SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 1-6580
December 31, 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 offices) (Zip Code)
Registrant's telephone number, including area code: 703/241-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, Par Value $1.00 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Convertible Preferred Stock, Par Value $10.00
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the common stock of the registrant held by
nonaffiliates as of February 17, 1998, was approximately $2,523,407,000. The
registrant's voting preferred stock is not actively traded and the market
value of such stock is not readily determinable.
On February 28, 1998, there were 51,833,181 shares of common stock
outstanding.
INDEX
Page
----
Part I
Item 1. Business 3
Competitive Factors 4
Regulation 4
Employees 4
Lines of Business 4
Statistical Disclosure By Bank Holding Companies 5
Executive Officers of the Registrant 5/7
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10/11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11/46
Item 8. Financial Statements and Supplementary Data 47/79
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 80
Part III
Item 10. Directors and Executive Officers of the Registrant 80/85
Item 11. Executive Compensation 85/96
Item 12. Security Ownership of Certain Beneficial Owners
and Management 97
Item 13. Certain Relationships and Related Transactions 97
Part IV Page
----
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 98/99
Signatures 100/101
Financial Statements 47/77
Exhibits:
Exhibit 3(i). Articles of Incorporation
Exhibit 3(ii). Bylaws
Exhibit 10. Contracts
Exhibit 12. Statement RE: Computation of ratios
Exhibit 13. First Virginia Banks, Inc., 1997 Annual
Report to Shareholders
(Not included in Electronic Filing)
Exhibit 21. Subsidiaries of Registrant
Exhibit 23. Consent of Independent Auditors
Exhibit 27. Financial Data Schedules
PART I
------
ITEM 1. BUSINESS
--------
First Virginia Banks, Inc., (the "corporation") is a registered bank
holding company that was incorporated under the laws of the Commonwealth of
Virginia in October 1949. Since its formation in 1949, the corporation has
acquired control of 62 operating commercial banks, with six acquisitions in
the State of Maryland and four in the State of Tennessee, and has organized
seven new banks located in the State of Virginia. Fifty-three (53) of the
banks have been merged or consolidated with other banks controlled by the
corporation and located in the same geographic area, so that, as of
December 31, 1997, the corporation owned all of the outstanding stock of 16
commercial banks (the "banking companies") with combined assets of $8.585
billion. On that date, the banking companies operated 303 offices throughout
the State of Virginia, 57 offices in Maryland and 25 offices in Tennessee.
In addition to the 16 banks, the corporation owns, directly or through
subsidiaries, several bank-related member companies with offices in Virginia
and six other states, making the corporation the second largest bank holding
company with headquarters in the state and the fifth largest banking
organization in Virginia, based on total assets of $9.012 billion as of
December 31, 1997.
Competitive Factors
- -------------------
Other banking organizations have been active in opening new banking
offices through acquisition and control of existing banks, mergers, branching
and formation of new banks and in acquiring or forming bank-related
subsidiaries in areas where the corporation's banking companies compete.
Accordingly, each banking company faces strong competition. Savings and loan
associations and credit unions actively compete for deposits. Such
institutions, as well as consumer finance companies, mortgage companies, loan
production offices of out-of-state banks, factors, insurance companies and
pension trusts are important competitors for various types of loans. The
bank-related member companies also operate in highly competitive fields.
At midyear 1997, the service area of the 10 banking companies in
Virginia, with 303 offices, reached approximately 86% of Virginia's
population. In Maryland, the service area of the 4 banking companies, with 57
offices, reached approximately 68% of Maryland's population, and in
Tennessee, the service area of the 2 banking companies, with 25 offices,
reached approximately 41% of East Tennessee's population.
Regulation
- ----------
The corporation and its subsidiaries are subject to the supervision and
examination of the Federal Reserve Board, the Federal Deposit Insurance
Corporation and the state regulators of Virginia, Maryland and Tennessee
which have jurisdiction over financial institutions and have obtained
regulatory approval for their various activities to the extent required.
Employees
- ---------
As of December 31, 1997, the corporation and its subsidiaries employed
5,690 individuals (5,132 full-time equivalent).
Lines of Business
- -----------------
All of the corporation's income is derived from banking or bank-related
activities. While each of the member companies is engaged in bank-related
activities, several of them conduct lines of business not expressly permitted
for banks under applicable regulations. During the last three years, the
results of their operations have not been material in relation to the
consolidated operating results of the corporation.
Statistical Disclosure by Bank Holding Companies
- ------------------------------------------------
The following statistical information appears in this Form 10-K on the
page indicated:
Page
----
Return on equity and assets, dividend payout
ratio and equity to assets ratio 11
Average balance sheets and interest rates on
earning assets and interest-bearing liabilities 14/19
Average book value of investment securities 14/19
Average demand, savings and time deposits 14/19
Effect of rate-volume changes on net interest income 20/21
Type of loans 29
Maturity ranges of time certificates of
deposit of $100,000 or more 31
Risk elements - loan portfolio 34
Summary of loan loss experience 37
Loan maturities and sensitivity to changes in
interest rates 39/41
Executive Officers of the Registrant
- ------------------------------------
There are no arrangements or understandings between the named executive
officers and any other person pursuant to which they were selected as an
officer.
There are no family relationships among the executive officers. All
positions and ages are as of December 31, 1997.
Messrs. Hicks and Robbins have held their present positions with the
corporation for more than five years.
BARRY J. FITZPATRICK
Chairman of the Board, President and Chief Executive Officer since July 1,
1995, and Chairman of the Board and Chief Executive Officer, January 1, 1995
through June 30, 1995; 27 years of service; BBA, University of Notre Dame;
MBA, American University, and graduate of The Stonier Graduate School of
Banking. Has held several officer positions with First Virginia
organizations, including Executive Vice President of the corporation,
responsible for banking companies, from 1992 to December 31, 1994; Senior
Vice President and Regional Executive Officer, Eastern Region, from 1982 to
1992; and President and CEO of member banks in the Roanoke Valley from 1972
to 1982. Mr. Fitzpatrick is 57.
SHIRLEY C. BEAVERS, JR.
Executive Vice President since April 1992; President and Chief Executive
Officer of First Virginia Services, Inc., since May 1986; 27 years of
service; BS and MBA, American University. Has held various officer positions
with First Virginia organizations including that of Executive Vice President
and Chief Operating Officer, First Virginia Bank, Falls Church. Mr. Beavers
is 52.
RAYMOND E. BRANN, JR.
Executive Vice President of the corporation since January 1, 1995. Senior
Vice President and Regional Executive Officer, Eastern Region, from April
1992 to January 1995; 32 years of service, BS, University of Virginia; MBA,
Old Dominion University. Has held various officer positions with First
Virginia organizations including that of Senior Vice President and Regional
Executive Officer, Tennessee-Western Virginia Region from December 1986 to
April 1992, and President and CEO of several member banks, including First
Virginia Bank-Colonial and Tri-City Bank and Trust Company. Mr. Brann is 57.
RICHARD F. BOWMAN
Senior Vice President, Treasurer and Chief Financial Officer since 1994; 21
years of service; AB, College of William & Mary; Certified Public Accountant
and Certified Bank Auditor. Employed as Staff Auditor; appointed Assistant
General Auditor in 1978, Vice President and Controller in 1979, and Vice
President and Treasurer in 1992. Mr. Bowman is 45.
MICHAEL G. ANZILOTTI
Senior Vice President and Regional Executive Officer, Northern Region, since
April 1995; President and Chief Executive Officer of First Virginia Bank
since April 1995; Executive Vice President and Chief Administrative Officer,
First Virginia Bank from 1986 to April 1995; 22 years of service; BS,
Virginia Polytechnic Institute; MBA, George Mason University and graduate of
The Stonier Graduate School of Banking. Mr. Anzilotti is 48.
DOUGLAS M. CHURCH, JR.
Senior Vice President since August 1996; Senior Vice President and Regional
Executive Officer, Maryland Region, from December 1994 to August 1996; Senior
Vice President, Marketing from October 1990 to December 1994. 23 years of
service; BS, University of Virginia and graduate of The Stonier Graduate
School of Banking. Has held various officer positions with First Virginia
organizations, including Executive Vice President of First Virginia Services,
Inc., and Executive Vice President of First Virginia Bank. Mr. Church is 46.
HENRY HOWARD HICKS, JR.
Senior Vice President and Regional Executive Officer, Southwest Region, since
1982; 43 years of service; graduate certificate, American Institute of
Banking. Has held various executive officer positions with First Virginia
organizations including President and CEO of First Virginia Bank-Southwest
from 1971 to 1982. Mr. Hicks is 62.
THOMAS P. JENNINGS
Senior Vice President, General Counsel and Secretary since December 1995 and
Vice President, General Counsel and Secretary from January 1993 to December
1995; 18 years of service; BA, Wake Forest University; JD, University of
Virginia. Employed as Assistant Counsel; appointed Associate Counsel in 1979,
General Counsel in 1980, and Vice President and General Counsel from March
1986 to January 1993. Mr. Jennings is 50.
WILLIAM H. McFADDIN
Senior Vice President and Regional Executive Officer, Eastern Region, since
December 1995. President and Chief Executive Officer, First Virginia Bank -
Colonial from 1986 to December 1995. 24 years of service. BS, Presbyterian
College and graduate of the Graduate School of Banking of the South. Mr.
McFaddin is 51.
DAVID F. RITCHIE
Senior Vice President and Regional Executive Officer, Maryland Region, since
August 1996. President and Chief Executive Officer of Farmers Bank of
Maryland since September 1996 and President and Chief Executive Officer of
First Virginia Bank - Central Maryland from January 1990 to March 1997; 32
years of service; BS, American University and graduate of the Banking School
of the South at Louisiana State University. Mr. Ritchie is 52.
CHARLES L. ROBBINS, III
Senior Vice President and Regional Executive Officer, Tennessee-Western
Virginia Region, since April 1992; President and CEO, Tri-City Bank and Trust
Company, Tennessee, since April 1992; 23 years of service; BS, George Mason
University, and graduate of The Stonier Graduate School of Banking. Has held
various officer positions with First Virginia Bank, Falls Church, including
Senior Vice President and Branch Administrator from August 1987 until April
1992. Mr. Robbins is 45.
JOHN P. SALOP
Senior Vice President of the corporation since April 1996; Senior Vice
President of First Virginia Bank since February 1994 and Vice President,
Commercial Credit, First Virginia Bank from 1988 to February 1994; 23 years
of service; BA, The College of William and Mary, and graduate of the Banking
School of the South at Louisiana State University. Mr. Salop is 46.
MELODYE MAYES TOMLIN
Senior Vice President and General Auditor since December 1995; Vice President
and General Auditor from 1986 to December 1995; 18 years of service; BS,
Radford University, and graduate of The Stonier Graduate School of Banking;
Certified Public Accountant and Certified Bank Auditor. Employed as Staff
Auditor; appointed Regional Audit Manager in 1980 and Assistant General
Auditor in 1983. Mrs. Tomlin is 39.
EDWARD S. YATES, III
Senior Vice President and Regional Executive Officer, Shenandoah Valley
Region, since January 1, 1997; Chairman since January 1, 1997 and President
and Chief Executive Officer since June 1996 of First Virginia Bank - Blue
Ridge; and President and Chief Executive Officer of First Virginia Bank -
Central from January 1987 to June 1996; 26 years of service; BS, University
of Virginia; MBA, Virginia Commonwealth University and graduate of the
Banking School of the South at Louisiana State University. Mr. Yates is 49.
ITEM 2. PROPERTIES
----------
The banking subsidiaries operated a total of 385 banking offices on
December 31, 1997. Of these offices, 233 were owned by the banks, one is
owned by the corporation and leased to a bank, two are owned by affiliated
companies and leased to affiliated banks, and 149 were leased from others.
The corporation owns other properties, including the two corporate
headquarters buildings that house personnel of the corporation and its
subsidiaries. On December 31, 1997, the net book value of all real estate
and the unamortized cost of improvements to leased premises totaled
$136,923,000. The corporation currently has no mortgage indebtedness.
As of December 31, 1997, a total annual base rental of approximately
$14,841,000 was being paid on leased premises, of which approximately
$6,404,000 was being paid to affiliated companies which was eliminated in
consolidation. As of December 31, 1997, total lease commitments having a
remaining term in excess of one year to persons other than affiliates were
approximately $41,731,000.
The majority of the properties are modern and well furnished and provide
adequate parking.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no legal proceedings, other than ordinary routine litigation
incidental to the business, to which the corporation or any of its
subsidiaries is a party or of which any of their property is subject.
Management believes that the liability, if any, resulting from current
litigation will not be material to the financial statements of the
corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There was no submission of matters to a vote of security holders during
the fourth quarter of 1997.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The common stock of the corporation is listed for trading on the New York
Stock Exchange (Trading Symbol: FVB). The dividends paid per share and the
high and low sales price for common shares traded on the New York Stock
Exchange were:
Sales Price
------------------------------
Dividends
1997 1996 Per Share
-------------- -------------- ------------
High Low High Low 1997 1996
------ ------ ------ ------ ----- -----
1st Quarter...... $37.00 $30.83 $28.00 $25.50 $.25 $.23
2nd Quarter...... 40.33 33.00 27.75 26.08 .25 .23
3rd Quarter ..... 49.38 40.17 30.58 26.17 .26 .24
4th Quarter...... 53.38 44.63 32.67 28.75 .26 .24
The corporation's preferred stock is not actively traded. The 5% cumulative
convertible preferred stock, Series A, pays a dividend of 12 1/2 cents per
share in each quarter. The 7% cumulative convertible preferred stock, Series
B and C, pays a dividend of 17 1/2 cents per share each quarter. The 8%
cumulative convertible preferred stock, Series D, pays a dividend of 20 cents
per share each quarter. As of December 31, 1997, there were 21,525 holders of
record of the corporation's voting securities, of which 20,812 were holders
of common stock.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
A five-year summary of selected financial data follows:
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Dollar amounts in thousands, except per-share data)
Balance Sheet Data
Cash.................. $ 386,832 $ 378,171 $ 397,858 $ 420,742 $ 326,136
Money market
investments.......... 243,162 323,620 235,000 30,000 235,000
Mortgage loans
held for sale........ 18,953 12,771 19,216 13,291 69,173
Other earning assets.. 21,444 19,672 11,528 8,987 6,263
Investment securities:
Available for sale... - - 64,546 - -
Held to maturity..... 1,946,944 1,820,949 2,128,220 2,086,030 2,169,771
Loans, net............ 5,869,914 5,302,026 4,980,154 4,938,334 3,967,218
Other assets.......... 524,388 378,847 385,014 367,998 263,322
---------- ---------- ---------- ---------- ----------
Total Assets......... $9,011,637 $8,236,056 $8,221,536 $7,865,382 $7,036,883
========== ========== ========== ========== ==========
Deposits ............. $7,619,842 $7,042,650 $7,056,107 $6,815,841 $6,136,389
Short-term borrowings. 251,687 234,488 209,719 179,409 151,859
Long-term indebtedness 2,826 3,876 2,710 3,814 1,008
Other liabilities .... 126,126 83,765 83,353 59,430 56,126
Shareholders' Equity.. 1,011,156 871,277 869,647 806,888 691,501
---------- ---------- ---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $9,011,637 $8,236,056 $8,221,536 $7,865,382 $7,036,883
========== ========== ========== ========== ==========
Operating Results
Interest income ...... $ 631,119 $ 587,216 $ 573,599 $ 503,642 $ 504,782
Interest expense ..... 222,927 212,298 215,502 161,639 164,959
---------- ---------- ---------- ---------- ----------
Net interest income..... 408,192 374,918 358,097 342,003 339,823
Provision for loan loss. 17,177 17,734 8,341 6,463 6,450
Noninterest income...... 103,552 98,450 89,906 84,700 82,540
Noninterest expenses.... 303,243 279,310 271,384 252,459 245,767
---------- ---------- ---------- ---------- ----------
Income before income tax 191,324 176,324 168,278 167,781 170,146
Provision for income tax 66,479 59,983 56,679 54,560 54,122
---------- ---------- ---------- ---------- ----------
Net income ............$ 124,845 $ 116,341 $ 111,599 $ 113,221 $ 116,024
========== ========== ========== ========== ==========
Dividends declared:
Preferred ............$ 41 $ 44 $ 47 $ 51 $ 54
Common................ 53,710 47,861 46,205 42,108 36,519
A five-year summary of selected financial data (Continued):
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Per Share of Common Stock
Net income - basic..... $ 2.47 $ 2.34 $ 2.19 $ 2.34 $ 2.39
diluted... 2.45 2.32 2.18 2.33 2.37
Dividends declared..... 1.05 .96 .91 .85 .75
Shareholders' equity... 19.50 17.91 17.06 15.79 14.19
Market price at year-end 51.69 31.92 27.83 21.33 21.83
Range-High........... 53.38 32.67 29.33 26.92 27.33
Low............ 30.83 25.50 21.33 21.08 21.17
Ratios
- ------
Earnings:
Return on average assets 1.44% 1.43% 1.41% 1.58% 1.68%
Return on average equity 13.10 13.38 13.34 15.76 17.81
Net interest margin..... 5.20 5.06 5.00 5.28 5.46
Risk-based capital:
Tier 1.................. 12.94 13.57 15.42 14.76 16.84
Total capital........... 13.99 14.66 16.57 15.96 18.09
Capital strength:
Tier 1 leverage......... 9.53 9.69 9.63 10.25 9.67
Ratio of average equity
to average assets...... 11.01 10.68 10.53 10.04 9.45
Dividends declared as a
percentage of net
income (per share, not
restated for poolings
of interests).......... 42.59 41.24 41.42 36.41 31.58
Data for prior years have been restated for material acquisitions accounted for
as poolings of interests.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
First Virginia Banks, Inc., reported record income of $124.845 million
in 1997, an increase of 7% compared to $116.341 million in 1996 and $111.599
million in 1995. Diluted earnings per share increased 6% in 1997 to $2.45,
compared with $2.32 in 1996 and $2.18 in 1995. All per share items have been
adjusted to reflect a three-for-two stock split in September 1997.
The return on average assets rose one basis point to 1.44% in 1997 and
has averaged 1.42% over the last ten years, making First Virginia one of the
highest performing and most consistently profitable among the 100 largest
banking companies in the country. The return on average equity declined 28
basis points to 13.10% in 1997, compared to 13.38% in 1996 and 13.34% in
1995. After consistently outperforming its peer group of banks for many
years, First Virginia's return on equity has lagged in the last three years,
a result of increased capital from the acquisition of Farmers National
Bancorp in 1995 and Premier Bankshares Corporation in 1997. The ratio of
average equity to average assets has increased from 10.04% in 1994 to 11.01%
in 1997, making First Virginia one of the most highly capitalized banking
companies in the country and reinforcing the corporation's objectives of
safety, profitability and growth, in that order. For a comparison of First
Virginia's performance ratios to those of its national and regional peer
groups, please refer to the charts throughout the report.
The growth in income during 1997 was caused primarily by an increase in
net interest income, which rose $33.3 million in the year, following previous
increases of $16.8 million in 1996 and $16.1 million in 1995. The net
interest margin, which has equaled or exceeded 5.00% every year since 1978,
rose 14 basis points in 1997 to 5.20%, following a six basis point rise in
1996. This level places First Virginia in the top tier of banks and is one of
the primary factors behind its consistently high profitability. The
corporation's extensive branch network, which offers convenience and a high
degree of service for customers, serves as a relatively low-cost source of
core deposits. Despite the higher cost of maintaining a network of this size,
the corporation's efficiency ratio consistently outperforms its peer group of
banks; it was 56.7% in 1997 compared to an industry average of 58.3%.
Total assets increased $775.6 million in 1997 to $9.012 billion after
increasing $14.5 million in 1996 and $356.2 million in 1995. During 1997, the
corporation acquired Premier Bankshares Corporation, a $750-million bank
holding company operating in southwest Virginia. This acquisition was
accounted for as a purchase, and the results of operations and assets and
liabilities for Premier are included in First Virginia's financial
statements, beginning May 24, 1997. During 1996, the corporation acquired two
branches with $64 million in deposits in the Tri-City area of Tennessee.
There is a pending acquisition of seven branches with approximately $150
million in deposits from the former Signet Bank that will take place February
6, 1998.
In connection with the acquisition of Premier, the corporation issued
5,430,976 shares of stock and increased shareholders' equity by $162.624
million. During the year, the corporation repurchased and retired 2,279,100
shares of common stock at a cost of $94.391 million. In addition to the
three-for-two stock split, the cash dividend was increased twice during the
year to an annualized rate of $1.12 per share at the end of the year. This
marked the 16th consecutive year in which the dividend was increased at least
twice during the year and the 21st consecutive year of dividend increases.
The stock price increased 61.9% in 1997 and, when combined with cash
dividends paid, resulted in a total return to shareholders of 65.1%. The
total returns in 1996 and 1995 were 18.1% and 34.7%, respectively.
Average loans increased 10.4% to $5.712 billion and totaled $5.938
billion at year-end. The corporation opened one new indirect automobile loan
origination office in 1997. This is consistent with the expansion strategy of
opening indirect automobile loan origination offices on a controlled basis
throughout the southeastern states where the corporation may not have
traditional banking companies. First Virginia is a leader in the automobile
finance area, and these loans comprise 43% of total outstanding loans.
Commercial loan activity serving small-to-medium sized businesses located in
the corporation's market area increased 12.9% in 1997, fueled by a demand for
loans, particularly in the rapidly expanding area surrounding Washington,
D.C.
Deposits increased on average by 5.4% to $7.357 billion and totaled
$7.620 billion at year-end. Most of this growth was a consequence of the
Premier Bankshares acquisition as internal deposit growth was nominal.
Interest rates were relatively stable throughout 1997 and 1996, and the
increased competition from mutual funds and the stock market, following a
sustained four-year rally in the market, put further pressure on growing
deposits. It is not anticipated that significant internal growth in deposits
will resume in the near term.
Year Ended December 31
97vs96 96vs95 95vs94
----- ----- -----
Diluted earnings per share - prior period......... $2.32 $2.18 $2.33
----- ----- -----
Net change during the year:
Taxable interest income......................... .53 .19 .92
Tax-exempt interest income...................... .03 (.02) (.03)
Interest expense ............................... (.13) .04 (.68)
Provision for loan losses....................... .01 (.12) (.02)
Gain on sale of mortgage servicing rights....... .01 (.01) .01
Noninterest income.............................. .05 .12 .05
FDIC expense.................................... .01 .08 .07
Noninterest expense, excluding FDIC expense..... (.32) (.18) (.31)
Income taxes.................................... (.02) (.01) (.04)
Decrease (increase) in common shares outstanding (.04) .05 (.12)
----- ----- -----
Net increase (decrease) during the period..... .13 .14 (.15)
----- ----- -----
Diluted earnings per share - current period....... $2.45 $2.32 $2.18
===== ===== =====
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1997
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
ASSETS (Dollars in thousands)
Interest-earning assets:
U.S. Government securities-
available for sale
Investment securities-held to maturity:
U.S. Government & its agencies $1,666,939 $101,710 6.10%
State and municipal obligations(1) 156,908 11,064 7.05
Other(1) 1,157 127 11.01
---------- --------
Total investment securities 1,825,004 112,901 6.19
---------- --------
Loans, net of unearned income:(2)
Installment 3,766,026 327,645 8.70
Real estate 1,096,448 96,137 8.77
Other(1) 849,224 76,956 9.03
---------- --------
Total loans 5,711,698 500,738 8.77
---------- --------
Mortgage loans held for sale 13,395 1,089 8.13
Money market investments 385,995 20,944 5.43
Other earning assets(1) 21,656 1,453 6.71
---------- --------
Total earning assets and
interest income 7,957,748 637,125 8.01
--------
Noninterest-earning assets:
Cash and due from banks 320,875
Premises and equipment, net 158,610
Other assets 288,546
Less allowance for loan losses (65,934)
----------
Total Assets $8,659,845
==========
(1) Income from tax-exempt securities and loans is included in interest
income on a taxable-equivalent basis. Interest income has been divided by a
factor comprised of the complement of the incremental tax rate of 35% and
adjusted for the partial disallowance of interest costs incurred to carry the
tax-exempt investments.
(2) Nonaccruing loans are included in their respective categories.
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1997
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Interest checking/savings plan $1,333,213 $ 23,016 1.73%
Money market accounts 739,184 22,547 3.05
Savings deposits 1,141,337 26,062 2.28
Consumer certificates of deposit 2,403,908 118,654 4.94
Large denomination certificates of deposit 385,224 20,392 5.29
---------- --------
Total interest-bearing deposits 6,002,866 210,671 3.51
Short-term borrowings 254,861 12,040 4.72
Long-term indebtedness 3,387 216 6.38
---------- --------
Total interest-bearing liabilities
and interest expense 6,261,114 222,927 3.56
--------
Noninterest-bearing liabilities:
Demand deposits 1,354,254
Other 91,368
Common shareholders' equity (memo only) 952,480
Shareholders' equity 953,109
----------
Total liabilities and
shareholders' equity $8,659,845
==========
Net interest income and
net interest margin $414,198 5.20%
========
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1996
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
ASSETS (Dollars in thousands)
Interest-earning assets:
U.S. Government securities-
available for sale $ 15,343 $ 1,152 7.51%
Investment securities-held to maturity:
U.S. Government & its agencies 1,809,771 109,152 6.04
State and municipal obligations(1) 170,331 11,567 6.79
Other(1) 1,491 126 8.45
---------- --------
Total investment securities 1,996,936 121,997 6.10
---------- --------
Loans, net of unearned income:(2)
Installment 3,456,630 299,542 8.67
Real estate 962,892 84,785 8.81
Other(1) 752,135 67,061 8.92
---------- --------
Total loans 5,171,657 451,388 8.73
---------- --------
Mortgage loans held for sale 14,140 1,209 8.55
Money market investments 323,348 17,195 5.32
Other earning assets 15,327 1,019 6.64
---------- --------
Total earning assets and
interest income 7,521,408 592,808 7.88
--------
Noninterest-earning assets:
Cash and due from banks 313,409
Premises and equipment, net 148,623
Other assets 222,103
Less allowance for loan losses (59,580)
----------
Total Assets $8,145,963
==========
(1) Income from tax-exempt securities and loans is included in interest
income on a taxable-equivalent basis. Interest income has been divided by a
factor comprised of the complement of the incremental tax rate of 35% and
adjusted for the partial disallowance of interest costs incurred to carry the
tax-exempt investments.
(2) Nonaccruing loans are included in their respective categories.
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1996
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Interest checking/savings plan $1,307,087 $ 24,208 1.85%
Money market accounts 726,790 21,847 3.01
Savings deposits 1,159,475 26,487 2.28
Certificates of deposit:
Consumer 2,233,654 113,565 5.08
Large denomination 321,656 16,263 5.06
---------- --------
Total interest-bearing deposits 5,748,662 202,370 3.52
Short-term borrowings 210,910 9,712 4.60
Long-term indebtedness 2,194 216 9.85
---------- --------
Total interest-bearing liabilities
and interest expense 5,961,766 212,298 3.56
--------
Noninterest-bearing liabilities:
Demand deposits 1,233,132
Other 81,274
Common shareholders' equity (memo only) 869,120
Shareholders' equity 869,791
----------
Total liabilities and
shareholders' equity $8,145,963
==========
Net interest income and
net interest margin $380,510 5.06%
========
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1995
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
ASSETS (Dollars in thousands)
Interest-earning assets:
Investment securities-held to maturity:
U.S. Government & its agencies $1,755,077 $105,580 6.02%
State and municipal obligations(1) 233,267 16,269 6.97
Other(1) 6,565 387 5.89
---------- --------
Total investment securities 1,994,909 122,236 6.13
---------- --------
Loans, net of unearned income:(2)
Installment 3,292,393 285,446 8.67
Real estate 924,763 82,337 8.90
Other(1) 738,337 69,814 9.46
---------- --------
Total loans 4,955,493 437,597 8.83
---------- --------
Mortgage loans held for sale 15,273 1,229 8.05
Federal funds sold and securities
purchased under agreements to resell 316,601 18,994 6.00
Other earning assets 9,264 588 6.34
---------- --------
Total earning assets and
interest income 7,291,540 580,644 7.95
--------
Noninterest-earning assets:
Cash and due from banks 344,540
Premises and equipment, net 154,047
Other assets 208,742
Less allowance for loan losses (57,645)
----------
Total Assets $7,941,224
==========
(1) Income from tax-exempt securities and loans is included in interest
income on a taxable-equivalent basis. Interest income has been divided by a
factor comprised of the complement of the incremental tax rate of 35% and
adjusted for the partial disallowance of interest costs incurred to carry the
tax-exempt investments.
(2) Nonaccruing loans are included in their respective categories.
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1995
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Interest checking $1,312,782 $ 27,350 2.08%
Money market accounts 716,903 22,005 3.07
Savings deposits 1,253,129 32,910 2.63
Certificates of deposit:
Consumer 2,091,515 107,760 5.15
Large denomination 286,324 14,408 5.03
---------- --------
Total interest-bearing deposits 5,660,653 204,433 3.61
Short-term borrowings 203,735 10,742 5.27
Long-term indebtedness 3,261 327 10.03
---------- --------
Total interest-bearing liabilities
and interest expense 5,867,649 215,502 3.67
--------
Noninterest-bearing liabilities:
Demand deposits 1,168,574
Other 68,614
Common shareholders' equity (memo only) 835,669
Shareholders' equity 836,387
----------
Total liabilities and
shareholders' equity $7,941,224
==========
Net interest income and
net interest margin $365,142 5.00%
========
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
1997 Compared to 1996
Increase (Decrease)
Due to Change in
------------------------------
Total
Average Average Increase
Volume Rate (Decrease)
-------- -------- --------
Interest income (In thousands)
- ---------------
Investment securities-held to maturity:
U.S. Government and
its agencies $ (9,560) $ 966 $ (8,594)
State and municipal obligations* (912) 409 (503)
Other* (28) 29 1
-------- -------- --------
Total investment securities (10,500) 1,404 (9,096)
-------- -------- --------
Loans:
Installment 26,811 1,292 28,103
Real estate 11,760 (408) 11,352
Other* 8,657 1,238 9,895
-------- -------- --------
Total loans 47,228 2,122 49,350
-------- -------- --------
Mortgage loans held for sale (64) (56) (120)
Money market investments 3,333 416 3,749
Other earning assets* 419 15 434
-------- -------- --------
Total interest income 40,416 3,901 44,317
-------- -------- --------
Interest expense
- ----------------
Interest checking/savings plan 484 (1,676) (1,192)
Money market accounts 373 327 700
Savings deposits (414) (11) (425)
Certificates of deposit:
Consumer certificates of deposit 8,656 (3,567) 5,089
Large denomination
certificates of deposit 3,214 915 4,129
-------- -------- --------
Total interest-bearing deposits 12,313 (4,012) 8,301
Short-term borrowings 2,024 304 2,328
Long-term indebtedness 117 (117) -
-------- -------- --------
Total interest expense 14,454 (3,825) 10,629
-------- -------- --------
Net interest income $ 25,962 $ 7,726 $ 33,688
======== ======== ========
*Fully taxable-equivalent basis
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change in
average rate has been determined by multiplying the current average volume by
the change in average rate.
