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
September 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 October 31, 2001, there were 47,813,811 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 - Sept. 30,
2001 and 2000, and December 31, 2000 (Unaudited) 3/ 4
Condensed Consolidated Statements of Income - Three
months and nine months ended Sept. 30, 2001 and
2000 (Unaudited) 5/ 6
Condensed Consolidated Statements of Shareholders'
Equity - Nine months ended Sept. 30, 2001
and 2000 (Unaudited) 7/ 8
Condensed Consolidated Statements of Cash
Flows - Nine months ended Sept. 30, 2001
and 2000 (Unaudited) 9
Notes to Condensed Consolidated Financial
Statements (Unaudited) 10/14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14/21
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 22
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
(Dollars in thousands, except per share data)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
- -------------------------------------------------------------------------------
Sept. 30 Dec.31 Sept. 30
2001 2000 2000
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 280,768 $ 322,966 $ 295,643
Money market investments 225,496 190,443 115,040
- -------------------------------------------------------------------------------
Total cash and cash equivalents 506,264 513,409 410,683
- -------------------------------------------------------------------------------
Securities - available for sale 435,716 110,989 114,529
Securities - held to maturity (fair values of
$2,299,952, $2,045,431 and $2,049,962) 2,268,637 2,053,119 2,081,934
- -------------------------------------------------------------------------------
Total securities 2,704,353 2,164,108 2,196,463
- -------------------------------------------------------------------------------
Loans, net of unearned income 6,596,854 6,366,464 6,337,388
Allowance for loan losses (72,368) (70,300) (69,975)
- -------------------------------------------------------------------------------
Net loans 6,524,486 6,296,164 6,267,413
- -------------------------------------------------------------------------------
Other earning assets 20,417 18,717 19,620
Premises and equipment 154,574 150,323 151,917
Intangible assets 204,009 157,777 160,616
Accrued income and other assets 216,761 215,971 214,242
- -------------------------------------------------------------------------------
Total assets $10,330,864 $9,516,469 $9,420,954
===============================================================================
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(Continued)
- -------------------------------------------------------------------------------
Sept. 30 Dec. 31 Sept. 30
2001 2000 2000
- -------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 1,713,170 $1,618,901 $1,632,576
Interest-bearing:
Interest checking 1,557,634 1,524,943 1,451,425
Money market accounts 1,044,561 874,421 895,194
Savings deposits 1,046,113 983,781 1,020,172
Consumer certificates of deposit 2,466,059 2,323,733 2,341,532
Large denomination
certificates of deposit 524,180 500,037 473,775
- -------------------------------------------------------------------------------
Total deposits 8,351,717 7,825,816 7,814,674
- -------------------------------------------------------------------------------
Short-term borrowings 646,297 539,469 486,710
Long-term debt 19,534 1,116 1,395
Accrued interest and other liabilities 164,601 157,362 146,253
- -------------------------------------------------------------------------------
Total liabilities 9,182,149 8,523,763 8,449,032
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value 424 451 452
Common stock, $1 par value 48,021 46,143 46,141
Capital surplus 83,868 612 88
Retained earnings 1,015,113 945,241 926,055
Accumulated other comprehensive income (loss) 1,289 259 (814)
- -------------------------------------------------------------------------------
Total shareholders' equity 1,148,715 992,706 971,922
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,330,864 $9,516,469 $9,420,954
===============================================================================
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Interest income:
Loans $129,814 $129,232 $379,645 $382,412
Securities - available for sale 814 1,486 2,780 4,527
Securities - held to maturity 31,281 25,294 87,650 75,752
Money market investments 5,859 6,779 18,506 15,769
Other earning assets 318 347 926 1,273
- -------------------------------------------------------------------------------
Total interest income 168,086 163,138 489,507 479,733
- -------------------------------------------------------------------------------
Interest expense:
Deposits 50,263 50,022 150,020 142,569
Short-term borrowings 4,244 6,828 15,527 17,538
Long-term debt 294 42 343 133
- -------------------------------------------------------------------------------
Total interest expense 54,801 56,892 165,890 160,240
- -------------------------------------------------------------------------------
Net interest income 113,285 106,246 323,617 319,493
