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
March 31, 2002
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 April 30, 2002, there were 47,857,957 shares
of common stock outstanding.
This report contains a total of 21 pages.
INDEX
Page
---------
PART I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31,
2002 and 2001, and December 31, 2001 (Unaudited) 3/ 4
Condensed Consolidated Statements of Income - Three
months ended March 31, 2002 and 2001 (Unaudited) 5/ 6
Condensed Consolidated Statements of Shareholders'
Equity - Three months ended March 31, 2002
and 2001 (Unaudited) 7/ 8
Condensed Consolidated Statements of Cash
Flows - Three months ended March 31, 2002
and 2001 (Unaudited) 9
Notes to Condensed Consolidated Financial
Statements (Unaudited) 10/15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16/20
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
PART II - Other Information
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)
- -------------------------------------------------------------------------------
March 31 December 31 March 31
2002 2001 2001
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 285,248 $ 386,171 $ 284,355
Money market investments 210,084 95,808 250,185
- -------------------------------------------------------------------------------
Total cash and cash equivalents 495,332 481,979 534,540
- -------------------------------------------------------------------------------
Securities - available for sale 1,426,149 1,457,788 90,825
Securities - held to maturity (fair values
of $1,768,149, $1,658,992 and $2,326,299) 1,763,626 1,639,827 2,316,541
- -------------------------------------------------------------------------------
Total securities 3,189,775 3,097,615 2,407,366
- -------------------------------------------------------------------------------
Loans, net of unearned income 6,553,729 6,510,559 6,237,575
Allowance for loan losses (72,823) (71,937) (68,914)
- -------------------------------------------------------------------------------
Net loans 6,480,906 6,438,622 6,168,661
- -------------------------------------------------------------------------------
Other earning assets 31,768 26,872 18,367
Premises and equipment 152,624 153,505 148,045
Intangible assets 197,686 199,948 154,095
Accrued income and other assets 240,001 224,486 219,740
- -------------------------------------------------------------------------------
Total assets $10,788,092 $10,623,027 $9,650,814
===============================================================================
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(Continued)
- -------------------------------------------------------------------------------
March 31 December 31 March 31
2002 2001 2001
- -------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 1,867,819 $ 1,831,324 $1,638,422
Interest-bearing:
Interest checking 1,716,809 1,711,885 1,535,473
Money market 1,272,783 1,132,998 906,361
Savings 1,095,193 1,048,577 995,993
Consumer certificates of deposit 2,354,662 2,418,890 2,322,603
Large denomination
certificates of deposit 483,503 505,962 515,979
- -------------------------------------------------------------------------------
Total deposits 8,790,769 8,649,636 7,914,831
- -------------------------------------------------------------------------------
Short-term borrowings 638,994 639,351 548,058
Long-term debt 13,516 19,526 830
Accrued interest and other liabilities 172,141 162,028 169,035
- -------------------------------------------------------------------------------
Total liabilities 9,615,420 9,470,541 8,632,754
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value 416 421 434
Common stock, $1 par value 47,851 47,827 46,159
Capital surplus 75,396 74,959 1,071
Retained earnings 1,059,329 1,036,257 967,955
Accumulated other comprehensive income (loss) (10,320) (6,978) 2,441
- -------------------------------------------------------------------------------
Total shareholders' equity 1,172,672 1,152,486 1,018,060
- -------------------------------------------------------------------------------
Total liabilities and shareholders' equity $10,788,092 $10,623,027 $9,650,814
===============================================================================
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended March 31 2002 2001
- -------------------------------------------------------------------------------
Interest income:
Loans $118,364 $126,245
Securities - available for sale 18,669 1,086
Securities - held to maturity 20,812 27,499
Money market investments 1,184 5,987
Other earning assets 418 317
- -------------------------------------------------------------------------------
Total interest income 159,447 161,134
- -------------------------------------------------------------------------------
Interest expense:
Deposits 39,182 50,466
Short-term borrowings 1,546 6,379
Long-term debt 215 28
- -------------------------------------------------------------------------------
Total interest expense 40,943 56,873
- -------------------------------------------------------------------------------
Net interest income 118,504 104,261
Provision for loan losses 3,517 863
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 114,987 103,398