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
1996 Compared to 1995
Increase (Decrease)
Due to Change in
------------------------------
Total
Average Average Increase
Volume Rate (Decrease)
-------- -------- --------
Interest income (In thousands)
- ---------------
Investment securities:
U.S. Government and
its agencies $ 4,213 $ 511 $ 4,724
State and municipal obligations* (4,389) (313) (4,702)
Other* (299) 38 (261)
-------- -------- --------
Total investment securities (475) 236 (239)
-------- -------- --------
Loans:
Installment 14,239 (143) 14,096
Real estate 3,395 (947) 2,448
Other* 1,305 (4,058) (2,753)
-------- -------- --------
Total loans 18,939 (5,148) 13,791
-------- -------- --------
Mortgage loans held for sale (91) 71 (20)
Money market investments 405 (2,204) (1,799)
Other earning assets* 385 46 431
-------- -------- --------
Total interest income 19,163 (6,999) 12,164
-------- -------- --------
Interest expense
- ----------------
Interest checking/savings plan (119) (3,023) (3,142)
Money market accounts 303 (461) (158)
Savings deposits (2,460) (3,963) (6,423)
Certificates of deposit:
Consumer 7,323 (1,518) 5,805
Large denomination 1,778 77 1,855
-------- -------- --------
Total interest-bearing deposits 6,825 (8,888) (2,063)
Short-term borrowings 378 (1,408) (1,030)
Long-term indebtedness (107) (4) (111)
-------- -------- --------
Total interest expense 7,096 (10,300) (3,204)
-------- -------- --------
Net interest income $ 12,067 $ 3,301 $ 15,368
======== ======== ========
*Fully taxable-equivalent basis
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change in
average rate has been determined by multiplying the current average volume by
the change in average rate.
STATEMENT OF INCOME
- -------------------
NET INTEREST INCOME
The tables on pages 14 through 19 detail the increase in earning assets,
interest-bearing liabilities and demand deposits for the last three years,
along with the related levels of fully taxable equivalent interest income and
expense. The variance in interest income and expense caused by differences in
average balances and rates is shown on pages 20 and 21.
Interest rates were relatively stable in 1997 after declining modestly
in 1995 and early 1996. By the end of 1997, however, interest rates began
dropping in response to a moderately expanding economy and inflation levels
at 25 year lows. The decline in rates was exacerbated by financial turmoil in
Asia that resulted in a "flight to quality" as investors worldwide sought the
strength and safety of U.S. bonds. As a consequence, the 30-year U.S.
Treasury security reached an historic low, and short term rates declined.
First Virginia's net interest margin expanded 14 basis points in 1997 to
5.20% compared to 5.06% in 1996 and 5.00% in 1995. The primary reasons for
the 1997 increase were an increase in the yield on earning assets and no
change in the cost of funds. In contrast, the 1996 increase in the net
interest margin was caused by a more rapid decline in the cost of funds than
in the decline in the yield on earning assets. The net interest margin in
both years was aided by a change in the mix of earning assets with relatively
higher-yielding loans replacing investment securities, thus improving the
overall yield on earning assets. Because the corporation maintains a highly
liquid position in its assets and liabilities, movements in interest rates do
not have a material impact on the net interest margin. As a result, the
corporation has been able to maintain a net interest margin equal to or in
excess of 5.00% every year since 1978, without needing to hedge its position
with derivative securities.
Net Interest Margin
(the higher, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1997 5.20% 4.51% 4.70%
1996 5.06% 4.44% 4.53%
1995 5.00% 4.46% 4.51%
1994 5.28% 4.45% 4.50%
1993 5.46% 4.69% 4.62%
Southern Regionals: Banking companies with assets over $2 billion (34 in
1997)
National Peer Group: Banking companies with assets of
between $5 and $10 billion (23 in 1997)
Source: Keefe, Bruyette & Woods
In 1997, the yield on earning assets rose 13 basis points to 8.01%
compared to 7.88% in 1996. While interest rates were fairly stable, the
corporation increased the yield on its investment portfolio by nine basis
points in 1997 as it replaced maturing lower yielding securities purchased in
previous years with securities yielding higher rates. Similarly, maturing
loans were replaced at higher yields, resulting in an increase in yield of
four basis points to 8.77%. The corporation had originated a large number of
relatively low-interest-rate home equity loans in 1993-94, which largely
matured in 1996-97. The mix of assets also changed during 1997, with the
relatively higher-yielding loans comprising 71.8% of earning assets compared
to 68.8% in 1996 and 68.0% in 1995.
The cost of funds was 3.56% in both 1997 and 1996. Despite generally
lower interest rates in 1997, competition for deposits increased to the
extent that reductions in rates on deposits generally could not follow the
decline in general interest rates levels. Interest rates on money market
accounts were increased to stimulate demand in this relatively low cost
deposit source and as a result, the average outstandings increased $12.4
million in 1997 and $9.9 million in 1996, following a steady decline in
previous years. This increased the cost of these deposits by four basis
points in 1997; however, this was more than offset by declining costs of
interest checking accounts, which generally followed the market's rate of
decline, and in consumer certificates of deposit whose cost declined 14 basis
points to 4.94%. This decline in the cost of CDs was also caused in part by a
change in consumers' preference to lower-yielding, short-term "penalty free"
certificates that give the consumer the freedom to redeem the certificate
early. While this is a lower-cost certificate for the corporation, it
theoretically increases the exposure to changes in rates as the consumer may
redeem the certificate at any time. Actual experience has shown, however,
that relatively few of these certificates are redeemed prior to maturity,
regardless of changes in interest rates.
PROVISION FOR LOAN LOSSES
The provision for loan losses declined $.557 million in 1997 to $17.177
million after increasing $9.393 million in 1996 and $1.878 million in 1995.
The provision had increased steadily from 1993, driven by an increase in
outstanding loans and increases in net loan charge-offs, which bottomed out
in 1994. Loan growth was primarily responsible for the increase in the
provision in 1996, however, in 1997, loan growth slowed and declined slightly
in the final two quarters of the year. At the same time, net loan charge-offs
increased 35.1% in 1997 and 39.0% in 1996 after maintaining unusually low
levels in 1993-1995. The net charge-off rate in 1997 was .31%, a six-basis-
point increase over 1996, but still below the five year average just prior to
the unusually low charge-off rates of 1993-95. The allowance for loan losses
declined two basis points to 1.15%, the target level management estimates is
appropriate based on the quality of the loan portfolio. The allowance covers
net charge-offs 3.9 times compared to 4.9 times at the end of 1996 and
covered nonperforming loans by 322% compared to 307% at the end of 1996.
The corporation has a lower risk exposure to charge offs than many banks
because the majority of its loans are made in small amounts to consumers and
are generally well-secured by assets such as an automobile or real estate.
These loans also have regular monthly repayment schedules and their average
duration is substantially less than their stated lives. Credit card loans are
made primarily to the banks' customers located in the corporation's trade
area and contain a lesser degree of risk and delinquency than many banks'
nationally solicited accounts. The balance of the corporation's loans are
made primarily to small- and medium-sized businesses in the corporation's
trade area and are well-secured. Approximately 2% of the corporation's loans
are for land development and construction and are primarily for residential
or owner-occupied facilities. The corporation does not have any
international, national or highly leveraged credits, nor does it have any
concentration of credit in any one industry that exposes the loan portfolio
to adverse risk. While approximately 43% of the corporation's loan portfolio
is comprised of automobile sector loans, the loans are for relatively small
amounts to consumers, have regular monthly payment schedules and are of the
highest quality so that the risk of exposure is very limited. The corporation
has avoided the subprime segment of both the automobile and home equity loan
markets.
NONINTEREST INCOME
Noninterest income, excluding security gains and losses, increased 7.1%
in 1997 to $103.501 million, following a 7.5% rise in 1996 to $96.661
million. First Virginia derives approximately 20% of its income from
noninterest income and has traditionally been more dependent on net interest
income than other banking companies its size. The corporation's objective is
to increase noninterest income at a more rapid pace than net interest income,
and it has focused more attention on this area to reduce its historic
dependence on net interest income.
Income from trust services rose 20.2% in 1997, 12.2% in 1996 and 32.8%
in 1995, and the net profit margin in this area has nearly doubled in the
past three years. Increased marketing, including the addition of sales-
compensated officers, new products and an emphasis on larger and more
profitable accounts, has improved the sales and profitability of this area.
Late in 1997, the banks' trust services were formally consolidated into one
unit, Trust and Asset Management Services, thus streamlining its
administration and unifying its marketing plans.
Electronic banking service fees increased 38.0% in 1997 and 54.6% in
1996. Income from this source includes automated teller machines (ATMs),
point of sale terminals and PC banking. Due to rule changes in early 1996,
which now permit banks to charge noncustomer fees for use of their ATM
machines, the income from this source has increased dramatically and has
changed the economics of locating ATMs in nonbranch locations, now making
such placements profitable. As a consequence, the corporation implemented
modest user fees for noncustomers using its ATMs in mid-1996 and has
increased the number of machines in high-traffic nonbranch locations such as
convenience stores, shopping malls and other public facilities. Income from
on-line point of sale terminals increased 37.4% in 1997 and 73.7% in 1996.
Wary of the exposure to risk, the corporation does not offer a customer debit
card for off-line transactions.
Income from insurance premiums and commissions declined slightly in both
1997 and 1996. This can be attributed to declines in credit life insurance
sales, following state-mandated decreases in premium rates and a slowdown in
traditional installment loans at the branch level. Insurance commissions from
the corporation's sale of life, health, and property and casualty insurance
through its insurance agency rose 4.9% in 1997 and 14.0% in 1996. The
corporation has increased its emphasis on the sale of insurance products and
anticipates increased rates of growth in sales and profitability in this area
over the next several years.
In 1995, the corporation introduced an automobile leasing product
through its network of automobile dealers. Income from this source more than
doubled in 1996 but dropped 56% in 1997 when declining used auto prices
lowered the residual value for leases, making the product less attractive.
The corporation assumes no liability for these leases as they are originated
for a fee for a third party who, in turn, assumes all credit, servicing and
residual risk.
Service charges on deposits increased 6.4% in 1997 after rising 2.5% in
1996 and 7.7% in 1995. This income rose in 1997 and 1995, primarily due to
the acquisitions of Premier Bankshares Corporation and Farmers National
Bancorp. It increased in 1996 because of increased commercial account fees.
The corporation continues to be successful in increasing the number of large
national accounts with multiple locations to its servicing base.
Credit card fees increased slightly in 1997 as increases in merchant
sales volumes offset declines in the number of consumer accounts being
charged an annual fee.
The corporation's policy is to hold all of its fixed-income securities
to maturity and, accordingly, there were no security sales producing gains or
losses in 1997, with the exception of some bonds called by the issuer prior
to the maturity date. At the end of 1995, the corporation transferred $65
million in securities to the available for sale portfolio, intending to sell
these securities in 1996 to take advantage of certain tax carry-forwards.
These securities were sold in early 1996 and produced a gain of $1.771
million for the year.
Other noninterest income in 1997 includes a $2.066 million gain on the
sale of a branch, which the U.S. Department of Justice required the
corporation to divest to satisfy concentration issues caused by the Premier
Bankshares acquisition. Also included is a gain of $1.5 million in both 1997
and 1996 and $2.5 million in 1995 from the sale of mortgage servicing rights.
The corporation realizes a higher total profit in selling a package of
servicing rights each year rather than selling individual loans with
servicing released. In 1997, the corporation sold the bulk of its remaining
mortgage servicing business in order to concentrate on more profitable
mortgage origination activities. Noninterest income in 1996 also included
gains of $ 1.522 million on the sale of foreclosed real estate compared to
more nominal amounts in both 1997 and 1995.
NONINTEREST EXPENSE
First Virginia's noninterest expense rose 8.6% in 1997 to $303.243
million compared to a 2.9% increase in 1996 to $279.310 million. Excluding
the impact of the Premier Bankshares acquisition, expenses would have been up
approximately 2.6% in 1997, roughly the rate of inflation. The efficiency
ratio improved slightly in 1997 to 56.7% compared to 57.0% in 1996 and 58.2%
in 1995, remaining consistently better than the efficiency ratio for the
corporation's national and regional peer groups.
Efficiency Ratio
(the lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1997 56.7% 58.4% 58.3%
1996 57.0% 59.0% 59.2%
1995 58.2% 61.0% 59.3%
1994 58.5% 63.2% 63.4%
1993 56.9% 62.6% 62.6%
Southern Regionals: Banking companies with assets over $2 billion (34 in
1997)
National Peer Group: Banking companies with assets of
between $5 and $10 billion (23 in 1997)
Source: Keefe, Bruyette & Woods
Salaries and employee benefits increased 7.9% in 1997 to $171.578
million. Excluding the expenses of the Premier Bankshares acquisition,
employee benefits expense increased by approximately 3.6%. Due to a 62%
increase in the corporation's stock price during the year, stock-related
compensation expense increased $3.567 million after declining $.977 million
in the previous year. At the end of 1997, all stock appreciation rights were
redeemed, and performance criteria were not included in options granted in
1997 to reduce the level of this expense in the future. The 43.5% decline in
pension plan benefit expense in 1997 was the result of an increase in the
discount rate assumption of 50 basis points to 7.75% and of better-than-
expected returns on plan assets. A greater proportion of plan assets have
been invested in common equities in recent years. In 1996, pension plan
benefit-related expense increased 24.6%, caused primarily by a decline in the
discount rate assumption of 125 basis points to 7.25%. Health care costs
increased 13.1% in 1997, due in part to the inclusion of Premier Bankshares'
employees and to a modest increase in actual costs. Health care costs, which
rose less than 1% in 1996, after a 15% jump in 1995, have been rising at a
less rapid pace in the last two years due, in part, to a new corporate health
care plan and to lower rates of increase in health care costs in general.
Occupancy expense rose 5.3% in 1997, primarily as a result of the
acquisition of Premier Bankshares and its 36 branches. It had increased 5.8%
in 1996 as a result of increases in rent expense for existing locations
containing rent escalation contract clauses. The 14.2% increase in equipment
expense in 1997 was primarily a result of updating the branch automation
system to the most current generation of hardware and software, an
improvement that also caused 1996 equipment expense to increase by 11.7%. The
1997 increase can also be attributed to the Premier acquisition.
FDIC expense declined 43.5% to $1.101 million in 1997. The 1996 expense
of $1.948 million included a one-time assessment of $1.1 million on deposits
purchased in prior years from savings and loans in order to fully capitalize
the Savings Association Insurance Fund (SAIF). Full capitalization of the
Bank Insurance Fund (BIF) in mid-1995 largely eliminated the FDIC premium
rate on banks in 1996. This caused a 75.9% decline in FDIC insurance expense
in 1996, following a 41.3% drop in 1995.
Amortization of intangibles increased $3.288 million with the purchase
of Premier in 1997, which was accounted for as a purchase. Deposit
intangibles and goodwill totaling $82.701 million associated with this
acquisition are being amortized over periods of 10 to 25 years. Intangible
amortization increased $4.909 million in 1995 as a result of the acquisition
of two banks in 1994 accounted for as purchases. Other noninterest expense
increased 8.8% in 1997 due to the inclusion of Premier Bankshares in 1997, to
higher Virginia bank franchise taxes caused by increased capital levels and
to general increases in expenses. In 1996, the increase in other noninterest
expense rose due to greater bank franchise taxes and a $1.770 million
increase in miscellaneous charge offs.
PROVISION FOR INCOME TAXES
Income tax expense increased $6.5 million in 1997 and $3.3 million in
1996, slightly greater than the increase in pretax income in both years. A
lesser portion of the corporation's interest income came from nontaxable
municipal securities as income from this source continues to decline. The
corporation's effective tax rate increased .8% to 34.8% in 1997, attributed
to the nondeductibility of certain expenses for tax purposes, and by .3% to
34.0% in 1996, caused by a decline in tax-exempt municipal interest income.
BALANCE SHEET
- --------------
First Virginia's lending portfolio is its primary earning asset,
generating over 67% of its gross income and funded mostly from the deposits
of its customers, which are almost entirely "core" deposits. Most of its
short-term borrowings are related to the commercial account cash management
activities and are functionally equivalent to deposits. The corporation does
not rely upon "purchased" deposits or nondeposit funding sources, nor does it
sell or securitize its loan assets. The corporation's objective is to invest
70-80% of its total deposits and short-term borrowings in loans. In 1997, the
loan to funding liabilities rate was 75.0%, an increase over the 71.9% ratio
in 1996 and the 70.5% ratio in 1995. Average loans increased 10.4% in 1997
compared to 1996, following a 4.4% increase in 1996. Most of this increase in
1997 was a result of the acquisition of Premier Bankshares accounted for as a
purchase. Internal loan growth was approximately 2.0%.
The table below shows the average balances of the various categories of
earning assets as a percentage of total earning assets for the years
indicated.
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Loans .................... 71.78% 68.76% 67.96% 66.27% 61.53%
Securities................ 22.93 26.55 27.36 30.53 33.51
Mortgage loans held for sale .17 .19 .21 .40 .61
Other earning assets...... .27 .20 .13 .10 .10
Money market investments.. 4.85 4.30 4.34 2.70 4.25
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
LOANS
Period-end loans advanced 10.7% in 1997 to $5.938 billion, following a
6.5% advance in 1996 to $5.365 billion. Most of the increase can be
attributed to the Premier acquisition on May 24, 1997.
The largest component of First Virginia's loan portfolio is automobile-
related loans, particularly loans originated through automobile dealerships.
The corporation is a full-service provider to the automobile dealership
community and makes loans to consumers to finance their purchase of
automobiles, loans to dealers to finance their inventory of automobiles and,
to a lesser extent, their physical plant and facilities. Approximately 43% of
the corporation's loan portfolio is automobile-related.
Loans to consumers for automobiles expanded 12.8% in 1997 and 18.0% in
1996. Gross production increased 4% in 1997 and 18% in 1996. One new loan
production office was opened in 1997, bringing the number of offices to six.
The corporation has been opening loan production offices throughout the
southeast, and based on the success of this strategy to date, intends to
continue expanding this activity in the future.
First Virginia concentrates on the highest quality of automobile loans,
primarily "A" and "B" credits. Most of these loans are made to consumers and
are secured by new cars with a typical term of five years. The loan
portfolio's high quality means net charge-offs are significantly below
industry averages and servicing costs are low. Each loan in First Virginia's
portfolio is individually reviewed by an experienced loan underwriter, and
credit-scoring models are not used. This allows the corporation to give
highly personal service and quick approval to the dealer originating the
loan. The portfolio contains an almost equal distribution between domestic
and foreign automobiles, with no concentration in any particular make of car.
The corporation also makes loans directly to dealers to finance their
sales inventory (floor plan loans), which are fully secured by specific
automobiles. Average floor plan loans declined 2% in 1997 and 12% in 1996.
The decline in 1997 was caused by dealers' tightening their inventories as
they reacted to a perceived slowdown in automobile sales, whereas the 1996
decline was a reaction to an excessive buildup in inventory in the prior
year. First Virginia is committed to the automobile market, regardless of the
economic cycle, and it devotes its primary lending resources to this area.
Home equity loans increased 6.8% in 1997, following declines of 9.6% in
1996 and 8.9% in 1995. However, the 1997 increase in outstandings was a
direct result of the Premier Bankshares acquisition, without which home
equity loans would have continued their decline. Production of direct
installment loans made in the corporation's branches, primarily home equity
loans, declined 5.3% in 1997. The decline in first mortgage rates and the
ease with which they may be refinanced triggered this decline in home equity
loan production. Home equity loans comprised 17.8% of the loan portfolio at
the end of 1997, making them the second largest component of the portfolio.
As it does with automobile loans, First Virginia pursues the highest quality
home equity loans, with high underwriting standards that enable the
corporation to show a nominal net charge-off rate. These loans are originated
through the banks' branches and through First General Mortgage Company, a
home equity mortgage loan company that operates in areas outside the
corporation's banking markets.
Residential real estate loans increased 4.6% at the end of 1997, after
advancing 7.2% in 1996, and comprise 8.9% of the loan portfolio. The
corporation's consumer real estate portfolio is mostly composed of 15-year
fixed-rate mortgages and longer-term mortgages with interest rates that
adjust every three to five years. These types of loans are more stable, with
rates that equal market rates of interest and without the same level of
prepayment risk compared to long term fixed-rate mortgages.
Revolving credit loans, primarily credit cards, declined 6.0% after
increasing 3.2% in 1996 and 9.4% in 1995. Growth slowed in 1997 and 1996, a
result of fewer new account direct mail solicitations, particularly in
conjunction with the corporation's affinity programs. At the end of 1997
negotiations were underway for the possible sale of approximately $54.8
million in a large affinity program, or 27% of total revolving credit loans.
It was not certain whether this transaction would actually occur or what
price the corporation would receive. First Virginia promotes its card by
offering one of the best low fixed-rate, no-annual fee card products in its
market and generally has eschewed low "teaser" rates. The corporation limits
its solicitation efforts to the geographic area of its member banks. These
practices have resulted in a more stable cardholder base, an increased
penetration rate in acquiring new accounts and accounts that have a much
lower charge-off rate than national averages.
Commercial loans increased 25.2% at the end of 1997 compared to a 5.8%
decline at the end of 1996. Because Premier Bankshares had a greater
percentage of its loan portfolio in this area, its acquisition caused this
significant increase. Although loan activity was strong in the early part of
1997, increased competition and loan balance paydowns caused it to weaken in
the second half. The corporation faced very aggressive competition both in
interest rates and loan terms and noted that this typically marks the end of
an economic cycle. The corporation makes its loans to small- and medium-sized
businesses in the communities served by its member banks, including loans to
government contractors, high-tech companies, hospitals, churches and country
clubs. These loans are typically in amounts between $1 and $5 million,
generally with a maximum amount of $15 million.
Construction and land development loans increased 9.9% at the end of
1997 to $124.4 million following a 15.5% increase in 1996. Commercial
property projects have increased significantly in 1997 and 1996 after several
years of relatively little activity in this area. Occupancy rates for
commercial properties have increased to the point where there are few large
blocks of available space, and this has increased both build-to-suit and
speculative building activity. Commercial real estate loans increased 9.5% in
1997, following a 7.0% rise in 1996. Loans to tax-exempt and industrial
development authorities increased 7.4% in 1997 and 29.1% in 1996 and are
generally made for owner-use properties, carrying primarily floating or
adjustable-interest rates.
LOANS
December 31
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(In thousands)
Consumer:
Automobile...........$2,445,958 $2,167,802 $1,836,603 $1,725,928 $1,429,750
Home equity, fixed-
and variable-rate... 1,054,522 987,514 1,091,858 1,198,087 1,072,379
Revolving credit loans,
including credit cards 201,830 214,615 207,931 190,103 161,995
Other................ 354,944 317,764 300,157 260,989 152,793
Real estate:
Construction and
land development.... 124,366 113,211 97,974 122,737 90,823
Commercial mortgage.. 572,961 523,251 489,225 465,943 301,315
Residential mortgage. 528,218 504,962 470,994 504,823 424,580
Other, including
Industrial Development
Authority loans..... 94,964 88,378 68,431 61,876 63,082
Commercial............ 560,215 447,290 474,903 466,708 321,428
---------- ---------- ---------- ---------- ----------
Loans, net of
unearned income $5,937,978 $5,364,787 $5,038,076 $4,997,194 $4,018,145
========== ========== ========== ========== ==========
Loans and other assets that are not performing in accordance with their
original terms are discussed on pages 32 to 36.
INVESTMENT SECURITIES
The average outstanding investment portfolio decreased 8.6% to $1.825
billion after increasing nominally in 1996. This decline in the investment
portfolio was used to fund loan growth. The corporation has constructed its
portfolio in a "laddered" approach so an approximately equal amount matures
each month. This supplies liquidity to fund loan growth and provides for a
natural hedge against changes in interest rates.
The corporation has classified its investment portfolio as held to
maturity because it has both the ability and the intention to hold these
securities to their stated maturity. At the end of 1995, approximately $65
million in securities were reclassified out of the held to maturity category
and into the available for sale category. This was done for various tax
purposes with the intention of selling the securities in 1996. Consequently
these securities were sold in the second quarter of 1996 and a $1.771 million
gain was realized.
The corporation places primary importance on safety and liquidity in its
investment portfolio. Accordingly, the majority of the portfolio is invested
in U.S. Government and agency securities with a maximum life of approximately
five years. At the end of 1997 and 1996, the average life of the portfolio
was 29 months and 25 months, respectively. At December 31, 1997, U.S.
Government and agency securities comprised 92% of the securities portfolio.
This percentage has been gradually increasing since 1982 when changes in
federal income tax laws reduced the tax benefits derived by banks for
investments in municipal securities. The limited availability of bank-
qualified municipal securities and the reduction in yield caused by the loss
of tax benefits has generally made municipal securities less attractive to
the corporation.
Beginning in 1995, the corporation has placed a higher portion of its
portfolio in U.S. Government agency securities. During 1997, approximately
29% of the investment portfolio was comprised of agency securities compared
to 5% at the end of 1994, and the corporation intends to maintain them at
approximately that level. The majority of the securities were in callable
securities with stated lives of approximately five years, although their
actual lives are generally shorter. These securities give the corporation a
higher but more variable yield and a higher level of potential liquidity. The
corporation generally does not invest in mortgage-backed securities,
collateralized mortgage obligations, structured notes or other types of
derivative securities.
OVERNIGHT INVESTMENTS
Overnight investments, consisting primarily of federal funds sold and
securities repurchase agreements, are generally governed by anticipated
deposit swings and loan demand. In 1997, average overnight investments
increased 19% to $386 million, following a modest 2% increase in 1996.
DEPOSITS
Average deposits increased 5.4% in 1997 and 2.2% in 1996. The growth in
1997 was caused almost entirely by the inclusion of Premier Bankshares in the
1997 balances; internal growth was nominal. Despite declines in interest
rates in general in the last half of 1997, interest rates on deposits were
virtually unchanged. The increased competition for funds among banks and from
nonbank intermediaries, such as mutual funds and the stock market, prevented
any reduction in deposit interest rates. As a result, the cost of funds for
both 1997 and 1996 was unchanged at 3.56%.
Average Deposits
(Millions of Dollars)
1997 1996 1995
-------- -------- --------
Noninterest Bearing $1,354.3 $1,233.1 $1,168.6
Interest Checking 1,333.2 1,307.1 1,312.8
Savings 1,141.3 1,159.4 1,253.1
Money Market 739.2 726.8 716.9
Consumer CDs 2,403.9 2,233.7 2,091.5
Large Denomination CDs 385.2 321.7 286.3
-------- -------- --------
$7,357.1 $6,981.8 $6,829.2
======== ======== ========
Some migration continued out of consumer savings accounts, which
declined 1.6% in 1997 and 7.5% in 1996. Money market accounts increased 1.7%
and 1.4% in 1997 and 1996, respectively, and advanced strongly in the last
six months of the year when the corporation increased the interest rate on
accounts with balances over $50,000. Average consumer certificates of deposit
increased 7.6% to $2.404 billion in 1997 again as a result of the Premier
Bankshares acquisition; internal growth in this category was slightly
negative. Average large denomination certificates of deposits, primarily
deposits of states, counties and municipalities in the corporation's market
area, increased 19.8% in 1997 to $.385 billion. The corporation took a
slightly more aggressive bidding stance for these deposits, which increased
their average cost by 23 basis points to 5.29%. The corporation does not
purchase brokered deposits nor does it solicit deposits outside of its
primary market areas.
Average demand deposits increased 9.8%, about half of which was
attributed to the Premier Bankshares acquisition and half to internal growth,
particularly in consumer accounts, driven by the corporation's extensive
branch network. Average demand deposits increased 5.5% in 1996. Average
interest checking deposits increased 2.0% in 1997 after declining .4% in
1996. The corporation has traditionally obtained a higher proportion of its
deposits from low-cost transaction accounts compared to its peers, and in
1997, demand deposits and interest checking plans comprised 36.5% of total
average deposits, virtually unchanged from 1996. Consumer savings and money
market accounts comprised 25.6% of average deposits compared to 27.0% in
1996.
Maturity ranges for certificates of deposit with balances of $100,000 or
more on December 31, 1997, are as follows (in thousands):
One month or less.............................................. $ 59,767
After one month through three months........................... 87,973
After three through six months ................................ 84,292
After six through twelve months ............................... 111,329
Over twelve months............................................. 83,478
--------
$426,839
========
OTHER INTEREST-BEARING LIABILITIES
Short-term borrowings consist primarily of commercial paper issued by
the parent company and securities sold by the member banks with an agreement
to repurchase them on the following business day. These short-term
obligations are issued principally as a convenience to deposit customers in
connection with cash management services. Average short-term borrowings from
these sources increased 20.8% in 1997 and 3.5% in 1996.
Long-term debt is comprised of capitalized lease obligations on branch
office facilities that are not subject to prepayment and one equipment note
for the purchase of the corporation's mainframe computer.
SHAREHOLDERS' EQUITY
First Virginia has historically been one of the most highly capitalized
banking companies in the nation, a reflection of its principles of safety,
income and growth, in that order. During 1997, the ratio of average
shareholders' equity to average total assets increased 33 basis points to
11.01 %. This was significantly higher than the 9.08% maintained by similar
banks in the corporation's peer group of $5- to $10-billion asset-sized
banks. The Tier 1 leverage ratio declined by 16 basis points to 9.53% caused
by an increased level of intangible assets with the Premier Bankshares
acquisition. Each of the corporation's individual banks maintains capital
ratios well in excess of regulatory minimums, and all qualify as "well
capitalized" banks, allowing them the lowest FDIC premium rate and freedom to
operate without restrictions from regulatory bodies.
The Board of Directors has approved several plans to repurchase the
corporation's common stock since 1993, and the corporation has cumulatively
repurchased 7,382,400 shares and retired $227.174 million in equity. In 1996,
the Board approved a program to purchase 6.0 million shares, and the
corporation purchased 2,279,100 shares of stock and retired $94.391 million
in equity under this program in 1997. There is a remaining balance of
3,266,550 shares that may be purchased under this current authorization. In
the course of its repurchase programs, the corporation has employed the use
of equity put warrants and accelerated share repurchase contracts.
First Virginia and its subsidiary banks are required to comply with
capital adequacy standards established by the Federal Reserve and the FDIC.
The corporation exceeded the regulatory risk based capital requirements by
wide margins, due in part to the high level of capital and the conservative
nature of the corporation's assets. The Tier 1 risk-based capital ratio
declined 63 basis points to 12.94% during 1997, and the Tier 2 or total risk-
based capital ratio declined 67 basis points to 13.99%, caused by a shift in
risk-based assets into loans and out of investment securities. Regulatory
minimums of 4.0% and 8.0%, respectively, are exceeded by substantial margins.
Return on Total Average Equity
(the higher, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1997 13.10% 15.75% 16.03%
1996 13.38% 14.79% 14.46%
1995 13.34% 15.00% 14.46%
1994 15.76% 15.26% 14.93%
1993 17.81% 15.66% 15.81%
Southern Regionals: Banking companies with assets over $2 billion (34 in
1997)
National Peer Group: Banking companies with assets of between $5 and $10
billion (23 in 1997)
Source: Keefe, Bruyette & Woods
Asset Quality
- -------------
The corporation has a number of policies, reviewed constantly by senior
management, to ensure that the risk in lending and investment activities is
minimal, while the profit is consistent with the exposure to risk. Each
member bank's internal loan monitoring system also provides a detailed
monthly report of production, delinquencies and nonperforming and potential
problem loans. This careful monitoring has resulted in a consistent record of
low delinquencies and charge-offs, as well as few nonperforming loans in
relation to the entire loan portfolio.
