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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, 2000
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. [ ]
The aggregate market value of the common stock of the registrant held by
nonaffiliates as of February 16, 2001, was approximately $2,146,096,000. The
registrant's voting preferred stock is not actively traded and the market
value of such stock is not readily determinable.
On February 28, 2001, there were 46,143,203 shares of common stock
outstanding.
INDEX
Page
----
Part I
Item 1. Business 3
General 3
Segments 3
Competitive Factors 3
Regulation 3
Employees 4
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 5
Executive Officers 5
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6. Selected Financial Data 7/8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8/43
Item 7A.Quantitative and Qualitative Disclosure About
Market Risk 36/40
Item 8. Financial Statements and Supplementary Data 44/78
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 79
Part III
Item 10. Directors and Executive Officers of the Registrant 79
Item 11. Executive Compensation 79
Item 12. Security Ownership of Certain Beneficial Owners
and Management 79
Item 13. Certain Relationships and Related Transactions 79
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 80/81
PART I
------
ITEM 1. BUSINESS
--------
General
- -------
First Virginia Banks, Inc., (FVBI) is a multibank holding company
registered under the Bank Holding Company Act of 1956 (BHC Act), and is
headquartered in Falls Church, Virginia. FVBI was incorporated under the
laws of the Commonwealth of Virginia in October 1949.
FVBI currently operates nine commercial banks, (the banking companies).
In addition, FVBI owns, directly or indirectly through its banking companies,
several nonbanking companies which offer bank-related services. The
nonbanking companies operate offices in the banks' markets which provide
services to customers of the banking companies and in addition have offices
in adjoining states.
FVBI is the largest bank holding company with headquarters in the state
and the fifth largest banking organization in Virginia. Total assets were
$9.516 billion as of December 31, 2000.
FVBI continually evaluates its operations, organizational structure and
product offerings, exploring opportunities to enhance customer service and
increase shareholder value. During 2000, as part of this normal review, FVBI
combined two of its banks, creating First Vantage Bank/Tri-Cities, bringing
the total number of commercial bank charters to nine.
Segments
- --------
For segment reporting disclosure, reference is made to Note 21 of the
Notes to Consolidated Financial Statements.
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 FVBI'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.
Based on the most recent available data, the service area of our 9
banking companies reached approximately 86% of Virginia's population with 294
offices, approximately 40% of Maryland's population with 57 offices, and
approximately 41% of East Tennessee's population with 25 offices.
Regulation
- ----------
As a bank holding company, FVBI is subject to regulation under the BHC
Act, and to inspection, examination and supervision by the Federal Reserve
Board, the Federal Deposit Insurance Corporation and the state regulators of
Virginia, Maryland and Tennessee which have jurisdiction over financial
institutions. Under the BHC Act, bank holding companies generally may not own
or control more than 5% of the voting shares of any company, including a
bank, without the Federal Reserve Board's prior approval. In addition, bank
holding companies generally may engage, directly or indirectly, only in
banking and such other activities as are determined by the Federal Reserve
Board to be closely related to banking.
Various governmental requirements, including Sections 23A and 23B of the
Federal Reserve Act, limit borrowing by FVBI and its nonbank subsidiaries
from the banking companies. These requirements also limit various other
transactions among affiliates.
Under Federal Reserve policy, FVBI is expected to act as a source of
financial strength to each of the banking companies and to maintain resources
adequate to support each such subsidiary bank. This support may be required
at times when FVBI may not have the resources to provide it. In addition, any
capital loans by a bank holding company to any of its bank subsidiaries are
subordinate to the payment of deposits and to certain other indebtedness.
The corporation is subject to capital requirements and guidelines imposed
on bank holding companies by the Federal Reserve Board and the FDIC. These
requirements are discussed in Note 18 of the Notes to Consolidated Financial
Statements.
Various provisions of federal and state law limit the amount of dividends
the banking companies can pay to FVBI without regulatory approval. For
example, approval generally is required for any state-chartered bank that is
a member of the Federal Reserve System to pay any dividend that would cause
the bank's total dividends paid during any calendar year to exceed the sum of
the bank's net income during such calendar year plus the bank's retained net
income for the prior two calendar years (see Note 17 of the Notes to
Consolidated Financial Statements).
Employees
- ---------
As of December 31, 2000, the corporation and its subsidiaries employed
5,399 individuals (4,887 full-time equivalent).
ITEM 2. PROPERTIES
----------
The banking companies operated a total of 376 banking offices on December
31, 2000. Of these offices, 226 were owned and 150 were leased from others.
FVBI owns other properties, including the two corporate headquarters
buildings that house personnel of the corporation and its subsidiaries. The
corporation currently has no mortgage indebtedness.
As of December 31, 2000, a total annual base rental of approximately
$9,643,000 was being paid on leased premises. As of December 31, 2000, total
lease commitments having a term in excess of one year to persons other than
affiliates were approximately $43,879,000.
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 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 2000.
EXECUTIVE OFFICERS
There are no arrangements or understandings between the executive
officers named below and any other person pursuant to which they were
selected as an officer.
There are no family relationships among the executive officers. All ages,
in parentheses, and positions are as of December 31, 2000.
BARRY J. FITZPATRICK (60)
Chairman of the Board, President and Chief Executive Officer since July 1,
1995. 31 years of service.
SHIRLEY C. BEAVERS, JR. (55)
Senior Executive Vice President since December 2000; Executive Vice President
from April 1992 to December 2000. 31 years of service.
RICHARD F. BOWMAN (48)
Executive Vice President, Treasurer and Chief Financial Officer since
December 1999; Senior Vice President, Treasurer and Chief Financial Officer
from 1994 to 1999. 25 years of service.
RAYMOND E. BRANN, JR. (60)
Executive Vice President since January, 1995. 36 years of service.
DOUGLAS M. CHURCH, JR. (50)
Senior Vice President since December 1994; 27 years of service.
THOMAS P. JENNINGS (53)
Senior Vice President and General Counsel since December 1995, Secretary from
December 1995 to April 1999; 22 years of service.
JOHN P. SALOP (49)
Senior Vice President since April 1996; Senior Vice President of First
Virginia Bank since February 1994. 26 years of service.
MELODYE MAYES TOMLIN (44)
Senior Vice President and General Auditor since December 1995; 22 years of
service.
BARBARA J. CHAPMAN (53)
Vice President and Secretary of the corporation since April 1999 and
Assistant Corporate Secretary from 1993 to 1999; 7 years of service.
PART II
-------
ITEM 5. MARKET FOR 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 declared per share and
the high and low sales price for common shares traded on the New York Stock
Exchange were:
Sales Price Dividends
2000 1999 Per Share
- -----------------------------------------------------------------------
High Low High Low 2000 1999
- -----------------------------------------------------------------------
1st Quarter $43.25 $29.00 $50.50 $45.00 $.36 $.32
2nd Quarter 42.75 34.81 52.63 45.69 .37 .34
3rd Quarter 44.75 35.00 51.38 42.50 .37 .34
4th Quarter 48.94 37.00 49.75 40.50 .38 .36
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, 2000, there
were 19,726 holders of record of the corporation's voting securities, of
which 19,148 were holders of common stock.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
A five-year summary of selected financial data follows:
- ------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
(Dollar amounts in thousands, except per-share data)
Balance Sheet Data
Cash $ 322,966 $ 441,825 $ 377,374 $ 386,832 $ 378,171
Money market
investments 190,443 110,598 265,557 243,162 323,620
Loans held for sale 366 5,558 14,737 18,953 12,771
Investment securities 2,164,108 2,034,788 2,323,052 1,946,944 1,820,949
Loans, net of allowance 6,296,164 6,315,281 6,022,903 5,869,914 5,302,026
Other earning assets 18,351 23,125 22,427 21,444 19,672
Other assets 524,071 520,638 538,646 524,388 378,847
- ------------------------------------------------------------------------------
Total Assets $9,516,469 $9,451,813 $9,564,696 $9,011,637 $8,236,056
==============================================================================
Deposits $7,825,816 $7,863,948 $8,055,078 $7,619,842 $7,042,650
Short-term borrowings 539,469 420,297 385,996 251,687 234,488
Long-term debt 1,116 2,205 3,217 2,826 3,876
Other liabilities 157,362 134,876 130,077 126,126 83,765
Shareholders' Equity 992,706 1,030,487 990,328 1,011,156 871,277
- ------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $9,516,469 $9,451,813 $9,564,696 $9,011,637 $8,236,056
==============================================================================
Operating Results
Interest income $ 643,806 $ 640,622 $ 663,631 $ 631,119 $ 587,216
Interest expense 219,311 206,914 234,332 222,927 212,298
- ------------------------------------------------------------------------------
Net interest income 424,495 433,708 429,299 408,192 374,918
Provision for loan losses 9,428 14,190 20,800 17,177 17,734
Noninterest income 118,030 136,604 116,775 103,552 98,450
Noninterest expense 322,145 327,294 325,678 303,243 279,310
- ------------------------------------------------------------------------------
Income before income tax 210,952 228,828 199,596 191,324 176,324
Provision for income tax 68,921 77,968 69,434 66,479 59,983
- ------------------------------------------------------------------------------
Net income $ 142,031 $ 150,860 $ 130,162 $ 124,845 $ 116,341
==============================================================================
Dividends declared $ 69,233 $ 67,745 $ 61,244 $ 53,751 $ 47,905
A five-year summary of selected financial data (Continued):
- ------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
Per Share of Common Stock
Net income - Basic $ 3.02 $ 3.02 $ 2.54 $ 2.47 $ 2.34
- Diluted 3.01 3.00 2.53 2.45 2.32
Dividends declared 1.48 1.36 1.20 1.05 .96
Shareholders' equity 21.50 20.95 19.76 19.50 17.91
Market price - Year-end 48.00 43.00 47.00 51.69 31.92
- High 48.94 52.63 59.44 53.38 32.67
- Low 29.00 40.50 39.69 30.83 25.50
Ratios
Earnings:
Return on average assets 1.51% 1.59% 1.40% 1.44% 1.43%
Return on average equity 14.36 14.64 12.81 13.10 13.38
Net interest margin 4.96 5.08 5.13 5.20 5.06
Risk-based capital:
Tier 1 12.20 12.67 12.14 12.94 13.57
Total capital 13.22 13.70 13.20 13.99 14.66
Capital strength:
Tier 1 leverage 8.99 9.22 8.73 9.53 9.69
Ratio of average equity
to average assets 10.49 10.86 10.95 11.01 10.68
Dividend payout ratio 49.01 45.03 47.24 42.59 41.24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
(Dollars in thousands, except per share data)
For the year ended December 31, 2000, First Virginia's earnings per
share achieved a record high for the fourth consecutive year, equaling $3.01
compared to $3.00 in 1999. The return on average assets equaled 1.51%
compared to 1.59% in 1999, and the return on average shareholders' equity was
14.36% compared to 14.64%. Net income for the year totaled $142.031 million
compared to $150.860 million in 1999. Income in 2000 and 1999 included
several nonrecurring gains; however, when these gains are excluded for both
years, earnings per share increased 8% to $2.95 in 2000 compared to $2.73 in
1999. Excluding these gains, the return on average assets increased to 1.48%
in 2000 compared to 1.45% in 1999, and the return on average shareholders'
equity increased to 14.09% compared to 13.31%. Cash basis recurring income
for the year equaled $151.764 million in 2000 compared to $149.399 million in
1999. Cash basis recurring income for the year produced a return on average
tangible assets of 1.64% in 2000 and a return on average tangible
shareholders' equity of 18.37%.
First Virginia's philosophy of safety, profitability and growth, always
in that order, places a high importance on maintaining a strong capital
position and excellent asset quality. Accordingly, First Virginia is one of
the strongest and most highly capitalized banks in the country. At the end of
2000, the corporation's capital significantly exceeded regulatory minimums.
The equity-to-asset ratio was 10.43% compared to an average of 7.70% for
banks in the corporation's peer group of banks. This strong capital position
permitted the corporation to increase its dividend twice during the year to
its current annualized rate of $1.52 per share. The corporation has increased
the dividend twice per year for 19 consecutive years and has increased the
dividend at least once per year for the past 24 years. In addition, the
corporation purchased 3,074,200 shares of its stock in 2000 compared to
1,019,200 shares during 1999. Since 1993, the corporation has purchased an
average of 1.9 million shares of its stock per year and has fewer shares
outstanding at the end of 2000 than it had in 1988 despite numerous
acquisitions and share issuances.
Excellent asset quality continued to distinguish First Virginia in 2000
as the corporation maintained its history of achieving one of the lowest loan
charge-off rates and nonperforming asset ratios among its peer group of
financial institutions. Net loan charge-offs equaled just .14% of loans,
compared to .16% of loans in 1999 and .32% in 1998, and were at their lowest
rate since 1994. Nonperforming assets increased slightly from the record low
achieved at the end of 1999, but still only equaled .34% of outstanding loans
at December 31, 2000, compared to .31% at the end of 1999. Loans past due 90
days or more declined to .17% of outstanding loans at the end of 2000
compared to .19% at the end of 1999. The allowance for loan losses was 1.10%
of year-end loans, unchanged from 1999, reflecting the excellent quality of
the loan portfolio.
Average loans increased 3% in 2000 to $6.379 billion and 4% in both 1999
and 1998. Although loan demand began to weaken in mid-2000, commercial loans
increased an average of 8% during the year, a result of the corporation's
continued efforts to be the bank of choice for all the businesses and
consumers in its market area. The production of dealer automobile loans
slowed in 2000 after several years of rapid growth. Total production was
$1.444 billion in 2000 compared to $1.834 billion in 1999 and $1.509 billion
in 1998.
Average deposits declined 1% to $7.847 billion, continuing the long-term
trend in consumers' moving their financial assets away from bank deposits and
into other forms of investments such as mutual funds and equity investments.
As in prior years, the growth that occurred was in lower-cost transaction
accounts, which can be attributed to the corporation's extensive banking
office network and electronic delivery systems such as the Internet and ATMs.
Total assets increased 1% to $9.516 billion at December 31, 2000,
maintaining First Virginia's position as the largest and oldest bank holding
company headquartered in Virginia.