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Continued)
- -------------------------------------------------------------------------------
Three Months Ended March 31 2002 2001
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 114,987 103,398
- -------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 16,921 16,009
Electronic banking service fees 4,469 3,929
Trust and asset management fees 3,367 3,177
Insurance premiums and commissions 2,342 1,899
Other 6,146 12,244
Securities gains - 1,468
- -------------------------------------------------------------------------------
Total noninterest income 33,245 38,726
- -------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 50,381 46,416
Occupancy 7,175 6,633
Equipment 8,368 8,380
Amortization of intangibles 2,262 3,682
Other 16,569 14,996
- -------------------------------------------------------------------------------
Total noninterest expense 84,755 80,107
- -------------------------------------------------------------------------------
Income before income taxes 63,477 62,017
Provision for income taxes 21,258 21,755
- -------------------------------------------------------------------------------
Net income $ 42,219 $ 40,262
===============================================================================
Net income per share of common stock:
Basic $ .88 $ .87
Diluted .88 .87
Average shares of common stock outstanding:
Basic 47,846 46,151
Diluted 48,106 46,353
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(Unaudited)
- -------------------------------------------------------------------------------
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 40,262 40,262
Unrealized gains on
securities available for
sale 2,182 2,182
-----------
Total comprehensive income 42,444
-----------
Conversion of preferred
to common stock (17) 4 13 -
Issuance of shares for
stock options 14 559 573
Common stock purchased
and retired (2) (113) (115)
Dividends declared:
Preferred stock (7) (7)
Common stock
$0.38 per share (17,541) (17,541)
- -------------------------------------------------------------------------------
Balance March 31, 2001 $ 434 $46,159 $1,071 $ 967,955 $2,441 $1,018,060
===============================================================================
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(Unaudited)(Continued)
- -------------------------------------------------------------------------------
Accum-
ulated
Other
Compre- Total
Pre- hensive Share-
ferred Common Capital Retained Income holders'
Stock Stock Surplus Earnings (Loss) Equity
- -------------------------------------------------------------------------------
Balance January 1, 2002 $ 421 $47,827 $74,959 $1,036,257 $(6,978) $1,152,486
Comprehensive income:
Net income 42,219 42,219
Unrealized losses on
securities available for
sale (3,342) (3,342)
-----------
Total comprehensive income 38,877
-----------
Conversion of preferred
to common stock (5) 1 4 -
Issuance of shares for
stock options 54 1,941 1,995
Common stock purchased
and retired (31) (1,508) (1,539)
Dividends declared:
Preferred stock (7) (7)
Common stock
$0.40 per share (19,140) (19,140)
- -------------------------------------------------------------------------------
Balance March 31, 2002 $ 416 $47,851 $75,396 $1,059,329 $(10,320) $1,172,672
===============================================================================
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended March 31 2002 2001
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 48,115 $ 51,713
- -------------------------------------------------------------------------------
Investing activities:
Proceeds from the sale of available
for sale securities 35,427 3,114
Proceeds from the maturity of held to
maturity securities 264,113 613,449
Purchases of available for sale securities (9,972) -
Purchases of held to maturity securities (388,314) (847,790)
Net(increase) decrease in loans (45,800) 126,639
Purchases of premises and equipment (2,906) (1,562)
Sales of premises and equipment 943 376
Other (4,337) (5,042)
- -------------------------------------------------------------------------------
Net cash used for investing activities (150,846) (110,816)
- -------------------------------------------------------------------------------
Financing activities:
Net increase in deposits 141,133 89,015
Net increase (decrease) in short-term borrowings (357) 8,589
Principal payments on long-term debt (6,010) (286)
Common stock purchased and retired (1,539) (115)
Proceeds from issuance of common stock 1,995 573
Cash dividends paid (19,138) (17,542)
- -------------------------------------------------------------------------------
Net cash provided by financing activities 116,084 80,234
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents 13,353 21,131
Cash and cash equivalents at beginning of year 481,979 513,409
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $495,332 $534,540
===============================================================================
Cash paid for:
Interest $ 47,323 $ 54,602
Income taxes 3,591 696
===============================================================================
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 2001 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, 2001.
