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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, 1994
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. and
Philadelphia 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. Yes _____ No __X__
The aggregate market value of the common stock of the registrant held by
nonaffiliates as of February 28, 1995, was approximately $1,173,714,000. The
registrant's voting preferred stock is not actively traded and the market
value of such stock is not readily determinable.
On February 28, 1995, there were 34,058,880 shares of common stock
outstanding.
INDEX
Page
----
Part I
Item 1. Business 3
Competitive Factors 3
Regulation 4
Employees 4
Lines of Business 4
Statistical Disclosure By Bank Holding Companies 4
Executive Officers of the Registrant 5
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9/10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10/41
Item 8. Financial Statements and Supplementary Data 42/70
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 71
Part III
Item 10. Directors and Executive Officers of the Registrant 71/76
Item 11. Executive Compensation 76/87
Item 12. Security Ownership of Certain Beneficial Owners
and Management 87
Item 13. Certain Relationships and Related Transactions 87
Part IV Page
----
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 88/89
Signature 90/91
Financial Statements 42/68
Exhibits:
Exhibit 3. Articles of Incorporation and Bylaws
Exhibit 10. Supplemental Compensation Agreement
Exhibit 11. Statement RE: Computation of per share earnings
Exhibit 13. First Virginia Banks, Inc. 1994 Annual
Report to Stockholders
(Not included in Electronic Filing)
Exhibit 21. Subsidiaries of Registrant
Exhibit 23. Consent of Independent Auditors
Exhibit 27. Financial Data Schedule
PART I
------
ITEM 1. BUSINESS
--------
First Virginia Banks, Inc. (the "Corporation") is a registered bank
holding company which was incorporated under the laws of the Commonwealth of
Virginia in October, 1949. Since its formation in 1949, the Corporation has
acquired control of 59 operating commercial banks, with six acquisitions in
the State of Maryland and four in the State of Tennessee, and has organized
seven new banks located in the State of Virginia. Forty-three of the banks
have been merged or consolidated with other banks controlled by the
Corporation and located in the same geographic area, so that, as of December
31, 1994, the Corporation owned all of the outstanding stock of 23 commercial
banks (the "Member Banks") with combined assets of $7.813 billion. On that
date, the Member Banks operated 269 offices throughout the State of Virginia,
57 offices in Maryland and 23 offices in Tennessee. In addition to the 23
banks, the Corporation owns, directly or through subsidiaries, several bank
related member companies with offices in Virginia and six other states,
making the Corporation the fourth largest Bank Holding Company with
headquarters in the state and the sixth largest banking organization in
Virginia, based on total assets of $7.865 billion as of December 31, 1994.
Competitive Factors
- -------------------
Other banking organizations have been active in opening new banking
offices through acquisition and control of existing banks, mergers, branching
and formation of new banks and in acquiring or forming bank-related
subsidiaries in areas where the Corporation's Member Banks compete.
Accordingly, each Member Bank faces strong competition. Savings and loan
associations and credit unions actively compete for deposits. Such
institutions, as well as consumer finance companies, mortgage companies, loan
production offices of out-of-state banks, factors, insurance companies and
pension trusts are important competitors for various types of loans. The
bank-related member companies also operate in highly competitive fields.
At midyear 1994, the banking offices and deposits controlled by the
Corporation's Member Banks represented approximately 13.5% and 9.4% of the
banking offices and domestic bank deposits, respectively, in Virginia.
Regulation
- ----------
The Corporation and its subsidiaries are subject to the supervision and
examination of the Federal Reserve Board, the Federal Deposit Insurance
Corporation and the state regulators of Virginia, Maryland and Tennessee
which have jurisdiction over financial institutions and have obtained
regulatory approval for their various activities to the extent required.
Employees
- ---------
As of December 31, 1994, the Corporation and its subsidiaries employed
5,575 individuals.
Lines of Business
- -----------------
All of the Corporation's income is derived from banking or bank-related
activities. While each of the member companies is engaged in bank-related
activities, several of them conduct lines of business not expressly permitted
for banks under applicable regulations. During the last three years, the
results of their operations have not been material in relation to the
consolidated operating results of the Corporation.
Statistical Disclosure by Bank Holding Companies
- ------------------------------------------------
The following statistical information appears in this Form 10-K on the
page indicated:
Page
----
Average balance sheets and interest rates on
earning assets and interest-bearing liabilities 12/17
Average book value of investment securities 12/17
Average demand, savings and time deposits 12/17
Effect of rate-volume changes on net interest income 18/19
Type of loans 26
Page
----
Maturity ranges of time certificates of
deposit of $100,000 or more 28
Risk elements - loan portfolio 31
Summary of loan loss experience 33
Maturity ranges and average yields - investment
securities 35
Loan maturities and sensitivity to changes in
interest rates 36
Return on equity and assets, dividend payout
ratio and equity to assets ratio 10
Executive Officers of the Registrant
- ------------------------------------
There are no arrangements or understandings between the named executive
officers and any other person pursuant to which they were selected as an
officer.
There are no family relationships among the executive officers.
Messrs. Campbell, Cash, Geithner, Hicks, Lanzillotta, O'Donnell and
Zalokar and Ms. Tomlin have held their present positions with the Corporation
for more than five years.
ROBERT H. ZALOKAR
Chairman of the Board and Chief Executive Officer since 1985 and President
from 1978 through 1984; 39 years of service; BS, University of Kansas. Has
held numerous executive officer positions with the First Virginia
organization including President of First Virginia Bank, Falls Church, from
1973 to 1978, CEO from 1979 to 1985, and Chairman since 1979. Mr. Zalokar is
67. He retired on December 31, 1994.
BARRY J. FITZPATRICK
Chairman of the Board and Chief Executive Officer-Elect effective January 1,
1995; 25 years of service; BBA, University of Notre Dame; MBA, American
University, and graduate of The Stonier Graduate School of Banking. Has held
several officer positions with First Virginia organizations, including
Executive Vice President of the Corporation, responsible for member banks,
from 1992 to December 31, 1994; Senior Vice President and Regional Executive
Officer, Eastern Region, from 1982 to 1992; and President and CEO of member
banks in the Roanoke Valley from 1972 to 1982. Mr. Fitzpatrick is 55.
PAUL H. GEITHNER, JR.
President and Chief Administrative Officer since 1985; 26 years of service;
BA, Amherst College; MBA, Wharton Graduate Division, University of
Pennsylvania. Elected Vice President 1969, responsible for member banks from
1973 to 1975; Senior Vice President 1974; Assistant to the Chairman and
President 1978. Mr. Geithner is 64.
SHIRLEY C. BEAVERS, JR.
Executive Vice President since April 1992; President and Chief Executive
Officer of First Virginia Services, Inc. since May 1986; 25 years of service;
BS and MBA, American University. Has held various officer positions with
First Virginia organizations including that of Executive Vice President and
Chief Operating Officer, First Virginia Bank, Falls Church. Mr. Beavers is
49.
RICHARD F. BOWMAN
Senior Vice President, Treasurer and Chief Financial Officer since 1994; 19
years of service; AB, College of William & Mary; Certified Public Accountant
and Certified Bank Auditor. Employed as Staff Auditor; appointed Assistant
General Auditor in 1978, Vice President and Controller in 1979, and Vice
President and Treasurer in 1992. Mr Bowman is 43.
RAYMOND E. BRANN, JR.
Senior Vice President and Regional Executive Officer, Eastern Region, since
April 1992; 30 years of service, BS, University of Virginia; MBA, Old
Dominion University. Has held various officer positions with First Virginia
organizations including that of Senior Vice President and Regional Executive
Officer, Tennessee-Western Virginia Region from December 1986 to April 1992,
and President and CEO of several member banks, including First Virginia Bank-
Colonial and Tri-City Bank and Trust Company. Mr. Brann is 54.
HUGH L.CAMPBELL
Senior Vice President since 1978; 31 years of service; AB, Washington & Lee
University; MBA, Colgate Darden Graduate School of Business Administration,
University of Virginia; Advanced Management Program, Harvard University,
1979. Responsible for commercial lending, loan administration and financial
planning. Mr. Campbell is 57.
CHARLES R. CASH
Senior Vice President and Regional Executive Officer, Shenandoah Valley
Region, since 1982; Chairman, President and CEO of First Virginia Bank-
Shenandoah Valley since 1970; 31 years of service; graduate certificate,
American Institute of Banking. Has held several executive officer positions
with banks in the Shenandoah Valley area which have, through merger, become
First Virginia Bank-Shenandoah Valley. Mr. Cash is 65.
DOUGLAS M. CHURCH, JR.
Senior Vice President and Regional Executive Officer, Maryland Region, since
1994; 21 years of service; BS, University of Virginia and graduate of The
Stonier Graduate School of Banking. Has held various officer positions with
First Virginia organizations, including Executive Vice President of First
Virginia Services, Inc., and Executive Vice President of First Virginia Bank.
Mr. Church is 44.
HENRY HOWARD HICKS, JR.
Senior Vice President and Regional Executive Officer, Southwest Region, since
1982; 41 years of service; graduate certificate, American Institute of
Banking. Has held various executive officer positions with First Virginia
organizations including President and CEO of First Virginia Bank-Southwest
from 1971 to 1982. Mr. Hicks is 59.
A. PAUL LANZILLOTTA
Senior Vice President, Trust Services, since 1979; Executive Vice President,
First Virginia Bank, Falls Church, since 1978; 32 years of service; BS,
Boston College; JD and LLM, Georgetown University. Joined First Virginia Bank
as Trust Officer; appointed Vice President and Trust Officer of the
Corporation in 1967 and Senior Vice President and Trust Officer in 1976. Mr.
Lanzillotta is 63.
JUSTIN C. O'DONNELL
Senior Vice President and Regional Executive Officer, Northern Region, since
1988; President and CEO, First Virginia Bank, Falls Church, since 1985; 12
years of service; BS, Duquesne University, and graduate of The Stonier
Graduate School of Banking. Joined First Virginia Bank as Senior Vice
President and Manager of the Commercial Division in 1982. Mr. O'Donnell is
59.
CHARLES L. ROBBINS, III
Senior Vice President and Regional Executive Officer, Tennessee-Western
Virginia Region, since April 1992; President and CEO, Tri-City Bank and Trust
Company, Tennessee, since 1992; 21 years of service; BS, George Mason
University, and graduate of The Stonier Graduate School of Banking. Has held
various officer positions with First Virginia Bank, Falls Church, including
Senior Vice President and Branch Administrator from August 1987 until April
1992. Mr. Robbins is 42.
THOMAS P. JENNINGS
Vice President, General Counsel and Secretary since January 1993; 16 years of
service; BA, Wake Forest University; JD, University of Virginia. Employed as
Assistant Counsel; appointed Associate Counsel in 1979, General Counsel in
1980, and Vice President and General Counsel in March 1986. Mr. Jennings is
47.
MELODYE MAYES TOMLIN
Vice President and General Auditor since 1986; 16 years of service; BS,
Radford University, and graduate of The Stonier Graduate School of Banking;
Certified Public Accountant and Certified Bank Auditor. Employed as Staff
Auditor; appointed Regional Audit Manager in 1980 and Assistant General
Auditor in 1983. Mrs. Tomlin is 38.
Ages are as of February 28, 1995.
ITEM 2. PROPERTIES
----------
The banking subsidiaries operated a total of 349 banking offices on
December 31, 1994. Of these offices, 207 were owned by the banks, two are
owned by the Corporation and leased to the banks, two are owned by
affiliated companies and leased to affiliated banks, and 138 were leased from
others. The Corporation owns other properties, including the two Corporate
headquarters buildings which house personnel of the Corporation and its
subsidiaries. On December 31, 1994, the net book value of all real estate
and the unamortized cost of improvements to leased premises totaled
$129,006,000. Mortgages secured by two properties totaled $77,000, of which
$22,000 is payable within one year and the remaining balance is due in 1996.
As of December 31, 1994, a total annual base rental of approximately
$13,350,000 was being paid on leased premises, of which approximately
$7,009,000 was being paid to affiliated companies and which was eliminated in
consolidation. As of December 31, 1994, total lease commitments having a
remaining term in excess of one year to persons other than affiliates were
approximately $36,686,000.
The majority of the properties are modern and well furnished and provide
adequate parking.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Corporation or any of its
subsidiaries is a party or of which any of their property is subject.
Management believes that the liability, if any, resulting from current
litigation will not be material to the financial statements of the
Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There was no submission of matters to a vote of security holders during
the fourth quarter of 1994.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The common stock of the Corporation is listed for trading on the New York
Stock Exchange (Trading Symbol: FVB) and the Philadelphia Stock Exchange. The
dividends paid per share and the high and low sales price for common shares
traded on the New York Stock Exchange were:
Sales Price
------------------------------
Dividends
1994 1993 Per Share
-------------- -------------- ------------
High Low High Low 1994 1993
------ ------ ------ ------ ----- -----
1st Quarter...... $38.63 $32.25 $40.00 $36.37 $.31 $.26
2nd Quarter...... 40.38 34.88 39.00 32.50 .31 .26
3rd Quarter ..... 40.25 37.00 41.00 34.00 .32 .28
4th Quarter...... 38.63 31.63 40.50 31.75 .32 .28
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, 1994, there were 19,036 holders of
record of the Corporation's voting securities, of which 18,160 were holders
of common stock.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
A five-year summary of selected financial data follows:
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(Dollar amounts in thousands, except per-share data)
Balance Sheet Data
Cash.................. $ 420,742 $ 326,136 $ 381,384 $ 361,027 $ 291,275
Overnight investments. 30,000 235,000 235,000 205,000 160,000
Mortgage loans
held for sale........ 13,291 69,173 60,105 25,841 12,365
Other interest-
earning assets....... 8,987 6,263 6,184 5,425 5,395
Investment securities:
Taxable ............. 1,833,712 1,934,408 1,905,117 1,549,515 1,010,289
Tax-exempt........... 252,318 235,363 253,926 257,889 271,097
Loans, net............ 4,938,334 3,967,218 3,732,928 3,444,720 3,378,121
Other assets.......... 367,998 263,322 265,903 269,843 255,605
---------- ---------- ---------- ---------- ----------
Total Assets......... $7,865,382 $7,036,883 $6,840,547 $6,119,260 $5,384,147
========== ========== ========== ========== ==========
Deposits ............. $6,815,841 $6,136,389 $6,013,746 $5,349,971 $4,715,882
Short-term borrowings. 179,409 151,859 150,681 144,816 85,667
Mortgage and other
indebtedness ........ 3,814 1,008 5,227 11,467 11,836
Other liabilities .... 59,430 56,126 63,494 72,888 73,075
Shareholders' Equity.. 806,888 691,501 607,399 540,118 497,687
---------- ---------- ---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $7,865,382 $7,036,883 $6,840,547 $6,119,260 $5,384,147
========== ========== ========== ========== ==========
Operating Results
Interest income ...... $ 503,642 $ 504,782 $ 525,270 $ 515,837 $ 501,412
Interest expense ..... 161,639 164,959 204,826 260,286 264,856
---------- ---------- ---------- ---------- ----------
Net interest income..... 342,003 339,823 320,444 255,551 236,556
Provision for loan loss. 6,463 6,450 17,355 14,024 13,404
Noninterest income...... 84,700 82,540 77,087 72,283 68,376
Noninterest expenses.... 252,459 245,767 238,891 218,243 202,037
---------- ---------- ---------- ---------- ----------
Income before income tax 167,781 170,146 141,285 95,567 89,491
Provision for income tax 54,560 54,122 43,812 25,959 24,380
---------- ---------- ---------- ---------- ----------
Net income ............$ 113,221 $ 116,024 $ 97,473 $ 69,608 $ 65,111
========== ========== ========== ========== ==========
Dividends declared:
Preferred ............$ 51 $ 54 $ 61 $ 71 $ 76
Common................ 42,108 36,519 31,830 28,995 27,247
Per Share of Common Stock
Net income ............ 3.51 3.57 3.02 2.17 2.03
Dividends declared..... 1.28 1.13 .99 .91 .85
Shareholders' equity... 23.68 21.29 18.85 16.80 15.51
Market price at year-end 32.00 32.75 36.63 23.67 15.17
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
Ratios
- ------
Earnings:
Return on average assets 1.58% 1.68% 1.50% 1.22% 1.25%
Return on average equity 15.76 17.81 17.03 13.44 13.59
Net interest margin..... 5.28 5.46 5.46 5.03 5.15
Risk-based capital:
Tier 1 or core capital.. 14.76 16.84 15.52 14.74 14.05
Tier 2 or total capital. 15.96 18.09 16.77 16.00 15.28
Capital strength:
Ratio of average equity
to average assets...... 10.04 9.45 8.80 9.08 9.22
Dividends declared as a
percentage of net
income (per share, not
restated for poolings
of interests).......... 36.47 31.65 32.78 41.94 41.87
Data for prior years have been restated for material acquisitions accounted for
as poolings of interests.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
First Virginia's net income for the year ended December 31, 1994, was
$113.221 million, a decline of 2.4% from the record level of $116.024 million
achieved in 1993. Primary earnings per share declined $.06 to $3.51, compared
to the $3.57 per share earned in 1993. The drop in earnings per share
represented a 1.7% decline. This was less than the decline in net income
because of the lower number of shares outstanding during 1994. The primary
reason for the decline in net income was a 2.7% increase in noninterest
expenses while net interest income remained essentially flat.
Despite the decline in earnings, First Virginia continued to out-perform
its peer group of banks and remained in the top 10% of the best earning banks
in the country. During 1994, First Virginia's return on average earning
assets was 1.58%, which was the highest of any of the major banking companies
in the Corporation's market areas of Virginia, Maryland and East Tennessee.
This mark also exceeded the average for all banks in the Corporation's peer
group of $5 to $10 billion asset-size banks of 1.31% by 21% and was one of
the highest of all banks in the United States. The banking industry had its
two best years ever in 1993 and 1994. First Virginia has consistently
outperformed the industry, averaging a 1.38% return on average assets over
the past ten years compared to the 1.00% return traditionally considered the
standard of a high-performing bank.
The return on average shareholders' equity was 15.76% during 1994 compared
to 17.81% in 1993. This was the second highest of any of the major banking
companies headquartered in the Corporation's trade area and exceeded the
national peer group average of 15.21%. During 1994, the Board of Directors
increased the dividend twice, marking the 18th consecutive year of increases
and the 13th consecutive year in which the dividend has been increased at
least twice during the year. Also during 1994, the Corporation retired
approximately 5% of its outstanding shares in a share repurchase program.
Despite these actions, First Virginia remains one of the five most highly
capitalized banks among the 100 largest banks in the nation. At the end of
1994, it had increased its ratio of shareholders' equity to total assets to
10.26% from 9.83% at the end of 1993.
Total assets increased 12% during 1994 to $7.865 billion as the Corporation
completed two acquisitions during 1994. In June, the Corporation completed
the acquisition of the $100 million asset FNB Financial Corporation that
operated the First National Bank in Knoxville, Tennessee. In late December,
the Corporation completed the largest acquisition in its history when it
acquired the $700 million asset Farmers National Bancorp, which operated
three banks in Maryland, including the largest bank in the Annapolis area and
two banks on Maryland's Eastern Shore. The acquisition of these two companies
marks the entry of the Corporation into two critical market areas at the top
of First Virginia's priority list. Both of the acquisitions were accounted
for as purchases and did not have a material impact on operating results
during 1994.
Average assets increased 4% during 1994, down from the 6% growth in 1993
and the 14% growth in 1992. Loan demand was very strong during the year as
average loans increased 12% compared to an 8% growth in 1993, with demand for
home equity and automobile loans particularly strong. Indirect automobile
loan production increased 20% as the Corporation opened two loan production
offices in North Carolina and continued to be a strong player in its
traditional market area. Direct installment loans made in the branches,
including home equity loans, increased 22% during 1994. The growth in both
categories of loans had slowed by the end of the year, however, as interest
rates rose in response to the Federal Reserve's moves to slow the economy and
control inflation.
Average deposits increased 3% in 1994 after advancing 6% in 1993. The
increase in interest rates during the year was responsible for the sluggish
deposit growth, and the Corporation began to experience the effects of
disintermediation as customers moved funds out of savings and insured money
market accounts and into higher-yielding deposit categories, such as
certificates of deposit. One of the biggest competitors for deposit funds was
the U.S. Government as rates on short-term Treasury securities rose rapidly
in response to the Federal Reserve's actions. In order to fund the strong
loan growth, the Corporation permitted a portion of the investment portfolio
to mature and be reinvested in loans.
Year Ended December 31
94vs93 93vs92 92vs91
----- ----- -----
Earnings per share - prior period................. $3.57 $3.02 $2.17
----- ----- -----
Net change during the year:
Taxable interest income......................... .04 (.37) .24
Tax-exempt interest income...................... (.06) (.04) (.05)
Interest expense ............................... .07 .80 1.13
Provision for loan losses....................... .00 .22 (.07)
Gain on sale of mortgage servicing rights....... .03 .02 (.04)
Noninterest income.............................. .02 .08 .14
FDIC expense.................................... (.01) (.02) (.05)
Noninterest expense, excluding FDIC expense..... (.13) (.12) (.37)
Income taxes.................................... (.04) (.01) (.07)
Decrease (increase) in common shares outstanding .02 (.01) (.01)
----- ----- -----
Net increase (decrease) during the period..... (.06) .55 .85
----- ----- -----
Earnings per share - current period............... $3.51 $3.57 $3.02
===== ===== =====
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1994
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
ASSETS (Dollars in thousands)
Interest-earning assets:
Investment securities- held to maturity:
U.S. Government & its agencies $1,777,875 $104,701 5.89%
State and municipal obligations(1) 240,615 17,288 7.18
Other(1) 2,141 153 7.15
---------- --------
Total investment securities 2,020,631 122,142 6.04
---------- --------
Loans, net of unearned income:(2)
Installment 3,089,033 264,795 8.57
Real estate 667,382 59,198 8.87
Other(1) 630,724 54,600 8.66
---------- --------
Total loans 4,387,139 378,593 8.63
---------- --------
Mortgage loans held for sale 26,602 1,893 7.12
Federal funds sold and securities
purchased under agreements to resell 178,829 8,084 4.52
Other interest-earning assets 6,584 396 6.00
---------- --------
Total earning assets and
interest income 6,619,785 511,108 7.72
---------- --------
Noninterest-earning assets:
Cash and due from banks 317,353
Premises and equipment, net 141,142
Other assets 132,019
Less allowance for loan losses (52,515)
----------
Total Assets $7,157,784
==========
(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% in 1994
and 1993, 34% in 1992, and increased in recognition of 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
1994
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Transaction accounts $1,289,956 $ 28,315 2.20%
Money-market accounts 723,202 19,004 2.63
Savings deposits 1,327,002 36,247 2.73
Certificates of deposit:
Consumer 1,614,572 63,339 3.92
Large denomination 180,140 7,192 3.99
---------- --------
Total interest-bearing deposits 5,134,872 154,097 3.00
Short-term borrowings 178,333 7,101 3.98
Long-term indebtedness 4,173 441 10.57
---------- --------
Total interest-bearing liabilities
and interest expense 5,317,378 161,639 3.04
---------- --------
Noninterest-bearing liabilities:
Demand deposits 1,062,951
Other 59,013
Shareholders' equity 718,442
----------
Total liabilities and
shareholders' equity $7,157,784
==========
Net interest income and
net interest margin $349,469 5.28%
========
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1993
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
ASSETS (Dollars in thousands)
Interest-earning assets:
Investment securities-held to maturity:
U.S. Government & its agencies $1,863,228 $117,634 6.31%
State and municipal obligations(1) 268,288 21,206 7.90
Other(1) 2,866 215 7.50
---------- --------
Total investment securities 2,134,382 139,055 6.51
---------- --------
Loans, net of unearned income:(2)
Installment 2,669,463 254,157 9.52
Real estate 652,118 60,845 9.33
Other(1) 597,811 47,549 7.95
---------- --------
Total loans 3,919,392 362,551 9.25
---------- --------
Mortgage loans held for sale 38,930 2,568 6.60
Federal funds sold and securities
purchased under agreements to resell 270,392 8,359 3.09
Other interest-earning assets 6,255 372 5.95
---------- --------
Total earning assets and
interest income 6,369,351 512,905 8.05
---------- --------
Noninterest-earning assets:
Cash and due from banks 305,900
Premises and equipment, net 137,124
Other assets 129,245
Less allowance for loan losses (50,882)
----------
Total Assets $6,890,738
==========
(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% in 1994
and 1993, 34% in 1992, and increased in recognition of 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
1993
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Transaction accounts $1,218,697 $ 31,840 2.61%
Money-market accounts 746,703 20,090 2.69
Savings deposits 1,276,937 37,432 2.93
Certificates of deposit:
Consumer 1,627,982 65,460 4.02
Large denomination 167,697 6,353 3.79
---------- --------
Total interest-bearing deposits 5,038,016 161,175 3.20
Short-term borrowings 150,951 3,563 2.36
Long-term indebtedness 1,374 221 16.06
---------- --------
Total interest-bearing liabilities
and interest expense 5,190,341 164,959 3.18
---------- --------
Noninterest-bearing liabilities:
Demand deposits 990,007
Other 58,929
Shareholders' equity 651,461
----------
Total liabilities and
shareholders' equity $6,890,738
==========
Net interest income and
net interest margin $347,946 5.46%
========
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1992
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
ASSETS (Dollars in thousands)
Interest-earning assets:
Investment securities-held to maturity:
U.S. Government & its agencies $1,815,126 $125,528 6.92%
State and municipal obligations(1) 252,240 21,615 8.57
Other(1) 43,047 3,297 7.66
---------- --------
Total investment securities 2,110,413 150,440 7.13
---------- --------
Loans, net of unearned income:(2)
Installment 2,431,099 261,774 10.77
Real estate 610,223 61,814 10.13
Other(1) 618,784 50,447 8.15
---------- --------
Total loans 3,660,106 374,035 10.22
---------- --------
Mortgage loans held for sale 34,064 2,742 8.05
Federal funds sold and securities
purchased under agreements to resell 260,606 9,516 3.65
Other interest-earning assets 5,876 356 6.06
---------- --------
Total earning assets and
interest income 6,031,125 533,991 8.85
---------- --------
Noninterest-earning assets:
Cash and due from banks 246,218
Premises and equipment, net 140,016
Other assets 133,129
Less allowance for loan losses (47,060)
----------
Total Assets $6,503,428
==========
(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% in 1994
and 1993, 34% in 1992, and increased in recognition of 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
1992
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Transaction accounts $1,059,112 $ 34,540 3.26%
Money-market accounts 788,729 26,067 3.30
Savings deposits 954,503 35,883 3.76
Certificates of deposit:
Consumer 1,856,277 94,207 5.08
Large denomination 187,662 8,767 4.67
---------- --------
Total interest-bearing deposits 4,846,283 199,464 4.12
Short-term borrowings 145,227 4,149 2.86
Long-term indebtedness 10,833 1,213 11.20
---------- --------
Total interest-bearing liabilities
and interest expense 5,002,343 204,826 4.09
---------- --------
Noninterest-bearing liabilities:
Demand deposits 864,000
Other 64,812
Shareholders' equity 572,273
----------
Total liabilities and
shareholders' equity $6,503,428
==========
Net interest income and
net interest margin $329,165 5.46%
========
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
1994 Compared to 1993
Increase (Decrease)
Due to Change in
------------------------------
Total
Average Average Increase
Volume Rate (Decrease)
-------- -------- --------
Interest income (In thousands)
- ---------------
Investment securities-held to maturity:
U.S. Government and
its agencies $ (5,389) $ (7,544) $(12,933)
State and municipal obligations* (2,187) (1,731) (3,918)
Other* (54) (8) (62)
-------- -------- --------
Total investment securities (7,630) (9,283) (16,913)
-------- -------- --------
Loans:
Installment 39,947 (29,309) 10,638
Real estate 1,424 (3,071) (1,647)
Other* 2,618 4,433 7,051
-------- -------- --------
Total loans 43,989 (27,947) 16,042
-------- -------- --------
Mortgage loans held for sale (813) 138 (675)
Federal funds sold and securities
purchased under agreements
to resell (2,831) 2,556 (275)
Other interest-earning assets 20 3 23
-------- -------- --------
Total interest income 32,735 (34,533) (1,798)
-------- -------- --------
Interest expense
- ----------------
Transaction accounts 1,862 (5,387) (3,525)
Money market accounts (632) (454) (1,086)
Savings deposits 1,468 (2,653) (1,185)
Certificates of deposit:
Consumer (539) (1,582) (2,121)
Large denomination 471 368 839
-------- -------- --------
Total interest-bearing deposits 2,630 (9,708) (7,078)
Short-term borrowings 646 2,892 3,538
Long-term indebtedness 450 (230) 220
-------- -------- --------
Total interest expense 3,726 (7,046) (3,320)
-------- -------- --------
Net interest income $ 29,009 $(27,487) $ 1,522
======== ======== ========
*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
1993 Compared to 1992
Increase (Decrease)
Due to Change in
------------------------------
Total
Average Average Increase
Volume Rate (Decrease)
-------- -------- --------
Interest income (In thousands)
- ---------------
Investment securities-held to maturity:
U.S. Government and
its agencies $ 3,328 $(11,222) $ (7,894)
State and municipal obligations* (668) (1,665) (2,333)
Other* (798) (4) (802)
-------- -------- --------
Total investment securities 1,862 (12,891) (11,029)
-------- -------- --------
Loans:
Installment 25,666 (33,283) (7,617)
Real estate 7,795 (6,022) 1,773
Other* (1,709) (1,189) (2,898)
-------- -------- --------
Total loans 31,752 (40,494) (8,742)
-------- -------- --------
Mortgage loans held for sale 392 (566) (174)
Federal funds sold and securities
purchased under agreements
to resell 357 (1,514) (1,157)
Other interest-earning assets 23 (7) 16
-------- -------- --------
Total interest income 34,386 (55,472) (21,086)
-------- -------- --------
Interest expense
- ----------------
Transaction accounts 5,204 (7,904) (2,700)
Money market accounts (1,389) (4,588) (5,977)
Savings deposits 12,122 (10,573) 1,549
Certificates of deposit:
Consumer (11,586) (17,161) (28,747)
Large denomination (933) (1,481) (2,414)
-------- -------- --------
Total interest-bearing deposits 3,418 (41,707) (38,289)
Short-term borrowings 164 (750) (586)
Notes and mortgages (1,059) 67 (992)
-------- -------- --------
Total interest expense 2,523 (42,390) (39,867)
-------- -------- --------
Net interest income $ 31,863 $(13,082) $ 18,781
======== ======== ========
*Fully taxable-equivalent basis
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change in
average rate has been determined by multiplying the current average volume by
the change in average rate.
STATEMENT OF INCOME
- -------------------
NET INTEREST INCOME
The tables on the previous pages detail the increase in earning assets,
interest-bearing liabilities and demand deposits for the last three years,
along with the related levels of fully taxable-equivalent interest income and
expense. The variance in interest income and expense caused by differences in
average balances and rates is shown on the previous pages.
The Federal Reserve moved very aggressively to increase interest rates
during 1994 in an effort to slow the economy and keep inflation in check. The
Federal Reserve increased the targeted federal funds rate a record six times
during the year, for a total of 2 1/2 percentage points, and increased the
discount rate three times. This was the most rapid increase in rates since
the early 1980s and marked the end of approximately ten years of generally
declining interest rates.
Net interest income increased 1% in 1994, which was less than the 4%
increase in average earning assets. As a result, the net interest margin
declined 18 basis points to 5.28% after remaining stable at 5.46% in the
preceding two years. The Corporation maintains a highly liquid balance sheet
on both the asset and liability sides and is relatively unaffected by long-
term movements in interest rates. In the very near term (up to six months),
however, the Corporation is slightly liability sensitive, so that a rapid
movement in rates as occurred in 1994 will have a negative impact on net
interest income. The net interest margin stabilized during the fourth
quarter; however, it is anticipated that it will decline slightly in the
first half of 1995 because of further increases in interest rates on deposits
not fully offset on the asset side. As rates stabilize, the margin is
expected to stabilize and then expand somewhat in the latter part of 1995.