The corporation has no foreign or highly leveraged transaction loans,
and loans are only made within the trade areas of the member banks or in
adjacent states where the corporation maintains loan production offices
generating high-quality consumer installment loans. Loans are generally not
participated with nor purchased from banks outside of the First Virginia
system. In addition, participations between banks within the First Virginia
system must first be shared with the corporation's lead bank, where a second
comprehensive loan review process is performed. Approximately 77% of the
corporation's loans are made to consumers and are normally secured by
personal or real property.
First Virginia has no significant concentrations of credit to a single
industry or borrower, and its loans are spread throughout its market area.
The corporation's legal lending limit to any one borrower is approximately
$105 million; however, it generally limits its loans to any one borrower and
related interests to $15 million. In special cases, the corporation may
exceed its internal guideline from time to time.
One of the corporation's specialty loan areas is the automobile finance
area, and loans are made to consumers, both directly in the member bank
branches and indirectly through automobile dealerships. Roughly 41% of the
total loan portfolio is comprised of consumer automobile loans but, because
loan amounts are relatively small and spread across many individual
borrowers, the risk of any major charge-offs is minimized. The corporation's
automobile loans consist primarily of the highest quality loans, commonly
referred to in the industry as "A" and "B" quality loans. These loans contain
substantially fewer risk characteristics than lower quality "C" and "D"
subprime loans and have lower delinquencies, charge-offs and collection
costs. During periods of economic weakness, subprime loan categories generate
very high delinquencies and charge-offs, while the high-quality loans the
corporation specializes in experience only modestly higher delinquencies and
charge-offs. The corporation also makes loans directly to high-quality
automobile dealers to finance their inventories.
NONPERFORMING ASSETS
Nonperforming assets increased $.841 million in 1997 to $26.424 million
due to the inclusion of nonperforming loans from Premier Bankshares in 1997.
As a percentage of loans, however, nonperforming loans declined to .44% at
the end of 1997 compared to .48% at the end of 1996 and were at their lowest
level ever. After peaking at 1.07% in 1990, the ratio of nonperforming assets
has steadily declined, ranking consistently below the averages for similar
sized banks in its national and regional peer groups. There was no
concentration of foreclosed real estate or nonaccruing loans in any specific
geographic location or type of property, and the majority of nonperforming
assets were comprised of smaller balance loans to consumers.
The table below shows the total of nonperforming assets at the end of
each of the past five years. Experience has shown that actual losses on
nonperforming assets are only a small percentage of such assets. The
corporation expects to recover virtually all of its nonperforming assets,
many with full interest.
Nonperforming Assets
December 31
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(In thousands)
Nonaccruing loans ........ $16,281 $14,906 $17,066 $15,286 $18,387
Restructured loans........ 4,861 5,537 4,260 2,478 2,175
Properties acquired
by foreclosure........... 5,282 5,140 7,680 8,478 7,086
------- ------- ------- ------- -------
Total................... $26,424 $25,583 $29,006 $26,242 $27,648
======= ======= ======= ======= =======
Percentage of total loans and
foreclosed real estate .44% .48% .57% .52% .68%
Loans 90 days past due.... $14,734 $ 8,919 $ 6,262 $ 4,881 $ 2,752
======= ======= ======= ======= =======
Loans past due 90 days or more increased $5.815 million to $14.734
million or .25% of outstanding loans at the end of 1997 compared to $8.919
million or .17% of the loan portfolio at the end of 1996. Loans past due 90
days or more have increased steadily since reaching a low in 1993 and are
primarily consumer loans secured by automobiles or home equity loans. The
increase in 1997 was primarily a result of the inclusion of delinquencies
from Premier Bankshares in 1997, which had a higher level of delinquencies
than First Virginia. However, these levels of delinquencies are still
significantly below industry averages and reflect the high overall quality of
the corporation's loan portfolio. As collections from the former Premier
banks are assumed by First Virginia, these levels are expected to decline.
A loan generally is classified as nonaccrual when full collectibility of
principal or interest is in doubt; when repossession, foreclosure or
bankruptcy proceedings are initiated; or when other legal actions are taken.
In the case of installment loans, a loan is placed in nonaccrual if payments
are delinquent 120 days, and for other loans, after payments are delinquent
for 90 days. Credit card loans are charged off if they are 180 days past due.
If collateral on a loan is sufficient to ensure full collection of principal
and interest, an exception to the general policy might be made. Loans may
also be placed in a nonaccruing status at any time prior to that indicated
above if the corporation anticipates that interest or principal will not be
collected.
Potential problem loans consist of loans that are currently performing
in accordance with contractual terms but for which management has concerns
about the ability of an obligor to continue to comply with repayment terms
because of potential obligor operating or financial difficulties. At the end
of 1997, loans of this type that are not included in the table above of
nonperforming and past due loans amounted to approximately $33.840 million.
The majority of these loans represent commercial or property-related loans.
Depending on changes in the economy and other future events, these loans and
others not presently identified as loans of this type could he reclassified
as nonperforming loans in the future.
Nonperforming Asset Ratios
(the lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1997 0.44% 0.55% 0.62%
1996 0.48 0.56 0.54
1995 0.57 0.66 0.58
1994 0.52 0.66 0.67
1993 0.68 1.19 0.96
Reserve Coverage Ratios
(the higher, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1997 322% 359% 307%
1996 307 364 326
1995 272 354 326
1994 331 336 321
1993 248 235 256
Net Charge-Off Ratios
(the lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1997 0.31% 0.30% 0.29
1996 0.25 0.29 0.27
1995 0.19 0.22 0.20
1994 0.11 0.17 0.20
1993 0.13 0.33 0.31
Southern Regionals: Banking companies with assets over $2 billion (34 in
1997)
National Peer Group: Banking companies with assets of between $5 and $10
billion (23 in 1997)
Source: Keefe, Bruyette & Woods
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that management
believes is adequate to absorb potential losses in the loan portfolio.
Management's methodology in determining the adequacy of the allowance
considers specific credit reviews, past loan loss experience, current
economic conditions and trends, and the growth and composition of the loan
portfolio. Every commercial loan is reviewed and rated at least annually, and
trends in the total portfolio are examined for potential deterioration in
overall quality.
The corporation reduced the allowance steadily from the approximate
1.28% level maintained at the time of the last recession to the current level
of 1.15%, as credit quality in the portfolio improved and net charge-offs
declined. The allowance declined two basis points to a targeted level of
1.15% in 1997 as a result of a decline in nonperforming assets and a belief
that net charge-offs have peaked. In 1996, the allowance increased two basis
points as a result of a six-basis-point increase in net charge-offs to .25%
and an increase in loans past due 90 days or more. The allowance covered net
charge-offs 3.91 times at the end of 1997 compared to 4.87 times at the end
of 1996. Most of the corporation's loan portfolio consists of small,
homogeneous loans to consumers with regular monthly repayment schedules, and
accordingly, none of the allowance has been allocated to specific credits.
The corporation constantly monitors the allowance level, considering its
long-term experience and short-term individual loan requirements. The
allowance is charged when management determines that the prospect of recovery
of the loan's principal has significantly diminished. Subsequent recoveries,
if any, are credited to the allowance when collected. If asset quality and
loan charge-offs remain at the current level, the corporation intends to
maintain a loan-loss allowance in the 1.15% to 1.20% range. Management
believes this allowance is adequate to absorb any potential unidentified
losses.
Net charge-offs declined to unsustainable low levels in 1993 and 1994
and have increased since then to near-normal levels. An increase in
bankruptcies caused credit card loan net charge-offs to increase 25.4% in
1997 following increases of 23.4% in 1996 and 43.4% in 1995 to the current
4.81% level. They are still below national peer group statistics, however,
and credit card loans comprise only 3.0% of the total loan portfolio. Losses
in the corporation's largest loan component, indirect auto loans, increased
55.3% in 1997 and 139.9% in 1996; however, this represents a charge-off rate
of only .29% and is significantly below industry averages. The second-largest
component of the loan portfolio, home equity loans, had a small net recovery
in 1997 following nominal charge-off rates of only .02% in both 1996 and
1995. Commercial loans had an increase in net charge-offs of $669 thousand as
the corporation recorded the actual loss on a loan provided for in 1996. In
1996, the commercial loan net charge-off rate declined to .05% following a
.16% rate in 1995. This category, while experiencing relatively few net
charge-offs over the years, tends to be more volatile because of the larger
average size of the loans.
An analysis of the activity in the allowance for loan losses for each of
the last five years is presented in the following table.
Allowance for Loan Losses
December 31
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(In thousands)
Balance at beginning of year $62,761 $57,922 $58,860 $50,927 $49,340
Balances of acquired banks 5,551 - - 6,412 259
Provision charged to
operating expense........ 17,177 17,734 8,341 6,463 6,450
------- ------- ------- ------- -------
Total ................ 85,489 75,656 67,201 63,802 56,049
------- ------- ------- ------- -------
Charge-offs:
Consumer:
Credit card............. 9,675 7,744 6,326 4,677 4,516
Indirect automobile..... 7,706 5,539 3,288 2,396 2,827
Other................... 2,640 2,287 1,551 1,222 1,464
Real estate.............. 113 176 155 98 39
Commercial............... 1,412 865 1,401 363 365
------- ------- ------- ------- -------
Total ................ 21,546 16,611 12,721 8,756 9,211
------- ------- ------- ------- -------
Recoveries:
Consumer:
Credit card............. 1,195 979 845 856 758
Indirect automobile..... 1,581 1,595 1,644 1,988 2,102
Other................... 739 655 696 730 765
Real estate.............. 242 1 6 3 17
Commercial............... 364 486 251 237 447
------- ------- ------- ------- -------
Total ................ 4,121 3,716 3,442 3,814 4,089
------- ------- ------- ------- -------
Net charge-offs deducted.. 17,425 12,895 9,279 4,942 5,122
------- ------- ------- ------- -------
Balance at end of year ... $68,064 $62,761 $57,922 $58,860 $50,927
======= ======= ======= ======= =======
Net Loan Losses (Recoveries) to
Average Loans by Category:
Credit card.............. 4.81% 3.75% 3.19% 2.61% 2.80%
Indirect automobile...... .29 .22 .10 .03 .06
Other consumer........... .13 .11 .06 .03 .05
Real estate.............. (.01) .02 .02 .01 -
Commercial............... .12 .05 .16 .02 (.01)
------- ------- ------- ------- -------
Total Loans............... .31% .25% .19% .11% .13%
======= ======= ======= ======= =======
Percentage of allowance for loan
losses to year-end loans. 1.15% 1.17% 1.15% 1.18% 1.27%
LIQUIDITY AND SENSITIVITY TO INTEREST RATES
- -------------------------------------------
The primary functions of asset/liability management are to ensure
adequate liquidity and maintain an appropriate balance between interest-
sensitive assets and interest-sensitive liabilities. Interest-sensitive
assets and liabilities are those that can be repriced to current market rates
within a relatively short time period. Liquidity management involves the
ability to meet the cash flow requirements of the corporation's loan and
deposit customers. Interest-rate-sensitivity management seeks to avoid
fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates. The corporation
does not hedge its position with swaps, options or futures but instead
maintains a highly liquid and short-term position in substantially all of its
earning assets and interest-bearing liabilities.
One of the primary ways the corporation meets its liquidity needs is by
scheduling the maturity of its investment securities so that approximately an
equal amount will mature each month. The weighted-average life of the
securities portfolio at the end of 1997 was 29 months, a slight increase from
the approximately 25 months at the end of 1996. Because the corporation views
its securities portfolio primarily as a source of liquidity and safety, it
does not necessarily react to changes in the yield curve in an attempt to
enhance its yield. Accordingly, the average life of the portfolio remains
relatively stable as the corporation maintains a constant approach to its
portfolio and invests primarily in U.S. Government and agency securities with
a life generally no greater than five years. Municipal securities are also
generally limited to lives of no more than five years, but availability and
other factors mean they are occasionally purchased in serial issues with
longer lives.
A cash reserve consisting primarily of overnight investments is also
maintained by the parent company to meet any contingencies and to provide
additional capital, if needed, to the member banks.
Most of the corporation's loans are fixed-rate installment loans to
consumers and mortgage loans with maturities longer than the deposits by
which they are funded. A degree of interest-rate risk is incurred if the
interest rate on deposits should rise before the loans mature. However, the
substantial liquidity provided by the monthly repayments on these loans can
be reinvested at higher rates that largely reduce the interest-rate risk.
Home equity lines of credit have adjustable rates that are tied to the prime
rate. Many of the loans not in the installment or mortgage categories have
maturities of less than one year or have floating rates that may be adjusted
periodically to reflect current market rates. These loans are summarized in
the following table:
Between
1 year 1 and 5 After
or less years 5 years Total
-------- -------- ------- --------
(In thousands)
Maturity ranges:
Commercial, financial and other... $335,325 $197,502 $130,475 $663,302
Construction and land development. 74,364 45,194 8,926 128,484
-------- -------- -------- --------
Total ............................. $409,689 $242,696 $139,401 $791,786
======== ======== ======== ========
Floating-rate loans:
Commercial, financial,
Agricultural and other........... $ 37,820 $ 54,667 $ 92,487
Construction and land development. 32,626 6,023 38,649
-------- -------- --------
Total ............................. $ 70,446 $ 60,690 $131,136
======== ======== ========
First Virginia's Asset/Liability Committee is responsible for reviewing
the corporation's liquidity requirements and maximizing the corporation's net
interest income consistent with capital requirements, liquidity, interest
rate and economic outlooks, competitive factors and customer needs. Liquidity
requirements are reviewed in detail for each of the corporation's individual
banks, however, overall asset/liability management is performed on a
consolidated basis to achieve a consistent and coordinated approach.
One of the tools the corporation uses to determine its interest-rate
risk is gap analysis. Gap analysis attempts to examine the volume of
interest-rate-sensitive assets minus interest-rate-sensitive liabilities. The
difference between the two is the interest-sensitivity gap, and it indicates
how future changes in interest rates may affect net interest income.
Regardless of whether interest rates are expected to increase or fall, the
objective is to maintain a gap position that will minimize any changes in net
interest income. A negative gap exists when the corporation has more
interest-sensitive liabilities maturing within a certain time period than
interest-sensitive assets. Under this scenario, if interest rates were to
increase it would tend to reduce net interest income.
At December 31, 1997, the corporation was liability sensitive in the
short term (under six months) by approximately 24% of earning assets, which
declines to 16% in 12 months. Technically, the corporation may reprice
interest checking, savings and insured money markets at any time and,
accordingly, they have been classified in the 1-30 day sensitivity category
in the accompanying table. While these accounts have in the last several
years been somewhat more subject to repricing than in prior years, the degree
and frequency of movement is limited, and they are much less sensitive than
contractually possible.
The table below shows the corporation's interest-sensitivity position at
December 31, 1997:
INTEREST-SENSITIVITY ANALYSIS
1 to 30-Day 1 to 90-Day 1 to 180-Day
Sensitivity Sensitivity Sensitivity
------------ ------------ ------------
(Dollars in thousands)
Earning assets:
Loans, net of unearned income.... $ 1,008,531 $ 1,495,144 $ 2,057,713
Investment securities............ 193,104 296,481 440,435
Money market investments......... 243,162 243,162 243,162
Other earning assets............. - - -
------------ ------------ ------------
Total earning assets......... 1,444,797 2,034,787 2,741,310
------------ ------------ ------------
Funding sources: (1)
Noninterest bearing
demand deposits................ - - -
Interest checking/savings plan... 1,391,962 1,391,962 1,391,962
Money market accounts............ 772,067 772,067 772,067
Savings deposits................. 1,124,058 1,124,058 1,124,058
Consumer certificates of deposit. 244,421 532,584 935,817
Large denomination certificates
of deposit..................... 59,767 147,740 232,032
Short-term borrowings............ 251,687 251,687 251,687
Long-term indebtedness........... - - -
------------ ------------ ------------
Total funding sources........ 3,843,962 4,220,098 4,707,623
------------ ------------ ------------
Interest-sensitivity gap........... $(2,399,165) $(2,185,311) $(1,966,313)
============ ============ ============
Interest-sensitivity gap as a
percentage of earning assets..... (29.37)% (26.75)% (24.07)%
Ratio of interest-sensitive assets
to interest-sensitive liabilities .38x .48x .58x
(1) Technically, interest checking, money market, and savings accounts can be
repriced at any time; accordingly, all balances have been classified in the
1-30 day sensitivity category although their actual repricing and maturity
experience are much less sensitive.
INTEREST-SENSITIVITY ANALYSIS (Continued)
Beyond One
1 to 365-Day Year or
Sensitivity Nonsensitive Total
------------ ----------- -----------
(Dollars in thousands)
Earning assets:
Loans, net of unearned income.... $3,119,916 $2,837,015 $5,956,931
Investment securities............ 706,998 1,239,946 1,946,944
Money market investments......... 243,162 - 243,162
Other earning assets............. - 21,444 21,444
------------ ----------- -----------
Total earning assets......... 4,070,076 4,098,405 8,168,481
------------ ----------- -----------
Funding sources:
Noninterest-bearing
demand deposits................ 1,460,784 1,460,784
Interest checking/savings plan... 1,391,962 - 1,391,962
Money market accounts............ 772,067 - 772,067
Savings deposits................. 1,124,058 - 1,124,058
Consumer certificates of deposit. 1,474,682 969,450 2,444,132
Large denomination certificates
of deposit..................... 343,361 83,478 426,839
Short-term borrowings............ 251,687 - 251,687
Long-term indebtedness........... 2,826 2,826
Other funding sources............ 294,126 294,126
------------ ----------- -----------
Total funding sources........ 5,357,817 2,810,664 8,168,481
------------ ----------- -----------
Interest-sensitivity gap........... $(1,287,741) $1,287,741 $ 0
============ =========== ===========
Interest-sensitivity gap as a
percentage of earning assets..... (15.76)% 15.76% 0.00%
Ratio of interest-sensitive assets
to interest-sensitive liabilities .76x 1.46x 1.00x
First Virginia also uses simulation analysis to monitor and manage
interest rate sensitivity. Under this analysis, changes in interest rates and
volumes are used to test the sensitivity of First Virginia's net interest
income. Simulation analysis uses a more detailed version of the information
shown in the table above that includes adjustments for the expected timing
and magnitude of changes in assets and liabilities. These adjustments take
into account that interest rates on individual asset and liability categories
may change at a different relative pace from their contractual rate. A large
part of First Virginia's loans and deposits come from its retail base, and
they do not automatically reprice on a contractual basis in reaction to
changes in interest rate levels. While First Virginia's liability sensitivity
in the short term indicates that an increase in interest rates may negatively
affect short-term net interest income, management would likely take actions
to minimize its exposure to negative results and within a relatively short
period of time would make adjustments so that net interest income would not
be materially impacted. For example, despite wide changes in interest rates
since 1978, First Virginia has maintained a net interest margin above 5.00%
every year and has been able to maintain adequate liquidity to provide for
changes in loan and deposit demands.
Using shock analysis of a hypothetical, immediate increase in all
interest rates of 200 basis points and comparing that to a stable interest-
rate environment over the next 12 months also indicates that net interest
income would decrease by 3%, while an immediate hypothetical decrease in
rates of 200 basis points would increase net interest income by 3%. Such an
immediate change in all rates would be highly unlikely in management's
opinion. The corporation's dynamic simulation modeling takes into account the
effects that such changes may have on overall economic activity, the reaction
of individual categories of assets and liabilities, and the impact that
different management actions may have on net interest income. Accordingly,
First Virginia has not experienced the earnings volatility its interest-
sensitive gap position or shock analysis may indicate.
Over time, or under stable interest rate conditions, net interest income
will tend to be greater at higher interest rate levels. This is due to the
large proportion of low-cost core deposits such as demand, interest checking,
savings and insured money market accounts comprising the corporation's
funding sources, which can be invested in relatively higher-yielding loans
and investments.
YEAR 2000
The Year 2000 Issue is the result of computer programs using two digits
rather than four to define the applicable year. Any of the corporation's
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
First Virginia began preparing its computer systems and applications for
the year 2000 in 1993. This process involves modifying or replacing the
corporation's affected hardware and software as well as ensuring that
external service providers, significant vendors and customers are taking the
appropriate action to remedy their Year 2000 issues. Management expects to
have substantially all of the system and application changes completed by the
end of 1998 and believes that its level of preparedness is appropriate.
First Virginia estimates that the total cumulative cost of the project
will be approximately $ 11.250 million, which includes both internal and
external personnel costs related to modifying the systems, as well as the
cost of purchasing or leasing hardware or software. Purchased hardware and
software will be capitalized in accordance with normal policy. Personnel and
all other costs related to the project are being expensed as incurred. These
costs are not expected to have a material effect on the corporation's results
of operations.
The costs of the project and the expected completion dates are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that could influence the results may
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
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.
Quarterly Results
- -----------------
The results of operations for the first three quarters of 1997 have been
analyzed in quarterly reports to shareholders. The results of operations for
each of the quarters during the two years ended December 31, 1997, are
summarized in the table on pages 45 and 46. The results of operations for the
fourth quarter are highlighted below.
Net income for the fourth quarter of 1997 was $29.4 million or $.56 per
diluted common share as compared to the 1996 fourth quarter results of $30.8
million or $.62 per share. This 4.6% decline in net income was primarily the
result of a greater rate of increase in noninterest expenses of 15.6% as
compared to noninterest income, which declined 1.8%.
The prior year's fourth quarter noninterest income included the gain on
the sale of foreclosed property of $ 1.4 million while the 1997 fourth
quarter included only a nominal gain. Excluding the impact of this gain in
1996, noninterest income increased 3.8%, led by a 17.1% gain in trust
services income and a 6.9% increase in service charge income on deposits.
Noninterest expense increased 15.6% to $81.3 million compared to the
prior year's fourth quarter, which did not include Premier related expenses.
Noninterest expense increased 3.0% compared to the third quarter of 1997,
driven primarily by a $2.2 million charge for stock-related employee
compensation as performance targets for the vesting of stock options were
met. Excluding the expense of these noncash options, noninterest expense was
flat compared to the third quarter, because the corporation completed the
integration of Premier in the fourth quarter and began receiving the benefit
of reduced operating expenses for the combined organizations. The fourth
quarter of 1996 also included a special rebate of $241 thousand of FDIC
expense related to certain SAIF-thrift-related deposits.
The net interest margin increased nine basis points to 5.18% compared to
the prior year's fourth quarter. The yield on earning assets increased at a
greater pace than the cost of funds because the yield in the loan portfolio
rose nine basis points and a greater proportion of earning assets were
invested in loans as compared to lower-yielding categories. Relatively stable
deposit rates meant the cost of funds rose at a lesser rate of seven basis
points.
Asset quality was virtually unchanged from the excellent 1997 third
quarter levels. Nonperforming assets increased to $26.424 million or .44% of
loans compared to $25.603 or .43% of loans in the third quarter, but were
down slightly compared to the .48% of loans at the end of the fourth quarter
of 1996. Net loan charge-offs represented .32% of average loans in the fourth
quarter compared to .29% in the third quarter and the .28% recorded in the
prior year's fourth quarter. The provision for loans losses declined to
$4.756 million in the fourth quarter of 1997 compared to $4.935 million in
1996 due to a slower rate of growth in outstanding loans in the 1997 quarter.
At the end of the quarter, the allowance for loan losses was 1.15%, which was
unchanged from the third quarter and down two basis points from the prior
year's fourth quarter.
QUARTERLY RESULTS
1997
--------------------------------------
Quarter Ended
--------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- --------
Condensed Statements of Income
(Dollar amounts in thousands, except per-share data)
Interest and fees on loans $129,655 $131,226 $122,607 $114,297
Interest on mortgage loans
held for sale 380 241 302 166
Income from securities-
available for sale - - - -
held to maturity 26,488 27,182 29,116 27,064
Other interest income 6,793 6,252 4,316 5,034
-------- -------- -------- --------
Total interest income 163,316 164,901 156,341 146,561
-------- -------- -------- --------
Interest on deposits 54,929 55,130 51,638 48,974
Interest on borrowed funds 3,339 3,275 3,009 2,633
-------- -------- -------- --------
Total interest expense 58,268 58,405 54,647 51,607
-------- -------- -------- --------
Net interest income 105,048 106,496 101,694 94,954
Provision for loan losses 4,756 3,831 5,248 3,342
Noninterest income 25,505 29,807 25,007 23,233
Noninterest expense 81,251 78,891 73,360 69,741
Provision for income taxes 15,169 18,863 16,740 15,707
-------- -------- -------- --------
Net income $ 29,377 $ 34,718 $ 31,353 $ 29,397
======== ======== ======== ========
Net income per share
Basic $ .57 $ .67 $ .63 $ .60
Diluted .56 .66 .63 .60
Average Quarterly Balances (in millions):
Securities $ 1,763 $ 1,803 $ 1,920 $ 1,821
Loans 5,935 5,954 5,611 5,338
Total earning assets 8,202 8,218 7,858 7,550
Total assets 8,962 8,974 8,532 8,169
Demand deposits 1,424 1,402 1,341 1,248
Interest-bearing deposits 6,155 6,187 5,938 5,725
Total deposits 7,579 7,589 7,279 6,973
Interest-bearing liabilities 6,430 6,456 6,192 5,959
Total shareholders' equity 1,004 1,000 913 872
Key Ratios
Rates earned on assets 8.00% 8.08% 8.02% 7.87%
Rates paid on liabilities 3.60 3.59 3.54 3.51
Net interest margin 5.18 5.26 5.23 5.10
Return on average assets 1.31 1.55 1.47 1.44
Return on average equity 11.71 13.89 13.74 13.49
QUARTERLY RESULTS
1996
--------------------------------------
Quarter Ended
--------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- --------
Condensed Statements of Income
(Dollar amounts in thousands, except per-share data)
Interest and fees on loans $114,839 $113,499 $111,327 $109,235
Interest on mortgage loans
held for sale 254 274 344 337
Income from securities-
available for sale - - - 1,152
held to maturity 28,492 29,954 29,191 30,107
Other interest income 4,743 3,477 5,517 4,474
-------- -------- -------- --------
Total interest income 148,328 147,204 146,379 145,305
-------- -------- -------- --------
Interest on deposits 50,257 49,737 50,022 52,354
Interest on borrowed funds 2,782 2,406 2,425 2,315
-------- -------- -------- --------
Total interest expense 53,039 52,143 52,447 54,669
-------- -------- -------- --------
Net interest income 95,289 95,061 93,932 90,636
Provision for loan losses 4,935 4,648 5,861 2,290
Noninterest income 25,984 23,900 25,138 23,428
Noninterest expense 70,312 70,681 69,830 68,487
Provision for income taxes 15,228 15,046 14,805 14,904
-------- -------- -------- --------
Net income $ 30,798 $ 28,586 $ 28,574 $ 28,383
======== ======== ======== ========
Net income per share:
Basic $ .63 $ .58 $ .57 $ .56
Diluted .62 .58 .57 .55
Average Quarterly Balances (in millions):
Securities $ 1,883 $ 1,991 $ 1,991 $ 2,123
Loans 5,325 5,229 5,109 5,021
Total earning assets 7,568 7,489 7,535 7,494
Total assets 8,197 8,106 8,150 8,130
Demand deposits 1,263 1,248 1,233 1,188
Interest-bearing deposits 5,739 5,712 5,753 5,792
Total deposits 7,002 6,960 6,986 6,980
Interest-bearing liabilities 5,975 5,918 5,965 5,989
Total shareholders' equity 872 861 870 874
Key Ratios
Rates earned on assets 7.88% 7.91% 7.84% 7.83%
Rates paid on liabilities 3.53 3.51 3.54 3.67
Net interest margin 5.09 5.14 5.04 4.90
Return on average assets 1.50 1.41 1.40 1.40
Return on average equity 14.12 13.27 13.14 13.00
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31
1997 1996
---------- ----------
(In thousands)
ASSETS
Cash and due from banks....................... $ 386,832 $ 378,171
Money market investments...................... 243,162 323,620
---------- ----------
Total cash and cash equivalents - Note 3 629,994 701,791
---------- ----------
Mortgage loans held for sale.................. 18,953 12,771
Investment securities-held to maturity (market
value-$1,954,155-1997 and
$1,823,404-1996)- Note 4................... 1,946,944 1,820,949
Loans, net of unearned income - Note 5........ 5,937,978 5,364,787
Allowance for loan losses - Note 6......... (68,064) (62,761)
---------- ----------
Net loans............................... 5,869,914 5,302,026
---------- ----------
Other earning assets.......................... 21,444 19,672
Premises and equipment - Note 7............... 164,301 148,187
Intangible assets - Note 8.................... 174,976 94,381
Accrued income and other assets............... 185,111 136,279
---------- ----------
Total Assets............................... $9,011,637 $8,236,056
========== ==========
CONSOLIDATED BALANCE SHEETS (Continued)
December 31
1997 1996
---------- ----------
(In thousands)
LIABILITIES
Deposits:
Noninterest-bearing........................ $1,460,784 $1,303,950
Interest-bearing:
Interest checking/savings plan........ 1,391,962 1,308,539
Money market accounts................. 772,067 712,550
Savings deposits...................... 1,124,058 1,111,677
Certificates of deposit:
Consumer........................... 2,444,132 2,255,803
Large denomination................. 426,839 350,131
---------- ----------
Total deposits..................... 7,619,842 7,042,650
Short-term borrowings - Note 9................ 251,687 234,488
Long-term indebtedness - Note 9............... 2,826 3,876
Accrued interest and other liabilities........ 126,126 83,765
---------- ----------
Total Liabilities.......................... 8,000,481 7,364,779
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock - Note 10..................... 583 647
Common stock - Note 10........................ 51,817 48,612
Capital Surplus............................... 92,971 27,327
Retained Earnings............................. 865,785 794,691
---------- ----------
Total Shareholders' Equity................. 1,011,156 871,277
---------- ----------
Total Liabilities and Shareholders' Equity. $9,011,637 $8,236,056
========== ==========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1997 1996 1995
-------- -------- --------
(In thousands, except per share data)
Interest income:
Loans................................. $497,785 $448,900 $435,266
Mortgage loans held for sale.......... 1,089 1,209 1,229
Investment securities-available for sale - 1,152 -
Investment securities-held to maturity 109,850 117,744 117,524
Money market investments.............. 20,944 17,195 18,994
Other earning assets.................. 1,451 1,016 586
-------- -------- --------
Total interest income............ 631,119 587,216 573,599
-------- -------- --------
Interest expense:
Deposits.............................. 210,671 202,370 204,433
Short-term borrowings................. 12,040 9,712 10,742
Long-term indebtedness................ 216 216 327
-------- -------- --------
Total interest expense........... 222,927 212,298 215,502
-------- -------- --------
Net interest income...................... 408,192 374,918 358,097
Provision for loan losses................ 17,177 17,734 8,341
-------- -------- --------
Net interest income after provision
for loan losses......................... 391,015 357,184 349,756
-------- -------- --------
CONSOLIDATED STATEMENTS OF INCOME (Continued)
Year Ended December 31
1997 1996 1995
-------- -------- --------
(In thousands, except per share data)
Net interest income after provision
for loan losses......................... $391,015 $357,184 $349,756
-------- -------- --------
Noninterest income:
Service charges on deposit accounts... 42,340 39,791 38,823
Insurance premiums and commissions.... 6,407 6,573 6,717
Credit card service charges and fees.. 11,866 11,576 11,626
Trust services........................ 9,317 7,749 6,908
Electronic banking service fees....... 10,195 7,390 4,779
Income from other customer services... 14,224 14,125 13,794
Securities gains before income tax
provisions of $18-1997, $626-1996,
and $0-1995......................... 51 1,789 -
Other................................. 9,152 9,457 7,259
-------- -------- --------
Total noninterest income......... 103,552 98,450 89,906
-------- -------- --------
Noninterest expense:
Salaries and employee benefits-Notes 11/12 171,578 158,966 153,843
Occupancy............................. 24,217 23,000 21,738
Equipment............................. 26,067 22,816 20,429
Advertising........................... 7,790 7,476 7,428
Printing and supplies................. 7,167 6,882 6,398
Credit card processing fees........... 8,430 8,299 7,715
FDIC assessment....................... 1,101 1,948 8,087
Amortization of intangibles........... 11,327 8,039 7,722
Other................................. 45,566 41,884 38,024
-------- -------- --------
Total noninterest expense........ 303,243 279,310 271,384
-------- -------- --------
Income before income taxes............... 191,324 176,324 168,278
Provision for income taxes - Note 13..... 66,479 59,983 56,679
-------- -------- --------
NET INCOME............................... $124,845 $116,341 $111,599
======== ======== ========
Net income per share of common stock
Basic................................. $ 2.47 $ 2.34 $ 2.19
Diluted............................... 2.45 2.32 2.18
Average shares of common stock outstanding
Basic................................. 50,622 49,788 50,964
Diluted............................... 50,880 50,042 51,229
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unreal-
ized
Gain on
Securi-
ties
Pre- Avail- Total
ferred Common able Share-
Stock Stock Capital Retained for holders'
$10 Par $1 Par Surplus Earnings Sale Equity
------- ------- -------- -------- ------- --------
(Dollars in thousands)
Balance January 1, 1995... $ 746 $51,075 $ 94,159 $660,908 $ - $806,888
Net income................ - - - 111,599 - 111,599
Conversion of preferred
to common stock......... (51) 11 40 - - -
Issuance of shares for
stock options and stock
appreciation rights..... - 88 1,385 - - 1,473
Common stock purchased
and retired............. - (247) (5,448) - - (5,695)
Dividends declared:
Preferred stock......... - - - (47) - (47)
Common stock $0.91 per share - - - (46,205) - (46,205)
Unrealized gains on
securities available for
sale, net of tax........ - - - - 1,634 1,634
------- ------- -------- -------- ------- --------
Balance December 31, 1995. 695 50,927 90,136 726,255 1,634 869,647
Net income................ - - - 116,341 - 116,341
Conversion of preferred
to common stock......... (48) 10 38 - - -
Issuance of shares for
stock options and stock
appreciation rights..... - 72 1,067 - - 1,139
Common stock purchased
and retired............. - (2,397) (63,914) - - (66,311)
Dividends declared:
Preferred stock......... - - - (44) - (44)
Common stock
$0.96 per share - - - (47,861) - (47,861)
Unrealized gains on
securities available for
sale, net of tax........ - - - - (1,634) (1,634)
------- ------- -------- -------- ------- --------
Balance December 31, 1996. $ 647 $48,612 $ 27,327 $794,691 $ - $871,277
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
Unreal-
ized
Gain on
Securi-
ties
Pre- Avail- Total
ferred Common able Share-
Stock Stock Capital Retained for holders'
$10 Par $1 Par Surplus Earnings Sale Equity
------- ------- -------- -------- ------- ----------
Balance December 31, 1996.$ 647 $48,612 $ 27,327 $794,691 $ - $ 871,277
Increase attributable to
an acquisition.......... - 5,431 157,193 - - 162,624
Net income................ - - - 124,845 - 124,845
Conversion of preferred
to common stock......... (64) 14 50 - - -
Issuance of shares for
stock options and stock
appreciation rights..... - 48 885 - - 933
Common stock purchased
and retired............. - (2,288) (92,484) - - (94,772)
Dividends declared:
Preferred stock......... - - - (41) - (41)
Common stock
$1.05 per share...... - - - (53,710) - (53,710)
------- ------- -------- -------- ------- ----------
Balance December 31, 1997.$ 583 $51,817 $ 92,971 $865,785 $ - $1,011,156
======= ======= ======== ======== ======= ==========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1997 1996 1995
-------- -------- --------
(In thousands)
Operating activities
- --------------------
Net income.................................... $124,845 $116,341 $111,599
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation of premises and equipment..... 13,838 13,488 13,462
Gain on sale of premises and equipment..... (2,331) (1,263) (1,050)
Provision for loan losses.................. 17,177 17,734 8,341
Amortization of investment
securities premiums..................... 6,431 9,965 12,275
Accretion of investment
securities discounts.................... (2,608) (3,426) (6,112)
Net decrease (increase) in mortgage
loans held for sale...................... (6,182) 6,445 (5,925)
Gain on sale of securities................. (51) (1,789) -
Amortization of intangible assets.......... 11,327 8,039 7,722
Deferred income taxes...................... (319) (1,123) (58)
Increase in prepaid expenses............... (2,801) (5,840) (6,126)
Decrease (increase) in interest receivable. (426) 11,110 (3,243)
Increase (decrease) in interest payable.... 754 (4,320) 19,554
Increase in other accrued expenses......... 8,152 4,309 4,945
-------- -------- --------
Net cash provided by operating activities 167,806 169,670 155,384
-------- -------- --------
Investing activities
- --------------------
Proceeds from the sale of available
for sale securities......................... - 64,682 -
Proceeds from the maturity of held
to maturity securities......................1,324,632 790,173 669,373
Purchase of held to maturity securities......(1,289,206) (489,422) (780,448)
Net increase in loans......................... (80,751) (339,606) (50,122)
Purchases of premises and equipment........... (14,849) (14,860) (13,691)
Sales of premises and equipment............... 3,891 4,506 7,162
Mortgage servicing rights acquired............ (267) (1,351) (1,190)
Other intangible assets acquired.............. (179) (5,869) (16,469)
Net cash of acquired banks.................... 38,908 - -
Other......................................... (5,987) (8,774) (7,526)
-------- -------- --------
Net cash used for investing activities... (23,808) (521) (192,911)
-------- -------- --------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31
1997 1996 1995
-------- -------- --------
(In thousands)
Financing activities
- --------------------
Net (decrease) increase in deposits........... $(76,309) $(13,457) $240,266
Net increase in short-term borrowings......... 7,027 24,769 30,310
Principal payments on long-term borrowings.... (1,050) (2,097) (1,104)
Proceeds from long-term borrowings............ - 3,263 -
Common stock purchased and retired............ (94,772) (66,311) (5,695)
Cash dividends paid:
Common $1.02 per share-1997, $.95 per
share-1996 and $.89 per share-1995........ (51,468) (47,477) (45,559)
Preferred................................... (42) (45) (48)
Proceeds from issuance of common stock........ 819 1,139 1,473
-------- -------- --------
Net cash (used for) provided
by financing activities................ (215,795) (100,216) 219,643
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... (71,797) 68,933 182,116
Cash and cash equivalents at
beginning of year...................... 701,791 632,858 450,742
-------- -------- --------
Cash and cash equivalents at end of year. $629,994 $701,791 $632,858
======== ======== ========
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the corporation conform with
generally accepted accounting principles and prevailing industry practices.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. A description of the
significant accounting policies is presented below:
Principles of Consolidation: The consolidated financial statements include
the accounts of the corporation and all of its subsidiaries. Foreign banking
activities and operations other than banking are not significant. All
material intercompany transactions and accounts have been eliminated. Certain
amounts for years prior to 1997 have been reclassified for comparative
purposes. All prior years have been restated to reflect a three-for-two
common stock split in 1997.
