the prior year's second quarter. As a percentage of total loans,
nonperforming assets declined to a historic low of .29% compared to .31% in the
second quarter of 2000. Net charge-offs in the second quarter remained low at
$2.382 million or .15% of average loans, a slight increase compared to the
$2.307 million or .14% of average loans in the prior year's quarter. Loans
past due 90 days or more declined to $11.057 million or .18% of loans at June
30, 2001, compared to $12.230 million or .20% of loans at March 31, 2001. The
allowance for loan losses, which covers annualized net charge-offs 7.21 times
and represents 473% of nonperforming loans, remained unchanged at 1.10% of
outstanding loans. The provision for loan loss expense declined 32% to $2.138
million in the second quarter of 2001 compared to $3.135 million in the prior
year's second quarter as a result of a lower level of loans and the continued
excellent quality of the corporation's loans.
A summary of nonperforming and delinquent loans is as follows:
- -----------------------------------------------------------------------------
June 30 2001 2000
- -----------------------------------------------------------------------------
Nonaccruing loans $13,600 $15,338
Restructured loans 929 1,580
Properties acquired by foreclosure 3,463 3,296
- -----------------------------------------------------------------------------
Total nonperforming assets $17,992 $20,214
=============================================================================
Percentage of total loans and foreclosed real estate .29% .31%
Loans 90 days past due and still accruing interest $11,057 $10,041
Percentage of total loans .18% .16%
=============================================================================
Noninterest income rose 15% compared to the prior year's second quarter
and is up 29% for the first six months. Excluding $10.781 million in pre-tax
gains on the sale of Star Systems, Inc. and Concord EFS, Inc. in the first and
second quarters, noninterest income for the first six months of 2001 increased
10% compared to 2000. Service charge income on deposit accounts rose 10% in
the second quarter and is up 11% for the first six months. Reflecting the
strength of the corporation's electronic delivery capabilities, fees from
electronic banking services increased 33% in the second quarter and are up 43%
for the first six months compared to 2000. Increased demand for title
insurance and sales of commercial insurance lines to businesses resulted in an
8% increase in insurance income during the second quarter compared to 2000.
Noninterest expense was virtually unchanged from the first quarter and is
up less than 1% for the first six months of 2001 compared to the prior year.
There were no material changes in individual expense categories from the prior
year's second quarter or the first quarter of 2001. The efficiency ratio,
which remains better than First Virginia's peer group of banks, was relatively
unchanged in the second quarter at 55.5% compared to 55.2% in the prior year's
second quarter, and was 55.9% for the first six months of 2001 compared to
55.6% in the same period of 2000.
Total shareholders' equity exceeded one billion dollars at June 30, 2001.
Total equity was $1.037 billion and each share of First Virginia stock had a
book value of $22.46, an increase of 8% compared to $20.84 at June 30, 2000.
The Tier 1 capital leverage ratio continued to expand and equaled 9.32% at June
30, 2001, compared to 8.72% at the end of the prior year's second quarter. The
corporation did not repurchase any of its shares of stock during the first six
months of 2001 and has 2.125 million shares remaining in its currently
authorized share repurchase program. At June 30, 2001, there were 46.164
million shares outstanding.
The previously reported acquisition of James River Bankshares, Inc. was
approved by its shareholders on June 27, and the acquisition was completed on
July 2, 2001.
In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001; First Virginia has been using the
purchase method for all acquisitions effected since 1993. Statement 142, which
will become effective January 1, 2002, will require that First Virginia
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
or impairment loss adjustments by the end of the first interim period after
adoption. Statement 142 also requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement
142.
As of the date of adoption, First Virginia expects to have unamortized
goodwill in the amount of $149 million and unamortized identifiable intangible
assets in the amount of $58 million, all of which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense related
to goodwill was $6.7 million and $3.3 million for the year ended December 31,
2000 and the six months ended June 30, 2001, respectively. Because of the
extensive effort needed to comply with adopting Statements 141 and 142, it is
not practicable to reasonably estimate the impact of adopting these Statements
on First Virginia's financial statements at the date of this report, including
whether any transitional impairment losses will be required to be recognized as
the cumulative effect of a change in accounting principle.
