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, 1997
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. Yes __X__ 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, 1997, there were 51,793,630 shares of common
stock outstanding.
This report contains a total of 25 pages.
1
INDEX
Page
---------
PART I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30,
1997 and 1996, (Unaudited), and December 31, 1996 3/ 4
Condensed Consolidated Statements of Income - Three
months and nine months ended September 30, 1997
and 1996 (Unaudited) 5/ 6
Condensed Consolidated Statements of Cash Flows - Nine
months ended September 30, 1997 and 1996 (Unaudited) 7
Condensed Consolidated Statements of Shareholders'
Equity - Nine months ended September 30, 1997
and 1996 (Unaudited) 8
Notes to Condensed Consolidated Financial
Statements (Unaudited) 8/13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13/19
PART II - Other Information
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K
Signature 20
Exhibit 11 - Statement re: Computation of
Per Share Earnings 21
Exhibit 12 - Statement re: Computation of Ratios 22
Exhibit 15 - Independent Accountants' Review
Report from Ernst & Young LLP 23
Exhibit 15A - Letter of Acknowledgement from
Ernst & Young LLP, Independent Accountants 24
Exhibit 27 - Financial Data Schedule as of September 30,
1997 and the nine months ended September 30, 1997.
(This exhibit is being filed as a separate
document in this form 10-Q, for the quarter
ended September 30, 1997.) 25
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 30 December 31 Sept. 30
1997 1996 1996
---------- ---------- ----------
(Unaudited) (Unaudited)
(In thousands)
ASSETS
Cash and noninterest-bearing
deposits in banks $ 355,830 $ 378,171 $ 361,370
Money market investments 242,675 323,620 230,969
---------- ---------- ----------
Total cash and cash equivalents 598,505 701,791 592,339
---------- ---------- ----------
Mortgage loans held for sale 20,745 12,771 13,023
Investment securities - held to maturity
(market values of $1,902,463, $1,823,404
and $1,932,972 1,896,091 1,820,949 1,937,039
Loans, net of unearned income 5,946,889 5,364,787 5,293,235
Deduct: Allowance for loan losses (68,126) (62,761) (61,541)
---------- ---------- ----------
Net loans 5,878,763 5,302,026 5,231,694
---------- ---------- ----------
Other earning assets 23,269 19,672 17,307
Premises and equipment 164,494 148,187 147,494
Intangible assets 178,197 94,381 96,479
Other assets 156,441 136,279 138,212
---------- ---------- ----------
Total Assets $8,916,505 $8,236,056 $8,173,587
========== ========== ==========
3
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
Sept. 30 December 31 Sept. 30
1997 1996 1996
---------- ---------- ----------
(Unaudited) (Unaudited)
(In thousands)
LIABILITIES
Deposits:
Noninterest-bearing $1,409,927 $1,303,950 $1,303,113
Interest-bearing:
Interest checking/savings plan 1,323,206 1,308,539 1,273,543
Money market accounts 745,254 712,550 746,191
Savings deposits 1,158,470 1,111,677 1,141,188
Certificates of deposit:
Consumer 2,492,180 2,255,803 2,234,879
Large denomination 410,034 350,131 324,525
---------- ---------- ----------
Total deposits 7,539,071 7,042,650 7,023,439
Interest, taxes and other liabilities 106,093 83,765 85,557
Short-term borrowings 272,393 234,488 195,918
Long-term indebtedness 3,092 3,876 1,867
---------- ---------- ----------
Total Liabilities 7,920,649 7,364,779 7,306,781
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value 617 647 655
Common stock, $1 par value 51,790 48,612 49,030
Capital surplus 92,522 27,327 40,951
Retained earnings 850,927 794,691 776,170
---------- ---------- ----------
Total Shareholders' Equity 995,856 871,277 866,806
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $8,916,505 $8,236,056 $8,173,587
========== ========== ==========
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands, except per-share data)
Interest income:
Interest and fees on loans $131,226 $113,499 $368,130 $334,061
Interest on mortgage loans
held for sale 241 274 709 955
Income from investment securities-
available for sale - - - 1,152
Income from investment
securities - held to maturity 27,182 29,954 83,362 89,252
Income from money
market investments 5,866 3,212 14,540 12,761
Income from other earning assets 386 265 1,062 707
-------- -------- -------- --------
Total interest income 164,901 147,204 467,803 438,888
-------- -------- -------- --------
Interest expense:
Deposits 55,130 49,737 155,742 152,113
Short-term borrowings 3,217 2,354 8,751 6,975
Long-term indebtedness 58 52 166 171
-------- -------- -------- --------
Total interest expense 58,405 52,143 164,659 159,259
-------- -------- -------- --------
Net interest income 106,496 95,061 303,144 279,629
Provision for loan losses 3,831 4,648 12,421 12,799
-------- -------- -------- --------
Net interest income after provision
for loan losses 102,665 90,413 290,723 266,830
-------- -------- -------- --------
5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued) (Unaudited)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands, except per-share data)
Net interest income after provision
for loan losses 102,665 90,413 290,723 266,830