Provision for loan losses 1,708 1,225 4,709 6,667
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 111,577 105,021 318,908 312,826
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Continued)
- -------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 111,577 105,021 318,908 312,826
- -------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 16,549 14,934 48,706 43,809
Electronic banking service fees 4,561 3,878 12,905 9,731
Trust and asset management fees 3,261 3,289 9,681 9,734
Insurance premiums and commissions 2,003 1,686 5,711 5,126
Other 18,629 6,229 35,196 17,141
Securities gains 2 3 4,505 11
- -------------------------------------------------------------------------------
Total noninterest income 45,005 30,019 116,704 85,552
- -------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 49,387 46,897 142,163 138,511
Occupancy 6,795 6,594 19,871 19,889
Equipment 8,355 8,331 24,941 24,389
Amortization of intangibles 3,799 3,689 11,163 11,040
Other 16,726 14,997 47,236 45,611
- -------------------------------------------------------------------------------
Total noninterest expense 85,062 80,508 245,374 239,440
- -------------------------------------------------------------------------------
Income before income taxes 71,520 54,532 190,238 158,938
Provision for income taxes 25,000 19,198 66,071 54,932
- -------------------------------------------------------------------------------
Net income $ 46,520 $ 35,334 $124,167 $104,006
===============================================================================
Net income per share of common stock:
Basic $ .96 $ .76 $ 2.65 $ 2.19
Diluted .96 .76 2.64 2.19
Average shares of common stock outstanding:
Basic 48,212 46,232 46,849 47,378
Diluted 48,455 46,427 47,061 47,571
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 104,006 104,006
Unrealized gains on
securities available for
sale 703 703
-----------
Total comprehensive income 104,709
-----------
Conversion of preferred
to common stock (33) 6 27 -
Issuance of shares for
stock options 33 1,073 1,106
Common stock purchased
and retired (3,060) (1,012) (108,617) (112,689)
Dividends declared:
Preferred stock (23) (23)
Common stock
$1.10 per share (51,668) (51,668)
- -------------------------------------------------------------------------------
Balance Sept. 30, 2000 $ 452 $46,141 $ 88 $ 926,055 $ (814)$ 971,922
===============================================================================
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 124,167 124,167
Unrealized gains on
securities available for
sale 1,030 1,030
-----------
Total comprehensive income 125,197
-----------
Issuance of shares for
an acquisition 2,104 93,428 95,532
Conversion of preferred
to common stock (27) 6 21 -
Issuance of shares for
stock options 47 1,817 1,864
Common stock purchased
and retired (279)(12,010) (12,289)
Dividends declared:
Preferred stock (22) (22)
Common stock $1.16 per share (54,273) (54,273)
- -------------------------------------------------------------------------------
Balance Sept. 30, 2001 $ 424 $48,021 $83,868 $1,015,113 $1,289 $1,148,715
===============================================================================
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- -------------------------------------------------------------------------------
Nine Months Ended Sept. 30 2001 2000
- -------------------------------------------------------------------------------
Net cash provided by operating activities $121,833 $110,913
- -------------------------------------------------------------------------------
Investing activities:
Proceeds from the sale of available
for sale securities 189,384 2,253
Proceeds from the maturity of held to
maturity securities 2,883,636 818,260
Purchases of available for sale securities (390,066) -
Purchases of held to maturity securities (3,120,260) (984,349)
Net(increase) decrease in loans 3,089 41,201
Purchases of premises and equipment (6,981) (7,103)
Sales of premises and equipment 2,509 2,830
Intangible assets acquired - (1,295)
Net cash of acquired bank 20,257 -
Net cash from bank disposition 12,527 -
Other 13,544 23,140
- -------------------------------------------------------------------------------
Net cash used for investing activities (392,361) (105,063)
- -------------------------------------------------------------------------------
Financing activities:
Net increase (decrease) in deposits 227,503 (49,274)
Net increase in short-term borrowings 103,988 66,413
Principal payments on long-term debt (4,582) (810)
Common stock purchased and retired (12,289) (112,689)
Proceeds from issuance of common stock 1,864 1,106
Cash dividends paid (53,101) (52,336)
- -------------------------------------------------------------------------------
Net cash provided by financing activities 263,383 (147,590)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (7,145) (141,740)
Cash and cash equivalents at beginning of year 513,409 552,423
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $506,264 $410,683