Nature of Operations: All of the corporation's income is derived from banking
operations or bank-related activities located primarily in Virginia, Maryland
and Tennessee. While each of the corporation's nonbank companies is engaged
in bank-related activities, the results of their operations have not been
material in relation to the operating results of the corporation.
Securities Available for Sale: Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates
such designation as of each balance sheet date. Securities available for sale
are stated at the estimated fair value, with the unrealized gains and losses,
net of tax, reported in a separate component of shareholders' equity. Quoted
market prices are used to determine the estimated fair value. The adjusted
cost basis of a specific security sold is used to compute gains or losses on
the sale of investment securities.
Securities Held to Maturity: Debt securities are classified as held to
maturity when the corporation has the positive intent and ability to hold the
securities to maturity. Securities held to maturity are carried at amortized
cost. The adjusted carrying value of a specific security sold is used to
compute gains or losses on the sale of investment securities.
Mortgage Loans Held for Sale: Mortgage loans held for sale are carried at the
lower of cost (net of discounts) or market, as determined in the aggregate.
Market is determined by investor commitment prices or current auction rates
at the date of the financial statements.
Loans: Interest on installment loans is recorded as income in amounts that
will provide an approximate level yield over the terms of the loans. Accrual
of interest on other loans is based generally on the daily amount of
principal outstanding. Interest is not accrued on loans if the collection of
such interest is doubtful. Loan fees are amortized over the life of the
loans, using methods that approximate level yields. The corporation is
generally amortizing these amounts over the contractual life.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level considered adequate to provide for potential losses in the loan
portfolio. Management's evaluation of the adequacy of the allowance is based
on a review of individual loans, past loss experience, current and
anticipated economic conditions, the value of underlying collateral and other
factors.
Premises and Equipment: Premises and equipment are carried at cost, less
accumulated depreciation computed principally on the straight-line method
over lives not exceeding 50 and 20 years for buildings and equipment,
respectively. Gains and losses on disposition are reflected in current
operations. Maintenance and repairs are charged to operating expenses, and
major alterations and renovations are capitalized.
Other Real Estate Owned: Other real estate owned primarily represents
properties acquired by the corporation's affiliates through customer loan
defaults. The real estate is stated at an amount equal to the lesser of the
loan balance prior to foreclosure plus the costs incurred for improvements to
the property, or fair value, less the estimated selling costs of the
property. At the time of foreclosure, any excess of cost over the estimated
fair value is charged to the allowance for loan losses. After foreclosure,
the estimated fair value is reviewed periodically by management. Any further
declines in fair value are charged against current earnings or any applicable
foreclosed property valuation allowance.
Earnings Per Share: In 1997, Statement of Financial Accounting Standards No.
128, "Earnings per Share," replaced the calculation of primary and fully
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share is based only on the weighted average number of common shares
outstanding, excluding any dilutive effects of options and convertible
securities. Diluted earnings per share is similar to the previously reported
fully diluted earnings per share and is based on the weighted average number
of common and common equivalent shares, including dilutive stock options and
convertible securities outstanding during the year. Earnings per share
amounts for all periods have been restated.
Income Taxes: The corporation uses the liability method of accounting for
income taxes as required by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under the liability method, deferred-tax
assets and liabilities are determined based on differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities (i.e., temporary differences) and are measured at the enacted
rates that will be in effect when these differences reverse.
2. ACQUISITIONS
On May 24, 1997, the merger of Premier Bankshares Corporation into 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 and have
merged into various existing banks of First Virginia. Shares of the
corporation's 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, and goodwill and other intangible assets of $82.701 million
were recorded and are being amortized over 10 to 25 years. The allocated fair
value of other assets and liabilities acquired, which generally approximated
carrying value, was $756.130 million and $676.205 million, respectively. The
results of operations of the acquisition are included in the consolidated
statements of income from the date of acquisition through December 31, 1997.
Periods prior to the date of acquisition are not included in the consolidated
statements of income.
On September 25, 1995, First Virginia Bank-Colonial purchased $220
million in deposits of four Virginia-based branches of a savings and loan. A
core deposit premium of $17.105 million was recorded and is being amortized
over ten years.
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 1995. 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.
In thousands, except per share data
Year Ended December 31
1997 1996 1995
-------- -------- --------
Total interest income $654,542 $644,310 $627,242
Total interest expense 232,689 237,967 240,525
Provision for loan losses 17,387 18,614 8,656
Noninterest income 105,220 103,517 94,361
Noninterest expense 311,945 305,043 295,505
Provision for income taxes 68,271 63,250 59,646
-------- -------- --------
Net income $129,470 $122,953 $117,271
======== ======== ========
Net income per share-basic $ 2.45 $ 2.23 $ 2.08
-diluted 2.44 2.22 2.07
The corporation has entered into an agreement with Signet Bank to
purchase seven branches located on the Eastern Shore of Maryland and
Virginia. The seven branches have approximately $150 million in deposits and
are located in Mappsville, Virginia, and Cambridge, Chestertown, Easton and
Salisbury, Maryland.
3. CASH AND CASH EQUIVALENTS
All securities underlying the money market investments were under the
corporation's control, and the maximum amount of outstanding money market
investments at any month end during 1997 and 1996 was $527.729 million and
$435.743 million, respectively.
The corporation's banking affiliates are required by Federal Reserve
regulations or by state banking laws to maintain certain minimum cash
balances consisting of vault cash and deposits in the Federal Reserve Bank or
in other commercial banks. Such restricted balances totaled $73.637 million
and $103.917 million as of December 31, 1997 and 1996, respectively.
4. INVESTMENT SECURITIES
The following reflects the carrying amounts of investment securities and
the related approximate market values (in thousands):
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------- ------ ----------
Investment securities held
to maturity:
December 31,1997:
U.S. Government and its agencies...$1,783,106 $ 6,177 $ 1,868 $1,787,415
State and municipal obligations.... 162,242 2,932 34 165,140
Other ............................. 1,596 5 1 1,600
---------- ------- ------- ----------
Total............................$1,946,944 $ 9,114 $ 1,903 $1,954,155
========== ======= ======= ==========
December 31,1996:
U.S. Government and its agencies...$1,673,069 $ 4,729 $ 4,476 $1,673,322
State and municipal obligations.... 146,872 2,378 191 149,059
Other ............................. 1,008 15 - 1,023
---------- ------- ------- ----------
Total............................$1,820,949 $ 7,122 $ 4,667 $1,823,404
========== ======= ======= ==========
December 31,1995:
U.S. Government and its agencies...$1,920,677 $18,608 $ 3,195 $1,936,090
State and municipal obligations.... 199,080 3,434 330 202,184
Other ............................. 8,463 59 4 8,518
---------- ------- ------- ----------
Total............................$2,128,220 $22,101 $ 3,529 $2,146,792
========== ======= ======= ==========
Investment securities available
for sale:
December 31, 1995:
U.S. Government....................$ 62,032 $ 2,514 $ - $ 64,546
========== ======= ======== ==========
Securities having a carrying value of $578.886 million and $488.691
million at December 31, 1997 and 1996, respectively, were pledged to secure
public deposits and for other purposes required by law. The maturity ranges
of securities, the average yield and fair value by maturity range as of
December 31, 1997, are as follows:
U.S. Government
and its Agencies
-----------------------------
Book Value Fair Value Yield
---------- ---------- -----
One year or less........................$ 656,079 $ 655,760 5.6%
After one year through five years....... 799,333 804,631 6.2
After five through ten years............ 303,886 303,304 6.7
After ten years......................... 23,808 23,720 7.1
---------- ---------- ----
Total................................$1,783,106 $1,787,415 6.0%
========== ========== ====
Weighted average maturity...............29 months
State and
Municipal Obligations
-----------------------------
Book Value Fair Value Yield
---------- ---------- -----
One year or less........................$ 49,981 $ 50,311 4.5%
After one year through five years....... 95,984 98,100 5.0
After five through ten years............ 15,770 16,195 5.3
After ten years......................... 507 534 6.1
---------- ---------- ----
Total................................$ 162,242 $ 165,140 4.9%
========== ========== ====
Weighted average maturity...............33 months
Other
-----------------------------
Book Value Fair Value Yield
---------- ---------- -----
One year or less........................$ 935 $ 940 6.1%
After one year through five years....... 249 249 6.0
After five through ten years............ 1 1 10.0
After ten years......................... 411 410 5.5
---------- ---------- -----
Total................................$ 1,596 $ 1,600 6.0%
========== ========== =====
5. LOANS
Loans consisted of (in thousands): December 31
1997 1996
---------- ----------
Consumer:
Automobile installment ............................$2,445,958 $2,167,802
Home equity, fixed and variable rate............... 1,054,522 987,514
Revolving credit loans, including credit cards..... 201,830 214,615
Other.............................................. 354,944 317,764
Real estate:
Construction and land development.................. 124,366 113,211
Commercial mortgage................................ 572,961 523,251
Residential mortgage............................... 528,218 504,962
Other, including Industrial Development Authority.. 94,964 88,378
Commercial........................................... 560,215 447,290
---------- ----------
Total loans, net of unearned income
of $185,895 and $238,389 5,937,978 5,364,787
Less allowance for loan losses....................... 68,064 62,761
---------- ----------
Net loans .........................................$5,869,914 $5,302,026
========== ==========
Loans on which interest is not being accrued or whose terms have been
modified to provide for a reduced rate of interest because of financial
difficulties of borrowers, and interest income earned with respect to such
loans were (in thousands):
December 31
1997 1996 1995
------- ------- -------
Nonaccruing loans........................ $16,281 $14,906 $17,066
Restructured loans ...................... 4,861 5,537 4,260
------- ------- -------
$21,142 $20,443 $21,326
======= ======= =======
Average balance of nonaccruing loans..... $15,511 $15,814 $16,379
Allocation of the allowance for loan
losses for nonaccruing loans........... - - -
Income recorded.......................... 415 256 218
Income anticipated under
original loan agreements..... 1,771 1,504 1,639
There were no formal commitments of a material amount to lend additional
funds under these agreements, but additional advances may be made in the
future if it is in the interest of the corporation to do so. Loans modified
for reasons other than a reduction in the interest rate were not material in
amount.
The corporation's loans are widely dispersed among individuals and
industries. On December 31, 1997, there was no concentration of loans in any
single industry that exceeded 10% of total loans.
The corporation, in the normal course of business, has made commitments
to extend loans and has written standby letters of credit that are not
recognized in the financial statements. On December 31, 1997 and 1996,
standby letters of credit totaled $21.231 and $22.296 million, respectively,
and the unfunded amounts of loan commitments were (in thousands):
December 31
1997 1996
---------- ----------
Fixed-rate revolving credit lines ...................$ 699,758 $ 722,906
Adjustable-rate loans:
Home equity lines ................................. 421,925 388,465
Commercial loans................................... 579,727 485,179
Construction and land development loans............ 77,254 70,787
Other ............................................. 52,153 43,128
---------- ----------
Total ...........................................$1,830,817 $1,710,465
========== ==========
As of December 31, 1997, the corporation had mortgage loans held for
sale of $18.953 million and additional commitments to fund mortgage loans
totaling $19.057 million, with a corresponding commitment to sell $19.000
million of mortgage loans to outside investors. The commitments to sell
mortgage loans to outside investors are intended to reduce the corporation's
interest rate exposure.
Mortgage loans being serviced for the benefit of nonaffiliated parties
were $346.483 million, $613.568 million and $639.652 million at December 31,
1997, 1996 and 1995, respectively.
A majority of the commercial, construction and land development
commitments and letters of credit will expire within one year, and all loan
commitments can be terminated by the corporation if the borrower violates any
condition of the commitment agreement.
The credit risk associated with loan commitments and letters of credit
is essentially the same as that involved with loans that are funded and
outstanding. The corporation uses the same credit standards on a case-by-case
basis in evaluating loan commitments and letters of credit as it does when
funding loans, including the determination of the type and amount of
collateral, if required.
6. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was (in thousands):
Year ended December 31
1997 1996 1995
------- ------- -------
Balance January 1...............................$62,761 $57,922 $58,860
Increase attributable to acquired banks ........ 5,551 - -
Provision charged to operating expense ......... 17,177 17,734 8,341
------- ------- -------
85,489 75,656 67,201
------- ------- -------
Deduct:
Loans charged off............................. 21,546 16,611 12,721
Less recoveries............................... 4,121 3,716 3,442
------- ------- -------
Net charge-offs............................... 17,425 12,895 9,279
------- ------- -------
Balance December 31.............................$68,064 $62,761 $57,922
======= ======= =======
7. PREMISES, EQUIPMENT AND LEASES
Premises and equipment consisted of (in thousands):
December 31
1997 1996
-------- --------
Land .................................................$ 38,099 $ 34,052
Premises and improvements............................. 169,101 150,831
Furniture and equipment............................... 113,855 102,380
-------- --------
Total cost......................................... 321,055 287,263
Accumulated depreciation and amortization............. 156,754 139,076
-------- --------
Carrying value .....................................$164,301 $148,187
======== ========
The corporation's subsidiaries have entered into lease agreements with
unaffiliated persons for premises, principally banking offices. Many of the
leases have one or more renewal options, generally for five or ten years, and
some contain a provision for increased rent during the renewal period. Leases
containing a provision for contingent payments are not significant in either
number or amount. Portions of a few premises are subleased, and the amount of
rent received is not material. There are no significant restrictions imposed
on the corporation or its subsidiaries by the lease agreements. The
subsidiaries also lease a portion of their computer systems and other
equipment. Leases on five banking offices have been recorded as capital
leases. The effect of capitalizing such leases on net income has not been
material.
Minimum rental payments over the noncancelable term of operating and
capital leases having a remaining term in excess of one year are (in
thousands):
1998..............................................$11,738
1999.............................................. 10,289
2000.............................................. 6,622
2001.............................................. 4,025
2002.............................................. 3,161
Thereafter........................................ 16,397
-------
Total minimum lease payments......................$52,232
=======
During 1997, 1996 and 1995, occupancy and equipment expense included the
rent paid on operating leases of $14.472 million, $12.541 million and $10.557
million, respectively, and was reduced by rental income of $1.906 million,
$1.792 million and $2.312 million, respectively, applicable to leases to
unaffiliated persons, generally for a five-to-ten-year duration.
8. INTANGIBLE ASSETS
Total intangible assets were (in thousands):
December 31
1997 1996
-------- --------
Goodwill ...........................................$136,640 $ 58,727
Core deposit premiums............................... 36,937 31,854
Mortgage servicing rights .......................... 569 2,836
Lease rights........................................ 655 740
Covenant not to compete and customer lists ......... 175 224
-------- --------
Total intangible assets.............................$174,976 $ 94,381
======== ========
Goodwill related to acquisitions prior to 1976 is being amortized on a
straight-line basis over 40 years, and goodwill related to acquisitions after
1975 is being amortized over 10 to 25 years. Core deposit premiums, mortgage
servicing rights and covenants not to compete, along with the customer lists,
are being amortized over 5 to 10 years. Lease rights are being amortized over
15 to 20 years.
9. INDEBTEDNESS
Short-term borrowings consisted of (in thousands):
December 31
1997 1996
-------- --------
Securities sold under agreements to repurchase .......$203,310 $198,306
Commercial paper ..................................... 48,377 36,182
-------- --------
$251,687 $234,488
======== ========
Securities sold under agreements to repurchase generally mature within
one business day from the transaction date. The maximum amount of outstanding
agreements for any month end during 1997 and 1996 was $226.805 million and
$207.021 million, respectively. The securities underlying the agreements were
under the corporation's control. Commercial paper maturities range from 1 to
270 days. Bank lines of credit available to the corporation amounted to $50
million at December 31, 1997 and 1996. Such lines were not being used on
either of those dates.
Long-term indebtedness consisted of (in thousands):
December 31
1997 1996
------ ------
Capital leases ...................................... $ 585 $ 613
3.12% note due December 1999......................... 2,241 3,263
------ ------
$2,826 $3,876
====== ======
The capital leases are on properties that had a carrying value of $691
thousand and $702 thousand on December 31, 1997 and 1996, respectively.
The principal maturities of debt, other than short-term borrowings, in
each of the five years after December 31, 1997, will be $1.104 million,
$1.164 million, $12 thousand, $21 thousand and $37 thousand, respectively.
Interest paid on deposits and indebtedness during the years 1997, 1996
and 1995 totaled $219.623 million, $216.618 million and $195.948 million,
respectively.
10. PREFERRED AND COMMON STOCK
The corporation is authorized to issue three million shares of preferred
stock, par value $10 per share. As of December 31, the following four series
of cumulative convertible preferred stock were outstanding:
Number of Shares
Series Dividends 1997 1996
------ ------
A 5% 20,111 21,511
B 7% 4,890 5,750
C 7% 9,788 9,836
D 8% 23,534 27,591
------ ------
58,323 64,688
====== ======
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.
The corporation is authorized to issue 60 million shares of common
stock, par value $1 per share, and 51.817 million shares and 48.612 million
shares were outstanding on December 31, 1997 and 1996, respectively. At
December 31, 1997, 824,986 shares of common stock were reserved: 126,819 for
the conversion of preferred stock and 698,167 for stock options.
The corporation has adopted a shareholder rights plan which, under
certain circumstances, will give the holders of the corporation's common
stock the right to purchase shares of its preferred stock or other
securities. The rights will become exercisable if a person or entity acquires
20% or more of the corporation's voting stock, unless it is acquired pursuant
to an offer for all outstanding shares of common stock at a price and on
terms determined by the Board of Directors to be adequate and in the best
interests of the corporation and its shareholders.
If the rights become exercisable, the holder of each share of common
stock, except the person or entity acquiring 20% or more of the voting stock,
will 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 an equal number of an equivalent security.
Pursuant to recent amendments to the plan, the exercise price for each right
is now $450.00.
The corporation may redeem the rights, at its option, at any time prior
to the date they become exercisable. The rights expire on August 8, 2008. As
of December 31, 1997, each outstanding share of common stock had 4/9ths of a
right attached thereto.
11. STOCK INCENTIVE PLANS
On December 31, 1997, options to purchase 643,642 shares of common stock
were outstanding under employee stock option plans. An additional 54,525
shares are authorized for further granting of options. Options for 221,155
shares were exercisable on December 31, 1997, at a weighted-average price of
$17.63. Additional options becoming exercisable in subsequent years,
including those options whose exercisability depends on achieving performance
targets as discussed below total 72,471 in 1998 at an average price of
$24.96; 112,603 in 1999 at an average price of $34.81; 76,313 in 2000 at an
average price of $41.38; 73,250 in 2001 at an average price of $41.11; 49,850
in 2002 at an average price of $47.30; and 38,000 in 2003 at an average price
of $52.31. For options outstanding at December 31, 1997, the option price per
share ranged from $9.89 to $52.31, and the weighted average remaining
contractual life of these options is 9.2 years.
Options Unexercised Average
Available Or Option
To Outstanding Price Per
Grant Options Share
-------- -------- --------
Balance, January 1, 1995..... 422,250 453,443 $16.26
Forfeited.................... 6,150 (6,150) 21.42
Granted......................(125,250) 125,250 27.92
Exercised ................... - (92,115) 15.30
-------- -------- --------
Balance, December 31, 1995... 303,150 480,428 19.49
Forfeited.................... 5,625 (5,625) 24.45
Granted...................... (59,250) 59,250 31.25
Exercised ................... - (77,367) 14.37
-------- -------- --------
Balance, December 31, 1996... 249,525 456,686 $22.41
Forfeited.................... - (4,815) 14.94
Granted......................(195,000) 195,000 52.31
Attributable to
an acquisition............ - 46,266 18.29
Exercised ................... - (49,495) 16.12
-------- -------- --------
Balance, December 31, 1997... 54,525 643,642 $31.30
======== ======== ========
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), requires entities that have followed
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations to either adopt a fair value
method of accounting for stock-based compensation (as described by SFAS 123)
or continue to follow APB 25 and provide additional pro forma disclosures in
the footnotes to the financial statements.
Pro forma information regarding net income and earnings per share as
required by SFAS 123 has been determined as if the corporation had accounted
for its employee stock options under the fair value method. The fair value
for these options was estimated at the date of the grant using a Black-
Scholes option pricing model. A summary of the assumptions used and pro forma
results for 1997, 1996, and 1995 is as follows:
December 31
1997 1996 1995
Assumptions -------- -------- --------
Risk-free interest rate 5.93% 6.81% 6.81%
Dividend yield 2.70% 3.30% 3.30%
Volatility factor .194 .193 .193
Weighted average expected life (years) 8.0 8.0 8.0
Pro forma results
Net income (millions) $126.657 $116.182 $111.577
Basic earnings per share 2.50 2.33 2.19
Diluted earnings per share 2.49 2.32 2.18
Fair value of options 13.38 7.76 6.93
The effects of applying SFAS 123 for providing pro forma disclosures are
not likely to be representative of the effects on reported net income for
future years.
The corporation continues to follow APB 25 in accounting for its stock
options. All options are granted at full market price on the date of the
grant and generally vest within five years of the grant date and expire after
ten years. In certain instances, the corporation must achieve established
performance targets in order for the options to become exercisable. In those
instances where vesting is dependent upon achieving certain performance
targets, the corporation begins recognizing compensation expense when it
becomes probable that the targets will be achieved and the options will
become exercisable, for the difference between the exercise price and the
current market price.
In some cases, an option holder could elect to exercise the option as a
stock appreciation right. Compensation expense was recognized in connection
with stock appreciation rights based on the difference in the current market
value of the common stock and the previously accrued amounts.
In 1997 the corporation redeemed all stock appreciation rights. As a
result, the corporation had no stock appreciation rights or options that
could be exercised as stock appreciation rights as of December 31, 1997.
Total stock-related compensation expense for 1997, 1996 and 1995 was
$3,351,000, ($216,000) and $761,000, respectively.
12. EMPLOYEE BENEFIT PLANS
The corporation and its subsidiaries have a noncontributory, defined-
benefit pension plan covering substantially all of their qualified employees.
The benefits are based on years of service and the employee's compensation
during the last ten years of employment. The corporation's funding policy is
to make annual contributions in amounts necessary to satisfy the Internal
Revenue Service's funding standards to the extent they are deductible against
taxable income. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in
the future. Contributions to the plan totaled $3.828 million, $4.490 million
and $4.851 million in 1997, 1996 and 1995, respectively. Contributions
include normal costs of the plan and amortization for periods of up to 40
years of unfunded past service cost.
In 1996, the corporation established an unfunded nonqualified plan that
provides retirement benefits to certain officers in accordance with the same
computational terms as the qualified plan when those terms provide benefits
in excess of the amounts payable under the IRS-qualified rules.