-------- -------- -------- --------
Noninterest income:
Service charges on deposit
accounts 11,164 9,978 31,422 29,574
Insurance premiums and
commissions 1,620 1,622 4,907 4,917
Credit card service charges
and fees 3,032 3,019 8,653 8,542
Trust services 2,325 1,963 6,879 5,667
Electronic banking service fees 2,703 2,454 7,692 5,088
Income from other customer
services 3,795 3,503 10,972 10,660
Securities gains before income
tax provision of $2, $0,
$11 and $616 4 - 31 1,759
Other 5,164 1,361 7,491 6,259
-------- -------- -------- --------
Total noninterest income 29,807 23,900 78,047 72,466
-------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits 43,907 40,180 124,905 118,139
Occupancy 6,229 5,676 17,984 17,287
Equipment 6,812 5,813 18,955 16,939
Advertising 2,161 1,732 5,860 5,368
Printing and supplies 1,728 1,553 5,076 5,110
Credit card processing fees 2,218 2,211 6,205 6,221
FDIC assessment 284 1,312 818 1,939
Amortization of intangibles 3,377 2,031 8,064 5,913
Other 12,175 10,173 34,125 32,082
-------- -------- -------- --------
Total noninterest expense 78,891 70,681 221,992 208,998
-------- -------- -------- --------
Income before income taxes 53,581 43,632 146,778 130,298
Provision for income taxes 18,863 15,046 51,310 44,755
-------- -------- -------- --------
NET INCOME $ 34,718 $ 28,586 $ 95,468 $ 85,543
======== ======== ======== ========
Net income per share of common stock $.67 $.57 $1.90 $1.70
Average primary shares of common
stock outstanding 52,334 49,233 50,355 50,166
See notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
Sept. 30
1997 1996
-------- --------
(In thousands)
Net cash provided by operating activities $126,487 $123,346
-------- --------
Investing activities:
Proceeds from the maturity of
held to maturity securities 810,930 675,243
Proceeds from the sale of
available for sale securities - 64,682
Purchase of held to maturity securities (723,718) (489,422)
Net increase in loans (84,845) (264,339)
Net increase in other earning assets (121) (5,779)
Purchases of premises and equipment (11,337) (7,868)
Sales of premises and equipment 3,699 1,317
Intangible assets acquired (238) (7,191)
Acquisition of banks, net of cash acquired 38,545 -
Other (241) 3,670
-------- --------
Net cash (used for)
provided by investing activities 32,674 (29,687)
-------- --------
Financing activities:
Net decrease in deposits (157,080) (32,668)
Net increase (decrease) in short-term borrowings 27,734 (13,801)
Principal payments on long-term borrowings (785) (843)
Cash dividends - common, $.76 and $.70 2/3 per share (38,002) (35,710)
Cash dividends - preferred (32) (34)
Stock purchased and retired (94,792) (51,598)
Proceeds from issuance of common stock 510 476
-------- --------
Net cash used for financing activities (262,447) (134,178)
-------- --------
Net decrease in cash and
cash equivalents (103,286) (40,519)
Cash and cash equivalents at beginning of year 701,791 632,858
-------- --------
Cash and cash equivalents at end of period $598,505 $592,339
======== ========
See notes to condensed consolidated financial statements.
7
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Nine Months Ended
Sept. 30
1997 1996
---------- --------
(In thousands)
Balance at beginning of year $871,277 $869,647
Increase attributable to an acquired bank 162,625 -
Net income 95,468 85,543
Common stock purchased and retired (94,684) (51,598)
Decrease in unrealized gain - securities
available for sale - (1,634)
Issuance of common stock for the dividend reinvestment
plan, stock options and stock appreciation rights 510 476
Common stock purchased - stock split fractions (108) -
---------- --------
1,035,088 902,434
---------- --------
Deduct dividends declared:
Preferred stock 31 34
Common stock, $.77 and $.71 1/3 per share 39,201 35,594
---------- --------
39,232 35,628
---------- --------
Balance at end of period $ 995,856 $866,806
========== ========
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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. 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.
Certain amounts previously reported in 1996 have been reclassified for
comparative purposes. All prior periods have been restated to reflect a three-
for-two common stock split on September 3, 1997.
2. ACQUISITIONS
On May 24, 1997, the acquisition of Premier Bankshares Corporation by the
corporation was consummated. Premier Bankshares Corporation was the bank
holding company for Premier Bank-South, N.A., in Wytheville, Virginia; Premier
Bank-Central, N.A., in Honaker, Virginia; and Premier Bank, N.A., in Tazewell,
Virginia. These banks became wholly owned subsidiary banks of the corporation
as a result of the acquisition. Shares of the corporation's common stock
totaling 5.431 million were issued and were valued at $29.96 per share. The
acquisition was accounted for using the purchase method of accounting.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
The results of operations of the acquisition are included in the
consolidated statements of income from the date of acquisition through
September 30, 1997. Periods prior to the date of acquisition are not included
in the consolidated statements of income.