Interest income on securities declined during the year, primarily due to
lower rates but also due to lower volumes, as balances were needed to fund
loan growth. The strong growth in loans resulted in an increase in interest
income on loans that exceeded both the decline in income caused by rate
increases and the decline in interest income from the Corporation's lower
volume of securities.
Interest expense on deposits declined during 1994 because of lower average
rates in the early part of the year compared to 1993. As rates rose rapidly
in the second half of the year, interest expense on deposits was increasing
at a faster pace than the increase in interest income from earning assets.
The growth in average outstanding, low-cost NOW and savings accounts slowed
during 1994 to 6% and 4%, respectively, as compared to the 15% and 34% growth
achieved in the prior year. In 1992 and 1993, the Corporation saw significant
growth in these low-cost deposit categories as consumers shifted to liquid
investments. This process began to reverse itself in 1994, particularly in
the second half of the year when these categories began to decline, as
consumers extended their deposit maturities in response to higher interest
rates.
Competition for deposits in the Corporation's market area was strong during
the year as lending volumes for all banks increased and as some competitor
banks made strategic moves to restructure their sources of funds and reduce
their liability sensitivity. As a result, the cost of funds increased
steadily throughout the year, accelerating at year-end. In contrast, the
yield on earnings assets was essentially flat throughout the year as rates on
new loans and investments, while rising, were generally lower than rates on
maturing loans and investments. This situation changed in the fourth quarter,
however, as rates on new loans and investments exceeded those of maturing
assets, and consequently, the yield on earning assets began to increase.
PROVISION FOR LOAN LOSSES
The provision for loan losses was essentially unchanged during 1994 and was
$6.5 million in both 1994 and 1993 after dropping 63% in 1993. The decline in
the provision in 1993 resulted from lower net charge-offs that had dropped to
.13% of average loans and that dropped further in 1994 to .11%. Due to the
favorable trend in net charge-offs, a decline in nonperforming loans, and
continued low delinquencies in all categories of loans, the Corporation
reduced the allowance for loan losses as a percentage of year-end loans from
1.27% at the end of 1993 to 1.18% at the end of 1994. The allowance for loan
losses covered net charge-offs 11.9 times at the end of 1994, compared to 9.9
times at the end of 1993.
Net charge-offs declined from $5.1 million in 1993 to $4.9 million in 1994.
This decline came in spite of the growth in average outstanding loans of 12%
because of a decline in net charge-offs of indirect loans. The Corporation
primarily purchases top quality automobile loans through its dealers, and the
quality of the portfolio has improved steadily over the past several years.
The two largest components of the loan portfolio, automobile and home equity
loans, comprise approximately 70% of total loans, yet they had net charge-
offs of only three basis points in 1994, compared to five basis points in
1993. The net charge-off rate for credit card loans declined 19 basis points
in 1994 to 2.61%, following a drop of 31 basis points in 1993 to 2.80%
despite an increase in average outstandings of 15%. These ratios are all
significantly below national averages and reflect the Corporation's
conservative lending standards.
The Corporation makes approximately 81% of its loans to consumers for small
amounts with regular monthly repayment schedules and, therefore, has less
risk exposure to loan charge-offs than many banks. 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. Less than 3% of the
Corporation's loans are for land development and construction, which are
primarily for residential or owner-occupied facilities. The Corporation does
not have any international, national or highly leveraged credits, nor does it
have concentration of credit in any one industry that exposes the loan
portfolio to adverse risk.
OTHER INCOME
Noninterest income increased 3% in 1994, after rising 7% in both 1993 and
1992. The Corporation has historically received a lower proportion of its
total income from noninterest sources as compared to other banks-reflecting
its primarily consumer-oriented nature. The Corporation's objective is to
increase its noninterest income sources and to grow these revenues at a
faster pace than the growth in noninterest expenses. During 1994, noninterest
income grew at approximately the same pace as noninterest expenses. One
reason was the decline in mortgage brokerage activities as the 1992-93
refinancing explosion abated in 1994 as interest rates on mortgages
increased.
Service charges on deposit accounts increased 5% during 1994, after rising
4% during 1993, and comprise the largest segment of noninterest income. The
growth in service charges reflects the 7% growth in average outstanding
transaction accounts in 1994. Continued competitive pricing of these accounts
limited the increase in pricing during 1994 after virtually no price
increases in 1993 and 1992. As a result, service charge income did not grow
as rapidly as outstanding balances. Service charges from commercial deposit
accounts increased at a 10% rate in 1994 and 8% in 1993 due to an increase in
processing of major corporate accounts, while increases in returned check
fees created a 4% increase in service charges on consumer accounts.
Credit card service charges and fees increased at a 3% rate in 1994, less
than the rate of growth of outstanding balances, as the impact of annual fee
waivers for new accounts partially offset the increase in interchange volume
and merchant discount fees. Income from insurance premiums and commissions
increased 2% in 1994, after remaining flat in 1993, as higher credit life
insurance premium income, resulting from greater loan volume, was partially
offset by slower growth in insurance agency income.
Income from trust services increased 4% in 1994, after rising 12% in 1993,
as new account volume from court-appointed trusts declined. Income from other
customer services rose 6%, due primarily to an increase in automated teller
machine (ATM) interchange income of 12% in 1994, following a 13% increase in
1993. The Corporation had 175 ATMs at the end of 1994 and a growing number of
point-of-sale (POS) terminals at merchant locations.
The Corporation had a $976 thousand gain from the sale of securities in
1994, compared to a $711 thousand gain in 1993. Both years included the sale
of the remaining balance of equity securities acquired a number of years
previously. The Corporation's policy is to retain its investment securities
until their scheduled maturity date.
Other noninterest income includes $2.5 million in 1994 and $1.2 million in
1993 from the sale of mortgage servicing rights. The Corporation normally
sells a package of servicing rights each year, rather than selling individual
loans with servicing released, since a higher total profit is made by
packaging a group of servicing rights for sale. Excluding the sale of
mortgage servicing rights, other income declined 39%. This was the result of
a 43% decline in mortgage origination income as the increase in interest
rates caused a decline in mortgage loan origination activities.
Efficiency Ratio Chart
(The lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1994 58.5% 61.9% 62.7%
1993 56.9% 62.6% 62.6%
1992 58.4% 61.8% 60.0%
1991 65.1% 64.7% 63.6%
1990 64.8% 64.0% 63.8%
Southern Regionals: Banking companies with assets over $2 billion (31 in
1994)
National Peer Group: Banking companies with assets of
between $5 and $10 billion (20 in 1994)
Source: Keefe, Bruyette & Woods
OTHER EXPENSES
Noninterest expenses increased 3% in 1994 and 1993, which was fairly
consistent with the rate of inflation. Salaries and employee benefits
increased 4% in both 1994 and 1993. In 1994, salaries increased 6%, however,
this included the increase in expense from the acquisitions of FNB Financial
Corporation and Farmers National Bancorp that were accounted for as
purchases. Their expenses were not included in the prior year. Not including
the acquisitions, the increase would have been 3%-an increase consistent with
inflation. Employee benefits declined 2% for two reasons: a decline in
profit-sharing expense, caused by the drop in income, and a decline in
production-related commissions, caused by a drop in mortgage loan
originations. Health care costs declined during 1994, after increasing 14% in
both 1993 and 1992, and reversed a long-term trend of double digit increases.
In 1993, the Corporation adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which increased the annual
expense for retiree medical benefits by $1.9 million in 1993 and an
additional $.6 million in 1994.
An increase in the number of branches caused occupancy expense to increase
5% in 1994 and 4% in both 1993 and 1992. Equipment expense increased 1% in
1994 compared to a 4% increase in 1993. In late 1993, the Corporation
replaced its existing mainframe computer, doubling the capacity of the old
computer while reducing the cost substantially in 1994.
Other operating expenses declined 3% in 1994, following a 2% decline in
1993. Improvement in loan quality caused collection expenses to decline 25%
in 1993 and an additional 8% in 1994. In both 1992 and 1993, declines in
interest rates resulted in an increase in amortization of mortgage servicing
rights as many loans prepaid during that period. During 1994, this expense
declined $1.5 million or 75% as rising interest rates and lower balances in
unamortized servicing rights required a lower rate of amortization. In
addition, the decline in mortgage loan origination activities resulted in a
$.7 million decline in production-related expenses. Foreclosed property
expenses declined slightly in 1994 and were not material in either 1994 or
1993.
PROVISION FOR INCOME TAXES
In 1994, income tax expense increased $438 thousand despite the decline in
income, caused by a decline in the proportion of income received from tax-
exempt municipal securities. In 1993, the increase in the federal income tax
rate also resulted in a $432 thousand reduction in income tax expense to
adjust for certain income tax benefits as required by SFAS No. 109,
"Accounting for Income Taxes."
The Corporation's effective tax rate increased .7% to 32.5% in 1994 and .8%
to 31.8% in 1993 because of reductions in nontaxable interest received on
municipal securities. Since 1982, various changes in tax laws have reduced
the availability and attractiveness of tax-exempt securities for banks, and
the Corporation has not been able to replace maturing tax-exempt securities.
BALANCE SHEET
- -------------
The Corporation uses its funds primarily to support lending activities, its
greatest income source. The Corporation's objective is to invest 70-80% of
its total deposits in loans. After several years of weak loan volume that did
not allow the Corporation to meet this objective, 1994 saw very strong loan
demand that increased the ratio of loans to deposits to 73.3% from 65.5% and
allowed the Corporation to meet its objective for the first time since 1990.
Average loans increased 12% during 1994, while average deposits grew at a
lower rate of 3%. The increase in loans was primarily funded with the
proceeds from maturing investments.
Actual balances at year-end were substantially higher than the average
balances as the Corporation acquired the approximately $700 million asset
Farmers National Bancorp on December 28, 1994, in a purchase transaction.
Accordingly, prior periods were not restated to include the results of the
merged organizations. In addition, on June 17, 1994, the approximately $100
million asset FNB Financial Corporation was acquired in a purchase
transaction. Its activities are included only from that date forward. Assets
grew at double-digit rates from 1990 to 1992 because of the Corporation's
reputation for safety and soundness and the well-publicized problems of its
competitors. With the improvement of the economy in 1993 and 1994, growth
returned to a more normal rate, exclusive of the acquisitions mentioned
above.
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.
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Loans .................. 69.78% 61.53% 60.28% 62.76% 69.84%
Taxable securities...... 29.08 30.00 30.76 28.23 20.89
Tax-exempt securities... .40 3.65 4.10 4.70 5.60
Mortgage loans held for sale .19 1.07 .97 .47 .25
Other interest-earning assets .13 .10 .10 .10 .11
Overnight investments... .42 3.65 3.79 3.74 3.31
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
LOANS
Loans increased strongly during 1994, after growing at a moderate pace in
1993, as the economy continued to improve and pent-up demand increased
automobile sales nationally. First Virginia capitalized on its well-known
strength in the indirect automobile lending area to increase outstanding
automobile loans by 19%. Gross production of indirect auto loans increased
20% over 1993, following a 25% increase over 1992.
First Virginia concentrates on the highest quality of automobile loans,
primarily for new cars with a maximum life of five years, and has an
approximately equal distribution between domestic and foreign automobiles.
The loss rate on this quality of loan is minimal and, coupled with the
Corporation's low cost of funds, permits the Corporation to generally offer
the best rate on a new car loan and still make a wider spread than its
competitors. In 1993, the Corporation opened its first automobile loan
production office in North Carolina, and in 1994, it opened an additional
one. By the end of 1994, outstanding balances for these offices were $118.4
million. In the first quarter of 1995, the Corporation will further
capitalize on its expertise in the automobile loan market when it begins
offering a leasing product in conjunction with an unaffiliated partner who
will assume the ownership, servicing and residual risks of the leases. The
Corporation will earn a fee for performing the origination activities in
connection with the lease.
Home equity loans increased 11% during 1994, and comprised 24% of all
loans. During the first half of 1994, the Corporation experienced record
production in this area. By the end of the third quarter, volume had slowed
considerably as rates increased and refinancing and consolidation activity
virtually disappeared. First Virginia's policy in this area, pursuing the
highest quality loans with high underwriting standards, has enabled the
Corporation to show minimal bad debt losses. For example, the Corporation
typically requires a maximum loan to equity ratio of 70 to 75% and does not
take a second mortgage behind a jumbo first mortgage to reduce its risk in
the event of foreclosure.
Residential real estate loans advanced 19% in 1994, after refinancing
activity caused a 7% decline in 1993. The Corporation generally limits the
term of loans it will accept for its own portfolio to 15-year, fixed-rate
mortgage loans or longer-term loans with rates that adjust every three to
five years. Activity in the 15-year mortgages was fairly steady throughout
1994 in contrast to 1993 when interest rates were lower and consumers were
locking in longer-term mortgages with fixed rates. The Corporation generally
does not invest in adjustable-rate mortgages, other than those mentioned
above, because of the substantial prepayment risk and low initial rates
generally associated with such loans.
Revolving credit loans, including credit cards, increased 17% during the
year, their first increase in five years, as the Corporation enhanced the
attractiveness of its credit card products. Interest rates were lowered
during the year on certain promotional cards and the annual fee was
eliminated for certain types of accounts. These two moves resulted in a
higher retention rate of existing cardholders and an increased penetration
rate for new accounts. The Corporation limits its solicitation efforts
primarily to its geographic market area.
Average commercial loans grew 6% during 1994, after dropping 3% during
1993, and comprised 9% of outstanding loans at the end of the year. Floor
plan loans to automobile dealers for their inventory of new and used cars
grew 47% during the year and comprised 41% of the commercial loan portfolio.
These loans are made to the highest quality automobile dealers and are
subject to periodic inventory audits and at least an annual financial review.
Increased competition for attractive commercial loans caused other commercial
loan activity to remain modest in both 1993 and 1994. Some banks continue to
offer fixed-rate and below-prime loans to borrowers whose credit profiles and
risks do not justify these pricing levels.
Real estate development and construction loans increased 35% during 1994
after declining 17% in 1993. These loans comprise only 2% of the total loan
portfolio and are primarily made to strong developers on residential
properties with strong sales. Commercial mortgage loans increased 55% in
1994. This was due primarily to the acquisition of Farmers National Bancorp,
which had a greater proportion of its loans in commercial, owner-occupied
properties.
LOANS
December 31
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(In thousands)
Consumer:
Automobile...........$1,873,819 $1,571,418 $1,362,138 $1,243,927 $1,271,395
Home equity, fixed-
and variable-rate 1,381,543 1,242,982 1,178,378 1,109,067 1,033,336
Revolving credit loans,
including credit cards 190,103 161,995 163,711 166,961 173,780
Other......... 283,361 167,942 184,879 193,175 200,767
Real estate:
Construction and
land development 122,737 90,823 109,378 109,809 133,475
Commercial mortgage. 465,943 301,315 284,579 257,944 207,195
Residential mortgage.. 506,245 424,695 469,210 380,083 370,109
Other, including
Industrial Development
Authority loans 61,876 63,082 69,898 70,204 75,959
Commercial 466,877 321,428 311,932 336,264 365,021
---------- ---------- ---------- ---------- ----------
5,352,504 4,345,680 4,134,103 3,867,434 3,831,037
Deduct unearned income,
principally on
consumer loans (355,310) (327,635) (351,835) (377,897) (408,999)
---------- ---------- ---------- ---------- ----------
Loans, net of
unearned income $4,997,194 $4,018,045 $3,782,268 $3,489,537 $3,422,038
========== ========== ========== ========== ==========
Loans and other assets which were not performing in accordance with their
original terms are discussed on several of the following pages under the
caption NONPERFORMING ASSETS.
INVESTMENT SECURITIES
The investment portfolio declined on average 5% in 1994 and 1% in 1993
after increasing in excess of 30% in 1992 and 1991 when loan volume was weak.
Throughout 1994, the investment portfolio was permitted to mature without
reinvestment except where needed to satisfy pledging requirements.
The Corporation places primary importance on safety and liquidity in the
investment portfolio. Accordingly, the majority of the portfolio is invested
in U.S. Government securities with a maximum life of five years and an
average life of approximately 1.95 years at the end of 1994. At December 31,
1994, U.S. Government securities comprised 86% of the securities portfolio,
compared to 88% at the end of 1992. The percentage of securities invested in
U.S. Government securities has generally been increasing since 1982 when
changes in federal income tax laws reduced the tax benefits derived by banks
for investments in municipal securities. The limited availability of bank-
qualified municipal securities and the reduction in yield due to the loss of
tax benefits have generally made municipal securities less attractive to the
Corporation. First Virginia has limited its investments in municipal
securities primarily to publicly issued securities of municipalities with a
rating of A1 or better or to unrated, general-obligation securities of
municipalities in its market areas with which it is familiar.
The Corporation generally does not invest in mortgage-backed securities or
collateralized mortgage obligations because of the unpredictability of cash
flows and maturities and the Corporation's emphasis on liquidity. It does not
invest in structured notes or other types of derivative securities except
forward contracts to hedge mortgage banking activities. Also, the Corporation
has constructed its portfolio in a "laddered" approach so an approximately
equal amount matures each month.
During 1994, the Corporation adopted the Financial Accounting Standards
Board issued Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." At the adoption date, approximately $2.2 million of
securities were classified as available for sale and sold during the first
quarter of 1994. The Corporation has classified virtually all of its
investment portfolio as held to maturity and intends to hold its securities
until their stated maturity and has the ability to do so. Accordingly, there
is no adjustment to either income or capital for changes in the market value
of the Corporation's investment securities.
OVERNIGHT INVESTMENTS
Overnight 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 addition, the amount
of customer repurchase agreements is generally covered by investments in
overnight securities. In 1994, average overnight investments declined 34%, to
a lower-than-normal $179 million, as the Corporation utilized some of the
liquidity in this asset to temporarily fund loan growth.
DEPOSITS
Deposit growth slowed further in 1994 as competition for funds heightened
and interest rates rose at their fastest pace in many years. Competition from
other banks in the Corporation's market areas and particularly from the U.S.
Government caused average deposits to increase by only 3% during 1994,
following a 6% growth in 1993 and a 15% growth in 1992. Rising interest rates
and a weakness in the stock market in 1994 meant reduced competition for
funds from insurance products and mutual funds.
The Corporation's extensive branch system has enabled it to acquire low-
cost consumer core deposits, although 1994's growth was weaker than in
previous years. In addition, while the low-cost areas of deposits grew on
average during the year, by the second half of the year, as interest rates
increased strongly, internal disintermediation began to occur. Consumers
began withdrawing funds from shorter-term, liquid types of accounts and moved
them into higher-cost, longer-term certificates of deposit. Competition was
particularly acute in rural areas with local community banks and in
Tennessee. Most of the growth in average deposits during the year occurred in
the Corporation's largest market--the Washington-Baltimore area--primarily in
transaction accounts.
Demand deposit growth slowed to 7% in 1994, after growing 15% in 1993 and
14% in 1992, while NOW accounts also increased at a slower 6% pace in 1994,
following 15% and 25% growth rates in the two prior years. Demand deposits
comprise 16.6% of total deposits, while NOW accounts comprise 20.2% of
average deposits. Total transaction accounts constitute 36.8% of total
deposits.
The growth in consumer savings accounts slowed to 4% during 1994, following
a 34% increase in 1993 and a 62% increase in 1992 when consumers were
remaining liquid in anticipation of future rate increases. In the second half
of 1994, consumers began transferring balances to higher-cost certificates of
deposit. It is expected that this process will continue throughout 1995,
resulting in a higher cost of funds for the Corporation. The Corporation
estimates that approximately $1.05 billion in savings accounts may be
vulnerable to transfer to higher-cost accounts. Money market accounts
decreased 3% in 1994 and 5% in 1993 and, by year-end, were shifting at a
faster pace to higher-cost certificates of deposit.
Consumer certificates of deposit declined 1% in 1994 and 12% in 1993;
however, this category was expanding in the latter half of the year as
consumers began extending maturities and locking in interest rates. The
Corporation has priced the shorter maturities at the most attractive prices
so much of the activity has been directed to the 9-13 month categories.
Large-denomination certificates increased 18% during the year, after
declining 11% in 1993 and 25% in 1992; however, this category comprised only
3% of outstanding deposits. The Corporation does not actively bid on these
types of deposits nor rely on them for its funding sources. They are
primarily composed of high-savings-level consumers and bear rates identical
to consumer certificates of deposit. 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, 1994, were (in thousands):
One month or less.............................................. $ 32,400
After one month through three months........................... 39,587
After three through six months ................................ 53,019
After six through twelve months ............................... 55,098
Over twelve months............................................. 25,376
--------
$205,480
========
Average Deposits Pie Chart
(Millions of Dollars)
1994 1993 1992
-------- -------- --------
Noninterest Bearing $1,063.0 $ 990.0 $ 864.0
NOW 1,290.0 1,218.7 1,059.1
Savings 1,327.0 1,276.9 954.5
Money Market 723.2 746.7 788.7
Consumer CDs 1,614.5 1,628.0 1,856.3
Large-Denomination CDs 180.1 167.7 187.7
-------- -------- --------
$6,197.8 $6,028.0 $5,710.3
======== ======== ========
OTHER INTEREST-BEARING LIABILITIES
Short-term borrowings consist primarily of commercial paper issued by the
parent company and securities sold by the member banks with an agreement to
repurchase them on the following business day. These short-term obligations
are issued principally as a convenience to customers in connection with cash
management activities utilized by these customers. Average short-term
borrowings from these sources increased 18% in 1994 after advancing 3% during
1993, an increase that reflects the increased volume of commercial customers
under cash management.
Long-term debt is comprised of capitalized lease obligations on branch
office facilities that are not subject to pre-payment and one equipment note
for the purchase of the Corporation's mainframe computer.
A shelf registration for the issuance of $50 million of senior notes was
filed with the Securities and Exchange Commission in 1989. Moody's has
indicated that the notes, when and if issued, will have a rating of A-1. The
Corporation's commercial paper is rated P-1 by Moody's and A-1 by Standard &
Poor's, and the lead bank's certificates of deposit are rated A+/A-1 by
Standard & Poor's and Aa3 by Moody's--the highest rating of any bank's
deposits in the Corporation's market area.
SHAREHOLDERS' EQUITY
First Virginia maintains its capital at one of the highest levels relative
to other banks in the country. The ratio of shareholders' equity to assets
was 10.26% at the end of 1994, compared to an average of 8.51% for similar
banks in its peer group of banks with assets between $5-10 billion according
to Keefe, Bruyette & Woods. The Corporation's Tier 1 leverage ratio was
10.25% at the end of 1994, compared to 9.67% at the end of 1993. This level
exceeds the regulatory minimum of 3% by over three times and gives the
Corporation considerable capital available for growth and safety. 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.
During 1994, the Board of Directors approved the repurchase of 2.7 million
shares of the Corporation's common stock, and at December 31, approximately
1.7 million, or 5% of outstanding shares, had been repurchased. Also during
1994, the Corporation issued 3.2 million shares in connection with the
acquisition of two bank holding companies accounted for as purchases.
Over the past five years, shareholders' equity has increased at an annual
compounded growth rate of 12.2%, while assets have grown at an 8.9% rate. At
the end of 1994, shareholders' equity totaled $807 million, up 17% compared
to the end of 1993. The dividend rate on the common stock was increased twice
in 1994, and at the end of 1994, the annual rate had increased 6.4% over the
rate at the end of 1993.
First Virginia and its subsidiary banks are required to comply with capital
adequacy standards established by the Federal Reserve and the FDIC. With its
high level of capital and conservative assets, the Corporation exceeded the
additional regulatory risk-based capital requirements by wide margins. The
Tier 1 risk-based capital ratio totaled 14.76% at the end of 1994, and the
Total risk-based capital ratio equaled 15.96%. Regulatory minimums are 4% and
8%, respectively.
Asset Quality
- -------------
The Corporation has a number of policies to ensure that lending and
investment activities expose the bank to a minimum of risk while producing a
profit consistent with the exposure to risk. These policies are reviewed
constantly by the Corporation's senior management, and each member bank's
internal loan monitoring system provides a detailed monthly report of
production, delinquencies and nonperforming and potential problem loans. This
careful monitoring has resulted in a consistent record of low delinquencies
and charge-offs, as well as few nonperforming loans in relation to the entire
loan portfolio.
The Corporation has no foreign or highly leveraged transaction loans, and
loans are generally made only within the trade areas of the member banks.
Loans are generally not participated with or purchased from banks outside of
the First Virginia system. In addition, participations between banks within
the First Virginia system must first be participated with the Corporation's
lead bank where a more comprehensive loan review process is performed.
Approximately 78% 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
$121 million; however, it generally limits its loans to any one borrower and
related interests to $15 million. In special cases, the Corporation may
occasionally 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 in the branches of the
member banks and indirectly through automobile dealerships. Roughly 34% of
the total loan portfolio is comprised of consumer automobile loans. Because
the loan amounts are relatively small and spread across many individual
borrowers, the risk of any major charge-offs are minimized. The Corporation
also makes loans directly to automobile dealers to finance their inventories.
NONPERFORMING ASSETS
Nonperforming assets declined 5% in 1994, despite an increase in
outstanding loans of 24%, and totaled $26.2 mil lion at year-end.
Nonperforming assets were .52% as a percentage of total loans plus foreclosed
property, down from the .68% at the end of 1993. Nonperforming loans have
steadily declined since 1990 and are significantly below the levels of
similarly sized institutions in the Corporation's market area and in the
nation. Foreclosed properties increased 20% in 1994, primarily as a result of
the acquisition of Farmers National Bancorp. They would have declined 10%
excluding properties acquired from the Farmers merger. The Corporation had no
in-substance foreclosures at the end of 1994 and no foreclosed commercial
real estate in the Washington, D.C., area market.
The table below shows the total of nonperforming loans 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. During 1994, the Corporation collected approximately
$1 million in previously unaccrued interest on loans in a nonaccrual status
that were collected in full.
Nonperforming Assets
December 31
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(In thousands)
Nonaccruing loans ........ $15,286 $18,387 $20,453 $17,425 $24,812
Restructured loans........ 2,478 2,175 1,139 1,337 1,745
Properties acquired
by foreclosure........... 8,478 7,086 11,099 16,160 10,278
------- ------- ------- ------- -------
Total................... $26,242 $27,648 $32,691 $34,922 $36,835
======= ======= ======= ======= =======
Percentage of total loans and
foreclosed real estate .52% .68% .85% .99% 1.07%
Loans 90 days past due.... $ 4,881 $ 2,752 $ 4,595 $ 8,935 $ 6,293
======= ======= ======= ======= =======
Percentage of total loans. .10% .07% .12% .25% .19%
Loans past due 90 days or more totaled $4.9 million at the end of 1994, an
increase of 77% compared to 1993; however, this represented only .10% of
outstanding loans, less than half the historic level and significantly below
national averages. No particular loan or category of loans accounted for the
increase. Loans past due over 30 days increased to .47% of the loan
portfolio, up five basis points over the .42% at the end of 1993, and were
also considerably below industry averages, reflecting the high overall
quality of the Corporation's loan portfolio.
A loan generally is classified as nonaccrual when full collectability of
principal or interest is in doubt; when repossession, foreclosure or
bankruptcy proceedings are initiated; or when other legal actions are taken.
In the case of installment loans, a loan is placed in nonaccrual if payments
are delinquent 120 days. The same is true for credit card loans if they are
180 days past due, and for other loans after payments are delinquent for 90
days. If collateral on a loan is sufficient to insure full collection of
principal and interest, an exception to the general policy might be made.
Loans may also be placed in a nonaccruing status at any time prior to that
indicated above if the Corporation anticipates that interest or principal
will not be collected.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that management
believes is adequate to absorb potential losses in the loan portfolio.
Management's methodology in determining the adequacy of the allowance
considers specific credit reviews, past loan-loss experience, current
economic conditions and trends, and the growth and composition of the loan
portfolio. Every commercial loan is reviewed and rated at least annually
according to the Corporation's credit standards, and trends in the total
portfolio are examined for potential deterioration in overall quality.
At the end of 1994, the allowance represented 1.18% of total loans--down
nine basis points from the level at the end of 1993. This can be attributed
to the continued low level of net charge-offs, the low level of nonperforming
and delinquent loans, and the improvement in the credit quality of the loan
portfolio. The allowance covered net charge-offs approximately 12 times. Only
a small percentage of the allowance has been allocated to specific credits,
with the majority available for currently unidentified losses. Management
believes the allowance is adequate to absorb any potential unidentified
losses.
Net charge-off experience improved again in 1994 to a record low, after
already improving significantly in 1993. The Corporation constantly monitors
the level of the allowance, considering its long-term experience and short-
term individual requirements. If asset quality and loan charge-offs remain at
the current historically low levels, the Corporation intends to maintain an
allowance for loan losses in the 1.15% to 1.20% range.
The allowance is charged when management determines that the prospect of
recovery of the principal of a loan has significantly diminished. Subsequent
recoveries, if any, are credited to the allowance. Net charge-offs declined
4% in 1994 after dropping 60% in 1993. A decline in charge-offs on indirect
automobile loans was responsible for most of the decline in 1994, while most
other categories were essentially unchanged. Despite the Corporation's
exposure to automobile lending, its actual loss experience has been very
favorable and its net charge-offs were only three basis points in 1994 and
six basis points in 1993. Commercial loans had a slight increase in net
charge-offs, after posting a net recovery during 1993, as the Corporation
experienced no significant problems during the year.
An analysis of the activity in the allowance for loan losses for each of
the last five years is presented in the following table.
Allowance for Loan Losses
December 31
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(In thousands)
Balance at beginning of year $50,927 $49,340 $44,817 $43,917 $40,905
Balances of acquired banks 6,412 259 - - 291
Provision charged to
operating expense........ 6,463 6,450 17,355 14,024 13,404
------- ------- ------- ------- -------
Total ................ 63,802 56,049 62,172 57,941 54,600
------- ------- ------- ------- -------
Charge-offs:
Consumer:
Credit card............. 4,677 4,516 4,852 4,756 3,189
Indirect automobile..... 2,396 2,827 5,139 7,062 5,826
Other................... 1,222 1,464 2,758 3,291 2,555
Real estate.............. 98 39 473 201 224
Commercial............... 363 365 3,298 1,176 2,235
------- ------- ------- ------- -------
Total ................ 8,756 9,211 16,520 16,486 14,029
------- ------- ------- ------- -------
Recoveries:
Consumer:
Credit card............. 856 758 632 516 438
Indirect automobile..... 1,988 2,102 2,024 1,807 1,698
Other................... 730 765 813 681 812
Real estate.............. 3 17 18 53 34
Commercial............... 237 447 201 305 364
------- ------- ------- ------- -------
Total ................ 3,814 4,089 3,688 3,362 3,346
------- ------- ------- ------- -------
Net charge-offs deducted.. 4,942 5,122 12,832 13,124 10,683
------- ------- ------- ------- -------
Balance at end of year ... $58,860 $50,927 $49,340 $44,817 $43,917
======= ======= ======= ======= =======
Net Loan Losses (Recoveries) to
Average Loans by Category:
Credit card.............. 2.61% 2.80% 3.11% 2.96% 1.87%
Indirect automobile...... .03 .06 .29 .50 .40
Other consumer........... .03 .05 .16 .23 .16
Real estate.............. .01 - .07 .03 .04
Commercial............... .02 (.01) .50 .14 .28
------- ------- ------- ------- -------
Total Loans............... .11% .13% .35% .38% .31%
======= ======= ======= ======= =======
Percentage of allowance for loan
losses to year-end loans. 1.18% 1.27% 1.30% 1.28% 1.28%
Nonperforming Asset Ratios Ribbon Chart
(the lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1994 0.52% 0.71% 0.64%
1993 0.68 1.19% 0.98%
1992 0.85 2.62% 1.58%
1991 0.99% 2.49% 2.22%
1990 1.07% 2.56% 2.28%
Southern Regionals: Banking companies with assets over $2 billion (31 in
1994)
National Peer Group: Banking companies with assets of between $5 and $10
billion (20 in 1994)
Source: Keefe, Bruyette & Woods
Reserve Coverage Ratios Ribbon Chart
(the higher, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1994 224 328 320
1993 248 235 256
1992 229 161 204
1991 239 139 134
1990 165 104 117
Southern Regionals: Banking companies with assets over $2 billion (31 in
1994)
National Peer Group: Banking companies with assets of between $5 and $10
billion (20 in 1994)
Source: Keefe, Bruyette & Woods
Net Charge-Offs Ratios Ribbon Chart
(the lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1994 0.11 0.19 0.19
1993 0.13 0.33 0.31
1992 0.35 0.78 0.66
1991 0.38 0.96 0.89
1990 0.31 0.87 0.75
Southern Regionals: Banking companies with assets over $2 billion (31 in
1994)
National Peer Group: Banking companies with assets of between $5 and $10
billion (20 in 1994)
Source: Keefe, Bruyette & Woods
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. 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 all of its earning
assets and interest-bearing liabilities.
