FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission file number 1-6580
March 31, 1998
FIRST VIRGINIA BANKS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0497561
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code
(703) 241-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
On April 30, 1998, there were 51,842,435 shares of common
stock outstanding.
This report contains a total of 25 pages.
1
INDEX
Page
---------
PART I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31,
1998 and 1997, (Unaudited), and December 31, 1997 3/ 4
Condensed Consolidated Statements of Income - Three
months ended March 31, 1998 and 1997 (Unaudited) 5/ 6
Condensed Consolidated Statements of Cash Flows - Three
months ended March 31, 1998 and 1997 (Unaudited) 7
Condensed Consolidated Statements of Shareholders'
Equity - Three months ended March 31, 1998
and 1997 (Unaudited) 8
Notes to Condensed Consolidated Financial
Statements (Unaudited) 9/13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13/18
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature 19
Exhibit 12 - Statement re: Computation of Ratios 20
Exhibit 15 - Independent Accountants' Review
Report from Ernst & Young LLP 21
Exhibit 15A - Letter of Acknowledgement of
Ernst & Young LLP, Independent Accountants 22
Exhibit 27 - Financial Data Schedules 23
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31 March 31
1998 1997 1997
---------- ---------- ----------
(Unaudited) (Unaudited)
(In thousands)
ASSETS
Cash and due from banks $ 398,354 $ 386,832 $ 339,377
Money market investments 340,263 243,162 426,173
---------- ---------- ----------
Total cash and cash equivalents 738,617 629,994 765,550
---------- ---------- ----------
Mortgage loans held for sale 21,084 18,953 13,835
Investment securities - available for sale
(at market value) 23,437 - -
Investment securities - held to maturity
(market values of $2,146,904, $1,954,155
and $1,803,212 2,141,825 1,946,944 1,815,004
Loans, net of unearned income 5,858,520 5,937,978 5,329,160
Deduct: Allowance for loan losses (67,117) (68,064) (62,468)
---------- ---------- ----------
Net loans 5,791,403 5,869,914 5,266,692
---------- ---------- ----------
Other earning assets 21,473 21,444 19,685
Premises and equipment 165,441 164,301 147,102
Intangible assets 186,257 174,976 92,609
Accrued income and other assets 180,209 185,111 141,535
---------- ---------- ----------
Total Assets $9,269,746 $9,011,637 $8,262,012
========== ========== ==========
3
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
March 31 December 31 March 31
1998 1997 1997
---------- ---------- ----------
(Unaudited) (Unaudited)
(In thousands)
LIABILITIES
Deposits:
Noninterest-bearing $1,520,248 $1,460,784 $1,334,518
Interest-bearing:
Interest checking/savings plan 1,406,234 1,391,962 1,295,932
Money market accounts 849,106 772,067 716,406
Savings deposits 1,160,411 1,124,058 1,117,005
Consumer certificates of deposit 2,461,759 2,444,132 2,256,509
Large denomination
certificates of deposit 423,693 426,839 345,913
---------- ---------- ----------
Total deposits 7,821,451 7,619,842 7,066,283
Short-term borrowings 274,476 251,687 236,638
Long-term indebtedness 3,875 2,826 3,700
Accrued interest and other liabilities 139,315 126,126 99,111
---------- ---------- ----------
Total Liabilities 8,239,117 8,000,481 7,405,732
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value 551 583 645
Common stock, $1 par value 51,841 51,817 47,706
Capital surplus 93,359 92,971 -
Retained earnings 882,803 865,785 807,929
Accumulated other comprehensive income 2,075 - -
---------- ---------- ----------
Total Shareholders' Equity 1,030,629 1,011,156 856,280
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $9,269,746 $9,011,637 $8,262,012
========== ========== ==========
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31
1998 1997
-------- --------
(In thousands, except per-share data)
Interest income:
Loans $127,349 $114,297
Mortgage loans held for sale 268 166
Investment securities -
available for sale 141 -
Investment securities -
held to maturity 26,584 27,064
Money market investments 7,363 4,706
Other earning assets 367 328
------- -------
Total interest income 162,072 146,561
------- -------
Interest expense:
Deposits 54,152 48,974
Short-term borrowings 3,211 2,590
Long-term indebtedness 47 43
------- -------
Total interest expense 57,410 51,607
------- -------
Net interest income 104,662 94,954
Provision for loan losses 4,084 3,342
------- -------
Net interest income after provision
for loan losses 100,578 91,612
------- -------
5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued) (Unaudited)
Three Months Ended