- ----------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- ----------------------------------------------------------------------
Diluted net income per share - prior period $3.00 $2.53 $2.45
- ----------------------------------------------------------------------
Net change during the year:
Interest income .03 (.28) .41
Interest expense (.16) .36 (.14)
Provision for loan losses .06 .09 (.05)
Gain on sale of mortgage servicing rights .01 - (.02)
Gain on sale of branches .05 - .01
Gain on sale of credit card loans (.23) .23 -
Gain on demutualization of insurance policies (.04) .04 -
Noninterest income .04 (.02) .18
Noninterest expense - (.02) (.28)
Income taxes .06 .01 -
Decrease (increase) in average
common shares outstanding .19 .06 (.03)
- ----------------------------------------------------------------------
Net increase during the period .01 .47 .08
- ----------------------------------------------------------------------
Diluted net income per share - current period $3.01 $3.00 $2.53
======================================================================
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
- -------------------------------------------------------------------------
2000
- -------------------------------------------------------------------------
Interest
Average Income/
Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Investment securities-available for sale:
U.S. Government and its agencies $ 104,152 $ 5,427 5.21%
Other 10,151 540 5.32
Investment securities-held to maturity:
U.S. Government & its agencies 1,505,413 87,677 5.82
State, municipal and other (1) 320,369 18,954 5.92
---------------------
Total investment securities 1,940,085 112,598 5.81
---------------------
Loans, net of unearned income: (2)
Installment 4,221,129 340,684 8.08
Real estate 1,120,414 84,742 7.56
Commercial and other (1) 1,037,884 88,704 8.56
---------------------
Total loans 6,379,427 514,130 8.06
---------------------
Loans held for sale 2,988 262 8.77
Money market investments 352,788 22,195 6.29
Other earning assets (1) 19,511 1,351 6.92
---------------------
Total earning assets and
interest income 8,694,799 650,536 7.48
--------
Noninterest-earning assets:
Cash and due from banks 289,734
Premises and equipment 153,755
Other 363,441
Allowance for loan losses (70,066)
----------
Total Assets $9,431,663
==========
(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
- -------------------------------------------------------------------------
2000
- -------------------------------------------------------------------------
Interest
Average Income/
Balance Expense Rate
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking $1,501,243 $ 8,877 0.59%
Money market accounts 929,587 29,549 3.18
Savings deposits 1,038,889 15,650 1.51
Consumer certificates of deposit 2,318,151 114,545 4.94
Large denomination
certificates of deposit 469,372 25,402 5.41
---------------------
Total interest-bearing deposits 6,257,242 194,023 3.10
Short-term borrowings 462,764 25,122 5.43
Long-term debt 1,707 166 9.71
---------------------
Total interest-bearing liabilities
and interest expense 6,721,713 219,311 3.26
--------
Noninterest-bearing liabilities:
Demand deposits 1,589,650
Other 131,065
Preferred shareholders' equity 467
Common shareholders' equity 988,768
----------
Total Liabilities and
Shareholders' Equity $9,431,663
==========
Net interest income and
net interest margin $431,225 4.96%
========
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
- -------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------
Interest
Average Income/
Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Investment securities-available for sale:
U.S. Government and its agencies $ 76,063 $ 3,938 5.18%
Other 6,869 338 4.93
Investment securities-held to maturity:
U.S. Government & its agencies 1,739,337 100,165 5.76
State, municipal and other (1) 345,038 20,548 5.95
---------------------
Total investment securities 2,167,307 124,989 5.77
---------------------
Loans, net of unearned income:(2)
Installment 4,126,659 336,579 8.16
Real estate 1,115,877 92,136 8.26
Commercial and other (1) 957,277 78,119 8.18
---------------------
Total loans 6,199,813 506,834 8.17
---------------------
Loans held for sale 8,748 738 8.43
Money market investments 280,736 13,799 4.92
Other earning assets(1) 22,964 1,577 6.87
---------------------
Total earning assets and
interest income 8,679,568 647,937 7.47
--------
Noninterest-earning assets:
Cash and due from banks 343,674
Premises and equipment 158,019
Other 373,082
Allowance for loan losses (68,727)
----------
Total Assets $9,485,616
==========
(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
- -------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------
Interest
Average Income/
Balance Expense Rate
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking $1,480,078 $ 12,396 0.84%
Money market accounts 981,337 29,778 3.03
Savings deposits 1,126,918 18,551 1.65
Consumer certificates of deposit 2,343,015 108,651 4.64
Large denomination certificates of deposit 439,782 21,345 4.85
---------------------
Total interest-bearing deposits 6,371,130 190,721 2.99
Short-term borrowings 381,975 15,905 4.16
Long-term debt 2,755 288 10.45
---------------------
Total interest-bearing liabilities
and interest expense 6,755,860 206,914 3.06
--------
Noninterest-bearing liabilities:
Demand deposits 1,579,752
Other 119,573
Preferred shareholders' equity 502
Common shareholders' equity 1,029,929
----------
Total Liabilities and
Shareholders' Equity $9,485,616
==========
Net interest income and
net interest margin $441,023 5.08%
========
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
- -------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------
Interest
Average Income/
Balance Expense Rate
- -------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Investment securities-available for sale:
U.S. Government and its agencies $ 10,731 $ 588 5.48%
Other 10,383 296 2.85
Investment securities-held to maturity:
U.S. Government & its agencies 1,765,227 106,483 6.03
State, municipal and other (1) 174,737 11,928 6.83
---------------------
Total investment securities 1,961,078 119,295 6.08
---------------------
Loans, net of unearned income:(2)
Installment 4,000,503 347,286 8.68
Real estate 1,066,779 93,850 8.80
Commercial and other (1) 900,793 78,259 8.71
---------------------
Total loans 5,968,075 519,395 8.70
---------------------
Loans held for sale 17,969 1,502 8.36
Money market investments 511,967 27,530 5.38
Other earning assets(1) 21,982 1,512 6.88
---------------------
Total earning assets and
interest income 8,481,071 669,234 7.89
--------
Noninterest-earning assets:
Cash and due from banks 335,199
Premises and equipment 162,580
Other 367,406
Allowance for loan losses (68,210)
----------
Total Assets $9,278,046
==========
(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
- -------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------
Interest
Average Income/
Balance Expense Rate
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking $1,406,375 $ 19,272 1.37%
Money market accounts 886,224 30,003 3.39
Savings deposits 1,141,836 25,632 2.24
Consumer certificates of deposit 2,450,375 121,574 4.96
Large denomination
certificates of deposit 432,997 22,884 5.29
---------------------
Total interest-bearing deposits 6,317,807 219,365 3.47
Short-term borrowings 315,668 14,660 4.64
Long-term debt 3,370 307 9.11
---------------------
Total interest-bearing liabilities
and interest expense 6,636,845 234,332 3.53
--------
Noninterest-bearing liabilities:
Demand deposits 1,499,935
Other 125,164
Preferred shareholders' equity 549
Common shareholders' equity 1,015,553
----------
Total Liabilities and
Shareholders' Equity $9,278,046
==========
Net interest income and
net interest margin $434,902 5.13%
========
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
- ---------------------------------------------------------------------
2000 Compared to 1999
Increase (Decrease)
Due to Change in
- ---------------------------------------------------------------------
Average Average
Volume Rate Total
- ---------------------------------------------------------------------
Interest income:
Investment securities-available for sale:
U.S. Government and its agencies $ 1,455 $ 34 $ 1,489
Other 162 40 202
Investment securities-held to maturity:
U.S. Government and its agencies (13,471) 983 (12,488)
State, municipal and other* (1,468) (126) (1,594)
- ---------------------------------------------------------------------
Total investment securities (13,322) 931 (12,391)
- ---------------------------------------------------------------------
Loans, net of unearned income:
Installment 7,705 (3,600) 4,105
Real estate 375 (7,769) (7,394)
Commercial and other* 6,594 3,991 10,585
- ---------------------------------------------------------------------
Total loans 14,674 (7,378) 7,296
- ---------------------------------------------------------------------
Loans held for sale (486) 10 (476)
Money market investments 3,542 4,854 8,396
Other earning assets* (237) 11 (226)
- ---------------------------------------------------------------------
Total interest income 4,171 (1,572) 2,599
- ---------------------------------------------------------------------
Interest expense:
Interest checking 178 (3,697) (3,519)
Money market accounts (1,568) 1,339 (229)
Savings deposits (1,452) (1,449) (2,901)
Consumer certificates of deposit (1,154) 7,048 5,894
Large denomination CDs 1,435 2,622 4,057
- ---------------------------------------------------------------------
Total interest-bearing deposits (2,561) 5,863 3,302
- ---------------------------------------------------------------------
Short-term borrowings 3,361 5,856 9,217
Long-term debt (110) (12) (122)
- ---------------------------------------------------------------------
Total interest expense 690 11,707 12,397
- ---------------------------------------------------------------------
Net interest income $ 3,481 $(13,279) $ (9,798)
=====================================================================
*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
- ---------------------------------------------------------------------
1999 Compared to 1998
Increase (Decrease)
Due to Change in
- ---------------------------------------------------------------------
Average Average
Volume Rate Total
- ---------------------------------------------------------------------
Interest income:
Investment securities-available for sale:
U.S. Government and its agencies $ 3,580 $ (230) $ 3,350
Other (100) 142 42
Investment securities-held to maturity:
U.S. Government and
its agencies (1,562) (4,756) (6,318)
State, municipal and other* 11,625 (3,005) 8,620
- ---------------------------------------------------------------------
Total investment securities 13,543 (7,849) 5,694
- ---------------------------------------------------------------------
Loans, net of unearned income:
Installment 10,952 (21,659) (10,707)
Real estate 4,319 (6,033) (1,714)
Commercial and other* 4,907 (5,047) (140)
- ---------------------------------------------------------------------
Total loans 20,178 (32,739) (12,561)
- ---------------------------------------------------------------------
Loans held for sale (771) 7 (764)
Money market investments (12,434) (1,297) (13,731)
Other earning assets* 68 (3) 65
- ---------------------------------------------------------------------
Total interest income 20,584 (41,881) (21,297)
- ---------------------------------------------------------------------
Interest expense:
Interest checking 1,010 (7,886) (6,876)
Money market accounts 3,220 (3,445) (225)
Savings deposits (335) (6,746) (7,081)
Consumer certificates of deposit (5,327) (7,596) (12,923)
Large denomination CDs 359 (1,898) (1,539)
- ---------------------------------------------------------------------
Total interest-bearing deposits (1,073) (27,571) (28,644)
- ---------------------------------------------------------------------
Short-term borrowings 3,079 (1,834) 1,245
Long-term debt (56) 37 (19)
- ---------------------------------------------------------------------
Total interest expense 1,950 (29,368) (27,418)
- ---------------------------------------------------------------------
Net interest income $ 18,634 $(12,513) $ 6,121
=====================================================================
* 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 table on pages 11 through 16 details 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 17 and 18.
The economy continued to grow in 2000, extending its record-long
expansion. By the end of the year, however, signs were beginning to point to
a possible slowdown in the expansion, and concerns that the economy was
headed into a recession were surfacing. Throughout 1999 and into 2000, the
Federal Reserve increased interest rates in a series of moves designed to
slow the economy and remove any threat of inflation. The increase in interest
rates had a slightly negative short-term impact on First Virginia's net
interest margin because the corporation's asset and liability composition is
marginally liability-sensitive.
First Virginia maintains a very liquid portfolio of both assets and
liabilities and attempts to mitigate the risk inherent in changing rates in
this manner. Due to the nature of its deposit base, however, First Virginia
will generally perform better in periods of higher interest rates than lower
rates. First Virginia is relatively unaffected by absolute levels of interest
rates since it attempts to balance its rate-sensitive assets and liabilities,
although when rates are moving upward, it will have a period of time when
liabilities reprice at a faster pace than assets. The increase in interest
rates in 2000 and 1999 had a negative impact on the net interest margin, and
it declined 12 basis points in 2000 to 4.96% and five basis points in 1999 to
5.08%. Also negatively impacting the net interest margin in 2000 was a more
active share repurchase program that reduced funds available for investment.
While the share repurchase program reduces the net interest margin, it
increases earnings per share and the return on common equity and is a tax-
efficient method of distributing excess equity to shareholders.
Net Interest Margin
(the higher, the better)
- ----------------------------------------
National
First Southern Peer
Virginia Regionals Group
- ----------------------------------------
2000 4.96% 4.03% 4.28%
1999 5.08 4.21 4.23
1998 5.13 4.27 4.42
1997 5.20 4.51 4.70
1996 5.06 4.44 4.53
Southern Regionals: Banking companies with assets over $2 billion (21 in
2000)
National Peer Group: Banking companies with assets of
between $5 and $10 billion (23 in 2000)
Source: Keefe, Bruyette & Woods
First Virginia relies almost entirely on its branch network to supply it
with a relatively low-cost source of funds, and it has no purchased funds and
does not need to hedge its position with derivative securities of any kind.
This has produced one of the highest net interest margins among the country's
largest banks on a consistent basis.
The yield on earning assets increased one basis point during 2000 to
7.48%, following a 42-basis-point decline in 1999. The yield on money market
instruments, which most closely follows the general interest rate market,
rose 137 basis points to 6.29%. The yield on the investment portfolio
increased four basis points to 5.81% as rates on maturing instruments closely
matched the rates on new instruments. The yield on the loan portfolio
declined 11 basis points in 2000 to 8.06%. The yield on installment loans
dropped eight basis points to 8.08%; this was a result of the sale of the
relatively high-yielding credit card loan portfolio in the first quarter of
1999 and the growth in automobile loans and home equity loans with their
significantly lower interest rates. These lower rates on installment loans,
however, are offset by lower net charge-offs and operating expenses compared
to credit card loans and on a net basis produce higher returns for the
corporation. The yield on commercial loans, which increased 38 basis points
to 8.56%, tends to follow the general interest rate market since many of
these loans have interest rates tied to the corporation's prime lending rate
or Libor. Also negatively impacting the net interest margin in late 1999 and
early 2000 was a buildup in cash and lower-yielding money market instruments
as the corporation built extra liquidity to provide for potential Y2K-related
customer withdrawals. These withdrawals did not occur and the funds were
redeployed into loans and investment securities in early 2000.
The cost of funds increased 20 basis points in 2000 to 3.26% after
dropping 47 basis points in 1999. Interest rates on interest checking
deposits declined 25 basis points to .59% after dropping 53 basis points in
1999 because of reduced competitive pressure. The cost of money market
accounts rose 15 basis points in 2000 after dropping 36 basis points in 1999
in reaction to the general rise in interest rates. Consumer savings deposits
followed the same general pattern as interest checking deposits and dropped
14 basis points during 2000 compared to a 59 basis point drop in 1999. The
cost of consumer certificates of deposit rose 30 basis points to 4.94% in
2000 as competition for this source of deposit accelerated in 2000 with
yields on new instruments approaching 6.75% at midyear before trending down
late in the year. The cost of large denomination certificates, which tend to
have relatively short maturity periods and therefore track the movement of
the general interest rate market, rose 56 basis points in 2000 to 5.41%.
Similarly, the cost of short-term borrowings, comprised of repurchase
agreements and commercial paper with customers using First Virginia's cash
management programs, rose 127 basis points to 5.43% in 2000. These funds are
priced to produce a positive spread based on the rates the corporation
receives on its own short-term money market investments.
PROVISION FOR LOAN LOSSES
The provision for loan losses declined 34% in 2000 following a 32%
decline in 1999. The 2000 decline, due to a combination of factors including
an 8% decline in actual net charge-offs, was primarily the consequence of a
decline in outstanding loans. This is in direct contrast to 1999, when the
decline in the provision for loan losses was due entirely to a reduction in
actual loan charge-offs, which were down 48% and partially offset by a 5%
increase in outstanding loans. The large decline in net charge-offs in 1999
was caused by the sale of the corporation's credit card portfolio in late
1998 and early 1999 and by a general improvement in loan quality and
reduction in charge-offs in other loan categories. This favorable charge-off
trend continued in 2000 with the net charge-off rates for indirect
automobiles declining three basis points to .20% and other consumer loans by
seven basis points to .14%. Real estate loans and commercial loans
experienced slight increases in net charge-offs but from a relatively small
base. Overall, the net charge-off rate declined two basis points to .14%
after dropping in half in 1999 to .16%.
The corporation has a lower risk exposure to charge-offs than many banks
because most of its loans are made in small amounts to consumers and are
generally well secured by assets such as automobiles or real estate. These
loans also have regular monthly repayment schedules, and their average
duration is substantially less than their stated lives. 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. The corporation does
not have any international, syndicated, 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 52% of the
corporation's loan portfolio is comprised of automobile-sector loans, the
vast majority of these 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 declined 14% to $118.030 million in 2000 after
increasing 17% in 1999. If the impact of nonrecurring income items is
excluded from both years, then noninterest income increased 3% in 2000 and 9%
in 1999. First Virginia receives approximately 21% of its gross income from
noninterest sources, primarily from service charges on deposit accounts,
electronic banking service fees and asset management fees.
Income from service charges increased 5% in 2000 following increases of
20% and 11% in 1999 and 1998, respectively. In 2000, the increase was largely
a result of an $857 thousand increase in fees from two sources: business
deposit accounts from national customers with multi-locations, such as food
stores, convenience stores and retailers, and from businesses using the
corporation's cash management services. The increases in 1999 and 1998 were
largely attributable to the value-based pricing the corporation instituted in
late 1998, which increased fees from consumer transaction accounts.
Income from electronic banking services, primarily ATM and debit card
fees, renewed its pace of growth to 19% in 2000 after declining 3% in 1999
and growing rapidly in the preceding two years. The growth in 2000 came from
the introduction late in the second quarter of the Visa CheckCard, which was
very well received by customers and produced $2.9 million in additional fee
income. In prior years, increases in income in this category were primarily
attributable to increases in fee income from the corporation's ATM network,
especially fees charged noncustomers for using the corporation's ATMs.
Insurance income declined 10% in 2000 after slowing to a 3% growth rate
in 1999 and 12% in 1998. The decline in home equity and automobile lending in
2000 reduced insurance commissions from the sale of credit life insurance,
and the decline in mortgage lending in 2000 was responsible for a decline in
sales of title insurance. The corporation continued to limit its direct mail
and telemarketing efforts in response to national concerns over privacy
issues. Commission income from the sale of insurance products to businesses
increased 54% in 2000, a result of the continued emphasis on building
customer relationships. Sales of annuities increased 10% in 2000, following a
tripling in 1999, as the corporation increased the number of registered
representatives selling annuities and mutual fund products.
Income from trust and asset management services continued to increase at
a rapid pace, growing 13% in 2000 and 1999 and 9% in 1998. Fees from employee
trust management, such as pension funds and 401(k) plans, increased 19% in
2000 with the upgrade of the corporation's internet-based 401(k) product.