2. SECURITIES
The following reflects the amortized cost of securities and the related
approximate fair values:
- -------------------------------------------------------------------------------
March 31, 2002 March 31, 2001
- -------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------
Available for sale:
U.S. Government and its agencies $ 993,467 $ 980,300 $ 69,509 $ 69,830
Mortgage-backed securities 439,328 434,631 - -
of U.S. Government agencies
Other 9,395 11,218 17,339 20,995
- -------------------------------------------------------------------------------
Total $1,442,190 $1,426,149 $ 86,848 $ 90,825
===============================================================================
Held to maturity:
U.S. Government and its agencies $1,117,654 $1,120,246 $1,977,373 $1,983,584
Mortgage-backed securities
of U.S. Government agencies 295,145 292,890 15,391 15,504
State and municipal obligations 348,760 352,921 323,777 327,211
Other 2,067 2,092 - -
- -------------------------------------------------------------------------------
Total $1,763,626 $1,768,149 $2,316,541 $2,326,299
===============================================================================
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
3. LOANS
Loans consisted of:
- -------------------------------------------------------------------------------
March 31 2002 2001
- -------------------------------------------------------------------------------
Consumer
Automobile $3,207,777 $3,128,093
Home equity, fixed- and variable-rate 725,702 712,698
Revolving credit loans 34,399 32,278
Other 148,559 163,493
Commercial 871,888 897,648
Construction and land development 128,644 168,226
Real estate
Commercial mortgage 645,098 455,823
Residential mortgage 791,662 679,316
- -------------------------------------------------------------------------------
Total loans, net of unearned income $6,553,729 $6,237,575
===============================================================================
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was:
- -------------------------------------------------------------------------------
Three Months Ended March 31 2002 2001
- -------------------------------------------------------------------------------
Balance at beginning of period $71,937 $70,300
Provision charged to operating expense 3,517 863
- -------------------------------------------------------------------------------
Balance before charge-offs 75,454 71,163
Charge-offs 3,572 4,032
Recoveries 941 1,783
- -------------------------------------------------------------------------------
Balance at March 31 $72,823 $68,914
===============================================================================
Percentage of annualized net
charge-offs to average loans .16% .14%
Percentage of allowance for loan
losses to period-end loans 1.11 1.10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
5. OTHER NONINTEREST INCOME
Other noninterest income for the three months ended March 31, 2001
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
A reconcilement of income tax computed at the federal statutory tax rates
to the provision for income taxes is as follows:
- -------------------------------------------------------------------------------
Three Months Ended March 31 2002 2001
- -------------------------------------------------------------------------------
Amount Pct Amount Pct
- -------------------------------------------------------------------------------
Statutory rate $22,217 35.0% $21,706 35.0%
Nontaxable interest on
municipal obligations (1,313)(2.0) (1,136)(1.8)
State taxes, net of
Federal tax benefit 273 0.4 658 1.1
Nondeductible goodwill - - 571 0.9
Other items 81 0.1 (44)(0.1)
- -------------------------------------------------------------------------------
Effective rate $21,258 33.5% $21,755 35.1%
===============================================================================
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:
- -------------------------------------------------------------------------------
March 31 December 31 March 31
Series Dividends 2002 2001 2001
- -------------------------------------------------------------------------------
A 5% 15,490 15,551 16,325
B 7% 3,290 3,290 3,290
C 7% 5,036 5,072 5,072
D 8% 17,748 18,148 18,727
- -------------------------------------------------------------------------------
Total preferred shares 41,564 42,061 43,414
===============================================================================
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 47,851,184, 47,826,531 and 46,159,393 shares were outstanding at
March 31, 2002, December 31, 2001, and March 31, 2001, respectively. Options
to purchase 1,137,819 shares of common stock were outstanding on March 31,
2002. A total of 3,023,731 shares of common stock were reserved at March 31,
2002: 91,251 shares for the conversion of preferred stock and 2,932,480 shares
for stock options.