Pension expense included the following components (in thousands):
1997 1996
------------------ ------------------
Unfunded Unfunded 1995
Funded Supplemen- Funded Supplemen- Funded
Plan tal Plan Plan tal Plan Plan
-------- ------- -------- ------- -------
Service cost - benefits
earned during the period.. $ 3,632 $ 35 $ 3,803 $ 37 $ 2,737
Interest cost on projected
benefit obligation........ 7,456 101 6,901 88 6,167
Actual return on plan assets. (16,313) - (10,545) - (15,094)
Net amortization and deferral 6,844 101 2,899 102 8,821
-------- ------- -------- ------- -------
Net periodic pension cost.. $ 1,619 $ 237 $ 3,058 $ 227 $ 2,631
======== ======= ======== ======= =======
The following table sets forth the plan's funded and unfunded status and
amounts recognized in the consolidated balance sheets (in thousands):
1997 1996
------------------ ------------------
Unfunded Unfunded 1995
Funded Supplemen- Funded Supplemen- Funded
Plan tal Plan Plan tal Plan Plan
-------- ------- -------- ------- -------
Accumulated benefit obligations:
Vested................... $ 80,773 $ 499 $ 70,939 $ 328 $72,950
Nonvested................ 11,194 89 8,348 37 5,128
-------- ------- -------- ------- -------
Total accumulated
benefit obligations...... $ 91,967 $ 588 $ 79,287 $ 365 $78,078
======== ======= ======== ======= =======
Plan assets at fair value .. $119,172 $ - $102,869 - 91,275
Projected benefit obligation
for service rendered
to date.................. 113,681 1,550 96,547 1,240 96,666
-------- ------- -------- ------- -------
Plan assets in excess of
(less than) projected
benefit obligation....... 5,491 (1,550) 6,322 (1,240) (5,391)
Unrecognized net loss (gain)
from past experience
different from that
assumed and effects
of change in assumptions. 11,941 71 9,116 (103) 19,611
Unamortized prior service cost (1,382) 1,015 (1,611) 1,116 (1,839)
Unrecognized net obligation
at January 1, 1990 being
recognized over 15 years. 30 - 44 - 58
-------- ------- -------- ------- -------
Prepaid (accrued)
pension cost............. $ 16,080 $ (464) $ 13,871 $ (227) $12,439
======== ======= ======== ======= =======
The assets of the plan consist of U.S. Treasury securities - 52%, other
debt obligations - 5%, stocks - 38%, and cash and equivalents - 5%. The
weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation were 7.25% and 4.75%, respectively. The expected long-term
rate of return on plan assets was 9%.
The corporation and its subsidiaries have a thrift plan to which
employees with one year of service may elect to contribute up to 6% of their
salary. The corporation contributes to the plan to the extent of 50% of the
employees' contributions, and an additional 25% contribution is made if a
specified profit objective is met. A 75% employer match was made in each of
the years 1997, 1996 and 1995 when the corporation's contributions to the
plan totaled $3.989 million, $3.713 million and $3.582 million, respectively.
The plan is administered under the provisions of Section 401(k) of the
Internal Revenue Code.
Certain individuals who were participating in any of the corporation's
medical plans at retirement may elect to receive medical benefits similar to
those provided for active employees if they make their elections within 30
days of retirement. Terminated employees may elect to receive such benefits
for a limited period.
The corporation sponsors a defined benefit health care plan that
provides postretirement medical benefits to full-time employees who have
worked at least ten years and have attained age 55 while in service with the
corporation. The benefits are based on years of service and are contributory,
with retiree contributions adjusted annually, and contain other cost-sharing
features such as deductibles and coinsurance. Employees hired after December
31, 1993, may participate in the plan but must pay 100% of the cost. The
accounting for the plan anticipates future cost-sharing changes to the
written plan that are consistent with the corporation's expressed intent to
increase the retiree contribution rate annually for the expected increase in
medical costs for that year. The corporation has set a maximum amount that it
will contribute per year of approximately three times the 1993 contribution
level.
The liability for postretirement benefits is unfunded. The following
table presents the status of the plan, reconciled with amounts recognized in
the corporation's statement of financial position (in thousands):
December 31
1997 1996
------- -------
Accumulated postretirement benefit obligation:
Retirees ........................................... $ 6,315 $ 5,253
Fully eligible, active plan participants ........... 2,276 2,271
Other active plan participants ..................... 9,293 8,231
------- -------
17,884 15,755
Plan assets at fair value ............................. - -
------- -------
Accumulated postretirement benefit obligation
in excess of plan assets ........................... 17,884 15,755
Unrecognized net gain or (loss) ....................... 1,000 1,700
Unrecognized transition obligation .................... 9,157 9,768
------- -------
Accrued postretirement benefit cost ................... $ 9,727 $ 7,687
======= =======
Net periodic postretirement benefit cost includes the following components:
Year Ended December 31
1997 1996 1995
------ ------ ------
Service cost ......................................$ 687 $ 768 $ 638
Interest cost ..................................... 1,190 1,120 1,046
Amortization of transition obligation over 20 years 611 611 611
Net amortization and deferral...................... (36) - (127)
------ ------ ------
Net periodic postretirement benefit cost...........$2,452 $2,499 $2,168
====== ====== ======
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost-trend rate) is 9.9% for 1997
and is assumed to decrease gradually to 5.0% for 2004 and to remain at that
level thereafter. The health care cost-trend rate assumption has a
significant effect on the amounts reported. For example, increasing the
assumed health care cost-trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1997, by $945 thousand, and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1997
by $88 thousand. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% at December 31, 1997.
The corporation has limited its exposure to increases in health care cost-
trend rates by setting a cap on the maximum amount it will ever pay on any
one retiree and by passing through 100% of the cost of retiree health care to
new employees hired after December 31, 1993.
13. INCOME TAXES
The provision for income taxes includes amounts currently payable and
amounts deferred to or from other years as a result of differences in timing
of income or expenses for reporting and tax purposes. The income tax
provision includes the following amounts (in thousands):
Year Ended December 31
1997 1996 1995
------- ------- -------
Current:
Federal income taxes ..............................$65,108 $59,529 $54,572
State income taxes................................. 1,690 1,577 2,165
------- ------- -------
Total current...................................... 66,798 61,106 56,737
------- ------- -------
Deferred (benefit):
Federal income taxes .............................. (336) (1,206) 160
State income taxes................................. 17 83 (218)
------- ------- -------
Total deferred .................................... (319) (1,123) (58)
------- ------- -------
Provision for income taxes...........................$66,479 $59,983 $56,679
======= ======= =======
Income taxes paid during the year....................$69,540 $59,100 $54,612
======= ======= =======
The exclusion of certain categories of income and expense from taxable net
income results in an effective tax rate that is lower than the statutory
federal rate. The differences in the rates are as follows (dollars in
thousands):
Year Ended December 31
1997 1996 1995
--------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
Statutory rate................$66,963 35.0% $61,713 35.0% $58,897 35.0%
Nontaxable interest on
municipal obligations....... (3,958) (2.1) (3,769) (2.1) (4,606) (2.7)
Other items .................. 3,474 1.9 2,039 1.1 2,388 1.4
------- ------- ------- ------- ------- -------
Effective rate................$66,479 34.8% $59,983 34.0% $56,679 33.7%
======= ======= ======= ======= ======= =======
The corporation's federal income tax returns are closed through December
31, 1993. Significant components of the corporation's deferred-tax liabilities
and assets are as follows (in thousands):
December 31
1997 1996
------- -------
Deferred-tax liabilities:
Life insurance reserves................................$ 2,671 $ 2,671
Depreciation........................................... 5,742 5,693
Core deposit intangibles............................... 3,082 -
Other.................................................. 9,045 8,446
------- -------
Total deferred-tax liabilities ........................ 20,540 16,810
------- -------
Deferred-tax assets:
Installment loan interest and fees..................... 1,948 2,519
Deferred compensation.................................. 6,700 6,367
Allowance for loan losses.............................. 23,472 21,772
Other.................................................. 12,805 10,218
------- -------
Total deferred-tax assets.............................. 44,925 40,876
------- -------
Net deferred-tax assets .................................$24,385 $24,066
======= =======
14. EARNINGS PER SHARE
Earnings per share computations are as follows (in thousands, except per
share data):
1997 1996 1995
-------- -------- --------
Basic:
Average common shares outstanding 50,622 49,788 50,964
======== ======== ========
Net income $124,845 $116,341 $111,599
Preferred stock dividends 41 44 47
-------- -------- --------
Net income applicable to
common stock $124,804 $116,297 $111,552
======== ======== ========
Net income per share of common stock $ 2.47 $ 2.34 $ 2.19
Diluted:
Average common shares outstanding 50,622 49,788 50,964
Dilutive effect of stock options 123 108 109
Conversion of preferred stock 135 146 156
-------- -------- --------
Total average common shares 50,880 50,042 51,229
======== ======== ========
Net income $124,845 $116,341 $111,599
======== ======== ========
Net income per share of common stock $ 2.45 $ 2.32 $ 2.18
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107), requires disclosure of fair
value information about financial instruments, whether or not recognized in the
balance sheet. In cases where quoted market prices are not available, fair
values are based on estimates using discounted cash flow analyses or other
valuation techniques. Those techniques involve subjective judgment and are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. As a result, the derived fair value estimates
cannot be substantiated by comparison to independent markets, and in many
cases, could not be realized in immediate settlement of the instrument.
The following methods and assumptions were used by the corporation in
estimating the fair value of its financial instruments. All of the
corporation's financial instruments were held or issued for purposes other than
trading.
Cash and Cash Equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair value.
Investment Securities: Fair values for investment securities are based on
quoted market prices.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair
values for certain mortgage loans (e.g., one-to-four family residential) and
credit cards are based on quoted market prices of similar loans sold in
conjunction with securitization transactions and adjusted for differences in
loan characteristics. The fair values for other loans were estimated using
discounted cash flow analyses, based on interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality.
Other Earning Assets: The carrying amount of other earning assets as reported
on the balance sheet approximates fair value.
Deposits: For deposits with no defined maturity, SFAS 107 defines the fair
value as the amount payable on demand and prohibits adjusting fair value for
any value derived from retaining those deposits for an expected future period
of time. Accordingly the fair value of demand, interest checking, regular
savings and money market deposits is equivalent to their carrying value as of
the reporting date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities.
Short-Term Borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Long-Term Debt: The corporation's long-term debt consists partially of capital
leases that are exempt from the disclosure requirements of SFAS 107. The fair
value of the remaining long-term debt is estimated based on interest rates
currently available for debt with similar terms and remaining maturities.
Off-Balance Sheet Instruments: The estimated fair value of off-balance sheet
items was not material at December 31, 1997. The corporation does not engage in
hedging or swap transactions, nor does it employ any derivative securities.
1997 1996
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
Financial assets:
Cash and cash equivalents $ 629,994 $ 629,994 $ 701,791 $ 701,791
Investment securities.... 1,946,944 1,954,155 1,820,949 1,823,404
Loans, net............... 5,956,931 6,021,649 5,377,558 5,379,826
Other earning assets..... 21,444 21,444 19,672 19,672
Financial liabilities:
Deposits................. 7,619,842 7,640,492 7,042,650 7,060,513
Short-term borrowings.... 251,687 251,687 234,488 234,488
Long-term indebtedness... 2,241 2,241 3,263 3,263
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. The disclosures also do not
include certain intangible assets such as deposit base intangible, mortgage
servicing rights and goodwill. Accordingly, the aggregate fair value amount
presented should not be interpreted as representing the underlying value of the
corporation.
16. CONTINGENCIES
The corporation, in the normal course of its business, is the subject of
legal proceedings instituted by customers and others. In the opinion of the
corporation's management, there were no legal matters pending as of
December 31, 1997, that would have a material effect on its financial
statements.
17. RELATED-PARTY TRANSACTIONS
Directors and officers of the corporation and their affiliates were
customers of, and had other transactions with, the corporation in the ordinary
course of business. The corporation has made residential mortgage loans at
favorable rates to officers of the corporation and its subsidiaries who have
been relocated for the convenience of the corporation. Other loan transactions
with directors and officers were made on substantially the same terms as those
prevailing for comparable loans to other persons and did not involve more than
normal risk of collectibility or present other unfavorable features. As of
December 31, 1997 and 1996, loans to directors and executive officers of the
corporation and its three largest subsidiary banks, First Virginia Bank, First
Virginia Bank-Southwest and Farmers Bank of Maryland, where the aggregate of
such loans exceeded $60 thousand, totaled $53.350 million and $72.361 million,
respectively. During 1997, $186.308 million of new loans were made and
repayments totaled $209.608 million. These totals include loans to certain
business interests and family members of the directors and executive officers,
and no losses are anticipated in connection with any of the loans.
18. RESTRICTIONS ON LOANS AND DIVIDENDS FROM SUBSIDIARIES
The corporation's banking affiliates and its life insurance subsidiary are
subject to federal and/or state statutes that prohibit or restrict certain of
their activities, including the transfer of funds to the corporation. There are
restrictions on loans from banks to their parent company, and banks and life
insurance companies are limited as to the amount of cash dividends that they
can pay. As of December 31, 1997, the corporation's equity in the net assets of
its subsidiaries, after elimination of intercompany deposits and loans, totaled
$713.901 million. Of that amount, $699.294 million was restricted as to the
payment of dividends.
19. REGULATORY CAPITAL ADEQUACY REQUIREMENTS
The corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Quantitative
measures established by regulation to ensure capital adequacy require the
corporation and its subsidiaries to maintain minimum amounts and ratios (set
forth in the following table) of Total and Tier 1 Capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 Capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1997, that the corporation and its subsidiary banks meet all capital
adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the federal banking
agencies categorized the corporation and its subsidiaries as well capitalized
under the regulatory framework. There are no conditions or events since that
notification that management believes have changed the institution's category.
To be categorized as adequately capitalized the corporation and its subsidiary
banks must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth in the table. The regulatory requirement for the
Tier 1 leverage ratio is 3% for the highest-rated banks with an additional
100-200 basis points for all other banks.
The actual capital amounts and ratios of the corporation and its largest
subsidiary bank are presented in the following table:
For To Be Well
Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------- -------------- ---------------
Capital Ratio Capital Ratio Capital Ratio
-------- ----- -------- ----- -------- -----
As of December 31, 1997: (Dollars in thousands)
Tier 1 leverage ratio:
Consolidated............. $837,522 9.53% $263,640 3.00% $439,400 5.00%
Largest subsidiary bank.. 234,363 7.58 92,731 3.00 154,522 5.00
Tier 1 risk-based capital:
Consolidated............. 837,522 12.94 258,954 4.00 388,431 6.00
Largest subsidiary bank.. 234,363 9.79 95,764 4.00 143,646 6.00
Total risk-based capital:
Consolidated............. 905,586 13.99 517,908 8.00 647,385 10.00
Largest subsidiary bank.. 260,367 10.88 191,528 8.00 239,410 10.00
As of December 31, 1996:
Tier 1 leverage ratio:
Consolidated............. $780,695 9.69% $241,661 3.00% $402,769 5.00%
Largest subsidiary bank.. 237,632 7.64 93,311 3.00 155,518 5.00
Tier 1 risk-based capital:
Consolidated............. 780,695 13.57 230,200 4.00 345,300 6.00
Largest subsidiary bank.. 237,632 10.39 91,499 4.00 137,249 6.00
Total risk-based capital:
Consolidated............. 843,456 14.66 460,400 8.00 575,500 10.00
Largest subsidiary bank.. 261,591 11.44 182,999 8.00 228,749 10.00
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly discretionary actions by regulators that, if
undertaken, could have a direct material effect on the corporation's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the corporation and its subsidiary banks must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings
and other factors.
21. FIRST VIRGINIA BANKS, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION (IN THOUSANDS)
BALANCE SHEETS
December 31
1997 1996
---------- --------
Assets
Cash and noninterest-bearing deposits
principally in affiliated banks.....................$ 2,795 $ 3,354
Money market investments.............................. 110,748 92,199
Investment in affiliates based on the corporation's
equity in their net assets:
Banking companies.................................. 699,985 653,644
Bank-related companies............................. 13,916 14,261
Investment securities - held to maturity
(market value $14,900-1997 and $6,827-1996)........ 14,840 6,738
Loans (including $15,671-1997 and $10,621-1996
to affiliated companies) ........................ 30,700 23,677
Premises and equipment................................ 34,990 32,448
Intangible assets..................................... 142,993 67,154
Accrued income and other assets....................... 51,280 46,473
---------- --------
Total Assets .......................................$1,102,247 $939,948
========== ========
Liabilities
Commercial paper......................................$ 48,377 $ 36,182
Accrued interest and other liabilities................ 42,714 32,489
---------- --------
Total Liabilities .................................. 91,091 68,671
---------- --------
Shareholders' Equity
Preferred stock....................................... 583 647
Common stock.......................................... 51,817 48,612
Capital surplus....................................... 92,971 27,327
Retained earnings..................................... 865,785 794,691
---------- --------
Total Shareholders' Equity.......................... 1,011,156 871,277
---------- --------
Total Liabilities and Shareholders' Equity..........$1,102,247 $939,948
========== ========
STATEMENTS OF INCOME
Year Ended December 31
1997 1996 1995
-------- -------- --------
Income
Dividends from affiliates:
Banking companies...............................$169,459 $108,016 $109,682
Bank-related companies ......................... 1,400 1,700 325
Service fees from affiliates...................... 11,360 12,364 13,864
Rental income:
Affiliates .................................... 5,624 5,662 5,937
Other ......................................... 1,450 1,327 1,882
Interest and dividends on investment securities... 5,699 5,884 5,006
Other income:
Affiliates ..................................... 2,259 1,356 1,915
Other .......................................... 1,175 368 387
-------- -------- --------
Total income.................................. 198,426 136,677 138,998
-------- -------- --------
Expenses
Salaries and employee benefits.................... 20,754 15,257 15,406
Interest ......................................... 2,006 1,484 1,383
Other expense:
Paid to affiliates.............................. 692 674 1,714
Other .......................................... 15,853 13,003 12,904
-------- -------- --------
Total expense................................. 39,305 30,418 31,407
-------- -------- --------
Income before income taxes and equity in
undistributed income of affiliates .......... 159,121 106,259 107,591
Federal income tax (benefit)...................... (2,459) (492) 124
-------- -------- --------
Income before equity in
undistributed income of affiliates........... 161,580 106,751 107,467
Equity in undistributed income of affiliates ..... (36,735) 9,590 4,132
-------- -------- --------
Net income........................................$124,845 $116,341 $111,599
======== ======== ========
STATEMENTS OF CASH FLOWS
Year Ended December 31
1997 1996 1995
-------- -------- --------
Net cash provided by operating activities..........$173,404 $113,975 $111,810
-------- -------- --------
Investing activities:
Proceeds from maturity of
held to maturity securities................... 12,035 10,917 1,400
Purchase of investment securities ............... (20,150) (7,097) (1,977)
Net (increase) decrease in loans................. (7,023) 1,586 (10,142)
Purchases of premises and equipment ............. (4,540) (999) (844)
Sales of premises and equipment ................. (60) 22 4,985
Investment in affiliates......................... (164) (9,140) (25,585)
Other............................................ (2,244) (8,699) 1,601
-------- -------- --------
Net cash used for investing activities........ (22,146) (13,410) (30,562)
-------- -------- --------
Financing activities:
Net increase in short-term borrowings............ 12,195 4,252 11,563
Common stock purchased and retired............... (94,772) (66,311) (5,695)
Cash dividends - common.......................... (51,468) (47,477) (45,559)
Cash dividends - preferred....................... (42) (45) (48)
Proceeds from issuance of common stock........... 819 1,139 1,473
-------- -------- --------
Net cash used for financing activities .......(133,268) (108,442) (38,266)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents................... 17,990 (7,877) 42,982
Cash and cash equivalents at beginning of year 95,553 103,430 60,448
-------- -------- --------
Cash and cash equivalents at end of year......$113,543 $ 95,553 $103,430
======== ======== ========
Net cash provided by operating activities has been
reduced (increased) by the following
cash payments (receipts):
Interest on indebtedness......................... $ 1,934 $ 1,431 $ 1,371
Income taxes..................................... (3,355) 705 (990)
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
- ---------------------------------------------------
The management of First Virginia Banks, Inc., has prepared and is
responsible for the accompanying financial statements, together with the
financial data and other information presented in this annual report.
Management believes that the financial statements have been prepared in
conformity with generally accepted accounting principles appropriate under
the circumstances. The financial statements include amounts that are based on
management's best estimates and judgments.
Management maintains and depends upon an internal accounting control
system designed to provide reasonable assurance that transactions are
executed in accordance with management's authorization, that financial
records are reliable as the basis for the preparation of all financial
statements, and that the corporation's assets are safeguarded. The design and
implementation of all systems of internal control are based on judgments
required to evaluate the costs of control in relation to the expected
benefits and to determine the appropriate balance between these costs and
benefits. The corporation maintains a professional internal audit staff to
monitor compliance with the system of internal accounting control.
Operational and special audits are conducted, and internal audit reports are
submitted to appropriate management.
The Audit Committee of the Board of Directors, comprised solely of
outside directors, meets periodically with the independent public
accountants, management and internal auditors to review accounting, auditing
and financial reporting matters. The independent public accountants and
internal auditors have free access to the committee, without management
present, to discuss the results of their audit work and their evaluations of
the adequacy of internal controls and the quality of financial reporting.
The financial statements in this annual report have been audited by the
corporation's independent auditors, Ernst & Young LLP, for the purpose of
determining that the financial statements are presented fairly. Their
independent professional opinion on the corporation's financial statements is
presented on the following page.
/S/ Barry J. Fitzpatrick
________________________
Barry J. Fitzpatrick
Chairman, President and
Chief Executive Officer
/S/ Richard F. Bowman
________________________
Richard F. Bowman
Senior Vice President,
Treasurer and
Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- -------------------------------------------------
To the Shareholders and Board of Directors
First Virginia Banks, Inc.
We have audited the accompanying consolidated balance sheets of First
Virginia Banks, Inc., as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the corporation's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
First Virginia Banks, Inc., at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/S/ Ernst & Young LLP
_____________________
Ernst & Young LLP
Washington, D.C.
January 20, 1998
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Board of Directors is divided into three classes (A, B and C). The
term of office for Class B directors will expire at this Annual Meeting.
Five persons, four of whom are presently on the Board, have been nominated to
serve as Class B directors. If elected, the five nominees for Class B
director will serve for a term of three years. Mr. John B. Melvin, a Class B
director since 1995, is retiring at the 1998 Annual Meeting and will not
stand for re-election.
Certain information concerning the nominees for election at this meeting
and the Class A and Class C directors who will continue in office after the
meeting is set forth below and on the following pages. (1)
NOMINEES FOR CLASS B DIRECTORS
(To serve until the Annual Meeting in 2001)
EDWARD L. BREEDEN, III, Age 62, Director since 1982. Partner, Breeden,
MacMillan & Green, a law firm in Norfolk, Virginia, since 1968. Director,
First Virginia Bank of Tidewater, Norfolk, Virginia, and First Virginia Life
Insurance Company, Falls Church, Virginia. Beneficially owns 99,403 shares of
common stock. (2)
GILBERT R. GIORDANO, Age 69, Director since 1989. Portfolio Manager, Titan
Financial Advisors, LLC, since 1996. Partner, Giordano & Villareale, P.A., a
law firm in Upper Marlboro, Maryland, 1972-1997. Chairman of the Board,
First Virginia Bank-Maryland, Upper Marlboro. Beneficially owns 295,012
shares of common stock. (3)
ERIC C. KENDRICK, Age 51, Director since 1986. President, Mereck Associates,
Inc., a real estate management and development firm in Arlington, Virginia,
since 1989. President, Murteck Construction Company, Inc., Upton
Corporation, and Old Dominion Warehouse Corporation, Arlington. Beneficially
owns 77,844 shares of common stock. (4)
ROBERT M. ROSENTHAL, Age 69, 1998 nominee. Chairman of the Board since 1990
of Geneva Enterprises, Inc., lead company of the Rosenthal Automotive
Organization, which is comprised of ten divisional automotive dealerships and
a management company located throughout the Washington, D.C. Metropolitan
Area. Other related companies on which Mr. Rosenthal also serves as Chairman
include: Maryland Imported Cars, Inc., since 1994; Imported Cars of
Maryland, Inc., since 1991; Fairfax Imports, Inc., since 1988; Rosenthal
Landover Enterprises, Inc., since 1978; Auto Supply and Parts, Inc., since
1985; Old Dominion Insurance Company, since 1979; New Dominion Insurance
Company, since 1990; and, Geneva Air Services, Inc., since 1987. President,
Arcoa, Inc., an advertising company, since 1970. Trustee, Capital Automotive
REIT, a real estate investment trust which invests in real property and
improvements used by motor vehicle related businesses in major urban areas
across the country. Director, First Virginia Bank, Falls Church. Trustee,
Vice President and Treasurer, The Phillips Collection, Washington, D.C.
Beneficially owns 30,816 shares of common stock. (5)
ROBERT H. ZALOKAR, Age 70, Director since 1959. Retired Chairman of the Board
and Chief Executive Officer of First Virginia, 1984-1994. Director, First
Virginia Bank, First Virginia Life Insurance Company, and First Virginia
Mortgage Company, Falls Church, Virginia. Trustee, George Mason University
Foundation. Beneficially owns 184,451 shares of common stock. (6)
CLASS C DIRECTORS
(Serving until the 1999 Annual Meeting)
PAUL H. GEITHNER, JR., Age 67, Director since 1984. Retired President and
Chief Administrative Officer, First Virginia, 1985-1995. Director, First
Virginia Life Insurance Company. Director, Ellicott Machine Corporation,
Baltimore, Maryland. Trustee, Bridgewater College, Bridgewater, Virginia.
Beneficially owns 52,518 shares of common stock. (7)
L. H. GINN, III, Age 64, Director since 1974. President, Lighting Affiliates,
Inc., a distributor of electrical fixtures located in Richmond, Virginia,
since 1975; retired U.S. Army Reserve Major General. Chairman of the Board,
First Virginia Bank-Colonial, Richmond. Director, J. Sargeant Reynolds
Community College and J. Sargeant Reynolds Community College Educational
Foundation, Richmond; Director, Westminster-Canterbury Foundation, a
foundation associated with a retirement facility in Richmond; Trustee,
Episcopal Diocesan Schools and Episcopal Diocesan Homes, Richmond. Vice
President, SHEPCABEL Corporation, a real estate management company, and
Parking Control Corporation, which owns and operates a public parking
facility, Richmond. Beneficially owns 20,010 shares of common stock. (8)
T. KEISTER GREER, Age 76, Director since 1976. Principal, T. Keister Greer,
P.C., a law firm in Rocky Mount, Virginia, since 1995; Partner, Greer &
Greer, Rocky Mount, 1983-1993. Director, 1971-1997, and Chairman of the
Board, 1977-1997, First Virginia Bank-Franklin County, Rocky Mount.
Beneficially owns 18,150 shares of common stock. (9)
EDWARD M. HOLLAND, Age 58, Director since 1974. Attorney-at-Law in Northern
Virginia since 1966; former Senator, Virginia General Assembly, 1972-1996.
Director, First Virginia Bank, Falls Church. Beneficially owns 77,968 shares
of common stock. (10)
CLASS A DIRECTORS
(Serving until the 2000 Annual Meeting)
BARRY J. FITZPATRICK, Age 57, Director since 1995. Chairman of the Board,
President and Chief Executive Officer of First Virginia since 1995; Executive
Vice President, 1992-1995. Chairman of the Board, First Virginia Bank in
Falls Church, and a director and principal officer of numerous First Virginia
affiliated nonbanking companies since 1995. Trustee, Marymount University,
Arlington, Virginia. Beneficially owns 94,803 shares of common stock. (11)
ELSIE C. GRUVER, Age 71, Director since 1973. Community and civic leader in
Arlington, Virginia. Beneficially owns 9,594 shares of common stock. (12)
W. LEE PHILLIPS, JR., Age 62, Director since 1985. Professional engineer and
land surveyor since 1959; involved in real estate management and home
building in Falls Church, Virginia, and southern Maryland since 1991.
Beneficially owns 12,281 shares of common stock. (13)
JOSIAH P. ROWE, III, Age 69, Director since 1991. President and Publisher,
The Free Lance-Star Publishing Co. of Fredericksburg, Va., since 1998; Co-
Publisher and General Manager, 1949-1997. Director, First Virginia Bank,
Falls Church, Virginia. Trustee, Union Theological Seminary, Richmond. Also
owns 100 shares of Preferred Stock. Beneficially owns 2,250 shares of common
stock.
ALBERT F. ZETTLEMOYER, Age 63, Director since 1978. Retired President,
Government Systems Group of UNISYS Corporation in McLean, Virginia,
1993-1995; retired Executive Vice President, UNISYS Corporation, 1993-1995;
Vice President, UNISYS, 1988-1993. Beneficially owns 10,000 shares of common
stock.
(1) No director or executive officer owned as much as 1.0% of First Virginia
Common Stock.
(2) Includes 11,250 shares held by a corporation of which Mr. Breeden is
President, 24,487 shares held by two foundations of which Mr. Breeden is
Chairman, and 57,262 shares held by two trusts of which Mr. Breeden is
trustee.
(3) Includes 418 shares held in a trust for his son, 130 shares held by his
spouse and daughter, 815 shares held by his spouse and son, 16,720 shares
held by the Giordano Family Foundation, 6,893 shares held by his spouse as
custodian for his son, and 24,817 shares held by his spouse alone.
(4) Includes 13,535 shares held by his spouse and 2,593 shares held by a
corporation of which Mr. Kendrick is a director and President.
(5) Includes 26,316 shares held by the Marion and Robert Rosenthal
Foundation.
(6) Includes 1,500 shares held by a trust of which Mr. Zalokar is trustee.
(7) Includes 43,087 shares held in a revocable trust and 6,501 shares held
indirectly through his spouse's trust.
(8) Includes 369 shares held indirectly through his spouse's Investment
Retirement Account and 2,447 shares held by a trust of which Mr. Ginn is
trustee.
(9) Includes 8,100 shares held by a trust in which Mr. Greer has a beneficial
interest.
(10) Includes 51,618 shares held by a corporation of which Mr. Holland is an
officer, director, and owner and 10,500 shares held in a trust.
(11) Includes options to purchase 39,477 shares of Common Stock which are
exercisable as of December 31, 1997 or sixty days thereafter.
(12) Includes 4,743 shares of Common Stock held in an Individual Retirement
Account and 1,350 shares held in her spouse's Individual Retirement Account.
(13) Includes 4,500 shares held by a trust of which Mr. Phillips is a
trustee.
As of December 31, 1997, executive officers and directors as a group
beneficially owned 1,325,436 shares of Common Stock representing
approximately 2.6% of those shares outstanding, of which 218,180 shares
represent shares covered by options exercisable as of December 31, 1997 (or
sixty days thereafter) and 125 shares of Preferred Stock representing
approximately .21% of those shares outstanding. Messrs. Breeden, Greer,
Holland and Giordano are members of or are associated with law firms which
have been in the last two years, and are proposed in the future to be,
retained by subsidiaries of First Virginia. Messrs. Breeden, Fitzpatrick,
Geithner, Ginn, Giordano, Greer, Holland, Phillips, Rowe and Zalokar have
been directors of various subsidiaries of First Virginia during the past five
years. Ages of the directors are stated as of December 31, 1997.
BENEFICIAL OWNERSHIP OF NAMED EXECUTIVE OFFICERS
The following table sets forth certain information regarding the named
executives' beneficial ownership of First Virginia Common Stock as of
December 31, 1997.
Shares of Common Stock of First Virginia
Beneficially Owned
Name of Officer Number * Percent of Class
Barry J. Fitzpatrick 94,803 .1819
Shirley C. Beavers, Jr. 63,830 .1225
Raymond E. Brann, Jr. 50,776 .0975
Richard F. Bowman 35,277 .0677
Michael G. Anzilotti 18,975 .0364
* The amounts shown represent the total shares owned beneficially by such
individuals as of December 31, 1997 together with shares which are issuable
upon the exercise of all stock options that are exercisable. Specifically,
the following individuals have options that are exercisable as of December
31, 1997 (or sixty days thereafter) which gives them the right to acquire the
shares indicated after their names, upon the exercise of stock options: Mr.