In late 1998, the corporation determined that its credit card activities
no longer met its strategic objectives and desired returns. As a result, it
sold the remainder of its credit card loan portfolio and merchant processing
business to companies with national concerns that can provide a better value
for its customers and greater income to First Virginia. In the fourth quarter
of 1998, a portion of the credit card portfolio was sold at a gain of $1.364
million, and the balance of the portfolio and the merchant business was sold
in 1999 at a gain of $17.899 million. Ongoing income from credit card
activities was almost eliminated by the end of the second quarter of 1999,
and gross income from this area declined 56% to $5.439 million in 1999 and
was immaterial in 2000.
Other income in 2000 included a gain of $3.134 million from the sale of
six small and slower-growth banking offices in Virginia, Maryland and
Tennessee. There were no sales of this type in 1999; however, 1998 included a
gain of $2.081 million from the sale of seven offices in Maryland. 2000
income also included a gain of $1.098 million from the sale of the remainder
of the corporation's mortgage banking activities when the corporation made a
strategic withdrawal from this line of business in the second quarter of 2000
and began offering mortgage loans through its website. 1999 income included
$3.247 million in gains from the demutualization of an insurance company in
which the corporation owns life insurance policies on the lives of some of
its officers.
The corporation recognized gains of $.198 million in 2000, $.852 million
in 1999, and $1.007 million in 1998 from the sale of equity securities. The
corporation's policy is to hold virtually all of its fixed-income securities
to maturity, and it generally does not have income from this source except
for some bonds called by the issuer prior to the maturity date.
NONINTEREST EXPENSE
Noninterest expenses declined 2% in 2000 after increasing only 1/2% in
1999. The primary factors behind the decline in noninterest expenses were the
disposition of the credit card division in 1999, the closure or sale of 24
branches and the discontinuation of the mortgage banking unit in 2000.
However, lower net interest income in 2000 kept the efficiency ratio
unchanged in 2000 compared to 1999 at 56.3%, despite the reduction in overall
expenses.
Efficiency Ratio
(the lower, the better)
- ----------------------------------------
National
First Southern Peer
Virginia Regionals Group
- ----------------------------------------
2000 56.3% 58.9% 58.1%
1999 56.3 58.2 58.3
1998 57.0 58.2 57.5
1997 56.7 58.4 58.3
1996 57.0 59.0 59.2
Salaries and employee benefits increased at a pace less than the
inflation rate in both 2000 and 1999, advancing only 2% and 1%, respectively.
Salaries rose 4% as the tight job market increased the overall level of wages
higher than the general inflation rate. Employee health insurance increased
31% to $10.762 million after several years of relatively small increases,
mostly the result of increases in prescription drug costs. Pension expense
declined $1.573 million to a slight net credit because the increase in equity
security values over the past several years has increased the corporation's
pension fund assets. Stock option related benefits rose $160 thousand to $636
thousand due to a 12% increase in the corporation's stock price.
Equipment expense increased 4% in 2000, a lesser pace than the 8% rate
in 1999 and 12% in 1998 when the corporation made its Y2K preparations.
Occupancy expenses increased 3% in both 2000 and 1999. The 2000 increase was
primarily the result of a 13% increase in maintenance expense and a 4%
increase in utility expense.
With the disposition of the credit card division in late 1998 and early
1999, there were no credit card processing fees in 2000 after a decline of
45% in 1999. Amortization of intangibles declined slightly in 2000 after
increasing in the prior three years, the result of an acquisition accounted
for under the purchase method of accounting and the acquisition of 12
branches in 1998 and 1999 from other banking organizations at a premium.
Three banking offices were purchased at a premium in 2000; however, the
amortization of deposit intangibles added as a result of that acquisition was
less than other intangible assets that became fully amortized.
Other noninterest expenses declined 9% in 2000, following a 3% increase
in 1999. Legal and professional fees declined $3.047 million due to lower
legal fees for routine lawsuits and a decline in consultants' fees related to
Year 2000 conversion work and to the corporation's changes in service charges
on deposit accounts implemented in late 1998. Advertising expense, which
peaked in 1998 when the corporation increased advertising in order to take
advantage of the acquisition of competitors in Virginia and Maryland by out-
of-state organizations, declined 9% in 2000. Telecommunications expense
increased at a 3% rate in 2000 after dropping 9% in 1999 when the corporation
improved the efficiency of its telephone network.
PROVISION FOR INCOME TAXES
Income tax expense in 2000 declined 12% to $68.921 million, primarily
the result of an 8% decline in pretax income. 1999 gross income was higher
because of a $17.899 million gain on the sale of the corporation's credit
card division and a $3.247 million gain on benefits received from the
demutualization of an insurance company in which the corporation held life
insurance policies on its officers. The effective tax rate declined in 2000
to 32.7% from 34.1% in 1999 and 34.8% in 1998. The decline in the effective
tax rate in 2000 was caused in part by a recapitalization of a subsidiary
company in 2000, which allowed the corporation to benefit from some state tax
net operating losses accumulated in prior years and which will also reduce
future years' state taxes. In addition, greater investments in low income
housing partnerships generating federal tax credits, higher investments in
tax-exempt securities and the recognition of other deferred tax assets also
contributed to a reduction in the effective tax rate. The 1999 decline in the
effective tax rate was primarily related to declines in taxable income caused
by an almost doubling of the tax-exempt securities portion of the
corporation's investment portfolio in 1999. It is anticipated that the
corporation will return to its long-term trend of gradually reducing tax-
exempt securities as a percentage of its investment portfolio and that the
effective tax rate will rise back to the 33-34% range in 2001.
BALANCE SHEET
- -------------
First Virginia's loan portfolio is its primary earning asset, generating
approximately 67% of the corporation's gross income. Nearly all earning
assets are funded from deposits originated through the corporation's network
of banking offices or from capital. Other sources of funding include customer
repurchase agreements and commercial paper originated from business customers
who utilize the corporation's cash management products, which are
functionally equivalent to deposits. The corporation does not fund any of its
earning assets from "purchased" deposits or other nondeposit funding sources,
nor does it sell or securitize any of its earning assets. The corporation's
objective is to invest 70-85% of its total deposits and short-term borrowings
in loans. In 2000, the loan to funding liabilities rate was 77%, an increase
from the 74% funding rate achieved in 1999. This increase was due to a 3%
rate of growth for average loans and a slight decline in average funding
liabilities.
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.
- ---------------------------------------------------------------------
December 31 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------
Loans 73.41% 71.53% 70.58% 71.95% 68.95%
Securities 22.31 24.97 23.12 22.93 26.55
Money market investments 4.06 3.23 6.04 4.85 4.30
Other earning assets .22 .27 .26 .27 .20
- ---------------------------------------------------------------------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
=====================================================================
LOANS
Average loans grew 3% in 2000 following 4% growth rates in both 1999 and
1998. While average loans grew during 2000, consumer loan demand slowed
significantly, particularly in the second half of the year, after a strong
year for consumer lending in 1999. As a result, by December 31, 2000, actual
loans were down slightly to $6.366 billion compared to $6.385 billion at the
end of 1999. In late 1998 and early 1999, the corporation made the strategic
decision to exit the credit card business and sold all of its loan portfolio
in this area.
The largest component of First Virginia's loan portfolio is automobile
related, 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 and
loans to dealers to finance their inventory of automobiles and, to a lesser
extent, their facilities. As the corporation has exploited this expertise
over the past six years, the percentage of loans that are automobile related
increased from 38% of the loan portfolio at the end of 1994, to 52% at the
end of 2000. As a result of the economic slowdown, the demand for dealer
automobile loans declined during 2000, and new loan originations declined by
21% compared to 1999. The weakness in auto sales prompted many of the
automobile manufacturers to offer low-rate financing through their automobile
finance subsidiaries, further exacerbating the weakness in new loan volume.
However, outstanding automobile loans only declined 1% at the end of 2000,
following increases of 16% in 1999 and 11% in 1998. The corporation has
consolidated all of its automotive-related lending under one company, which
permits it to maximize its service capabilities and take full advantage of
new technology. After opening several new sales offices in the preceding
three years, the corporation did not open any in 2000, but it remains
committed to a strategy of gradually expanding its market, primarily in the
Southeastern and Mid-Atlantic regions.
First Virginia concentrates on the highest quality automobile loans,
primarily "A" and "B" credits. Most of these loans are made to consumers and
are secured by new cars with a maximum term of 66 months. The loan
portfolio's high quality means net charge-offs are significantly below
industry averages, and servicing and funding costs are among the lowest in
the industry, giving the corporation a competitive advantage. First Virginia
uses an experienced loan reviewer in underwriting each loan in these local
loan production offices and does not rely on credit-scoring models. This
allows the corporation to give highly personal service and quick approval to
the dealer originating the loan. Once made, the loans are serviced centrally
to ensure consistency and quality of collection at the lowest cost.
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 rose 18% in 2000 following a 4% rise in
1999. Outstanding floor plan loans increased in 2000 after a more modest
increase in 1999 when automobile dealers could not obtain inventory quickly
enough to keep pace with sales. The slowdown in sales by the end of 2000
allowed dealers to rebuild their inventories from the depleted levels of
1999. The corporation does not make leases in its own name but offers
automobile dealers a leasing product through an unaffiliated partner who
bears the entire risk of the transaction in return for a fee for our
origination activity. Although income from this source was relatively
immaterial in 2000 and 1999, it remains part of the corporation's total
service approach to the dealer community. First Virginia is committed to
being a full financial-services provider to the automobile market, regardless
of swings in the economic cycle, and it devotes its primary lending resources
to this area.
Home equity loans are the second largest component of the corporation's
consumer lending portfolio, comprising approximately 12% of outstanding loans
at the end of 2000. These loans have declined steadily over the last several
years, dropping 11% in 2000 and 7% in 1999, as strong home sales and
refinance activity in 1998 and early 1999 induced consumers to pay off and
consolidate both their existing home equity loans and other consumer credit
debts into new first mortgage loans at cheaper rates. While this refinance
activity slowed in mid-1999, outstanding loans still continued to decline
because first trust mortgage loans still offered more attractive refinance
terms. In the first quarter of 2000, the corporation closed the offices of
First General Mortgage Company, its home equity lending subsidiary. It had
operated in areas where the corporation did not have a banking presence, and
the possibility of cross-selling additional services and building total
customer relationships was impractical. First Virginia pursues the highest
quality home equity loans with low loan-to-value ratios that enable the
corporation to show a nominal net charge-off rate. These loans are originated
through the corporation's banking offices.
Residential real estate loans comprise approximately 11% of total loans.
This category declined 4% in 2000 and 2% in 1999 after a 12% increase in 1998
when the corporation expanded its 15-year mortgage loan portfolio. The
corporation originates all of its own real estate loans through its banking
offices primarily in the form of 15-year, fixed-rate real estate loans that
have many of the characteristics of a home equity loan. The corporation's
real estate loan portfolio has not been as subject to early prepayment as
some banks' portfolios because it limits itself primarily to 15-year, fixed-
rate loans. These loans do not contain the same prepayments risk as
adjustable-rate mortgages or mortgages with longer contractual lives that are
likely to be refinanced when interest rates decline.
LOANS
- ----------------------------------------------------------------------------
December 31 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------
Consumer:
Automobile $3,169,269 $3,214,659 $2,771,579 $2,494,879 $2,205,770
Home equity, fixed-
and variable-rate 743,542 831,952 898,748 1,063,861 995,357
Revolving credit loans,
including credit cards 31,907 28,505 136,445 201,779 214,446
Other 170,482 184,930 210,080 254,913 177,466
Commercial 954,925 852,140 824,475 775,241 674,560
Construction and
land development 181,575 151,776 121,338 120,276 115,071
Real estate:
Commercial mortgage 432,053 409,590 401,330 376,753 339,954
Residential mortgage
(Excluding loans
held for sale) 682,711 711,848 729,220 650,276 642,143
- ----------------------------------------------------------------------------
Total loans, net of
unearned income $6,366,464 $6,385,400 $6,093,215 $5,937,978 $5,364,787
============================================================================
Average commercial loans increased 8% in 2000 and 6% in 1999. The
corporation has been emphasizing this loan category over the last several
years, stressing the relationship nature of its program, and it has been
successful in cross-selling its cash management, insurance and asset
management services. The corporation makes its loans to small- and medium-
sized businesses in the communities served by its affiliate banks, including
loans to government contractors, high-tech companies, hospitals, churches and
country clubs. These loans are typically in amounts between $1 to $5 million,
generally with a maximum amount of $15 million. The corporation originates
all of its own loans to businesses headquartered within its market footprint
and does not participate in loans with other organizations nor in nationally
syndicated credits.
Although construction loans increased 20% in 2000 and 25% in 1999, they
still comprise a relatively small 3% of total loans outstanding at December
31, 2000. The corporation makes construction loans primarily for residential
development projects or commercial office space that is built for the
borrowers own use, and it does not lend for speculative, unleased properties.
Commercial real estate loans increased 5% in 2000 and 2% in 1999. The
corporation's commercial real estate loans are mostly made for owner-use
properties, generally carrying floating or adjustable-interest rates.
INVESTMENT SECURITIES
The corporation has classified virtually all of its investment portfolio
as held to maturity because it has both the ability and the intention to hold
these securities to their stated maturity. Approximately 5% of the portfolio
is classified as available for sale, either to provide additional liquidity
in certain circumstances or because the special nature of the securities
requires that they be classified as available for sale. 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 generally does not invest in mortgage-backed securities,
collateralized mortgage obligations, structured notes or other types of
derivative securities.
Average outstanding securities declined by 10% in 2000 following an 11%
increase in 1999. Most of the decline in outstanding investment securities
began to occur in the second half of 1999 when the corporation, experiencing
strong loan demand and modest deposit growth, allowed the investment
portfolio to mature to fund the loan growth. In addition, in the second half
of 1999, the corporation began to build liquidity for potential Y2K-related
deposit withdrawals caused by consumer concerns with the millennium-created
computer problems. Accordingly, minimal reinvestment of securities in the
second half of 1999 occurred. In January 2000, when it became apparent that
there were no computer difficulties and deposit withdrawals did not occur,
the corporation resumed its normal program of investments. Coupled with a
moderation in loan demand during 2000, additional funds were placed in the
investment portfolio leading to an increase in average outstanding balances
in the second half of the year. Since rates on maturing securities were
similar to rates on newly acquired securities, the yield in the portfolio
increased a modest four basis points in 2000 to 5.81%.
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 maximum lives of approximately
five years. At the end of 2000, the 25-month average term of these securities
was less than the 34-month average term at the end of 1999 and 1998. Because
of the callable nature of some of these securities, the actual duration of
the portfolio may be slightly less than the average term. At December 31,
2000, U.S. Government and agency securities comprised 85% of the securities
portfolio compared to 82% at the end of 1999. A higher percentage of new
securities was placed in U.S. Government and agency securities in 2000
compared to 1999 when a flight to quality in late 1998, caused by an
international bond collapse in Asia and Russia, led to greater investments in
tax-exempt municipal securities whose rates were more attractive relative to
those offered by U.S. Government and agency securities. Over the past several
years, a greater proportion of new securities have been placed in U.S.
Government agency securities and less in U.S. Treasury securities. This is
due to the lower yields available on U.S. Treasury securities and the lack of
availability of these securities in certain maturity ranges, a direct
consequence of the elimination of the federal deficit and the reduction in
the federal debt. This trend is expected to continue over the next several
years as the federal debt continues to be paid down and the supply of U.S.
Government Notes and Bonds is reduced.
MONEY MARKET INVESTMENTS
Money market investments, consisting primarily of federal funds sold and
securities repurchase agreements, are generally governed by the size of
normally anticipated deposit swings and loan demand. In 2000, average money
market investments increased 26% to $352.788 million after declining 45% in
1999 when loan demand was stronger. The 2000 increase was caused in part by a
reduction in loan demand, particularly in the second half of the year when
the economy began to slow its rate of growth. However, the increase was
caused primarily by an increase in average available investable funds, a
consequence of reductions in cash held in the corporation's banking offices.
In early 2000, a program was implemented to reduce the level of actual
currency and coin held in the corporation's banking offices to take advantage
of declines in required regulatory reserves, a consequence of programs
implemented in the preceding three years. This program of cash management
reduced average cash balances on hand by approximately $43 million. In 1998,
money market investments had increased 33% as a decline in interest rates and
a flat-to-inverted yield curve made these investments relatively more
attractive.
DEPOSITS
Average deposits declined 1% in 2000 to $7.847 billion after increasing
a modest 2% in 1999. Impacting the slight decline in 2000 was the sale of six
banking offices with $39.756 million in deposits and the consolidation of 18
offices into other nearby First Virginia offices. These closed or sold
offices were located in slower-growth markets, near other First Virginia
offices or were isolated in markets where First Virginia could not gain a
major market presence. Because the corporation's objective is to be in the
first, second or third market share position in the markets it serves, it
regularly reviews each of its offices for profitability and future growth
potential. If these goals cannot be achieved, then the office will be
considered for disposition.