The unaudited pro forma information presented in the following table has
been prepared based on the historical results of the corporation combined with
Premier Bankshares Corporation. The information has been combined to present
the results of operations as if the acquisition had occurred at the beginning
of 1996. The pro forma results are not necessarily indicative of the results
that would have actually been obtained if the acquisition had been consummated
in the past nor are they indicative of future results.
Nine Months Ended
Sept. 30
1997 1996
-------- --------
(In thousands, except)
per-share data)
Total interest income $490,050 $467,864
Total interest expense 174,302 172,466
Provision for loan losses 12,631 12,949
Noninterest income 79,725 74,431
Noninterest expense 232,756 221,439
Provision for income taxes 52,972 46,515
-------- --------
Net income $ 97,114 $ 88,926
======== ========
Earnings per share $ 1.83 $ 1.60
Average primary shares of common stock outstanding 53,067 55,597
3. INVESTMENT SECURITIES
The following reflects the amortized cost of securities held to maturity
and the related approximate market values (in thousands):
Sept. 30, 1997 Sept. 30, 1996
Amortized Market Amortized Market
Cost Value Cost Value
---------- ---------- ---------- ----------
U.S. Government and
its agencies $1,722,734 $1,726,621 $1,776,536 $1,770,767
State and municipal obligations 172,111 174,566 159,484 161,161
Other 1,246 1,276 1,019 1,044
---------- ---------- ---------- ----------
$1,896,091 $1,902,463 $1,937,039 $1,932,972
========== ========== ========== ==========
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
4. LOANS
Loans consisted of (in thousands):
Sept. 30
1997 1996
---------- ----------
Consumer:
Automobile installment $2,401,161 $2,124,933
Home equity, fixed- and variable-rate 984,743 1,012,478
Revolving credit plans,
including credit cards 198,634 200,692
Other 394,595 312,541
Real estate:
Construction and land development 126,514 114,007
Commercial mortgage 595,159 517,613
Residential mortgage 656,386 509,844
Other, including Industrial
Development Authority loans 96,854 81,585
Commercial 492,843 419,542
---------- ----------
Loans, net of unearned income
of $198,496 and $260,582 $5,946,889 $5,293,235
========== ==========
5. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was (dollars in thousands):
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1997 1996 1997 1996
------- ------- ------- -------
Balance at beginning of period $68,634 $59,974 $62,761 $57,922
Increase attributable to
an acquired bank - - 5,551 -
Provision charged to expense 3,831 4,648 12,421 12,799
------- ------- ------- -------
72,465 64,622 80,733 70,721
Less:
Loans charged off, net of
recoveries of $1,112, $906,
$2,895 and $2,785 4,339 3,081 12,607 9,180
------- ------- ------- -------
Balance at September 30 $68,126 $61,541 $68,126 $61,541
======= ======= ======= =======
Percentage of annualized net
charge-offs to average loans .29% .24% .30% .24%
Percentage of allowance for loan
losses to period-end loans 1.15 1.16
Percentage of nonperforming assets
to period-end loans .43 .49
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
6. FEDERAL INCOME TAX
The reconcilement of income tax computed at the federal statutory tax
rates to the provision for income tax was as follows (dollars in thousands):
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1997 1996 1997 1996
------------ ------------ ------------ ------------
$ % $ % $ % $ %
------- ---- ------- ---- ------- ---- ------- ----
Statutory rate $18,754 35.0% $15,271 35.0% $51,372 35.0% $45,604 35.0%
Nontaxable interest on
municipal obligations (1,047)(2.0) (927)(2.1) (2,925)(2.0) (2,844)(2.2)
Other items 1,156 2.2 702 1.6 2,863 2.0 1,995 1.5
------- ---- ------- ---- ------- ---- ------- ----
Effective rate $18,863 35.2% $15,046 34.5% $51,310 35.0% $44,755 34.3%
======= ==== ======= ==== ======= ==== ======= ====
7. PREFERRED 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 December 31 Sept. 30
Series Dividends 1997 1996 1996
--------- --------- -------- ----------- --------
A 5% 20,404 21,511 21,623
B 7% 4,890 5,750 5,990
C 7% 9,836 9,836 9,836
D 8% 26,589 27,591 28,069
------ ------ ------
61,719 64,688 65,518
====== ====== ======
8. COMMON STOCK
There are 60,000,000 shares of common stock, par value $1.00 per share,
authorized and 51,790,000, 48,612,000 and 49,030,000 shares were outstanding
at September 30, 1997, December 31, 1996, and September 30, 1996,
respectively. Options to purchase 472,850 shares of common stock were
outstanding on September 30, 1997. A total of 773,639 shares of common stock
were reserved at September 30, 1997: 134,439 shares for the conversion of
preferred stock and 639,200 shares for stock options and stock appreciation
rights.