===============================================================================
Cash paid for:
Interest $166,664 $155,613
Income taxes 60,650 49,063
===============================================================================
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:
- -------------------------------------------------------------------------------
Sept. 30, 2001 Sept. 30, 2000
- -------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------
Available for sale:
U.S. Government and its agencies $ 424,022 $ 424,592 $ 104,704 $ 103,826
Other 9,620 11,124 11,081 10,703
- -------------------------------------------------------------------------------
Total $ 433,642 $ 435,716 $ 115,785 $ 114,529
===============================================================================
Held to maturity:
U.S. Government and its agencies $1,885,037 $1,908,079 $1,779,083 $1,749,952
State and municipal obligations 381,521 389,736 302,851 300,010
Other 2,079 2,137 - -
- -------------------------------------------------------------------------------
Total $2,268,637 $2,299,952 $2,081,934 $2,049,962
===============================================================================
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
3. LOANS
Loans consisted of:
- -------------------------------------------------------------------------------
Sept. 30 2001 2000
- -------------------------------------------------------------------------------
Consumer:
Automobile $3,226,964 $3,219,449
Home equity, fixed- and variable-rate 703,831 770,148
Revolving credit loans 34,326 30,809
Other 169,321 174,335
Commercial 927,463 861,711
Construction and land development 155,560 161,463
Real estate:
Commercial mortgage 660,502 431,076
Residential mortgage 718,887 688,397
- -------------------------------------------------------------------------------
Total loans, net of unearned income
of $114,867 and $133,059 $6,596,854 $6,337,388
===============================================================================
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was:
- -------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Balance at beginning of period $68,670 $71,053 $70,300 $70,119
Increase attributable to an acquisition 5,479 - 5,479 -
Allowance on loans sold (1,331) - (1,331) -
Provision charged to operating expense 1,708 1,225 4,709 6,667
- -------------------------------------------------------------------------------
Balance before charge-offs 74,526 72,278 79,157 76,786
Charge-offs 3,198 3,122 10,462 9,524
Recoveries 1,040 819 3,673 2,713
- -------------------------------------------------------------------------------
Balance at Sept. 30 $72,368 $69,975 $72,368 $69,975
===============================================================================
Percentage of annualized net
charge-offs to average loans .13% .14% .14% .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 three months and nine months ended
September 30, 2001 includes $13.789 million for the sale of First Vantage Bank-
Tennessee. Other noninterest income for the nine months ended September 30,
2001 also includes $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 Nine Months Ended
Sept. 30 Sept. 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Amount Pct Amount Pct Amount Pct Amount Pct
- -------------------------------------------------------------------------------
Statutory rate $25,032 35.0% $19,086 35.0% $66,583 35.0% $55,628 35.0%
Nontaxable interest on
municipal obligations (1,356)(1.9) (1,151)(2.1) (3,691)(2.0) (3,627)(2.3)
State taxes, net of
Federal tax benefit 801 1.1 275 0.5 1,864 1.0 947 0.6
Nondeductible goodwill 528 0.7 567 1.0 1,671 0.9 1,703 1.1
Other items (5) - 420 0.8 (357)(0.2) 281 0.2
- -------------------------------------------------------------------------------
Effective rate $25,000 34.9% $19,198 35.2% $66,071 34.7% $54,932 34.6%
===============================================================================
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:
- -------------------------------------------------------------------------------
Sept. 30 Dec. 31 Sept. 30
Series Dividends 2001 2000 2000
- -------------------------------------------------------------------------------
A 5% 15,735 16,548 16,586
B 7% 3,290 3,290 3,290
C 7% 5,072 5,372 5,372
D 8% 18,296 19,927 19,927
- -------------------------------------------------------------------------------
Total preferred shares 42,393 45,137 45,175
===============================================================================
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
There are 175,000,000 shares of common stock, par value $1.00 per share,
authorized and 48,021,000, 46,143,000 and 46,141,000 shares were outstanding at
September 30, 2001, December 31, 2000, and September 30, 2000, respectively.
Options to purchase 1,056,673 shares of common stock were outstanding on
September 30, 2001. A total of 3,129,248 shares of common stock were reserved
at September 30, 2001: 93,100 shares for the conversion of preferred stock and
3,036,148 shares for stock options.