The corporation offers a variety of accounts that appeal to different
target groups. The FirstVantage Plus account, which offers an attractive
array of services to the high-balance customer, was enhanced in 1998 and has
grown substantially in the past three years. Other accounts, appealing more
to the typical mid-balance customer, provide relationship linkages that avoid
service charges. The corporation's extensive branch office network creates a
strong retail focus, resulting in a higher percentage of customers'
maintaining balances in transaction accounts compared to other banks. In
2000, 39% of the corporation's average deposits were comprised of demand and
interest checking accounts, up slightly from the 38% and 37% these accounts
comprised of total deposits in the preceding two years.
Average Deposits
- ----------------------------------------------------------------------------
(Millions of Dollars) 2000 1999 1998
- ----------------------------------------------------------------------------
Noninterest-Bearing $1,590 $1,580 $1,500
Interest Checking 1,501 1,480 1,406
Money Market 930 981 886
Savings 1,039 1,127 1,142
Consumer CDs 2,318 2,343 2,450
Large Denomination CDs 469 440 433
- ----------------------------------------------------------------------------
Total Deposits $7,847 $7,951 $7,817
============================================================================
Average demand deposits and interest checking accounts rose 1% in 2000
following a 5% increase in 1999. The corporation's extensive branch network
is responsible for the greater mix of lower-cost transaction accounts and
permits the corporation to maintain one of the lowest cost of funds among the
50 largest banks in the country. Average money market accounts declined 5% to
$929.587 million in 2000, after rising 11% in 1999 and 20% in 1998. These
increases are attributed to several years of effort to increase this category
by offering interest rates slightly higher than competing banks. An increase
in the overall level of interest rates in 2000 caused money market mutual
funds and other banks to increase rates, reducing some of the competitive
advantage and attractiveness of the corporation's accounts. This general
increase in interest rates also made the corporation's regular savings
accounts relatively less attractive and average balances declined 8% to
$1.039 billion following several years of stable to slightly declining
balances.
The Federal Reserve increased interest rates three times during 2000,
following three earlier increases in 1999, in an effort to slow down the
surging economy and reduce the risk of inflation. This caused the
corporation's overall cost of funds to increase by 20 basis points in 2000 to
3.26% following a 47-basis-point decline in 1999. This general increase in
interest rates created a great deal of competition for funds among banks,
particularly in the consumer certificate of deposit category where rates on
several of these instruments increased to the upper 6% range in mid-2000
before moderating somewhat at year-end. As a consequence, the corporation's
cost of funds in this area rose 30 basis points in 2000 to 4.94%, following a
decline in 1999. Despite the increase in rates, average balances in this
category declined 1% to $2.318 billion following a 4% decline in 1999. Most
of this decline occurred early in the year, and by year-end this category was
once again growing in outstanding balances, fueled by concerns about the
slowing economy, higher interest rates for these certificates and a general
weakening in the stock market, which induced consumers to seek the
certificates' safety and attractive yield. Large denomination certificates of
deposit increased 7% to $469.372 million. The cost of funds for this category
increased at a more rapid pace than consumer certificates and rose by 56
basis points after dropping 44 basis points in 1999. Most of these
instruments come from the corporation's core consumer customers and from
state and political jurisdictions that maintain other relationships with the
corporation. Because they are generally for a much shorter average duration,
their cost moves more quickly in response to changes in interest rates. The
corporation does not purchase brokered deposits nor does it solicit deposits
outside of its primary market areas.
Maturity ranges for certificates of deposit with balances of $100,000 or
more on December 31, 2000, were:
- ----------------------------------------------------------------------------
Maturity Ranges Amount
- ----------------------------------------------------------------------------
One month or less $ 57,940
After one through three months 80,785
After three through six months 95,887
After six through twelve months 97,645
Over twelve months 167,780
- ----------------------------------------------------------------------------
Total $500,037
============================================================================
OTHER INTEREST-BEARING LIABILITIES
Short-term borrowings consist primarily of securities sold by the
affiliate banks with an agreement to repurchase them on the following
business day and commercial paper issued by the parent company. These short-
term obligations are issued principally as a convenience to commercial
customers in connection with the corporation's cash management services.
Average short-term borrowings from these sources increased by 21% in 2000 and
from 21% to 24% in each of the preceding three years. These increases are a
result of the corporation's success in increasing the number of commercial
customers utilizing its sophisticated cash management services, including
Treasury Workstation for larger businesses and Business Express, an internet
product introduced in 2000 for small- and medium-sized businesses.
Long-term debt is comprised of capitalized lease obligations on branch
office facilities that are not subject to prepayment and an 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,
profitability and growth, in that order. The ratio of total capital to total
assets declined to 10.43% at the end of 2000 following a 55-basis-point rise
in 1999 to 10.90%. This decline in the equity-to-asset ratio, due in part to
an increase in total assets, was primarily the result of an increased share
repurchase program in 2000 that caused a 4% reduction in total capital. These
ratios are significantly higher than the 7.70% capital-to-assets ratio
maintained by banks in the corporation's peer group of $5 to $10-billion
asset-sized banks. Despite the decline in total capital, book value per
share, aided by the corporation's share repurchase program, increased 3% in
2000 to $21.50, following a 6% increase in 1999.
Return on Total Average Equity
(the higher, the better)
- ---------------------------------------
National
First Southern Peer
Virginia Regionals Group
- ---------------------------------------
2000 14.36% 14.63% 17.43%
1999 14.64 15.15 15.86
1998 12.81 14.40 14.32
1997 13.10 15.75 16.03
1996 13.38 14.79 14.06
During 2000, the corporation purchased 3,074,200 shares of its stock at
a total cost of $113.217 million, following the 1,019,200 shares purchased in
1999 at a total cost of $43.969 million. The corporation's Board of Directors
approved a six million share repurchase program in 1999 and there were
2,124,600 shares eligible for repurchase at the end of 2000. Since 1993,
several plans to repurchase the corporation's common stock have been
approved, and the corporation has purchased an average of 1.9 million shares
per year. 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 affiliate banks are required to comply with
capital adequacy standards established by the Federal Reserve and the FDIC.
Because of the high level of capital and the conservative nature of its
assets, the corporation exceeded the additional regulatory risk-based capital
requirements by wide margins. The Tier 1 risk-based capital ratio declined 47
basis points in 2000 to 12.20%, the result of a decline in equity caused by
the corporation's share repurchase program. This followed an increase of 53
basis points to 12.67% in 1999 when the level of share repurchase activity
was lower. The Total Capital Ratio declined by 48 basis points in 2000 to
13.22% for the same reason, while the leverage ratio declined 23 basis points
to 8.99%. 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.
Asset Quality
- -------------
The corporation has a number of policies, reviewed regularly 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
affiliate 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, nationally syndicated or highly
leveraged transaction loans, and loans are only made within the trade areas
of the affiliated banks or in surrounding 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 affiliated group. In addition,
participations among banks within the First Virginia group must first be
shared with the corporation's lead bank, where a second comprehensive loan
review is performed. Approximately 75% 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
$112 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.
One of the corporation's specialty loan areas is the automobile finance
area, and loans are made to consumers, both directly through the
corporation's branch network and indirectly through automobile dealerships.
Roughly half 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 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 tend to 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 $2.025 million to $21.864 million as of
December 31, 2000, compared to $19.839 million at the end of 1999. As a
percentage of total loans and real estate acquired by foreclosure,
nonperforming assets increased three basis points to .34% when compared to
the previous year's record low of .31%. Despite the slight increase in 2000,
the ratio of nonperforming assets has been generally trending downward since
1990 and has consistently been much lower than the average for similar sized
banks in the corporation's national and regional peer groups. There were no
concentrations 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.
Nonperforming Assets Ratio
(the lower, the better)
- ---------------------------------------
National
First Southern Peer
Virginia Regionals Group
- ---------------------------------------
2000 0.34% 0.65% 0.57%
1999 0.31 0.51 0.48
1998 0.36 0.51 0.54
1997 0.44 0.55 0.62
1996 0.48 0.56 0.54
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. Included in the allowance for loan losses is an
allocation of $.966 million to provide for probable losses on nonaccruing and
impaired loans.
- ----------------------------------------------------------------------------
December 31 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------
Nonaccruing loans $14,954 $14,507 $14,654 $16,281 $14,906
Restructured loans 1,814 1,829 2,441 4,861 5,537
Properties acquired
by foreclosure 5,096 3,503 4,695 5,282 5,140
- ----------------------------------------------------------------------------
Total $21,864 $19,839 $21,790 $26,424 $25,583
============================================================================
Percentage of total loans and
foreclosed real estate .34% .31% 36% .44% .48%
Loans 90 days past due
and still accruing interest $11,111 $12,401 $17,162 $14,734 $ 8,919
Percentage of total loans .17% .19% .29% .25% .17%
============================================================================
Loans past due 90 days or more declined at the end of 2000 by $1.290
million to $11.111 million or .17% of total loans as compared to $12.401
million and .19% of total loans at the end of 1999. The corporation's
delinquency ratio is significantly below industry averages and reflects the
high overall quality of the corporation's loan portfolio.
Loans are 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. Installment
loans are generally placed in a nonaccrual status when payments are
delinquent 120 days. All other loans are generally placed in nonaccrual
status when they are 90 days delinquent. Loans may be classified as
nonaccrual sooner if specific conditions so indicate. A nonaccrual loan may
be restored to an accruing status when principal and interest are no longer
past due and future collection of principal and interest are not in doubt.
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 the obligor's potential operating or financial difficulties. At
the end of 2000, loans of this type that are not included in the above table
of nonperforming and past due loans amounted to approximately $51.239
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 problem loans could be
reclassified as nonperforming or impaired loans in the future.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level management
believes is adequate to absorb inherent losses in the loan portfolio. The
provision for loan losses is the periodic cost of maintaining an adequate
allowance. Due to the homogeneous nature of a large percentage of the
corporation's outstanding loans, a significant portion of the allowance is
not determined by individual loan reviews. Rather, the adequacy of the
allowance and related provision for loan losses are evaluated by management
based on the value of underlying collateral, economic conditions and unique
marketplace factors that might affect the collectibility of the loans. As a
result, these judgments involve an inherently higher degree of uncertainty.
Historical results and loss experience may not reflect this risk to the
extent it might currently exist. For other portions of the corporation's loan
portfolio, management assesses the adequacy of the allowance based on a
review of individual loans and commitments where internal credit evaluations
result in ratings that are below standards adopted and periodically updated
by the corporation. Other risk factors taken into account include recent loss
experience in specific loan categories, underwriting standards and changes in
credit quality, and changes in volumes or concentrations of credit risk.
Reserve Coverage Ratio
(the higher, the better)
- ---------------------------------------
National
First Southern Peer
Virginia Regionals Group
- ---------------------------------------
2000 419% 250% 282%
1999 429 308 359
1998 411 377 338
1997 322 359 307
1996 307 364 326
Net Charge-Off Ratio
(the lower, the better)
- ---------------------------------------
National
First Southern Peer
Virginia Regionals Group
- ---------------------------------------
2000 0.14% 0.32% 0.31%
1999 0.16 0.28 0.26
1998 0.32 0.29 0.29
1997 0.31 0.30 0.29
1996 0.25 0.29 0.27
In the case of construction, commercial and commercial real estate
loans, loans are reviewed and rated at least annually, and trends in the
total portfolio are examined for potential deterioration in overall quality.
Each loan in excess of $25,000 is examined individually and a specific
allocation determined if full collectibility is in doubt. This component of
the overall allowance is relatively small and totaled $3.337 million at the
end of 2000, including $.966 million for loans classified as impaired. Loans
specifically reviewed comprise 25% of the total loan portfolio, and the
allocated allowance for these loans represented approximately 5% of the total
allowance for loan losses.
The remainder of the allowance is unallocated and provides for the 75%
of the loan portfolio that is comprised of small, homogeneous loans to
consumers and uncertainties such as adverse economic conditions. No specific
allocation of the allowance is made for individual loans in this category.
Instead, these loans are divided into various groups with similar
characteristics and evaluated collectively. These loans tend to be for
relatively short durations of three to seven years and are generally secured
by automobiles or residential real estate and have fairly consistent charge-
off experience.
Net charge-offs declined slightly in 2000 to .14% of average loans as
compared to .16% in 1999 and .32% in 1998. The decline from 1998 to 1999 was
primarily attributable to the sale of the corporation's credit card
portfolio, which had the highest charge-off rate of the major loan
categories. The allowance for loan losses remained unchanged at 1.10% of
total loans at December 31, 2000, as compared to the end of 1999 since asset
quality was relatively unchanged.
An analysis of the activity in the allowance for loan losses for each of
the last five years is presented in the table on the following page.
Allowance for Loan Losses
- --------------------------------------------------------------------------
December 31 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------
Balance at beginning of year $70,119 $70,312 $68,064 $62,761 $57,922
Provision charged to
operating expense 9,428 14,190 20,800 17,177 17,734
Increase attributable
to acquisitions - - 679 5,551 -
Reserve on loans sold - (4,323) - - -
- --------------------------------------------------------------------------
Total balance before
Charge-offs 79,547 80,179 89,543 85,489 75,656
- --------------------------------------------------------------------------
Charge-offs:
Indirect automobile 7,894 8,654 9,743 7,706 5,539
Other consumer (including 3,241 4,663 13,238 12,315 10,031
credit cards)
Real estate 518 188 215 113 176
Commercial and other 1,138 679 384 1,412 865
- --------------------------------------------------------------------------
Total charge-offs 12,791 14,184 23,580 21,546 16,611
- --------------------------------------------------------------------------
Recoveries:
Indirect automobile 1,938 2,145 2,034 1,581 1,595
Other consumer (including 1,521 1,891 2,198 1,934 1,634
credit cards)
Real estate 28 29 47 242 1
Commercial and other 57 59 70 364 486
- --------------------------------------------------------------------------
Total recoveries 3,544 4,124 4,349 4,121 3,716
- --------------------------------------------------------------------------
Net charge-offs 9,247 10,060 19,231 17,425 12,895
- --------------------------------------------------------------------------
Balance at end of year $70,300 $70,119 $70,312 $68,064 $62,761
==========================================================================
Net loan losses (recoveries) to
average loans:
Indirect automobile .20% .23% .32% .29% .22%
Other consumer (including .14 .21 .69 .64 .51
credit cards)
Real estate .04 .01 .02 (.01) .02
Commercial and other .10 .06 .03 .12 .05
Total loans .14 .16 .32 .31 .25
Allowance for loan losses
to year-end loans 1.10% 1.10% 1.15% 1.15% 1.17%
==========================================================================
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 2000 was 25 months, down from 34 months at
the end of 1999. 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 is typically between two and
three years 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 affiliate 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. The majority 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 table on the following page.
Maturity ranges and interest-rate sensitivity
- -----------------------------------------------------------------------------
Between After
One Year One And Five
or Less Five Years Years Total
- -----------------------------------------------------------------------------
Commercial $ 442,325 $ 339,280 $ 173,320 $ 954,925
Construction and
land development 69,513 84,732 27,330 181,575
- -----------------------------------------------------------------------------
Total $ 511,838 $ 424,012 $ 200,650 $1,136,500
=============================================================================
Fixed-rate loans $ 358,507 $ 113,771 $ 472,278
Floating-rate loans 65,505 86,879 152,384
- -----------------------------------------------------------------------------
Total $ 424,012 $ 200,650 $ 624,662
=============================================================================
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 affiliate
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 decrease,
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, 2000, the corporation was liability sensitive in the
short term (under six months) by approximately 26% of earning assets, which
declines to 18% 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 following table. However, the degree and frequency of movement is more
limited in practice, and they are much less sensitive than contractually
possible. The table on the following page shows the corporation's interest-
sensitivity position at December 31, 2000.