March 31
1998 1997
------- -------
(In thousands, except per-share data)
Net interest income after provision
for loan losses 100,578 91,612
------- -------
Noninterest income:
Service charges on deposit
accounts 10,873 9,889
Insurance premiums and
commissions 1,770 1,567
Credit card service charges
and fees 2,768 2,633
Trust services 2,601 2,248
Electronic banking service fees 2,734 2,350
Income from other customer
services 3,464 3,463
Securities gains (losses) before
income tax provisions
of $177 and $(3) 506 (9)
Other 1,731 1,092
------- -------
Total noninterest income 26,447 23,233
------- -------
Noninterest expense:
Salaries and employee benefits 43,632 39,677
Occupancy 6,353 5,808
Equipment 6,915 5,836
Advertising 2,225 1,738
Printing and supplies 1,756 1,641
Credit card processing fees 1,936 1,929
Amortization of intangibles 3,421 2,125
Other 12,522 10,987
------- -------
Total noninterest expense 78,760 69,741
------- -------
Income before income taxes 48,265 45,104
Provision for income taxes 16,723 15,707
------- -------
NET INCOME $31,542 $29,397
======= =======
Net income per share of common stock
Basic $.61 $.61
Diluted .61 .60
Average shares of common stock outstanding
Basic 51,828 48,550
Diluted 52,110 48,807
See notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31
1998 1997
-------- --------
(In thousands)
Net cash provided by operating activities $ 38,791 $ 33,190
-------- --------
Investing activities:
Proceeds from the maturity of
held to maturity securities 604,304 199,890
Proceeds from the maturity or sale of
available for sale securities 538 -
Purchase of held to maturity securities (806,080) (195,146)
Purchase of available for sale securities (14,077) -
Net decrease in loans 74,426 31,992
Net increase in other earning assets (29) (13)
Purchases of premises and equipment (4,862) (2,258)
Sales of premises and equipment 351 141
Intangible assets acquired (14,698) -
Other 18,656 15,055
-------- --------
Net cash (used for)
provided by investing activities (141,471) 49,661
-------- --------
Financing activities:
Net increase in deposits 201,609 23,633
Net increase in short-term borrowings 22,789 2,150
Principal payments on long-term borrowings (279) (176)
Proceeds from long-term borrowings 1,328
Cash dividends - common, $.28 and $.25 per share (14,515) (12,267)
Cash dividends - preferred (9) (11)
Stock repurchases and related transactions 99 (32,759)
Proceeds from issuance of common stock 281 338
-------- --------
Net cash provided by (used for)
financing activities 211,303 (19,092)
-------- --------
Net increase in cash and
cash equivalents 108,623 63,759
Cash and cash equivalents at beginning of year 629,994 701,791
-------- --------
Cash and cash equivalents at end of period $738,617 $765,550
======== ========
See notes to condensed consolidated financial statements.
7
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Accum-
ulated
Pre- Other Total
ferred Common Compre- Share-
Stock Stock Capital Retained hensive holders'
$10 Par $1 Par Surplus Earnings Income Equity
------- ------- -------- -------- ------ ----------
(Dollars in thousands)
Balance January 1, 1997... $ 647 $48,612 $ 27,327 $794,691 $ - $ 871,277
Net income*............... - - - 29,397 - 29,397
Conversion of preferred
to common stock......... (2) - 2 - - -
Issuance of shares for
stock options and stock
appreciation rights..... - 17 321 - - 338
Common stock repurchases
and related transactions - (923) (27,650) (4,186) - (32,759)
Dividends declared:
Preferred stock......... - - - (11) - (11)
Common stock
$0.25 per share - - - (11,962) - (11,962)
------- ------- -------- -------- ------ ----------
Balance March 31, 1997.... $ 645 $47,706 $ - $807,929 $ - $ 856,280
======= ======= ======== ======== ====== ==========
Balance January 1, 1998... $ 583 $51,817 $ 92,971 $865,785 $ - $1,011,156
Comprehensive income:
Net income.............. - - - 31,542 - 31,542
Unrealized gains on
securities, net of
tax of $1,117 - - - - 2,075 2,075
----------
Total comprehensive income - - - - - 33,617
----------
Conversion of preferred
to common stock......... (32) 7 25 - - -
Issuance of shares for
stock options............ - 17 264 - - 281
Common stock repurchases
and related transactions - - 99 - - 99
Dividends declared:
Preferred stock......... - - - (9) - (9)
Common stock
$0.28 per share - - - (14,515) - (14,515)
------- ------- -------- -------- ------ ----------
Balance March 31, 1998.... $ 551 $51,841 $ 93,359 $882,803 $2,075 $1,030,629
======= ======= ======== ======== ====== ==========
* There are no adjustments to net income to determine comprehensive income
for the three months ended March 31, 1997.