Common stock totaling 17,260,000 shares were issued on September 3, 1997
to effect the 3-for-2 stock split declared by the Board of Directors to
shareholders of record as of the close of business on August 13, 1997.
On July 27, 1988, the Board of Directors adopted a Shareholders Rights
Plan (the "Plan") and declared a dividend distribution of one Right for each
outstanding share of common stock of the Corporation to shareholders of
record at
11
the close of business on August 8, 1988. Pursuant to the Plan, in the event
that a person becomes the beneficial owner of securities having 20% or more
of the voting power of all then outstanding voting securities of the
Corporation (unless pursuant to a tender offer or exchange offer for all
outstanding shares of Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors who are not
officers of the Corporation to be both adequate and otherwise in the best
interests of the Corporation and its shareholders (a "Permitted Offer")),
each holder of a Right (other than an Acquiring Person) will for a 60-day
period thereafter have the right to receive upon exercise that number of one
one-hundredths share of Preferred Stock equal to the number of shares of
Common Stock having a market value of two times the exercise price of the
Right, to the extent available, and then (after all authorized and unreserved
shares of Preferred Stock have been issued) an equal number of an equivalent
security (such Right being called the "Flip-In Right").
In the event that, after the first date of public announcement by the
Corporation or an Acquiring Person that an Acquiring Person has become such
(as defined under the Plan), the Corporation is involved in a merger or other
business combination transaction in which the Common Stock is exchanged or
changed, or 50% or more of the Corporation's assets or earning power are
sold, then each holder of a Right (other than the Acquiring Person) shall
thereafter have the Right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number shares of common stock of
the Acquiring Company that at the time of such transaction would have a
market value of two times the exercise price of the Right (such Right being
called the ("Flip-Over Right"). Pursuant to recent amendments to the Plan,
the exercise price for each Right is now $450. Therefore, each Right not
owned by an Acquiring Person following an event set forth in this paragraph
would entitle its holder to purchase Common Stock of the Acquiring Company
with a market value immediately prior to the triggering of the Right of $900.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Common Stock, the Board of Directors may exchange the
Rights (other than Rights owned by such person or group that will have become
void), in whole or in part, at an exchange ratio of one share of Common Stock
per Right, appropriately adjusted to reflect any stock split, stock dividends
or similar transactions.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right.
Additionally, the Company may redeem the Rights incidental to a merger not
involving an Acquiring Person and under other circumstances.
The Rights will expire on the earliest of (i) August 8, 2008, (ii)
consummation of a merger transaction with a person or group who acquired
Common Stock pursuant to a Permitted Offer, and is offering in the merger the
same price per share and form of consideration paid in the Permitted Offer,
or (iii) redemption by the Company.
As of September 30, 1997, each outstanding share of Common Stock on such
date had 4/9ths of a Right attached thereto, as adjusted to reflect two 3-
for-2 stock splits with respect to the Common Stock since the Record Date.
12
As long as the Rights are attached to the shares of Common Stock, the Company
will issue 4/9ths of a Right, as adjusted, with each new share of Common
Stock so that all such shares will have attached Rights. 300,000 shares of
Preferred Stock have been reserved for issuance upon exercise of the Rights.
9. EARNINGS PER SHARE
Earnings per share of common stock for the nine months ended
September 30, after giving effect to dividends on preferred stock of $31,000
in 1997 and $34,000 in 1996, are based on 50,355,000 and 50,166,000 average
shares, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The third quarter was another record quarter as earnings increased 21%
over the prior year's third quarter to $34.718 million compared to $28.586
million in the 1996 quarter. Earnings per share also achieved a new record
and increased at a lesser rate of 18% to $.67 per share compared to the $.57
earned in the prior year's third quarter due to an increase in the number of
shares outstanding. This increase in the number of shares outstanding
followed the acquisition of Premier Bankshares Corporation in May 1997, which
was accounted for using the purchase method. All per-share numbers have been
adjusted to reflect the three-for-two stock split effective on September 3,
1997. The return on average assets increased to an excellent 1.55% level
compared to 1.41% in the prior year's third quarter, while the return on
average equity improved to 13.89% over the prior year's third quarter result
of 13.27%.
For the first nine months of 1997, net income of $95.468 million or $1.90
per share was up 12% compared to the $85.543 million and $1.70 per share
earned in 1996. The return on average assets for the nine-month period was
1.49% compared to 1.40% in 1996, and the return on average shareholders'
equity was 13.76% compared to 13.13% in 1996.