INTEREST-SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------
1 to 30-Day 1 to 90-Day 1 to 180-Day
Sensitivity Sensitivity Sensitivity
- --------------------------------------------------------------------------
Earning assets:
Loans, net of unearned income $ 977,773 $ 1,390,064 $ 1,935,849
Investment securities 267,525 355,002 501,709
Money market investments 190,443 190,443 190,443
Other earning assets - - -
- --------------------------------------------------------------------------
Total earning assets 1,435,741 1,935,509 2,628,001
- --------------------------------------------------------------------------
Funding sources:
Noninterest-bearing
demand deposits - - -
Interest checking 1,524,943 1,524,943 1,524,943
Money market accounts 874,421 874,421 874,421
Savings deposits 983,781 983,781 983,781
Consumer certificates of deposit 190,851 443,811 780,601
Large denomination certificates
of deposit 57,940 138,725 234,612
Short-term borrowings 539,469 539,469 539,469
Long-term debt - - -
Other funding sources - - -
- --------------------------------------------------------------------------
Total funding sources 4,171,405 4,505,150 4,937,827
- --------------------------------------------------------------------------
Interest-sensitivity gap $(2,735,664) $(2,569,641) $(2,309,826)
==========================================================================
Interest-sensitivity gap as a
percentage of earning assets (31.30)% (29.40)% (26.43)%
Ratio of interest-sensitive assets
to interest-sensitive liabilities .34x .43x .53x
==========================================================================
INTEREST-SENSITIVITY ANALYSIS (Continued)
- --------------------------------------------------------------------------
Beyond One
1 to 365-Day Year or
Sensitivity Nonsensitive Total
- --------------------------------------------------------------------------
Earning assets:
Loans, net of unearned income $ 2,950,311 $3,416,519 $6,366,830
Investment securities 738,139 1,425,969 2,164,108
Money market investments 190,443 - 190,443
Other earning assets - 18,351 18,351
- --------------------------------------------------------------------------
Total earning assets 3,878,893 4,860,839 8,739,732
- --------------------------------------------------------------------------
Funding sources:
Noninterest-bearing
demand deposits - 1,618,901 1,618,901
Interest checking 1,524,943 - 1,524,943
Money market accounts 874,421 - 874,421
Savings deposits 983,781 - 983,781
Consumer certificates of deposit 1,173,290 1,150,443 2,323,733
Large denomination certificates
of deposit 332,257 167,780 500,037
Short-term borrowings 539,469 - 539,469
Long-term debt - 1,116 1,116
Other funding sources - 373,331 373,331
- --------------------------------------------------------------------------
Total funding sources 5,428,161 3,311,571 8,739,732
- --------------------------------------------------------------------------
Interest-sensitivity gap $(1,549,268) $1,549,268 $ -
==========================================================================
Interest-sensitivity gap as a
percentage of earning assets (17.73)% 17.73% 0.00%
Ratio of interest-sensitive assets
to interest-sensitive liabilities .71x 1.47x 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 dynamic version of the information
shown in the preceding table 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 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 rates. 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 make adjustments so that net interest income would not be
materially impacted. For example, the corporation's net interest margin has
averaged 5.16% over the past ten years, and prior to this year's result of
4.96%, the corporation exceeded 5.00% every year since 1978, despite wide
changes in interest rates. At the same time, the corporation 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 the anticipated
interest-rate environment over the next 12 months also indicates that net
interest income would decrease by 10%, while an immediate and hypothetical
decrease in rates of 200 basis points would increase net interest income by
4%. 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 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 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 money market accounts comprising the corporation's funding
sources, which can be invested in relatively higher-yielding loans and
investments.
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 2000 have been
analyzed in quarterly reports to shareholders. The results of operations for
each of the quarters during the two years ended December 31, 2000, are
summarized in the table on pages 42 and 43. The results of operations for
the fourth quarter are highlighted below.
Earnings per share of $.82 in the fourth quarter of 2000 represented a
17% improvement compared to the $.70 earned in the fourth quarter of 1999.
The return on average assets increased to 1.61% compared to 1.46% in the
prior year's fourth quarter, and the return on average shareholders' equity
increased to 15.50% compared to 13.31%. Net income for the fourth quarter of
2000 included nonrecurring after-tax gains on the sale of five branch offices
totaling $1.981 million. Earnings per share, excluding the nonrecurring
income in the 2000 fourth quarter, equaled $.78 per share, an 11% increase
compared to the $.70 earned in 1999. Excluding the nonrecurring 2000 gain,
the return on average assets increased to 1.53% in the 2000 fourth quarter
compared to 1.46% in 1999, and the return on average shareholders' equity was
14.69% compared to 13.31%. Cash basis recurring income, which excludes both
the effects of intangible assets and their related amortization and
nonrecurring income items, equaled $39.349 million in the fourth quarter
compared to $37.728 million in the prior year's fourth quarter. Cash basis
recurring income produced a return on average tangible assets of 1.69% in the
fourth quarter and a return on average tangible shareholders' equity of
19.12%, compared to 1.61% and 17.30%, respectively, in the 1999 fourth
quarter.
Average loans declined slightly in the fourth quarter to $6.341 billion
compared to $6.357 billion during the third quarter and $6.364 billion during
the prior year's fourth quarter. Growth in average commercial loans continued
to be strong, increasing at an annualized pace over the third quarter of 16%.
However, demand for consumer loans, primarily automobile and home equity
loans, continued to weaken during the fourth quarter, causing a decline in
average consumer loans at an annualized rate of 5% compared to the third
quarter, accounting for the slight decline in average total loans. Average
deposits declined 2% to $7.794 billion compared to the third quarter largely
due to the sale of five branch offices during the quarter. The net interest
margin declined seven basis points to 4.88% during the fourth quarter
compared to the 4.95% achieved in the third quarter. Despite the decline, the
corporation's net interest margin remains among the highest of any of the 50
largest banks in the country.
Noninterest income increased 18% in the fourth quarter compared to the
prior year. Excluding a $3.134 million nonrecurring gain on the sale of five
branch offices in the 2000 fourth quarter, noninterest income increased at a
6% rate to $29.344 million compared to $27.571 million in 1999. Service
charges on deposit accounts increased at a 9% pace, aided by an increase in
income from internet-based accounts and higher service charge income on
commercial accounts. Electronic banking service fees increased 44% compared
to the prior year's fourth quarter, the direct result of the introduction of
the corporation's new Visa CheckCard, which produced $1.348 million in fee
income and is continuing to grow very rapidly. Trust and asset management
fees rose 7% compared to the prior year's fourth quarter.
Noninterest expense increased less than 1% compared to the prior year's
fourth quarter. Most categories of expense were relatively stable compared to
both the fourth quarter of 1999 and the third quarter of 2000.
QUARTERLY RESULTS
- ----------------------------------------------------------------------
2000 Quarter Ended
- ----------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
- ----------------------------------------------------------------------
Condensed Statements of Income
Interest and fees on loans $128,928 $129,266 $127,410 $125,974
Income from securities 28,405 26,780 26,146 27,353
Other interest income 6,740 7,092 5,964 3,748
- ----------------------------------------------------------------------
Total interest income 164,073 163,138 159,520 157,075
- ----------------------------------------------------------------------
Interest on deposits 51,454 50,022 46,813 45,734
Interest on borrowed funds 7,617 6,870 5,825 4,976
- ----------------------------------------------------------------------
Total interest expense 59,071 56,892 52,638 50,710
- ----------------------------------------------------------------------
Net interest income 105,002 106,246 106,882 106,365
Provision for loan losses 2,761 1,225 3,135 2,307
Noninterest income 32,478 30,019 28,568 26,965
Noninterest expense 82,705 80,508 79,640 79,292
Provision for income taxes 13,989 19,198 18,196 17,538
- ----------------------------------------------------------------------
Net income $ 38,025 $ 35,334 $ 34,479 $ 34,193
======================================================================
Net income per share
Basic $ .82 $ .76 $ .73 $ .70
Diluted .82 .76 .73 .70
Average Quarterly Balances (in millions):
Securities $ 1,973 $ 1,900 $ 1,895 $ 1,992
Loans 6,341 6,357 6,425 6,395
Total earning assets 8,724 8,687 8,713 8,655
Total assets 9,446 9,407 9,444 9,429
Demand deposits 1,598 1,610 1,602 1,549
Interest-bearing deposits 6,196 6,225 6,293 6,316
Total deposits 7,794 7,835 7,895 7,865
Total shareholders' equity 981 966 986 1,021
Key Ratios
Yield on earning assets 7.57% 7.56% 7.43% 7.37%
Cost of funds 3.50 3.37 3.15 3.03
Net interest margin 4.88 4.95 5.00 5.02
Return on average assets 1.61 1.50 1.46 1.45
Return on average equity 15.50 14.63 13.99 13.39
QUARTERLY RESULTS
- ----------------------------------------------------------------------
1999 Quarter Ended
- ----------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
- ----------------------------------------------------------------------
Condensed Statements of Income
Interest and fees on loans $128,555 $126,730 $123,908 $125,540
Income from securities 28,938 30,653 31,506 29,417
Other interest income 3,124 2,506 4,169 5,576
- ----------------------------------------------------------------------
Total interest income 160,617 159,889 159,583 160,533
- ----------------------------------------------------------------------
Interest on deposits 46,689 46,405 47,525 50,102
Interest on borrowed funds 4,886 4,092 3,591 3,624
- ----------------------------------------------------------------------
Total interest expense 51,575 50,497 51,116 53,726
- ----------------------------------------------------------------------
Net interest income 109,042 109,392 108,467 106,807
Provision for loan losses 2,623 3,178 4,433 3,956
Noninterest income 27,571 33,371 28,810 46,852
Noninterest expense 82,308 82,417 80,638 81,931
Provision for income taxes 16,975 19,539 17,966 23,488
- ----------------------------------------------------------------------
Net income $ 34,707 $ 37,629 $ 34,240 $ 44,284
======================================================================
Net income per share
Basic $ .70 $ .75 $ .68 $ .88
Diluted .70 .75 .68 .88
Average Quarterly Balances (in millions):
Securities $ 2,093 $ 2,211 $ 2,270 $ 2,095
Loans 6,364 6,262 6,091 6,079
Total earning assets 8,685 8,669 8,711 8,652
Total assets 9,524 9,460 9,505 9,452
Demand deposits 1,588 1,594 1,599 1,538
Interest-bearing deposits 6,345 6,328 6,387 6,426
Total deposits 7,933 7,922 7,986 7,964
Total shareholders' equity 1,043 1,045 1,030 1,002
Key Ratios
Yield on earning assets 7.45% 7.43% 7.42% 7.56%
Cost of funds 3.02 2.99 3.04 3.21
Net interest margin 5.09 5.12 5.07 5.04
Return on average assets 1.46 1.59 1.44 1.87
Return on average equity 13.31 14.40 13.29 17.67
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
(In thousands, except per share data)
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------
December 31 2000 1999
- ----------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 322,966 $ 441,825
Money market investments 190,443 110,598
- ----------------------------------------------------------------------------
Total cash and cash equivalents - Note 3 513,409 552,423
- ----------------------------------------------------------------------------
Loans held for sale 366 5,558
Investment securities-available for sale - Note 4 110,989 116,401
Investment securities-held to maturity (fair
values-$2,045,431-2000 and
$1,876,571-1999)- Note 4 2,053,119 1,918,387
Loans, net of unearned income - Note 5 6,366,464 6,385,400
Allowance for loan losses - Note 6 (70,300) (70,119)
- ----------------------------------------------------------------------------
Net loans 6,296,164 6,315,281
- ----------------------------------------------------------------------------
Other earning assets 18,351 23,125
Premises and equipment - Note 7 150,323 156,171
Intangible assets - Note 8 157,777 170,358
Accrued income and other assets 215,971 194,109
- ----------------------------------------------------------------------------
Total Assets $9,516,469 $9,451,813
============================================================================
CONSOLIDATED BALANCE SHEETS (Continued)
- --------------------------------------------------------------------------
December 31 2000 1999
- --------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $1,618,901 $1,546,794
Interest-bearing:
Interest checking 1,524,943 1,516,246
Money market accounts 874,421 953,224
Savings deposits 983,781 1,064,799
Consumer certificates of deposit 2,323,733 2,314,245
Large denomination certificates
of deposit 500,037 468,640
- --------------------------------------------------------------------------
Total deposits 7,825,816 7,863,948
- --------------------------------------------------------------------------
Short-term borrowings - Note 9 539,469 420,297
Long-term debt 1,116 2,205
Accrued interest and other liabilities 157,362 134,876
- --------------------------------------------------------------------------
Total Liabilities 8,523,763 8,421,326
- --------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value (authorized
3,000 shares; outstanding 45 shares -
2000 and 49 shares - 1999) - Note 10 451 485
Common stock, $1 par value (authorized
175,000 shares; outstanding 46,163 shares -
2000 and 49,162 shares - 1999) - Note 10 46,143 49,162
Capital surplus 612 -
Retained earnings 945,241 982,357
Accumulated other comprehensive income (loss) 259 (1,517)
--------------------------------------------------------------------------
Total Shareholders' Equity 992,706 1,030,487
- --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $9,516,469 $9,451,813
==========================================================================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
-----------------------------------------------------------------------------
Interest income:
Loans $511,316 $503,995 $516,766
Loans held for sale 262 738 1,503
Investment securities-available for sale 5,967 4,276 883
Investment securities-held to maturity 102,717 116,238 115,439
Money market investments 22,195 13,799 27,530
Other earning assets 1,349 1,576 1,510
-----------------------------------------------------------------------------
Total interest income 643,806 640,622 663,631
-----------------------------------------------------------------------------
Interest expense:
Deposits 194,023 190,721 219,365
Short-term borrowings 25,122 15,905 14,660
Long-term debt 166 288 307
-----------------------------------------------------------------------------
Total interest expense 219,311 206,914 234,332
-----------------------------------------------------------------------------
Net interest income 424,495 433,708 429,299
Provision for loan losses - Note 6 9,428 14,190 20,800
-----------------------------------------------------------------------------
Net interest income after provision
for loan losses 415,067 419,518 408,499
-----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (Continued)
- -----------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
-----------------------------------------------------------------------------
Net interest income after provision
for loan losses $415,067 $419,518 $408,499
-----------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 59,408 56,334 47,078
Electronic banking service fees 13,746 11,561 11,962
Trust and asset management fees 13,069 11,552 10,192
Credit card service charges and fees - 5,439 12,235
Insurance premiums and commissions 6,674 7,413 7,191
Other customer services 15,964 14,190 14,116
Other 8,971 11,364 12,994
Gain on sale of credit card operations - 17,899 -
Securities gains - Note 4 198 852 1,007
-----------------------------------------------------------------------------
Total noninterest income 118,030 136,604 116,775
-----------------------------------------------------------------------------
Noninterest expense:
Salaries and employee
benefits - Notes 11 and 12 186,213 182,345 180,163
Occupancy 26,405 25,588 24,870
Equipment 32,784 31,470 29,218
Advertising 6,222 6,855 8,863
Credit card processing fees - 4,912 8,884
Amortization of intangibles 14,974 15,048 14,624
Other 55,547 61,076 59,056
-----------------------------------------------------------------------------
Total noninterest expense 322,145 327,294 325,678
-----------------------------------------------------------------------------
Income before income taxes 210,952 228,828 199,596
Provision for income taxes - Note 13 68,921 77,968 69,434
-----------------------------------------------------------------------------
NET INCOME $142,031 $150,860 $130,162
=============================================================================
Net income per share of common stock - Note 14
Basic $ 3.02 $ 3.02 $ 2.54
Diluted 3.01 3.00 2.53
Average shares of common stock outstanding - Note 14
Basic 47,065 49,979 51,233
Diluted 47,257 50,238 51,529
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
Accumu-
lated
Other
Compre- Total
Pre- hensive Share-
ferred Common Capital Retained Income holders'
Stock Stock Surplus Earnings (Loss) Equity
- ------------------------------------------------------------------------------
Balance January 1, 1998 $ 583 $51,817 $ 92,971 $865,785 $ - $1,011,156
Comprehensive income:
Net income 130,162 130,162
Unrealized gains on
securities available for
sale, net of tax of $873 1,607 1,607
Reclassification for gains
realized in net income,
net of tax of $(330) (614) (614)
----------
Total comprehensive income 131,155
Conversion of preferred
to common stock (49) 11 38 -
Issuance of shares for
stock options 47 850 897
Common stock purchased
and retired (1,781) (89,855) (91,636)
Dividends declared:
Preferred stock (35) (35)
Common stock
$1.20 per share (61,209) (61,209)
- ------------------------------------------------------------------------------
Balance December 31, 1998 534 50,094 4,004 934,703 993 990,328
- ------------------------------------------------------------------------------
Comprehensive income:
Net income 150,860 150,860
Unrealized losses on
securities available
for sale, net of tax
of $(1,075) (1,971) (1,971)
Reclassification for gains
realized in net income,
net of tax of $(290) (539) (539)
----------
Total comprehensive income 148,350
Conversion of preferred
to common stock (35) 8 27 -
Issuance of shares for
stock options 94 4,226 4,320
Preferred stock retired (14) (26) (40)
Common stock purchased
and retired (1,034) (8,231) (35,461) (44,726)
Dividends declared:
Preferred stock (33) (33)
Common stock $1.36 per share (67,712) (67,712)
- ------------------------------------------------------------------------------
Balance December 31, 1999 $ 485 $49,162 $ - $982,357 $(1,517)$1,030,487
==============================================================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
- ------------------------------------------------------------------------------
Accumu-
lated
Other
Compre- Total
Pre- hensive Share-
ferred Common Capital Retained Income holders'
Stock Stock Surplus Earnings (Loss) Equity
- ------------------------------------------------------------------------------
Balance December 31, 1999 $ 485 $49,162 $ - $982,357 $(1,517)$1,030,487
Comprehensive income:
Net income 142,031 142,031
Unrealized gains on
securities available
for sale, net of tax
of $1,065 1,899 1,899
Reclassification for gains
realized in net income,
net of tax of $(67) (123) (123)
----------
Total comprehensive income 143,807
Conversion of preferred
to common stock (34) 6 28 -
Issuance of shares for
stock options 70 1,756 1,826
Common stock purchased
and retired (3,095) (1,172)(109,914) (114,181)
Dividends declared:
Preferred stock (31) (31)
Common stock
$1.48 per share (69,202) (69,202)
- ------------------------------------------------------------------------------
Balance December 31, 2000 $ 451 $46,143 $ 612 $945,241 $ 259 $ 992,706
==============================================================================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- -----------------------------------------------------------------------------
Operating activities
Net income $142,031 $150,860 $130,162
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation of premises and equipment 13,975 13,390 13,842
Gain on sale of premises and equipment (5,061) (131) (2,438)
Provision for loan losses 9,428 14,190 20,800
Amortization of investment
securities premiums 5,393 9,969 5,656
Accretion of investment
securities discounts (1,427) (1,502) (3,568)
Net decrease in loans held for
sale 5,192 9,179 4,216
Gain on sale of securities (198) (852) (1,007)
Amortization of goodwill and other
intangible assets 14,974 15,048 14,624
Deferred income taxes (4,443) (5,543) (1,672)
(Increase) decrease in prepaid expenses 1,356 (414) (9,883)
Increase in interest receivable (5,419) (679) (944)
Increase (decrease) in interest payable 8,856 (3,080) (134)
Increase in other accrued expenses 3,346 1,068 5,443
- -----------------------------------------------------------------------------
Net cash provided by operating activities 188,003 201,503 175,097
- -----------------------------------------------------------------------------
Investing activities
Proceeds from the sale of available
for sale securities 7,440 1,988 2,641
Proceeds from the maturity of held
to maturity securities 1,187,707 1,072,881 3,099,834
Purchase of available for sale securities - (101,482) (12,853)
Purchase of held to maturity securities (1,325,461) (696,613)(3,457,337)
Net (increase) decrease in loans 9,689 (306,567) (173,790)
Purchases of premises and equipment (10,707) (12,600) (15,977)
Sales of premises and equipment 7,642 3,950 6,675
Intangible assets acquired (2,203) (711) (22,948)
Other 696 11,454 (7,884)
- -----------------------------------------------------------------------------
Net cash used for investing activities (125,197) (27,700) (581,639)
- -----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- -----------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- -----------------------------------------------------------------------------
Financing activities
Net (decrease) increase in deposits $ (38,132) $(191,130) $ 435,236
Net increase in short-term borrowings 119,172 34,301 134,309
Principal payments on long-term debt (1,089) (1,012) (937)
Proceeds from long-term debt - - 1,328
Common stock purchased and retired (114,181) (44,726) (91,636)
Proceeds from issuance of common stock 1,826 4,320 897
Cash dividends paid (69,416) (66,064) (59,718)
- -----------------------------------------------------------------------------
Net cash (used for) provided
by financing activities (101,820) (264,311) 419,479
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (39,014) (90,508) 12,937
Cash and cash equivalents at
beginning of year 552,423 642,931 629,994
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of year $513,409 $552,423 $642,931
=============================================================================
Cash paid for:
Interest $210,455 $209,995 $234,466
Income taxes 68,584 78,752 72,485
=============================================================================
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
(Dollars in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Virginia Banks, Inc. and its subsidiaries (the corporation)
provide banking and bank-related services primarily in Virginia, Maryland and
Tennessee. The accounting and reporting policies of the corporation conform
with generally accepted accounting principles and prevailing industry
practices, which require 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. All material
intercompany transactions and accounts have been eliminated. Certain amounts
for prior years have been reclassified for comparative purposes.