Fitzpatrick, 39,477; Mr. Beavers, 43,578; Mr. Brann, 27,150; Mr. Bowman,
25,400; and Mr. Anzilotti, 16,800.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
First Virginia's Board of Directors has a standing Audit Committee,
Director Nominating Committee, Management Compensation and Benefits
Committee, Public Policy Committee, and Executive Committee.
The Audit Committee, comprised of Directors Breeden, Giordano, Gruver,
Melvin, and Phillips, held four meetings during 1997. Functions of the
Committee include (1) reviewing with the independent auditors and management
such matters as: the financial statements and the scope of First Virginia's
audit, compliance with laws and regulations, and the adequacy of First
Virginia's system of internal procedures and controls and resolution of
material weaknesses; (2) reviewing with First Virginia's internal auditors
the activities and performance of the internal auditors; (3) reviewing with
management the selection and termination of the independent auditors and any
significant disagreements between the independent auditors and management;
and (4) reviewing the nonaudit services of the independent auditors. Under
Section 36 of the Federal Deposit Insurance Act, the Audit Committee also
performs similar functions for some of the First Virginia member banks.
The Director Nominating Committee, comprised of Directors Zalokar,
Fitzpatrick, Ginn, Giordano, Greer, and Rowe, held one meeting in 1997. The
functions of the Committee include annually recommending to the Board the
names of persons to be considered for nomination and election by First
Virginia's stockholders and, as necessary, recommending to the Board the
names of persons to be appointed to the Board between annual meetings.
The Management Compensation and Benefits Committee, comprised of
Directors Zettlemoyer, Holland, Kendrick, Melvin, and Phillips, held one
meeting in 1997. The Committee has the authority to establish the level of
compensation (including bonuses) and benefits of management of First
Virginia. In addition, the Committee has authority to award long-term
incentive compensation, e.g., stock options, to First Virginia's management
based on such factors as individual and corporate performance.
The Public Policy Committee, comprised of Directors Gruver, Breeden,
Fitzpatrick, Geithner, Greer, Kendrick, Rowe, and Zalokar, met two times
during 1997. This Committee oversees First Virginia's contributions and
matching gifts programs. The Committee also monitors the programs developed
for equal employment and compliance with the Community Reinvestment Act.
The Executive Committee, comprised of Directors Zalokar, Breeden,
Fitzpatrick, Geithner, Ginn, Holland, and Zettlemoyer, held 12 meetings in
1997. The Committee exercises all of the powers of the Board of Directors
when the Board is not in session, except for those powers reserved for the
Board under state law and by First Virginia's Articles of Incorporation and
Bylaws.
During 1997, there were 12 meetings of the Board of Directors. All
incumbent directors attended more than 75% of the aggregate total number of
meetings of the Board and committees of the Board on which they served,
except Mr. Greer, who attended 60% of the required meetings primarily due to
an illness.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires First
Virginia's executive officers and directors to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Executive officers and directors are required by SEC
regulation to furnish First Virginia with copies of all Section 16(a) forms
they file.
Based on a review of the forms that were filed and written
representations from the executive officers and directors, First Virginia
believes that during the year 1997 all filing requirements applicable to its
officers and directors were met.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The Summary Compensation Table below shows the annual compensation for
the last three fiscal years for First Virginia's Chief Executive Officer and
for the four most highly compensated executive officers other than First
Virginia's Chief Executive Officer:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
(a) (b) (c) (d) (e) (f) (g)
Other All
Name Annual Options/ Other
and Compen- SARs Compen-
Principal sation Awarded sation
Position Year Salary($)(1) Bonus($)(2) ($)(3) (#)(4) ($) (5)
Barry J. Fitzpatrick 1997 600,000 346,944 3,395 30,000 66,144
Chairman, President 1996 470,000 269,960 3,724 15,000 56,783
and Chief Executive 1995 350,000 156,275 3,636 30,000 45,804
Officer of
First Virginia
Shirley C. Beavers, Jr. 1997 253,500 134,265 3,708 15,000 32,812
Executive Vice President 1996 241,500 108,433 3,748 7,500 31,426
of First Virginia and 1995 230,000 93,362 3,868 7,500 30,818
President, First
Virginia
Services, Inc.
Raymond E. Brann, Jr. 1997 204,500 132,471 5,052 15,000 62,268
Executive Vice President 1996 194,500 106,803 4,568 7,500 59,339
of First Virginia 1995 183,821 61,735 66,360 7,500 57,270
Richard F. Bowman 1997 183,000 132,245 3,708 15,000 18,662
Senior Vice President, 1996 168,000 106,088 3,263 7,500 15,943
Treasurer and Chief 1995 153,000 60,817 2,858 7,500 14,520
Financial Officer
of First Virginia
Michael G. Anzilotti 1997 196,900 69,700 2,250 7,500 16,898
Senior Vice President 1996 188,400 56,550 2,459 0 15,966
and Regional Executive 1995 173,798 46,524 2,250 7,500 15,034
Officer of First Virginia
and President and Chief
Executive Officer of
First Virginia Bank
(1) The Salary column (c) includes the base salary earned by the
executive officer, which includes amounts that are deferred under the First
Virginia Banks, Inc. Employees Thrift Plan and the First Virginia Pre-Tax
Health Benefit Plan.
(2) The Bonus column (d) includes the amount earned as a bonus for that
year even if paid in the following year. It also includes amounts earned for
that year under the First Virginia Banks, Inc. Profit Sharing Plan.
(3) The Other Annual Compensation column (e) includes the amount of
taxes paid by First Virginia for certain benefits. In Mr. Brann's case, it
also includes for years 1995-1997 the interest benefit to him of a below-
market-rate residential mortgage loan made to him as an inducement to
relocate to Northern Virginia. During 1995, Mr. Brann had perquisites or
personal benefits whose value amounted to $56,900. Of that amount, $32,459
was for country club dues and a country club initiation fee and $17,287 was
for moving expenses.
(4) Column (f) includes the number of stock options that were granted.
The 1995 and 1996 awards were adjusted for the three-for-two stock split in
September, 1997.
(5) The All Other Compensation column (g) includes the amount paid by
the employer under the First Virginia Banks, Inc. Employees Thrift Plan
which, for each of the named officers, was $7,125. It also includes the
amounts paid by the employer under the First Virginia Supplemental Benefits
Plan. This plan provides supplemental retirement benefits for those key
officers who are restricted from receiving further benefits under the Thrift
Plan as a result of the limitation on pretax contributions imposed by the
Internal Revenue Code. For 1997, these amounts were: for Mr. Fitzpatrick,
$35,398; Mr. Beavers, $9,173; Mr. Brann, $6,894; Mr. Bowman, $5,895; and Mr.
Anzilotti, $4,291. It also includes the premium amounts paid by the employer
under the First Virginia Split Dollar Life Insurance Plan. For 1997, these
amounts were: for Mr. Fitzpatrick, $21,630; Mr. Beavers, $14,500; Mr. Brann,
$43,913; Mr. Bowman, $5,243; and Mr. Anzilotti, $4,191. It also includes the
"above-market" earnings on deferred compensation earned during 1997. These
amounts were: for Mr. Fitzpatrick, $1,991; Mr. Beavers, $2,014; Mr. Brann,
$4,336; Mr. Bowman, $399; and Mr. Anzilotti, $1,291.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table shows for each of the named executive officers (1)
the number of options that were granted during 1997, (2) out of the total
number of options granted to all employees, the percentage granted to the
named executive officer, (3) the exercise price, (4) the expiration date, and
(5) the potential realizable value of the options, assuming that the market
price of the underlying securities appreciates in value from the date of
grant to the end of the option term, at a 5% and 10% annualized rate. No
freestanding or tandem SARs were granted in 1997.
Stock Option Grants In 1997
Potential
Realizable
Percent Value at
Number of of Assumed Annual
Securities Total Rates of Stock
Underlying Options Price
Options Granted to Exercise Appreciation
Granted Employees or Base for Option
(# Shs.) in Fiscal Price Expiration Term
Name (1) Year(2) ($/Sh.) Date 5%($) 10%($)
Barry J. 30,000 15.38% 52.31 12/16/2007 986,918 2,501,056
Fitzpatrick
Shirley C. 15,000 7.69% 52.31 12/16/2007 493,459 1,250,527
Beavers, Jr.
Raymond E. 15,000 7.69% 52.31 12/16/2007 493,459 1,250,527
Brann, Jr.
Richard F. 15,000 7.69% 52.31 12/16/2007 493,459 1,250,527
Bowman
Michael G. 7,500 3.85% 52.31 12/16/2007 246,728 625,263
Anzilotti
(1) Options granted to the named executive officers in 1997 vest over
a five-year period. All of the options that were granted in 1997 include a
provision that would accelerate the vesting of the options upon a "change in
control" of First Virginia. For an explanation of the "change in control"
provision, see "Directors' Compensation, Consulting Arrangements and Plans
Which Include Change in Control Arrangements."
(2) Options to purchase 195,000 shares of First Virginia Common Stock
were granted to employees during 1997. No freestanding SARs were granted in
1997 to employees, and none of the options that were granted had any tandem
SARs.
The following table shows for each of the named executive officers the
number of shares of First Virginia Common Stock acquired upon the exercise of
stock options and stock appreciation rights during 1997, the value realized
upon their exercise, the number of unexercised stock options and SARs at the
end of 1997, and the value of unexercised "in-the-money" stock options and
SARs at the end of 1997. Stock options or freestanding SARs are considered
"in-the-money" if the fair market value of the underlying securities exceeds
the exercise price of the option or SAR. Some of the stock options which
were granted to First Virginia's executive officers include a provision that
would accelerate the vesting of the options upon a "change in control" of
First Virginia. There were no unexercisable or exercisable freestanding SARs
owned by any of the named executive officers at year end.
Aggregated Options/SAR Exercises in 1997 and
Year-end Options
Value of
Unexercised
Number of In-the-
Unexercised Money Options
Options at at
Name Shares Year-end (#) Year-end($)
Acquired on Value Exercisable/ Exercisable/
Exercise(#) Realized($) Unexercisable Unexercisable
Barry J.
Fitzpatrick 8,144 253,554 27,478/75,000 958,459/1,056,186
Shirley C.
Beavers, Jr. 1,044 37,047 37,578/34,500 1,346,005/475,031
Raymond E.
Brann, Jr. 4,500 156,688 23,550/29,700 878,065/332,231
Richard F.
Bowman 4,621 166,082 20,150/33,000 704,375/430,250
Michael G.
Anzilotti - - 13,050/18,000 436,471/276,968
PENSION AND THRIFT PLANS AND SUPPLEMENTAL COMPENSATION ARRANGEMENTS
The following table shows the estimated annual benefit payable upon
retirement (life only) under the First Virginia Pension Trust Plan and under
the First Virginia Supplemental Pension Trust Plan based on specified
remuneration and years of credited service classifications, assuming a
participant retired on December 31, 1997, at age 65. Credited service in
excess of thirty years is also not taken into account in determining benefits
under either plan.
Annual Benefits Under First Virginia's Pension Trust Plan and
the First Virginia Supplemental Pension Trust Plan
Average
Annual Pay 10 Years 15 Years 20 Years 25 Years 30 Years
for Highest of of of of of
Five Years Service Service Service Service Service
$200,000 $30,535 $ 45,802 $ 61,070 $ 76,337 $ 91,604
$300,000 $46,535 $ 69,802 $ 93,070 $116,337 $139,604
$400,000 $62,535 $ 93,802 $125,070 $156,337 $187,604
$500,000 $78,535 $117,802 $157,070 $196,337 $235,604
$600,000 $94,535 $141,802 $189,070 $236,337 $283,604
$700,000 $110,535 $165,802 $221,070 $276,337 $331,604
Under the First Virginia Pension Trust Plan, a participant retiring at
age 65 with 30 years of credited service under the Plan will receive a
maximum annual pension benefit equal to 1.1% of average annual pay multiplied
by 30 years of credited service plus 0.5% of average annual pay in excess of
covered compensation multiplied by 30 years of credited service. The
calculation of "average annual pay" is based on annual compensation for the
highest five consecutive years out of the participant's final 10 years of
service. "Covered compensation" is calculated by multiplying the annual
average of Social Security taxable wage bases in effect for the 35 years
ending with the last day of the year in which the participant attains Social
Security retirement age. First Virginia also has the First Virginia
Supplemental Pension Trust Plan for certain key employees which provides for
the payment of supplemental pension benefits as a result of the IRS
restrictions on benefits under the First Virginia Pension Trust Plan. All of
the named executive officers (except for Mr. Fitzpatrick who would receive
benefits at retirement under a separate Supplemental Compensation Agreement)
participate in the Supplemental Pension Trust Plan.
Remuneration or earnings determining pension benefits under both the
Pension Trust Plan and the Supplemental Pension Trust Plan includes salaries
and bonuses (which are listed in the Summary Compensation Table) and any
other taxable compensation. Effective February 1, 1996, compensation
resulting from the exercise of nonqualified options, SARs, and deferred
compensation are excluded from the computation of benefits under both plans.
For purposes of determining benefits under the Pension Trust Plan, each of
the named executives had the following years of service as of December 31,
1997 (30 years is the maximum): Mr. Fitzpatrick, 28.4 years; Mr. Beavers,
28.3 years; Mr. Brann, 30 years; Mr. Bowman, 22.5 years; and Mr. Anzilotti,
19.2 years. If a participant retired on December 31, 1997, at age 65, the
participant would receive the pension benefits as determined by using the
Summary Compensation and Pension Tables shown above in conjunction with the
formula described in the previous paragraph.
Mr. Fitzpatrick's Supplemental Compensation Agreement ("Agreement")
provides him with supplemental retirement benefits in addition to those
pension benefits he would receive from the First Virginia Pension Trust Plan.
Under the Agreement, if he resigns, retires or leaves First Virginia for any
reason after reaching the age of 58, he is entitled to receive for the rest
of his life, supplemental compensation equal to sixty percent of the average
of his highest five years of annual salary and bonus, reduced by the amount
he would receive under the First Virginia Pension Trust Plan. Highest annual
salary includes salary and bonus and any profit sharing payments received
under the First Virginia Profit Sharing Plan but does not include any other
form of compensation that is not salary or bonuses, such as compensation
arising from the exercise of SARs and nonqualified options. To avoid a
possible doubling up of benefits from this Agreement and a separate
Employment Agreement (see below), payments to Mr. Fitzpatrick pursuant to his
Agreement would be delayed for three years upon a change of control. Should
Mr. Fitzpatrick die, his wife would be entitled to one-half of his total
annual benefit for the rest of her life. Under his Agreement, once benefits
begin to be paid, Mr. Fitzpatrick is to remain available to provide
consulting and advisory services if he is physically and mentally capable of
doing so. Furthermore, his benefits are forfeitable under certain
circumstances.
Messrs. Fitzpatrick, Beavers, Brann and Bowman have entered into
employment agreements with First Virginia which provide for their continued
employment for a three-year period following the date on which a "change of
control" takes place (the "Employment Period"). These agreements require
First Virginia (or any successor corporation) to employ the executive during
the Employment Period following a change of control in a position with
authority, duties and responsibilities at least commensurate to what the
executive had prior to a change of control, and at compensation levels
(including benefits) at least equal to what the executive was making prior to
the change of control. If, during the first year of his Employment Period,
the executive is terminated other than for "cause" or "disability" or the
executive terminates his employment for "good reason" (as those terms are
defined under the employment agreements), then First Virginia (or its
successor) would pay the executive a lump sum equal to 2.99 times the sum of
his annual base salary and bonus. If, during the second or third year of his
Employment Period, the executive is terminated other than for cause or
disability or terminates his employment for good reason, then First Virginia
or its successor would pay the executive a lump sum equal to two times the
sum of his annual base salary and bonus. During a thirty-day period after
the first year, the executive could terminate his employment for any reason
and receive two times the sum of his annual base salary and bonus.
Furthermore, if any payments made under the agreements subject the executive
to taxes under Internal Revenue Code Section 4999, such payments would be
"grossed up" to put the executive in the same after-tax position as if no
excise taxes had been imposed.
Executive officers, like other employees of First Virginia, are eligible
to participate in the First Virginia Banks, Inc. Employees' Thrift Plan
("Thrift Plan"). Under the Thrift Plan, employees of First Virginia and its
subsidiaries who have completed one year of service can contribute up to six
percent of their compensation and receive matching employer contributions
equal to 50% of their employee contributions. For the years when First
Virginia meets an earnings test under the Thrift Plan, First Virginia
contributes 75% of employee contributions. The Thrift Plan complies with
Section 401(k) of the Internal Revenue Code so that employee contributions
can be made on a pretax basis. Employees can direct the investment of their
contributions and the matching employer contributions into one or more of
three funds that are administered by the Trust Department of First Virginia
Bank. Reference is made to footnote 5 of the Summary Compensation Table for
the amount of contributions made on behalf of the named executive officers
under the Thrift Plan.
First Virginia also maintains a First Virginia Supplemental Benefits
Plan which provides supplemental retirement benefits for those key officers
who are restricted from receiving further benefits under the Thrift Plan as a
result of the limitation on pretax contributions imposed by the Internal
Revenue Code. Under the First Virginia Supplemental Benefits Plan, executive
officers can continue to make pretax contributions in excess of the IRS
limits imposed on the Thrift Plan and receive matching contributions from
First Virginia identical to what they would have received if they were in the
Thrift Plan and there were no limitations on contributions. Reference is
made to Footnote 5 of the Summary Compensation Table for the amount of the
employer contributions made on behalf of the named executive officers under
the First Virginia Supplemental Benefits Plan.
DIRECTORS' COMPENSATION, CONSULTING ARRANGEMENTS
AND PLANS WHICH INCLUDE CHANGE IN CONTROL ARRANGEMENTS
For 1998, directors of First Virginia who are not salaried officers will
be paid an annual retainer of $14,000 per year, a fee of $925 for each
meeting of the Board of Directors attended, and a fee of $725 for each
meeting of a Committee of the Board of Directors attended. Committee
chairmen will receive $875 for each committee meeting they chair. Directors
are reimbursed for out-of-town expenses incurred in connection with
attendance at Board and Committee meetings.
During 1997, Edwin T. Holland, the founder and former Chairman and Chief
Executive Officer of First Virginia, and Thomas K. Malone, Jr., former
Chairman and Chief Executive Officer of First Virginia, were paid $157,452
and $126,372, respectively, under supplemental compensation agreements, in
addition to amounts they received from the First Virginia Pension Trust Plan
and, in the case of Mr. Malone, in addition to his director fees. When
requested, both Holland and Malone are required to provide consulting
services under their supplemental compensation agreements. Also, during
1997, Robert H. Zalokar, former Chairman and Chief Executive Officer of First
Virginia, and Paul H. Geithner, Jr., former President and Chief
Administrative Officer of First Virginia, were paid $521,316 and $282,527,
respectively, under supplemental compensation agreements, in addition to
amounts they received from the First Virginia Pension Trust Plan and their
director fees. When requested, both Zalokar and Geithner are required to
provide consulting services under their supplemental compensation agreements.
First Virginia paid Mr. Zalokar's and Mr. Malone's country club
membership fees of $2,958 and $1,488, respectively, during 1997.
During 1997, Virginia H. Brown, formerly Virginia H. Beeton, received
$71,000 pursuant to her former husband's Supplemental Retirement Agreement
with First Virginia, in addition to what she received from the First Virginia
Pension Trust Plan. Her former husband, Ralph A. Beeton, who is now
deceased, was Chairman and Chief Executive Officer of First Virginia.
First Virginia also has two key employee salary reduction deferred
compensation plans, one of which began in 1983 and the other in 1986, and two
directors' deferred compensation plans, which also began in 1983 and 1986
("Deferred Compensation Plans"). Under the Deferred Compensation Plans,
participants elect to defer some or all of their compensation from First
Virginia, and First Virginia agrees to pay at normal retirement age or
earlier (or to participant's beneficiary or estate on participant's death) a
sum substantially in excess of what each participant has deferred. To fund
the benefits under the Deferred Compensation Plans, First Virginia has
purchased life insurance contracts on the lives of the participants, with
First Virginia as the beneficiary. For the period ending December 31, 1997,
none of the named executive officers of First Virginia deferred any
compensation under the Deferred Compensation Plans.
The 1983 deferred compensation plans include a provision regarding
"change in control." If there is a "change in control" of First Virginia,
and a director is terminated under the directors' plan, or in the case of the
employee plan, an employee is terminated "without cause" or the employee
terminates his/her employment for "good reason," as those terms are defined
under the employee plan, then the director or employee, as the case may be,
becomes entitled to receive his/her benefits under the 1983 Deferred
Compensation Plans at retirement, notwithstanding the fact that his/her
affiliation with First Virginia has terminated.
First Virginia has a Split Dollar Life Insurance Plan ("Split Dollar
Plan") which currently includes all executive employees of First Virginia
including those named in the Summary Compensation Table. Under the Split
Dollar Plan, an executive can purchase ordinary life insurance policies with
coverage of at least two times what is projected to be the executive's base
salary at retirement, up to a limit of $1,000,000. A portion of the premiums
will be loaned to the executives by First Virginia up to the later of ten
years or the executive's retirement date. At the end of this period, if
assumptions about mortality, dividends and other factors are realized, First
Virginia will recover all of its loans for premiums from the cash value of
the policy. The policy will then be transferred to the executive, who will
pay all further premiums, if any, under the policy. Executives who
participate in the Split Dollar Plan forego any insurance coverage over
$50,000 under the First Virginia Group Life Insurance Plan. During 1989, the
Split Dollar Plan was amended so that in the event of a "change in control,"
only the executive would have the right to terminate the policy.
First Virginia's Board of Directors approved in 1992 the establishment
of a trust with Chemical Bank (now The Chase Manhattan Bank) as the trustee
to partially secure the benefits of some of First Virginia's nonqualified
compensation plans, including the Deferred Compensation Plans and the First
Virginia Supplemental Benefits Plan, in case of a change in control. Under
the trust agreement establishing the trust, if a "change in control" takes
place, the trustee would pay the benefits under the covered compensation
plans out of the trust assets that have been contributed to the trust by
First Virginia, if First Virginia refused to pay the benefits. The trust is
considered a "grantor trust" subject to the claims of First Virginia's
general creditors. For accounting purposes, the trust assets are considered
corporate assets and, therefore, no balance sheet impact to First Virginia
will result from the establishment of the trust. The trust agreement does
not include a provision which would accelerate the vesting or payment of any
of the benefits under the covered compensation plans in case of a change in
control. During 1997, First Virginia did not make a contribution to the
Trust.
The 1983 deferred compensation plans, the Split Dollar Plan, the above-
described trust agreement with The Chase Manhattan Bank, Mr. Fitzpatrick's
Supplemental Compensation Agreement, certain stock option agreements, and the
above-described employment agreements all include change in control
provisions. Under this definition, a change in control means: (a) an
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i)
the then outstanding shares of First Virginia Common Stock or (ii) the
combined voting power of the then outstanding voting securities of First
Virginia entitled to vote generally in the election of directors (the
"Outstanding First Virginia Voting Securities"); provided, however, that any
acquisition directly from or by First Virginia or any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by First
Virginia or an affiliated company or any acquisition by a company pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of (c) below
would be excluded; or (b) individuals who, as of the date when the change in
control provisions were adopted, constitute the Board (the "Incumbent Board")
of First Virginia, cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director whose
election, or nomination for election by First Virginia's shareholders, was
approved by vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual was a member of
the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or (c) consummation of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of First Virginia (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding First Virginia Common
Stock and Outstanding First Virginia Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns First
Virginia or all or substantially all of First Virginia's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the outstanding First Virginia Common Stock and the
outstanding First Virginia Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of First Virginia or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or the action of the Board, providing for
such Business Combination; or (d) approval by the shareholders of First
Virginia of a complete liquidation or dissolution of First Virginia.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of First Virginia's Management Compensation and
Benefits Committee are Edward M. Holland, Eric C. Kendrick, John B. Melvin,
W. Lee Phillips, Jr., and Albert F. Zettlemoyer. Edward M. Holland is the
son of Edwin T. Holland, the founder and former Chairman and Chief Executive
Officer of First Virginia. As noted above, Edwin T. Holland receives a fee
from First Virginia pursuant to a Supplemental Compensation Agreement. Also,
as noted above, Edward M. Holland's sister, Virginia H. Brown, receives a
benefit pursuant to her former husband's Supplemental Retirement Agreement
with First Virginia. Albert F. Zettlemoyer's daughter is an officer of First
Virginia Insurance Services, Inc., a subsidiary of First Virginia. None of
the members of the Management Compensation and Benefits Committee served as
members of the compensation committees of another entity. No executive
officer of First Virginia served as a director of another entity that had an
executive officer serving on First Virginia's compensation committee. No
executive officer of First Virginia served as a member of the compensation
committee of another entity which had an executive officer who served as a
director of First Virginia.
MANAGEMENT COMPENSATION AND BENEFITS COMMITTEE
REPORT CONCERNING FIRST VIRGINIA'S
EXECUTIVE COMPENSATION POLICY
The Management Compensation and Benefits Committee (the "Committee") of
the Board of Directors establishes the policy for the compensation of the
executive officers of First Virginia. It is also responsible for
administering most of First Virginia's executive compensation programs. The
Committee is composed entirely of outside directors who are not eligible,
with the exception of the directors' deferred compensation plans, to
participate in the plans over which it has authority.
The overall goal of First Virginia's compensation policy is to motivate,
reward, and retain its key executive officers. The Committee believes this
should be accomplished through an appropriate combination of competitive base
salaries and, at times, both short-term and long-term incentives.
The primary components of First Virginia's executive compensation
program are base salaries, bonuses, (e.g., short-term compensation), and
equity compensation (e.g., long-term compensation). Executive officers also
participate in other broad-based employee compensation and benefit programs.
In its determination of executive compensation, the Committee noted the
potential effect of the one million dollar deduction limitation under Section
162(m) of the Internal Revenue Code but declined to alter its policy in
determining executive compensation to meet the requirements for deductibility
under Section 162(m) because the amount of compensation affected, if any, was
not material.
Base Salary
The Compensation Committee's policy for determining base salaries is
based on two primary factors:
(1) the degree of responsibility the executive officer has, his
experience, and the number of years he has been in office and
(2) the compensation levels of corresponding positions at other banking
companies of comparable size that compete with and serve the same markets as
First Virginia. This "Local Peer Group" of companies consists of Crestar
Financial Corporation, Central Fidelity Banks, Inc., and Signet Banking
Corporation based in Virginia, First Maryland Bancorp and Mercantile
Bankshares Corporation based in Maryland, First Tennessee National
Corporation based in Memphis and First American Corporation of Tennessee
based in Nashville. Base salaries are targeted to be the median salaries of
corresponding positions in the "Local Peer Group." For 1997, Mr.
Fitzpatrick's base salary was $600,000 which was equal to the median for
salaries paid to his counterparts in the "Local Peer Group."
Short-Term Incentives/Bonuses
The Committee grants bonuses to the executive officers and CEO based on
the extent to which First Virginia achieves or exceeds annual performance
objectives. The Compensation Committee may award bonuses to the CEO and to
the executive officers if First Virginia achieves a return on total average
assets (ROA) of at least 1% (the same basis for determining payments of
profit sharing to all employees). ROA generally is considered by the
Committee to be the most important single factor in measuring the performance
of a banking company, and achievement of a 1% ROA generally is considered by
the Committee to be the minimum for a good performing banking company.
Bonus awards are based on the following:
(a) The Committee establishes target amounts each year for return on
average assets ("ROA"), return on total stockholders' equity ("ROE"), asset
quality, and capital strength consistent with First Virginia's Profit Plan
target amounts. Up to 50% of an executive's salary may be awarded if the
corporation achieves an ROA equivalent to 80% or more of the ROA target
amount for the year. For the chief executive officer, First Virginia would
also have to achieve 80% of targeted amounts for ROE, asset quality as
determined by the ratio of nonperforming assets to total loans (NPA ratio)
and net loan charge-offs (CO ratio), and capital strength based on the
average equity-to-asset ratio (Equity/Asset ratio) and the Tier I risk-based
capital ratio); or
(b) Up to 30% of an executive's bonus may be awarded based on the
degree to which First Virginia's earnings, asset quality, and capital ratios
exceed the average for the other major banking companies based in the
Southeast, the "Southern Regional Peer Group," as compiled by Keefe, Bruyette
and Woods, the New York securities firm which specializes exclusively in the
banking and thrift industry; or
(c) Up to 20% of an executive's bonus may be awarded at the discretion
of the Committee based on an individual executive's performance.
Within the above parameters, at the beginning of each year, the
Committee establishes for the CEO a target bonus which is based on a
projected return on assets for First Virginia. At the end of the year, the
Committee considers a preliminary bonus after taking into account the target
bonus, First Virginia's actual return on assets for the year, and a formula
which is based on a set relationship between the actual versus the projected
return on assets.
The Committee then exercises its judgment in light of the foregoing
parameters and other considerations, including the Committee's view of
individual performance and potential and the recommendations of the CEO for
the executive officers (other than himself), to reach a bonus decision for
each executive officer and for the CEO. The Committee does not use a formula
to determine a final bonus decision. Among other things, Mr. Fitzpatrick's
bonus reflected First Virginia's success in achieving a 1.49% return on
assets (for the first nine months) and the other above-described results.
Consistent with the Committee's avoidance of a strict formula approach, no
specific weighting among the above 50%, 30% and 20% factors was specified.
The Committee believes that the use of the above approach provides a flexible
yet effective method of motivating First Virginia's management.
Listed below are the annualized ratios for First Virginia and the
Southern Regional Peer Group based on results for the first nine months of
1997, the latest data available to the Committee at the time the incentive
awards were considered.
First Virginia
---------------------
Profit Plan
or Target KBW Southern
Amount Actual Regional Peer Group
--------------------- -------------------
Earnings (Higher is better)
ROA 1.40% 1.49% 1.29%
ROE 13.09% 13.76% 15.11%
Asset Quality (Lower is better)
NPA .50% .43% .59%
CO .30% .30% .32%
Capital (Higher is better)
Equity/Asset Ratio 9.5% 11.20% 8.46%
Tier I Risk Based Capital 10.0% 12.79% 10.87%
First Virginia's actual results equaled or exceeded the profit plan or
target amount in every category and exceeded the Regional Peer Group in every
category except ROE. For that reason, the Committee awarded Mr. Fitzpatrick
a bonus of $325,000.
Long-Term Compensation/Stock Options
The Committee believes that the granting of stock options is the most
appropriate form of long-term compensation for executives and that such
awards of equity encourage the executive to achieve a significant ownership
stake in the success of First Virginia.
At the end of 1997, the Committee granted options covering a total of
195,000 shares of First Virginia Common Stock at $52.31 per share to the CEO
and to certain officers. Each option that was awarded by the Committee vests
over a five-year period in equal annual installments.
The size of each option award was not based on a formula and did not
necessarily correlate to the degree by which First Virginia's results
exceeded those of its Market Area Peer Group or the amount of each
executive's current stock-based holdings. Instead, the size of each award
was based on a number of factors, some of which were subjective, including
the performances of the CEO and each executive officer and the degree of
responsibility each executive officer has with First Virginia. Mr.
Fitzpatrick received options covering 30,000 shares. The size of his grant
was primarily based on the performance of First Virginia as described above.