Loan demand moderated slightly during the quarter due to normal seasonal
factors, although the company's primary line of business - indirect
automobile loan financing - expanded at a strong 19% annualized rate. The
corporation's strategy of opening new loan production offices in areas not
served by it's banks has been very successful and has generated large volumes
of high-quality loans at minimal expense. Dealer inventory loans declined
$32 million during the quarter as dealers cleared out their 1997 model year
cars in anticipation of the fall shipment of 1998 models. Total loans were
$5.947 billion compared to $5.293 billion at the end of the prior year's
quarter, which did not include loans acquired from Premier Bankshares
Corporation acquired in May, 1997 and accounted for using the purchase method
of accounting. Loans were down compared to the end of the second quarter of
1997 balance of $5.994 billion. In addition to the decline in dealer
inventory loans, the third quarter decrease in loans (compared to the end of
the second quarter) was caused by the sale of three branches with $22 million
in loans as required by the U.S. Department of Justice to satisfy
concentration issues caused by the acquisition of Premier in the second
quarter.
13
Deposits totaled $7.539 billion at the end of the third quarter compared
to $7.676 billion at the end of the second quarter and $7.023 billion at the
end of the prior year's third quarter. New deposit growth has been flat for
several years now as competition from the stock market and other investment
alternatives in a relatively low-interest-rate environment has weakened all
banks' abilities to attract depositors. However, the net interest margin
increased 12 basis points to 5.26% in the third quarter compared to the prior
year's third quarter and was up 3 basis points over the second quarter of
1997. The cost of funds was stable while the yield on earning assets
improved slightly as rates on new loans and investments were higher than
those on maturing items. First Virginia has been able to achieve a net
interest margin over 5.00% for 19 consecutive years.
Asset quality is beginning to come under more scrutiny in the banking
industry as the recovery ages and specific concerns about consumer loans are
raised. The quality of First Virginia's investment and loan portfolios,
however, is as high as it has ever been. During the third quarter both loan
charge-offs and nonperforming assets declined compared to the second quarter.
Nonperforming assets totaled $25.603 billion at September 30, 1997, a record
low of .43% of outstanding loans and down from the year ago's $26.029 million
and .49% of outstanding loans. Net charge-offs declined 4 basis points to
.29% compared to the second quarter rate of .33%. The corporation has seen
an improvement in credit card net charge-offs, which had been advancing for
several years, and net charge-offs in its core indirect automobile business
of .29% is significantly below industry averages as First Virginia
concentrates primarily on the highest quality grade "A" paper and avoids the
sub-prime market.
A summary of nonperforming and delinquent loans is as follows:
1997 1996
------- -------
(Dollars in thousands)
Nonaccruing loans $15,476 $15,206
Restructured loans 4,561 4,448
Foreclosed real estate 5,566 6,375
------- -------
Total $25,603 $26,029
======= =======
Percentage of total loans .43% .49%
======= =======
Loans past due 90 days or more $13,114 $10,362
======= =======
Percentage of total loans .22% .20%
======= =======
The decline in loans and in net charge-offs resulted in a decline in the
provision for loan loss expense, which dropped to $3.831 million compared to
$5.248 million in the second quarter and $4.648 million in the prior year's
third quarter. The allowance for loan losses was $68.126 million at
14
September 30, 1997, which represented 1.15% of outstanding loans and is
unchanged from the level of the past several quarters. The allowance covers
annualized net charge-offs 4.05 times and is at a level management believes
is adequate to cover any problem loans.
Noninterest income increased 25% to $29.807 million compared to the
prior year's third quarter. The corporation normally sells a package of
mortgage servicing rights once a year, which was included in other income in
the third quarter and produced a gain of $1.5 million. In 1996, this sale
was completed in the second quarter and produced a similar amount of gain.
Trust revenues and service charge income also increased strongly with
advances over the previous year of 18% and 12%, respectively. Also included
in other income was a gain of $2.066 million due to the divestiture of the
three branches mentioned above as a consequence of the Premier acquisition.
Noninterest expense increased 12% compared to the third quarter of 1996,
which did not include the expenses of Premier Bankshares, acquired earlier in
1997. In addition, the third quarter of 1997 included a one-time expense of
$1.1 million due to a special assessment to recapitalize the Savings and Loan
Insurance Fund. Due to the rise in the corporation's stock price, stock
related compensation expense increased $341 thousand over the prior years'
third quarter and is up $1.139 million for the first nine months of 1997.
However, the faster rate of growth in noninterest income and net interest
income compared to noninterest expense created a continued improvement in the
efficiency ratio, which declined to 55.6% in the third quarter compared to
57.0% in the prior year's third quarter.
Average shareholders' equity increased 10% to $999.916 million compared
to the $912.709 million in the second quarter and was up 16% compared to the
prior year's third quarter as a consequence of the acquisition of Premier.