Cash and Cash Equivalents: Cash and cash equivalents include cash and due
from banks, federal funds sold, securities purchased under agreement to
resell and other short-term investments.
Securities Available for Sale: Management determines the appropriate
classification of debt securities at the time of purchase. Securities
available for sale are stated at the estimated fair value, with unrealized
gains and losses, net of tax, reported as a net amount in accumulated other
comprehensive income. Quoted market prices are used to determine the
estimated fair value. The adjusted cost basis of a specific security is used
to compute gains or losses on the sale or early redemption of these
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 is used to compute
gains or losses on the early redemption of these securities.
Loans Held for Sale: Loans held for sale consist mainly of mortgage loans,
which 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: Loans are carried at the principal amount outstanding including
deferred loan origination fees and costs. Loan origination fees and direct
loan origination costs typically are deferred and the net amount is amortized
as an adjustment to the loan's yield over the contractual life of the loan.
Interest income on loans is primarily accrued based on the principal amount
outstanding. Loans are classified as nonaccrual when full collectibility of
principal or interest is in doubt, when repossession, foreclosure or
bankruptcy proceedings are initiated, or when legal actions are taken.
Installment loans are generally placed in nonaccrual status when payments are
delinquent 120 days. All other loans are generally placed in nonaccrual
status when they are 90 days delinquent. Loans may be classified as
nonaccrual sooner if specific conditions indicate impairment is probable.
The decision to place a loan in nonaccrual status is also based on an
evaluation of the borrower's financial condition, the collateral and other
factors that may affect the borrower's ability to pay. A nonaccrual loan may
be restored to an accruing status when principal and interest are no longer
past due and future collection of principal and interest is not in doubt.
The corporation identifies commercial, construction and commercial real
estate loans as impaired when it is probable that the payments of principal
and interest due under the loan agreement will not be collected. Since many
of the corporation's loans are secured by real estate, the value of impaired
loans in most cases is based upon the fair value of the collateral. If the
value of the collateral is less than the recorded investment in the loan, the
corporation includes this deficiency in evaluating the adequacy of the
allowance for loan losses.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level considered adequate to absorb inherent losses in the loan portfolio.
The provision for loan losses is the periodic cost of maintaining an adequate
allowance. Due to the homogeneous nature of a large percentage of the
corporation's outstanding loans, a significant portion of the allowance is
not determined by individual loan reviews. Rather the adequacy of the
allowance and related provision for loan losses are evaluated by management
based on the value of the underlying collateral, the economic conditions and
factors unique to their marketplaces that might affect the collectibility of
the loans as well as other factors. As a result, these judgments involve an
inherently higher degree of uncertainty. Historical results and loss
experience may not reflect this risk to the extent it might currently exist.
For other portions of the corporation's loan portfolio, management assesses
the adequacy of the allowance based on a review of individual loans where
internal credit evaluations result in ratings that are below certain
standards adopted by the corporation. Other risk factors taken into account
include recent loss experience in specific loan categories, underwriting
standards and changes in credit quality, and changes in volumes or
concentrations of credit risks.
Premises and Equipment: Premises and equipment are carried at cost less
accumulated depreciation computed principally on the straight-line method
over lives generally not exceeding 40 and 10 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 is stated at 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. Any further
declines in fair value are charged against current earnings.
Intangible Assets: 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 are being amortized over 10 years. The corporation periodically
considers the potential impairment of intangible assets.
Income Taxes: Deferred tax assets and liabilities are based on the difference
between financial reporting and tax bases of assets and liabilities and are
measured at the enacted income tax rates applicable to the period in which
the deferred tax assets or liabilities are expected to be realized or
settled.
Net Income per Share: Basic net income per share of common stock is computed
on the basis of the weighted-average number of shares of common stock
outstanding. Diluted net income per share is computed based on the weighted-
average number of common and common equivalent shares and dilutive stock
options outstanding during the year.
2. ACQUISITIONS
On April 21, 2000, three branches were acquired from Wilmington Trust
FSB including $23 million in deposits. A core deposit premium of $2 million
was recorded and is being amortized over ten years.
On June 19, 1998, five branches were acquired from the Bank of Maryland,
and on February 6, 1998, seven branches were acquired from the former Signet
Bank. These transactions resulted in the acquisition of an aggregate of $238
million in deposits and $58 million in loans. Core deposit premiums of $23
million were recorded and are being amortized over ten years.
3. CASH AND CASH EQUIVALENTS
The corporation's banking affiliates are required by Federal Reserve
regulations 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 $30.565 million and $32.804 million as of
December 31, 2000 and 1999, respectively.
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 2000 and 1999 was $460.040 million and
$440.068 million, respectively.
4. INVESTMENT SECURITIES
- ----------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------
Available for sale:
December 31, 2000:
U.S. Government and its agencies $ 99,472 $ 28 $ 225 $ 99,275
Other 11,081 1,469 836 11,714
- ----------------------------------------------------------------------------
Total $ 110,553 $ 1,497 $ 1,061 $ 110,989
============================================================================
December 31, 1999:
U.S. Government and its agencies $ 107,657 $ - $ 1,527 $ 106,130
Other 11,081 141 951 10,271
- ----------------------------------------------------------------------------
Total $ 118,738 $ 141 $ 2,478 $ 116,401
============================================================================
December 31, 1998:
U.S. Government and its agencies $ 12,053 $ 130 $ - $ 12,183
Other 6,991 1,406 - 8,397
- ----------------------------------------------------------------------------
Total $ 19,044 $ 1,536 $ - $ 20,580
============================================================================
Held to maturity:
December 31, 2000:
U.S. Government and its agencies $1,737,374 $ 3,749 $ 11,453 $1,729,670
State and municipal obligations 315,745 991 975 315,761
- ----------------------------------------------------------------------------
Total $2,053,119 $ 4,740 $ 12,428 $2,045,431
============================================================================
December 31, 1999:
U.S. Government and its agencies $1,567,052 $ 1,550 $ 38,852 $1,529,750
State and municipal obligations 351,086 589 5,104 346,571
Other 249 1 - 250
- ----------------------------------------------------------------------------
Total $1,918,387 $ 2,140 $ 43,956 $1,876,571
============================================================================
December 31, 1998:
U.S. Government and its agencies $2,002,528 $ 13,651 $ 3,492 $2,012,687
State and municipal obligations 299,662 4,396 109 303,949
Other 282 4 - 286
- ----------------------------------------------------------------------------
Total $2,302,472 $ 18,051 $ 3,601 $2,316,922
============================================================================
Securities having a carrying value of $814.133 million and $1,490.647
million at December 31, 2000 and 1999, respectively, were pledged to secure
public deposits and for other purposes. Gains of $.198 million, $.852 million
and $1.007 million were realized in 2000, 1999 and 1998, respectively, on the
sale of investment securities and consisted entirely of gross gains.
The maturity ranges and average yields of securities, excluding equity
securities, as of December 31, 2000, are as follows:
U.S. Government and its Agencies
- -----------------------------------------------------------------------------
Amortized
Cost Fair Value Yield
- -----------------------------------------------------------------------------
Available for sale:
One year or less $ 69,253 $ 69,706 6.3%
After one through five years 30,219 29,569 5.4
- ----------------------------------------------------------------------------
Total $ 99,472 $ 99,275 6.0%
============================================================================
Held to maturity:
One year or less $ 585,659 $ 585,311 5.7%
After one through five years 1,132,449 1,125,044 6.0
After five through ten years 12,511 12,598 7.0
After ten years 6,755 6,717 7.3
- ----------------------------------------------------------------------------
Total $1,737,374 $1,729,670 5.9%
============================================================================
State and Municipal Obligations
- -----------------------------------------------------------------------------
Amortized
Cost Fair Value Yield
- -----------------------------------------------------------------------------
Held to maturity:
One year or less $ 83,227 $ 83,238 4.7%
After one through five years 229,319 229,232 4.8
After five through ten years 2,379 2,413 5.6
After ten years 820 878 7.5
- ----------------------------------------------------------------------------
Total $ 315,745 $ 315,761 4.8%
============================================================================
5. LOANS
The corporation's loans are widely dispersed among individuals and
industries. On December 31, 2000, there was no concentration of loans in any
single industry that exceeded 10% of total loans.
- ---------------------------------------------------------------------------
December 31 2000 1999
- ---------------------------------------------------------------------------
Consumer:
Automobile $3,169,269 $3,214,659
Home equity, fixed- and variable-rate 743,542 831,952
Revolving credit loans, including credit cards 31,907 28,505
Other 170,482 184,930
Commercial 954,925 852,140
Construction and land development 181,575 151,776
Real estate:
Commercial mortgage 432,053 409,590
Residential mortgage 682,711 711,848
- ---------------------------------------------------------------------------
Total loans, net of unearned income
of $126,929 and $140,920 6,366,464 6,385,400
Less allowance for loan losses 70,300 70,119
- ---------------------------------------------------------------------------
Net loans $6,296,164 $6,315,281
===========================================================================
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:
- --------------------------------------------------------------------------
December 31 2000 1999 1998
- --------------------------------------------------------------------------
Nonaccruing loans $14,954 $14,507 $14,654
Restructured loans 1,814 1,829 2,441
- --------------------------------------------------------------------------
Total $16,768 $16,336 $17,095
==========================================================================
Income anticipated under
original loan agreements $ 1,411 $ 1,384 $ 1,342
Income recorded 795 156 169
==========================================================================
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.
All loans which the corporation has classified as impaired are
nonaccruing and have been allocated a portion of the allowance for loan
losses. No income was recorded while the loans were impaired.
- ---------------------------------------------------------------------------
December 31 2000 1999 1998
- ---------------------------------------------------------------------------
Impaired loans $ 1,209 $ 872 $ 666
Related allowance for loan losses 966 490 458
Average balance of impaired loans 781 754 713
===========================================================================
A total of $5.145 million, $2.907 million and $1.506 million of loans
were transferred to foreclosed property during 2000, 1999 and 1998,
respectively.
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, 2000 and 1999,
standby letters of credit totaled $25.829 million and $27.249 million,
respectively, and the unfunded amounts of loan commitments were:
- ---------------------------------------------------------------------------
December 31 2000 1999
- ---------------------------------------------------------------------------
Adjustable-rate loans:
Home equity lines $ 446,150 $ 444,925
Commercial loans 609,114 596,218
Construction and land development loans 147,913 165,720
Fixed-rate revolving credit lines 114,047 84,352
- ---------------------------------------------------------------------------
Total $1,317,224 $1,291,215
===========================================================================
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.
Mortgage loans being serviced for the benefit of nonaffiliated parties
were $.799 million, $339.194 million and $341.426 million at December 31,
2000, 1999 and 1998, respectively.
6. ALLOWANCE FOR LOAN LOSSES
- -------------------------------------------------------------------------
Year ended December 31 2000 1999 1998
- -------------------------------------------------------------------------
Balance at beginning of year $70,119 $70,312 $68,064
Provision charged to operating expense 9,428 14,190 20,800
Increase attributable to acquisitions - - 679
Reserve on loans sold - (4,323) -
- -------------------------------------------------------------------------
Balance before charge-offs 79,547 80,179 89,543
- -------------------------------------------------------------------------
Charge-offs 12,791 14,184 23,580
Recoveries 3,544 4,124 4,349
- -------------------------------------------------------------------------
Net charge-offs 9,247 10,060 19,231
- -------------------------------------------------------------------------
Balance at end of year $70,300 $70,119 $70,312
=========================================================================
7. PREMISES, EQUIPMENT AND LEASES
- -------------------------------------------------------------------------
December 31 2000 1999
- -------------------------------------------------------------------------
Land $ 36,500 $ 36,018
Premises and improvements 171,048 170,818
Furniture and equipment 118,107 118,872
- -------------------------------------------------------------------------
Total cost 325,655 325,708
Accumulated depreciation 175,332 169,537
- -------------------------------------------------------------------------
Carrying value $150,323 $156,171
=========================================================================
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 two banking offices are currently recorded as capital
leases. The effect of capitalizing such leases on net income has not been
material.