In order to meet its liquidity needs, the Corporation schedules the
maturity of its investment securities so that an approximately equal amount
will mature each month. The weighted-average life of the securities portfolio
at the end of 1994 was just under 24 months--slightly lower than in the prior
two years because of the portfolio's maturity and reduced investment activity
in 1994. 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 does not change much since the Corporation maintains a
constant approach to its portfolio and invests primarily in five-year-or-less
U.S. Government securities. Municipal securities are also generally limited
to terms of no more than five years but, due to availability and other
factors, are occasionally purchased in serial issues with longer terms. The
maturity ranges of the securities and the average taxable-equivalent yields
as of December 31, 1994, are shown in the following table.
U.S. Government State and
and its Agencies Municipal Other
--------------- ------------- ------------
Amount Yield Amount Yield Amount Yield
---------- ---- -------- ---- ------- ----
(Dollars in thousands)
One year or less.............. $ 590,658 5.6% $ 91,201 7.5% $16,818 4.7%
After one year through
five years 1,187,969 5.9 161,250 6.4 2,444 5.7
After five through ten years.. 4,726 5.7 25,351 6.5 34 10.0
After ten years............... 2,484 8.0 3,015 9.2 80 9.2
---------- -------- -------
Total ........................ $1,785,837 5.8% $280,817 6.8% $19,376 5.2%
========== ======== =======
Weighted-average maturity..... 23 months 28 months
A cash reserve, consisting primarily of overnight investments, is also
maintained by the parent company to meet any contingencies and to provide
additional capital, if needed, to the member banks.
Most of the Corporation's loans are fixed-rate installment loans to
consumers and mortgage loans whose maturities are longer than the deposits by
which they are funded. A degree of interest-rate risk is incurred if the
interest rate on deposits should rise before the loans mature. However, the
substantial liquidity provided by the monthly repayments on these loans can
be reinvested at higher rates that largely reduce the interest-rate risk.
Home equity lines of credit have adjustable rates that are tied to the prime
rate. Many of the loans not in the installment or mortgage categories have
maturities of less than one year or have floating rates that may be adjusted
periodically to reflect current market rates. These loans are summarized in
the following table.
Between
1 year 1 and 5 After
or less years 5 years Total
-------- -------- ------- --------
(In thousands)
Maturity ranges:
Commercial, financial and other... $384,371 $134,021 $55,862 $574,254
Construction and land development. 43,826 69,925 8,986 122,737
-------- -------- ------- --------
Total ............................. $428,197 $203,946 $64,848 $696,991
======== ======== ======= ========
Floating-rate loans:
Commercial, financial and other... $ 35,206 $28,092 $ 63,298
Construction and land development. 33,675 6,081 39,756
-------- ------- --------
Total ............................. $ 68,881 $34,173 $103,054
======== ======= ========
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 also reviewed in detail for each of the Corporation's
individual banks, however, overall asset/liability management is performed on
a consolidated basis to achieve a consistent and coordinated approach.
One of the tools the Corporation uses to determine its interest-rate risk
is gap analysis. Gap analysis attempts to examine the volume of interest-rate
sensitive assets minus interest-rate sensitive liabilities. The difference
between the two is the interest-sensitivity gap, which indicates how future
changes in interest rates may affect net interest income. Regardless of
whether interest rates are expected to increase or fall, the objective is to
maintain a gap position that will minimize any changes in net interest
income. A negative gap exists when the Corporation has more interest-
sensitive liabilities maturing within a certain time period than interest-
sensitive assets. Under this scenario, if interest rates were to increase, it
would tend to reduce net interest income. At December 31, the Corporation had
a slightly negative interest-rate gap in the short term (under six months)
but was slightly asset sensitive in the longer term. The table on the
following pages shows the Corporation's interest sensitivity position at
December 31, 1994.
First Virginia does not manage its interest-rate risk simply with static
maturity and repricing reports. It also uses a dynamic modeling process that
projects the impact of different interest rate, loan and deposit growth
scenarios over a 12-month period. A large part of First Virginia's loans and
deposits comes from its retail base and does not automatically reprice on a
contractual basis in reaction to changes in interest-rate levels.
Accordingly, First Virginia has not experienced the earnings volatility
indicated by its interest-sensitive gap position. The Corporation has
maintained a net interest margin in excess of 5% every year since 1978,
whether rates were high or low, and has been able to maintain adequate
liquidity to provide for changes in interest rates and in loan and deposit
demands.
INTEREST-SENSITIVITY ANALYSIS
1 to 30-Day 1 to 90-Day 1 to 180-Day
Sensitivity Sensitivity Sensitivity
----------- ----------- -----------
(Dollars in thousands)
Earning assets:
Loans, net of unearned income.... $ 825,125 $1,047,353 $1,350,859
Investment securities............ 52,348 134,949 308,639
Federal funds purchased and
securities purchased under
agreements to resell........... 30,000 30,000 30,000
Other earning assets............. - - -
----------- ----------- -----------
Total earning assets......... 907,473 1,212,302 1,689,498
----------- ----------- -----------
Funding sources:
Non-interest bearing
demand deposits................ - - -
NOW accounts..................... - - -
Money market accounts............ 761,160 761,160 761,160
Savings deposits................. - - -
Consumer certificates of deposit. 186,650 397,916 706,703
Large-denomination certificates
of deposit..................... 32,400 71,987 125,006
Short-term borrowings............ 179,409 179,409 179,409
Long-term borrowings............. - - -
----------- ----------- -----------
Total funding sources........ 1,159,619 1,410,472 1,772,278
----------- ----------- -----------
Interest-sensitivity gap........... $ (252,146) $ (198,170) $ (82,780)
=========== =========== ===========
Interest-sensitivity gap as a
percentage of earning assets..... (3.54)% (2.78)% (1.16)%
Ratio of interest-sensitive assets
to interest-sensitive liabilities .78x .86x .95x
INTEREST-SENSITIVITY ANALYSIS (Continued)
Beyond One
1 to 365-Day Year or
Sensitivity Nonsensitive Total
----------- ----------- -----------
(Dollars in thousands)
Earning assets:
Loans, net of unearned income.... $1,937,854 $3,072,631 $5,010,485
Investment securities............ 633,164 1,452,866 2,086,030
Federal funds purchased and
securities purchased under
agreements to resell........... 30,000 - 30,000
Other earning assets............. - 8,987 8,987
----------- ----------- -----------
Total earning assets......... 2,601,018 4,534,484 7,135,502
----------- ----------- -----------
Funding sources:
Noninterest-bearing
demand deposits................ 1,234,060 1,234,060
NOW accounts..................... 1,391,978 1,391,978
Money market accounts............ 761,160 - 761,160
Savings deposits................. 1,402,889 1,402,889
Certificates of deposit.......... 1,119,718 700,556 1,820,274
Large-denomination certificates
of deposit..................... 180,104 25,376 205,480
Short-term borrowings............ 179,409 - 179,409
Long-term borrowings............. 3,814 3,814
----------- ----------- -----------
Total funding sources........ 2,240,391 4,758,673 6,999,064
----------- ----------- -----------
Interest-sensitivity gap........... $ 360,627 $ (224,189) $ 136,438
=========== =========== ===========
Interest-sensitivity gap as a
percentage of earning assets..... 5.05% (3.14)% 1.91%
Ratio of interest-sensitive assets
to interest-sensitive liabilities 1.16x .95x 1.02x
Quarterly Results
- -----------------
The results of operations for the first three quarters of 1994 have been
analyzed in quarterly reports to shareholders. The results of operations for
each of the quarters during the two years ended December 31, 1994, are
summarized in the table on the following pages.
Net income of $27.8 million or $.88 per share in the fourth quarter of 1994
was down 1% as compared to the $29.0 million or $.89 per share earned in the
prior year's fourth quarter but was up 4% as compared to the $27.6 million or
$.85 per share earned in the third quarter of 1994. The prior year's fourth
quarter included a $.7 million gain on the sale of an equity security and a
gain of $1.2 million on the sale of mortgage servicing rights. Also included in
the prior year's fourth quarter was a charge of $1 million on the write-down of
mortgage servicing rights due to an increase in the prepayment rate of the
underlying mortgages.
The net interest margin increased three basis points to 5.25%, compared to
the third quarter of 1994, but was down from the 5.28% achieved in the prior
year's fourth quarter. During the fourth quarter of 1994, approximately $.8
million in previously unaccrued interest from the collection of a nonperforming
loan was recorded. The cost of funds increased 19 basis points, compared to the
prior year's fourth quarter, as consumers began moving deposits out of lower-
cost savings and money market accounts and into higher-cost certificates of
deposit with higher yields. The yield on earning assets increased at a lesser
rate of ten basis points as higher-yielding loans and securities made in prior
years matured and were replaced with lower-yielding assets.
On December 28, 1994, the Corporation acquired Farmers National Bancorp, a
$700 million asset bank holding company operating three banks in Annapolis and
the Eastern Shore of Maryland. The acquisition was accounted for as a purchase
and did not have a material effect on income. In connection with this
acquisition, 2.892 million shares of stock were issued and cash of $45.1
million was paid.
During the fourth quarter, the Corporation continued its previously announced
stock repurchase program and purchased 1.140 million shares of its common
stock. Despite the repurchase of its shares, shareholders' equity increased 17%
compared to the fourth quarter of 1993, and the ratio of shareholders' equity
to assets increased from 9.83% to 10.26%. The Corporation remains one of the
best capitalized banks in the country.
Nonperforming assets declined 5% compared to the fourth quarter of 1993 but
were up 6% compared to the third quarter because of the acquisition of
nonperforming loans of the Farmers National Bancorp.
QUARTERLY RESULTS
1994
--------------------------------------
Quarter Ended
--------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
Condensed Statements of Income -------- -------- -------- --------
(Dollar amounts in thousands, except per-share data)
Interest and fees on loans $ 98,799 $ 96,267 $ 93,481 $ 87,765
Interest on mortgage loans
held for sale 233 348 478 834
Income from securities 26,154 28,292 30,146 32,365
Other interest income 2,707 2,040 1,769 1,964
-------- -------- -------- --------
Total interest income 127,893 126,947 125,874 122,928
-------- -------- -------- --------
Interest on deposits 40,333 39,043 37,435 37,286
Interest on borrowed funds 2,571 2,080 1,731 1,160
-------- -------- -------- --------
Total interest expense 42,904 41,123 39,166 38,446
-------- -------- -------- --------
Net interest income 84,989 85,824 86,708 84,482
Provision for loan losses 1,362 938 3,702 461
Other income 20,327 20,693 22,655 21,025
Other expense 63,090 64,630 62,436 62,303
Provision for income taxes 13,074 13,363 14,196 13,927
-------- -------- -------- --------
Net income $ 27,790 $ 27,586 $ 29,029 $ 28,816
======== ======== ======== ========
Net income per share $ .88 $ .85 $ .89 $ .89
Average Quarterly Balances
Average balances (in millions):
Securities $ 1,838 $ 1,974 $ 2,108, $ 2,168
Loans 4,613 4,546 4,331 4,053
Total earning assets 6,604 6,702 6,648 6,513
Total assets 7,160 7,245 7,180 7,041
Demand deposits 1,087 1,078 1,067 1,019
Interest-bearing deposits 5,134 5,179 5,132 5,093
Total deposits 6,221 6,257 6,199 6,112
Interest-bearing liabilities 5,293 5,378 5,336 5,260
Total shareholders' equity 727 734 721 700
Key Ratios
Rates earned on assets 7.82% 7.66% 7.68% 7.67%
Rates paid on liabilities 3.22 3.03 2.94 2.96
Net interest margin 5.25 5.22 5.32 5.28
Return on average assets 1.55 1.52 1.62 1.64
Return on average equity 15.29 15.03 16.11 16.47
QUARTERLY RESULTS
1993
--------------------------------------
Quarter Ended
--------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
Condensed Statements of Income -------- -------- -------- --------
(Dollar amounts in thousands, except per-share data)
Interest and fees on loans $ 88,569 $ 91,087 $ 90,937 $ 89,958
Interest on mortgage loans
held for sale 803 691 487 587
Income from securities 32,589 32,752 33,460 34,503
Other interest income 2,059 2,212 2,260 1,828
-------- -------- -------- --------
Total interest income 124,020 126,742 127,144 126,876
-------- -------- -------- --------
Interest on deposits 38,990 40,729 40,826 40,630
Interest on borrowed funds 1,062 981 850 891
-------- -------- -------- --------
Total interest expense 40,052 41,710 41,676 41,521
-------- -------- -------- --------
Net interest income 83,968 85,032 85,468 85,355
Provision for loan losses 1,416 820 2,026 2,188
Other income 22,088 20,802 20,084 19,566
Other expense 62,392 62,452 60,820 60,103
Provision for income taxes 13,259 14,039 13,414 13,410
-------- -------- -------- --------
Net income $ 28,989 $ 28,523 $ 29,292 $ 29,220
======== ======== ======== ========
Net income per share $ .89 $ .88 $ .90 $ .90
Average Quarterly Balances
Average balances (in millions):
Securities $ 2,176 $ 2,122 $ 2,105 $ 2,134
Loans 3,978 3,950 3,903 3,825
Total earning assets 6,495 6,403 6,344 6,233
Total assets 7,021 6,919 6,869 6,750
Demand deposits 1,037 1,005 988 929
Interest-bearing deposits 5,073 5,044 5,043 4,991
Total deposits 6,110 6,049 6,031 5,920
Interest-bearing liabilities 5,245 5,199 5,181 5,135
Total stockholders' equity 681 662 642 621
Key Ratios
Rates earned on assets 7.72% 8.02% 8.16% 8.33%
Rates paid on liabilities 3.03 3.18 3.23 3.28
Net interest margin 5.28 5.43 5.53 5.63
Return on average assets 1.65 1.65 1.71 1.73
Return on average equity 17.03 17.23 18.25 18.81
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31
1994 1993
---------- ----------
(In thousands)
ASSETS
Cash and noninterest-bearing deposits in banks $ 420,742 $ 326,136
Federal funds sold and securities purchased
under agreements to resell................. 30,000 235,000
---------- ----------
Total cash and cash equivalents....... 450,742 561,136
---------- ----------
Mortgage loans held for sale.................. 13,291 69,173
Other interest-earning assets................. 8,987 6,263
Investment securities-held to maturity:
U.S. Government & its agencies............. 1,785,837 1,904,717
State and municipal obligations............ 280,817 263,039
Other...................................... 19,376 2,015
---------- ----------
Total investment securities (market
value $2,032,148-1994 and
$2,225,555-1993)................... 2,086,030 2,169,771
---------- ----------
Loans......................................... 5,352,504 4,345,780
Deduct: Unearned income................... (355,310) (327,635)
---------- ----------
Loans, net of unearned income.......... 4,997,194 4,018,145
Allowance for loan losses......... (58,860) (50,927)
---------- ----------
Net loans............................. 4,938,334 3,967,218
---------- ----------
Premises and equipment........................ 156,051 137,007
Intangible assets............................. 85,322 16,450
Other assets.................................. 126,625 109,865
---------- ----------
Total Assets............................... $7,865,382 $7,036,883
========== ==========
CONSOLIDATED BALANCE SHEETS (Continued)
December 31
1994 1993
---------- ----------
(In thousands)
LIABILITIES
Deposits:
Noninterest-bearing........................ $1,234,060 $1,039,933
Interest-bearing:
Transaction accounts.................. 1,391,978 1,294,867
Money-market accounts................. 761,160 724,462
Savings deposits...................... 1,402,889 1,325,943
Certificates of deposit:
Consumer........................... 1,820,274 1,585,824
Large denomination................. 205,480 165,360
---------- ----------
Total deposits..................... 6,815,841 6,136,389
Interest, taxes and other liabilities......... 59,430 56,126
Short-term borrowings......................... 179,409 151,859
Mortgage indebtedness......................... 963 1,008
Long-term indebtedness........................ 2,851 -
---------- ----------
Total Liabilities.......................... 7,058,494 6,345,382
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value................ 746 805
Common stock, $1 par value.................... 34,050 32,444
Capital Surplus............................... 111,184 68,406
Retained Earnings............................. 660,908 589,846
---------- ----------
Total Shareholders' Equity................. 806,888 691,501
---------- ----------
Total Liabilities and Shareholders' Equity. $7,865,382 $7,036,883
========== ==========
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1994 1993 1992
-------- -------- --------
(In thousands, except per share data)
Interest income:
Interest and fees on loans.......... $376,312 $360,551 $369,019
Interest on mortgage loans
held for sale...................... 1,893 2,568 2,742
Interest on investment
securities-held to maturity:
U.S. Government & its agencies... 104,701 117,634 125,528
State and municipal
obligations..................... 12,152 14,960 17,133
Other............................ 104 338 976
Income from federal funds sold
and securities purchased
under agreements to resell......... 8,084 8,359 9,516
Other interest-earning assets....... 396 372 356
-------- -------- --------
Total interest income............ 503,642 504,782 525,270
-------- -------- --------
Interest expense:
Deposits:
Transaction accounts............. 28,315 31,840 34,540
Money market accounts............ 19,004 20,090 26,067
Savings deposits................. 36,247 37,432 35,883
Certificates of deposit:
Consumer...................... 63,339 65,460 94,207
Large denomination............ 7,192 6,353 8,767
Short-term borrowings............... 7,101 3,563 4,149
Long-term indebtedness.............. 441 221 1,213
-------- -------- --------
Total interest expense........... 161,639 164,959 204,826
-------- -------- --------
Net interest income...................... 342,003 339,823 320,444
Provision for loan losses................ 6,463 6,450 17,355
-------- -------- --------
Net interest income after provision
for loan losses......................... 335,540 333,373 303,089
-------- -------- --------
CONSOLIDATED STATEMENTS OF INCOME (Continued)
Year Ended December 31
1994 1993 1992
-------- -------- --------
(In thousands, except per share data)
Net interest income after provision
for loan losses......................... 335,540 333,373 303,089
-------- -------- --------
Other income:
Service charges on deposit accounts.. 36,063 34,448 33,080
Insurance premiums and commissions... 6,713 6,555 6,591
Credit card service charges and fees. 11,407 11,070 11,278
Trust services....................... 5,203 5,001 4,467
Income from other customer services.. 17,513 16,533 15,173
Securities gains (losses) before
income tax provisions (credits)
of $343-1994, $246-1993,
and $(100)-1992.................... 976 711 (159)
Other................................ 6,825 8,222 6,657
-------- -------- --------
Total other income............... 84,700 82,540 77,087
-------- -------- --------
Other expenses:
Salaries and employee benefits...... 139,780 134,296 129,137
Occupancy........................... 19,263 18,207 17,499
Equipment........................... 19,919 19,634 18,864
Telephone........................... 5,270 5,508 5,511
Printing and supplies............... 5,550 5,485 5,219
Postage............................. 4,534 4,600 4,549
Credit card processing fees......... 7,292 6,431 6,467
FDIC assessment..................... 13,771 13,412 12,453
Other............................... 37,080 38,194 39,192
-------- -------- --------
Total other expenses............. 252,459 245,767 238,891
-------- -------- --------
Income before income taxes............... 167,781 170,146 141,285
Provision for income taxes............... 54,560 54,122 43,812
-------- -------- --------
NET INCOME............................... $113,221 $116,024 $ 97,473
======== ======== ========
Net income per share of common stock..... $ 3.51 $ 3.57 $ 3.02
Average primary shares of
common stock outstanding......... 32,281 32,512 32,252
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 1994 1993 1992
Preferred stock -------- -------- --------
- --------------- (Dollars in thousands)
Balance at beginning of year.............. $ 805 $ 825 $ 1,027
Redemption of 5,871 shares-1994, 2,021
shares-1993 and 20,241 shares-1992 upon
conversion to common stock.............. (59) (20) (202)
-------- -------- --------
Balance at end of year.................... $ 746 $ 805 $ 825
======== ======== ========
Common stock
- ------------
Balance at beginning of year.............. $ 32,444 $ 32,185 $ 32,093
Issuance of 3,234,081 shares-1994 and
196,679 shares-1993 for acquired banks.. 3,234 197 -
Issuance of 7,758 shares-1994, 3,026
shares-1993 and 29,770 shares-1992
upon conversion of preferred stock...... 8 3 30
Issuance of 23,213 shares-1994, 48,500
shares-1993 and 25,467 shares-1992
for stock options....................... 23 48 26
Issuance of 9,014 shares-1994, 11,084
shares-1993 and 36,239 shares-1992
for stock appreciation rights........... 9 11 36
Common stock purchased and
retired-1,668,100 shares................ (1,668) - -
-------- -------- --------
Balance at end of year.................... $ 34,050 $ 32,444 $ 32,185
======== ======== ========
Capital surplus
- ---------------
Balance at beginning of year.............. $ 68,406 $ 64,930 $ 63,121
Increase arising from:
Bank acquisitions....................... 102,201 2,117 -
Conversion of preferred stock........... 51 17 172
Issuance of common stock for the
dividend reinvestment plan............ - - 222
Exercise of stock options............... 356 937 321
Exercise of stock appreciation rights... 357 405 1,094
Common stock purchased and retired........ (60,187) - -
-------- -------- --------
Balance at end of year.................... $111,184 $ 68,406 $ 64,930
======== ======== ========
Retained earnings
- -----------------
Balance at beginning of year.............. $589,846 $509,459 $443,877
Increase attributable to acquired banks... - 1,139
Net income................................ 113,221 116,024 97,473
Dividends declared:
Preferred stock......................... (51) (54) (61)
Common stock $1.28 per share-1994, $1.13
per share-1993 and $.99 per share-1992 (42,108) (36,519) (31,830)
Dividends paid by a bank prior to
its acquisition......................... (203) -
-------- -------- --------
Balance at end of year.................... $660,908 $589,846 $509,459
======== ======== ========
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1994 1993 1992
-------- -------- --------
(In thousands)
Operating activities
- --------------------
Net income.................................... $113,221 $116,024 $ 97,473
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and amortization 12,644 12,487 12,280
Gain on sale of fixed assets............... (596) (208) (54)
Provision for loan losses.................. 6,463 6,450 17,355
Amortization of securities premiums........ 16,265 20,936 20,099
Accretion of securities discounts.......... (661) (775) (1,232)
Net decrease (increase) in mortgage
loans held for sale...................... 55,882) (9,068) (34,263)
Loss (gain) on sale of securities.......... (976) (711) 159
Amortization of intangible assets.......... 2,843 3,963 3,666
Deferred income tax credits................ (1,976) (1,943) (1,445)
Increase in prepaid expenses............... (2,963) (2,708) (5,566)
Decrease (increase) in interest receivable. (643) 6,489 (2,733)
Increase (decrease) in interest payable.... 2,793 (1,940) (14,531)
Increase in other accrued expenses......... 3,421 2,720 9,423
-------- -------- --------
Net cash provided by operating activities 205,717 151,716 100,631
-------- -------- --------
Investing activities
- --------------------
Proceeds from maturity and sale of
investment securities....................... - 631,475 478,270
Proceeds from the sale of available
for sale securities......................... 2,183 - -
Proceeds from the maturity of held
to maturity securities...................... 645,092 - -
Purchase of investment securities............. - (662,409) (849,695)
Purchase of held to maturity securities....... (255,750 - -
Net increase in loans......................... (581,584) (240,530) (305,355)
Purchases of premises and equipment........... (14,339) (12,996) (8,393)
Sales of premises and equipment............... 1,245 362 786
Mortgage servicing rights acquired............ (495) (747) (748)
Other intangible assets acquired.............. - (625) (2,987)
Acquisition of banks, net of cash acquired.... (1,785) - -
Other......................................... (1,339) (7,409) 3,759
-------- -------- --------
Net cash used for investing activities... (206,772) (292,879) (684,363)
-------- -------- --------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31
1994 1993 1992
-------- -------- --------
(In thousands)
Financing activities
- --------------------
Net (decrease) increase in deposits........... (12,234) 122,643 663,775
Net increase in short-term borrowings......... 2,181 1,178 5,865
Principal payments on long-term borrowings.... (994) (4,219) (6,240)
Proceeds from long-term borrowings............ 3,799 - -
Common stock purchased and retired............ (61,856) - -
Cash dividends paid:
Common $1.26 per share-1994, $1.08 per
share-1993 and $.96 per share-1992......... (40,928) (34,830) (30,945)
Preferred................................... (52) (54) (65)
Cash dividends paid by a bank prior to
its acquisition............................. - (204) -
Proceeds from issuance of common stock........ 745 1,401 1,699
-------- -------- --------
Net cash (used for) provided
by financing activities................ (109,339) 85,915 634,089
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... (110,394) (55,248) 50,357
Cash and cash equivalents at
beginning of year...................... 561,136 616,384 566,027
-------- -------- --------
Cash and cash equivalents at end of year. $450,742 $561,136 $616,384
======== ======== ========
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and all of its subsidiaries. The Corporation's subsidiaries are
predominantly engaged in banking. Foreign banking activities and operations
other than banking are not significant. All material intercompany
transactions and accounts have been eliminated. Certain amounts for years
prior to 1994 have been reclassified for comparative purposes.
SECURITIES HELD TO MATURITY
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held to maturity. The
Corporation has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. The
adjusted carrying value of a specific security sold is used to compute gains
or losses on the sale of investment securities.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale to investors are carried at the lower of cost
(net of discounts) or market. Market is determined by investor commitment
prices or current auction rates at the date of the financial statements.
LOANS
Interest on installment loans is recorded as income in amounts that will
provide an approximate level yield over the terms of the loans. Accrual of
interest on other loans is based generally on the daily amount of principal
outstanding. Interest is not accrued on loans if the collection of such
interest is doubtful.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that is considered
adequate to provide for potential losses in the loan portfolio. Management's
evaluation of the adequacy of the allowance is based on a review of
individual loans, past loss experience, current and anticipated economic
conditions, the value of underlying collateral and other factors.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation
and amortization computed principally on the straight-line method over lives
not exceeding 50 and 20 years for buildings and equipment, respectively.
Gains and losses on disposition are reflected in current operations.
Maintenance and repairs are charged to operating expenses, and major
alterations and renovations are capitalized. Capital leases are carried at
the lower of the present value of their net minimum lease payments or the
fair value of the leased properties at the inception of the lease, less
accumulated amortization computed on the straight-line method over the
noncancelable terms of the leases that do not exceed 20 years.
INCOME TAXES
In 1992, the Corporation changed its method of accounting for income taxes
from the deferred method to the liability method required by Financial
Accounting Standards Board Statement No. 109 (SFAS No. 109), "Accounting for
Income Taxes" (see Note 14 "Income Taxes"). Under the liability method,
deferred-tax assets and liabilities are determined based on differences
between the financial statement carrying amounts and the tax basis of
existing assets and liabilities (i.e., temporary differences) and are
measured at the enacted rates that will be in effect when these differences
reverse. As permitted under SFAS No. 109, prior years' financial statements
have not been restated.
OTHER REAL ESTATE OWNED
Other real estate owned primarily represents properties acquired by the
Corporation's affiliates through customer loan defaults. The real estate is
stated at an amount equal to the lesser of the loan balance prior to
foreclosure, plus the costs incurred for improvements to the property, or
fair value, less the estimated selling costs of the property. At the time of
foreclosure, any excess of cost over the estimated fair value is charged to
the allowance for loan losses. After foreclosure, the estimated fair value is
reviewed periodically by management. Any further declines in fair value are
charged against current earnings or any applicable foreclosed property
valuation allowance.
2. ACQUISITIONS
On June 17, 1994, the merger of FNB Financial Corporation into the
Corporation was consummated. FNB Financial Corporation was the bank holding
company of First Knoxville Bank, located in Knoxville, Tennessee, and that
bank became a wholly owned subsidiary bank of the Corporation as a result of
the merger. Cash of $2.275 million and 342,295 shares of the Corporation's
common stock were issued and were valued at $36.63 per share. The transaction
was accounted for as a purchase and goodwill of $7.399 million was recorded
and is being amortized over a period of ten years.
On December 28, 1994, the merger of Farmers National Bancorp into the
Corporation was consummated. Farmers National Bancorp operated three banks in
Maryland: Farmers Bank of Maryland of Annapolis, Maryland; Atlantic Bank of
Ocean City, Maryland, and The Caroline County Bank in Greensboro, Maryland.
Cash of $45.138 million and 2,891,786 shares of the Corporation's common
stock were issued and were valued at $32.13 per share. The acquisition was
accounted for as a purchase and goodwill and other intangible assets of
$62.79 million were recorded and are being amortized over periods of 10 to 25
years.
The results of operations of the two acquisitions are included in the
consolidated statements of income from the date of acquisition through
December 31, 1994. Periods prior to the date of acquisition are not included
in the consolidated statements of income.
The unaudited pro forma information presented in the following table has
been prepared based on the historical results of the Corporation combined
with FNB Financial Corporation and Farmers National Bancorp. The information
has been combined to present the results of operations as if the acquisitions
had occurred at the beginning of 1993. The pro forma results are not
necessarily indicative of the results that would have actually been obtained
if the acquisitions had been consummated in the past nor is it indicative of
future results.
Year Ended December 31
1994 1993
-------- --------
Total interest income...............................$555,725 $560,448
Total interest expense.............................. 179,597 184,504
Provision for loan losses........................... 7,427 8,422
Total other income.................................. 84,206 89,476
Total other expenses................................ 276,825 272,080
Provision for income taxes ......................... 57,767 57,942
-------- --------
Net income..........................................$118,315 $126,976
======== ========
Earnings per share..................................$ 3.36 $ 3.55
On August 27, 1993, the Corporation acquired United Southern Bank of
Morristown, Tennessee, in exchange for 196,679 shares of common stock. As of
December 31, 1992, United Southern Bank had total assets of $43.2 million and
shareholders' equity of $3.4 million. Because the restatement would not have
had a material effect upon the Corporation's financial statements, the
accounts of United Southern Bank have not been retroactively reflected in
periods prior to 1993.
3. INTANGIBLE ASSETS
Total intangible assets represent core deposit premiums, mortgage
servicing rights and the excess of purchase price of subsidiaries over net
assets acquired and are included in other assets on the consolidated balance
sheet. The carrying amounts of these intangibles were (in thousands):
December 31
1994 1993
-------- --------
Goodwill ...........................................$ 67,325 $ 10,136
Core deposit premiums............................... 14,134 3,141
Mortgage servicing rights .......................... 2,437 2,543
Lease rights........................................ 1,047 46
Covenant not to compete and customer lists ......... 379 584
-------- --------
Total intangible assets.............................$ 85,322 $ 16,450
======== ========
The increase in goodwill is related to the Farmers National Bancorp
acquisition ($51.364 million) and FNB Financial Corporation acquisition
($7.399 million).
Goodwill related to acquisitions purchased 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 periods of 10 to 25 years.
Unamortized core deposit premiums, mortgage servicing rights and covenants
not to compete, along with the customer lists, are being amortized over
periods of 5 to 10 years. Lease rights are being amortized over periods of 15
to 99 years.
4. RESTRICTIONS ON CASH BALANCES
The Corporation's banking affiliates are required by Federal Reserve
regulations or by state banking laws to maintain certain minimum cash
balances consisting of vault cash and deposits in the Federal Reserve Bank or
in other commercial banks. Such restricted balances totaled $176.179 million
and $162.948 million as of December 31, 1994 and 1993, respectively.
5. INVESTMENT SECURITIES
On January 1, 1994, Financial Accounting Standards Board Statement No.