See notes to condensed consolidated financial statements.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
The foregoing unaudited consolidated financial statements include the
accounts of the corporation and all of its subsidiaries. The corporation's
subsidiaries are predominantly engaged in banking. Foreign banking activities
and operations other than banking are not significant. All material
intercompany transactions and accounts have been eliminated. The unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the results of operations for each of the periods.
Certain amounts previously reported in 1997 have been reclassified for
comparative purposes. All prior periods have been restated to reflect a three-
for-two common stock split on September 3, 1997. Effective for the first
quarter, the corporation adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income".
2. ACQUISITIONS
On May 24, 1997, the acquisition of Premier Bankshares Corporation by the
corporation was consummated. Premier Bankshares Corporation was the bank
holding company for Premier Bank-South, N.A., in Wytheville, Virginia; Premier
Bank-Central, N.A., in Honaker, Virginia; and Premier Bank, N.A., in Tazewell,
Virginia. These banks became wholly owned subsidiary banks of the corporation
as a result of the acquisition and have since been merged into various existing
banks of First Virginia. Shares of the corporation's common stock totaling
5.431 million were issued and were valued at $29.96 per share. The acquisition
was accounted for using the purchase method of accounting and, accordingly, the
financial information for 1997 has not been restated.
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 1997. 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.
Three Months Ended
March 31
1997
--------
(In thousands, except
per-share data)
Total interest income $161,359
Total interest expense 57,773
Provision for loan losses 3,482
Noninterest income 24,192
Noninterest expense 75,257
Provision for income taxes 16,825
--------
Net income $ 32,214
========
Net income per share - basic $ .60
- diluted .59
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
3. INVESTMENT SECURITIES
The following reflects the amortized cost of securities and the related
approximate market values (in thousands):
March 31, 1998 March 31, 1997
Amortized Market Amortized Market
Cost Value Cost Value
---------- ---------- ---------- ----------
Securities available for sale:
U.S. Government and
its agencies $ 12,847 $ 12,809 $ - $ -
Other 7,399 10,628 - -
---------- ---------- ---------- ----------
$ 20,246 $ 23,437 $ - $ -
========== ========== ========== ==========
Securities held to maturity:
U.S. Government and
its agencies $1,991,437 $1,994,046 $1,686,660 $1,673,723
State and municipal obligations 148,914 151,376 128,333 129,467
Other 1,474 1,482 11 22
---------- ---------- ---------- ----------
$2,141,825 $2,146,904 $1,815,004 $1,803,212
========== ========== ========== ==========
4. LOANS
Loans consisted of (in thousands):
March 31
1998 1997
---------- ----------
Consumer:
Automobile installment $2,464,160 $2,185,721
Home equity, fixed- and variable-rate 1,005,351 959,328
Revolving credit plans,
including credit cards 184,674 198,502
Other 351,559 273,475
Real estate:
Construction and land development 112,513 109,024
Commercial mortgage 567,498 526,606
Residential mortgage 518,048 547,106
Other, including Industrial
Development Authority loans 94,142 88,617
Commercial 560,575 440,781
---------- ----------
Loans, net of unearned income
of $174,774 and $220,799 $5,858,520 $5,329,160
========== ==========
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
5. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was (dollars in thousands):
Three Months Ended
March 31
1998 1997
------- -------
Balance at beginning of period $68,064 $62,761
Provision charged to expense 4,084 3,342
------- -------
72,148 66,103
Less:
Loans charged off, net of
recoveries of $1,010 and $851 5,031 3,635
------- -------
Balance at March 31 $67,117 $62,468
======= =======
Percentage of annualized net
charge-offs to average loans .34% .27%
Percentage of allowance for loan
losses to period-end loans 1.15 1.17
Percentage of nonperforming assets
to period-end loans .41 .45
6. FEDERAL INCOME TAX