During 2000, 1999 and 1998, occupancy and equipment expense included the
rent paid on operating leases of $17.287 million, $17.187 million and $16.073
million, respectively.
Minimum rental payments over the noncancellable term of operating and
capital leases having a term in excess of one year are:
- --------------------------------------------------------------------------
Year Ended December 31 Amount
- --------------------------------------------------------------------------
2001 $11,539
2002 9,071
2003 7,561
2004 5,829
2005 4,273
Thereafter 15,023
- --------------------------------------------------------------------------
Total minimum lease payments $53,296
==========================================================================
8. INTANGIBLE ASSETS
- --------------------------------------------------------------------------
December 31 2000 1999
- --------------------------------------------------------------------------
Goodwill $109,266 $114,920
Core deposit premiums 48,082 53,919
Other 429 1,519
- --------------------------------------------------------------------------
Total intangible assets $157,777 $170,358
==========================================================================
Total intangible assets are net of accumulated amortization of $76.516
million and $61.723 million as of December 31, 2000 and 1999, respectively.
9. SHORT-TERM BORROWINGS
- -------------------------------------------------------------------------
December 31 2000 1999
- -------------------------------------------------------------------------
Securities sold under agreements to repurchase $442,332 $330,359
Commercial paper 97,137 89,938
- -------------------------------------------------------------------------
Total short-term borrowings $539,469 $420,297
=========================================================================
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 2000 and 1999 was $447.612 million and
$348.073 million, respectively. The securities underlying the agreements were
under the corporation's control. Commercial paper generally matures within
one business day but may be issued for a term up to 270 days. Bank lines of
credit available to the corporation amounted to $100 million at December 31,
2000 and 1999. Such lines were not being used on either of those dates.
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
Dividends 2000 1999
- ------------------------------------------------------------------------
Series A 5% 16,548 16,878
Series B 7% 3,290 3,290
Series C 7% 5,372 8,108
Series D 8% 19,927 20,242
- ------------------------------------------------------------------------
Total preferred shares 45,137 48,518
========================================================================
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 175 million shares of common
stock, par value $1 per share. At December 31, 2000, 3,077,367 shares of
common stock were reserved: 99,139 for the conversion of preferred stock and
2,978,228 for stock options.
The corporation has adopted a shareholder rights plan that, 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. The
exercise price for each right is $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, 2000, each outstanding share of common stock had 4/9 of a
right attached thereto.
11. STOCK INCENTIVE PLANS
A summary of the corporation's stock option activity and related
information follows:
- -----------------------------------------------------------------------------
Available Weighted Excer- Weighted
To Average cise- Average
Grant Outstanding Price able Price
- -----------------------------------------------------------------------------
Balance, January 1, 1998 54,525 643,642 $ 31.30 221,155 $ 17.63
Authorized under 1998 plan 2,500,000 - -
Granted (200,500) 200,500 44.63
Forfeited 1,450 (9,928) 22.66
Exercised - (47,200) 20.13
- -----------------------------------------------------------------------------
Balance, December 31, 1998 2,355,475 787,014 35.47 245,805 19.31
Granted (267,000) 267,000 42.75
Forfeited 16,300 (16,300) 44.96
Exercised - (94,688) 15.65
- -----------------------------------------------------------------------------
Balance, December 31, 1999 2,104,775 943,026 39.36 298,813 29.92
Granted (145,500) 145,500 45.38
Forfeited 12,500 (12,500) 47.55
Exercised - (69,573) 20.88
- -----------------------------------------------------------------------------
Balance, December 31, 2000 1,971,775 1,006,453 $ 41.40 384,187 $ 36.51
=============================================================================
- -----------------------------------------------------------------------------
Weighted
Average
Contractual Weighted Excer- Weighted
Life in Average cise- Average
Range of Exercise Prices Outstanding Years Price able Price
- -----------------------------------------------------------------------------
$15.37 - 22.33 90,690 2.8 $20.52 90,690 $ 20.52
27.92 - 31.25 134,263 5.4 29.26 89,113 29.08
42.75 - 52.31 781,500 8.5 45.91 204,384 46.85
- -----------------------------------------------------------------------------
$15.37 - 52.31 1,006,453 7.6 $41.40 384,187 $ 36.51
=============================================================================
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), requires entities that follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations when accounting for stock-
based compensation, to 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 2000, 1999
and 1998 is as follows:
- --------------------------------------------------------------------------
December 31 2000 1999 1998
- --------------------------------------------------------------------------
Assumptions:
Risk-free interest rate 5.11% 6.22% 5.02%
Dividend yield 3.15% 3.09% 4.20%
Volatility factor .174 .155 .163
Weighted average expected life (years) 8.0 8.0 8.0
Pro forma results:
Net income (millions) $141.405 $150.372 $130.659
Basic earnings per share 3.00 3.01 2.55
Diluted earnings per share 2.99 2.99 2.54
Fair value of options 8.97 9.30 6.42
==========================================================================
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.
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. Total stock-related compensation expense for 2000, 1999
and 1998 was $.636 million, $.477 million, and $1.316 million, respectively.
12. EMPLOYEE BENEFIT PLANS
The corporation has a noncontributory, defined-benefit pension plan
covering substantially all 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 include normal costs of the plan and amortization for periods
of up to 40 years of unfunded past service cost.
The corporation also has 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. The
projected and accumulated benefit obligations under this plan were $1.765
million and $1.312 million, respectively, at December 31, 2000.
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. Terminated employees may elect to receive medical benefits for a
limited period.
The benefit obligation and plan asset activity for each of the plans is
summarized below:
- -------------------------------------------------------------------------
Postretirement
Pension Benefits Medical Benefits
- -------------------------------------------------------------------------
December 31 2000 1999 2000 1999
- -------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning
of year $131,250 $132,719 $ 17,197 $ 19,127
Service cost 4,563 5,033 660 732
Interest cost 9,333 9,135 1,231 1,153
Plan participants'contributions - - 455 397
Actuarial gain (4,586) (10,831) (79) (3,429)
Benefits paid (5,163) (4,806) (1,716) (783)
- -------------------------------------------------------------------------
Benefit obligation at end of
year 135,397 131,250 17,748 17,197
- -------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year 146,236 134,828
Actual return on plan assets 9,545 15,759
Company contributions 16 455
Benefits paid (5,163) (4,806)
- -------------------------------------------------------------------------
Fair value of plan assets at end
of year 150,634 146,236
- -------------------------------------------------------------------------
Funded (unfunded) status 15,237 14,986 (17,748) (17,197)
Unrecognized actuarial gain (2,885) (2,553) (4,471) (4,633)
Unamortized prior service cost 13 (114) - -
Unrecognized transition obligation - 2 7,326 7,936
- -------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 12,365 $ 12,321 $(14,893) $(13,894)
=========================================================================
Weighted average assumptions as
of December 31:
Discount rate 7.50% 7.50% 7.50% 7.50%
Expected return on plan assets 9.50 9.50
Rate of compensation increase 4.75 4.75
=========================================================================
The assets of the pension plan consist of U.S. Government and agency
securities - 48.3%, other debt obligations - 11.4%, equity securities -
38.4%, and cash and equivalents - 1.9%.
The net periodic benefit cost of the plans includes the following
components:
- ---------------------------------------------------------------------
Pension Benefits
- ---------------------------------------------------------------------
Year ended December 31 2000 1999 1998
- ---------------------------------------------------------------------
Service cost $ 4,563 $ 5,033 $ 4,751
Interest cost 9,333 9,135 8,117
Expected return on plan assets (13,782) (12,685) (10,541)
Amortization of prior service
cost and net transition obligation (125) (113) (113)
Recognized actuarial loss (gain) (17) 150 18
- ---------------------------------------------------------------------
Net periodic benefit cost $ (28) $ 1,520 $ 2,232
=====================================================================
- ---------------------------------------------------------------------
Postretirement
Medical Benefits
- ---------------------------------------------------------------------
Year ended December 31 2000 1999 1998
- ---------------------------------------------------------------------
Service cost $ 660 $ 732 $ 712
Interest cost 1,231 1,153 1,188
Expected return on plan assets - - -
Amortization of prior service
cost and net transition obligation 610 610 610
Recognized actuarial loss (gain) (241) (91) (58)
- ---------------------------------------------------------------------
Net periodic benefit cost $ 2,260 $ 2,404 $ 2,452
=====================================================================
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost-trend rate) is 7.1% for 2000
and is assumed to decrease gradually to 5.0% for 2005 and to remain at that
level thereafter. The health care cost-trend rate assumption has a
significant effect on the amounts reported. 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. The following table represents the effect of a one-percent change
in the assumed health care cost trend rate:
- ---------------------------------------------------------------------------
One-Percent One-Percent
Increase Decrease
- ---------------------------------------------------------------------------
Effect on service and interest cost components $ 65 $ (87)
Effect on benefit obligation 708 (898)
===========================================================================
The corporation has deferred compensation agreements with certain
officers and directors. Benefits under these agreements are being funded by
life insurance policies. The accrued liability for these agreements as of
December 31, 2000, and 1999, was $26.000 million and $22.911 million,
respectively. For the years ended December 31, 2000, 1999, and 1998, expenses
related to these agreements were $1.402 million, $1.471 million, and $1.356
million, respectively.
The corporation has a thrift plan to which employees with one year of
service may elect to contribute up to 12% of their salary. The corporation
contributes to the plan to the extent of 50% of the employees' first 6% of
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
2000, 1999 and 1998 when the corporation's contributions to the plan totaled
$4.466 million, $4.253 million and $4.252 million, respectively. The plan is
administered under the provisions of Section 401(k) of the Internal Revenue
Code.
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 the
timing of the recognition of income and expense for financial reporting and
tax purposes. The income tax provision includes the following amounts:
- ----------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- ----------------------------------------------------------------------------
Current:
Federal taxes $72,022 $81,921 $69,819
State taxes 1,342 1,590 1,287
- ----------------------------------------------------------------------------
Total current 73,364 83,511 71,106
- ----------------------------------------------------------------------------
Deferred (benefit):
Federal taxes (2,888) (5,538) (1,555)
State taxes (1,555) (5) (117)
- ----------------------------------------------------------------------------
Total deferred (4,443) (5,543) (1,672)
- ----------------------------------------------------------------------------
Provision for income taxes $68,921 $77,968 $69,434
============================================================================
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 shown on the following page.
- -----------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- -----------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
- -----------------------------------------------------------------------------
Statutory rate $73,833 35.0% $80,090 35.0% $69,859 35.0%
Nontaxable interest on
municipal obligations (5,274) (2.5) (5,469) (2.4) (3,992) (2.0)
State taxes, net of
Federal tax benefit (138) (0.1) 1,030 0.5 761 0.4
Nondeductible goodwill 2,362 1.1 2,361 1.0 2,449 1.2
Other items (1 862) (0.8) (44) 0.0 357 0.2
- -----------------------------------------------------------------------------
Effective rate $68,921 32.7% $77,968 34.1% $69,434 34.8%
=============================================================================
The corporation's federal income tax returns are closed through December
31, 1996. Based on management's estimates of future taxable income, the full
amount of the corporation's deferred tax asset will more likely than not be
realized, and a valuation allowance is not deemed necessary. Significant
components of the corporation's deferred-tax liabilities and assets are as
follows:
- --------------------------------------------------------------------------
December 31 2000 1999
- --------------------------------------------------------------------------
Deferred-tax assets:
Allowance for loan losses $24,605 $24,542
Deferred compensation 8,026 7,279
Postretirement benefits 6,226 4,813
Stock options 945 1,567
Unrealized loss on securities - 821
Other 11,704 17,193
- --------------------------------------------------------------------------
Total deferred-tax assets 51,506 56,215
- --------------------------------------------------------------------------
Deferred-tax liabilities:
Depreciation 5,112 7,162
Pension 4,328 4,307
Life insurance reserves 2,035 2,670
Unrealized gain on securities 177 -
Other 5,633 10,496
- --------------------------------------------------------------------------
Total deferred-tax liabilities 17,285 24,635
- --------------------------------------------------------------------------
Net deferred-tax assets $34,221 $31,580
==========================================================================
14. NET INCOME PER SHARE
- -----------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- -----------------------------------------------------------------------
Basic:
Net income $142,031 $150,860 $130,162
Preferred stock dividends 31 33 35
- -----------------------------------------------------------------------
Net income applicable to common stock $142,000 $150,827 $130,127
- -----------------------------------------------------------------------
Average common shares outstanding (000s) 47,065 49,979 51,233
Net income per share of common stock $ 3.02 $ 3.02 $ 2.54
=======================================================================
Diluted:
Net income $142,031 $150,860 $130,162
Average common shares outstanding (000s) 47,065 49,979 51,233
Dilutive effect of stock options (000s) 90 149 177
Conversion of preferred stock (000s) 102 110 119
- -----------------------------------------------------------------------
Total average common shares (000s) 47,257 50,238 51,529
- -----------------------------------------------------------------------
Net income per share of common stock $ 3.01 $ 3.00 $ 2.53
=======================================================================
Options to purchase 653,245, 194,000 and 194,000 shares in 2000, 1999
and 1998, respectively, at weighted average prices of $46.06, $52.31 and
$52.31, respectively, were not included in the calculation of diluted
earnings per share because the options' exercise price was greater than the
average market price.
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.
SFAS 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. The disclosures also do not
include certain intangible assets such as core deposit intangibles, mortgage
servicing rights and goodwill. Accordingly, the aggregate fair value amount
presented below should not be interpreted as representing the underlying
value of the corporation.
- ---------------------------------------------------------------------------
December 31 2000 1999
- ---------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 513,409 $ 513,409 $ 552,423 $ 552,423
Investment securities 2,164,108 2,156,420 2,034,788 1,992,972
Loans, net 6,296,530 6,283,637 6,320,839 6,377,873
Other 78,080 78,080 77,369 77,369
Financial liabilities:
Deposits 7,825,816 7,848,795 7,863,948 7,877,437
Short-term borrowings 539,469 539,469 420,297 420,297
Other 46,196 46,196 38,417 38,417
===========================================================================
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 other loans were estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Other Financial Assets: Other financial assets consist primarily of accrued
interest receivable, Federal Reserve Bank stock and Federal Home Loan Bank
stock, for which the carrying amount 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.
Other Financial Liabilities: Other financial liabilities consist primarily of
accrued interest payable and long-term debt, excluding capital leases, for
which the carrying amount approximates fair value.
Off-Balance Sheet Instruments: The estimated fair value of off-balance sheet
items was not material at December 31, 2000. The corporation does not engage
in hedging or swap transactions nor does it employ any derivative securities.
16. 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, 2000 and 1999, loans to directors and executive
officers of the corporation and its significant subsidiaries, where the
aggregate of such loans exceeded $60 thousand, totaled $95.568 million and
$57.066 million, respectively. During 2000, $284.793 million of new loans
were made and repayments totaled $247.842 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.
17. 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, 2000, the
corporation's equity in the net assets of its subsidiaries, after elimination
of intercompany deposits and loans, totaled $761.782 million. Of that amount,
$735.153 million was restricted as to the payment of dividends.
18. 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, 2000, that the corporation and its subsidiary banks meet
all capital adequacy requirements to which they are subject.
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:
- ----------------------------------------------------------------------------
To be Well
Capitalized
For Capital Under Prompt
Adequacy Corrective
Actual Purposes Action Provisions
- ----------------------------------------------------------------------------
Capital Ratio Capital Ratio Capital Ratio
- ----------------------------------------------------------------------------
As of December 31, 2000:
Tier 1 leverage ratio:
Consolidated $835,485 8.99% $278,658 3.00% $464,430 5.00%
Largest subsidiary bank 254,053 7.23 105,390 3.00 175,649 5.00
Tier 1 risk-based capital:
Consolidated 835,485 12.20 273,968 4.00 410,952 6.00
Largest subsidiary bank 254,053 9.09 111,762 4.00 167,643 6.00
Total risk-based capital:
Consolidated 905,785 13.22 547,936 8.00 684,920 10.00
Largest subsidiary bank 282,038 10.09 223,524 8.00 279,406 10.00
As of December 31, 1999:
Tier 1 leverage ratio:
Consolidated $862,542 9.22% $280,662 3.00% $467,770 5.00%
Largest subsidiary bank 253,587 7.31 104,097 3.00 173,496 5.00
Tier 1 risk-based capital:
Consolidated 862,542 12.67 272,284 4.00 408,426 6.00
Largest subsidiary bank 253,587 9.27 109,462 4.00 164,193 6.00
Total risk-based capital:
Consolidated 932,661 13.70 544,569 8.00 680,711 10.00
Largest subsidiary bank 281,380 10.28 218,924 8.00 273,656 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.