8. EARNINGS PER SHARE
Earnings per share computations are as follows:
- -------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Basic:
Net income $46,520 $35,334 $124,167 $104,006
Preferred stock dividends 8 7 22 23
- -------------------------------------------------------------------------------
Net income applicable to common stock $46,512 $35,327 $124,145 $103,983
- -------------------------------------------------------------------------------
Average common shares outstanding (000s) 48,212 46,232 46,849 47,378
Earnings per share of common stock $ .96 $ .76 $ 2.65 $ 2.19
===============================================================================
Diluted:
Net income $46,520 $35,334 $124,167 $104,006
Average common shares outstanding (000s) 48,212 46,232 46,849 47,378
Dilutive effect of stock options (000s) 149 96 116 89
Conversion of preferred stock (000s) 94 99 96 104
- -------------------------------------------------------------------------------
Total average common shares (000s) 48,455 46,427 47,061 47,571
- -------------------------------------------------------------------------------
Earnings per share of common stock $ .96 $ .76 $ 2.64 $ 2.19
===============================================================================
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 Nine Months Ended
Sept. 30 Sept. 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------
Options (000s) 181 648 230 648
Weighted average price $ 52.31 $ 46.06 $ 50.86 $ 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 a 26% increase in third quarter
earnings per share to $.96 compared to $.76 earned in the 2000 third quarter.
The return on average assets increased to 1.81% compared to 1.50% in the prior
year's third quarter, and the return on average shareholders' equity increased
to 16.25% compared to 14.63%. Net income increased 32% to $46.520 million
compared to $35.334 million in the 2000 third quarter. In the third quarter of
2001, the corporation sold its banking affiliate serving the middle Tennessee
market around Knoxville and recognized an after-tax gain of $8.425 million.
Excluding nonrecurring gains, earnings per share in the third quarter increased
5% to $.79, the return on average assets was 1.48% and the return on average
shareholders' equity was 13.31%. Cash basis recurring income, which excludes
both the effects of intangible assets and their related amortization and the
gain on the sale of the corporation's former Tennessee affiliate, equaled
$41.179 million in the third quarter compared to $37.710 million in the prior
year's third quarter. Cash basis recurring income produced a return on average
tangible assets of 1.63% in the third quarter and a return on average tangible
shareholders' equity of 17.54%.
For the first nine months of 2001, earnings per share increased 21% to
$2.64 compared to $2.19 earned in the comparable period of 2000. Net income
for the first nine months increased 19% to $124.167 million compared to
$104.006 million in 2000. The returns on average assets and average
shareholders' equity were 1.69% and 15.62%, respectively, for the first nine
months of 2001 compared to 1.47% and 14.00% in the first nine months of 2000.
Excluding nonrecurring gains, earnings per share for the first nine months
equaled $2.32, the return on average assets was 1.48% and the return on average
shareholders' equity was 13.73%. Cash basis recurring income equaled $118.340
million for the first nine months of 2001 compared to $112.416 million in the
first nine months of 2000. The recurring cash basis return on average tangible
assets equaled 1.64% in the first nine months of 2001, and the return on
average tangible shareholders' equity was 17.76%.
On July 2, 2001, First Virginia acquired the $531 million James River
Bankshares Corporation. This acquisition was accounted for as a purchase under
the new rules proscribed by Statement of Financial Accounting Standards Nos.
141, "Business Combinations" and 142, "Goodwill and Other Intangible Assets."
Accordingly, the results of operations for James River have been included in
the financial statements since July 2, 2001, but not for prior periods.
Total assets at September 30, 2001, increased 10% to $10.331 billion
compared to $9.421 billion at September 30, 2000. Average loans increased 4%
in the third quarter to $6.592 billion compared to $6.357 billion in the prior
year's third quarter. Average indirect automobile loans grew at a 7%
annualized pace compared to the second quarter as activity increased following
a weaker than normal second quarter. For the first nine months of 2001, new
automobile loan activity increased 16% compared to the first nine months of
2000. As a result of the corporation's aggressive promotion of 15-year
mortgages and continued strength of the housing market in the corporation's
trade area, this category of loans grew by $34 million during the quarter.
Following several quarters of strong growth, commercial loan activity slowed
during the quarter, primarily as a result of normal seasonal declines in loans
to automobile dealers to finance new-car inventory and a reduction in demand as
a result of a slowdown in the economy.