The reconcilement of income tax computed at the federal statutory tax
rates to the provision for income taxes was as follows (dollars in thousands):
Three Months Ended
March 31
1998 1997
------------- -------------
Amount Percent Amount Percent
------- ----- ------- -----
Statutory rate $16,893 35.0% $15,787 35.0%
Nontaxable interest on
municipal obligations (1,000)(2.1) (873)(1.9)
Other items 830 1.8 793 1.7
------- ---- ------- ----
Effective rate $16,723 34.7% $15,707 34.8%
======= ==== ======= ====
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
7. PREFERRED AND COMMON STOCK
There are 3,000,000 shares of preferred stock, par value $10.00 per
share, authorized. The following four series of cumulative convertible stock
were outstanding:
March 31 December 31 March 31
Series Dividends 1998 1997 1997
--------- --------- -------- ----------- --------
A 5% 19,704 20,111 21,364
B 7% 3,340 4,890 5,750
C 7% 9,788 9,788 9,836
D 8% 22,276 23,534 27,591
------ ------ ------
55,108 58,323 64,541
====== ====== ======
The Series A, Series B and Series D shares are convertible into two and
one fourth shares of common stock, and the Series C shares are convertible
into one and eight-tenths shares of common stock. All of the preferred stock
may be redeemed at the option of the corporation for $10.00 per share.
There are 60,000,000 shares of common stock, par value $1.00 per share,
authorized and 51,841,000, 51,817,000 and 47,706,000 shares were outstanding
at March 31, 1998, December 31, 1997, and March 31, 1997, respectively.
Options to purchase 625,278 shares of common stock were outstanding on March
31, 1998. A total of 799,891 shares of common stock were reserved at March
31, 1998: 119,587 shares for the conversion of preferred stock and 680,304
shares for stock options and stock appreciation rights.
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 March 31, 1997, each outstanding share of common stock had 4/9ths of a
right attached thereto.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
8. EARNINGS PER SHARE
Earnings per share computations are as follows (in thousands, except per
share data):
Three Months Ended
March 31
1998 1997
-------- --------
Basic:
Average common shares outstanding 51,828 48,550
======== ========
Net income $ 31,542 $ 29,397
Preferred stock dividends 9 10
-------- --------
Net income applicable to
common stock $ 31,533 $ 29,387
======== ========
Net income per share of common stock $ .61 $ .61
======== ========
Diluted:
Average common shares outstanding 51,828 48,550
Dilutive effect of stock options 157 116
Conversion of preferred stock 125 141
-------- --------
Total average common shares 52,110 48,807
======== ========
Net income $ 31,542 $ 29,397
======== ========
Net income per share of common stock $ .61 $ .60
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUARTERLY RESULTS
Net income in the first quarter increased 7.3% to $31,542,000 compared
to the $29,397,000 earned in the prior year's first quarter and was up 7.4%
compared to the $29,377,000 earned in the fourth quarter of 1997. As a
result of a higher number of shares outstanding, diluted earnings per share
increased at a lesser rate of 1.7% to $.61 per share compared to $.60 in the
first quarter of 1997 but was up 8.9% compared to the $.56 earned in the
fourth quarter of 1997.
The return on average assets for the quarter was 1.39% compared to 1.44%
in the prior year's first quarter and is still one of the best of the 100
largest banks in the country. The return on average equity declined to
12.37% in the first quarter of 1998 compared to the 13.49% earned in the
prior year's first quarter and is below the 1997 peer group average for
similarly sized banks of 16.03%. The decline in the return on average equity
was due to a faster relative pace of growth of capital than in assets and
income. The corporation has historically placed a high importance on safety
13
and soundness and maintains a capital ratio higher than its peer group of
banks. During the first quarter of 1998, the average equity to average
assets ratio was 11.26% compared to 10.67% in the prior year's first quarter
and is higher than the peer group average for similarly sized banks during
1997 of 8.98%. During the first quarter of 1998, the corporation did not
repurchase any shares of its common stock.