115, "Accounting for Certain investments in Debt and Equity Securities," was
implemented by the Corporation. Securities classified as available for sale
were sold in the first quarter. All remaining securities have been classified
as held to maturity. The carrying amounts of investment securities and the
related approximate fair values were (in thousands):
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ------- ------ ----------
December 31,1994:
U.S. Government and its agencies...$1,785,837 $ 367 $51,314 $1,734,890
State and municipal obligations.... 280,817 809 3,742 277,884
Other ............................. 19,376 - 2 19,374
---------- ------- ------- ----------
Total............................$2,086,030 $ 1,176 $55,058 $2,032,148
========== ======= ======= ==========
December 31,1993:
U.S. Government and its agencies...$1,904,717 $46,992 $ 1,788 $1,949,921
State and municipal obligations.... 263,039 7,020 332 269,727
Other ............................. 2,015 893 1 2,907
---------- ------- ------- ----------
Total............................$2,169,771 $54,905 $ 2,121 $2,222,555
========== ======= ======= ==========
Proceeds from the sale of available for sale securities during 1994 were
$2.183 million, resulting in gains of $976 thousand and losses of $12
thousand. Proceeds from the maturity and call of held to maturity securities
were $645.092 million, resulting in a gain of $12 thousand on called
securities.
Securities having a carrying value of $479.512 million and $444.986
million at December 31, 1994 and 1993, respectively, were pledged to secure
public deposits and for other purposes required by law.
The maturity ranges of the securities, the average taxable-equivalent
yield and fair value by maturity range as of December 31, 1994, are shown
below:
U.S. Government
and its Agencies
Book Value Fair Value Yield
---------- ---------- -----
One year or less $ 590,658 $ 571,381 5.6%
After one year through five years 1,187,969 1,156,785 5.9
After five through ten years 4,726 4,284 5.7
After ten years 2,484 2,440 8.0
---------- ---------- ----
Total $1,785,837 $1,734,890 5.8%
========= ========== ====
State and
Municipal
Book Value Fair Value Yield
---------- ---------- -----
One year or less $ 91,201 $ 91,413 7.5%
After one year through five years 161,250 158,900 6.4
After five through ten years 25,351 24,444 6.5
After ten years 3,015 3,127 9.2
---------- ---------- ----
Total $ 280,817 $ 277,884 6.8%
========== ========== ====
Other
Book Value Fair Value Yield
---------- ---------- -----
One year or less $ 16,818 $ 16,817 4.7%
After one year through five years 2,444 2,443 5.7
After five through ten years 34 34 10.0
After ten years 80 80 9.2
---------- ---------- ----
Total $ 19,376 $ 19,374 5.2%
========== ========== ====
6. LOANS
Loans consisted of (in thousands): December 31
1994 1993
---------- ----------
Consumer:
Automobile installment ............................$1,873,819 $1,571,418
Home equity, fixed and variable rate............... 1,381,543 1,242,982
Revolving credit loans, including credit cards..... 190,103 161,995
Other.............................................. 283,361 167,942
Real estate:
Construction and land development.................. 122,737 90,823
Commercial mortgage................................ 465,943 301,315
Residential mortgage............................... 506,245 424,795
Other, including Industrial Development Authority.. 61,876 63,082
Commercial........................................... 466,877 321,428
---------- ----------
5,352,504 4,345,780
Less unearned income, principally on consumer loans . 355,310 327,635
---------- ----------
Loans, net of unearned income ..................... 4,997,194 4,018,145
Less allowance for loan losses....................... 58,860 50,927
---------- ----------
Net loans .........................................$4,938,334 $3,967,218
========== ==========
Loans on which interest is not being accrued or whose terms have been
modified to provide for a reduced rate of interest because of financial
difficulties of borrowers and interest income earned with respect to such
loans were (in thousands):
December 31
1994 1993
------- -------
Nonaccruing loans.....................................$15,286 $18,387
Restructured loans ................................... 2,478 2,175
------- -------
$17,764 $20,562
======= =======
Income recorded.......................................$ 109 $ 107
Income anticipated under original loan agreements ....$ 1,481 $ 1,639
There were no formal commitments of a material amount to lend additional
funds under these agreements, but additional advances may be made in the
future if it is in the interest of the Corporation to do so. Loans modified
for reasons other than a reduction in the interest rate were not material in
amount.
The Corporation's loans are widely dispersed among individuals and
industries. On December 31, 1994, there was no concentration of loans in any
single industry that exceeded 5% of total loans.
The Corporation, in the normal course of business, has made commitments to
extend loans and has written standby letters of credit that are not
recognized in the financial statements. On December 31. 1994 and 1993 standby
letters of credit totaled $23.780 million and $19.984 million, respectively,
and the unfunded amounts of loan commitments were (in thousands):
1994 1993
---------- ----------
Fixed-rate revolving credit lines ...................$ 731,054 $ 497,728
Adjustable-rate loans:
Home equity lines ................................. 346,336 333,530
Commercial loans................................... 392,858 276,570
Construction and land development loans............ 75,361 49,783
Other ............................................. 42,533 132,543
---------- ----------
Total ...........................................$1,588,142 $1,290,154
========== ==========
As of December 31, 1994, the Corporation had mortgage loans held for sale
of $13.291 million and additional commitments to fund mortgage loans totaling
$6.232 million, with a corresponding commitment to sell $21.194 million of
mortgage loans to outside investors. The commitments to sell mortgage loans
to outside investors are intended to reduce the Corporation's interest rate
exposure.
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.
7. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was (in thousands):
Year ended December 31
1994 1993 1992
------- ------- -------
Balance January 1...............................$50,927 $49,340 $44,817
Increase attributable to acquired banks ........ 6,412 259 -
Provision charged to operating expense ......... 6,463 6,450 17,355
------- ------- -------
63,802 56,049 62,172
------- ------- -------
Deduct:
Loans charged off............................. 8,756 9,211 16,520
Less recoveries............................... 3,814 4,089 3,688
------- ------- -------
Net charge-offs............................... 4,942 5,122 12,832
------- ------- -------
Balance December 31.............................$58,860 $50,927 $49,340
======= ======= =======
8. PREMISES, EQUIPMENT AND LEASES
Premises and equipment consisted of (in thousands):
December 31
1994 1993
-------- --------
Land .................................................$ 31,675 $ 28,035
Premises and improvements............................. 155,837 134,939
Furniture and equipment............................... 96,752 88,207
-------- --------
284,264 251,181
Accumulated depreciation and amortization............. 128,213 114,174
-------- --------
Carrying value .....................................$156,051 $137,007
======== ========
The Corporation's subsidiaries have entered into lease agreements with
unaffiliated persons for premises, principally banking offices. Many of the
leases have one or more renewal options, generally for five or ten years, and
some contain a provision for increased rent during the renewal period. Leases
containing a provision for contingent payments are immaterial in number or
amount. Portions of a few premises are subleased, and the amount of rent
received is not material. There are no significant restrictions imposed on
the Corporation or its subsidiaries by the lease agreements. The subsidiaries
also lease a portion of their computer systems and other equipment. Leases on
eight banking offices have been recorded as capital leases. The effect of
capitalizing such leases on net income has not been material.
Minimum rental payments over the noncancelable term of operating and
capital leases having a remaining term in excess of one year are (in
thousands):
1995..............................................$ 5,768
1996.............................................. 5,452
1997.............................................. 4,732
1998.............................................. 4,105
1999.............................................. 3,285
Thereafter........................................ 13,344
-------
Total minimum lease payments......................$36,686
=======
During 1994, 1993 and 1992, occupancy and equipment expense included the
rent paid on operating leases of $14.724 million, $13.668 million, and
$13.242 million, respectively, and was reduced by rental income of $2.162
million, $2.024 million, and $2.571 million, respectively, applicable to
leases to unaffiliated persons, generally for a five-to-ten-year duration.
9. INDEBTEDNESS
Short-term borrowings consisted of (in thousands):
December 31
1994 1993
-------- --------
Securities sold under agreements to repurchase .......$159,041 $134,637
Commercial paper (parent company only) ............... 20,368 17,222
-------- --------
$179,409 $151,859
======== ========
Securities sold under agreements to repurchase generally mature within
three days from the transaction date. Commercial paper maturities range from
1 to 270 days. Bank lines of credit available to the Corporation amounted to
$50 million and $25 million at December 31, 1994 and 1993, respectively. Such
lines were not being used on either of those dates.
Mortgage indebtedness, including capital lease obligations, of the
Corporation and its subsidiaries was (in thousands):
December 31
1994 1993
------ ------
8% - 9 1/2%, payable through July 1996.................$ 77 $ -
Capital leases ........................................ 886 1,008
------ ------
$ 963 $1,008
====== ======
Other long-term indebtedness consisted of (in thousands):
December 31
1994 1993
------ ------
7.9% note due December 1997 ...........................$2,851 -
====== ======
The capital leases are on properties that had a carrying value of $944
thousand and $609 thousand on December 31, 1994 and 1993, respectively.
The principal maturities of debt, other than short-term borrowings, in
each of the five years after December 31, 1994, will be $1.084 million,
$1.130 million, $1.016 million, $16 thousand and $10 thousand, respectively.
Interest paid on deposits and indebtedness during the years 1994, 1993 and
1992 totaled $140.194 million, $166.892 million and $219.356 million,
respectively.
10. PREFERRED STOCK
There are three million shares of preferred stock, par value of $10 per
share, authorized. The following four series of cumulative convertible pre-
ferred stock were outstanding as of December 31:
Number of Shares
Series Dividends 1994 1993
------ ------
A 5% 23,721 24,673
B 7% 9,300 10,110
C 7% 10,484 13,964
D 8% 31,083 31,712
------ ------
74,588 80,459
====== ======
The Series A and Series B shares are convertible into one and one-half
shares of common stock, and the Series C shares are convertible into one and
two-tenths shares of common stock. They may be redeemed at the option of the
Corporation for $10 per share.
The Series D shares are convertible into one and one-half shares of common
stock. They are redeemable at the option of the Corporation for $10.08 until
March 15, 1995, and for $.08 less per year each succeeding year to a minimum
of par value.
11. COMMON STOCK
There are 60 million shares of common stock, par value $1 per share,
authorized, and 34.050 million shares and 32.444 million shares were
outstanding on December 31, 1994 and 1993, respectively.
On December 31, 1994, options to purchase 302,300 shares of common stock
and 8,750 stock appreciation rights were outstanding under employee stock
option and stock appreciation rights plans. An additional 281,500 shares are
authorized for further granting of options and rights. Options for 224,550
shares were exercisable on December 31, 1994, at a weighted-average price of
$21.60. Additional options becoming exercisable in subsequent years total
20,250 in 1995 at an average price of $32.43; 19,250 in 1996 at an average
price of $32.45; 19,250 in 1997 at an average price of $32.45; and 19,000 in
1998 at an average price of $32.45.
Options
-----------------------------------------------
Options Unexercised Option Average
Available Or Price Option
To Outstanding Per Price Per
Grant Options Share Share
-------- -------- -------------- --------
Balance, January 1,1992...... 391,500 389,004 $12.25 - 23.08 $18.93
Exercised.................... (84,391) 12.25 - 19.75 16.59
-------- -------- -------------- --------
Balance, December 31, 1992 .. 391,500 304,613 12.25 - 23.08 19.58
Granted......................(110,000) 110,000 32.13 - 32.75 32.47
Exercised ................... (69,350) 12.25 - 23.08 20.04
-------- -------- -------------- --------
Balance, December 31,1993 ... 281,500 345,263 12.25 - 32.75 23.59
Exercised ................... (42,963) 12.25 - 23.08 18.00
-------- -------- -------------- --------
Balance, December 31, 1994 .. 281,500 302,300 $14.83 - 32.75 $24.39
======== ======== ============== ========
A stock appreciation right entitles the holder to the difference between
the value of a share of common stock on the exercise date and the value on
the date the right was granted. Payment will be made with common stock based
on its value on the exercise date. In 1992, 36,239 shares were issued for
78,350 rights, and in 1993, 11,084 shares were issued for 22,800 rights. In
1994, 9,014 shares were issued for 31,963 rights. On December 31, 1994, 8,750
rights were exercisable for an average price of $19.17 per share. Holders of
141,150 options outstanding on December 31, 1994, with an average price of
$21.44, may elect on the exercise date to receive the benefits of a stock
appreciation right rather than an option. Compensation expense is recognized
in connection with stock appreciation rights based on the current market
value of the common stock. No compensation expense is recognized in
connection with stock options, unless an election can be made by the holder
to treat the option as a stock appreciation right.
A stock option is accounted for at the difference between the market price
of the option on the measurement date or date granted and the amount the
employee is required to pay. All options are granted at full market price on
the date of the grant and, therefore, no compensation expense is recognized.
In certain cases, a holder may exercise an option as a stock appreciation
right. Stock appreciation rights are measured in the same way as an option,
except that in subsequent periods if a change in the market value of the
shares occurs, then adjustments between the current market price and
previously accrued amounts are recorded as compensation expense.
At December 31, 1994, 701,288 shares of common stock were reserved:
108,738 for the conversion of preferred stock and 592,550 for stock options
and stock appreciation rights.
The Corporation has adopted a shareholder rights plan, which under certain
circumstances will give the holders of the Corporation's common stock the
right to purchase shares of its preferred stock or other securities. The
rights will become exercisable if a person or entity should acquire 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 purchase for $90 the number of one one-hundredths of a
share of preferred stock or equivalent security equal to $180, divided by the
then market value of one share of common stock. In the event of a merger
involving an exchange of common stock, the holder of each right, except the
acquiring person or entity, will also have the right to purchase for $90 the
number of shares of common stock of the acquiring company having a then
market value of $180.
The Corporation may redeem the rights for $.01 per right, at its option,
at any time prior to the date they become exercisable. The rights expire on
August 8, 1998.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107), requires disclosure of fair
value information about financial instruments, whether or not recognized in
the balance sheet. In cases where quoted market prices are not available,
fair values are based on estimates using discounted cash flow analyses or
other valuation techniques. Those techniques involve subjective judgment and
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. As a result, the derived fair value
estimates cannot be substantiated by comparison to independent markets, and
in many cases, could not be realized in immediate settlement of the
instrument.
The following methods and assumptions were used by the Corporation in
estimating the fair value of its financial instruments. All of the
Corporation's financial instruments were held or issued for purposes other
than trading.
Cash and Cash Equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
Investment Securities: Fair values for investment securities are based on
quoted market prices.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for certain mortgage loans (e.g., one-to-four family
residential) and credit cards are based on quoted market prices of similar
loans sold in conjunction with securitization transactions and adjusted for
differences in loan characteristics. The fair values for other loans were
estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality.
Other Earning Assets: The carrying amount of other earning assets as reported
on the balance sheet approximates their fair values
Deposits: For deposits with no defined maturity, SFAS No. 107 defines the
fair value as the amount payable on demand and prohibits adjusting fair value
for any value derived from retaining those deposits for an expected future
period of time. Accordingly, the fair value of demand, interest checking,
regular savings and money market deposits is equivalent to their carrying
value as of the reporting date. Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities.
Short-Term Borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Long-Term Debt: The Corporation's long-term debt consists primarily of
capital leases that are exempt from the disclosure requirements of SFAS No.
107. The fair value of the remaining long-term debt is estimated based on
interest rates currently available for debt with similar terms and remaining
maturities.
Off-Balance Sheet Instruments: The estimated fair value of off-balance sheet
items was not material at December 31, 1994. The Corporation does not engage
in hedging or swap transactions nor does it employ any derivative securities.
The estimated fair values of the Corporation's financial instruments as of
December 31, are as follows (in thousands):
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
Financial assets:
Cash and cash equivalents $ 450,752 $ 450,752 $ 561,136 $ 561,136
Investment securities.... 2,086,030 2,032,148 2,169,771 2,222,555
Loans, net............... 5,010,485 4,951,032 4,087,318 4,171,083
Other earning assets..... 8,987 8,987 6,263 6,263
Financial liabilities:
Deposits................. 6,815,841 6,801,951 6,136,389 6,144,630
Short-term borrowings.... 179,409 179,409 151,859 151,859
Long-term indebtedness... 2,928 2,926 - -
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. The disclosures also do not
include certain intangible assets such as core deposit premiums, mortgage-
servicing rights and goodwill. Accordingly, the aggregate fair value amount
presented should not be interpreted as representing the underlying value of
the Corporation.
13. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
The Corporation and its subsidiaries have several noncontributory,
defined-benefit pension plans covering substantially all of their qualified
employees. The benefits under these plans are based on years of service and
the employee's compensation during the last ten years of employment. The
Corporation's funding policy is to make annual contributions in amounts
necessary to satisfy the Internal Revenue Service's funding standards to the
extent they are deductible against taxable income. Contributions are intended
to provide not only for benefits attributed to service to date, but also for
those expected to be earned in the future. Contributions to the plans totaled
$3.665 million, $3.385 million and $2.587 million in 1994, 1993 and 1992,
respectively. Contributions include normal costs of the plan and amortization
for periods of up to 40 years of unfunded past service cost.
Pension expense included the following components (in thousands):
Year ended December 31
1994 1993 1992
------ ------ ------
Service cost - benefits earned during the period..$2,739 $2,541 $2,239
Interest cost on projected benefit obligation..... 4,844 4,615 4,185
Actual return on plan assets...................... 192 (3,267) (2,609)
Net amortization and deferral ....................(5,972) (2,336) (2,510)
------ ------ ------
Net periodic pension cost.......................$1,803 $1,553 $1,305
====== ====== ======
The following table sets forth the plans' funded status and amounts
recognized in the consolidated balance sheets (in thousands):
December 31
1994 1993 1992
------- ------- -------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $52,302, $46,693 and $38,372......... $57,643 $51,485 $42,535
======= ======= =======
Plan assets at fair value ........................ $74,476 $67,126 $62,489
Projected benefit obligation for service
rendered to date............................. 73,109 66,242 58,553
------- ------- -------
Plan assets in excess of projected benefit obligation 1,367 884 3,936
Unrecognized net (gain) loss from past experience
different from that assumed and effects of
change in assumptions............................. 11,139 7,988 3,343
Unamortized prior service cost....................... (2,359) (2,611) (2,864)
Unrecognized net obligation at January 1, 1990
being recognized over 15 years ................... 72 86 100
------- ------- -------
Prepaid pension cost included in other assets........$10,219 $ 6,347 $ 4,515
======= ======= =======
The assets of the plans consist of U.S. Treasury securities - 38%, other
debt obligations - 23%, stocks - 34%, and cash and equivalents - 5%. The
weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation were 8.50% and 4.75%, respectively. The expected long-term
rate of return on plan assets was 9%.
The Corporation and its subsidiaries have a thrift plan that employees
with one year of service may elect to contribute up to 6% of their salary.
The Corporation contributes to the plan to the extent of 50% of the
employees' contributions, and an additional 25% contribution is made if a
specified profit objective is met. A 75% employer match was made in each of
the years 1994, 1993 and 1992 when the Corporation's contributions to the
plan totaled $3.212 million, $3.055 million and $2.784 million, respectively.
The plan is administered under the provisions of Section 401(k) of the
Internal Revenue Code.
Certain retired individuals who were participating in any of the
Corporation's medical plans at retirement may elect to receive medical
benefits similar to those provided for active employees if they make their
elections within 30 days of retirement. Terminated employees may elect to
receive such benefits for a limited period.
The Corporation sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who have worked at
least 10 years and have attained age 55 while in service with the
Corporation. The benefits are based on years of service and are contributory,
with retiree contributions adjusted annually, and contain other cost-sharing
features such as deductibles and coinsurance. Employees hired after December
31, 1993, may participate in the plan but must pay 100% of the cost. The
accounting for the plan anticipates future cost-sharing changes to the
written plan that are consistent with the Corporation's expressed intent to
increase the retiree contribution rate annually for the expected increase in
medical costs for that year. The Corporation has set a maximum amount that it
will contribute per year of approximately three times the 1993 contribution
level. The plan is not funded.
In 1993, the Corporation adopted Financial Accounting Standards Board
Statement No. 106 (SFAS No. 106), "Employers' Accounting for Postretirement
Benefits Other than Pensions." The effect of adopting the new rules increased
1993 net periodic postretirement benefit cost by $1.977 million and decreased
1993 net income by $1.285 million. Postretirement benefit cost for 1992,
which was recorded on a cash basis, has not been restated.
The liability for postretirement benefits is unfunded. The following table
presents the status of the plan, reconciled with amounts recognized in the
Corporation's statement of financial position (in thousands).
December 31
1994 1993
------- -------
Accumulated postretirement benefit obligation:
Retirees ........................................... $ 5,631 $ 6,083
Fully eligible, active plan participants ........... 2,179 2,587
Other active plan participants ..................... 5,635 8,206
------- -------
13,445 16,876
Plan assets at fair value ............................. - -
------- -------
Accumulated postretirement benefit obligation
in excess of plan assets ........................... 13,445 16,876
Unrecognized net gain or (loss) ....................... (2,068) 3,299
Unrecognized transition obligation .................... 10,989 11,600
------- -------
Accrued postretirement benefit cost ................... $ 4,524 $ 1,977
======= =======
Net periodic postretirement benefit cost includes the following components:
1994 1993 1992
------ ------ ------
Service cost ......................................$ 971 $ 691 $ 270
Interest cost ..................................... 1,223 977 -
Amortization of transition obligation over 20 years 611 610 -
Net amortization and deferral...................... 102 - -
------ ------ ------
Net periodic postretirement benefit cost...........$2,907 $2,278 $ 270
====== ====== ======
The weighted-average, annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost-trend rate) is 11.3% for
1994 and is assumed to decrease gradually to 5.0% for 2003 and to remain at
that level there-after. The health care cost-trend rate assumption has a
significant effect on the amounts reported. For example, increasing the
assumed health care cost-trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1994, by $777,000, and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1994 by
$79,000. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 8.50% at December 31, 1994.
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.
14. INCOME TAXES
In 1992, the Corporation adopted Financial Accounting Standards Board
Statement No. 109 (SFAS No. 109), Accounting for Income Taxes," which
increased the 1992 provision for income taxes by $886,000. Significant
components of the Corporation's deferred-tax liabilities and assets are as
follows (in thousands):
December 31
1994 1993
------- -------
Deferred-tax liabilities:
Life insurance reserves................................$ 3,013 $ 2,812
Depreciation........................................... 6,298 6,635
Other.................................................. 5,087 4,252
Acquisition of banks................................... 337 -
------- -------
Total deferred-tax liabilities ........................ 14,735 13,699
------- -------
Deferred-tax assets:
Installment loan interest and fees..................... 2,845 2,628
Deferred compensation.................................. 4,845 4,504
Allowance for loan losses.............................. 18,230 17,769
Other.................................................. 6,918 5,262
Acquisition of banks................................... 4,782 -
------- -------
Total deferred-tax assets.............................. 37,620 30,163
------- -------
Net deferred-tax assets .................................$22,885 $16,464
======= =======
The provision for income taxes includes amounts currently payable and
amounts deferred to or from other years as a result of differences in timing
of income or expenses for reporting and tax purposes. The income tax
provision includes the following amounts (in thousands):
Year Ended December 31
-------------------------
1994 1993 1992
------- ------- -------
Current:
Federal income taxes ..............................$55,570 $54,590 $44,120
State income taxes................................. 966 1,475 1,137
------- ------- -------
Total current...................................... 56,536 56,065 45,257
------- ------- -------
Deferred (benefit):
Federal income taxes .............................. (1,910) (1,858) (1,272)
State income taxes................................. (66) (85) (173)
------- ------- -------
Total deferred .................................... (1,976) (1,943) (1,445)
------- ------- -------
$54,560 $54,122 $43,812
======= ======= =======
Income taxes paid during the year..................$56,260 $60,207 $46,010
======= ======= =======
The exclusion of certain categories of income and expense from taxable net
income results in an effective tax rate which is lower than the statutory
federal rate. The differences in the rates are as follows (dollars in
thousands):
Year Ended December 31
1994 1993 1992
--------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
Statutory rate................$58,723 35.0% $59,551 35.0% $48,037 34.0%
Nontaxable interest on
municipal obligations....... (4,874) (2.9) (5,847) (3.4) (6,210) (4.4)
Adoption of SFAS No. 109...... 886 .6
Other items .................. 711 .4 418 .2 1,099 .8
------- ------- ------- ------- ------- -------
Effective rate................$54,560 32.5% $54,122 31.8% $43,812 31.0%
======= ======= ======= ======= ======= =======
15. EARNINGS PER SHARE
Earnings per share of common stock, after giving effect to dividends on
preferred stock of $51 thousand in 1994, $54 thousand in 1993 and $61 thousand
in 1992, are based on 32.281 million, 32.512 million and 32.252 million average
shares outstanding, respectively. The dilutive effect upon earnings per share
of the conversion of the outstanding, convertible preferred stock and other
items was not material for any of the three years.
16. COMMITMENTS AND 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, 1994, that would have a material effect on its financial statements.
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, 1994, the Corporation's equity in the net assets of
its subsidiaries, after elimination of intercompany deposits and loans, totaled
$635.250 million. Of that amount, $582.613 million was restricted as to the
payment of dividends. Consolidated retained earnings in the amount of $284.852
million were free of limitations on the payment of dividends to the
Corporation's shareholders as of December 31, 1994.
18. 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, 1994 and 1993, loans to directors and executive officers of the
Corporation and its largest subsidiary bank, where the aggregate of such loans
exceeded $60 thousand, totaled $60.334 million and $35.173 million,
respectively. During 1994, $212.794 million of new loans were made and
repayments totaled $187.633 million. These totals include loans to certain
business interests and family members of the directors and executive officers,
and no losses are anticipated in connection with any of the loans.
19. FIRST VIRGINIA BANKS, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION (IN THOUSANDS)
BALANCE SHEETS
December 31
1994 1993
-------- --------
Assets
Cash and noninterest-bearing deposits
principally in affiliated banks.......................$ 3,546 $ 1,474
Securities purchased under agreements to resell......... 56,902 28,390
Investment in affiliates based on the Corporation's
equity in their net assets:
Member banks......................................... 606,092 541,769
Bank-related companies............................... 12,729 10,381
Investment securities, (market value $9,682-1994
and $28,107-1993)................................... 10,048 27,101
Loans (including $14,425-1994 and $52,758-1993
to affiliated companies) .......................... 15,121 53,429
Premises and equipment.................................. 39,550 40,128
Goodwill and core deposit premium....................... 78,705 7,884
Other assets ........................................... 35,828 30,360
-------- --------
Total Assets .........................................$858,521 $740,916
======== ========
Liabilities
Interest, taxes and other liabilities ..................$ 31,265 $ 32,193
Commercial paper ....................................... 20,368 17,222
-------- --------
Total Liabilities .................................... 51,633 49,415
-------- --------
Shareholders' Equity
Preferred stock......................................... 746 805
Common stock............................................ 34,050 32,444
Capital surplus......................................... 111,184 68,406
Retained earnings....................................... 660,908 589,846
-------- --------
Total Shareholders' Equity............................ 806,888 691,501
-------- --------
Total Liabilities and Shareholders' Equity............$858,521 $740,916
======== ========
STATEMENTS OF INCOME
Year Ended December 31
1994 1993 1992
-------- ------- -------
Income
Dividends from affiliates:
Member banks .....................................$123,024 $ 68,674 $63,171
Bank-related companies ........................... - 25 335
Service fees from affiliates........................ 9,017 10,529 10,884
Rental income:
Affiliates ...................................... 6,692 5,185 5,891
Other ........................................... 1,975 1,782 2,252
Interest and dividends on investment securities .... 3,706 1,901 1,433
Other income:
Affiliates ....................................... 2,339 2,390 2,096
Other ............................................ 1,187 751 494
-------- -------- -------
Total income.................................... 147,940 91,237 86,556
-------- -------- -------
Expenses
Salaries and employee benefits...................... 14,092 12,685 16,680
Interest ........................................... 829 517 1,594
Other expenses:
Paid to affiliates................................ 1,694 806 1,517
Other ............................................ 9,715 9,673 9,834
-------- -------- -------
Total expenses.................................. 26,330 23,681 29,625
-------- -------- -------
Income before income taxes and equity in
undistributed income of affiliates ............ 121,610 67,556 56,931
Federal Income tax credits.......................... 706 1,054 2,368
-------- -------- -------
Income before equity in
undistributed income of affiliates............. 122,316 68,610 59,299
Equity in undistributed income of affiliates ....... (9,095) 47,414 38,174
-------- -------- -------
Net income..........................................$113,221 $116,024 $97,473
======== ======== =======
STATEMENTS OF CASH FLOWS
Year Ended December 31
1994 1993 1992
------- ------- -------
Net cash provided by operating activities...........$125,485 $69,025 $68,301
------- ------- -------
Investing activities:
Proceeds from maturity and sale
of investment securities........................ - 28,167 5,920
Proceeds from the sale of
available for sale securities................... 1,195 - -
Proceeds from maturity of
held to maturity securities..................... 20,699 - -
Purchase of investment securities ................. (4,263) (48,931) (5,198)
Net (increase) decrease in loans................... 38,308 (4,862) (37,152)
Purchases of premises and equipment ............... (1,749) (1,891) (1,096)
Sales of premises and equipment ................... 28 3 (28)
Investment in affiliates...........................(43,651) (3,453) (6,000)
Other.............................................. (6,523) 2,260 (4,654)
------- ------- -------
Net cash used for investing activities.......... 4,044 (28,707) (48,208)
------- ------- -------
Financing activities:
Net increase (decrease) in short-term borrowings .. 3,146 (4,114) 2,054
Principal payments on long-term borrowings......... - (4,095) (5,890)
Common stock purchased and retired.................(61,856) - -
Cash dividends - common............................(40,928) (34,830) (30,945)
Cash dividends - preferred ........................ (52) (54) (65)
Proceeds from issuance of common stock............. 745 1,401 1,698
------- ------- -------
Net cash used for financing activities .........(98,945) (41,692) (33,148)
------- ------- -------
Net increase (decrease) in cash and
cash equivalents..................... 30,584 (1,374) (13,055)
Cash and cash equivalents at beginning of year . 29,864 31,238 44,293
------- ------- -------
Cash and cash equivalents at end of year........$60,448 $29,864 $31,238
======= ======= =======
Net cash provided by operating activities has been
reduced (increased) by the following
cash payments (receipts):
Interest on indebtedness...........................$ 823 $ 518 $ 1,598
Income taxes....................................... (467) (954) (1,727)
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
- ---------------------------------------------------
The management of First Virginia Banks, Inc., has prepared and is
responsible for the accompanying financial statements, together with the
financial data and other information presented in this annual report.
Management believes that the financial statements have been prepared in
conformity with generally accepted accounting principles appropriate under the
circumstances. The financial statements include amounts that are based on
management's best estimates and judgments.
Management maintains and depends upon an internal accounting control system
designed to provide reasonable assurance that transactions are executed in
accordance with management's authorization, that financial records are reliable
as the basis for the preparation of all financial statements, and that the
Corporation's assets are safeguarded. The design and implementation of all
systems of internal control are based on judgments required to evaluate the
costs of control in relation to the expected benefits and to determine the
appropriate balance between these costs and benefits. The Corporation maintains
a professional internal audit staff to monitor compliance with the system of
internal accounting control. Operational and special audits are conducted, and
internal audit reports are submitted to appropriate management.
The Audit Committee of the Board of Directors, comprised solely of outside
directors, meets periodically with the independent public accountants,
management and internal auditors to review accounting, auditing and financial
reporting matters. The independent public accountants and internal auditors
have free access to the Committee, without management present, to discuss the
results of their audit work and their evaluations of the adequacy of internal
controls and the quality of financial reporting.
The financial statements in this annual report have been audited by the
Corporation's independent auditors, Ernst & Young LLP, for the purpose of
determining that the financial statements are presented fairly. Their
independent professional opinion on the Corporation's financial statements is
presented on the following page.
/S/ Robert H. Zalokar
_______________________
Robert H. Zalokar
Chairman and Chief Executive Officer
/S/ Richard F. Bowman
_______________________
Richard F. Bowman
Vice President, Treasurer and Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- -------------------------------------------------
To the Shareholders and Board of Directors
First Virginia Banks. Inc.