FORWARD-LOOKING STATEMENTS:
Certain statements in this discussion may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks
including, but not limited to, changes in general economic and business
conditions, interest-rate fluctuations, competition within and without the
banking industry, new products and services in the banking industry, risks
inherent in making loans, including repayment risks and fluctuating collateral
values, changing trends in customer profiles and changes in laws and
regulations applicable to the corporation. Although the corporation believes
that its expectations with respect to the forward-looking statements are based
upon reasonable assumptions within the bounds of its knowledge of its business
and operations, there can be no assurance that actual results, performance or
achievements of the corporation will not differ materially from any future
results, performance or achievements expressed or implied by such forward-
looking statements.
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
- -------------------------------------------------------------------------
Interest
Average Income/
Three Months Ended June 30, 2001 Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Securities-available for sale:
U.S. Government and its agencies $ 59,622 $ 771 5.19%
Other* 16,252 109 3.70
Securities-held to maturity:
U.S. Government and its agencies 1,658,415 25,030 6.04
State, municipal and other* 326,549 4,820 5.90
---------- --------
Total securities 2,060,838 30,730 5.97
---------- --------
Loans, net of unearned income:
Installment 4,040,482 80,240 7.96
Real estate 1,163,821 23,675 8.15
Other* 1,040,658 20,405 7.93
---------- --------
Total loans 6,244,961 124,320 7.98
---------- --------
Money market investments 605,634 6,660 4.41
Other earning assets 18,619 291 6.26
---------- --------
Total earning assets and income $8,930,052 162,001 7.27
========== --------
Interest-bearing liabilities:
Interest checking $1,523,337 1,560 0.41
Money market accounts 931,008 7,077 3.05
Savings deposits 998,277 3,167 1.27
Consumer certificates of deposit 2,325,116 30,382 5.24
Large denomination certificates of deposit 512,299 7,105 5.56
---------- --------
Total interest-bearing deposits 6,290,037 49,291 3.14
Short-term borrowings 554,282 4,904 3.55
Long-term debt 729 21 11.86
---------- --------
Total interest-bearing liabilities
and interest expense $6,845,048 54,216 3.18
========== --------
Net interest income and net interest margin $107,785 4.84%
========
*Fully taxable-equivalent basis
Other average balances:
Demand deposits $1,617,300
Preferred shareholders' equity 433
Common shareholders' equity 1,027,914
Total assets 9,642,866
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
- -------------------------------------------------------------------------
Interest
Average Income/
Three Months Ended June 30, 2000 Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Securities-available for sale:
U.S. Government and its agencies $ 105,595 $ 1,378 5.25%
Other* 9,282 128 6.81
Securities-held to maturity:
U.S. Government and its agencies 1,460,956 20,928 5.74
State, municipal and other* 319,632 4,713 5.90
---------- --------
Total Securities 1,895,465 27,147 5.75
---------- --------
Loans, net of unearned income:
Installment 4,255,985 84,910 8.01
Real estate 1,122,773 21,053 7.53
Other* 1,046,504 22,023 8.53
---------- --------
Total loans 6,425,262 127,986 8.00
---------- --------
Money market investments 369,344 5,653 6.16
Other earning assets 23,025 409 7.11
---------- --------
Total earning assets and income $8,713,096 161,195 7.43
========== --------
Interest-bearing liabilities:
Interest checking $1,522,881 2,244 0.59
Money market accounts 956,066 7,413 3.12
Savings deposits 1,063,448 3,992 1.51
Consumer certificates of deposit 2,286,588 26,975 4.74
Large denomination certificates of deposit 464,291 6,189 5.36
---------- --------
Total interest-bearing deposits 6,293,274 46,813 2.99
Short-term borrowings 430,384 5,783 5.40
Long-term debt 1,846 42 9.21
---------- --------
Total interest-bearing liabilities
and interest expense $6,725,504 52,638 3.15
========== --------
Net interest income and net interest margin $108,557 5.00%
========
*Fully taxable-equivalent basis
Other average balances:
Demand deposits $1,601,967
Preferred shareholders' equity 481
Common shareholders' equity 985,310
Total assets 9,444,268
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
- -------------------------------------------------------------------------
Interest
Average Income/
Six Months Ended June 30, 2001 Balance Expense Rate
- -------------------------------------------------------------------------
Interest-earning assets:
Securities-available for sale:
U.S. Government and its agencies $ 67,960 $ 1,748 5.19%
Other* 12,744 218 4.72