During the first quarter of 1998, the corporation completed the
acquisition of seven former Signet Bank branches on the Eastern Shore of
Maryland and Virginia with approximately $150 million in deposits and
announced the future acquisition of an additional five branches with $89
million in deposits on Maryland's Eastern Shore from the Bank of Maryland.
This pending acquisition is expected to occur late in the second quarter. The
acquisition of these deposits will greatly enhance the corporation's position
in the important and growing markets of the Eastern Shore and will give First
Virginia the second largest branch network in that area.
The first quarter is usually one of weak deposit activity, but the
corporation has been experiencing strong new account activity in 1998. In
addition to the deposits acquired from Signet, internal deposit growth was up
strongly in the last several weeks of the quarter and into the beginning of
the second quarter. Market disruptions from the acquisitions of several
other Virginia banks by out-of-state banks encouraged customers to seek the
superior service, personal attention and locally responsive management that
are the hallmarks of First Virginia. As a result, average deposits rose at
an annualized 3.2% rate over the fourth quarter to $7.639 billion in the
first quarter of 1998.
Loan activity was slow in the first quarter and average loans declined
$33.7 million compared to the fourth quarter of 1997. Low interest rates for
consumer real estate loans prompted a surge in refinance activity and
resulted in a high level of payoffs of both first mortgage loans and home
equity loans as consumers consolidated their old debt into a new first
mortgage loan. Indirect automobile loans were moderately strong and rose an
annualized 5.7% by the end of the first quarter compared to the end of 1997.
Commercial loan activity increased at an annualized 17.2% in the first
quarter compared to the fourth quarter, with growth in dealer automobile
inventory financing being primarily responsible.
The net interest margin advanced four basis points to 5.14% compared to
the 1997 first quarter at a time when many other banks are experiencing a
contraction in their margins. The improvement in the net interest margin was
largely due to increases in non-interest bearing demand deposits and in an
increased equity level. Both the yield on earnings assets and the cost of
interest bearing liabilities rose eight basis points over the first quarter
of 1997. First Virginia has achieved a net interest margin of 5.00% or better
every year since 1978.
Asset quality remains excellent. Nonperforming assets declined 9.2% to
$23.998 million compared to December 31, 1997, and equaled a record low .41%
of outstanding loans. This compares to $26.424 million or .44% of loans at
December 31, 1997, and $24.220 and .45% of loans at March 31, 1997. Net
charge-offs increased to $5.031 million or .34% of loans in the first quarter
compared to $3.635 million or .27% of loans in the prior year's first quarter
and .32% of loans in the fourth quarter. Loans past due 90 days or more of
$14.451 million or .25% of loans declined slightly compared to the $14.734
million or .25% of loans at the end of 1997. The allowance for loan losses
14
at March 31, 1998, of $67.117 million represented 1.15% of outstanding loans,
unchanged from the end of the fourth quarter. The allowance for loan losses
covered annualized net charge-offs 3.33 times and amounted to 348% of
nonperforming loans. The provision for loan losses in the first quarter
declined to $4.084 million compared to $4.756 million in the fourth quarter
due to the decline in outstanding loans.
A summary of nonperforming and delinquent loans is as follows:
March 31
1998 1997
------- -------
(Dollars in thousands)
Nonaccruing loans $17,284 $15,053
Restructured loans 1,978 4,189
Foreclosed real estate 4,736 4,978
------- -------
Total $23,998 $24,220
======= =======
Percentage of total loans .41% .45%
======= =======
Loans past due 90 days or more $14,451 $ 8,290
======= =======
Percentage of total loans .25% .16%
======= =======
Noninterest income increased 13.8% compared to the prior year's first
quarter, and was up 11.6% excluding a $.506 million gain on the sale of
securities in the first quarter of 1998. Service charges on deposit accounts
rose 10.0% while income from insurance activities rose 13.0%. Income from
trust and asset management services continued to advance strongly as it has
for the past several years, and was up 15.7% compared to the prior year's
first quarter. Income from electronic banking services rose 16.3% compared
to the prior year.