We have audited the accompanying consolidated balance sheets of First
Virginia Banks, Inc., and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of First Virginia Banks, Inc., and subsidiaries at December 31, 1994 and 1993,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
Washington, D.C.
January 17, 1995
/S/ Ernst & Young LLP
_____________________
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Board of Directors is divided into three classes (A, B and C) and was
recently expanded from fifteen to sixteen members when Barry J. Fitzpatrick was
appointed Chairman and Chief Executive Officer of First Virginia effective
January 1, 1995. The term of office for Class B directors will expire at this
Annual Meeting. Five persons, four of whom are presently on the Board, have
been nominated to serve as Class B directors. The nominee for the Class B
director who presently is not on the Board, John B. Melvin, was a director of
Farmers National Bancorp ("Farmers") when it merged into First Virginia on
December 28, 1994. Under the merger agreement with Farmers, the Director
Nominating Committee of First Virginia's Board of Directors is obligated to
recommend for nomination and election to First Virginia's Board a member of
Farmers' Board designated by Farmers. Farmers designated John B. Melvin and the
Director Nominating Committee recommended him for nomination and election. If
elected, John B. Melvin will be a Class B director and will replace Richard T.
Selden who is no longer eligible for reelection. If elected, the five nominees
for Class B directors will serve for a term of three years.
In addition to the five nominees for Class B directors, Barry J.
Fitzpatrick, who became First Virginia's Chairman and Chief Executive Officer
on January 1, 1995, has been nominated to serve as a Class A director. If
elected, he will serve for a term of two years.
It is the intention of the persons named in the accompanying form of proxy,
unless stockholders specify otherwise by their proxies, to vote for the
election of the six nominees named on the next two pages. Although the Board of
Directors does not expect that any of the persons named will be unable to serve
as a director, should any of them be unable to accept nomination or election,
it is intended that shares represented by the accompanying form of proxy will
be voted by the proxy holders for such other person or persons as may be
designated by the present Board of Directors.
Certain information concerning the nominees for election at this meeting and
the Class C and Class A directors who will continue in office after the meeting
is set forth below and on the following pages, as furnished by them.
NOMINEES FOR CLASS B DIRECTORS
Edward L. Breeden, III, 60, is a partner in the law firm of Breeden, MacMillan
& Green in Norfolk, Virginia, and has been a director of First Virginia since
1982. He is a director of First Virginia Bank of Tidewater, Norfolk, Virginia
and of First Virginia Life Insurance Company. He serves on both the Executive
Committee and the Public Policy Committee and chairs the Audit Committee. He
beneficially owns 65,876 shares of Common Stock. (1)
Gilbert R. Giordano, 66, is a partner in the law firm of Giordano, Bush,
Villareale & Vaughan, P.A. in Upper Marlboro, Maryland and has been a director
of First Virginia since 1989. He is Chairman of the Board of First Virginia
Bank-Maryland, Upper Marlboro, Maryland. He serves on the Audit Committee and
the Director Nominating Committee and beneficially owns 199,172 shares of
Common Stock. (2)
Eric C. Kendrick, 48, is President of Mereck Associates, Inc., a real estate
management and development firm in Arlington, Virginia and has been a director
of First Virginia since 1986. He serves on the Management Compensation and
Benefits Committee and the Public Policy Committee. He beneficially owns 48,100
shares of Common Stock. (3)
John B. Melvin, 70, is Trustee of the Stanley Family Bottling Company Trust. In
1991, he retired as Chairman of the Board, Coca-Cola Bottling Co. of Annapolis,
Maryland. He formerly was on the Board of Directors of Farmers National Bancorp
(which merged into First Virginia on December 28, 1994) and now is on the Board
of Directors of Farmers Bank of Maryland, a subsidiary bank of First Virginia
located in Annapolis, Maryland. He beneficially owns 19,620 shares of Common
Stock. (4)
Robert H. Zalokar, 67, retired as Chairman of the Board and Chief Executive
Officer of First Virginia on December 31, 1994. He has been a director of First
Virginia since 1959. He serves as Chairman of the Executive Committee and is a
member of the Public Policy Committee and the Director Nominating Committee. He
beneficially owns 124,267 shares of Common Stock.
Barry J. Fitzpatrick, 55, was appointed Chairman and Chief Executive Officer of
First Virginia effective January 1, 1995. He is Chairman of First Virginia Bank
in Falls Church and a chairman and/or director of a number of nonbank
affiliated companies including First Virginia Services, Inc, First General
Mortgage Company and First Virginia Credit Services, Inc. Until his appointment
as Chairman and Chief Executive Officer of First Virginia, he was Executive
Vice President of First Virginia from May, 1992. He was Senior Vice President
and Regional Executive Officer from June, 1982, to May, 1992. He serves on the
Executive Committee, the Public Policy Committee and the Director Nominating
Committee. He beneficially owns 46,472 shares of First Virginia Common
Stock. (5)
CLASS C DIRECTORS (Serving until the 1996 Annual Meeting)
Paul H. Geithner, Jr., 64, is President and Chief Administrative Officer of
First Virginia and has been a director of First Virginia since 1984. He also is
a director of First Virginia Bank in Falls Church and a director of a number of
nonbank affiliates including First Virginia Life Insurance Company, First
Virginia Insurance Services, Inc. and First Virginia Mortgage Company. He is a
member of the Public Policy Committee and the Executive Committee. He
beneficially owns 56,777 shares of Common Stock. (6)
L. H. Ginn, III, 61, is President of Lighting Affiliates, Inc., a distributor
of electrical fixtures located in Richmond, Virginia and has been a director of
First Virginia since 1978. Mr. Ginn is a retired U. S. Army Reserve Major
General. He is Chairman of the Board of First Virginia Bank-Colonial, Richmond,
Virginia. He is a member of the Executive Committee and the Director Nominating
Committee and beneficially owns 11,686 shares of Common Stock. (7)
T. Keister Greer, 73, is principal of T. Keister Greer, P.C. in Rocky Mount,
Virginia and has been a director of First Virginia since 1976. He is Chairman
of the Board of First Virginia Bank-Franklin County, Rocky Mount, Virginia. Mr.
Greer is a member of the Public Policy Committee and the Director Nominating
Committee and beneficially owns 17,400 shares of Common Stock. (8)
Edward M. Holland, 55, is an attorney in Arlington, Virginia and a member of
the Virginia General Assembly (Senate). He has been a director of First
Virginia since 1974. He also is a director of First Virginia Bank, Falls
Church, Virginia. He serves on the Executive Committee and the Management
Compensation and Benefits Committee and beneficially owns 60,979 shares of
Common Stock (9)
Thomas K. Malone, Jr., 75, is retired Chairman and Chief Executive Officer of
First Virginia and has been a director of First Virginia since 1957. He is a
director of First Virginia Bank in Falls Church, First Virginia Life Insurance
Company and First Virginia Mortgage Company. Mr. Malone is Chairman of the
Director Nominating Committee and a member of the Executive Committee and the
Public Policy Committee. He beneficially owns 44,632 shares of Common Stock.
(10)
CLASS A DIRECTORS (Serving until the 1997 Annual Meeting)
E. Cabell Brand, 71, is President of Recovery and Development Systems, Inc., a
company in Salem, Virginia that engages in business and environmental
consulting and international development projects. He is a director and Vice
Chairman of the Board of First Virginia Bank-Southwest, Roanoke, Virginia and
has been 8 director of First Virginia since 1976. He serves on the Management
Compensation and Benefits Committee and the Director Nominating Committee and
beneficially owns 5,538 shares of Common Stock. (11)
Elsie C. Gruver, 68, is a community and civic leader in Arlington, Virginia and
has been a director of First Virginia since 1973. She is Chairman of the Public
Policy Committee and a member of the Audit Committee and beneficially owns
5,936 shares of Common Stock. (12)
W. Lee Phillips, Jr., 59, is a professional engineer and is currently involved
in real estate management and home building in Falls Church, Virginia and
southern Maryland. He has been a director of First Virginia since 1985 and is a
director of First Virginia Bank, Falls Church, Virginia. He serves on the Audit
Committee as well as the Management Compensation and Benefits Committee and
beneficially owns 8,255 shares of Common Stock. (13)
Josiah P. Rowe, III, 67, is Co-Publisher and General Manager of The Free Lance-
Star Publishing Co. of Fredericksburg, Virginia and has been a director of
First Virginia since 1991. He is a director of First Virginia Bank, Falls
Church, Virginia. He serves on the Public Policy Committee and the Director
Nominating Committee and beneficially owns 1,500 shares of Common Stock and 100
shares of preferred stock.
Albert F. Zettlemoyer, 60, is President of the Government Systems Group of
UNISYS Corporation in McLean, Virginia and is Executive Vice President of
UNISYS Corporation and has been a director of First Virginia since 1978. He
serves on the Audit Committee and chairs the Management Compensation and
Benefits Committee. He beneficially owns 6,000 shares of Common Stock. (14)
(1) Includes 7,500 shares held by a corporation of which Mr. Breeden is
President, 16,325 shares held by two foundations of which Mr. Breeden is
Chairman, 16,275 shares held by two trusts of which Mr. Breeden is trustee, and
21,900 shares held by an estate of which Mr. Breeden is the executor.
(2) Includes 4,438 shares held in a trust for his son, 108 shares held by his
spouse and daughter, 533 shares held by his spouse and son, 10,188 shares held
by the Giordano Family Foundation and 387 shares held by his daughter.
(3) Includes 4,855 shares held by his spouse and 1,729 shares held by a
corporation of which Mr. Kendrick is a director and president.
(4) All of the shares are held in a trust.
(5) Includes options to purchase 28,250 shares of Common Stock which are
currently exercisable but does not include options to purchase 8,000 shares of
Common Stock which are not currently exercisable.
(6) Includes 29,000 shares held in a revocable trust, 3,974 shares held
indirectly through his spouse and options to purchase 21,250 shares of Common
Stock which are currently exercisable. It does not include 6,250 stock
appreciation rights which are currently exercisable.
(7) Includes 229 shares held indirectly through his spouse and 1,237 shares
held by a trust of which Mr. Ginn is trustee.
(8) Includes 5,400 shares of Common Stock held by a trust in which Mr. Greer
has a beneficial interest.
(9) Includes 34,479 shares held by a corporation of which Mr. Holland is an
officer, director, and owner.
(10) Includes 10,125 shares of Common Stock held jointly with his spouse
(shared voting and investment power).
(11) Includes 264 shares of Common Stock held indirectly through his spouse.
(12) Includes 1,782 shares of Common Stock held in a Keogh Plan, 900 shares
held in an Individual Retirement Account and 900 shares held in her spouse's
Individual Retirement Account.
(13) Includes 3,000 shares held by a trust of which Mr. Phillips is a trustee.
(14) All of the shares held jointly with spouse.
As of February 28, 1995, executive officers and directors as a group
beneficially owned 937,597 shares of Common Stock representing approximately
2.79% of those shares outstanding, of which 175,575 shares represent shares
covered by currently exercisable options (or options exercisable within 60
days) and 200 shares of Preferred Stock representing approximately .27 % of
those shares outstanding. No officer or director owned as much as 1.0 % of
First Virginia Common Stock. Messrs. Breeden, Greer and Giordano are members of
or are associated with law firms which have been in the last two years, and are
proposed in the future to be, retained by First Virginia and its subsidiaries.
Messrs. Brand, Breeden, Fitzpatrick, Geithner, Ginn, Giordano, Greer, Holland,
Malone, Melvin, Phillips, Rowe and Zalokar have been directors of various
subsidiaries of First Virginia during the past five years. Ages of the
directors are stated as of February 28, 1995
BENEFICIAL OWNERSHIP OF NAMED EXECUTIVE OFFICERS
The following table sets forth certain information regarding the named
executives' beneficial ownership of First Virginia Common Stock as of February
28, 1995.
Shares of Common Stock of First Virginia
Beneficially Owned
Name of Officer Number * Percent of Class
Robert H. Zalokar 124,267 .3630
Paul H. Geithner, Jr. 56,777 .1658
Barry J. Fitzpatrick 46,472 .1357
Shirley C. Beavers, Jr. 36,964 .1080
Justin C. O'Donnell 18,655 .0545
* The amounts shown represent the total shares owned outright by such
individuals together with shares which are issuable upon the exercise of all
stock options that are currently exercisable. Specifically, the following
individuals have the right to acquire the shares indicated after their names,
upon the exercise of stock options: Mr. Zalokar, 0; Mr. Geithner, 21,250; Mr.
Fitzpatrick, 28,250; Mr. Beavers, 28,250; and Mr. O'Donnell, 4,150.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
First Virginia's Board of Directors has a standing Audit Committee, Director
Nominating Committee, Management Compensation and Benefits Committee, Public
Policy Committee, and Executive Committee.
The Audit Committee, comprised of Directors Breeden, Giordano, Gruver,
Phillips, Selden, and Zettlemoyer, held five meetings during 1994. Functions of
the Committee include (1) reviewing with the independent public accountants and
management such matters as: the financial statements and the scope of First
Virginia's audit, compliance with laws and regulations, and the adequacy of
First Virginia's system of internal procedures and controls and resolution of
material weaknesses; (2) reviewing with First Virginia's internal auditors the
activities and performance of the internal auditors; (3) reviewing with
management the selection and termination of the independent public accountants
and any significant disagreements between the independent public accountants
and management; and (4) reviewing the nonaudit services of the independent
public accountant. Under Section 36 of the Federal Deposit Insurance Act, the
Audit Committee also performs similar functions for some of the First Virginia
member banks.
The Director Nominating Committee, comprised of Directors Malone, Brand,
Ginn, Giordano, Greer, Rowe, and Zalokar, held one meeting in 1994. The
functions of the Committee include annually recommending to the Board the names
of persons to be considered for nomination and election by First Virginia's
stockholders and, as necessary, recommending to the Board the names of persons
to be elected to the Board between annual meetings.
The Management Compensation and Benefits Committee, comprised of Directors
Zettlemoyer, Brand, Holland, Kendrick, and Phillips, held two meetings in 1994.
The Committee has the authority to establish the level of compensation
(including bonuses) and benefits of management of First Virginia. In addition,
the Committee has authority to award long-term incentive compensation, e.g.,
stock options and stock appreciation rights, to First Virginia's management
based on such factors as individual and corporate performance.
The Public Policy Committee, comprised of Directors Gruver, Breeden,
Geithner, Greer, Kendrick, Malone, Rowe, and Zalokar, met four times during
1994. This Committee supervises First Virginia's contribution and matching
gifts programs. The Committee also monitors the programs developed for
affirmative action and compliance with the Community Reinvestment Act and Title
VII of the Civil Rights Act of 1964.
The Executive Committee, comprised of Directors Zalokar, Breeden, Geithner,
Ginn, Holland, and Malone, held 11 meetings in 1994. The Committee exercises
all of the powers of the Board of Directors when the Board is not in session,
except for those powers reserved for the Board under state law and by First
Virginia's Articles of Incorporation and Bylaws and those powers delegated to
other committees.
During 1994, there were 12 meetings of the Board of Directors. All directors
attended more than 75% of the aggregate total number of meetings of the Board
and committees of the Board on which they served.
SECTION 16 TRANSACTIONS
Section 16(a) of the Securities Exchange Act of 1934 requires First
Virginia's executive officers and directors to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Executive officers and directors are required by SEC
regulation to furnish First Virginia with copies of all Section 16(a) forms
they file.
Based on a review of the forms that were filed and written representations
from the executive officers and directors, First Virginia believes that during
the year 1994 all filing requirements applicable to its officers and directors
were met with the exception of Justin C. O'Donnell who reported eight days late
to the SEC the sale of 1,800 shares.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The Summary Compensation Table on the following page shows the annual
compensation for the last three fiscal years for First Virginia's Chief
Executive Officer and for the four most highly compensated executive officers
other than First Virginia's Chief Executive Officer:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
(a) (b) (c) (d) (e) (f) (g)
Other All
Annual Options/ Other
Name And Compen- SARs Compen-
Principal Salary Bonus sation Awarded sation
Position Year ($) (1) ($) (2) ($) (3) (#) (4) ($) (5)
- -------- ---- ------- ------- ------- ------- -------
Robert H. Zalokar 1994 530,000 297,933 9,429 0 98,214
Chairman and Chief Executive 1993 500,000 306,388 8,509 0 108,901
Officer of First Virginia until 1992 490,000 270,714 10,608 0 93,979
his retirement on 12/31/94
Paul H. Geithner, Jr. 1994 335,000 114,495 5,814 0 57,152
President of First Virginia 1993 315,000 131,679 5,583 10,000 60,347
1992 300,000 113,050 3,987 0 52,513
Barry J. Fitzpatrick 1994 209,000 125,144 6,135 0 24,691
Executive Vice President 1993 189,000 90,406 69,099 10,000 25,203
of First Virginia. Appointed 1992 169,310 72,830 29,236 0 18,723
Chairman and Chief Executive
Officer of First Virginia
effective 1/1/95
Shirley C. Beavers, Jr. 1994 209,000 94,952 6,919 0 25,963
Executive Vice President of 1993 189,000 90,406 6,045 10,000 31,385
First Virginia and President, 1992 175,769 72,830 5,160 0 26,112
First Virginia Services, Inc.
Justin C. O'Donnell 1994 208,830 19,286 5,725 0 31,590
Senior Vice President of 1993 202,600 45,386 5,437 2,000 33,604
First Virginia and President 1992 192,950 43,394 4,089 0 30,549
and Chief Executive Officer
of First Virginia Bank
(1) The Salary Column (Column (c)) includes the base salary earned by the
executive officer, which includes amounts that are deferred under the First
Virginia Banks, Inc. Employees Thrift Plan and the First Virginia Pre-Tax
Health Benefit Plan.
(2) The Bonus Column (Column (d)) includes the amount earned as a bonus for
that year even if paid in the following year. It also includes amounts earned
for that year under the First Virginia Banks, Inc. Profit Sharing Plan.
(3) The Other Annual Compensation Column (Column (e)) includes the amount of
taxes paid by First Virginia for certain benefits.
(4) The All Other Compensation Column (Column (g)) includes the amount paid by
the employer under the First Virginia Banks, Inc. Employees Thrift Plan which,
for each of the named officers, was $6,750. It also includes the amounts paid
by the employer under the First Virginia Supplemental Benefits Plan. This plan
provides supplemental retirement benefits for those key officers who are
restricted from receiving further benefits under the Thrift Plan as a result of
the $9,000 limitation on pretax contributions imposed by the Internal Revenue
Code for 1994. For 1994, these amounts were: for Mr. Zalokar, $30,673; Mr.
Geithner, $13,586; Mr. Fitzpatrick, $8,073; Mr. Beavers, $3,134; and Mr.
O'Donnell, $3,125. It also includes the premium amounts paid by the employer
under the First Virginia Split Dollar Life Insurance Plan. For 1994, these
amounts were: for Mr. Zalokar, $41,410; Mr. Geithner, $27,916; Mr. Fitzpatrick,
$8,524; Mr. Beavers, $14,720; and Mr. O'Donnell, $15,194. It also includes the
"above-market" earnings on deferred compensation earned during 1994. These
amounts were: for Mr. Zalokar, $19,381; Mr. Geithner, $8,900; Mr. Fitzpatrick,
$1,344; Mr. Beavers, $1,359; and Mr. O'Donnell, $6,521.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table shows for each of the named executive officers the
number of shares of First Virginia Common Stock acquired upon the exercise of
stock options and stock appreciation rights during 1994, the value realized
upon their exercise, the number of unexercised stock options and SARs at the
end of 1994 and the value of unexercised "in-the-money" stock options and SAR
rights at the end of 1994. Stock options or freestanding SARs are considered
"in-the-money" if the fair market value of the underlying securities exceeds
the exercise price of the option or SAR. No stock options were granted during
1994. Some of the stock options which were granted to First Virginia's
executive officers include a provision that would accelerate the vesting of the
options upon a "change in control" of First Virginia. A "change in control" is
defined to mean a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, or a similar reporting
requirement. The table includes Mr. Geithner's ownership of 8,750 exercisable
freestanding SARs at yearend whose value was $112,291. There were no other
exercisable freestanding SARs owned by any of the named executive officers at
yearend.
Aggregated Options/SAR Exercises in 1994 and
Yearend Options/SAR Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/
Shares at Yearend SARs at
Acquired (#) Yearend ($)
on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
Name (#) ($)
---- -------- -------- ------------- -------------
Robert H. 5,213 99,529 0/0 0/0
Zalokar
Paul H. 5,104 197,552 20,000/10,000 212,604/0
Geithner, Jr.
Barry J. 3,000 38,875 26,250/10,000 319,563/0
Fitzpatrick
Shirley C. 0 0 26,250/10,000 322,188/0
Beavers, Jr.
Justin C.
O'Donnell 3,781 143,625 9,000/2,000 139,000/0
PENSION AND THRIFT PLANS AND SUPPLEMENTAL COMPENSATION ARRANGEMENTS
The following table shows the estimated annual benefit payable upon
retirement under the First Virginia Pension Trust Plan based on specified
remuneration and years of credited service classifications, assuming a
participant retired on December 31, 1994 at age 65. The table ends at an
average annual pay of $150,000 since effective January 1, 1994, compensation in
excess of that amount is not taken into account under the Plan because of IRS
regulations. Credited service in excess of thirty years is also not taken into
account in determining benefits under the Plan.
Annual Benefits Under First Virginia's Pension Trust Plan
Average
Annual 10 Years 15 Years 20 Years 25 Years 30 Years
Pay of of of of of
for Past Service Service Service Service Service
60 Months
- --------- ------- ------- ------- ------- -------
$125,000 18,784 28,177 37,569 46,961 56,353
150,000 22,784 34,177 45,569 56,961 68,353
Under the First Virginia Pension Trust Plan, a participant retiring at age
65 with 30 years of credited service under the Plan will receive a maximum
annual pension benefit equal to 1.1 % of his average annual pay multiplied by
30 years of credited service plus 0.5% of his average annual pay in excess of
his covered compensation multiplied by 30 years of credited service. The
calculation of "average annual pay" is based on annual compensation for the
highest five consecutive years out of the participant's final 10 years of
service. "Covered compensation" is calculated by multiplying the annual average
of Social Security taxable wage base as in effect for the 35 years ending with
the last day of the year in which the participant attains Social Security
retirement age.
Remuneration on earnings determining pension benefits under the Plan
includes salaries and bonuses (which are listed in the Summary Compensation
Table) but it also includes any other taxable compensation including
compensation resulting from the exercise of nonqualified options and SARs.
Credited service as of December 31, 1994 for each of the named executives was
as follows: Mr. Zalokar, 32 years; Mr. Geithner, 26.3 years; Mr. Fitzpatrick,
25.4 years; Mr. Beavers, 25.3 years and Mr. O'Donnell, 12.3 years. If a
participant retired on December 31, 1994 under the Plan, the participant would
receive the greater of (1) that participant's accrued benefits as determined by
using the Summary Compensation Table and the pension table in conjunction with
the formula described above or (2) that participant's accrued benefits as of
December 31, 1993, which for the named executive officers, was as follows: Mr.
Zalokar $102,060, Mr. Geithner $85,524, Mr. Fitzpatrick $69,988, Mr. Beavers
$75,610, and Mr. O'Donnell $38,013. Except for individual supplemental
compensation agreements which are described below, First Virginia does not have
a supplemental pension plan which would provide supplemental pension benefits
to executive officers in excess of IRS prescribed limits.
Messrs. Zalokar, Geithner and Fitzpatrick have supplemental compensation
agreements with First Virginia which will provide them with supplemental
retirement benefits in addition to those pension benefits described above. Mr.
Zalokar retired effective December 31, 1994 and will be receiving a benefit of
$521,316 per year for his life under his supplemental compensation agreement in
addition to his pension benefit of $102,060 per year from the First Virginia
Pension Trust Plan. When requested, Mr. Zalokar is required to provide
consulting services under his supplemental compensation agreement.
Under Mr. Geithner's agreement, if he retires, resigns or leaves First
Virginia for any reason, he is entitled to receive for the rest of his life
supplemental compensation equal to 60% of the average of his highest five years
of annual salary. Highest annual salary includes wages, bonuses and any other
compensation that is included in his IRS Form W-2 (including compensation
arising from the exercise of SARs and nonqualified options) plus any amounts
deferred under First Virginia's key employee salary reduction deferred
compensation plans. The amount of benefit Mr. Geithner would receive under his
agreement would be reduced by the amount Mr. Geithner would receive under the
First Virginia Pension Trust Plan. After receiving benefits, should Mr.
Geithner die, his wife would be entitled to one-half of his total annual
benefit for the rest of her life. Under his agreement, once benefits begin to
be paid, Mr. Geithner is to remain available to provide consulting and advisory
services if he is physically and mentally capable of doing so. Furthermore, his
benefits are forfeitable under certain circumstances.
Under Mr. Fitzpatrick's agreement, if he resigns, retires or leaves First
Virginia for any reason after reaching the age of 62, he is entitled to receive
for the rest of his life supplemental compensation equal to Sixty percent of
the average of his highest five years of annual salary and bonus. Highest
annual salary includes salary and bonus and any profit sharing payments
received under the First Virginia Profit Sharing Plan but does not include any
other form of compensation that is not salary or bonuses, such as compensation
arising from the exercise of SARs and nonqualified options. Mr. Fitzpatrick can
also receive his benefits under his agreement prior to age 62 if there is a
"change in control", if he becomes totally and permanently disabled, or if he
is dismissed or requested to leave his employment without "just cause." A
"change in control" is defined to mean a change of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934; provided, however,
that a change in control shall be deemed to occur if any person (other than
First Virginia or any present director or officer of First Virginia) becomes
the beneficial owner of 25 % or more of the voting stock of First Virginia or
if, during any two consecutive years, the individuals who constitute First
Virginia's Board at the beginning of such period should cease to constitute a
majority of the Board, unless the election of each subsequent director has been
approved in advance by directors representing at least two thirds of the
directors then in office who were directors at the beginning of the two-year
period. The amount of benefit Mr. Fitzpatrick would receive under his agreement
would be reduced by the amount he would receive under the First Virginia
Pension Trust Plan. After receiving benefits, should Mr. Fitzpatrick die, his
wife would be entitled to one-half of his total annual benefit for the rest of
her life. Under his agreement, once benefits begin to be paid, Mr. Fitzpatrick
is to remain available to provide consulting and advisory services if he is
physically and mentally capable of doing so. Furthermore, his benefits are
forfeitable under certain circumstances.
Executive officers, like other employees of First Virginia, are eligible to
participate in the First Virginia Banks, Inc. Employees' Thrift Plan ("Thrift
Plan"). Under the Thrift Plan, employees of First Virginia and its subsidiaries
who have completed one year of service can contribute up to six percent of
their compensation and receive matching employer contributions equal to 50% of
their employee contributions. For years when First Virginia meets an earnings
test under the Thrift Plan, First Virginia contributes 75% of employee
contributions. The Thrift Plan complies with Section 401(k) of the Internal
Revenue Code so that employee contributions can be made on a pretax basis.
Employees can direct the investment of their contributions and the matching
employer contributions into one or more of three funds that are administered by
the Trust Department of First Virginia Bank. Reference is made to footnote 4 of
the Summary Compensation Table for the amount of contributions made on behalf
of the named executive officers under the Thrift Plan.
First Virginia also maintains a First Virginia Supplemental Benefits Plan
which provides supplemental retirement benefits for those key officers who are
restricted from receiving further benefits under the Thrift Plan as a result of
the $9,000 limitation on pretax contributions imposed by the Internal Revenue
Code for 1994. Under the First Virginia Supplemental Benefits Plan, executive
officers can continue to make pretax contributions in excess of the IRS limits
imposed on the Thrift Plan and receive matching contributions from First
Virginia identical to what they would have received if they were in the Thrift
Plan and there were no limitations on contributions. Reference is made to
Footnote 4 of the Summary Compensation Table for the amount of the employer and
employee contributions made on behalf of the named executive officers under the
First Virginia Supplemental Benefits Plan.
DIRECTORS' COMPENSATION, CONSULTING ARRANGEMENTS AND PLANS WHICH INCLUDE CHANGE
IN CONTROL ARRANGEMENTS
For 1995, directors of First Virginia who are not salaried officers will be
paid an annual retainer of $14,000 per year, a fee of $850 for each meeting of
the Board of Directors attended, and a fee of $700 for each meeting of a
Committee of the Board of Directors attended. Committee chairmen will receive
$850 for each committee meeting they chair. Directors are reimbursed for out-
of-town expenses incurred in connection with Board and Committee meetings.
Directors can participate in First Virginia's deferred compensation plans which
allow them to defer their retainers and fees.
During 1994, Edwin T. Holland, the founder and former Chairman and Chief
Executive Officer of First Virginia, and Thomas K. Malone, Jr., former Chairman
and Chief Executive Officer of First Virginia, were paid $144,108 and $109,896
respectively under their supplemental compensation agreements, in addition to
the amounts they received from the First Virginia Pension Trust Plan. When
requested, both Holland and Malone are required to provide consulting services
under their supplemental compensation agreements.
During 1994, Virginia H. Brown, formerly Virginia H. Beeton, received
$71,000 pursuant to her former husband's Supplemental Retirement Agreement with
First Virginia in addition to what she received from the First Virginia Pension
Trust Plan. Her former husband, Ralph A. Beeton, was Chairman and Chief
Executive Officer of First Virginia.
First Virginia also has two key employee salary reduction deferred
compensation plans, one of which began in 1983 and the other in 1986, and two
directors' deferred compensation plans, one of which also began in 1983 and the
other in 1986, ("Deferred Compensation Plans") for key employees of First
Virginia and its subsidiaries and for directors of First Virginia. Under the
Deferred Compensation Plans, participants elect to defer some or all of their
compensation from First Virginia, and First Virginia agrees to pay at normal
retirement age or earlier (or to participant's beneficiary or estate on
participant's death) a sum substantially in excess of what each participant has
deferred. To fund the benefits under the Deferred Compensation Plans, First
Virginia has purchased life insurance contracts on the lives of the
participants, with First Virginia as the beneficiary. For the period ending
December 31, 1994, none of the executive officers of First Virginia deferred
any compensation under the Deferred Compensation Plans. However, one of the
named executive officers, Mr. Zalokar, did receive a payment of $84,630 during
1994 under his deferred compensation agreement.
The 1983 deferred compensation plans include a provision regarding "change
in control," which is defined to include, among other things, an acquisition by
one person or group of 25% of the voting power of First Virginia's outstanding
securities. Generally, the 1983 Key Employee Salary Reduction Deferred
Compensation Plan requires that an employee continue his/her position with
First Virginia and/or its subsidiaries until retirement in order to receive
his/her benefits. If there is a "change in control" of First Virginia, and a
director is terminated under the directors' plan, or in the case of the
employee plan, an employee is terminated "without cause" or the employee
terminates his/her employment for "good reason," as those terms are defined
under the employee plan, then the director or employee, as the case may be,
becomes entitled to his/her benefits under the 1983 Deferred Compensation Plans
at retirement, notwithstanding the fact that his/her affiliation with First
Virginia has terminated.
First Virginia has a Split Dollar Life Insurance Plan ("Split Dollar Plan")
which currently includes 19 executive employees (three of whom have retired)
including those named in the Summary Compensation Table. Under the Split Dollar
Plan, an executive can purchase ordinary life insurance policies with coverage
of at least two times what is projected to be the executive's base salary at
retirement, up to a limit of $1,000,000. A portion of the premiums will be
loaned to the executives by First Virginia up to the later of ten years or the
executive's retirement date. At the end of this period, if assumptions about
mortality, dividends and other factors are realized, First Virginia will
recover all of its loans for premiums from the cash value of the policy. The
policy will then be transferred to the executive, who will pay all further
premiums, if any, under the policy. Executives who participate in the Split
Dollar Plan forego any insurance coverage over $50,000 under the First Virginia
Group Life Insurance Plan. During 1989, the Split Dollar Plan was amended so
that in the event of a "change in control," which term is defined in the same
manner as the 1983 deferred compensation plans, only the executive would have
the right to terminate the policy.