8. EARNINGS PER SHARE
Earnings per share computations are as follows:
- -------------------------------------------------------------------------------
Three Months Ended March 31 2002 2001
- -------------------------------------------------------------------------------
Basic:
Net income $42,219 $40,262
Preferred stock dividends 7 7
- -------------------------------------------------------------------------------
Net income applicable to common stock $42,212 $40,255
- -------------------------------------------------------------------------------
Average common shares outstanding (000s) 47,846 46,151
Earnings per share of common stock $ .88 $ .87
===============================================================================
Diluted:
Net income $42,219 $40,262
Average common shares outstanding (000s) 47,846 46,151
Dilutive effect of stock options (000s) 168 104
Conversion of preferred stock (000s) 92 98
- -------------------------------------------------------------------------------
Total average common shares (000s) 48,106 46,353
- -------------------------------------------------------------------------------
Earnings per share of common stock $ .88 $ .87
===============================================================================
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 March 31 2002 2001
- -------------------------------------------------------------------------------
Options (000s) 179 182
Weighted average price $ 52.31 $ 52.31
- -------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
9. NEW ACCOUNTING PRONOUNCEMENTS
The corporation adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" (SFAS 142) on January 1, 2002. As
of the date of adoption, the corporation had unamortized goodwill of $150.183
million and unamortized identifiable intangible assets of $49.765 million, all
of which are subject to the transition provisions of SFAS 142. The corporation
did not acquire or dispose of any goodwill during the quarter, and in
accordance with SFAS 142, goodwill is no longer being amortized, but instead is
to be tested for impairment at least annually. At the date of this report, the
corporation had not completed the impairment test on its goodwill and has not
determined whether there will be any transitional impairment losses recognized
as a cumulative effect of a change in accounting principle. Substantially all
of the identifiable intangible assets are core deposit premiums and there was
no adjustment to the useful lives of these assets as a result of adopting SFAS
142. The carrying amount of amortizable intangible assets as of March 31,
2002, and the actual and expected amortization expense are as follows:
- -------------------------------------------------------------------------------
Gross
Carrying Accumulated Carrying
March 31, 2002 Amount Amortization Amount
- -------------------------------------------------------------------------------
Core deposit premiums $ 92,669 $ 45,463 $ 47,206
Other 1,281 983 298
- -------------------------------------------------------------------------------
Total $ 93,950 $ 46,446 $ 47,504
===============================================================================
- ------------------------------------------------------------------------------
Core Deposit
Amortization Expense Goodwill Premiums Other
- -------------------------------------------------------------------------------
Actual:
Three months ended March 31, 2001 $1,632 $2,017 $33
Three months ended March 31, 2002 - 2,241 21
Expected:
Twelve months ended December 31, 2002 - 8,823 83
Twelve months ended December 31, 2003 - 8,731 78
Twelve months ended December 31, 2004 - 8,731 78
Twelve months ended December 31, 2005 - 7,146 78
Twelve months ended December 31, 2006 - 5,662 78
Twelve months ended December 31, 2007 - 4,704 78
===============================================================================
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
The following tables compare the corporation's net income and earnings per
share amounts had SFAS 142 been in effect for all periods presented.