Noninterest expense rose 12.9% compared to the prior year's first
quarter but was down 3.1% compared to the fourth quarter of 1997. Expenses
increased compared to the prior year's first quarter as a result of both the
acquisition of Premier Bankshares in May of 1997 and the Signet branches in
the first quarter of 1998. The company began to receive the full benefits of
reduced expenses with the completed integration of Premier late in the fourth
quarter of 1997. The efficiency ratio was virtually unchanged at 57% compared
to the prior year's first quarter and was down compared to the 59% in the
fourth quarter of 1997.
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
15
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 $19.8 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.
16
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
(Dollars in thousands)
Three Months Ended March 31
1998
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment securities-available for sale:
U.S. Government $ 15,199 $ 141 3.75%
Investment securities-held to maturity:
U.S. Government and its agencies 1,628,619 24,561 6.08
State and municipal obligations
(Fully taxable-equivalent basis) 154,664 2,763 7.14
Other (Fully taxable-equivalent basis) 1,550 24 6.24
---------- --------
Total investment securities 1,800,032 27,489 6.16
---------- --------
Loans, net of unearned income:
Installment 3,985,723 86,530 8.80
Real estate 1,025,922 22,154 8.64
Other (Fully taxable-equivalent basis) 889,704 19,299 8.86
---------- --------
Total loans 5,901,349 127,983 8.74
---------- --------
Mortgage loans held for sale 15,164 268 7.06
Money market investments 551,011 7,363 5.42
Other earning assets 21,456 367 6.85
---------- --------
Total earning assets and income $8,289,012 163,470 7.95
========== --------
Interest-bearing liabilities:
Interest checking/savings plan $1,376,652 5,247 1.55
Money market accounts 814,002 6,757 3.37
Savings deposits 1,138,173 6,451 2.30
Consumer certificates of deposit 2,455,885 30,091 4.97
Large denomination
certificates of deposit 426,850 5,606 5.33
---------- --------
Total interest-bearing deposits 6,211,562 54,152 3.54
Short-term borrowings 273,260 3,211 4.77
Long-term indebtedness 2,723 47 6.89
---------- --------
Total interest-bearing liabilities
and interest expense $6,487,545 57,410 3.59
========== --------
Net interest income and net interest margin $106,060 5.14%
========
Other average balances:
Demand deposits $1,427,853
Common shareholders' equity 1,019,704
Total shareholders' equity 1,020,276
Total assets 9,063,163
17
AVERAGE BALANCES AND INTEREST RATES (Continued) (Unaudited)
(Dollars in thousands)
Three Months Ended March 31
1997
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment securities-held to maturity:
U.S. Government and its agencies $1,683,655 $ 25,342 6.08%
State and municipal obligations
(Fully taxable-equivalent basis) 136,679 2,315 6.77
Other (Fully taxable-equivalent basis) 809 15 7.38
---------- --------
Total investment securities 1,821,143 27,672 6.07
---------- --------
Loans, net of unearned income:
Installment 3,577,372 76,572 8.57
Real estate 980,702 21,245 8.67
Other (Fully taxable-equivalent basis) 779,513 17,163 8.88
---------- --------
Total loans 5,337,587 114,980 8.69
---------- --------
Mortgage loans held for sale 9,554 166 6.94
Money market investments 362,392 4,706 5.27
Other earning assets 19,678 328 6.69
---------- --------
Total earning assets and income $7,550,354 147,852 7.87
========== --------
Interest-bearing liabilities:
Interest checking/savings plans $1,291,468 5,713 1.79
Money market accounts 715,796 5,220 2.96
Savings deposits 1,107,509 6,156 2.25
Certificates of deposit:
Conssumer certificates of deposit 2,262,927 27,447 4.92
Large denomination
Certificates of deposit 346,668 4,438 5.19
---------- --------
Total interest-bearing deposits 5,724,368 48,974 3.47
Short-term borrowings 231,241 2,590 4.54
Long-term indebtedness 3,767 43 4.54
---------- --------
Total interest-bearing liabilities
and interest expense $5,959,376 51,607 3.51
========== --------
Net interest income and net interest margin $ 96,245 5.10%
========
Other average balances:
Demand deposits $1,248,133
Common shareholders' equity 870,945
Total shareholders' equity 871,591
Total assets 8,169,319
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
----------------------------------
a) Exhibit 12 - Statement re: Computation of Ratios (Page 20)
Exhibit 15 - Independent Accountants' Review Report
of Ernst & Young LLP (Page 21)
Exhibit 15A - Letter of Acknowledgement from
Ernst & Young LLP, Independent Accountants (Page 22)
Exhibit 27 - Financial Data Schedule (Page 23)
b) A Form 8-K was not required to be filed during the quarter
ended March 31, 1998.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by its
principal financial officer thereunto duly authorized.