First Virginia's Board of Directors approved in 1992 the establishment of a
trust with Chemical Bank as the trustee to partially secure the benefits of
some of First Virginia's nonqualified compensation plans, including the
Deferred Compensation Plans and the First Virginia Supplemental Benefits Plan,
in case of a change in control. Under the trust agreement establishing the
trust, if a ="change in control" takes place, the trustee would pay the
benefits under the covered compensation plans out of the trust assets that have
been contributed to the trust b, First Virginia, if First Virginia refused to
pay the benefits. The trust is considered a "grantor trust" subject to the
claims of First Virginia's general creditors. For accounting purposes, the
trust assets are considered corporate assets and, therefore, no balance sheet
impact to First Virginia will result from the establishment of the trust. The
trust agreement does not include a provision which would accelerate the vesting
or payment of any of the benefits under the covered compensation plans in case
of a change in control. During 1994, First Virginia contributed approximately
$1,462,377 to the Trust.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of First Virginia's Management Compensation and Benefits
Committee are E. Cabell Brand, Edward M. Holland, Eric C. Kendrick, W. Lee
Phillips, Jr. and Albert F. Zettlemoyer. Edward M. Holland is the son of Edwin
T. Holland, the founder and former Chairman and Chief Executive Officer of
First Virginia. As noted above, Edwin T. Holland receives a fee from First
Virginia pursuant to a Supplemental Compensation Agreement. Also, as noted
above, Edward M. Holland's sister, Virginia H. Brown, receives a benefit
pursuant to her former husband's Supplemental Retirement Agreement with First
Virginia. Albert F. Zettlemoyer's daughter is an officer of First Virginia
Bank. None of the members of the Management Compensation and Benefits Committee
served as members of the compensation committees of another entity. No
executive officer of First Virginia served as a director of another entity that
had an executive officer serving on First Virginia's compensation committee. No
executive officer of First Virginia served as a member of the compensation
committee of another entity which had an executive officer who served as a
director of First Virginia.
MANAGEMENT COMPENSATION AND BENEFITS COMMITTEE REPORT CONCERNING FIRST
VIRGINIA'S EXECUTIVE COMPENSATION POLICY
The Management Compensation and Benefits Committee (the "Committee") of the
Board of Directors establishes the policy for the compensation of the executive
officers of First Virginia. It is also responsible for administering most of
First Virginia's executive compensation programs. The Committee is composed
entirely of outside directors who are not eligible, with the exception of the
directors' deferred compensation plans, to participate in the plans over which
it has authority.
The overall goal of First Virginia's compensation policy is to motivate,
reward and retain its key executive officers. The Committee believes this
should be accomplished through an appropriate combination of competitive base
salaries and, at times, both short term and long term incentives.
The primary components of First Virginia's executive compensation program
are base salaries, bonuses, (e.g. short term compensation), and equity
compensation (e.g. long-term compensation). Executive officers also participate
in other broad based employee compensation and benefit programs. Since no First
Virginia executive had compensation in 1994 which in total exceeded one million
dollars and since no executive is expected to be compensated in excess of that
amount in 1995, the Committee did not consider the effect of the one million
dollar deduction limitation under Section 162(m) of the Internal Revenue Code
in determining executive compensation nor did they establish any specific
policy regarding the deductibility of executive compensation.
Base Salary
The Compensation Committee's policy for determining base salaries is to
consider two primary factors:
(1) the degree of responsibility the executive officer has; and
(2) the compensation levels of corresponding positions at other banking
companies of comparable size that compete with and serve the same markets as
First Virginia. This "Local Peer Group" of companies consists of Central
Fidelity Banks, Inc., Crestar Financial Corporation and Signet Banking
Corporation based in Virginia, First Maryland Bancorp and Mercantile Bankshares
Corporation based in Maryland, and First Tennessee National Corporation and
First American Corporation of Tennessee. Base salaries are targeted to be the
median salaries of corresponding positions in the "Local Peer Group." For 1994,
Mr. Zalokar's base salary was $530,000, which was approximately the median for
salaries paid to his counterparts in the "Local Peer Group."
Short Term Incentives/Bonuses
The Committee grants bonuses to the executive officers and CEO based on the
extent to which First Virginia achieves or exceeds annual performance
objectives. The Compensation Committee may award bonuses to the CEO and to the
executive officers if First Virginia achieves a return on total average assets
(ROA) of at least 1 % (the same basis for determining payments of profit
sharing to all employees). ROA generally is considered by the Committee to be
the most important single factor in measuring the performance of a banking
company, and achievement of a 1 % ROA generally is considered by the Committee
to be the mark of a good performing banking company.
Bonus awards are based on the following:
(a) The Committee establishes target amounts each year for return on
average assets ("ROA"), return on total stockholders' equity ("ROE"),
asset quality and capital strength consistent with First Virginia's
Profit Plan target amounts. Up to 50 % of an executive's salary may
be awarded if the corporation achieves an ROA equivalent to 80 % or
more of ROA target amount for the year. For the chief executive
officer, First Virginia would also have to achieve 80 % of targeted
amounts for ROE, asset quality (as determined by the ratio of
nonperforming assets to total loans (NPA ratio) and net loan charge-
offs (CO ratio)) and capital strength (based on the average equity to
asset ratio (Equity/asset ratio) and the Tier I risk based capital
ratio); or
(b) Up to 30 % of an executive's salary may be awarded based on the
degree to which First Virginia's earnings, asset quality and capital
ratios exceed the average for the other major banking companies based
in the Southeast, the "Southeastern Regional Peer Group," as compiled
by Keefe, Bruyette and Woods, the New York securities firm which
specializes exclusively in the banking and thrift industry; or
(c) Up to 20% of an executive's salary may be awarded at the discretion
of the Committee based on an individual executive's performance.
Within the above parameters, at the beginning of each year the Committee
establishes a base target bonus at an arithmetic base return on assets for each
executive officer and the CEO. At the end of the year, the Committee considers
a preliminary bonus after taking into account the base target bonus, First
Virginia's return on assets for the year and a set relationship between that
return on assets and the arithmetic base return on assets.
The Committee then exercises its judgment in light of the foregoing
parameters and other considerations, including the Committee's view of
individual performance and potential and the recommendations of the CEO for the
executive officers (other than himself), to reach a bonus decision for each
executive officer and for the CEO. The Committee does not use a formula to
determine a final bonus decision. In 1994, the final bonus decision for each of
the named executive officers was at variance to the preliminary target bonus
amounts. Among other things, Mr. Zalokar's bonus reflected First Virginia's
success in achieving a 1.59% return on assets and the other above described
results. Consistent with the Committee's avoidance of a strict formula
approach, no specific weighting among the above 50%, 30% and 20% factors was
specified. The Committee believes that the use of the above approach provides a
clearly defined and effective method of motivating First Virginia's management.
Listed below are the annualized ratios for First Virginia and the
Southeastern Regional Peer Group based on results for the first nine months of
1994, the latest data available to the Committee at the time the incentive
awards were considered.
First Virginia
Profit Plan
or Target KBW Southeastern
Amount Actual Regional Peer Group
Earnings
ROA 1.56% 1.59% 1.26
ROE 15.27 15.89 15.38
Asset Quality
NPA Ratio .60 .54 .88
CO Ratio .15 .11 .13
Capital Strength
Equity/Asset Ratio 8.5 10.02 8.01
Tier I Risk Based
Capital Ratio 10.0 15.86 11.25
Based on First Virginia's results, the Committee awarded Mr. Zalokar
a bonus of $275,000.
Long Term Compensation/Stock Options
The Committee believes that the granting of stock options is the most
appropriate form of long term compensation for executives and that such awards
of equity encourage the executive to achieve a significant ownership stake in
the success of First Virginia.
Equity compensation awards may be made only if First Virginia performs
competitively with the weighted average of the returns reported by the major
competitors in its banking markets (Central Fidelity, Signet, Crestar,
Mercantile Bancshares, First Tennessee and First American of Tennessee) and of
the KBW Southeastern Regional Peer Group. The performance ratios are weighted
as follows: ROA 35%, ROE 25%, five year cumulative total return to shareholder
(Five Year Return) 15%, Nonperforming Asset Ratio 15% and Charge-off Ratio 10%.
The following table shows the performance ratios of First Virginia and average
for its major market area competitors of comparable size for the first nine
months of 1994:
Market Area
First Virginia Major Competitors
ROA 1.59% 1.31%
ROE 15.89 14.99
Five Year Return 211.48 211.34
NPA Ratio .54 1.18
CO Ratio .11 .33
As of September 30, 1994 (the latest date information is available for the
peer group), the weighted average of the performance factors for First Virginia
was 146.77% of the peer group.
The Committee decided this year not to grant any stock options to executives
even though the above- described results for the Corporation were competitive
with the results of the major competitors in its market area. The Committee did
not consider an executive officer's current stock-based holdings, or the
relationship of the above results of First Virginia to those of its market area
major competitors, in reaching this decision.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
No person is known by management of the Corporation to own beneficially,
directly or indirectly, more than five percent of any class of the
Corporation's voting securities. The number of shares of the Corporation's
voting securities beneficially owned by each of the Corporation's directors and
by all of its directors and officers as a group is shown in Part III, item 10,
on pages 71 through 76 of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
During the past year, certain of the directors and officers of First Virginia
and their associates had loans outstanding from First Virginia's banking
subsidiaries. Each of these loans was made in the ordinary course of the
lending bank's business. In some cases, where officers of First Virginia or
its subsidiaries had to be relocated, residential mortgage loans were made by
First Virginia at favorable interest rates. All other loans have been made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collectibility, or present other
unfavorable features. As of December 31, 1993, the aggregate amount of loans
outstanding to all directors and executive officers of First Virginia and
associates and members of their immediate families was approximately
$10,908,000.
First Virginia Bank and First Virginia Card Services, Inc. extend VISA and
MasterCard privileges to directors, officers and employees of First Virginia
and its subsidiaries. Except as noted below, interest is charged on VISA and
MasterCard credit balances of employees and officers at a rate of 1% per month
on sales transactions. Directors and executive officers of First Virginia and
its subsidiaries are subject to generally prevailing rates.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
FINANCIAL STATEMENTS:
The following consolidated financial statements and report of independent
auditors of the Corporation and its subsidiaries are in Part II, item 8 on the
following pages:
Page
Consolidated Balance Sheets - December 31, 1994 and 1993 42/43
Consolidated Statements of Income - Three Years Ended
December 31, 1994 44/45
Consolidated Statements of Stockholders' Equity - Three Years
Ended December 31, 1994 46
Consolidated Statements of Cash Flows - Three Years Ended
December 31, 1994 47/48
Notes to Consolidated Financial Statements 49/68
Report of Independent Auditors 70
EXHIBITS:
The following exhibits are filed as a part of this report:
(3) Restated Articles of Incorporation and Bylaws.
(4) Instruments defining the rights of holders of the Corporation's
long-term debt are not filed herein because the total amount of
securities authorized thereunder does not exceed 10% of consolidated
total assets. The Corporation hereby agrees to furnish a copy of such
instruments to the Commission upon its request.
(10) Management contract for Mr. Barry J. Fitzpatrick is included as
Exhibit 10. Management contracts for Messrs. Ralph A. Beeton, Paul H.
Geithner, Jr., Edwin T. Holland, Thomas K. Malone, Jr., and Robert H.
Zalokar are incorporated by reference to Exhibit 10 of the 1992
Annual Report on Form 10-K. Also incorporated from that exhibit are:
(1) Key employee salary reduction deferred compensation plans and
Directors' deferred compensation plans for 1983 and 1986 and (2) A
compensatory plan known as the Split-Dollar Life Insurance Plan. (3)
There are also four plans relating to options and rights. The 1982
Stock Appreciation Rights Plan is incorporated by reference to
Registration Statement Number 33-6759 on Form S-8 dated June 25,
1986. The 1982 Incentive Stock Option Plan is incorporated by
reference to Post-effective Amendment Number 2 to Registration
Statement Number 2-77151 on Form S-8 dated October 30, 1987. The 1986
Incentive Stock Option Plan, Nonqualified Stock Option Plan and Stock
Appreciation Rights 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.
(11) Statement RE: Computation of Per Share Earnings.
(13) First Virginia Banks, Inc. 1994 Annual Report to its Stockholders.
(Not included in the electronic filing)
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule
FINANCIAL STATEMENT SCHEDULES:
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
REPORTS ON FORM 8-K:
Form 8-K was filed electronically on January 11, 1995. This report was for a
Plan of Merger with Farmers National Bancorp, a Maryland bank holding company,
to be merged into Registrant. On December 28, 1994 at 5 p.m., the merger was
consummated.
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 22, 1995 on its behalf by the undersigned, thereunto duly authorized.
FIRST VIRGINIA BANKS, INC.
/s/ Barry J. Fitzpatrick
___________________________________
Barry J. Fitzpatrick, Chairman and
Chief Executive Officer
/s/ Richard F. Bowman
___________________________________
Richard F. Bowman, Senior Vice President,
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons as of March 22, 1995 on
behalf of the registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ Barry J. Fitzpatrick
____________________________ Chairman, Chief
Barry J. Fitzpatrick Executive Officer
and Director
/s/ Richard F. Bowman
____________________________ Principal Financial
Richard F. Bowman and Accounting
Officer
____________________________ Director
E. Cabell Brand
/s/ Edward L. Breeden
____________________________ Director
Edward L. Breeden, III
/s/ Paul H. Geithner, Jr.
____________________________ Director
Paul H. Geithner, Jr.
/s/ L. H. Ginn
____________________________ Director
L. H. Ginn, III
SIGNATURE TITLE
--------- -----
/s/ Gilbert R. Giordano
____________________________ Director
Gilbert R. Giordano
____________________________ Director
T. Keister Greer
/s/ Elsie C. Gruver
____________________________ Director
Elsie C. Gruver
/s/ Edward M. Holland
____________________________ Director
Edward M. Holland
/s/ Eric C. Kendrick
____________________________ Director
Eric C. Kendrick
/s/ Thomas K. Malone, Jr.
____________________________ Director
Thomas K. Malone, Jr.
/s/ W. Lee Phillips, Jr.
____________________________ Director
W. Lee Phillips, Jr.
/s/ Josiah P. Rowe
____________________________ Director
Josiah P. Rowe, III
/s/ Richard T. Selden
____________________________ Director
Richard T. Selden
/s/ Robert H. Zalokar
---------------------------- Director
Robert H. Zalokar
/s/ Albert F. Zettlemoyer
____________________________ Director
Albert F. Zettlemoyer
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1994
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
FIRST VIRGINIA BANKS, INC.
ARTICLES OF INCORPORATION
ARTICLE I.
The name of the Corporation is First Virginia Banks, Inc.
ARTICLE II.
The purpose of the Corporation is to acquire, own, manage and dispose of
the capital stock and other securities of banks and other corporations and to
render to such banks and corporations, and to others, such advice and
services as may be permitted by law. In addition, the Corporation shall have
the power to transact any business not prohibited by law or required to be
stated in these Articles of Incorporation.
ARTICLE III.
The Corporation shall have the authority to issue 60,000,000
shares of Common Stock, $1.00 par value, and 3,000,000 shares of Preferred
Stock, $10.00 par value.
A. Voting of Shares. Except as otherwise made mandatory by law, there
shall be no class voting, and each outstanding share regardless of class
(whether Common or Preferred), shall entitle the holder thereof to one vote
on each matter submitted to a vote at any meeting of stockholders.
B. Preemptive Rights. No holders of any class of stock of this Corporation
shall have any preemptive or other preferential right to purchase or
subscribe to (i) any shares of any class of stock of the Corporation, whether
now or hereafter authorized, (ii) any warrants, rights or options to purchase
any such stock, or (iii) any obligations convertible into any such stock or
into warrants, rights or options to purchase any such stock.
C. Preferred Shares Issuable in Series. Authority is expressly vested in
the Board of Directors to divide the Preferred Stock into series and, within
the following limitations, to fix and determine the relative rights and
preferences of the shares of any series so established, and to provide for
the issuance thereof. Each series shall be so designated as to distinguish
the shares thereof from the shares of all other series and classes. All
shares of the Preferred Stock shall be identical except as to the following
relative rights and preferences, as to which there may be variations between
different series:
1. The rate of dividend, the time of payment, and the dates from which
they shall be cumulative, and the extent of participation rights, if any;
2. The price at and the terms and conditions on which shares may be
redeemed;
3. The amount payable upon shares in event of involuntary liquidation;
4. The amount payable upon shares in event of voluntary liquidation;
5. Sinking fund provisions for the redemption or purchase of shares;
and
6. The terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion.
Prior to the issuance of any shares of a series of Preferred Stock, the
Board of Directors shall establish such series by adopting a resolution
setting forth the designation and number of shares of the series and the
relative rights and preferences thereof, to the extent permitted by the
provisions hereof, and the Corporation shall file in the office of the State
Corporation Commission of Virginia articles of serial designation as required
by law, and the Commission shall have issued a certificate of serial
designation.
D. Common Characteristics of All Series of Preferred Stock. Each and every
series of Preferred Stock, now existing or hereafter issued, shall have the
following common characteristics:
1. It shall rank on a parity and be of equal dignity as to dividends
and assets with all other series according to the respective dividend rates
and amounts distributable upon any voluntary or involuntary liquidation of
the Corporation fixed for each such series and without preference or priority
of any series over any other series.
2. It shall have no other dividend rights than those set forth in the
provisions pertaining to dividends for such series contained herein or in any
articles of serial designation.
3. If at any time less than all of a series then outstanding shall be
called for redemption, the shares to be redeemed shall be selected by lot in
such manner as may be determined by the Board of Directors.
4. All shares of a series redeemed or repurchased by the Corporation
shall be canceled in the manner provided by law and shall become authorized
and unissued shares undesignated as to series.
5. On or at any time before the date fixed for redemption of any
Preferred Stock which has been issued, the Corporation shall deposit in
trust, for the account of the holders of the shares to be redeemed, funds
necessary for such redemption with a bank or trust company in good standing
doing business in the State of Virginia, and having capital, surplus and
undivided profits aggregating at least $5,000,000, designated or to be
designated in such notice of redemption. Upon the making of such deposit,
then all shares with respect to the redemption shall, whether or not the
certificates therefor shall have been surrendered for cancellation, be deemed
no longer to be outstanding for any purpose, and all rights with respect to
such shares shall thereupon cease and terminate, except the right of the
holders of the certificates for such shares to receive, out of the funds so
deposited in trust, from and after the date of such deposit, the amount
payable upon the redemption thereof, and except for such right, if any, to
convert such shares in the manner prescribed for the series of which it is a
part. At the expiration of three years after the redemption date, any such
moneys then remaining on deposit with such bank or trust company shall be
paid over to the Corporation, free of trust, and thereafter the holders of
the certificates for such shares shall have no claims against such bank or
trust company, but only claims as unsecured creditors against the
Corporation, or against the Commonwealth of Virginia in the event of escheat
by law, for amounts equal to their pro rata shares of the money so paid over.
ARTICLE IV.
The Corporation may, with the approval of a majority of the
entire Board of Directors, establish, adopt, alter, amend or repeal pension
plans, pension trust, profit-sharing plans, stock-option plans, stock-
purchase plans and other incentive, bonus or deferred compensation plans, for
the officers or employees of the Corporation or its subsidiaries, including
employees who are directors of the Corporation or any subsidiary.
ARTICLE V.
A. The number of directors of the Corporation, not less than 3 and not more
than 30, shall be fixed by the Bylaws and in the absence of a Bylaw fixing
the number, shall be sixteen. Upon the adoption of this Paragraph A, of
Article V, the directors shall be divided into three classes (A, B and C), as
nearly equal in number as possible. The initial term of office for members
of Class A shall expire at the annual meeting of stockholders in 1985; the
initial term of office for members of Class B shall expire at the annual
meeting of stockholders in 1986; and the initial term of office for members
of Class C shall expire at the annual meeting of stockholders in 1987. At
each annual meeting of stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, and shall continue to
hold office until their respective successors are elected and qualified. In
the event of any increase in the number of directors fixed in the Bylaws, the
additional directors shall be so classified that all classes of directors
have as nearly equal numbers of directors as may be possible. In the event
of any decrease in the number of directors of the Corporation, all classes of
directors shall be decreased equally as nearly as may be possible.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from an increase by
not more than two in the authorized number of directors or any vacancies in
the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by the
affirmative vote of a majority of the directors then in office, whether or
not a quorum. Each director so chosen shall hold office until the expiration
of the term of the director, if any, whom he has been chosen to succeed, or
if none, until the expiration of the term of the class assigned to the
additional directorship to which he has been elected, or until his earlier
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any director or the entire Board of Directors may be
removed from office at any time, but only the affirmative vote of the holders
of at least four-fifths (80%) of the stock entitled to vote generally in the
election of directors at a meeting called for that purpose.
C. The affirmative vote of the holders of not less than four-fifths (80%)
of the stock entitled to vote generally in the election of directors shall be
required to amend, or repeal this Article V or adopt any provision
inconsistent with this Article V, or to adopt a Bylaw to fix the number of
directors.
ARTICLE VI.
INDEMNIFICATION AND ELIMINATION OF LIABILITY OF
DIRECTORS, ADVISORY DIRECTORS AND OFFICERS
A. The Corporation shall indemnify a person who is or was made a party to
any proceeding, or is threatened to be made a party to any proceeding,
including a proceeding by or in the right of the Corporation, because the
person is or was a director, advisory director, or officer of the Corporation
or because, while a director, advisory director, or officer of the
Corporation, the person is or was serving any other legal entity in any
capacity at the request of the Corporation against all liabilities, fines,
penalties, and claims imposed upon or asserted against the person(including
amounts paid in settlement) and reasonable expenses incurred in the
proceeding (including counsel fees), except such liabilities and expenses as
are incurred because of the person's willful misconduct or knowing violation
of the criminal law. The right to indemnify under this paragraph shall inure
to the benefit of heirs, executors and administrators of such a person. The
Corporation may, upon majority vote of a quorum of disinterested directors,
contract in advance to indemnify and advance the expenses of any director,
advisory director, or officer.
B. Unless a determination has been made that indemnification is not
permissible, the Corporation shall make advances and reimbursements for
expenses incurred by a director, advisory director, or officer in a
proceeding upon receipt of an undertaking from the director, advisory
director, or officer to repay the same if it is ultimately determined that
the director, advisory director, or officer is not entitled to
indemnification. Such undertaking shall be an unlimited unsecured general
obligation of the director, advisory director, or officer and shall be
accepted without reference to his ability to make repayment.
C. The Corporation may, to a lesser extent or to the same extent that the
Corporation is required to provide indemnification and make advances and
reimbursements for expenses to its present or former directors, advisory
directors, and officers, provide indemnification and make advances and
reimbursements for expenses to its present or former employees and agents,
the directors, advisory directors, officers, employees and agents of its
affiliates, subsidiaries and predecessor entities, and any person serving in
any other legal entity in any capacity at the request of the Corporation, and
may contract in advance to do so. The determination that indemnification
under this paragraph is permissible, the authorization of such
indemnification and the evaluation as to the reasonableness of expenses in a
specific case shall be made as authorized from time to time by general or
specific action of the Board of Directors, which action may be taken before
or after a claim for indemnification is made, or as otherwise provided by
law.
D. In any proceeding brought by a shareholder in the right of the
Corporation or brought by or on behalf of shareholders of the Corporation, no
damages may be assessed against a director, advisory director or officer of
the Corporation arising out of a single transaction, occurrence or course of
conduct, provided that this elimination of liability shall not be applicable
if the director, advisory director or officer engaged in willful misconduct
or knowing violation of the criminal law or of any federal or state
securities law.
E. The provisions of this Article shall be applicable from and after its
adoption, even though some or all of the underlying conduct or events
relating to the proceeding with respect to which indemnity is claimed may
have occurred before such adoption. No amendment, modification or repeal of
this Article shall diminish the rights provided hereunder to any person
arising from conduct or events occurring before the adoption of such
amendment, modification or repeal.
F. The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance on behalf of any person who
is or was a director, advisory director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against any
liability or expenses incurred by such person in any such capacity or arising
from the person's status as such, whether or not the Corporation would have
the power to indemnify the person against such liability under the provisions
of this Article.
ARTICLE VII.
SERIAL DESIGNATIONS
The first series of Preferred Stock, consisting of 522,500 shares, is
designated as "Series A Preferred Stock." Said series, in addition to the
common characteristics described in section D of ARTICLE III, is issued
subject to the following terms and conditions:
DIVIDENDS:
The holders of the Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, yearly dividends at
the rate of 5% per annum, payable quarterly on such dates as the Board of
Directors shall determine, together with proper adjustment for any dividend
period which is less than a full quarter. Such dividends shall be paid
before any dividends are paid upon, or set apart for, the Common Stock of the
Corporation and shall be cumulative from the date of issuance so that if for
any quarterly dividend period dividends at the rate of 5% per annum shall not
have been paid upon or set apart for the Series A Preferred Stock, the
deficiency, with interest thereon at the rate of six percent (6%) per annum
on such dividends as are in arrears, shall be fully paid or set apart for
payment before any dividends shall be paid upon, or set apart for, the Common
Stock.
REDEMPTION:
The Corporation shall have no right to redeem the Series A Preferred
Stock until five years after the date on which it is issued. Thereafter, all
or any part thereof may be redeemed at any time at the option of the Board of
Directors upon not less than forty-five nor more than ninety days written
notice of the date fixed for redemption given to the holders thereof in the
manner in which notices of stockholders' meetings are required to be given by
law. The redemption price at any time during the sixth year after such
stock is issued shall be $10.50 per share. Thereafter during the seventh
and each subsequent full year after such stock is issued the redemption price
shall be reduced by 5 cents per share per year until the beginning of the
sixteenth full year after it is issued, after which time it may be redeemed
for $10 per share. In addition the redemption price shall include all unpaid
accrued dividends, with interest thereon at the rate of six percent (6%) per
annum on such dividends as are in arrears, to the date fixed for redemption.
LIQUIDATION:
1. In the event of the voluntary dissolution of the Corporation and
the distribution of its assets to its stockholders, if there is no other
series of Preferred Stock issued or outstanding, then the holders of the
Series A Preferred Stock shall be entitled to receive the then redemption
price for their shares plus all unpaid accrued dividends, with interest
thereon at the rate of six percent (6%) per annum on such dividends as are in
arrears, to the date of payment before any amount shall be paid to the
holders of the Common Stock.
2. In the event of the voluntary dissolution of the Corporation and
the distribution of its assets to its stockholders, if there are other series
of Preferred Stock issued and outstanding, then the holders of the Preferred
Stock of all series shall be preferred as to both dividends and assets over
the holders of the Common Stock. In such event the holders of the Series A
Preferred Stock shall be entitled to receive the then redemption price for
their shares plus all unpaid accrued dividends, with interest thereon at the
rate of six percent (6%) per annum on such dividends as are in arrears, to
the date of payment before any amount shall be paid to the holders of the
Common Stock. If, for any reason, there are insufficient assets to pay these
amounts to the holders of the Series A Preferred Stock and to pay the holders
of other series of preferred stock the amounts to which they are also
entitled, then the holders of the Series A Preferred Stock and of such other
preferred stock, as stated aforesaid, shall be paid ratably in proportion to
the amounts to which they are respectively entitled.
3. The provisions hereinabove set forth with regard to a voluntary
dissolution of the Corporation shall also be applicable to an involuntary
dissolution except that the holders of Preferred Stock shall only be entitled
to receive, in addition to dividends and interest, if any, the par value of
their shares in lieu of the then redemption price.
CONVERSION:
1. At the election of the holder, shares of Series A Preferred Stock
may be converted into shares of the Common Stock ($1 par value) of the
Corporation at any time at the following listed Basic Conversion Rates, or at
such Adjusted Conversion Rates as may hereafter be determined by application
of the formulae set forth in paragraph 8, subject to the following listed
terms and conditions:
a. Until and including March 31, 1977 (herein called the first
conversion period) the Basic Conversion Rate shall be 1.40 shares of Common
Stock for one share of Series A Preferred Stock;
b. Thereafter, until and including March 31, 1982 (herein called
the second conversion period) the Basic Conversion Rate shall be 1.20 shares
of Common Stock for one share of Series A Preferred Stock;
c. Thereafter for as long as any Series A Preferred Stock shall
remain outstanding (herein called the third conversion period) the Basic
Conversion Rate shall be one share of Common Stock for one share of Series A
Preferred Stock.
2. Any holder of shares of Series A Preferred Stock desiring to
convert the same shall, during regular business hours, deliver the
certificate(s) therefor, properly endorsed, to any transfer agent therefor or
to any transfer agent for the Common Stock of the Corporation, or to the
Corporation, if there be no such transfer agent, together with a notice in
writing of his election to convert the same, and shall receive, in exchange
therefor a certificate or certificates for shares of Common Stock in
accordance with the conversion rate prevailing with respect to shares of
Series A Preferred Stock upon the day of delivery of such notice accompanied
by such certificate(s) for the shares of Series A Preferred Stock to be
converted. All shares of Series A Preferred Stock surrendered for conversion
during any day shall be deemed to have been surrendered together as of the
close of business on such day in order that a single conversion rate as to
all of such shares shall be determined after giving effect to any
transactions affecting the conversion rate during or prior to such day.
3. The right of conversion shall expire as to any shares of Series A
Preferred Stock which shall be called for redemption unless, on or before the
day and hour for the expiration of the right of conversion specified in the
notice of redemption, the certificate(s) representing such shares together
with the notice hereinabove provided for shall have been delivered as
provided in the foregoing paragraph 2. In case of voluntary or involuntary
dissolution of the Corporation all conversion rights applicable to shares of
Series A Preferred Stock shall terminate at 2 P.M. Eastern Standard Time, on
the sixtieth day next following the date on which such dissolution shall
have been authorized by the stockholders of the Corporation, or otherwise
ordered, and in case of such dissolution, the Corporation shall notify the
holders of the Series A Preferred Stock in the same manner that it is
required to give notice of a redemption of such stock that the conversion
rights of the shares of Series A Preferred Stock will terminate, which notice
shall specify the date of such termination and the conversion rate then in
effect applicable to the shares of Series A Preferred Stock.
4. As to any shares of Series A Preferred Stock converted or any
shares of Common Stock issuable on conversion no dividends shall be deemed to
have accrued at the time of conversion and the holders thereof shall only
receive such dividends as they are entitled to receive as holders of record
on the dates dividends are declared.
5. The Corporation shall not be required to issue any fraction of a
share upon conversion of any share or shares of Series A Preferred Stock. If
more than one share of Series A Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis
of the total number of shares of Series A Preferred Stock so surrendered. If
any fractional interest in a share of Common Stock would be deliverable upon
conversion, the Corporation shall make an adjustment therefor in cash unless
its Board of Directors shall have determined to adjust fractional interests
by issuance of scrip certificates or in some other manner. Adjustment in
cash shall be made on the basis of the Current Market Value of one share of
Common Stock as that term is defined in paragraph 8C below.
6. If the holder of any shares of Series A Preferred Stock so
surrendered for conversion shall request that the stock certificate(s)
representing the Common Stock issuable upon such conversion be issued in the
name of a person or names of persons other than the holder of record thereof,
such holder shall pay all stock transfer taxes that may be payable in respect
thereof. The Corporation shall pay all original issue taxes imposed, if
any, in respect of the issuance of Common Stock upon conversion of shares of
Series A Preferred Stock in order that such shares may be issued in the name
or names of the respective holder or holders of record of the shares of
Series A Preferred Stock so surrendered for conversion.