Average deposits increased 7% to $8.365 billion compared to $7.835 billion
in the prior years's third quarter. Both average demand and interest checking
deposits increased 6% while money market accounts rose 12% as the corporation
stressed its core relationship accounts. Average short-term borrowings, which
represent balances maintained by large commercial customers utilizing the
corporation's cash management services, increased 28% reflecting the increase
in business customers.
The net interest margin stabilized during the third quarter at 4.83%
compared to 4.84% realized in the second quarter of 2001 but was down compared
to 4.95% realized in the third quarter of 2000. Continued reductions in
interest rates by the Federal Reserve to stimulate the economy had a relatively
minor impact on First Virginia's net interest margin as its interest sensitive
assets and liabilities are fairly equally balanced. The corporation maintains
a highly liquid position in substantially all of its earning assets and
interest-bearing liabilities and is relatively unaffected by changes in general
interest rate levels.
The pursuit of high-quality loans and assets continued to reap dividends
for First Virginia, especially with the weakening of the economy and the impact
of the terrorist events of September 11 on some sectors. First Virginia lends
primarily in the communities in which it is located and to the highest quality
borrowers with good collateral. First Virginia does not lend in the sub-prime
markets and does not make loans with high loan to asset ratios. As a result of
these policies, First Virginia's asset quality continued to be excellent.
During the third quarter, the net charge-off ratio declined to .13% compared to
.15% in the second quarter and .14% in the third quarter of 2000. For the
first nine months of 2001, net charge-offs were $6.789 million or .14% of
average loans compared to $6.811 million and .14% of average loans in the first
nine months of 2000. Nonperforming assets also continued to decline and as a
percentage of outstanding loans equaled .29% at September 30, 2001, matching
the historic low achieved in the second quarter. Total nonperforming assets
were $19.385 million compared to $17.992 million at the end of the second
quarter which did not include $2.234 million in nonperforming assets added from
the acquisition of James River Bankshares. The allowance for loan losses
remained unchanged at 1.10% of outstanding loans as a consequence of the
stability of the corporation's actual net charge-offs and nonperforming assets.
The provision for loan loss expense increased 39% to $1.708 million in the
third quarter of 2001 compared to $1.225 million in the prior year's third
quarter primarily as a result of an increase in loan balances.
A summary of nonperforming and delinquent loans is as follows:
- -----------------------------------------------------------------------------
Sept. 30 2001 2000
- -----------------------------------------------------------------------------
Nonaccruing loans $15,428 $13,458
Restructured loans 1,105 1,830
Properties acquired by foreclosure 2,852 3,327
- -----------------------------------------------------------------------------
Total nonperforming assets $19,385 $18,615
=============================================================================
Percentage of total loans and foreclosed real estate .29% .29%
Loans 90 days past due and still accruing interest $13,165 $10,315
Percentage of total loans .20% .16%
=============================================================================
Noninterest income rose 50% compared to the prior year's third quarter and
is up 36% for the first nine months. Excluding a nonrecurring pretax gain of
$13.789 million on the sale of the corporation's former affiliate in middle
Tennessee in the third quarter, and $10.781 million in gains on the sale of
Star Systems in the first and second quarters, noninterest income increased 8%
compared to the third quarter of 2000 and 9% for the first nine months of 2001.
Service charge income on deposit accounts rose 11% in the third quarter and
first nine months as a result of increased customer activity. Electronic
banking service fees continue to benefit from increased sales penetration and
usage of the corporation's CheckCard and internet banking products as income
from this area rose 18% in the third quarter compared to the prior year's third
quarter and is up 33% for the first nine months. Insurance income increased
19% during the third quarter and 11% for the first nine months as a result of a
54% increase in title insurance commissions and a 28% increase in insurance
sales to commercial customers.
Noninterest expense in the third quarter increased 6% compared to the
third quarter of 2000. However, if expenses of James River Bankshares are
included in the comparable figures for the third quarter of 2000, noninterest
expenses would have been relatively unchanged. For the first nine months,
noninterest expenses rose 4%. Excluding the increase as a result of the
addition of James River, noninterest expense would have increased by about 1%
compared to the first nine months of 2000. First Virginia's efficiency ratio
improved to 55.3% in the third quarter compared to 56.1% in the prior year's
third quarter and was 55.7% for the first nine months of 2001 compared to 55.8%
in the same period of 2000.