During the third quarter, the corporation repurchased 1,194,750 shares in
connection with its share repurchase program. At September 30, 1997, the
ratio of equity to total assets was 11.17% compared to 10.60% at September
30, 1996. The Tier 1 leverage ratio at September 30, 1997, which excludes
intangible assets, was 9.31% compared to 9.66% a year ago and declined
primarily as a result of the corporation's share repurchase program. First
Virginia's capital ratios continue to be among the strongest of the 100
largest banks in the country.
15
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
(Dollars in thousands)
Three Months Ended Sept. 30
1997
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment securities-available for sale:
U.S. Government $ - $ - - %
Investment securities-held to maturity:
U.S. Government and its agencies 1,618,743 24,814 6.10
State and municipal obligations
(Fully taxable-equivalent basis) 176,458 3,238 7.34
Other (Fully taxable-equivalent basis) 8,196 44 2.13
---------- --------
Total investment securities 1,803,397 28,096 6.23
---------- --------
Loans, net of unearned income:
Installment 3,798,141 83,773 8.76
Real estate 1,252,222 27,432 8.76
Other (Fully taxable-equivalent basis) 904,071 20,792 9.10
---------- --------
Total loans 5,954,434 131,997 8.84
---------- --------
Mortgage loans held for sale 13,082 241 7.38
Money market investments 422,936 5,867 5.50
Other earning assets 24,114 386 6.41
---------- --------
Total earning assets and income $8,217,963 166,587 8.08
========== --------
Interest-bearing liabilities:
Interest checking/savings plan $1,354,972 5,841 1.71
Money market accounts 736,953 5,684 3.06
Savings deposits 1,175,133 6,819 2.30
Certificates of deposit:
Consumer 2,514,150 31,320 4.94
Large denomination 405,929 5,467 5.34
---------- --------
Total interest-bearing deposits 6,187,137 55,131 3.54
Short-term borrowings 265,540 3,217 4.81
Long-term indebtedness 3,278 58 7.09
---------- --------
Total interest-bearing liabilities
and interest expense $6,455,955 58,406 3.59
========== --------
Net interest income and net interest margin $108,181 5.26%
========
Other average balances:
Demand deposits $1,401,941
Common shareholders' equity 999,284
Total shareholders' equity 999,916
Total assets 8,974,147
16
AVERAGE BALANCES AND INTEREST RATES (Continued) (Unaudited)
(Dollars in thousands)
Three Months Ended Sept. 30
1996
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment securities-available for sale:
U.S. Government $ - $ - - %
Investment securities-held to maturity:
U.S. Government and its agencies 1,827,752 27,900 6.08
State and municipal obligations
(Fully taxable-equivalent basis) 162,356 2,770 6.83
Other (Fully taxable-equivalent basis) 1,028 25 9.77
---------- --------
Total investment securities 1,991,136 30,695 6.10
---------- --------
Loans, net of unearned income:
Installment 3,505,482 75,688 8.63
Real estate 972,326 21,708 8.93
Other (Fully taxable-equivalent basis) 751,635 16,752 8.84
---------- --------
Total loans 5,229,443 114,148 8.74
---------- --------
Mortgage loans held for sale 11,694 274 9.38
Money market investments 241,340 3,213 5.30
Other earning assets 15,790 265 6.71
---------- --------
Total earning assets and income $7,489,403 148,595 7.91
========== --------
Interest-bearing liabilities:
Interest checking/savings plan $1,287,590 5,935 1.83
Money market accounts 738,521 5,565 3.00
Savings deposits 1,158,494 6,582 2.26
Certificates of deposit:
Consumer 2,206,155 27,605 4.96
Large denomination 321,257 4,050 5.00
---------- --------
Total interest-bearing deposits 5,712,017 49,737 3.46
Short-term borrowings 203,440 2,354 4.60
Long-term indebtedness 2,052 52 10.22
---------- --------
Total interest-bearing liabilities
and interest expense $5,917,509 52,143 3.51
========== --------
Net interest income and net interest margin $ 96,452 5.14%
========
Other average balances:
Demand deposits $1,248,217
Common shareholders' equity 860,767
Total shareholders' equity 861,434
Total assets 8,105,571
17
AVERAGE BALANCES AND INTEREST RATES (Continued) (Unaudited)
(Dollars in thousands)
Nine Months Ended Sept. 30
1997
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment securities-available for sale:
U.S. Government $ - $ - - %
Investment securities-held to maturity:
U.S. Government and its agencies 1,690,846 77,361 6.11
State and municipal obligations
(Fully taxable-equivalent basis) 153,852 8,128 7.04