FIRST VIRGINIA BANKS, INC.
/s/ Richard F. Bowman
May 14, 1998 __________________________
Richard F. Bowman,
Senior Vice President,
Treasurer and
Chief Financial Officer
19
EXHIBIT 12
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS
Three Months Ended
March 31
1998 1997
---------- ----------
Ratios - Page 10 (In thousands, except ratios)
- ----------------
Net Loan Charge-offs (Annualized)
to Average Loans:
Net charge-offs $ 5,031 $ 3,635
Average loans $5,901,349 $5,337,587
Net Loan Charge-offs
to Average Loans 0.34% 0.27%
========== ==========
Allowance for Loan Losses
to Period-end Loans:
Allowance for Loan Losses $ 67,117 $ 62,468
Period-end Loans $5,858,520 $5,329,160
Allowance for Loan Losses
to Period-end Loans 1.15% 1.17%
========== ==========
Nonperforming Assets to
Period-end Loans:
Nonperforming Assets:
Non-accruing loans $ 17,284 $ 15,053
Restructured loans 1,978 4,189
Properties acquired by foreclosure 4,736 4,978
---------- ----------
Nonperforming Assets $ 23,998 $ 24,220
---------- ----------
Period-end Loans $5,858,520 $5,329,160
Nonperforming Assets to Period-end Loans: 0.41% 0.45%
========== ==========
Ratios - Pages 16/19
- --------------------
Net Interest Margin:
Net interest income
(Taxable equivalent) $ 106,060 $ 96,245
Total average
earning assets $8,289,012 $7,550,354
Net interest margin
ratio (Annualized) 5.14% 5.10%
========== ==========
20
EXHIBIT 15
Independent Accountants' Review Report
Board of Directors
First Virginia Banks, Inc.
We have reviewed the accompanying condensed consolidated balance
sheets of First Virginia Banks, Inc. as of March 31, 1998 and 1997,
the related condensed consolidated statements of income for the
three-month periods ended March 31, 1998 and 1997, and the
condensed consolidated statements of cash flows and shareholders'
equity for the three-month periods ended March 31, 1998 and 1997.
These financial statements are the responsibility of the
Corporation's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data, and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of First
Virginia Banks, Inc. as of December 31, 1997, and the related
consolidated statements of income, shareholders' equity, and cash
flows for the year then ended (not presented herein) and in our
report dated January 20, 1998, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
/S/ Ernst & Young LLP
_____________________
Ernst & Young LLP
Washington, D.C.
April 8, 1998
21
EXHIBIT 15A
ERNST & YOUNG LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
May 14, 1998
Board of Directors
First Virginia Banks, Inc.
We are aware of the incorporation by reference in Registration
Statement Number 333-30465 on Form S-8 dated June 30, 1997, Post-
effective Amendment No. 1 to Registration Statement Number 33-38024 on
Form S-8 dated January 10, 1994, Registration Statement Number 33-51587
on Form S-3 dated December 20, 1993, Registration Statement Number
33-54802 on Form S-8 dated November 20, 1992, Registration Statement
Number 33-31890 on Form S-3 dated November 1, 1989, Post-effective
Amendment Number 2 to Registration Statement Number 2-77151 on Form S-8
dated October 30, 1987, and Registration Statement Number 33-17358 on
Form S-877 dated September 28, 1987, of our report dated April 8, 1998,
relating to the unaudited condensed consolidated interim financial
statements of First Virginia Banks, Inc., that are included in its Form
10-Q for the quarter ended March 31, 1998.
/s/ Ernst & Young LLP
_____________________
Ernst & Young LLP
22