Total shareholders' equity at September 30, 2001 was $1.149 billion and
book value per share was $23.91, an increase of 14% compared to $21.05 at
September 30, 2000. The Tier 1 capital leverage ratio equaled 9.34% at
September 30, 2001, compared to 8.78% at the end of the prior year's third
quarter. During the third quarter the corporation issued 2.104 million shares
in connection with the acquisition of James River Bankshares Corporation. In
addition, the corporation repurchased 271,300 shares of its stock in accordance
with an existing share repurchase program and has 1.853 million shares
remaining in the current authorization from the Board of Directors. The
corporation intends to use the proceeds from the sale of its former Tennessee
affiliate to repurchase shares originally issued to acquire its predecessor
banks. At September 30, 2001, there were 48.021 million shares outstanding.
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 $151 million and unamortized identifiable intangible
assets in the amount of $50 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 $4.8 million for the year ended December 31,
2000 and the nine months ended September 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.
In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Statement 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and broadens the presentation of discontinued operations to include more
disposal transactions. Statement 144 is effective for fiscal years beginning
after December 15, 2001. This statement is not expected to have a material
impact on First Virginia's financial statements.
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 Sept. 30, 2001 Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Securities-available for sale:
U.S. Government and its agencies $ 53,329 $ 696 5.19%
Other* 12,862 118 5.05
Securities-held to maturity:
U.S. Government and its agencies 1,788,506 26,839 6.00
State, municipal and other* 388,260 5,679 5.85
---------- --------
Total securities 2,242,957 33,332 5.95
---------- --------
Loans, net of unearned income:
Installment 4,120,000 81,090 7.83
Real estate 1,351,385 27,718 8.16
Other* 1,120,153 21,788 7.70
---------- --------
Total loans 6,591,538 130,596 7.88
---------- --------
Money market investments 659,647 5,859 3.52
Other earning assets* 20,354 318 6.24
---------- --------
Total earning assets and income $9,514,496 170,105 7.12
========== --------
Interest-bearing liabilities:
Interest checking $1,573,265 1,520 0.38
Money market accounts 1,022,662 7,145 2.77
Savings deposits 1,047,691 2,969 1.12
Consumer certificates of deposit 2,481,928 31,597 5.05
Large denomination certificates of deposit 532,671 7,032 5.24
---------- --------
Total interest-bearing deposits 6,658,217 50,263 3.00
Short-term borrowings 616,275 4,244 2.73
Long-term debt 20,642 294 5.69
---------- --------
Total interest-bearing liabilities
and interest expense $7,295,134 54,801 2.98
========== --------
Net interest income and net interest margin $115,304 4.83%
========
*Fully taxable-equivalent basis
Other average balances:
Demand deposits $1,706,806
Preferred shareholders' equity 427
Common shareholders' equity 1,144,363
Total assets 10,306,889
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
- -------------------------------------------------------------------------
Interest
Average Income/
Three Months Ended Sept. 30, 2000 Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Securities-available for sale:
U.S. Government and its agencies $ 104,243 $ 1,358 5.18%
Other* 10,339 128 6.11
Securities-held to maturity:
U.S. Government and its agencies 1,483,318 21,760 5.86
State, municipal and other* 302,122 4,459 5.90
---------- --------
Total securities 1,900,022 27,705 5.83
---------- --------
Loans, net of unearned income:
Installment 4,209,941 84,619 8.01
Real estate 1,119,682 23,007 8.19
Other* 1,027,117 22,448 8.67
---------- --------
Total loans 6,356,740 130,074 8.15
---------- --------
Money market investments 409,880 6,779 6.58
Other earning assets* 20,129 347 6.90
---------- --------
Total earning assets and income $8,686,771 164,905 7.57
========== --------
Interest-bearing liabilities:
Interest checking $1,480,751 2,317 0.62
Money market accounts 912,500 7,502 3.27
Savings deposits 1,036,901 3,906 1.50
Consumer certificates of deposit 2,322,146 29,593 5.07
Large denomination certificates of deposit 472,830 6,704 5.64
---------- --------
Total interest-bearing deposits 6,225,128 50,022 3.20