- -------------------------------------------------------------------------------
Three Months Ended March 31 2002 2001
- -------------------------------------------------------------------------------
Net income $ 42,219 $ 40,262
Goodwill amortization - 1,632
- -------------------------------------------------------------------------------
Adjusted net income $ 42,219 $ 41,894
===============================================================================
Basic earnings per share:
Net income $ .88 $ .87
Goodwill amortization - .04
- -------------------------------------------------------------------------------
Adjusted net income $ .88 $ .91
===============================================================================
Diluted earnings per share:
Net income $ .88 $ .87
Goodwill amortization - .03
- -------------------------------------------------------------------------------
Adjusted net income $ .88 $ .90
===============================================================================
The corporation adopted Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(SFAS 144) on January 1, 2002. SFAS 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.
The adoption of this statement did not have a material impact on the
corporation's financial statements.
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 14% increase in 2002 first quarter
earnings per share to $.88 compared to the $.77 earned in the 2001 first
quarter, excluding a nonrecurring after-tax gain of $.10 per share in the 2001
first quarter from the sale of the corporation's interest in Star Systems, Inc.
Excluding this gain, the return on average assets increased to 1.60% compared
to 1.50% in the prior year's first quarter, and the return on average
shareholders' equity increased to 14.47% compared to 14.14%. Including the
gain in 2001, net income for the 2002 quarter totaled $42.219 million or $.88
per share compared to $40.262 million or $.87 per share in 2001's first
quarter.
Cash basis recurring earnings per share, which excludes both the effects
of intangible assets and their related amortization and nonrecurring income
items, equaled $.91 per share in the first quarter compared to $.83 in the
prior year's first quarter. Effective in the first quarter of 2002, in
accordance with new accounting rules, the corporation ceased amortizing the
goodwill created in past acquisitions. These rules also require that the
purchase method of accounting be used for all business combinations and that
goodwill no longer be amortized to expense but instead be examined periodically
for impairment. Cash basis recurring income produced a return on average
tangible assets of 1.69% in the first quarter and a return on average tangible
shareholders' equity of 18.06%.
Total assets at March 31, 2002, increased 12% to $10.788 billion compared
to $9.651 billion at March 31, 2001. Average loans declined to $6.506 billion
compared to fourth quarter average loans of $6.548 billion but by the end of
the quarter total loans had increased at an annualized rate of 3% to $6.554
billion. The corporation experienced its best automobile loan production for a
January in its history, creating solid growth for the entire first quarter,
despite the increased automobile sales in the fourth quarter of 2001 generated
by manufacturer subsidized zero-percent loans. Within the next several months
First Virginia plans to increase its market for high-quality automobile loans
by expanding into two additional states, further capitalizing on its nationally
recognized reputation as one of the premier providers in this area. Average
real estate loans increased at an annualized 7% rate over the fourth quarter as
relatively low interest rates induced consumers to refinance or take out new
real estate debt. Commercial loans stabilized during the quarter following a
decline in the fourth quarter, led by a 42% increase in floor plan lending to
automobile dealers to finance their new car inventory. In addition, other
commercial customers demonstrated renewed interest in expanding their
businesses.
Average deposits increased 11% to $8.622 billion compared to the prior
year's first quarter of $7.762 billion and increased at an annualized rate of
7% over the strong fourth quarter. Lower cost transaction accounts showed the
fastest pace of growth, with demand and interest-checking accounts rising 13%
compared to a year ago and money market accounts up 36%. Interest rates were
relatively stable during the first quarter in contrast to the rapid declines in
2001, and the maturity of higher cost certificates of deposit, combined with
the growth of transaction accounts, helped lower the corporation's overall cost
of funds. As a consequence, the net interest margin increased eight basis
points to 4.96% compared to 4.88% in the prior year's first quarter.