Securities-held to maturity:
U.S. Government and its agencies 1,621,676 48,736 6.02
State, municipal and other* 320,934 9,513 5.93
---------- --------
Total Securities 2,023,314 60,215 5.97
---------- --------
Loans, net of unearned income:
Installment 4,055,723 161,768 8.03
Real estate 1,143,495 46,451 8.18
Other* 1,069,376 43,030 8.16
---------- --------
Total loans 6,268,594 251,249 8.07
---------- --------
Money market investments 521,721 12,647 4.89
Other earning assets 18,625 609 6.52
---------- --------
Total earning assets and income $8,832,254 324,720 7.40
========== --------
Interest-bearing liabilities:
Interest checking $1,513,881 3,320 0.44
Money market accounts 910,118 14,235 3.15
Savings deposits 990,669 6,766 1.38
Consumer certificates of deposit 2,329,833 61,200 5.30
Large denomination certificates of deposit 505,171 14,236 5.68
---------- --------
Total interest-bearing deposits 6,249,672 99,757 3.22
Short-term borrowings 545,091 11,283 4.17
Long-term debt 871 49 11.33
---------- --------
Total interest-bearing liabilities
and interest expense $6,795,634 111,089 3.30
========== --------
Net interest income and net interest margin $213,631 4.86%
========
*Fully taxable-equivalent basis
Other average balances:
Demand deposits $1,585,504
Preferred shareholders' equity 439
Common shareholders' equity 1,016,261
Total assets 9,545,867
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
- -------------------------------------------------------------------------
Interest
Average Income/
Six Months Ended June 30, 2000 Balance Expense Rate
- -------------------------------------------------------------------------
Interest-earning assets:
Securities-available for sale:
U.S. Government and its agencies $ 105,822 $ 2,756 5.24%
Other* 9,771 285 7.22
Securities-held to maturity:
U.S. Government and its agencies 1,495,372 42,729 5.73
State, municipal and other* 332,736 9,812 5.90
---------- --------
Total Securities 1,943,701 55,582 5.74
---------- --------
Loans, net of unearned income:
Installment 4,257,663 169,260 7.98
Real estate 1,123,887 42,071 7.52
Other* 1,028,587 43,237 8.50
---------- --------
Total loans 6,410,137 254,568 7.98
---------- --------
Money market investments 304,853 8,990 5.93
Other earning assets 25,212 926 7.35
---------- --------
Total earning assets and income $8,683,903 320,066 7.40
========== --------
Interest-bearing liabilities:
Interest checking $1,519,023 4,507 0.60
Money market accounts 956,794 14,595 3.07
Savings deposits 1,063,586 7,988 1.51
Consumer certificates of deposit 2,298,824 53,190 4.66
Large denomination certificates of deposit 466,545 12,267 5.29
---------- --------
Total interest-bearing deposits 6,304,772 92,547 2.95
Short-term borrowings 422,435 10,710 5.10
Long-term debt 1,980 91 9.23
---------- --------
Total interest-bearing liabilities
and interest expense $6,729,187 103,348 3.09
========== --------
Net interest income and net interest margin $216,718 5.01%
========
*Fully taxable-equivalent basis
Other average balances:
Demand deposits $1,575,206
Preferred shareholders' equity 483
Common shareholders' equity 1,003,044
Total assets 9,436,795
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
As of June 30, 2001, there have been no material changes
in information regarding quantitative and qualitative
disclosures about market risk from the information presented
as of December 31, 2000 in the corporation's annual report
on Form 10-K.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
a) An Annual Meeting of Shareholders was held on Friday, April 27,
2001. Proxies for the meeting were solicited pursuant to
Regulation 14 under the Act.
b) There was no solicitation in opposition to the management nominees
as listed in the proxy statement and all such nominees were elected.
The following directors were elected at the meeting:
Management nominee: Voted For Withheld
Jennifer S. Banner 37,622,402 364,551
Edward L. Breeden, III 37,641,433 345,520
Eric C. Kendrick 37,647,724 339,229
Joseph W. Richmond, Jr. 37,614,321 372,632
Robert H. Zalokar 37,640,752 346,201
c) Among other matters voted on at the meeting was the following:
i) The appointment of KPMG LLP as independent auditors.
Voted For Voted Against Abstained
37,634,857 209,963 142,133
There were no "broker non-votes" with respect to any of the
director nominees or the ratification of auditors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
----------------------------------
b) No reports on Form 8-K were filed during the quarter
ended June 30, 2001.
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 its principal financial officer
hereunto duly authorized.
FIRST VIRGINIA BANKS, INC.
/s/ Richard F. Bowman
August 14, 2001 --------------------------
Richard F. Bowman,
Executive Vice President,
Treasurer and
Chief Financial Officer