Other (Fully taxable-equivalent basis) 3,391 100 3.94
---------- --------
Total investment securities 1,848,089 85,589 6.19
---------- --------
Loans, net of unearned income:
Installment 3,677,888 240,212 8.73
Real estate 1,110,608 72,749 8.73
Other (Fully taxable-equivalent basis) 847,940 57,373 9.01
---------- --------
Total loans 5,636,436 370,334 8.78
---------- --------
Mortgage loans held for sale 11,961 709 7.91
Money market investments 359,573 14,540 6.56
Other earning assets 21,623 1,064 5.41
---------- --------
Total earning assets and income $7,877,682 472,236 8.01
========== --------
Interest-bearing liabilities:
Interest checking/savings plan $1,324,983 17,386 1.75
Money market accounts 725,711 16,245 2.99
Savings deposits 1,144,365 19,493 2.28
Certificates of deposit:
Consumer 2,380,907 87,747 4.93
Large denomination 375,598 14,871 5.29
---------- --------
Total interest-bearing deposits 5,951,564 155,742 3.50
Short-term borrowings 249,245 8,751 4.69
Long-term indebtedness 3,517 166 6.31
---------- --------
Total interest-bearing liabilities
and interest expense $6,204,326 164,659 3.55
========== --------
Net interest income and net interest margin $307,577 5.22%
========
Other average balances:
Demand deposits $1,330,853
Common shareholders' equity 924,445
Total shareholders' equity 925,085
Total assets 8,560,494
18
AVERAGE BALANCES AND INTEREST RATES (Continued) (Unaudited)
(Dollars in thousands)
Nine Months Ended Sept. 30
1996
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment securities-available for sale:
U.S. Government $ 20,494 $ 1,152 7.51%
Investment securities-held to maturity:
U.S. Government and its agencies 1,836,455 82,583 6.01
State and municipal obligations
(Fully taxable-equivalent basis) 176,594 8,985 6.78
Other (Fully taxable-equivalent basis) 1,654 101 8.17
---------- --------
Total investment securities 2,014,703 91,669 6.05
---------- --------
Loans, net of unearned income:
Installment 3,414,044 222,185 8.68
Real estate 957,057 63,457 8.84
Other (Fully taxable-equivalent basis) 749,107 50,230 8.92
---------- --------
Total loans 5,120,208 335,872 8.77
---------- --------
Mortgage loans held for sale 15,325 955 8.31
Money market investments 320,866 12,761 5.31
Other earning assets 14,290 709 6.61
---------- --------
Total earning assets and income $7,505,886 443,118 7.86
========== --------
Interest-bearing liabilities:
Interest checking/savings plan $1,311,492 18,240 1.86
Money market accounts 724,401 16,284 3.00
Savings deposits 1,173,561 20,128 2.29
Certificates of deposit:
Consumer 2,227,125 85,532 5.13
Large denomination 315,295 11,929 5.05
---------- --------
Total interest-bearing deposits 5,751,874 152,113 3.53
Short-term borrowings 203,004 6,974 4.59
Long-term indebtedness 2,328 172 9.84
---------- --------
Total interest-bearing liabilities
and interest expense $5,957,206 159,259 3.57
========== --------
Net interest income and net interest margin $283,859 5.03%
========
Other average balances:
Demand deposits $1,223,253
Common shareholders' equity 867,814
Total shareholders' equity 868,492
Total assets 8,128,799
19
ITEM 5. OTHER INFORMATION
-----------------
On August 27, 1997, First Virginia entered into Amendment No. 1 to its
Rights Agreement ("the Amendment") with Registrar and Transfer Company,
successor to American Security Bank, N.A. as Rights Agent. The Amendment,
which amends the Rights Agreement dated as of July 29, 1988, between First
Virginia and the Rights Agent, extends the term of the Rights Agreement
until August 8, 2008, and changes the purchase price of each Right to
$450.00. Reference is made to First Virginia's Amendment to Form 8-A filed
with the Commission on September 29, 1997, for a copy of the Amended and
Restated Rights Agreement and for a complete description of the Rights.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
----------------------------------
a) Exhibit 11 - Statement re: Computation of Per Share
Earnings (Page 21)
Exhibit 12 - Statement re: Computation of Ratios (Page 22)
Exhibit 15 - Independent Accountants' Review Report
from Ernst & Young LLP (Page 23)
Exhibit 15A - Letter of Acknowledgement from
Ernst & Young LLP, Independent Accountants (Page 24)
Exhibit 27 - Financial Data Schedule (Page 25)
b) A Form 8-K was not required to be filed during the quarter
ended September 30, 1997.
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 thereunto duly authorized.
FIRST VIRGINIA BANKS, INC.