Edward M. Holland
Eric C. Kendrick
John B. Melvin
W. Lee Phillips
Albert F. Zettlemoyer
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
No person is known by management of the Corporation to own beneficially,
directly or indirectly, more than five percent of any class of the
Corporation's voting securities. The number of shares of the Corporation's
voting securities beneficially owned by each of the Corporation's directors
and by all of its directors and officers as a group is shown in Part III,
item 10, on pages 80 through 83 of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
During the past year, certain of the directors and officers of First
Virginia and their associates had loans outstanding from First Virginia's
banking subsidiaries. Each of these loans was made in the ordinary course of
the lending bank's business. In some cases, where officers of First Virginia
or its subsidiaries had to be relocated, residential mortgage loans were made
by First Virginia at favorable interest rates. During 1995, First Virginia
made a below market rate residential mortgage loan in the amount of $400,000
at 7-5/8% to Raymond E. Brann, Jr., Executive Vice President of First
Virginia, as an inducement for him to relocate to Northern Virginia. The
interest benefit to him of that loan is included in the Summary Compensation
Table. However, none of the other named executive officers had any other
below market rate loans from First Virginia and none of them had any loans
from any of First Virginia's banking subsidiaries at favorable interest
rates. All other loans have been made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features. As of
December 31, 1997, the aggregate amount of loans outstanding to all directors
and executive officers of First Virginia and associates and members of their
immediate families was approximately $4,592,582.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
FINANCIAL STATEMENTS:
The following consolidated financial statements and report of
independent auditors of the Corporation and its subsidiaries are in Part II,
item 8 on the following pages:
Page
Consolidated Balance Sheets - December 31, 1997 and 1996 47/48
Consolidated Statements of Income - Three Years Ended
December 31, 1997 49/50
Consolidated Statements of Shareholders' Equity - Three Years
Ended December 31, 1997 51/52
Consolidated Statements of Cash Flows - Three Years Ended
December 31, 1997 53/54
Notes to Consolidated Financial Statements 55/77
Report of Ernst & Young LLP, Independent Auditors 79
EXHIBITS:
The following exhibits are filed as a part of this report:
(3)(i) Restated Articles of Incorporation are incorporated by reference
to Exhibit 3 of the 1993 Annual Report on Form 10K.
(3)(ii) Restated Bylaws
(4) Reference is made to First Virginia's Amendment to Form 8-A filed
with the Commission on September 29, 1997 for a complete copy of
the Amended and Restated Rights Agreement which describes the
Rights which are attached to all common stock certificates.
Instruments defining the rights of holders of the Corporation's
long-term debt are not filed herein because the total amount of
securities authorized thereunder does not exceed 10% of
consolidated total assets. The corporation hereby agrees to furnish
a copy of such instruments to the Commission upon its request.
(10) Management contract for Mr. Barry J. Fitzpatrick is incorporated by
reference to Exhibit 10 of the 1994 Annual Report on Form 10-K.
Management contracts for Messrs. Ralph A. Beeton, Paul H. Geithner,
Jr., Edwin T. Holland, Thomas K. Malone, Jr. and Robert H. Zalokar
are incorporated by reference to Exhibit 10 of the 1992 Annual
Report on Form 10-K. Also incorporated from that exhibit are: (1)
Key Employee Salary Reduction Deferred Compensation Plans and
Directors' Deferred Compensation Plans for 1983 and 1986 and (2) A
compensatory plan known as the Collateral Assignment Split Dollar
Life Insurance Agreement and Plan. (3) There are also four plans
relating to options and rights. The 1982 Incentive Stock Option
Plan is incorporated by reference to Post-effective Amendment
Number 2 to Registration Statement Number 2-77151 on Form S-8 dated
October 30, 1987. The 1986 Incentive Stock Option Plan,
Nonqualified Stock Option Plan and Stock Appreciation Rights
Planare incorporated by reference to Registration Statement Number
33-17358 on Form S-8 dated September 28, 1987. The 1991 Incentive
Stock Option Plan, Nonqualified Stock Option Plan and Stock
Appreciation Rights Plan is incorporated by reference to
Registration Statement Number 33-54802 on Form S-8 dated
November 20, 1992.
Also incorporated by reference to Exhibit 10 of the 1995 Annual
Report on Form 10K are Amendments to (1) Paragraph 1(a) of Barry J.
Fitzpatrick's Supplemental Compensation Agreement, which was
included in Exhibit 10 of the 1994 Annual Report on Form 10-K, (2)
Article VI, Section 6.03 of the Key Employee Salary Reduction
Deferred Compensation Plan, which was included in Exhibit 10 of the
1992 Annual Report on Form 10-K, and (3) the third paragraph of
Section 9 of the Collateral Assignment Split Dollar Life Insurance
Agreement and Plan, which was included in Exhibit 10 of the 1992
Annual Report on Form 10-K. These amendments are to include a
uniform "change in control" definition.
Incorporated by reference to Exhibit 10 of the 1996 Annual Report
on Form 10K is the Second Amendment to the Management Contract for
Mr. Barry J. Fitzpatrick, dated December 17, 1996. Also
incorporated by reference is Mr. Fitzpatrick's Supplemental
Compensation Agreement, which was included in Exhibit 10 of the
1994 Annual Report on Form 10K and an amendment to (1) Paragraph
1(a) which was included in Exhibit 10 of the 1995 Annual Report on
Form 10-K. Also incorporated by reference to Exhibit 10 of the 1996
Annual Report on Form 10K are employment agreements regarding
"Change of Control" for Mr. Barry J. Fitzpatrick, Shirley C.
Beavers, Jr., Richard F. Bowman, Raymond E. Brann, Jr. and Thomas
P. Jennings.
(12) Statement RE: Computation of Ratios.
(13) First Virginia Banks, Inc., 1997 Annual Report to its Shareholders.
(Not included in the electronic filing).
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
FINANCIAL STATEMENT SCHEDULES:
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
REPORTS ON FORM 8-K:
No reports on Form 8-K were required to be filed during the last quarter of
1997.
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed as of
March 25, 1998, on its behalf by the undersigned, thereunto duly authorized.
FIRST VIRGINIA BANKS, INC.
/s/ Barry J. Fitzpatrick
___________________________________
Barry J. Fitzpatrick, Chairman, President
and Chief Executive Officer
/s/ Richard F. Bowman
___________________________________
Richard F. Bowman, Senior Vice President,
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons as of March 25, 1998 on
behalf of the registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ Barry J. Fitzpatrick
____________________________ Chairman, President,
Barry J. Fitzpatrick Chief Executive Officer
and Director
/s/ Richard F. Bowman
____________________________ Principal Financial
Richard F. Bowman and Accounting
Officer
/s/ Edward L. Breeden III
____________________________ Director
Edward L. Breeden, III
/s/ Paul H. Geithner, Jr.
____________________________ Director
Paul H. Geithner, Jr.
/s/ L. H. Ginn III
____________________________ Director
L. H. Ginn, III
SIGNATURE TITLE
--------- -----
/s/ Gilbert R. Giordano
____________________________ Director
Gilbert R. Giordano
/s/ T. Keister Greer
____________________________ Director
T. Keister Greer
/s/ Elsie C. Gruver
____________________________ Director
Elsie C. Gruver
/s/ Edward M. Holland
____________________________ Director
Edward M. Holland
/s/ Eric C. Kendrick
____________________________ Director
Eric C. Kendrick
/s/ John B. Melvin
____________________________ Director
John B. Melvin
/s/ W. Lee Phillips, Jr.
____________________________ Director
W. Lee Phillips, Jr.
/s/ Josiah P. Rowe III
____________________________ Director
Josiah P. Rowe, III
/s/ Robert H. Zalokar
____________________________ Director
Robert H. Zalokar
/s/ Albert F. Zettlemoyer
____________________________ Director
Albert F. Zettlemoyer
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1997
ITEM 14
EXHIBITS
The Exhibits filed with this annual report are
included herein.
FIRST VIRGINIA BANKS, INC.
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
Exhibit 3 (ii)
BYLAWS
OF
FIRST VIRGINIA BANKS, INC.
(With Amendments through December 17, 1997)
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date each year that
shall be established by the board of directors; however, if no such date is
established, then the annual meeting shall be on the fourth Wednesday in
April each year, if not a legal holiday, and if so, then on the next
succeeding business day.
Section 2. Special Meetings. Except as provided in Article II, Section 4
of these bylaws, special meetings of the stockholders shall be called by the
president or secretary only at the written request of a majority of the
directors, provided that, if as of the date of the request for such special
meeting there is a Related Person as defined in Article X of the Articles of
Incorporation, such majority shall include a majority of the Continuing
Directors, as defined in Article X of the Articles of Incorporation or by the
holders of four-fifths (80%) of the voting power of all of the then
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors. The request shall state the purpose
or purposes for which the meeting is to be called. The notice of every
special meeting of stockholders shall state the purpose for which it is
called.
Section 3. Hour and Place of Meeting. All meetings of the stockholders may
be held at such hour and place within or without the State of Virginia as may
be provided in the notice of meeting.
Section 4. Notice of Meetings. Written notice of the annual and of any
special meeting of the stockholders shall be given not less than ten days nor
more than sixty days before the meeting (except as a different time is
specified by law), by or at the direction of the board of directors or the
person calling the meeting, to each holder of record of shares of the
corporation entitled to vote at the meeting, in person or by mail sent to the
address recorded on the stock transfer books of the corporation on the date
mailed, unless otherwise required by law. If any stockholder shall fail or
decline to furnish mailing address, then such notice need not be sent to him
unless required by law. All such notices should state the day, hour, place
and purpose(s) of the meeting, and the matters to be considered.
Section 5. Voting List. A complete list of the stockholders entitled to
vote at any meeting or any adjournment thereof, with the address of and
number of shares held by each on the record date, shall, for a period of ten
days prior to such meeting, be kept on file at the registered office or
principal place of business of the corporation or at the office of the
transfer agent or registrar and shall be subject to inspection by any
stockholder at any time during usual business hours except as such right of
inspection may be subject to limitations prescribed by law. Such list shall
also be produced and kept open at the time and place of the meeting and shall
be open to inspection by any stockholder during the whole time of the
meeting. Whenever the production or exhibition of any voting list, or of the
stock transfer books of the corporation, shall be required by law, the
production of a copy thereof certified correct by the transfer agent shall be
deemed to be substantial compliance with such requirement.
Section 6. Quorum. A majority of the shares entitled to vote, represented
in person or by proxy, shall constitute a quorum at a meeting of
stockholders. Once a quorum has been duly convened, the quorum shall not be
deemed broken by the departure of any stockholder or holder of a proxy. In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without notice other than by announcement at the meeting,
may adjourn the meeting from time to time until a quorum shall be present.
At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which could have been transacted at the meeting as
originally called.
Section 7. Organization. At all meetings of the stockholders, the chairman
of the board, or in his absence the vice chairmen, in the order of their
appointment, or in their absence the president, or in the absence of all of
them a person chosen by a majority of the stockholders represented in person
or by proxy and entitled to vote at the meeting shall preside as chairman of
the meeting. The secretary of the corporation, or in his absence or if he be
appointed chairman of the meeting, an assistant secretary shall act as
secretary at all meetings of the stockholders; but if neither the secretary
nor any assistant secretary be present and able to act as such, the chairman
may appoint any person to act as secretary of the meeting.
Section 8. Conduct of Meetings. Parliamentary rules as formulated by
Cushman, Robert's or Sturgis' Manual shall govern the conduct of all meetings
of the stockholders upon verbal announcement thereof by the chairman, except
that where such rules conflict with the provisions of these bylaws, the
statutes of Virginia, or the Articles of Incorporation, the provisions of the
said bylaws, statutes or Articles shall prevail. The chairman of all
meetings of the stockholders may announce from time to time such rules and
guidelines for the conduct of business as he may determine in his discretion.
Section 9. Voting. Except as otherwise provided by law or by Articles of
Serial Designation with respect to any class or classes of preferred stock
outstanding, each stockholder shall be entitled to one vote for each share of
stock held by him and registered in his name on the books of the corporation
on the date fixed by the resolution of the board of directors as the record
date for the determination of the stockholders entitled to notice of and to
vote at such meeting as more fully set forth elsewhere in these bylaws. Such
vote may be given in person or by proxy appointed by an instrument in writing
executed by a stockholder or his duly authorized attorney, and delivered to
the secretary of the meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided therein. If a quorum is present,
the affirmative vote of a majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the stock-
holders, except when a larger vote or a vote by class is required by the
Articles of Incorporation, any other provision of these bylaws or the laws of
the state of Virginia and except that in elections of directors those
receiving the greatest number of votes shall be deemed elected even though
not receiving a majority.
Section 10. Counting of Votes. The chairman shall appoint three tellers to
count the vote respecting the election of directors and any other questions
put to vote, whether such vote is by written ballot or by a show of hands or
by viva voce', and at least two out of three tellers shall certify in writing
the results of any such voting. Written ballots shall not be required unless
first decided upon by the chairman on matters to be brought before the
stockholders and a teller may but need not be, a stockholder of the
corporation.
Section 11. Stockholder Nominations. (a) Nominations of candidates for
election as directors at any annual meeting of stockholders may be made (i)
by, or at the direction of, a majority of the directors (provided that, if as
of the date of the nomination there is a Related Person as defined in Article
XI of the Articles of Incorporation, such majority shall include a majority
of the Continuing Directors, as defined in Article XI of the Articles of
Incorporation (such directors, whether or not they include the Continuing
Directors shall be referred to as the "directors" for the purposes of this
Section 11)) or (ii) by any stockholder of record entitled to vote at such
annual meeting. Only persons nominated in accordance with procedures set
forth in Section 11(b) shall be eligible for election as directors at an
annual meeting. (b) Nominations, other than those made by, or at the
direction of, a majority of the directors, shall be made pursuant to timely
notice in writing to the secretary of the corporation as set forth in this
Section 11(b). To be timely, a stockholder's notice shall be delivered to,
or mailed and received at, the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the
date of the scheduled annual meeting, regardless of postponements, deferrals,
or adjournments of that meeting to a later date; provided, however, that if
less than seventy (70) days' notice or prior public disclosure of the date of
the scheduled annual meeting is given or made, notice by the stockholder to
be timely must be so delivered or received not later than the close of
business on the tenth (10th) day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day
on which such public disclosure was made. Such stockholder's notice shall
set forth (i) as to each person whom the stockholder proposes to nominate for
election as a director (a) the name, age, business address and residence
address of such person, (b) the principal occupation or employment of such
person, (c) the class and number of shares of the Corporation's equity
securities which are beneficially owned (as such term is defined in Rule 13d-
3 or 13d-5 under the Securities Exchange Act of 1934 (the "Exchange Act")) by
such person on the date of such stockholder notice and (d) any other
information relating to such person that would be required to be disclosed
pursuant to Schedule 13D under the Exchange Act in connection with the
acquisition of shares, and pursuant to Regulation 14A under the Exchange Act,
in connection with the solicitation of proxies with respect to nominees for
election as directors, regardless of whether such person is subject to the
provisions of such regulations, including, but not limited to, information
required to be disclosed by Items 4(b) and 6 of Schedule 14A under the
Exchange Act and information which would be required to be filed on Schedule
14B under the Exchange Act with the Securities and Exchange Commission and
(ii) as to the stockholder giving the notice (a) the name and address, as
they appear on the corporation's books, of such stockholder and any other
stockholder who is a record or beneficial owner of any equity securities of
the corporation and who is known by such stockholder to be supporting such
nominee(s) and (b) the class and number of shares of the corporation's equity
securities which are beneficially owned, as defined above, and owned of
record by such stockholder on the date of such stockholder notice and the
number of shares of the corporation's equity securities beneficially owned
and owned of record by any person known by such stockholder to be supporting
such nominee(s) on the date of such stockholder notice. At the request of a
majority of the directors, any person nominated by, or at the direction of,
the Board of Directors for election as a director at an annual meeting shall
furnish to the secretary of the corporation that information required to be
set forth in a stockholder's notice of nomination which pertains to the
nominee.
(c) No person shall be elected as a director of the corporation unless such
person is nominated in accordance with the procedures set forth in Section 11
and is eligible to serve as a director under Article II of these bylaws.
Ballots bearing the names of all the persons who have been nominated for
election as directors at an annual meeting in accordance with the procedures
set forth in Section 11 and are eligible to serve as a director under Article
II of these bylaws shall be provided for use at the annual meeting. (d) A
majority of the directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of Section 11(b). If a
majority of the directors determines that the information provided in a
stockholder's notice does not satisfy the informational requirements of
Section 11(b) in any material respect, the secretary of the corporation shall
promptly notify such stockholder of the deficiency in the notice. The
stockholder shall have an opportunity to cure the deficiency by providing
additional information to the secretary within five (5) days from the date
such deficiency notice is given to the stockholder, or such shorter time as
may be reasonably deemed appropriate by a majority of the directors. If the
deficiency is not cured within such period, or if a majority of the directors
reasonably determines that the additional information provided by the
stockholder, together with the information previously provided, does not
satisfy the requirements of Section 11(b) in any material respect, then the
board of directors may reject such stockholder's nomination. The secretary
of the corporation shall notify a stockholder in writing whether his or her
nomination has been made in accordance with the time and informational
requirements of Section 11(b). Notwithstanding the procedure set forth in
this paragraph, if the majority of the directors does not make a
determination as to the validity of any nominations by a stockholder, the
chairman of the annual meeting shall determine and declare at the annual
meeting whether a nomination was not made in accordance with the terms of
Section 11(b). If the chairman of such meeting determines that a nomination
was not made in accordance with the terms of Section 11(b), he or she shall
so declare at the annual meeting and the defective nomination shall be
disregarded.
Section 12. Business to be Brought Before the Meeting. (a) At an annual
meeting of stockholders, only such business shall be conducted, and only such
proposals shall be acted upon as shall have been brought before the annual
meeting (i) by, or at the direction of, the majority of the directors
(provided that, if as of the date of the nomination there is a Related Person
as defined in Article XI of the Articles of Incorporation, such majority
shall include a majority of the Continuing Directors, as defined in Article
XI of the Articles of Incorporation (such directors, whether or not they
include the Continuing Directors shall be referred to as the "directors" for
the purposes of this Section 12)); or (ii) by any stockholder of the
corporation who complies with the notice procedures set forth in Section
12(b).
(b) For a proposal to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the secretary of the corporation. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive
offices of the corporation not less than sixty (60) days nor more than ninety
(90) days prior to the scheduled annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than seventy (70) days' notice or prior
public disclosure of the date of the scheduled annual meeting is given or
made, notice by the stockholder, to be timely, must be so delivered or
received not later than the close of business on the tenth (10th) day
following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public
disclosure was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business and any other stockholder
who is the record or beneficial owner (as defined in Section 11(a) of these
bylaws) of any equity security of the corporation known by such stockholder
to be supporting such proposal, (iii) the class and number of shares of the
corporation's equity securities which are beneficially owned (as defined in
Section 11(a) of these bylaws) and owned of record by the stockholder giving
the notice on the date of such stockholder notice and by any other record or
beneficial owners of the corporation's equity securities known by such
stockholder to be supporting such proposal on the date of such stockholder
notice, and (iv) any financial or other interest of the stockholder in such
proposal.
(c) A majority of the directors may reject any stockholder proposal not
timely made in accordance with the terms of Section 12(b). If a majority of
the directors determines that the information provided in a stockholder's
notice does not satisfy the informational requirements of Section 12(b) in
any material respect, the secretary of the corporation shall promptly notify
such stockholder of the deficiency in the notice. The stockholder shall have
the opportunity to cure the deficiency by providing additional information to
the secretary within such period of time, not to exceed five (5) days from
the date such deficiency notice is given to the stockholder, as the majority
of the directors shall reasonably determine. If the deficiency is not cured
within such period, or if the majority of the directors determines that the
additional information provided by the stockholder, together with information
previously provided, does not satisfy the requirements of this Section 12(b)
in any material respect, then a majority of the directors may reject such
stockholder's proposal. The secretary of the corporation shall notify a
stockholder in writing whether such person's proposal has been made in
accordance with the time and information requirements of Section 12(b).
Notwithstanding the procedures set forth in this paragraph, if the majority
of the directors does not make a determination as to the validity of any
stockholder proposal, the chairman of the annual meeting shall determine and
declare at the annual meeting whether the stockholder proposal was made in
accordance with the terms of Section 12(b). If the chairman of such meeting
determines that a stockholder proposal was not made in accordance with the
terms of Section 12(b), he or she shall so declare at the annual meeting and
any such proposal shall not be acted upon at the annual meeting.
(d) This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports,
no new business shall be acted upon at such annual meeting unless stated,
filed and received as herein provided.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by the board of directors subject to any requirement of
stockholder action.
Section 2. Number. The number of directors shall be fourteen (14).
Section 3. Terms of Directors. A person shall be elected to serve a term
of three years or to fill the unexpired term of the class to which the
directorship position has been assigned. A person appointed by the board to
fill the unexpired term of a directorship position shall stand for election
to that directorship position at the next stockholders' meeting at which
directors are elected. Except as required by law, no person who has reached
the age of 72 years shall be eligible to serve as a director, except that a
director who reaches the age of 72 years may continue to serve the unexpired
portion of the term for the class of the directorship position held by such
person. Notwithstanding the above, any person who has served or may serve as
chairman of the corporation in good standing until retirement and any person
who served as chairman of a subsidiary bank of the corporation on November 1,
1994, shall continue to be eligible to serve as a director for any class of
directorship position whose term shall not expire before such chairman shall
reach the age of 75 years.
Section 4. Vacancies. Any vacancy on the board of directors for any cause,
except a vacancy created by an increase by more than two in the number of
directors, may be filled for the unexpired portion of the term by a majority
vote of all of the remaining directors, though less than a quorum, given at a
regular meeting or at a special meeting called for that purpose. In case the
entire board shall die or resign, any stockholder may call a special meeting
of the stockholders upon notice as hereinbefore provided for meetings of the
stockholders, at which special meeting the directors for the unexpired
portion of the term may be elected.
Section 5. Fees. Nonemployee directors shall not receive any stated salary
for their services, but, by resolution of the board of directors, they may
receive a retainer, a fixed sum for attendance at each regular or special
meeting of the board and any meeting of any committee, and reimbursement for
expenses of attendance, if any, at board and committee meetings. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 6. Senior Advisory Board. The board of directors may appoint a
senior advisory board, the eligible members of which shall be such directors
of the corporation who served on the board of directors at the age of 72
years or who shall have resigned from the board because of poor health and
requested a transfer to it. The members of such board shall serve at the
pleasure of the corporation's board of directors until the next annual
meeting of stockholders. At the board meeting following each annual meeting
of stockholders, such member may be reappointed if such member has not then
reached the age of 75 years or, for any member who served as a director until
the age of 75 years, if such member has not then reached the age of 78;
however, under no circumstance shall a member be appointed more than two
times after the initial appointment. Members of the senior advisory board
shall receive notice of and be entitled to attend all regular meetings of the
corporation's board of directors and shall receive the same fees and expenses
as are paid to members, but will not be entitled to vote at such meetings.
Section 7. Stock Ownership of Directors. Every director shall be the owner
of stock of the corporation having a book value of not less than Five
Thousand Dollars ($5,000). Such stock must be unpledged and unencumbered at
the time such director becomes a director and during the whole of his term as
such. Any director violating the provisions of this section shall
immediately vacate his office.
ARTICLE III
DIRECTORS' MEETINGS
Section 1. Regular Meetings. Regular meetings of the board of directors
shall be held without other notice than this bylaw immediately after, and at
the same place as, the annual meeting of stockholders. Additional regular
meetings shall be held at least monthly. The board of directors may provide
by resolution the time and place, either within or without this state, for
the holding of additional regular meetings without other notice than such
resolution.
Section 2. Special Meetings. Special meetings of the board of directors
shall be held whenever called by the chairman of the board, by the president,
or by any two of the directors. Notice of each such meeting shall be mailed
to each director, addressed to his residence or usual place of business, at
least three days before the day on which the meeting is to be held, or shall
be sent to such place by telegraph or mailgram, or be delivered personally or
by telephone, not later than the day before the day on which the meeting is
to be held. Neither the business to be transacted at, nor the purpose of,
any special meeting need be specified in the notice or waiver of notice of
such meeting.
Section 3. Organization. At all meetings of the board of directors, the
chairman, or in his absence the vice chairmen in the order of their
appointment, or in their absence, the president (or in his absence the
executive vice president if a member of the board), or, in the absence of all
of them, any director selected by the board of directors shall act as chair-
man; and the secretary of the corporation, or, in his absence or if he be
elected chairman of the meeting, an assistant secretary, shall act as
secretary; but if neither the secretary nor any assistant secretary be
present and able to act as such, the chairman may appoint any person present
to act as secretary of the meeting.
Section 4. Quorum and Manner of Acting. Unless otherwise provided by law
or the Articles of Incorporation, a majority of the number of directors fixed
by the bylaws at the time of any regular or special meeting shall constitute
a quorum for the transaction of business at such meeting, and the act of a
majority of the directors present at any such meeting at which a quorum is
present shall be the act of the board of directors. In the absence of a
quorum, a majority of those present may adjourn the meeting from time to time
until a quorum be had. Notice of any such adjourned meeting need not be
given.
Section 5. Order of Business. At all meetings of the board of directors
business may be transacted in such order as from time to time the board may
determine.
Section 6. Action Without a Meeting. Any action which is required to be
taken at a meeting of the directors or of a director's committee may be taken
without a meeting if a consent in writing, setting forth the action so to be
taken, shall be signed either before or after such action by all of the
directors or by all of the members of the committee, as the case may be, and
such consent is filed in the minute book of the proceedings of the board or
committee. Such consent shall have the same force and effect as a unanimous
vote.
Section 7. Telephone Meetings. Members of the board of directors or any
committee designated thereby may participate in a meeting of such board or
committee by means of conference telephone or similar communications
equipment whereby all persons participating in the meeting can hear each
other, and a written record can be made of the action taken at the meeting.
ARTICLE IV
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The board of directors, by a resolution
adopted by a majority of the number of directors, may designate three or more
directors, to include the chairman, the vice chairmen, if one or more be
appointed, and the president, to constitute an executive committee. Members
of the executive committee shall serve until removed, until their successors
are designated or until the executive committee is dissolved by the board of
directors. All vacancies which may occur in the executive committee shall be
filled by the board of directors. The executive committee, when the board of
directors is not in session, may exercise all of the powers of the board of
directors except to approve an amendment to the Articles of Incorporation,
these bylaws, a plan of merger or consolidation, a plan of exchange under
which the corporation would be acquired, the sale, lease or exchange, or the
mortgage or pledge for a consideration other than money, of all, or
substantially all, the property and assets of the corporation otherwise than
in the usual and regular course of its business, the voluntary dissolution of
the corporation, or revocation of voluntary dissolution proceedings, and may
authorize the seal of the corporation to be affixed as required. The
executive committee may make its own rules for the holding and conduct of its
meetings (except that at least two members of the committee shall be
necessary to constitute a quorum), the notice thereof required and the
keeping of its records, and shall report all of its actions to the board of
directors.
Section 2. Management Compensation and Benefits Committee. The board of
directors shall, by resolution, appoint a Management Compensation and
Benefits Committee that shall be comprised entirely of "outside directors" as
that term is defined under proposed Item 402(j)(2) of Regulation S-K of the
Securities and Exchange Commission; that is, "directors who do not have
employment or consulting arrangements with the corporation or its affiliates
and who are not employed by an entity that has an employee of the corporation
serving as a member of a committee which establishes that entity's
compensation policy." (If, in the final SEC rules, Item 402(j)(2) of the
SEC's Regulation S-K includes a different definition of "outside directors"
than that described above, then these Bylaws will follow the definition as
stated in the final rules, as amended from time to time.) Such committee
shall fix its own rules and procedures and shall meet at least once each
year. The committee shall have the authority to establish the level of
compensation (including bonuses) and benefits of management of the
corporation. Such committee shall also have all of the authority vested
under any stock option or other equity-based compensation plan of the
corporation including but not limited to the authority to grant stock
options, stock appreciation rights, restricted or phantom stock, etc. to the
corporation's management.
Section 3. Public Policy Committee. The board of directors shall, by
resolution, appoint not less than three nor more than six of its members to
constitute a public policy committee. The board shall likewise designate the
chairman of the committee. In addition, the chairman of the board shall be
an ex-officio member of the public policy committee and shall be entitled to
vote on all matters coming before the committee. The committee shall
recommend to the board of directors the total amount of funds to be allocated
each calendar year for charitable contributions to be made by the
corporation. The committee shall have authority to approve contributions by
the corporation within the dollar limits set by the approved annual budget
and may delegate some or all of its authority for final approval to the chief
executive officer provided that all contributions approved by the chief
executive officer are subsequently reported to the committee for review. The
committee shall exercise general supervision over the corporation's matching
gifts program and shall have authority to add and/or delete those colleges
and universities eligible for inclusion in the program. The committee shall
monitor on an ongoing basis the programs developed for compliance with the
Community Reinvestment Act as well as Title VII of the Civil Rights Act of
1964 (Equal Employment Opportunity) and as a result may make recommendations
to the chief executive officer in respect thereto. The committee shall
perform such other duties and functions as shall be assigned to said
committee from time to time by the board of directors. The chairman of the
committee shall report regularly to the board of directors on the results of
its meetings. The committee shall meet quarterly except that it may
additionally meet on call of its chairman as may be necessary.
Section 4. Audit Committee. The Board of Directors shall appoint an Audit
Committee that shall be comprised entirely of directors who meet the standard
of independence set forth by the New York Stock Exchange for audit committees
of listed companies. Such committee shall be comprised of a minimum of three
members and shall fix its own rules and procedures. The committee shall meet
at least quarterly. The committee shall review the following: (1) with the
independent public accountant and management, the financial statements and
the scope of the corporation's audit; (2) with the independent public
accountant and management, the adequacy of the corporation's system of
internal procedures and controls, including the resolution of material
weaknesses; (3) with the corporation's internal auditors, the activities and
performance of the internal auditors; (4) with management and the independent
accountant, compliance with laws and regulations; (5) with management, the
selection and termination of the independent public accountant and any
significant disagreements between the independent public accountant and
management; and (6) the nonaudit services of the corporation's independent
public accountant. The committee, when so delegated by a member bank, shall
perform such audit committee functions for such bank as are requested by the
bank to fulfill its requirements under Section 36 of the Federal Deposit
Insurance Act and under the regulations and guidelines adopted by the FDIC to
implement Section 36. The committee shall also review any other matters
concerning auditing and accounting as it deems necessary and appropriate.
The committee, at its discretion, may retain counsel without prior permission
of the Board or management.
Section 5. Other Committees. Other committees with limited authority may
be designated by a resolution adopted by a majority of the directors present
at a meeting at which a quorum is present.
ARTICLE V
OFFICERS
Section 1. Number. The officers of the corporation may be a chairman of
the board, a president, one or more vice chairmen (who also may serve as a
consultant and advisor to the board but not as a full-time employee of the
corporation or any of its affiliates), one or more executive vice presidents,
one or more vice presidents (any one or more of whom may be designated as
senior vice presidents), a secretary, and a treasurer. At the discretion of
the board of directors, there may be one or more assistant vice presidents,
assistant secretaries, and assistant treasurers; a general counsel and one or
more assistant general counsel and assistant counsel; a general auditor, one
or more assistant general auditors and audit managers, an electronic data
processing auditor, and a trust auditor; a communications officer; one or
more marketing officers, and such other officer titles designated by the
board from time to time. The chairman of the board, the vice chairmen, and
the president shall be chosen from members of the board of directors. The
same person may hold any two of such offices, except the office of secretary
may not be held by any person holding the office of president.