Short-term borrowings 479,891 6,828 5.66
Long-term debt 1,576 42 10.60
---------- --------
Total interest-bearing liabilities
and interest expense $6,706,595 56,892 3.37
========== --------
Net interest income and net interest margin $108,013 4.95%
========
*Fully taxable-equivalent basis
Other average balances:
Demand deposits $1,609,550
Preferred shareholders' equity 453
Common shareholders' equity 965,423
Total assets 9,407,234
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
- -------------------------------------------------------------------------
Interest
Average Income/
Nine Months Ended Sept. 30, 2001 Balance Expense Rate
- -------------------------------------------------------------------------
Interest-earning assets:
Securities-available for sale:
U.S. Government and its agencies $ 63,029 $ 2,444 5.18%
Other* 12,784 336 4.83
Securities-held to maturity:
U.S. Government and its agencies 1,677,897 75,575 6.01
State, municipal and other* 343,623 15,190 5.89
---------- --------
Total Securities 2,097,333 93,545 5.96
---------- --------
Loans, net of unearned income:
Installment 4,077,384 242,858 7.96
Real estate 1,213,553 74,169 8.17
Other* 1,086,488 65,059 7.98
---------- --------
Total loans 6,377,425 382,086 8.01
---------- --------
Money market investments 568,201 18,506 4.35
Other earning assets* 19,208 927 6.42
---------- --------
Total earning assets and income $9,062,167 495,064 7.30
========== --------
Interest-bearing liabilities:
Interest checking $1,533,893 4,840 0.42
Money market accounts 948,045 21,380 3.02
Savings deposits 1,009,885 9,736 1.29
Consumer certificates of deposit 2,377,781 92,653 5.21
Large denomination certificates of deposit 517,746 21,411 5.53
---------- --------
Total interest-bearing deposits 6,387,350 150,020 3.14
Short-term borrowings 569,080 15,527 3.65
Long-term debt 7,534 343 6.07
---------- --------
Total interest-bearing liabilities
and interest expense $6,963,964 165,890 3.18
========== --------
Net interest income and net interest margin $329,174 4.85%
========
*Fully taxable-equivalent basis
Other average balances:
Demand deposits $1,626,383
Preferred shareholders' equity 435
Common shareholders' equity 1,059,431
Total assets 9,802,329
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
- -------------------------------------------------------------------------
Interest
Average Income/
Nine Months Ended Sept. 30, 2000 Balance Expense Rate
- -------------------------------------------------------------------------
Interest-earning assets:
Securities-available for sale:
U.S. Government and its agencies $ 105,291 $ 4,114 5.22%
Other* 9,962 412 6.83
Securities-held to maturity:
U.S. Government and its agencies 1,491,325 64,489 5.77
State, municipal and other* 322,457 14,271 5.90
---------- --------
Total securities 1,929,035 83,286 5.77
---------- --------
Loans, net of unearned income:
Installment 4,241,639 250,142 7.87
Real estate 1,122,476 68,815 8.19
Other* 1,028,093 65,904 8.53
---------- --------
Total loans 6,392,208 384,861 8.04
---------- --------
Money market investments 340,117 15,769 6.19
Other earning assets* 23,506 1,273 6.94
---------- --------
Total earning assets and income $8,684,866 485,189 7.46
========== --------
Interest-bearing liabilities:
Interest checking $1,506,173 6,825 0.61
Money market accounts 941,922 22,097 3.13
Savings deposits 1,054,626 11,894 1.51
Consumer certificates of deposit 2,306,653 82,783 4.79
Large denomination certificates of deposit 468,656 18,970 5.41
---------- --------
Total interest-bearing deposits 6,278,030 142,569 3.03
Short-term borrowings 441,726 17,538 5.30
Long-term debt 1,845 133 9.62
---------- --------
Total interest-bearing liabilities
and interest expense $6,721,601 160,240 3.18
========== --------
Net interest income and net interest margin $324,949 4.99%
========
*Fully taxable-equivalent basis
Other average balances:
Demand deposits $1,586,737
Preferred shareholders' equity 472
Common shareholders' equity 990,413
Total assets 9,426,869
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
As of September 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 6. EXHIBITS AND REPORTS ON FORM 8 - K
----------------------------------
b) No reports on Form 8-K were filed during the quarter
ended September 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
November 14, 2001 --------------------------
Richard F. Bowman,
Executive Vice President,
Treasurer and
Chief Financial Officer