19. FIRST VIRGINIA BANKS, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
- -----------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------
Assets
Cash and noninterest-bearing deposits
principally in affiliated banks $ 173 $ 325
Money market investments 121,230 116,916
Investment in affiliates based on the corporation's
equity in their net assets:
Banking companies 748,629 773,985
Bank-related companies 13,153 13,159
Investment securities - (fair value $28,030 and
$25,260) 28,108 25,789
Loans (including $12,310 and $15,061
to affiliated companies) 22,233 25,686
Premises and equipment 28,741 29,792
Intangible assets 119,562 127,258
Accrued income and other assets 55,483 55,006
- -----------------------------------------------------------------------------
Total Assets $1,137,312 $1,167,916
=============================================================================
Liabilities and Shareholders' Equity
Commercial paper $ 97,137 $ 89,938
Accrued interest and other liabilities 47,469 47,491
- -----------------------------------------------------------------------------
Total Liabilities 144,606 137,429
Shareholders' Equity 992,706 1,030,487
- -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,137,312 $1,167,916
=============================================================================
STATEMENTS OF INCOME
- ----------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- ----------------------------------------------------------------------------
Income
Dividends from affiliates:
Banking companies $175,303 $129,964 $112,337
Bank-related companies 700 1,375 2,000
Service fees from affiliates 18,242 18,087 16,952
Rental income:
Affiliates 4,251 4,405 4,468
Other 1,780 1,668 1,585
Interest and dividends:
Affiliates 932 1,296 1,077
Other 6,518 5,997 6,192
Other 492 4,223 1,125
- ----------------------------------------------------------------------------
Total income 208,218 167,015 145,736
- ----------------------------------------------------------------------------
Expense
Salaries and employee benefits 20,049 19,976 19,269
Interest:
Affiliates 42 130 45
Other 4,713 3,103 2,552
Other expense:
Affiliates 859 931 781
Other 17,408 19,800 17,029
- ----------------------------------------------------------------------------
Total expense 43,071 43,940 39,676
- ----------------------------------------------------------------------------
Income before income taxes and equity in
undistributed income of affiliates 165,147 123,075 106,060
Provision for income taxes (3,108) (1,208) (1,023)
- ----------------------------------------------------------------------------
Income before equity in
undistributed income of affiliates 168,255 124,283 107,083
Equity in undistributed income of affiliates (26,224) 26,577 23,079
- ----------------------------------------------------------------------------
Net income $142,031 $150,860 $130,162
============================================================================
STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- ---------------------------------------------------------------------------
Net cash provided by operating activities $174,601 $140,746 $110,833
- ---------------------------------------------------------------------------
Investing activities:
Proceeds from the sale of available for sale
securities - 2,317 1,891
Proceeds from maturity of
held to maturity securities - 2,850 22,250
Purchase of investment securities (875) (9,299) (23,270)
Net decrease in loans 5,763 1,964 1,431
Purchases of premises and equipment (612) (666) (568)
Sales of premises and equipment (19) 1,842 96
Investment in affiliates - - (25,750)
Other 2,186 (9,392) 170
- ---------------------------------------------------------------------------
Net cash (used for) provided
by investing activities 6,443 (10,384) (23,750)
- ---------------------------------------------------------------------------
Financing activities:
Net increase in short-term borrowings 4,889 25,035 18,145
Common stock purchased and retired (114,181) (44,726) (91,636)
Proceeds from issuance of common stock 1,826 4,320 897
Cash dividends (69,416) (66,064) (59,718)
- ---------------------------------------------------------------------------
Net cash used for financing activities (176,882) (81,435)(132,312)
- ---------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 4,162 48,927 (45,229)
Cash and cash equivalents
at beginning of year 117,241 68,314 113,543
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of year $121,403 $117,241 $ 68,314
===========================================================================
Cash paid (refunded)for:
Interest $ 4,675 $ 3,105 $ 2,551
Income taxes (5,185) (3,949) 1,676
===========================================================================
20. 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, 2000, that would have a material effect on its financial statements.
21. BUSINESS SEGMENTS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" defines an operating
segment as a component of an enterprise that engages in business activities
that generate revenue and incur expenses, whose operating results are
reviewed by the chief operating decision maker in the determination of
resource allocation and performance, and for which discrete financial
information is available. Pursuant to this definition the corporation
maintains two segments: retail banking done through its affiliated banks in
Virginia, Maryland and Tennessee, and "other," which consists primarily of
nonbanking services and is immaterial for segment reporting purposes. Since
each of the affiliated banks in the retail banking segment offers similar
products and services to similar types and classes of customers, operates in
the same regulatory environment and has similar economic characteristics, all
the affiliated banks are managed as one reportable segment, retail banking.
Substantially all of the corporation's consolidated assets, revenues and
income are derived from this segment. The corporation has no foreign
operations.
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 2000 financial statements in this annual report have been audited by
the corporation's independent auditors, KPMG 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
Executive Vice President,
Treasurer and
Chief Financial Officer
REPORT OF KPMG 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. and subsidiaries (the Bank) as of December 31, 2000 and
1999, and the related consolidated statements of income, shareholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the Unites States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Virginia Banks, Inc. and subsidiaries as of December 31, 2000 and 1999, and
the results of their operations and their cash flows for the years then ended
in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Richmond, Virginia
January 16, 2001
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
- -------------------------------------------------
To the Shareholders and Board of Directors
First Virginia Banks, Inc.
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of First Virginia Banks, Inc. for the
year ended December 31, 1998. 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 audit in accordance with auditing standards generally
accepted in the United States. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of First Virginia Banks, Inc. for the year ended December 31,
1998, in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Washington, D.C.
January 19, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Incorporated by reference from the corporation's Form 8-K/A dated
February 24, 1999.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information relating to directors is incorporated by reference to the
corporation's proxy statement dated March 9, 2001.
Information relating to executive officers can be found in Part I on
page 5.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Incorporated by reference from the corporation's proxy statement dated
March 9, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
Incorporated by reference from the corporation's proxy statement dated
March 9, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Incorporated by reference from the corporation's proxy statement dated
March 9, 2001.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
FINANCIAL STATEMENTS:
The following consolidated financial statements and reports 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, 2000 and 1999 44/45
Consolidated Statements of Income - Years Ended
December 31, 2000, 1999 and 1998 46/47
Consolidated Statements of Shareholders' Equity - Years
Ended December 31, 2000, 1999 and 1998 48/49
Consolidated Statements of Cash Flows - Years Ended
December 31, 2000, 1999 and 1998 50/51
Notes to Consolidated Financial Statements 52/76
Report of KPMG LLP Independent Auditors 77
Report of Ernst & Young LLP Independent Auditors 78
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 Form 10Q for June 30, 1998.
(3)(ii) Restated Bylaws (included in original SEC filing only).
(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) Supplemental compensation agreement for Mr. Barry J. Fitzpatrick is
incorporated by reference to Exhibit 10 of the 1994 Annual Report
on Form 10-K. Supplemental compensation agreements for Messrs. Paul
H. Geithner, Jr., 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 two plans
relating to options and rights. The 1986 Incentive Stock Option
Plan, Nonqualified Stock Option Plan and Stock Appreciation Rights
Plan is 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. The 1998 Stock Incentive Plan is incorporated by
reference to Registration Statement Number 333-53698 on Form S-8
dated January 12, 2001.
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, and 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.
Incorporated by reference to Exhibit 10 of the 1999 Annual Report
on Form 10K are the First Virginia Thrift Restoration and Deferred
Compensation Plan and the 1998 Directors' Deferred Compensation
Plan.
Information concerning an agreement and plan of reorganization for
the acquisition of James River Bankshares, Inc. is incorporated by
reference to Schedule 13D filed with the SEC on March 12, 2001.
(13) First Virginia Banks, Inc., 2000 Annual Report to its Shareholders
(Not included in the electronic filing)
(21) Subsidiaries of the Registrant
(23) Consents of Independent Auditors
(24) Power of Attorney concerning Directors' signatures
REPORTS ON FORM 8-K:
No reports on Form 8-K were required to be filed during the last quarter of
2000.
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 29, 2001, 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, Executive 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 29, 2001 on
behalf of the registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ Barry J. Fitzpatrick
____________________________ Chairman, President,
Barry J. Fitzpatrick Chief Executive Officer
Principal Executive Officer and Director
/s/ Richard F. Bowman
____________________________ Executive Vice President,
Richard F. Bowman Treasurer and Chief Financial
Principal Financial and Officer
Accounting Officer
Edward L. Breeden III*
____________________________ Director
Edward L. Breeden, III
Paul H. Geithner, Jr.*
____________________________ Director
Paul H. Geithner, Jr.
L. H. Ginn III*
____________________________ Director
L. H. Ginn, III
SIGNATURE TITLE
--------- -----
Edward M. Holland*
____________________________ Director
Edward M. Holland
Lawrence T. Jennings*
____________________________ Director
Lawrence T. Jennings
Eric C. Kendrick*
____________________________ Director
Eric C. Kendrick
W. Lee Phillips, Jr.*
____________________________ Director
W. Lee Phillips, Jr.
Robert M. Rosenthal*
____________________________ Director
Robert M. Rosenthal
Lynda S. Vickers-Smith*
____________________________ Director
Lynda S. Vickers-Smith
Robert H. Zalokar*
____________________________ Director
Robert H. Zalokar
Albert F. Zettlemoyer*
____________________________ Director
Albert F. Zettlemoyer
* By: /s/Thomas P. Jennings
-----------------------
Thomas P. Jennings, Attorney-in-fact
March 29, 2001
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2000
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)
FIRST VIRGINIA BANKS, INC.
BYLAWS
With Amendments through April 28, 2000
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. Inspectors of Election . . . . . . . . . . . . . . . . . . . .2
Section 11. Proxy Committee . . . . . . . . . . . . . . . . . . . . . . .2
Section 12. Stockholder Nominations. . . . . . . . . . . . . . . . . . . .3
Section 13. 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 . . . . . . . . . . . . . . . . .7
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 . . . . . . . . . . . . . . . . . 10
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 . . . . . . . . . . . . . . . . . . . . 12
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
BYLAWS
OF
FIRST VIRGINIA BANKS, INC.
(With Amendments through December 20, 2000)
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. 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 or by electronic dissemination, unless
otherwise required by law. All such notices shall 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 executed by a
stockholder or his duly authorized attorney in written form, telephonically, or
electronically, and delivered to the secretary of the meeting or the inspectors
of election. 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. Inspectors of Election. The board of directors shall appoint
three or more inspectors of election to serve at any meeting of the
stockholders at which a vote is to be taken. The inspectors of election shall
examine proxies and pass upon their validity, receive the votes at the meeting
and act as tellers, certify in writing as to the number of shares represented
at the meeting and the final vote figures, and perform any other duties
required by law.
Section 11. Proxy Committee. The board of directors shall designate a Proxy
Committee of three individuals to act as proxy for stockholders who
appoint/authorize all or any of them to vote their shares in response to the
board of directors' solicitation of proxies at any annual or special meeting of
stockholders, whether such votes are authorized in writing, telephonically, or
electronically. Any one member of the Proxy Committee may vote any or all of
the shares upon which the Committee is authorized to act.
Section 12. 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 12)) 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 12(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 12(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 ninety (90) days
nor more than one hundred twenty (120) 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 12
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 12 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 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 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
12(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 12(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 12(b). If the chairman of such meeting
determines that a nomination was not made in accordance with the terms of
Section 12(b), he or she shall so declare at the annual meeting and the
defective nomination shall be disregarded.
Section 13. 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 13)); or (ii) by any stockholder of the corporation who complies with
the notice procedures set forth in Section 13(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 ninety (90) days nor more than one hundred twenty
(120) 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
12(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 12(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 13(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 13(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 13(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 13(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 13(b). If the chairman of such meeting
determines that a stockholder proposal was not made in accordance with the
terms of Section 13(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 thirteen (13).
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 chairing or attending regular and special
meetings of the board and any meeting of any committee, and reimbursement of
expenses for attendance, if any, at board and committee meetings. From time to
time, the chairman of the board may meet with one or more directors as
permitted under Article V, Section 6, of these bylaws, and such directors may
receive an established committee meeting fee for such a meeting and may be
reimbursed for their expenses. 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. The board of directors shall set by resolution
the date, time, and place of the regular meetings of the board. The
organization board meeting shall be held immediately after the annual meeting
of stockholders at the same location without notice other than this bylaw.
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 may, from time to time, meet with one or more directors without calling a
meeting of the board or any committee thereof, but no official board action
shall occur at such meetings. 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
audit 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 connection
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.
SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21
December 31, 2000
State of Incorporation and
Headquarters Location
---------------------------
First Virginia Banks, Inc. Falls Church, Virginia
Banking Subsidiaries:
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
Farmers Bank of Maryland Annapolis, Maryland
Atlantic Bank Ocean City, Maryland
First Virginia Bank-Hampton Roads Norfolk, Virginia
First Virginia Bank-Colonial Richmond, Virginia
First Virginia Bank-Southwest Roanoke, Virginia
First Virginia Bank-Blue Ridge Staunton, Virginia
First Vantage Bank/Tri-Cities Abingdon, Virginia
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
First Virginia Operations Services, Inc. Falls Church, Virginia
Springdale Temporary Services, Inc. Falls Church, Virginia
First General Leasing Company Falls Church, Virginia
Farmers National Land Corporation 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 in the Registration Statement No.
33-30465 on Form S-8 dated June 30, 1997, Post-effective Amendment No. 1 to
Registration Statement No. 33-38024 on Form S-8 dated January 10, 1994,
Registration Statement No. 33-51587 on Form S-3 dated December 20, 1993,
Registration Statement No. 33-54802 on Form S-8 dated November 20, 1992,
Registration Statement No. 33-31890 on form S-3 dated November 1, 1989, Post-
effective Amendment No. 2 to Registration Statement No. 2-77151 on Form S-8
dated October 30, 1987, Registration Statement No. 33-17358 on Form S-8 dated
September 28, 1987, and Registration Statement Number 333-53698 on Form S-8
dated January 12, 2001 of First Virginia Banks, Inc. of our report dated
January 16, 2001, relating to the consolidated balance sheets of First Virginia
Banks, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for the years then
ended, which report appears in the December 31, 2000, annual report on Form
10-K of First Virginia Banks, Inc.
/s/ KPMG
Richmond, Virginia
March 28, 2001
Consent of Independent Auditors
Board of Directors
First Virginia Banks, Inc.
We consent to the incorporation by reference in the 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, Registration Statement Number 33-17358 on Form
S-8 dated September 28, 1987, and Registration Statement Number 333-53698 on
Form S-8 dated January 12, 2001, and related prospectuses, of our report dated
January 19, 1999, with respect to the consolidated statements of income,
shareholders' equity and cash flows of First Virginia Banks, Inc. for the year
ended December 31, 1998 included in this Annual Report (Form 10-K) of First
Virginia Banks, Inc. for the year ended December 31, 2000.
/s/ Ernst & Young LLP
McLean, Virginia
March 28, 2001
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned directors of
First Virginia Banks, Inc., and each of us, do hereby make, constitute and
appoint Thomas P. Jennings and Christopher M. Cole, and each of them (either of
whom may act without the consent or joinder of the other), our attorneys-in-
fact and agents with full power of substitution for us and in our name, place
and stead, in any and all capacities, to execute for us in our behalf the
Annual Report on Form 10-K of First Virginia Banks, Inc. for the year ended
December 31, 2000 and any and all amendments to the foregoing Report and any
other documents and instruments incidental thereto, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as we might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents and/or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, we the undersigned have executed this Power of
Attorney this 28th day of February, 2001.
/s/ Edward L. Breeden III /s/ W. Lee Phillips Jr
- ---------------------- -----------------------
Edward L. Breeden, III W. Lee Phillips, Jr.
/s/ Paul H. Geithner Jr /s/ Robert Rosenthal
- ---------------------- -----------------------
Paul H. Geithner, Jr. Robert M. Rosenthal
/s/ L H Ginn III /s/ Lynda S. Vickers-Smith
- ---------------------- -----------------------
L. H. Ginn, III Lynda S. Vickers-Smith
/s/ Edward M. Holland /s/ Robert H. Zalokar
- ---------------------- -----------------------
Edward M. Holland Robert H. Zalokar
/s/ Lawrence T. Jennings /s/ A. F. Zettlemoyer
- ------------------------ -----------------------
Lawrence T. Jennings Albert F. Zettlemoyer
/s/ Eric C. Kendrick
- ----------------------
Eric C. Kendrick