/s/ Richard F. Bowman
November 12, 1997 __________________________
Richard F. Bowman,
Senior Vice President,
Treasurer and
Chief Financial Officer
20
EXHIBIT 11
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1997 1996 1997 1996
------- ------- ------- -------
(In thousands, except per-share data)
PRIMARY:
Average common shares outstanding 52,184 49,100 50,224 50,042
Dilutive effect of stock options 150 133 131 124
------- ------- ------- -------
Total average common shares 52,334 49,233 50,355 50,166
======= ======= ======= =======
Net income $34,718 $28,586 $95,468 $85,543
Provision for preferred dividends 10 11 31 34
------- ------- ------- -------
Net income applicable to common
stock $34,708 $28,575 $95,437 $85,509
======= ======= ======= =======
Net income per share of common
stock $.67 $.57 $1.90 $1.70
======= ======= ======= =======
FULLY DILUTED:
Average common shares outstanding 52,184 49,100 50,224 50,042
Dilutive effect of stock options 155 138 136 127
Conversion of preferred stock 139 143 140 147
------- ------- ------- -------
Total average common shares 52,478 49,381 50,500 50,316
======= ======= ======= =======
Net income $34,718 $28,586 $95,468 $85,543
======= ======= ======= =======
Net income per share of common
stock $.66 $.57 $1.89 $1.70
======= ======= ======= =======
21
EXHIBIT 12
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1997 1996 1997 1996
---------- ---------- ---------- ----------
Ratios - Page 10 (In thousands, except ratios)
- ----------------
Net Loan Charge-offs (Annualized)
to Average Loans:
Net charge-offs $ 4,339 $ 3,081 $ 12,607 $ 9,180
Average loans $5,954,434 $5,229,443 $5,636,436 $5,120,208
Net Loan Charge-offs
to Average Loans 0.29% 0.24% 0.30% 0.24%
========== ========== ========== ==========
Allowance for Loan Losses
to Period-end Loans:
Allowance for Loan Losses $ 68,126 $ 61,541
Period-end Loans $5,946,889 $5,293,235
Allowance for Loan Losses
to Period-end Loans 1.15% 1.16%
========== ==========
Nonperforming Assets to
Period-end Loans:
Nonperforming Assets:
Non-accruing loans $ 15,476 $ 15,206
Restructured loans 4,561 4,448
Properties acquired by foreclosure 5,566 6,375
---------- ----------
Nonperforming Assets $ 25,603 $ 26,029
---------- ----------
Period-end Loans $5,946,889 $5,293,235
Nonperforming Assets to Period-end Loans: 0.43% 0.49%
========== ==========
Ratios - Pages 16/19
- --------------------
Net Interest Margin:
Net interest income
(Taxable equivalent) $ 108,181 $ 96,452 $ 307,577 $ 283,859
Total average
earning assets $8,217,963 $7,489,403 $7,877,682 $7,505,886
Net interest margin
ratio (Annualized) 5.26% 5.14% 5.22% 5.03%
========== ========== ========== ==========
22
EXHIBIT 15
Independent Accountants' Review Report
Board of Directors
First Virginia Banks, Inc.
We have reviewed the accompanying condensed consolidated balance
sheets of First Virginia Banks, Inc. as of September 30, 1997 and
1996, the related condensed consolidated statements of income for the
three-month and nine-month periods ended September 30, 1997 and 1996,
and the condensed consolidated statements of cash flows and
shareholders' equity for the nine-month periods ended September 30,
1997 and 1996. These financial statements are the responsibility of
the Corporation's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated
financial statements referred to above for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of First Virginia
Banks, Inc. as of December 31, 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for the
year then ended (not presented herein) and in our report dated
January 21, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as
of December 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
/S/ Ernst & Young LLP
_____________________
Ernst & Young LLP
Washington, D.C.
October 8, 1997
23
EXHIBIT 15A
ERNST & YOUNG LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
November 12, 1997
Board of Directors
First Virginia Banks, Inc.
We are aware of the incorporation by reference in Registration
Statement Number 333-30465 on Form S-8 dated June 30, 1997, Post-effective
Amendment No. 1 to Registration Statement Number 33-38024 on Form S-8
dated January 10, 1994, Registration Statement Number 33-51587 on Form S-3
dated December 20, 1993, Registration Statement Number 33-54802 on Form
S-8 dated November 20, 1992, Registration Statement Number 33-31890 on
Form S-3 dated November 1, 1989, Post-effective Amendment Number 2 to
Registration Statement Number 2-77151 on Form S-8 dated October 30, 1987,
Registration Statement Number 33-17358 on Form S-8 dated September 28,
1987 and Registration Statement Number 33-15360 on Form S-3 dated June 26,
1987 of our reports dated April 8, 1997; July 8, 1997; and October 8,
1997, relating to the unaudited condensed consolidated interim financial
statements of First Virginia Banks, Inc., that are included in its Forms
10-Q for the quarters ended March 31, 1997; June 30, 1997; and September
30, 1997.
Pursuant to Rule 436 (c) of the Securities Act of 1933, our reports
are not a part of the registration statements prepared or certified by
accountants within the meaning of Section 7 or 11 of the Securities Act of
1933.
/s/ Ernst & Young LLP
_____________________
Ernst & Young LLP
24