7. No adjustment shall be made in the Basic Conversion Rates,
hereinabove specified, or in any Adjusted Conversion rate which may be in
effect at any time if the Corporation shall (i) issue or sell any shares of
its Common Stock or securities convertible into Common Stock to the public
for cash or to the public or others in consideration for the acquisition by
the Corporation or any of its subsidiaries of all or a portion of the stock
or assets of any corporation, partnership, or proprietorship, for the
business purposes of the Corporation, or (ii) issue or sell any rights to
purchase shares of its Common Stock to the then holders of its Common Stock
if, at the same time, similar rights are offered to the then holders of the
Series A Preferred Stock in such a manner that each of them receives the same
rights to purchase shares of Common Stock that he would have received if he
had converted his shares of Series A Preferred Stock into Common Stock
immediately prior to the time such rights were issued, or (iii) issue or sell
any shares of its Common Stock to the holders of the warrants outstanding on
March 24, 1967, which warrants provided for the sale and purchase of 350,000
shares of Common Stock, or (iv) issue any shares of its Common Stock to the
holders of the options outstanding on March 24, 1967, which options provided
for the sale and purchase of 46,500 shares of Common Stock, or (v) issue any
shares of its Common Stock pursuant to its Incentive Bonus Plan initially
approved by the stockholders on April 28, 1966, or (vi) issue any shares of
its Common Stock upon the exercise of rights, warrants or options, the
execution of stock purchase contracts, or the conversion of convertible
securities if, at the time such rights, warrants or options were issued, such
stock purchase contracts entered into, or such convertible securities were
issued the conversion rates then in effect were adjusted, in the manner
hereinafter described in paragraph 8 or if, at that time, no adjustments in
conversion rates were required by the provisions of paragraph 8.
8. Except as is provided in paragraph 7 above the conversion rates in
effect from time to time shall be subject to adjustments, made to the nearest
one-hundredth share of Common Stock, as follows:
A. If the Corporation shall pay any dividend or make any other distribution
in shares of Common Stock or in securities convertible into Common Stock the
conversion rate for each conversion period in effect immediately prior to
such action shall be proportionately increased so that the holders of the
Series A Preferred Stock shall be able to convert their shares of Series A
Preferred Stock into a number of shares of Common Stock equal to the same
percentage of the shares of Common Stock outstanding immediately after the
payment of such dividend or the making of such distribution into which they
could have converted their shares of Series A Preferred Stock immediately
prior to the payment of such dividend or the making of such distribution.
For purpose of determining the number of shares of Common Stock outstanding
both before and after the payment of such dividend or the making of such
distribution all rights (which term as hereinafter used in the description of
the Series A Preferred Stock shall be deemed to mean rights, warrants or
options) and contracts (which term as hereinafter used in the description of
the Series A Preferred Stock shall be deemed to mean contracts or agreements
of any kind) then outstanding for the purchase of shares of Common Stock and
all of the then outstanding securities issued by the Corporation which are
convertible into shares of Common Stock shall be deemed to have been
exercised or converted in the manner which they could have been exercised or
converted immediately prior to the paying of such dividend or the making of
such distribution or, if any of them could not have been exercised or
converted on that date in accordance with their terms, then such rights,
contracts and convertible securities shall be deemed to have been exercised
or converted in the manner which they could be exercised or converted on the
date upon which they first become exercisable or convertible.
B. If the Corporation shall split the outstanding shares of its Common
Stock into a greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares the conversion rates for each
conversion period in effect immediately prior to such action shall be
proportionately increased, in the case of a split, or decreased, in case of a
combination, so that the holders of the Series A Preferred Stock shall be
able to convert their shares of Series A Preferred Stock into a number of
shares of Common Stock equal to the same percentage of the shares of Common
Stock outstanding immediately after the completion of such action into which
they could have converted their shares of Series A Preferred Stock
immediately prior to the taking of such action. For the purpose of
determining the number of the shares of Common Stock outstanding both before
and after the taking of such action all rights, contracts, and convertible
securities then outstanding for the purchase of shares of Common Stock shall
be deemed to have been exercised or converted in the manner which they could
have been exercised or converted immediately prior to such split or
combination or, if any of them could not have been exercised or converted on
that date in accordance with their terms, then such rights, contracts and
convertible securities shall be deemed to have been exercised or converted in
the manner which they could be exercised or converted on the date upon which
they first become exercisable or convertible.
C. If the Corporation shall issue any rights or enter into any contracts
for the purchase of shares of its Common Stock, whether or not said rights or
contracts can be exercised or executed immediately, at a price (including the
consideration received for such rights or contracts) which is less than
ninety-five percent of the Current Market Value (as defined below in this
paragraph) of the Common Stock of the Corporation on the date such rights are
issued or such contracts are entered into, the conversion rates for each
conversion period in effect immediately prior to such date shall be increased
to an amount determined by multiplying such conversion rates by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the date such rights are issued or such
contracts entered into plus the number of additional shares of Common Stock
offered for sale pursuant to such rights or contracts and the denominator of
which shall be the number of shares of Common Stock of the Corporation
outstanding immediately prior to such date plus the number of shares of
Common Stock of the Corporation which the aggregate subscription or purchase
price (including the consideration received for such rights or contracts) of
the total number of shares offered pursuant to said rights or contracts would
purchase at the Current Market Value of the Common Stock of the Corporation
at such date. For the purpose of determining the number of shares of Common
Stock of the Corporation outstanding immediately prior to the issue of such
rights or the making of such contracts all outstanding rights and contracts
for the purchase of shares of Common Stock and all securities issued by the
Corporation which are convertible into shares of Common Stock shall be deemed
to have been exercised or converted in the manner which they could have been
exercised or converted immediately prior to the issuing of such rights or the
making of such contracts or, if any then outstanding rights or contracts or
any then outstanding convertible securities could not have been exercised or
converted on that date in accordance with their terms, then such outstanding
rights, contracts and convertible securities shall be deemed to have been
exercised or converted in the manner which they could be exercised or
converted on the date upon which they first become exercisable or
convertible. As used in this paragraph the term Current Market Value at the
date of issue of such rights or making of such contracts shall mean the last
reported sales price per share of the Common Stock of the Corporation on the
American Stock Exchange or the New York Stock Exchange on such date, if the
shares are listed on either of said exchanges, or the mean of the low bid and
high asked price in the over-the-counter market on such day if such shares
are not listed on either of said exchanges.
D. If the Corporation shall issue any rights or enter into any contracts
for the purchase of any security convertible into shares of its Common Stock,
whether or not said rights or contracts can be exercised or executed
immediately, and, on the date such rights are issued or such contracts are
made the price per share of each share of Common Stock of the Corporation
into which such security is initially convertible (including the
consideration received for such rights or contracts) is less than ninety-
five per cent of the Current Market Value of the Common Stock of the
Corporation, as defined in paragraph C above, then the conversion rates for
each conversion period in effect immediately prior to the issue of such
rights or the making of such contracts shall be increased in the manner
hereinabove described in paragraph C in the same manner as if such rights
or contracts were rights or contracts to purchase the number of shares of
Common Stock represented by such convertible securities on the date they are
issued, if they are convertible on the date on which they are issued and, if
not, the number of shares of Common Stock represented by such convertible
securities on the date when they first become convertible.
E. If any rights or contracts to purchase any shares of Common Stock or
convertible securities of the Corporation shall be issued in connection with
the issue or sale of other securities of the Corporation, such rights or
contracts shall be deemed to have been issued or sold without consideration.
F. If the Corporation shall consolidate or merge with another corporation,
or reclassify its Common Stock (other than by way of subdivision or
contraction of outstanding shares of Common Stock) each share of Series A
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property of the Corporation or of the
corporation resulting from such consolidation, merger, or reclassification,
to which the Common Stock of the Corporation, deliverable upon conversion of
shares of Series A Preferred Stock, would have been entitled, upon such
consolidation, merger or reclassification had the holder of such share of
Series A Preferred Stock exercised his right of conversion in the manner in
which it could have been exercised on the date of such consolidation, merger
or reclassification or, if it could not have been converted on that date,
then in the manner in which it could have first been exercised thereafter,
and such shares of Common Stock been issued and outstanding, and had such
holder been the holder of record of such Common Stock at the time thereof,
and lawful provision therefor shall be made as part of any such
consolidation, merger or reclassification.
G. If (i) The Corporation shall declare any dividend payable otherwise than
in cash upon its Common Stock to the holders of its Common Stock, or (ii) The
Corporation shall offer only to the holders of its Common Stock any
additional shares of stock of any class of the Corporation or any right to
subscribe thereto, or (iii) Any capital reorganization, or reclassification
of the capital stock of the Corporation, or consolidation or merger of the
Corporation with another corporation, or sale of all or substantially all of
the assets of the Corporation shall be proposed, then, in any one or more of
said events, the Corporation shall notify the holders of the Series A
Preferred Stock in the same manner that it is required to give notice of the
redemption of said stock prior to the date on which (a) the books of the
Corporation shall close, or a record be taken for such stock dividend or
subscription rights, or (b) such reclassification, reorganization,
consolidation, merger or sale, shall take place, as the case may be. Such
notice shall also state the conversion rate at the time in effect applicable
to the shares of Series A Preferred Stock.
H. The Corporation shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of shares of Series A Preferred Stock, such number of shares of
Common Stock as, from time to time, shall be sufficient to effect the
conversion of all shares of Series A Preferred Stock from time to time
outstanding. The Corporation, from time to time, shall in accordance with
the laws of the Commonwealth of Virginia, increase the authorized amount of
its Common Stock if at any time the number of shares of Common Stock
remaining unissued shall not be sufficient to permit the conversion of all
shares of Series A Preferred Stock then outstanding.
I. The exercise of the conversion privilege shall be subject to such
regulations not inconsistent with the provisions of this paragraph 8 as may
at any time or from time to time be adopted by resolution of the Board of
Directors, and any resolution so adopted may, at any time or from time to
time, be amended or repealed.
MISCELLANEOUS:
1. There shall be no sinking fund provided for the redemption of
shares of Series A Preferred Stock.
2. The Corporation may not redeem any shares of its Common Stock so
long as any dividends on its Series A Preferred Stock are in arrears.
ARTICLE VIII.
The second series of Preferred Stock, consisting of 84,000 shares, is
designated as "Second Series A Preferred Stock." Said series, in addition
to the common characteristics described in Section D of ARTICLE III, is
issued subject to the following terms and conditions (whenever the words
"Identical to ARTICLE VII" appear next to a subject heading or paragraph(s)
thereof, they shall be taken to mean (i) that the entire contents of the
particular heading or paragraph(s) thereof, as the case may be, are identical
to the corresponding provisions pertaining to "Series A Preferred Stock" set
forth in ARTICLE VII hereof, except that each reference therein to "Series A
Preferred Stock" is changed to "Second Series A Preferred Stock," and (ii)
that such corresponding provisions of ARTICLE VII, with each reference
therein to "Series A Preferred Stock" changed to "Second Series A Preferred
Stock," are incorporated herein verbatim by reference):
DIVIDENDS: All provisions are Identical to ARTICLE VII.
REDEMPTION: All provisions are Identical to ARTICLE VII.
LIQUIDATION: All provisions are Identical to ARTICLE VII.
CONVERSION: Paragraphs 1, 2, 3, 4, 5 and 6 pertaining to
CONVERSION are Identical to ARTICLE VII.
7. No adjustment shall be made in the Basic Conversion Rates,
hereinabove specified, or in any Adjusted Conversion Rate which may be in
effect at any time if the Corporation shall (i) issue or sell any shares of
its Common Stock or securities convertible into Common Stock to the public
for cash or to the public or others in consideration for the acquisition by
the Corporation or any of its subsidiaries of all or a portion of the stock
or assets of any corporation, partnership, or proprietorship, for the
business purposes of the Corporation, or (ii) issue or sell any rights to
purchase shares of its Common Stock to the then holders of its Common Stock
if, at the same time, similar rights are offered to the then holders of the
Second Series A Preferred Stock in such a manner that each of them receives
the same rights to purchase shares of Common Stock that he would have
received if he had converted his shares of Second Series A Preferred Stock
into Common Stock immediately prior to the time such rights were issued, or
(iii) issue or sell any shares of its Common Stock to the holders of the
warrants outstanding on February 16, 1968, which warrants provided for the
sale and purchase of 350,000 shares of Common Stock, or (iv) issue any
shares of its Common Stock to the holders of the options outstanding on
February 16, 1968, which options provided for the sale and purchase of
42,500 shares of Common Stock, or (v) issue any shares of its Common Stock
pursuant to its Incentive Bonus Plan initially approved by the stockholders
on April 28, 1966, or (vi) issue any shares of its Common Stock upon the
exercise of rights, warrants or options, the execution of stock purchase
contracts, or the conversion of convertible securities if, at the time such
rights, warrants or options were issued, such stock purchase contracts
entered into, or such convertible securities were issued the conversion rates
then in effect were adjusted, in the manner hereinafter described in
paragraph 8 or if, at that time, no adjustments in conversion rates were
required by the provisions of paragraph 8.
Paragraph 8 and subparagraphs A through I thereunder, inclusive,
pertaining to CONVERSION are Identical to ARTICLE VII.
MISCELLANEOUS: All provisions are Identical to ARTICLE VII.
ARTICLE IX.
The third series of Preferred Stock, consisting of 80,000 shares, is
designated as "Third Series A Preferred Stock." Said series, in addition to
the common characteristics described in section D of ARTICLE III, is issued
subject to the following terms and conditions (whenever the words "Identical
to ARTICLE VII" appear next to a subject heading or paragraph(s) thereof,
they shall be taken to mean (i) that the entire contents of the particular
heading or paragraph(s) thereof, as the case may be, are identical to the
corresponding provisions pertaining to "Series A Preferred Stock" set forth
in ARTICLE VII hereof, except that each reference therein to "Series A
Preferred Stock" is changed to "Third Series A Preferred Stock," and (ii)
that such corresponding provisions of ARTICLE VII, with each reference
therein to "Series A Preferred Stock" changed to "Third Series A Preferred
Stock," are incorporated herein verbatim by reference):
DIVIDENDS: All provisions are Identical to ARTICLE VII.
REDEMPTION: All provisions are Identical to ARTICLE VII.
LIQUIDATION: All provisions are Identical to ARTICLE VII.
CONVERSION: Paragraphs 1, 2, 3, 4, 5 and 6 pertaining to
CONVERSION are identical to ARTICLE VII.
7. No adjustment shall be made in the Basic Conversion Rates,
hereinabove specified, or in any Adjusted Conversion Rate which may be in
effect at any time if the Corporation shall (i) issue or sell any shares of
its Common Stock or securities convertible into Common Stock to the public
for cash or to the public or others in consideration for the acquisition by
the Corporation or any of its subsidiaries of all or a portion of the stock
or assets of any corporation, partnership, or proprietorship, for the
business purposes of the Corporation, or (ii) issue or sell any rights to
purchase shares of its Common Stock to the then holders of its Common Stock
if, at the same time, similar rights are offered to the then holders of the
Third Series A Preferred Stock in such a manner that each of them receives
the same rights to purchase shares of Common Stock that he would have
received if he had converted his shares of Third Series A Preferred Stock
into Common Stock immediately prior to the time such rights were issued, or
(iii) issue or sell any shares of its Common Stock to the holders of the
warrants outstanding on October 2, 1968, which warrants provided for the sale
and purchase of 350,000 shares of Common Stock, or (iv) issue any shares of
its Common Stock to the holders of the options outstanding on October 2,
1968, which options provided for the sale and purchase of 38,875 shares of
Common Stock, or (v) issue any shares of its Common Stock pursuant to its
Incentive Bonus Plan initially approved by; the stockholders on April 28,
1966, or (vi) issue any shares of its Common Stock upon the exercise of
rights, warrants or options, the execution of stock purchase contracts, or
the conversion of convertible securities if, at the time such rights,
warrants or options were issued, such stock purchase contracts entered into,
or such convertible securities were issued the conversion rates then in
effect were adjusted, in the manner hereinafter described in paragraph 8 or
if, at that time, no adjustments in conversion rates were required by the
provisions of paragraph 8.
Paragraph 8 and subparagraphs A through I thereunder, inclusive,
pertaining to CONVERSION are identical to ARTICLE VII.
MISCELLANEOUS: All provisions are Identical to ARTICLE VII.
ARTICLE X.
A. Higher Vote for Certain Business Combinations. In addition to any
affirmative vote of holders of a class or series of capital stock of the
Corporation required by law or these Articles, and except as otherwise
expressly provided in Section B of this Article X, a Business Combination
(as hereinafter defined) with or upon a proposal by a Related Person (as
hereinafter defined) shall require the affirmative vote of the holders of at
least eighty percent (80%) of the voting power of the voting stock of the
Corporation, voting together as a single class.
B. When Higher Vote Is Not Required. The provisions of Section A of this
Article X shall not be applicable to a particular Business Combination and
such Business Combination shall require only such affirmative vote as is
required by law and other provisions of the Articles or the Bylaws of the
Corporation, if all of the conditions specified in any one of the following
Paragraphs (1), (2) or (3) are met:
1. Approval by Directors. The Business Combination has been approved
by a vote of a majority of directors, which includes a majority of all the
Continuing Directors (as hereinafter defined); or
2. Combination with Subsidiary. The Business Combination is solely
between the Corporation and a subsidiary of the Corporation; or
3. Price Conditions and Procedures. All of the following conditions
have been met:
a. Such holders shall receive the aggregate amount of (i) cash
and (ii) fair market value (as of the date of the consummation of the
Business Combination) of consideration other than cash, per share of Common
or Preferred in such Business Combination by holders thereof at least equal
to the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by the Related Person for
any shares of such class or series of stock acquired by it; provided, that if
the highest preferential amount per share of a series of Preferred Stock to
which the holders thereof would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the affairs of the
Corporation (regardless of whether the Business Combination to be consummated
constitutes such an event) is greater than such aggregate amount, holders of
such series of Preferred Stock shall receive an amount for each such share at
least equal to the highest preferential amount applicable to such series of
Preferred Stock.
b. The consideration to be received by holders of a particular
class or series of outstanding Common or Preferred Stock shall be in cash or
in the same form as the Related Person has previously paid for shares of such
class or series of stock. If the Related Person has paid for shares of any
class or series of stock with varying forms of consideration, the form of
consideration given for such class or series of stock in the Business
Combination shall be either cash or the form used to acquire the largest
number of shares of such class or series of stock previously acquired by it.
c. No Extraordinary Event (as hereinafter defined) occurs after
the Related Person has become a Related Person and prior to the
consummation of the Business Combination.
d. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(or any subsequent provisions replacing such Act, rules or regulations) is
mailed to public stockholders of the Corporation at least 30 days prior to
the consummation of such Business Combination (whether or not such proxy or
information statement is required pursuant to such Act or subsequent
provisions).
C. Certain Definitions. For purposes of this Article X:
1. A "person" shall mean any individual, firm, corporation or other
entity, or a group of "persons" acting or agreeing to act in the manner set
forth in Rule 13d-5 under the Securities Exchange Act of 1934, as in effect
on January 1, 1984.
2. The term "Business Combination" shall mean any of the following
transactions, when entered into by the Corporation, or a subsidiary of the
Corporation, with, or upon a proposal by, a Related Person:
a. the merger or consolidation of the Corporation, or any
subsidiary of the Corporation; or
b. the sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one or a series of transactions) of any assets of the
Corporation or any subsidiary of the Corporation having an aggregate fair
market value of $5,000,000 or more; or
c. the issuance or transfer by the Corporation or any subsidiary
of the Corporation (in one or a series of transactions) of securities of the
Corporation or that subsidiary having an aggregate fair market value of
$5,000,000 or more; or
d. the adoption of a plan or proposal for the liquidation or
dissolution of the Corporation; or
e. the reclassification of securities (including a reverse stock
split), recapitalization, consolidation or any other transaction (whether or
not involving a Related Person) which has the direct or indirect effect of
increasing the voting power, whether or not then exercisable, of a Related
Person in any class or series of capital stock of the Corporation or any
subsidiary of the Corporation; or
f. any agreement, contract or other arrangement providing
directly or indirectly for any of the foregoing.
3. The term "Related Person" shall mean any person (other than the
Corporation, a subsidiary of the Corporation or any profit sharing, employee
stock ownership or other employee benefit plan of the Corporation or a
subsidiary of the Corporation or any trustee of or fiduciary with respect to
any such plan acting in such capacity) that is the direct or indirect
beneficial owner (as defined in Rule 13d-3 and Rule 13d- 5 under the
Securities Exchange Act of 1934, as in effect on January 1, 1984) of five
percent (5%) or more than five percent (5%) of the outstanding capital stock
of the Corporation entitled to vote for the election of directors, and any
Affiliate or Associate of any such person.
4. The term "Continuing Director" shall mean any member of the Board
of Directors who is not affiliated with a Related Person and who was a member
of the Board of Directors immediately prior to the time that the Related
Person became a Related Person, and any person who is not affiliated with
the Related Person and is recommended to be a Continuing Director by a
majority of Continuing Directors who are then members of the Board of
Directors.
5. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of
1934, as in effect on January 1, 1984.
6. The term "Extraordinary Event" shall mean, as to any Business
Combination and Related Person, any of the following events that is not
approved by a majority of all Continuing Directors:
a. any failure to declare and pay at the regular date therefor
any full quarterly dividend (whether or not cumulative) on outstanding
Preferred Stock; or
b. any reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the Common
Stock); or
c. any failure to increase the annual rate of dividends paid on
the Common Stock as necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or any similar
transaction that has the effect of reducing the number of outstanding shares
of the Common Stock; or
d. the receipt by the Related Person, after such Related Person
has become a Related Person, of a direct or indirect benefit (except
proportionately as a shareholder) from any loans, advances, guarantees,
pledges or other financial assistance or any tax credits or other tax
advantages provided by the Corporation or any subsidiary of the Corporation,
whether in anticipation of or in connection with the Business Combination or
otherwise.
7. A majority of the Continuing Directors shall have the power to make
all determinations with respect to this Article X, including, without
limitation, determining the transactions that are Business Combinations, the
persons who are Related Persons, the time at which a Related Person became a
Related Person, and the fair market value of any assets, securities or other
property, and any such determinations of such Continuing Directors shall be
conclusive and binding.
D. No Effect on Fiduciary Obligations of Related Persons. Nothing
contained in this Article X shall be construed to relieve any Related Person
from any fiduciary obligation imposed by law.
E. Amendment or Repeal. The affirmative vote of the holders of not less
than eighty percent (80%) of the total voting power of the voting stock of
the Corporation, voting together as a single class, shall be required in
order to amend or repeal this Article X or adopt any provision inconsistent
with this Article X.
ARTICLE XI.
A. The power to adopt, alter, amend or repeal Bylaws shall be vested in
the Board of Directors, which may take such action by the vote of a majority
of the directors present and voting at a meeting where a quorum is present,
provided that if, as of the date such action shall occur, there is a Related
Person as defined in this Article XI of the Articles of Incorporation, such
majority shall include a majority of the Continuing Directors as defined in
this Article XI of the Articles of Incorporation; the stockholders, by the
affirmative vote of the holders of not less than 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, may
adopt new Bylaws, or alter, amend or repeal Bylaws adopted by either the
stockholders or the Board of Directors. In addition, the stockholders may
prescribe by the affirmative vote of the holders of not less than 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 that any Bylaw made by them shall not be altered, amended or
repealed by the Board of Directors.
B. This Article shall not be amended, modified or repealed except by the
affirmative vote of the holders of not less than four-fifths (80%) of the
voting power of all of the then outstanding shares of capital stock of the
Corporation then entitled to vote generally in the election of directors.
C. Certain Definitions. For purposes of this Article XI:
1. A "person" shall mean any individual, firm, corporation or other
entity, or a group of "persons" acting or agreeing to get together in the
manner set forth in Rule 13d-5 under the Securities Exchange Act of 1934, as
in effect on January 1, 1984.
2. The term "Related Person" shall mean any person (other than the
Corporation, a subsidiary of the Corporation or any profit sharing, employee
stock ownership or other employee benefit plan of the Corporation or a
subsidiary of the Corporation or any trustee of or fiduciary with respect to
any such plan acting in such capacity) that is the direct or indirect
beneficial owner (as defined in Rule 13d-3 and Rule 13d-5 under the
Securities Exchange Act of 1934, as in effect on January 1, 1984) of five
percent (5%) or more than five percent (5%) of the outstanding capital stock
of the Corporation entitled to vote for the election of directors, and any
Affiliate or Associate of any such person.
3. The term "Continuing Director" shall mean any member of the Board
of Directors who is not affiliated with a Related Person and who was a
member of the Board of Directors immediately prior to the time that the
Related Person became a Related Person, and any successor to a Continuing
Director who is not affiliated with the Related Persons and is recommended to
succeed a Continuing Director by a majority of Continuing Directors who are
then members of the Board of Directors.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of
1934, as in effect on January 1, 1984.
ARTICLE XII.
A. A seventh series of Preferred Stock, par value $10.00 per share, is
created as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series E Participating Preferred Stock," and the number of
shares constituting such series shall be 300,000. Such number of shares may
be increased or decreased by resolution of the Board of Directors; provided,
that no decrease shall reduce the number of shares of Series E Participating
Preferred Stock to a number less than that of the shares then outstanding
plus the number of shares issuable upon exercise of outstanding rights,
options or warrants or upon conversion of outstanding securities issued by
the Corporation.
Section 2. Dividends and Distributions.
(A) The holders of shares of Series E Participating Preferred Stock in
preference to the holders of shares of Common Stock, par value $1.00 per
share (the "Common Stock"), of the Corporation and any other junior stock,
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of January, April, July and October in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series E
Participating Preferred Stock in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1.00, or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise), declared on the Common
Stock, since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series E Participating
Preferred Stock. In the event the Corporation shall at any time after August
8, 1988 (the "Rights Declaration Date") (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount to which holders of
shares of Series E Participating Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series E Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
share on the Series E Participating Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series E Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series E
Participating Preferred Stock unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of
holders of shares of Series E Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date
in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series E
Participating Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by- share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series E Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for
the payment thereof.
Section 3. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series E Participating Preferred Stock as provided in Section
2 are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series E Participating
Preferred Stock outstanding shall have been paid in full, the Corporation
shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series E Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series E Participating
Preferred Stock except dividends paid ratably on the Series E Participating
Preferred Stock and all such parity stock on which dividends are payable or
in arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series E Participating
Preferred Stock provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior (either as to dividends
or upon dissolution, liquidation or winding up) to the Series E Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series E Participating Preferred Stock or any shares of stock ranking on a
parity with the Series E Participating Preferred Stock except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section
3, purchase or otherwise acquire such shares at such time and in such manner.
Section 4. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series E Participating
Preferred Stock unless, prior thereto, the holders of shares of Series E
Participating Preferred Stock shall have received per 1/100 share thereof,
the greater of the issuance price thereof or the payment made per share of
Common Stock, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment
(the "Series E Liquidation Preference"). Following the payment of the full
amount of the Series E Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series E Participating Preferred
Stock unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series E Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in subparagraph C below to reflect such
events as stock splits, stock dividends and recapitalizations with respect to
the Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series E Liquidation
Preference and the Common Adjustment in respect to all outstanding shares of
Series E Participating Preferred Stock and Common Stock, respectively,
holders of Series E Participating Preferred Stock and holders of shares of
Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to 1
with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series E Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series E Participating Preferred Stock then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event there
are not sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 5. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
the shares of Series E Participating Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series
E Participating Preferred Stock shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that are outstanding immediately prior to
such event.
Section 6. Redemption. The shares of Series E Participating Preferred
Stock shall not be redeemable.
Section 7. Ranking. The Series E Participating Preferred Stock shall
rank on a parity with all other series of the Corporation's Preferred Stock
as to the payment of dividends and the distribution of assets.
Section 8. Amendment. The Articles of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series E
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
shares of Series E Participating Preferred Stock voting separately as a
class.
Section 9. Fractional Shares. Series E Participating Preferred Stock
may be issued in fractions of a share which shall entitle the holder in
proportion to such holders' fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all other rights of holders of Series E Participating Preferred Stock.
ARTICLE XIII.
Except as otherwise provided under Article V, Article X and Article XI,
these Articles of Incorporation may be amended by the affirmative vote of a
majority of all votes entitled to be cast by each voting group of the
Corporation entitled to vote on the amendment at a meeting at which a quorum
of each voting group exists.
Exhibit 3
BYLAWS
OF
FIRST VIRGINIA BANKS, INC.
(With Amendments through February 22, 1995)
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held on such date each year
that shall be established by the board of directors; however, if no such
date is established, then the annual meeting shall be on the fourth Wednesday
in April each year, if not a legal holiday, and if so, then on the next
succeeding business day.
Section 2. Special Meetings. Except as provided in Article II, Section
4 of these bylaws, special meetings of the stockholders shall be called by
the president or secretary only at the written request of a majority of the
directors, provided that, if as of the date of the request for such special
meeting there is a Related Person as defined in Article X of the Articles of
Incorporation, such majority shall include a majority of the Continuing
Directors, as defined in Article X of the Articles of Incorporation or by the
holders of four-fifths (80%) of the voting power of all of the then
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors. The request shall state the purpose
or purposes for which the meeting is to be called. The notice of every
special meeting of stockholders shall state the purpose for which it is
called.
Section 3. Hour and Place of Meeting. All meetings of the stockholders
may be held at such hour and place within or without the State of Virginia as
may be provided in the notice of meeting.
Section 4. Notice of Meetings. Written notice of the annual and of any
special meeting of the stockholders shall be given not less than ten days nor
more than sixty days before the meeting (except as a different time is
specified by law), by or at the direction of the board of directors or the
person calling the meeting, to each holder of record of shares of the
corporation entitled to vote at the meeting, in person or by mail sent to the
address recorded on the stock transfer books of the corporation on the date
mailed, unless otherwise required by law. If any stockholder shall fail or
decline to furnish mailing address, then such notice need not be sent to him
unless required by law. All such notices should state the day, hour, place
and purpose(s) of the meeting, and the matters to be considered.
Section 5. Voting List. A complete list of the stockholders entitled
to vote at any meeting or any adjournment thereof, with the address of and
number of shares held by each on the record date, shall, for a period of ten
days prior to such meeting, be kept on file at the registered office or
principal place of business of the corporation or at the office of the
transfer agent or registrar and shall be subject to inspection by any
stockholder at any time during usual business hours except as such right of
inspection may be subject to limitations prescribed by law. Such list shall
also be produced and kept open at the time and place of the meeting and shall
be open to inspection by any stockholder during the whole time of the
meeting. Whenever the production or exhibition of any voting list, or of the
stock transfer books of the corporation, shall be required by law, the
production of a copy thereof certified correct by the transfer agent shall be
deemed to be substantial compliance with such requirement.
Section 6. Quorum. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders. Once a quorum has been duly convened, the quorum shall not be
deemed broken by the departure of any stockholder or holder of a proxy. In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without notice other than by announcement at the meeting,
may adjourn the meeting from time to time until a quorum shall be present.
At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which could have been transacted at the meeting as
originally called.
Section 7. Organization. At all meetings of the stockholders, the
chairman of the board, or in his absence the vice chairmen, in the order of
their appointment, or in their absence the president, or in the absence of
all of them a person chosen by a majority of the stockholders represented in
person or by proxy and entitled to vote at the meeting shall preside as
chairman of the meeting. The secretary of the corporation, or in his absence
or if he be appointed chairman of the meeting, an assistant secretary shall
act as secretary at all meetings of the stockholders; but if neither the
secretary nor any assistant secretary be present and able to act as such, the
chairman may appoint any person to act as secretary of the meeting.
Section 8. Conduct of Meetings. Parliamentary rules as formulated by
Cushman, Robert's or Sturgis' Manual shall govern the conduct of all
meetings of the stockholders upon verbal announcement thereof by the
chairman, except that where such rules conflict with the provisions of these
bylaws, the statutes of Virginia, or the Articles of Incorporation, the
provisions of the said bylaws, statutes or Articles shall prevail. The
chairman of all meetings of the stockholders may announce from time to time
such rules and guidelines for the conduct of business as he may determine in
his discretion.
Section 9. Voting. Except as otherwise provided by law or by Articles
of Serial Designation with respect to any class or classes of preferred stock
outstanding, each stockholder shall be entitled to one vote for each share of
stock held by him and registered in his name on the books of the corporation
on the date fixed by the resolution of the board of directors as the record
date for the determination of the stockholders entitled to notice of and to
vote at such meeting as more fully set forth elsewhere in these bylaws. Such
vote may be given in person or by proxy appointed by an instrument in writing
executed by a stockholder or his duly authorized attorney, and delivered to
the secretary of the meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided therein. If a quorum is present,
the affirmative vote of a majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the
stockholders, except when a larger vote or a vote by class is required by the
Articles of Incorporation, any other provision of these bylaws or the laws of
the state of Virginia and except that in elections of directors those
receiving the greatest number of votes shall be deemed elected even though
not receiving a majority.