Section 2. Election, Term of Office and Qualifications. Officers of the
corporation shall be chosen annually by the board of directors at its regular
meeting immediately following the annual meeting of stockholders, and each
officer shall hold office until the next annual meeting of stockholders and
until his successor shall have been chosen and qualified or until he shall
resign or shall have been removed in the manner hereinafter provided.
Section 3. Other Officers, Agents and Employees. The board of directors
may from time to time appoint such other officers as it may deem necessary,
to hold office for such time as may be designated by it or during its
pleasure, and may also appoint, from time to time, such agents and employees
of the corporation as may be deemed proper, or may authorize any officer to
appoint and remove such agents and employees, and may from time to time
prescribe the powers and duties of such officers, agents and employees of the
corporation in the management of its property and affairs, and may authorize
any officer to prescribe the powers and duties of agents and employees.
Section 4. Vacancies. If any vacancy shall occur among the officers of the
corporation, such vacancy shall be filled by the board of directors.
Section 5. Removal of Officers. Any officer or agent of the corporation
may be removed with or without cause at any time by the board of directors or
such officer as may be provided in the bylaws. Any person or agent appointed
or employed by the corporation otherwise than by the board of directors may
be removed with or without cause at any time by any officer having authority
to appoint whenever such officer in his absolute discretion shall consider
that the best interests of the corporation will be served thereby.
Section 6. Chairman of the Board. The chairman of the board shall be the
chief executive officer of the corporation and subject to the control of the
board of directors, shall have general direction of the business affairs and
property of the corporation and shall do and perform such other duties as may
be prescribed in these bylaws or which may be assigned to him from time to
time by the board of directors. The chairman of the board shall preside at
all meetings of the board of directors and at all meetings of the stock-
holders. He shall prescribe the duties and have general supervision over all
other officers, employees and agents of the corporation enumerated in these
bylaws or established by resolution of the board of directors or otherwise,
and shall have the power to appoint, employ, suspend or remove with or
without the advice of the board of directors any such officer, employee or
agent unless otherwise specifically provided in these bylaws, and shall fix
the salaries of all such officers, employees and agents of the corporation
and its subsidiaries within the limits established from time to time by the
board of directors. He shall have power to sign all stock certificates,
deeds, contracts and other instruments authorized by the board of directors
or its executive committee unless other direction is given therefor, and he
shall be a member of all standing committees of the board except the account-
ing and auditing committee and the management compensation and benefits
committee.
Honorary Chairman of the Board. The board of directors may appoint a former
full-time officer who has held the office of chairman of the board of the
corporation to the position of honorary chairman of the board and provide
such person with a reasonable amount of office space as long as desired by
him. If appointed, such person shall act as chairman of the senior advisory
board as such body exists from time to time.
Section 7. Vice Chairmen of the Board. The board of directors may appoint
one or more vice chairmen of the board and, if any such officers are
appointed, may assign such specific duties to any one of them as it deems
necessary and advisable. Such officers may, but need not, be full-time
salaried employees of the corporation. Any such full-time vice chairmen
shall report to the corporation's chief executive officer and shall perform
such duties as such officers may prescribe and assign from time to time.
Section 8. Succession of Duties. The bylaw duties of the chairman of the
board may be exercised and carried out by any vice chairmen when such have
been appointed by the board of directors in the absence or disability of the
chairman of the board in order of their appointment; if no vice chairmen are
so appointed, then the president shall carry out such duties in the absence
of the chairman of the board; and in the absence of the president, the
executive vice president or any vice president in the order of their election
shall carry out all such duties in the absence or disability of the chairman
of the board.
Section 9. President. The president shall be the chief administrative
officer of the corporation and as such shall perform such duties as the
chairman of the board or the board of directors may prescribe from time to
time by resolution or as may be prescribed by these bylaws. He shall
exercise all the powers and discharge all the duties of the chairman of the
board during the latter's absence or inability to act. He shall have
concurrent power with the chairman of the board to sign all deeds, contracts
and instruments authorized by the board of directors or its executive
committee unless the board otherwise directs, and he may be a member of the
standing committees of the board except the accounting and auditing committee
when appointed by the board. He shall report to the chairman of the board in
carrying out his assignments and in conducting the affairs of his office.
Section 10. Executive Vice President. The board of directors may elect one
or more executive vice presidents and any such person so elected to such
office shall perform such duties as the board of directors or the chairman of
the board may assign and prescribe from time to time.
Section 11. Vice Presidents. Each vice president shall have such powers
and perform such duties as the board of directors or the chairman may from
time to time prescribe, and shall perform such other duties as may be
prescribed in these bylaws. Each vice president shall have power to sign all
deeds, contracts and instruments authorized by the board of directors or its
executive committee unless they otherwise direct. In case of the absence or
inability to act of the president, and the executive vice presidents in the
order of their appointments, then such vice president as the board of
directors may designate for the purpose (but in the absence of such
designation then the vice presidents in order of appointment) shall have the
powers and discharge the duties of the president.
Section 12. Secretary. The secretary shall keep the minutes of all
meetings of the stockholders, the board of directors and meetings of
committees of the board as they are held, in a book or books kept for that
purpose. He shall keep in safe custody the seal of the corporation and he
may affix such seal to any instrument duly executed on behalf of the
corporation. The secretary shall have charge of the certificate books and
such other books and papers as the board of directors may direct. He shall
attend to the giving and serving of all notices of the corporation, and shall
also have such other powers and perform such other duties as pertain to his
office, or as from time to time may be assigned to him by the board of
directors or the corporation's chief executive officer.
Section 13. Treasurer. The treasurer shall be the principal financial and
accounting officer of the corporation. He shall have charge of the funds,
securities, receipts and disbursements of the corporation, and shall deposit
all moneys and other valuable effects in the name and to the credit of the
corporation in such banks or other depositaries as the board of directors may
from time to time designate. He shall render to the chairman of the board,
or to the board of directors, or to the president, whenever any of them shall
require him so to do, an account of the financial condition of the
corporation and its affiliates and all of his transactions as treasurer. He
shall keep correct books of account of all its business and transactions. If
required by the board of directors, he shall give a bond in such sum and on
such conditions and with such surety as the board of directors may designate,
for the faithful performance of the duties of his office and the restoration
to the corporation, at the expiration of his term of office, or, in case of
his death, resignation or removal from office, of all books, papers,
vouchers, money or other property of whatever kind in his possession
belonging to the corporation. He shall also have such other powers and
perform such other duties as pertain to his office or as from time to time
may be assigned to him by the board of directors or the president.
Section 14. General Counsel. The general counsel, if one be appointed,
shall have charge of all litigation of the corporation, and shall keep
himself advised of the character and progress of all legal proceedings and
claims by and against the corporation or in which it is interested by reason
of its ownership and control of other corporations. He shall give to the
board of directors reports from time to time on all legal matters affecting
the corporation and, when requested, his opinion upon any question affecting
the interests of the corporation. He may, with the consent of the chief
executive officer, employ on behalf of the corporation special counsel for
the handling of any legal matter pertaining to the business of the
corporation which he deems necessary and advisable. The general counsel may,
but need not be, a full-time salaried officer of the corporation. He shall
from time to time consult with the corporation's legal advisory committee on
legal matters affecting the corporation and its affiliates.
Section 15. General Auditor. The general auditor, if one be appointed,
shall perform such internal auditing and accounting functions with regard to
the member banks and companies as the board of directors or any appropriate
committee thereof may from time to time determine, and shall have such
additional powers and duties as may be prescribed by these bylaws and as the
board of directors or any appropriate committee thereof may from time to time
determine, and shall have additional responsibilities and duties in con-
nection therewith as may be prescribed by these bylaws, applicable laws and
regulations or the board of directors or any appropriate committee thereof.
Except as stated, the general auditor and other auditing staff shall be
subject to day-to-day administrative direction of the chief executive officer
of the corporation and any such officer or employee may be dismissed by the
chief executive officer for reasons as may be applied in dismissing any other
personnel of the corporation, provided that a report of any such dismissal of
internal auditing personnel with the reasons therefor shall be made to the
board of directors or its executive committee at the next succeeding meeting
thereof. All other officers and personnel appointed or assigned to assist in
the internal audit function of the corporation, its member banks and
companies, may be assigned such day-to-day duties and responsibilities as may
be necessary by the general auditor to carry out the responsibilities of the
internal audit function. The office of general auditor may not be held by
any person holding other offices in the corporation or its affiliates except
with the specific approval of the board of directors.
Section 16. Assistant Secretary. In the absence or disability of the
secretary, the assistant secretary (or if more than one, then the assistant
secretary designated by the board of directors or the president for such
purpose) shall perform all the duties of the secretary and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon,
the secretary. Each assistant secretary shall also perform such other duties
as from time to time may be assigned to him by the board of directors, the
chief executive officer or the secretary.
Section 17. Assistant Treasurer. In the absence or disability of the
treasurer, the assistant treasurer (or if more than one, then the assistant
treasurer designated by the board of directors or the chief executive officer
for such purpose) shall perform all the duties of the treasurer and, when so
acting, shall have all the powers of, and be subject to all restrictions
upon, the treasurer. Each assistant treasurer shall also perform such other
duties as from time to time may be assigned to him by the board of directors,
the chief executive officer or the treasurer.
Section 18. Administrative Committees. The Chairman of the Board may
designate administrative committees to assist the Chairman in the day-to-day
operation of the corporation. Each committee shall have such authority of
the Chairman as the Chairman may delegate and shall be comprised of officers
of the corporation. Membership on such committees shall be at the request of
the Chairman of the Board, who shall appoint or remove members with or
without the advice of the board of directors, unless otherwise specifically
provided in these bylaws. The Chairman shall advise the board of directors
annually of the current committees and members thereof.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates. Certificates representing shares of the capital
stock of the corporation shall be in such form as is permitted by law and
prescribed by the board of directors or the chief executive officer and shall
be signed by the persons authorized to sign the same by the bylaws or
specific resolution of the board of directors. Certificates may, but need
not be, sealed with the seal of the corporation or a facsimile thereof. The
signature of the officers upon such certificates may be facsimiles if the
certificate is countersigned by a transfer agent or registered by registrar
other than the corporation itself or an employee of the corporation. In case
any officer who has signed or whose facsimile signature has been placed upon
a stock certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the date of its issue.
Section 2. Issue and Registration of Certificates: Transfer Agents and
Registrars. Transfer agents and/or registrars for the stock of the
corporation may be appointed by the board of directors and may be required to
countersign stock certificates. Certificates of stock shall be issued in
consecutive order and the certificate books shall be kept at an office of the
corporation or at the office of the transfer agent. Certificates shall be
numbered and registered in the order in which they are issued. New
certificates and, in the case of cancellation, old certificates, shall,
before they are delivered, be passed to a registrar if one is appointed by
the board of directors, and such registrar shall register the issue or
transfer of such certificates. Upon the return of the certificates by the
registrar, the new certificates shall be delivered to the person entitled
thereto.
Section 3. Transfer of Stock. The stock of the corporation shall be
transferable or assignable on the books of the corporation by the holders in
person or by attorney on surrender of the certificates for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a
written power of attorney to have the same transferred on the books of the
corporation.
Section 4. Lost, Destroyed and Mutilated Certificates. Holders of the
stock of the corporation shall immediately notify the corporation of any
loss, destruction or mutilation of the certificate therefor, and the board of
directors may in its discretion, or any officer of the corporation appointed
by the board of directors for that purpose may in his discretion, cause one
or more new certificates for the same number of shares in the aggregate to be
issued to such stockholder upon the surrender of the mutilated certificate or
upon satisfactory proof of such loss or destruction and the deposit of a bond
in such form and amount and with such surety as the board of directors may
require.
Section 5. Record Date. For the purposes of determining stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other proper purpose,
the board of directors may fix in advance a date as the record date for any
such determination of stockholders, such date in any case to be not more than
fifty days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If no record date is fixed for
the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the board of directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of stockholders. When a determination of stockholders entitled to vote at
any meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
ARTICLE VII
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS,
SECURITIES, ETC.: AUTHORITY OF OFFICERS
Section 1. Contracts. The board of directors may authorize any officer or
officers, agent or agents to enter any contract or to execute and deliver any
instrument on behalf of the corporation, and such order may be general or
confined to specific instances.
Section 2. Loans. The board of directors may authorize any officer or
officers, agent or agents to effect loans and advances at any time for the
corporation from any bank, trust company, insurance company, or other
institution, or from any person, firm, association, or corporation, and in
connection with such loans and advances to make, execute and deliver
promissory notes or other evidences of indebtedness of the corporation, and,
as security for the payment of any and all loans, advances, indebtedness and
liabilities of the corporation, to pledge, hypothecate or transfer any and
all stocks, securities and other personal property at any time held by the
corporation, and to that end to transfer, endorse, assign and deliver the
same in the name of the corporation. Such authority may be general or
confined to specific instances, except that any pledge, hypothecation or
transfer of the capital stock or assets of any subsidiary corporation shall
be authorized only by a specific resolution of the board of directors.
Section 3. Bank Accounts. All funds of the corporation, not otherwise
employed, shall be deposited from time to time to the credit of the
corporation in such banks or trust companies or other depositaries as the
board of directors may select.
Section 4. Checks, Securities, Etc. All checks, drafts or orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation, all stock powers, endorsements, assignments, or other
instruments for the transfer of securities held by the corporation shall be
executed and delivered by, and all such securities shall be voted and proxies
for the voting thereof shall be executed and delivered by such officer or
officers, agent or agents to whom the board of directors shall delegate the
power, and under such conditions and restrictions as they may impose.
ARTICLE VIII
MISCELLANEOUS
Section 1. Fiscal Year. The fiscal year of the corporation shall begin on
the first day of January and end on the thirty-first day of December in each
year.
Section 2. Dividends. The board of directors may from time to time
declare, and the corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and its Articles
of Incorporation.
Section 3. Corporate Seal. The board of directors shall provide a
corporate seal which shall be circular in form and shall have inscribed
thereon the name of the corporation, the state of Virginia, and year of
incorporation and the words, "Corporate Seal".
ARTICLE IX
EMERGENCIES
Section 1. Emergency Bylaws. During any emergency resulting from an attack
on the United States or any nuclear or atomic disaster, which is declared to
be such by an appropriate agency of the state or federal government, these
bylaws shall be modified (but only to the extent required by such emergency)
as follows:
a. A meeting of the board of directors may be called by any officer
or director by giving at least one hour's notice to such of the directors as
it may be feasible to reach at the time and by such means as may be feasible
at the time, including publication or radio.
b. The directors in attendance at the meeting, if not less than
three, shall constitute a quorum. To the extent required to constitute a
quorum at any meeting of the board of directors, the officers of the
corporation who are present shall be deemed, in order of rank and within the
same rank in order of seniority, directors for such meeting. For purposes of
this bylaw, officers shall rank as follows: chairman of the board, vice
chairmen, president, executive vice president, senior vice president, vice
president, secretary, treasurer, assistant vice president, assistant
secretary, and assistant treasurer. Officers holding similar titles shall
rank in the order of their appointment.
Section 2. Termination of Emergency. Except as provided in this article,
the regular bylaws of the corporation shall remain in full force and effect
during any emergency, and upon its termination, these emergency bylaws shall
cease to be operative.
ARTICLE X
AMENDMENTS
The board of directors shall have the power to alter, amend or repeal any
bylaws of the corporation and to adopt new bylaws; but any bylaws made by the
board of directors may be repealed or changed, and new bylaws made, by the
stockholders, who may prescribe that any bylaw made by them shall not be
altered, amended or repealed by the board of directors.
FIRST VIRGINIA BANKS, INC.
BYLAWS
With Amendments through December 17, 1997
FIRST VIRGINIA BANKS, INC.
BYLAWS
Table of Contents
Page
ARTICLE I - MEETING OF STOCKHOLDERS. . .. . . . . . . . . . . . . . . . . .1
Section 1. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . .1
Section 3. Hour and Place of Meeting. . . . . . . . . . . . . . . . . . .1
Section 4. Notice of Meeting. . . . . . . . . . . . . . . . . . . . . . .1
Section 5. Voting List. . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 7. Organization . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 8. Conduct of Meetings. . . . . . . . . . . . . . . . . . . . . .2
Section 9. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 10. Counting of Votes. . . . . . . . . . . . . . . . . . . . . . .2
Section 11. Stockholder Nominations. . . . . . . . . . . . . . . . . . . .3
Section 12. Business to be Brought Before the Annual Meeting . . . . . . .4
ARTICLE II - BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . .6
Section 1. General Powers . . . . . . . . . . . . . . . . . . . . . . . .6
Section 2. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3. Terms of Directors . . . . . . . . . . . . . . . . . . . . . .6
Section 4. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 5. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 6. Senior Advisory Board . . . . . . . . . . . . . . . . . . . .6
Section 7. Stock Ownership of Directors . . . . . . . . . . . . . . . . .6
ARTICLE III - DIRECTORS' MEETINGS . . . . . . . . . . . . . . . . . . . . .7
Section 1. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . .7
Section 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . .7
Section 3. Organization . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 4. Quorum and Manner of Acting. . . . . . . . . . . . . . . . . .7
Section 5. Order of Business. . . . . . . . . . . . . . . . . . . . . . .7
Section 6. Action Without a Meeting . . . . . . . . . . . . . . . . . . .7
Section 7. Telephone Meetings . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE IV - COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . . .8
Section 1. Executive Committee. . . . . . . . . . . . . . . . . . . . . .8
Section 2. Management Compensation and
Benefits Committee. . . . . . . . . . . . . . . . . . . .8
Section 3. Public Policy Committee. . . . . . . . . . . . . . . . . . . .8
Section 4. Audit Committee. . . . . . . . . . . . . . . . . . . . . . . .9
Section 5. Other Committees . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE V - OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 1. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 2. Election, Term of Office, and Qualifications . . . . . . . . 10
Section 3. Other Officers, Agents, and Employees. . . . . . . . . . . . 10
Section 4. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5. Removal of Officers. . . . . . . . . . . . . . . . . . . . . 10
Section 6. Chairman of the Board . . . . . . . . . . . . . . . . . . . 10
Honorary Chairman of the Board. . . . . . . . . . . . . . . 10
Section 7. Vice Chairmen of the Board . . . . . . . . . . . . . . . . . 11
Section 8. Succession of Duties . . . . . . . . . . . . . . . . . . . . 11
Section 9. President . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10. Executive Vice President . . . . . . . . . . . . . . . . . . 11
Section 11. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . 11
Section 12. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 13. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 14. General Counsel . . . . . . . . . . . . . . . . . . . . . . 12
Section 15. General Auditor . . . . . . . . . . . . . . . . . . . . . . 12
Section 16. Assistant Secretary . . . . . . . . . . . . . . . . . . . . 12
Section 17. Assistant Treasurer . . . . . . . . . . . . . . . . . . . . 13
Section 18. Administrative Committees . . . . . . . . . . . . . . . . . 13
ARTICLE VI - CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1. Certificates . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. Issue and Registration of Certificates:
Transfer Agents and Registrars . . . . . . . . . . . . 13
Section 3. Transfer of Stock . . . . . . . . . . . . . . . . . . . . . 13
Section 4. Lost, Destroyed, or Mutilated Certificates . . . . . . . . . 13
Section 5. Record Date . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS,
SECURITIES, ETC.: AUTHORITY OF OFFICERS . . . . . . . . . 14
Section 1. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Checks, Securities, Etc. . . . . . . . . . . . . . . . . 14
ARTICLE VIII - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX - EMERGENCIES . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Emergency Bylaws . . . . . . . . . . . . . . . . . . . . . . 15
Section 2. Termination of Emergency . . . . . . . . . . . . . . . . . . 15
ARTICLE X - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT 12
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS
Year Ended December 31
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data and ratios)
Ratios - Page 10
- ----------------
Book Value Per Share:
Total shareholders'
equity $1,011,156 $ 871,277 $ 869,647 $ 806,888 $ 691,501
Preferred stock 583 647 695 746 805
---------- ---------- ---------- ---------- ----------
Common shareholders'
equity 1,010,573 870,630 868,952 806,142 690,696
Common shares
outstanding 51,817 48,612 50,927 51,075 48,666
Book value per share $ 19.50 $ 17.91 $ 17.06 $ 15.79 $ 14.19
========== ========== ========== ========== ==========
Ratios - Page 11
- ----------------
Return on Average Assets:
Net income $ 124,845 $ 116,341 $ 111,599 $ 113,221 $ 116,024
Average assets 8,659,845 8,145,963 7,941,224 7,157,784 6,890,738
Return on average
assets ratio 1.44% 1.43% 1.41% 1.58% 1.68%
========== ========== ========== ========== ==========
Return on Average Equity:
Net income $ 124,845 $ 116,341 $ 111,599 $ 113,221 $ 116,024
Average shareholders'
equity 953,109 869,791 836,387 718,442 651,461
Return on average
equity ratio 13.10% 13.38% 13.34% 15.76% 17.81%
========== ========== ========== ========== ==========
Net Interest Margin:
Net interest income
(taxable equivalent) $ 414,198 $ 380,510 $ 365,142 $ 349,469 $ 347,946
Total average
earning assets 7,957,748 7,521,408 7,291,540 6,619,785 6,369,351
Net interest margin
ratio 5.20% 5.06% 5.00% 5.28% 5.46%
========== ========== ========== ========== ==========
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS (Continued)
Year Ended December 31
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(in thousands, except ratios)
Risk-Based Capital:
Tier 1:
Tier 1 risk-based
capital $ 837,522 $ 780,695 $ 777,501 $ 725,258 $ 678,139
Risk weighted assets 6,473,851 5,754,997 5,042,824 4,912,312 4,026,386
Tier 1 risk-based
capital ratio 12.94% 13.57% 15.42% 14.76% 16.84%
========== ========== ========== ========== ==========
Total Capital:
Total risk-based
capital $ 905,586 $ 843,456 $ 835,423 $ 784,118 $ 728,481
Risk weighted assets 6,473,851 5,754,997 5,042,824 4,912,312 4,026,386
Total risk-based
capital ratio 13.99% 14.66% 16.57% 15.96% 18.09%
========== ========== ========== ========== ==========
Tier 1 Leverage Ratio:
Tier 1 risk-based
capital $ 837,522 $ 780,695 $ 777,501 $ 725,258 $ 678,139
Total quarterly
average assets 8,788,009 8,055,381 8,071,746 7,078,376 7,007,511
Tier 1 leverage ratio 9.53% 9.69% 9.63% 10.25% 9.67%
========== ========== ========== ========== ==========
Capital Strength:
Average shareholders'
equity 953,109 869,791 836,387 718,442 651,461
Average assets 8,659,845 8,145,963 7,941,224 7,157,784 6,890,738
Capital strength ratio 11.01% 10.68% 10.53% 10.04% 9.45%
========== ========== ========== ========== ==========
Dividends Declared:
Common dividends
declared, per share 1.05 0.96 0.91 0.85 0.75
Net income, per share 2.47 2.34 2.19 2.34 2.39
Dividends as percent
of net income 42.59% 41.24% 41.42% 36.41% 31.58%
========== ========== ========== ========== ==========
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS (Continued)
Year Ended December 31
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(in thousands, except ratios)
Ratios - Page 37
- ----------------
Net Loan Losses to Average Loans:
Net charge-offs:
Credit card $ 8,480 $ 6,765 $ 5,481 $ 3,821 $ 3,758
Indirect automobile 6,125 3,944 1,644 408 725
Other 1,901 1,632 855 492 699
Real estate (129) 175 149 95 22
Commercial 1,048 379 1,150 126 (82)
---------- ---------- ---------- ---------- ----------
Net charge-offs $ 17,425 $ 12,895 $ 9,279 $ 4,942 $ 5,122
---------- ---------- ---------- ---------- ----------
Average loans:
Credit card $ 176,296 $ 180,577 $ 171,585 $ 146,429 $ 134,102
Indirect automobile 2,111,638 1,812,105 1,666,029 1,493,932 1,241,906
Other 1,478,092 1,463,948 1,454,779 1,448,672 1,293,455
Real estate 1,096,448 962,891 924,763 667,382 691,048
Commercial 849,224 752,135 738,337 630,724 597,811
---------- ---------- ---------- ---------- ----------
Average loans $5,711,698 $5,171,656 $4,955,493 $4,387,139 $3,958,322
---------- ---------- ---------- ---------- ----------
Ratios by category:
Credit card 4.81% 3.75% 3.19% 2.61% 2.80%
Indirect automobile 0.29 0.22 0.10 0.03 0.06
Other 0.13 0.11 0.06 0.03 0.05
Real estate (0.01) 0.02 0.02 0.01 -
Commercial 0.12 0.05 0.16 0.02 (0.01)
---------- ---------- ---------- ---------- ----------
Total net charge-offs
to average loans 0.31% 0.25% $ 0.19% 0.11% 0.13%
========== ========== ========== ========== ==========
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS (Continued)
1997
----------------------------------------------
Quarter Ended
----------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
---------- ---------- ---------- ----------
(in thousands, except ratios)
Ratios - Page 45
- ----------------
Rates Earned on Assets:
Interest income
(taxable equivalent) $ 164,890 $ 166,587 $ 157,787 $ 146,561
Total earning assets 8,202,358 8,217,963 7,857,720 7,550,354
Rates earned on assets 8.02% 8.08% 8.02% 7.87%
========== ========== ========== ==========
Rates Paid on Liabilities:
Interest expense $ 58,268 $ 58,405 $ 54,647 $ 51,607
Total interest-bearing
liabilities 6,429,625 6,455,955 6,192,191 5,959,376
Rates paid on liabilities 3.60% 3.59% 3.54% 3.46%
========== ========== ========== ==========
Net Interest Margin:
Net interest income
(taxable equivalent) $ 106,621 $ 108,181 $ 103,141 $ 96,245
Total average
earning assets 8,202,358 8,217,963 7,857,720 7,550,354
Net interest margin ratio 5.20% 5.26% 5.23% 5.10%
========== ========== ========== ==========
Return on Average Assets:
Net income $ 29,377 $ 34,718 $ 31,353 $ 29,397
Average assets 8,961,643 8,974,147 8,532,192 8,169,319
Return on average
assets ratio 1.31% 1.55% 1.47% 1.44%
========== ========== ========== ==========
Return on Average Equity:
Net income $ 29,377 $ 34,718 $ 31,353 $ 29,397
Average shareholders'
equity 1,003,669 999,916 912,709 871,591
Return on average
equity ratio 11.71% 13.89% 13.74% 13.49%
========== ========== ========== ==========
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS (Continued)
1996
----------------------------------------------
Quarter Ended
----------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
---------- ---------- ---------- ----------
(in thousands, except ratios)
Ratios - Page 43
- ----------------
Rates Earned on Assets:
Interest income
(taxable equivalent) $ 149,691 $ 148,595 $ 147,765 $ 146,748
Total earning assets 7,567,637 7,489,403 7,534,770 7,493,629
Rates earned on assets 7.88% 7.91% 7.84% 7.83%
========== ========== ========== ==========
Rates Paid on Liabilities:
Interest expense $ 53,039 $ 52,143 $ 52,447 $ 54,669
Total interest-bearing
liabilities 5,975,347 5,917,509 5,965,463 5,989,060
Rates paid on liabilities 3.53% 3.51% 3.54% 3.67%
========== ========== ========== ==========
Net Interest Margin:
Net interest income
(taxable equivalent) $ 96,652 $ 96,452 $ 95,318 $ 92,079
Total average
earning assets 7,567,637 7,489,403 7,534,770 7,493,629
Net interest margin ratio 5.09% 5.14% 5.04% 4.90%
========== ========== ========== ==========
Return on Average Assets:
Net income $ 30,798 $ 28,586 $ 28,574 $ 28,383
Average assets 8,197,088 8,105,571 8,150,046 8,130,426
Return on average
assets ratio 1.50% 1.41% 1.40% 1.40%
========== ========== ========== ==========
Return on Average Equity:
Net income $ 30,798 $ 28,586 $ 28,574 $ 28,383
Average shareholders'
equity 872,293 861,434 869,872 873,662
Return on average
equity ratio 14.12% 13.27% 13.14% 13.00%
========== ========== ========== ==========
SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21
December 31, 1997
State of Incorporation and
Headquarters Location
---------------------------
First Virginia Banks, Inc. Falls Church, Virginia
Banking Subsidiaries:
Northern Region:
First Virginia Bank Falls Church, Virginia
First General Mortgage Company Falls Church, Virginia
First Virginia Mortgage Company Falls Church, Virginia
First Virginia Commercial Corporation Falls Church, Virginia
First Virginia Card Services, Inc. Falls Church, Virginia
First Virginia Credit Services, Inc. Falls Church, Virginia
Maryland Region:
First Virginia Bank-Maryland Upper Marlboro, Maryland
Farmers Bank of Maryland Annapolis, Maryland
Colonial Securities Corporation Wilmington, Delaware
C.B. Properties, Inc. Bel Air, Maryland
C.B. Properties II, Inc. Bel Air, Maryland
Atlantic Bank Ocean City, Maryland
The Caroline County Bank Greensboro, Maryland
Eastern Region:
First Virginia Bank of Tidewater Norfolk, Virginia
First Virginia Bank-Colonial Richmond, Virginia
First Virginia Bank-Commonwealth Grafton, Virginia
Southwest Region:
First Virginia Bank-Southwest Roanoke, Virginia
First Virginia Bank-Franklin County Rocky Mount, Virginia
First Virginia Bank-Piedmont Lynchburg, Virginia
First Virginia Bank-Clinch Valley Tazewell, Virginia
Shenandoah Valley Region:
First Virginia Bank-Blue Ridge Staunton, Virginia
Tennessee-Western Virginia Region:
First Virginia Bank-Mountain Empire Abingdon, Virginia
Tri-City Bank and Trust Company Blountville, Tennessee
First Vantage Bank-Tennessee Knoxville, Tennessee
Nonbanking Subsidiaries
First Virginia Insurance Services, Inc. Falls Church, Virginia
First Virginia Insurance Services of
Maryland, Inc. Falls Church, Virginia
First Virginia Services, Inc. Falls Church, Virginia
First Virginia Life Insurance Company Falls Church, Virginia
Springdale Advertising Agency, Inc. Falls Church, Virginia
Northern Operations Center, Inc. Falls Church, Virginia
Southwest Operations Center, Inc. Falls Church, Virginia
Eastern Operations Center, Inc. Falls Church, Virginia
United Land Corporation Upper Marlboro, Maryland
Springdale Temporary Services, Inc. Falls Church, Virginia
First General Leasing Company Falls Church, Virginia
Farmers National Land Corporation Annapolis, Maryland
Maryland Operations Center, Inc. Annapolis, Maryland
All of the organizations listed above are 100% owned by First Virginia Banks,
Inc., or one of its subsidiary banks.
Exhibit 23
Consent of Independent Auditors
Board of Directors
First Virginia Banks, Inc.
We consent to the incorporation by reference into Registration Statement
Number 33-30465 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, and Registration Statement Number
33-17358 on Form S-8 dated September 28, 1987, of our report dated
January 20, 1998, with respect to the consolidated financial statements of
First Virginia Banks, Inc. included in this Annual Report (Form 10-K) for the
year ended December 31, 1997.
/s/ Ernst & Young LLP
_____________________
Ernst & Young LLP
Washington, D.C.
March 25, 1998