Excellent asset quality is a hallmark of First Virginia, and its quality
indicator ratios remained significantly better than those of other banking
organizations. The corporation has no exposure to the many national companies
making the news with bankruptcy or insolvency issues. First Virginia's net
charge-offs in the first quarter were $2.631 million or .16% of average loans
compared to $2.249 million or .14% of average loans in the first quarter of
2001 and are a third of national peer group averages. Nonperforming assets
declined as a percent of outstanding loans to .30% or $19.898 million compared
to .31% or $19.265 million at the end of the prior year's first quarter. Loans
past due 90 days or more declined to $11.249 million or .17% of loans at March
31, 2002, compared to $14.365 million or .22% of loans at December 31, 2001 and
$12.230 million or .20% of loans at March 31, 2001. The allowance for loan
losses increased slightly to 1.11% of outstanding loans compared to 1.10% at
December 31, 2001. This represents a coverage ratio of annualized net charge-
offs of 6.92 times or 405% of nonperforming loans. The provision for loan
losses increased during the quarter to $3.517 million primarily as a result of
the growth that occurred in the loan portfolio compared to a year ago when
outstanding loans were declining.
A summary of nonperforming and delinquent loans is as follows:
- -----------------------------------------------------------------------------
March 31 2002 2001
- -----------------------------------------------------------------------------
Nonaccruing loans $17,081 $13,415
Restructured loans 915 943
Properties acquired by foreclosure 1,902 4,907
- -----------------------------------------------------------------------------
Total nonperforming assets $19,898 $19,265
=============================================================================
Percentage of total loans and foreclosed real estate .30% .31%
Loans 90 days past due and still accruing interest $11,249 $12,230
Percentage of total loans .17% .20%
=============================================================================
Excluding a $7.749 million nonrecurring pretax gain from the sale of the
corporation's interest in Star Systems, Inc. and other securities gains of
$1.468 million in the prior year's first quarter, noninterest income increased
at a 13% pace in the first quarter of 2002. This increase occurred in all
categories of fees, reflecting the emphasis First Virginia has placed in the
total customer account relationship and its across-business-lines approach to
customer calling. Service charges on deposit accounts increased 6% compared to
the prior year's first quarter, based on an 80% increase in consumer and
business internet banking fees. Electronic banking income increased 14%, led
by a 38% increase in income from the corporation's CheckCard product.
Insurance income, which includes sales of annuities, increased 23%, with strong
growth in title insurance and commissions on the sale of investment products.
As a result of a 47% increase in credit card related sales commissions and
gains on the sale of foreclosed properties, other miscellaneous income
increased 37%.
Strong expense control management is another hallmark of First Virginia.
The first quarter of 2002 was the first full quarter for the expense savings
anticipated to take effect following First Virginia's July 2001 acquisition of
James River Bankshares, and noninterest expenses declined 3% to $84.755 million
compared to $87.366 million in the fourth quarter of 2001. Employment related
expenses declined 4% compared to the fourth quarter despite a 37% increase in
healthcare insurance expense. Although equipment and occupancy expenses
increased 2% compared to the fourth quarter, they would have declined slightly
had it not been for an additional charge for expenses to close the
corporation's remaining supermarket branches following the decision to exit
these locations which did not meet profitability expectations. Intangibles
amortization declined $1.411 million or $.03 per share reflecting the cessation
of the amortization of goodwill as required under new accounting rules. The
efficiency ratio continued to improve and was 53.7% in the first quarter of
2002 compared to 56.3% in the prior year's first quarter.
Total shareholders' equity was $1.173 billion at March 31, 2002, compared
to $1.018 billion at March 31, 2001. Net book value per share increased 11% to
$24.50 compared to $22.05 at the end of the prior year's first quarter. First
Virginia remains one of the best capitalized banks in the nation. The
corporation's Tier 1 capital leverage ratio at March 31, 2002, was 9.53%, a 26-
basis-point increase compared to 9.27% at the end of the first quarter of 2001.