Section 10. Counting of Votes. The chairman shall appoint three
tellers to count the vote respecting the election of directors and any other
questions put to vote, whether such vote is by written ballot or by a show
of hands or by viva voce', and at least two out of three tellers shall
certify in writing the results of any such voting. Written ballots shall not
be required unless first decided upon by the chairman on matters to be
brought before the stockholders and a teller may but need not be, a
stockholder of the corporation.
Section 11. Stockholder Nominations. (a) Nominations of candidates
for election as directors at any annual meeting of stockholders may be made
(i) by, or at the direction of, a majority of the directors (provided that,
if as of the date of the nomination there is a Related Person as defined in
Article XI of the Articles of Incorporation, such majority shall include a
majority of the Continuing Directors, as defined in Article XI of the
Articles of Incorporation (such directors, whether or not they include the
Continuing Directors shall be referred to as the "directors" for the purposes
of this Section 11)) or (ii) by any stockholder of record entitled to vote at
such annual meeting. Only persons nominated in accordance with procedures
set forth in Section 11(b) shall be eligible for election as directors at an
annual meeting.
(b) Nominations, other than those made by, or at the direction of, a
majority of the directors, shall be made pursuant to timely notice in writing
to the secretary of the Corporation as set forth in this Section 11(b). To
be timely, a stockholder's notice shall be delivered to, or mailed and
received at, the principal executive offices of the Corporation not less than
sixty (60) days nor more than ninety (90) days prior to the date of the
scheduled annual meeting, regardless of postponements, deferrals, or
adjournments of that meeting to a later date; provided, however, that if less
than seventy (70) days' notice or prior public disclosure of the date of the
scheduled annual meeting is given or made, notice by the stockholder to be
timely must be so delivered or received not later than the close of business
on the tenth (10th) day following the earlier of the day on which such notice
of the date of the scheduled annual meeting was mailed or the day on which
such public disclosure was made. Such stockholder's notice shall set forth
(i) as to each person whom the stockholder proposes to nominate for election
as a director (a) the name, age, business address and residence address of
such person, (b) the principal occupation or employment of such person, (c)
the class and number of shares of the Corporation's equity securities which
are beneficially owned (as such term is defined in Rule 13d-3 or 13d-5 under
the Securities Exchange Act of 1934 (the "Exchange Act")) by such person on
the date of such stockholder notice and (d) any other information relating to
such person that would be required to be disclosed pursuant to Schedule 13D
under the Exchange Act in connection with the acquisition of shares, and
pursuant to Regulation 14A under the Exchange Act, in connection with the
solicitation of proxies with respect to nominees for election as directors,
regardless of whether such person is subject to the provisions of such
regulations, including, but not limited to, information required to be
disclosed by Items 4(b) and 6 of Schedule 14A under the Exchange Act and
information which would be required to be filed on Schedule 14B under the
Exchange Act with the Securities and Exchange Commission and (ii) as to the
stockholder giving the notice (a) the name and address, as they appear on the
Corporation's books, of such stockholder and any other stockholder who is a
record or beneficial owner of any equity securities of the Corporation and
who is known by such stockholder to be supporting such nominee(s) and (b) the
class and number of shares of the Corporation's equity securities which are
beneficially owned, as defined above, and owned of record by such stockholder
on the date of such stockholder notice and the number of shares of the
Corporation's equity securities beneficially owned and owned of record by any
person known by such stockholder to be supporting such nominee(s) on the date
of such stockholder notice. At the request of a majority of the directors,
any person nominated by, or at the direction of, the Board of Directors for
election as a director at an annual meeting shall furnish to the secretary of
the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.
(c) No person shall be elected as a director of the Corporation unless
such person is nominated in accordance with the procedures set forth in
Section 11 and is eligible to serve as a director under Article II of these
bylaws. Ballots bearing the names of all the persons who have been nominated
for election as directors at an annual meeting in accordance with the
procedures set forth in Section 11 and are eligible to serve as a director
under Article II of these bylaws shall be provided for use at the annual
meeting.
(d) A majority of the directors may reject any nomination by a
stockholder not timely made in accordance with the requirements of Section
11(b). If a majority of the directors determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of Section 11(b) in any material respect, the secretary of the
Corporation shall promptly notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the secretary within five (5) days from
the date such deficiency notice is given to the stockholder, or such shorter
time as may be reasonably deemed appropriate by a majority of the directors.
If the deficiency is not cured within such period, or if a majority of the
directors reasonably determines that the additional information provided by
the stockholder, together with the information previously provided, does not
satisfy the requirements of Section 11(b) in any material respect, then the
board of directors may reject such stockholder's nomination. The secretary
of the Corporation shall notify a stockholder in writing whether his or her
nomination has been made in accordance with the time and informational
requirements of Section 11(b). Notwithstanding the procedure set forth in
this paragraph, if the majority of the directors does not make a
determination as to the validity of any nominations by a stockholder, the
chairman of the annual meeting shall determine and declare at the annual
meeting whether a nomination was not made in accordance with the terms of
Section 11(b). If the chairman of such meeting determines that a nomination
was not made in accordance with the terms of Section 11(b), he or she shall
so declare at the annual meeting and the defective nomination shall be
disregarded.
Section 12. Business to be Brought Before the Meeting. (a) At an
annual meeting of stockholders, only such business shall be conducted, and
only such proposals shall be acted upon as shall have been brought before the
annual meeting (i) by, or at the direction of, the majority of the directors
(provided that, if as of the date of the nomination there is a Related Person
as defined in Article XI of the Articles of Incorporation, such majority
shall include a majority of the Continuing Directors, as defined in Article
XI of the Articles of Incorporation (such directors, whether or not they
include the Continuing Directors shall be referred to as the "directors" for
the purposes of this Section 12)); or (ii) by any stockholder of the
Corporation who complies with the notice procedures set forth in Section
12(b).
(b) For a proposal to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the secretary of the Corporation. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive
offices of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the scheduled annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than seventy (70) days' notice or prior
public disclosure of the date of the scheduled annual meeting is given or
made, notice by the stockholder, to be timely, must be so delivered or
received not later than the close of business on the tenth (10th) day
following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public
disclosure was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business and any other stockholder
who is the record or beneficial owner (as defined in Section 11(a) of these
bylaws) of any equity security of the Corporation known by such stockholder
to be supporting such proposal, (iii) the class and number of shares of the
Corporation's equity securities which are beneficially owned (as defined in
Section 11(a) of these bylaws) and owned of record by the stockholder giving
the notice on the date of such stockholder notice and by any other record or
beneficial owners of the Corporation's equity securities known by such
stockholder to be supporting such proposal on the date of such stockholder
notice, and (iv) any financial or other interest of the stockholder in such
proposal.
(c) A majority of the directors may reject any stockholder proposal not
timely made in accordance with the terms of Section 12(b). If a majority of
the directors determines that the information provided in a stockholder's
notice does not satisfy the informational requirements of Section 12(b) in
any material respect, the secretary of the Corporation shall promptly notify
such stockholder of the deficiency in the notice. The stockholder shall have
the opportunity to cure the deficiency by providing additional information to
the secretary within such period of time, not to exceed five (5) days from
the date such deficiency notice is given to the stockholder, as the majority
of the directors shall reasonably determine. If the deficiency is not cured
within such period, or if the majority of the directors determines that the
additional information provided by the stockholder, together with information
previously provided, does not satisfy the requirements of this Section 12(b)
in any material respect, then a majority of the directors may reject such
stockholder's proposal. The secretary of the Corporation shall notify a
stockholder in writing whether such person's proposal has been made in
accordance with the time and information requirements of Section 12(b).
Notwithstanding the procedures set forth in this paragraph, if the majority
of the directors does not make a determination as to the validity of any
stockholder proposal, the chairman of the annual meeting shall determine and
declare at the annual meeting whether the stockholder proposal was made in
accordance with the terms of Section 12(b). If the chairman of such meeting
determines that a stockholder proposal was not made in accordance with the
terms of Section 12(b), he or she shall so declare at the annual meeting and
any such proposal shall not be acted upon at the annual meeting.
(d) This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports,
no new business shall be acted upon at such annual meeting unless stated,
filed and received as herein provided.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by the board of directors subject to any requirement of
stockholder action.
Section 2. Number. The number of directors shall be fifteen (15).
Section 3. Terms of Directors. A person up for election shall be
elected to serve a term of three years and shall not be eligible to stand for
election or re-election if on the date of the stockholders' meeting at which
he is to be elected or re-elected, he has then reached the age of 72 years,
except that if any such person shall have been duly appointed as chairman of
the corporation or of a member bank at any time prior to the date that he
reaches the age of 72 years, he shall be eligible to continue to stand for
election as a director thereafter; provided, however, that he shall not in
any case be eligible to stand for such election beyond the date that he
reaches the age of 75.
Further, except as provided above, when a director shall reach the age
of 72 during such term, he shall resign from the board of directors effective
on the day preceding the next succeeding annual meeting of the stockholders
at which such director's term expires. If any such director shall become ill
and unable to perform his duties as a director, he shall resign from the
board of directors effective on the day of the next succeeding meeting of the
board of directors or the date set forth in the notice of resignation,
whichever is earlier.
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. Directors, as such, shall not receive any stated
salary for their services, but, by resolution of the board of directors, a
fixed sum and expenses of attendance, if any, may be allowed for attendance
at each regular or special meeting of the board or any meeting of any
committee. 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. There shall be a senior advisory
board which shall consist of such directors of the corporation as shall
resign from the board of directors hereafter at or after reaching the age of
72 or as shall resign because of poor health and who request to transfer to
it. The members of such board shall serve at the pleasure of the
corporation's board of directors and shall be subject to reappointment from
year to year by said board of directors, but not more than three years from
the date first elected to such senior advisory board. Members of the senior
advisory board shall receive notice of and be entitled to attend all meetings
of the corporation's regular board of directors and shall receive the same
fees and expenses as are paid to members of the board of directors, but will
not be entitled to vote at such meetings.
Section 7. Stock Ownership of Directors. Every director shall be the
owner in his sole name and have in his personal possession or control stock
of the corporation having a par value of not less than One Thousand Dollars
($1,000). Such stock must be unpledged and unencumbered at the time such
director becomes a director and during the whole of his term as such. Any
director violating the provisions of this section shall immediately vacate
his office.
ARTICLE III
DIRECTORS' MEETINGS
Section 1. Regular Meetings. Regular meetings of the board of
directors shall be held without other notice than this bylaw immediately
after, and at the same place as, the annual meeting of stockholders.
Additional regular meetings shall be held at least monthly. The board of
directors may provide by resolution the time and place, either within or
without this state, for the holding of additional regular meetings without
other notice than such resolution.
Section 2. Special Meetings. Special meetings of the board of
directors shall be held whenever called by the chairman of the board, by the
president, or by any two of the directors. Notice of each such meeting shall
be mailed to each director, addressed to his residence or usual place of
business, at least three days before the day on which the meeting is to be
held, or shall be sent to such place by telegraph or mailgram, or be
delivered personally or by telephone, not later than the day before the day
on which the meeting is to be held. Neither the business to be transacted
at, nor the purpose of, any special meeting need be specified in the notice
or waiver of notice of such meeting.
Section 3. Organization. At all meetings of the board of directors,
the chairman, or in his absence the vice chairmen in the order of their
appointment, or in their absence, the president (or in his absence the
executive vice president if a member of the board), or, in the absence of all
of them, any director selected by the board of directors shall act as
chairman; 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
stockholders. 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 accounting and auditing committee and the management compensation
and benefits committee.
Honorary Chairman of the Board. The board of directors may appoint a
former full-time officer who has held the office of chairman of the board of
the corporation to the position of honorary chairman of the board and provide
such person with a reasonable amount of office space as long as desired by
him. If appointed, such person shall act as chairman of the senior advisory
board as such body exists from time to time.
Section 7. Vice Chairmen of the Board. The board of directors may
appoint one or more vice chairmen of the board and, if any such officers are
appointed, may assign such specific duties to any one of them as it deems
necessary and advisable. Such officers may, but need not, be full-time
salaried employees of the corporation. Any such full-time vice chairmen
shall report to the corporation's chief executive officer and shall perform
such duties as such officers may prescribe and assign from time to time.
Section 8. Succession of Duties. The bylaw duties of the chairman of
the board may be exercised and carried out by any vice chairmen when such
have been appointed by the board of directors in the absence or disability of
the chairman of the board in order of their appointment; if no vice chairmen
are so appointed, then the president shall carry out such duties in the
absence of the chairman of the board; and in the absence of the president,
the executive vice president or any vice president in the order of their
election shall carry out all such duties in the absence or disability of the
chairman of the board.
Section 9. President. The president shall be the chief administrative
officer of the corporation and as such shall perform such duties as the
chairman of the board or the board of directors may prescribe from time to
time by resolution or as may be prescribed by these bylaws. He shall
exercise all the powers and discharge all the duties of the chairman of the
board during the latter's absence or inability to act. He shall have
concurrent power with the chairman of the board to sign all deeds, contracts
and instruments authorized by the board of directors or its executive
committee unless the board otherwise directs, and he may be a member of the
standing committees of the board except the accounting and auditing committee
when appointed by the board. He shall report to the chairman of the board in
carrying out his assignments and in conducting the affairs of his office.
Section 10. Executive Vice President. The board of directors may elect
one or more executive vice presidents and any such person so elected to such
office shall perform such duties as the board of directors or the chairman of
the board may assign and prescribe from time to time.
Section 11. Vice Presidents. Each vice president shall have such
powers and perform such duties as the board of directors or the chairman may
from time to time prescribe, and shall perform such other duties as may be
prescribed in these bylaws. Each vice president shall have power to sign all
deeds, contracts and instruments authorized by the board of directors or its
executive committee unless they otherwise direct. In case of the absence or
inability to act of the president, and the executive vice presidents in the
order of their appointments, then such vice president as the board of
directors may designate for the purpose (but in the absence of such
designation then the vice presidents in order of appointment) shall have the
powers and discharge the duties of the president.
Section 12. Secretary. The secretary shall keep the minutes of all
meetings of the stockholders, the board of directors and meetings of
committees of the board as they are held, in a book or books kept for that
purpose. He shall keep in safe custody the seal of the corporation and he
may affix such seal to any instrument duly executed on behalf of the
corporation. The secretary shall have charge of the certificate books and
such other books and papers as the board of directors may direct. He shall
attend to the giving and serving of all notices of the corporation, and shall
also have such other powers and perform such other duties as pertain to his
office, or as from time to time may be assigned to him by the board of
directors or the corporation's chief executive officer.
Section 13. Treasurer. The treasurer shall be the principal financial
and accounting officer of the corporation. He shall have charge of the
funds, securities, receipts and disbursements of the corporation, and shall
deposit all moneys and other valuable effects in the name and to the credit
of the corporation in such banks or other depositaries as the board of
directors may from time to time designate. He shall render to the chairman
of the board, or to the board of directors, or to the president, whenever
any of them shall require him so to do, an account of the financial condition
of the corporation and its affiliates and all of his transactions as
treasurer. He shall keep correct books of account of all its business and
transactions. If required by the board of directors, he shall give a bond in
such sum and on such conditions and with such surety as the board of
directors may designate, for the faithful performance of the duties of his
office and the restoration to the corporation, at the expiration of his term
of office, or, in case of his death, resignation or removal from office, of
all books, papers, vouchers, money or other property of whatever kind in his
possession belonging to the corporation. He shall also have such other
powers and perform such other duties as pertain to his office or as from time
to time may be assigned to him by the board of directors or the president.
Section 14. General Counsel. The general counsel, if one be appointed,
shall have charge of all litigation of the corporation, and shall keep
himself advised of the character and progress of all legal proceedings and
claims by and against the corporation or in which it is interested by reason
of its ownership and control of other corporations. He shall give to the
board of directors reports from time to time on all legal matters affecting
the corporation and, when requested, his opinion upon any question affecting
the interests of the corporation. He may, with the consent of the chief
executive officer, employ on behalf of the corporation special counsel for
the handling of any legal matter pertaining to the business of the
corporation which he deems necessary and advisable. The general counsel may,
but need not be, a full-time salaried officer of the corporation. He shall
from time to time consult with the corporation's legal advisory committee on
legal matters affecting the corporation and its affiliates.
Section 15. General Auditor. The general auditor, if one be appointed,
shall perform such internal auditing and accounting functions with regard to
the member banks and companies as the board of directors or any appropriate
committee thereof may from time to time determine, and shall have such
additional powers and duties as may be prescribed by these bylaws and as the
board of directors or any appropriate committee thereof may from time to time
determine, and shall have additional responsibilities and duties in
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.
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.
EXHIBIT 10
SUPPLEMENTAL COMPENSATION AGREEMENT
THIS AGREEMENT made this 25 day of January, 1995, by and between FIRST
VIRGINIA BANKS, INC., a corporation duly organized and existing under the
laws of the State of Virginia and hereinafter referred to as the
"Corporation," which designation shall include its affiliates and
subsidiaries, and BARRY J. FITZPATRICK of Fairfax County, Virginia,
hereinafter referred to as the "Employee";
W I T N E S S E T H
THAT WHEREAS, Employee has been employed by the Corporation for twenty-
five (25) years and now is in the full-time employment of the Corporation as
its Executive Vice President and, effective January 1, 1995, is its Chairman
and Chief Executive Officer; and
WHEREAS, in consideration of such employment and the Employee's
willingness to remain in the employment of the Corporation, the Corporation
wishes to enter into this Supplemental Compensation Agreement; and
WHEREAS, the Management Compensation and Benefits Committee has approved
this Agreement and the Board of Directors has ratified the action of the
Management Compensation and Benefits Committee;
NOW THEREFORE, the parties hereto agree as follows:
1. (a) If the Employee resigns, retires, or leaves the Corporation
for any reason after reaching the age of 62, he shall be entitled to receive
annually for life an amount determined under paragraph 2 hereinbelow
(hereinafter referred to as "Compensation"). If, however, a "change in
control" of the Corporation occurs before the Employee reaches the age of 62
and the Employee resigns, retires, or leaves the Corporation for any reason
after the change in control, he shall then be entitled to receive annually
for life the Compensation.
For the purposes of this Agreement, a "change in control"
shall mean a change of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (hereinafter called the Act) or
similar reporting requirement; provided that, without limitation, a change in
control shall be deemed to have occurred if any person (as that term is
defined in Section 13(d) and 14(d) of the Act) other than the Corporation or
any present Director or Officer of the Corporation is or becomes the
beneficial owner (as that term is defined in Rule 13d-3 under the Act or
similar rule), directly or indirectly, of securities representing twenty-five
percent (25%) or more of the voting power of the Corporation's then
outstanding securities or if during any two (2) consecutive years the
individuals who constitute the Board of Directors of the Corporation at the
beginning of such period should cease to constitute a majority of the Board,
unless the election of each subsequent Director has been approved in advance
by Directors representing at least two-thirds (2/3) of the Directors then in
office who were Directors at the beginning of the two (2) year period.
(b) If Employee becomes totally and permanently disabled such that
he is and will be unable to perform his duties as Chairman and Chief
Executive Officer of the Corporation or other assigned duties and
responsibilities for the Corporation (as determined by a competent physician
employed by the Corporation), or if he is "dismissed or requested to leave
such employment without just cause", he shall then be entitled to receive
annually for life the Compensation. For purposes of this Agreement
"dismissed or requested to leave without just cause" shall mean terminated or
asked to leave for a reason other than (a) fraud or gross negligence, (b)
continual and substantial violation of a rule, regulation or policy of the
Corporation after written notice from its Board of Directors, or (c)
continual and substantial failure of Employee to perform his duties after
written notice from the Corporation's Board of Directors.
2. (a) The Employee's Compensation shall be calculated by using a
base equal to sixty percent (60%) of the sum of his annual base salary and
cash bonus awarded by the Corporation's Management Compensation and Benefits
Committee for a calendar year and approved by the Board of Directors, whether
or not actually received in the year of the award, and any profit sharing
payments actually received in that year from the Corporation's Profit Sharing
Plan. All other payments, benefits received and other forms of value,
whether or not deemed income by the Internal Revenue Service, shall be
excluded from the base. In addition, if prior to earning any base salary or
cash bonus, the Employee elects to defer receipt of such payment to a later
calendar year, the amount deferred shall not be included in the base.
Amounts deferred, and thus excluded from the base, include amounts deferred
under any qualified or nonqualified deferred compensation plans, thrift plans
and other plans offered by the Corporation.
(b) The base amount for the total of five (5) years of his highest
annual combined salary and cash bonuses shall be divided by five (5). Said
years need not be the last years of employment, nor consecutive. Said years
may include any year in which Employee has performed his duties for any part
of said year, in which case Employee shall be deemed to have been employed
for the full year.
(c) The amount determined hereinabove shall be further reduced by
the amount of any benefits Employee shall be entitled to receive during each
such year under the First Virginia Pension Trust Plan and under any
disability plan of the Corporation; further provided, however, that said
amount shall not be further reduced by reason of any increase of the benefits
under such Pension Plan after the date that the initial deduction for the
Pension Plan benefits is made. The final result after all such deductions
have been made shall be Employee's annual Compensation under this Agreement.
Said annual Compensation shall be divided by twelve and one-twelfth shall be
paid each month beginning with the first full month that Employee is entitled
to payment under this Agreement. If the first full month of entitlement is
other than January and/or if Employee's last month of entitlement is other
than December, Employee's Annual Compensation for such year shall be prorated
based on the number of months of entitlement for such years.
3. Upon Employee's death, Pamela Fitzpatrick (if she as his widow
survives the Employee) shall be entitled to an annual amount for life equal
to one-half (1/2) of the total annual payment then being made to the Employee
hereunder, and likewise payable on a monthly basis until her death. This
survivor benefit provided for Pamela Fitzpatrick shall not inure to the
benefit of any other person.
4. It is further agreed that if said Employee dies while still holding
the position of Chairman and Chief Executive Officer or other assigned
position for the Corporation, the rights of Pamela Fitzpatrick (if she as his
widow survives the Employee) shall be determined on the same basis as if said
Employee's employment had ceased on the day before the day of his death.
5. (a) The signing of this Agreement by the Employee shall
act:
(i) To waive any rights he might otherwise have in the Long
Term Disability Plan of the Corporation; and
(ii) To permanently elect for such Employee the 50% Joint and
Survivor Annuity Option under the First Virginia Pension Trust Plan, provided
his present wife, Pamela Fitzpatrick, is living as his wife at the time
Employee shall be entitled to receive said annual supplemental compensation;
otherwise the form of "Life-Only" retirement benefit as provided by Section
3.01 of the Agreement and Declaration of Trust for the First Virginia Pension
Trust Plan shall be deemed to have been elected.
(b) For the purposes of this Agreement, it is recognized that the
Employee's date of birth is February 21, 1940.
6. Employee shall remain available, provided he is physically and
mentally capable of doing so, to provide such consulting and advisory
services to the Board of Directors and management of the Corporation as they
may reasonably request from time to time and which may relate to Employee's
past service to the Corporation and to current or future matters. In making
such requests for services, the Board and management shall take into
consideration Employee's health, residence, and personal circumstances. The
rendition of any such consulting and advisory services shall not be deemed to
render Employee an active employee of the Corporation.
7. If the Employee resigns, retires, or leaves the Corporation before
reaching the age of 62, under circumstances whereby no Compensation is due
under this Agreement, the Corporation's Board of Directors acting solely in
its discretion, which discretion may be exercised arbitrarily and shall not
be subject to review as provided in paragraph 9 herein, shall determine if
the Corporation may wish to seek from time to time the consulting and
advisory services of the Employee and, if so, shall then determine the form
and amount of compensation in an agreement to provide such services, which
agreement may or may not contain the terms set forth in this Agreement.
8. If at any time it is determined upon satisfactory evidence that
Employee or his widow while receiving payments hereunder (a) is engaged or
has engaged in activities which compete with, or is employed in an executive,
supervisory or administrative capacity or otherwise by a competitor of, the
Corporation without its consent, or (b) has divulged confidential information
obtained during the period of Employee's employment, or (c) is engaged or has
engaged in any activity adverse to the interests of the Corporation, then
Employee and Pamela Fitzpatrick shall forfeit all benefits to which he and
she are or may be entitled under this Agreement. It is the intent of this
Agreement to provide for a reasonable income to the Employee, and any
interpretation hereunder adverse to the Employee shall not be enforceable
unless supported by clear, unequivocal, and convincing evidence.
9. The Corporation's Board of Directors shall have final authority to
rule on any circumstances or disputes involving this Agreement after due
notice and specifications of violations hereunder have been given to the
Employee or his wife, Pamela Fitzpatrick. Should Employee, or his wife,
Pamela Fitzpatrick at any time before or after determination so request, the
Board of Directors' decision may be reviewed by a panel of arbitrators, one
appointed by the Board, one appointed by the Employee (or, if deceased, by
Pamela Fitzpatrick) and the two appointing a third party. Such proceeding
shall be governed by the Rules of the American Arbitration Association then
in effect at the time of the undertaking, and the decision of such panel
shall be nonappealable.
10. It is also agreed that neither the Employee nor his widow receiving
payments hereunder shall have any right or power to anticipate, pledge,
assign, sell, transfer, alienate, or encumber his or her interest or payments
hereunder to the extent provided by the laws of the State of Virginia, now
shall the Corporation or any payment hereunder by liable for or subject to
the debts, liabilities, obligations, or claims or judgments against either or
both of them.
11. That the Agreement shall inure to the benefit of and be binding
upon the Corporation, its successors and assigns (including without
limitation any corporation which might acquire all or substantially all of
the corporations's assets and business or with which the Corporation may be
consolidated or merged).
IN WITNESS WHEREOF, the parties hereto have put their signatures and
seals as of the date set forth hereinabove.
ATTEST: FIRST VIRGINIA BANKS, INC.
/s/ Thomas P. Jennings /s/ Paul H. Geithner, Jr.
_________________________ By __________________________(Seal)
Thomas P. Jennings Paul H. Geithner, Jr.
WITNESS:
/s/ Shirley L. Ambrogi /s/ Barry J. Fitzpatrick
_________________________ _____________________________(Seal)
Shirley L. Ambrogi Barry J. Fitzpatrick
EXHIBIT 11
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31
1994 1993 1992
-------- ------- -------
(In thousands, except per share data)
PRIMARY:
Average common shares outstanding 32,190 32,408 32,144
Dilutive effect of stock options 91 104 108
-------- -------- -------
Total average common shares 32,281 32,512 32,252
======== ======== =======
Net income $113,221 $116,024 $97,473
Provision for preferred dividends (51) (53) (61)
-------- -------- -------
Net income applicable to common
stock $113,170 $115,971 $97,412
======== ======== =======
Net income per share of common
stock $3.51 $3.57 $3.02
======== ======== =======
FULLY DILUTED:
Average common shares outstanding 32,190 32,408 32,144
Dilutive effect of stock options 91 107 113
Conversion of preferred stock 112 117 133
-------- -------- -------
Total average common shares 32,393 32,632 32,390
======== ======== =======
Net income $113,221 $116,024 $97,473
======== ======== =======
Net income per share of common
stock $3.50 $3.56 $3.01
======== ======== =======
SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21
December 31, 1994
State of
Incorporation
-------------
First Virginia Banks, Inc. Virginia
Banking Subsidiaries:
Northern Region:
First Virginia Bank Virginia
First General Mortgage Company Virginia
First Virginia Mortgage Company Virginia
First Virginia Commercial Corporation Virginia
First Virginia Card Services, Inc. Virginia
First Virginia Credit Services, Inc. Virginia
Maryland Region:
First Virginia Bank-Central Maryland Maryland
C.B. Properties, Inc. Maryland
C.B. Properties II, Inc. Maryland
First Virginia Bank-Maryland Maryland
Farmers Bank of Maryland Maryland
Colonial Securities Corporation Delaware
Atlantic Bank Maryland
The Caroline County Bank Maryland
Eastern Region:
First Virginia Bank of Tidewater Virginia
First Virginia Bank-Colonial Virginia
First Virginia Bank-Commonwealth Virginia
First Virginia Bank-Central Virginia
First Virginia Bank-South Hill Virginia
Southwest Region:
First Virginia Bank-Southwest Virginia
First Virginia Bank-Franklin County Virginia
First Virginia Bank-Southside Virginia
First Virginia Bank-Highlands Virginia
First Virginia Bank-Piedmont Virginia
First Virginia Bank-Clinch Valley Virginia
Shenandoah Valley Region:
First Virginia Bank-Shenandoah Valley Virginia
Tennessee-Western Virginia Region:
First Virginia Bank-Mountain Empire Virginia
Tri-City Bank and Trust Company Tennessee
Bank of Madisonville Tennessee
United Southern Bank Tennessee
First Knoxville Bank Tennessee
Nonbanking Subsidiaries
First Virginia Insurance Services, Inc. Virginia
First Virginia Services, Inc. Virginia
First Virginia Life Insurance Company Virginia
Springdale Advertising Agency, Inc. Virginia
Northern Operations Center, Inc. Virginia
Southwest Operations Center, Inc. Virginia
Eastern Operations Center, Inc. Virginia
First Virginia Software, Inc. Virginia
United Land Corporation Maryland
Springdale Temporary Services, Inc. Virginia
First General Leasing Company Virginia
Farmers National Land Corporation Maryland
Farmers National Mortgage Corporation Maryland
All of the organizations listed above are 100% owned by First Virginia Banks,
Inc. or one of its subsidiary banks.
Exhibit 23
Consent of Independent Auditors
Board of Directors
First Virginia Banks, Inc.
We consent to the incorporation by reference into 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 3 to Registration Statement Number
2-67507 on Form S-3 dated January 7, 1988, 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,
Registration Statement Number 33-15360 on Form S-3 dated June 26, 1987, of
our report dated January 17, 1995, with respect to the consolidated financial
statements of First Virginia Banks, Inc. included in this Annual Report on
Form 10-K for the year ended December 31, 1994.
Washington, D.C.
March 22, 1995
Exhibit 27
[ARTICLE] 9
[CIK] 0000037032
[NAME] FIRST VIRGINIA BANKS, INC.
[MULTIPLIER] 1000
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] DEC-31-1994
[CASH] 420,742
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 30,000
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 0
[INVESTMENTS-CARRYING] 2,086,030
[INVESTMENTS-MARKET] 2,032,148
[LOANS] 4,997,194
[ALLOWANCE] 58,860
[TOTAL-ASSETS] 7,865,382
[DEPOSITS] 6,815,841
[SHORT-TERM] 179,409
[LIABILITIES-OTHER] 59,430
[LONG-TERM] 3,814
[COMMON] 34,050
[PREFERRED-MANDATORY] 0
[PREFERRED] 746
[OTHER-SE] 772,092
[TOTAL-LIABILITIES-AND-EQUITY] 7,865,382
[INTEREST-LOAN] 378,205
[INTEREST-INVEST] 116,957
[INTEREST-OTHER] 8,480
[INTEREST-TOTAL] 503,642
[INTEREST-DEPOSIT] 154,097
[INTEREST-EXPENSE] 7,542
[INTEREST-INCOME-NET] 342,003
[LOAN-LOSSES] 6,463
[SECURITIES-GAINS] 976
[EXPENSE-OTHER] 252,459
[INCOME-PRETAX] 167,781
[INCOME-PRE-EXTRAORDINARY] 167,781
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 113,221
[EPS-PRIMARY] 3.51
[EPS-DILUTED] 3.50
[YIELD-ACTUAL] 7.72
[LOANS-NON] 15,286
[LOANS-PAST] 4,881
[LOANS-TROUBLED] 2,478
[LOANS-PROBLEM] 8,478
[ALLOWANCE-OPEN] 50,927
[CHARGE-OFFS] 8,756
[RECOVERIES] 3,814
[ALLOWANCE-CLOSE] 58,860
[ALLOWANCE-DOMESTIC] 58,860
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0