During the first quarter, the corporation repurchased 25,900 shares of stock,
leaving 1.600 million shares remaining in its currently authorized share
repurchase program. At March 31, 2002, there were 47.851 million shares
outstanding.
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 March 31, 2002 Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets
Securities-available for sale
U.S. Government and its agencies $ 1,429,193 $ 18,552 5.19%
Other* 10,605 162 6.09
Securities-held to maturity
U.S. Government and its agencies 1,174,818 16,768 5.71
State, municipal and other* 358,955 5,260 5.86
---------- --------
Total securities 2,973,571 40,742 5.48
---------- --------
Loans, net of unearned income
Installment 4,113,205 74,798 7.35
Real estate 1,406,085 27,590 7.94
Other* 987,198 16,702 6.85
---------- --------
Total loans 6,506,488 119,090 7.40
---------- --------
Money market investments 274,466 1,184 1.75
Other earning assets* 28,365 418 5.89
---------- --------
Total earning assets and income $ 9,782,889 161,434 6.66
========== --------
Interest-bearing liabilities
Interest checking $ 1,682,658 1,015 0.24
Money market 1,212,319 5,390 1.80
Savings 1,067,896 1,976 0.75
Consumer certificates of deposit 2,393,453 25,406 4.30
Large denomination
certificates of deposit 494,260 5,395 4.43
---------- --------
Total interest-bearing deposits 6,850,586 39,182 2.32
Short-term borrowings 621,918 1,546 1.01
Long-term debt 15,323 215 5.62
---------- --------
Total interest-bearing liabilities
and interest expense $ 7,487,827 40,943 2.22
========== --------
Net interest income and net interest margin $120,491 4.96%
========
*Fully taxable-equivalent basis
Other average balances
Noninterest-bearing deposits $ 1,771,902
Preferred shareholders' equity 420
Common shareholders' equity 1,167,005
Total assets 10,584,058
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
- -------------------------------------------------------------------------
Interest
Average Income/
Three Months Ended March 31, 2001 Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets
Securities-available for sale
U.S. Government and its agencies $ 76,390 $ 977 5.18%
Other* 9,198 109 5.88
Securities-held to maturity:
U.S. Government and its agencies 1,584,527 23,706 6.00
State, municipal and other* 315,257 4,694 5.95
---------- --------
Total securities 1,985,372 29,486 5.96
---------- --------
Loans, net of unearned income
Installment 4,071,134 81,527 8.47
Real estate 1,122,942 22,777 8.20
Other* 1,098,413 22,625 8.41
---------- --------
Total loans 6,292,489 126,929 8.16
---------- --------
Money market investments 436,876 5,987 5.56
Other earning assets 18,633 317 6.82
---------- --------
Total earning assets and income $8,733,370 162,719 7.52
========== --------
Interest-bearing liabilities
Interest checking $1,504,319 1,760 0.47
Money market 888,997 7,158 3.27
Savings 982,976 3,599 1.48
Consumer certificates of deposit 2,334,602 30,818 5.35
Large denomination
certificates of deposit 497,964 7,131 5.81
---------- --------
Total interest-bearing deposits 6,208,858 50,466 3.30
Short-term borrowings 535,797 6,379 4.83
Long-term debt 1,016 28 10.93
---------- --------
Total interest-bearing liabilities
and interest expense $6,745,671 56,873 3.42
========== --------
Net interest income and net interest margin $105,846 4.88%
========
*Fully taxable-equivalent basis
Other average balances
Noninterest-bearing deposits $1,553,355
Preferred shareholders' equity 445
Common shareholders' equity 1,004,478
Total assets 9,447,791
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
As of March 31, 2002, there have been no material changes
in information regarding quantitative and qualitative
disclosures about market risk from the information presented
as of December 31, 2001 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 March 31, 2002.
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
May 14, 2002 --------------------------
Richard F. Bowman,
Executive Vice President,
Treasurer and
Chief Financial Officer